SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
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.)
2419 E. Commercial Boulevard, Suite 307, Ft. Lauderdale, FL 33308
(Address of Principal Executive Offices)
(954) 772-5501
(Issuer's Telephone Number, Including Area Code)
--------------------------------------------
(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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act):
YES [ ] NO [X]
State the number of shares outstanding of each of the Issuer's classes of common
equity as of the latest practicable date: As of November 15, 2005 the Registrant
had 6,703,700 shares of common stock outstanding.
INTERNATIONAL IMAGING SYSTEMS, INC.
FORM 10-QSB
For the quarterly period ended September 30, 2005
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheet as of September 30, 2005 (unaudited) 1
Consolidated Statements of Operations for the three months
and nine months ended September 30, 2005 and 2004 (unaudited) 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2005 and 2004 (unaudited) 3
Notes to Consolidated Financial Statements 4
Item 2 Management's Discussion and Analysis or Plan of Operation 14
Item 3 Controls and Procedures 16
PART II
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 18
Signature 18
Exhibit 31.1 19
Exhibit 32.1 20
i
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2005
ASSETS
CURRENT ASSETS:
Cash $ 9,630
Accounts Receivable 60,108
Net Assets of Discontinued Operations 11,998
Advances to Customer 355,214
------------
TOTAL CURRENT ASSETS 436,950
PROPERTY AND EQUIPMENT 4,654
OTHER ASSETS:
Security Deposits 4,051
------------
TOTAL ASSETS $ 445,655
============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Notes Payable - Current $ 1,043,085
Accounts Payable 543,425
Accrued Expenses 36,539
------------
TOTAL CURRENT LIABILITIES 1,623,049
NOTES PAYABLE - Non-Current 18,386
------------
TOTAL LIABILITIES 1,641,435
------------
SHAREHOLDERS' DEFICIENCY:
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; 6,703,700 Shares Issued and Outstanding 6,704
Additional Paid-In Capital 278,959
Accumulated Deficit (1,481,443)
------------
TOTAL SHAREHOLDERS' DEFICIENCY (1,195,780)
------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $ 445,655
============
See accompanying notes to consolidated financial statements.
- 1 -
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2005 * 2004 2005 * 2004
------------ ------------ ------------ ------------
REVENUES $ 728,165 $ 2,381,220 $ 421,288 $ 770,025
COST OF GOODS SOLD -- 1,737,636 -- 587,535
------------ ------------ ------------ ------------
GROSS PROFIT 728,165 643,584 421,288 182,490
GENERAL AND ADMINISTRATIVE
EXPENSES 1,055,853 973,131 472,173 289,524
OTHER INCOME (LOSS) (37,647) -- -- --
------------ ------------ ------------ ------------
(LOSS) FROM CONTINUING
OPERATIONS (365,335) (329,547) (50,885) (107,034)
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS (47,414) 2,735 (49,553) 880
------------ ------------ ------------ ------------
NET (LOSS) $ (412,749) $ (326,812) $ (100,438) $ (106,154)
============ ============ ============ ============
BASIC AND DILUTED (LOSS)
PER SHARE $ (.068) $ (.054) $ (.016) $ (.018)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING:
Basic and Diluted 6,029,400 6,028,700 6,096,309 6,028,700
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
* Reclassified for comparative purposes.
- 2 -
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (412,749) $ (326,812)
Adjustments to Reconcile Net (Loss) to Net
Cash Provided (Used) by Operating Activities:
Provision for Losses on Accounts Receivable 23,531 --
Gain on Extinguishment of Debt (17,780) --
Loss on Sale of Note Receivable 56,672 --
Depreciation 918 41,593
Net Assets of Discontinued Operations (5,810) (5,749)
Stock Based Compensation 48,000 --
Change in Operating Assets and Liabilities:
Accounts Receivable 76,668 56,357
Advances to Customer - Net (355,214) --
Inventories -- 47,095
Security Deposits (351) --
Accounts Payable (12,279) 195,353
Accrued Expenses 6,893 (3,712)
Customer Deposits -- (1,574)
------------ ------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (591,501) 2,551
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of Note Receivable 64,314 --
Expenditures for Property and Equipment -- (11,517)
------------ ------------
NET CASH (USED) BY INVESTING ACTIVITIES 64,314 (11,517)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Borrowings 589,800 304,500
Repayment of Borrowings (163,407) (312,287)
Sale of Common Stock 30,500 --
------------ ------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 456,893 (7,787)
------------ ------------
NET (DECREASE) IN CASH (70,294) (16,753)
CASH - Beginning of Period 79,924 16,753
------------ ------------
CASH - End of Period $ 9,630 $ --
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid $ 20,769 $ 40,895
============ ============
Income Taxes Paid $ -- $ --
============ ============
See accompanying notes to consolidated financial statements.
- 3 -
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 changed its name
to International Imaging Systems, Inc.
The Company, through its wholly-owned subsidiary, Advanced
Staffing, Inc., is principally engaged in the employee leasing
business. The Company also sells plastic and paper security
cards domestically and abroad, and 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 wholly-owned subsidiaries: Advanced
Staffing, Inc., Advanced Imaging Systems, LLC, Renewable Assets,
Inc. and Accurate Images, Inc. Intercompany transactions and
accounts have been eliminated.
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 accounts receivable, accounts payable,
and notes payable approximate fair value at September 30, 2005.
Accounts Receivable:
Accounts receivable are considered to be fully collectible at
September 30, 2005.
Property and Equipment:
Property and equipment are recorded at cost, less accumulated
depreciation. Depreciation is primarily accounted for on the
straight-line method based on estimated useful lives. The
depreciation of leasehold improvements is based on the shorter
of the lease term or the life of the improvement. The carrying
value of property and equipment is assessed when factors
indicating impairment is present.
- 4 -
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued) -
Revenue:
Personnel placement fees are recorded upon completion of
contract terms. Revenue is recognized when materials are
shipped.
Advertising:
Advertising costs are expensed as incurred.
Earnings or (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 G) 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 periods ended September 30, 2005 and 2004
because their effect would have been anti-dilutive.
Recent Accounting Pronouncements:
In December 2004, the Financial Accounting Standards Board
(FASB) issued a revision of Statement No. 123, Accounting for
Stock Based Compensation, entitled "Share Based Payments". The
Statement is effective for small business issuers for periods
after December 15, 2005, and establishes standards for the
accounting for transactions in which an entity exchanges its
equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the
issuance of those equity instruments. The Statement eliminates
the alternative to use the "intrinsic value method" of
accounting that was previously provided in the original version
of Statement No. 123. Under that method, issuance of stock
options to employees generally resulted in recognition of no
compensation cost. The recently issued revision requires
entities to recognize the cost of employee services received in
exchange for award of equity instruments based on the grant date
fair value of those awards.
- 5 -
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued) -
Recent Accounting Pronouncements (continued):
In December, 2004, the Financial Accounting Standards Board
issued SFAS No. 153, "Exchanges of Nonmonetary assets - an
amendment of APB Opinion No. 29". The Statement is effective for
fiscal periods beginning after June 15, 2005, and eliminates
certain differences that existed between U.S. accounting
standards for nonmonetary transactions and those standards
provided by International Accounting Standard No. 16, "Property,
Plant and Equipment" and International Accounting Standard No.
38, "Intangible Assets". The Statement eliminates the exceptions
to fair value for exchanges of similar productive assets and
replaces it with a general exception for exchange transactions
that do not have commercial substance - that is, transactions
that are not expected to result in significant changes in the
cash flows of the reporting entity.
Implementation of the Standards are not expected to have a
material effect on comparability of the Company's financial
statements.
NOTE B - ADVANCES TO CUSTOMER -
The Company paid non-interest bearing advances of $382,213 to a
customer, Alcard Mexico, S.A. ("Alcard") to enable "Alcard" to build
its production facility. "Alcard" has repaid $210,000 through
November 8, 2005.
NOTE C - PROPERTY AND EQUIPMENT -
Property and equipment consists of the following at September 30,
2005:
Furniture, Fixtures and Equipment $ 8,572
Accumulated Depreciation (3,918)
-----------
$ 4,654
===========
- 6 -
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - STOCK COMPENSATION PLAN -
The Company's 2003 Equity Incentive Program provides for the grant of
incentive stock options, nonqualified stock options, and restricted
stock awards. Certain awards are intended to qualify as "incentive
stock options" within the meaning 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, of which 1,000,000 will be available for issuance as
incentive stock option grants and 5,000,000 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 in subsequent years.
In September, 2005, the Company issued 160,000 common shares to an
officer in consideration for past services rendered to a wholly owned
subsidiary. The fair value of the shares issued amounted to $48,000
and is included in the accompanying statement of operations.
NOTE E - CONCENTRATION OF RISK -
Customer:
Two customers accounted for 90% of total revenues for the nine
months ended September 30, 2005.
- 7 -
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - COMMITMENTS -
Rent:
On May 11, 2005, the Company entered into a three year office
lease. Minimum annual rentals are as follows:
2006 $43,264
2007 $49,290
2008 $34,980
The Company is also obligated to pay annual pro-rata operating
expenses charged by the landlord and real estate taxes.
Net rent expense amounted to $17,898 after deducting sublease
income from related parties in 2005 and $34,341 in 2004.
Consulting Agreement:
In April, 2003, the Company entered into a three year management
services contract with a shareholder. The agreement provides for
monthly payments of $4,000, plus expense reimbursements. At
September 30, 2005, $14,000 was unpaid.
Employment Agreements:
In July, 2003, the Company entered into three year employment
contracts with certain individuals considered to be key
employees. The contracts provide for annual remuneration
aggregating approximately $281,000 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.
Compensation for individuals covered by employment agreements
amounted to $145,850 for the nine months ended September 30,
2005.
- 8 -
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - NOTES PAYABLE -
Notes payable consist of the following at September 30, 2005:
6% Note Payable - Shareholder - Due in monthly
installments of $1,500, including interest -
Maturing in August, 2007 - The lender has agreed
to waive collection of principal and interest
until the Company is financially able to resume
payments $ 39,985
Demand Loans Payable - Shareholders - Working
capital advances bearing no interest 541,486
5% Demand Loan Payable 50,000
6% Exchangeable Notes Payable - Maturing at
various times through December, 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. 430,000
----------
1,061,471
Deduct Current Portion (1,043,085)
----------
$ 18,386
==========
Interest expense amounted to $31,662 and $40,895 for the nine
months ended September 30, 2005 and 2004, respectively.
The maturities of notes and loans payable for each of the
succeeding five years subsequent to the current period as
follows:
AMOUNT
------
2006 $1,049,225
2007 18,386
2008 --
2009 --
2010 --
Certain note holders have claimed the notes to be in default as
a result of the 2004 bulk asset sale.
Exchangeable notes totaling $505,000 have matured through
November 8, 2005. The Company issued 210,000 common shares in
satisfaction of notes amounting to $105,000, and is presently
negotiating with the remaining lenders.
- 9 -
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - INCOME TAXES -
The Company has a net operating loss carryforward of approximately
$1,565,000 which may be carried forward through the year 2025, to
offset future taxable income.
Deferred tax assets, amounting to approximately $392,000, relating to
the potential tax benefit of future tax deductions, was offset by a
valuation allowance due to the uncertainty of profitable operations
in the future.
Significant components of the Company's deferred tax assets are as
follows:
Net Operating Loss Carryforward $ 392,000
------------
TOTAL DEFERRED TAX ASSETS 392,000
Valuation Allowance (392,000)
------------
NET DEFERRED TAX ASSETS $ --
============
The valuation allowance changed during 2005 resulting from the
increase in the net operating loss carryforward.
NOTE I - RELATED PARTY TRANSACTIONS -
Promotional Fees:
During the period ended September 30, 2005, the Company paid
promotional/marketing development fees to an entity owned by the
Chief Executive Officer of $4,500.
Asset Sale:
In connection with the Company's previous asset sale in 2004, it
received a note receivable in the amount of $120,986 from the
buyer, a former vendor.
On June 13th, the note was discounted to the buyer for $50,000
resulting in a loss of $56,672.
- 10 -
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - PENDING SPIN-OFF -
On December 13, 2003, the Company formed a wholly-owned subsidiary,
Renewable Assets, Inc., to carry on the promotional services line of
the business from the predecessor company, A.M.S. Marketing, Inc. The
promotional services line of the business consists of marketing
pre-owned photocopy machines.
The chief executive officer of Renewable Assets, Inc. is also a
shareholder of International Imaging Systems, Inc. (see Note D).
On April 13, 2004, the Board of Directors approved a spin-off of
Renewable Assets, Inc. to International Images, Inc.'s shareholders
of record on April 14, 2004.
The shares of Renewable Assets, Inc. have not been distributed
pending compliance with applicable rules and regulations.
At September 30, 2005, the net assets of Renewable Assets, Inc. are
presented as "net assets of discontinued operations" in the
accompanying consolidated balance sheet. The results of the photocopy
division operations are immaterial and not separately presented.
NOTE K - OTHER INCOME (LOSS) -
Loss on Sale of Note Receivable $ (56,672)
Gain on extinguishment of debt * 17,780
Interest income 1,245
-----------
$ (37,647)
===========
* The Company negotiated and paid a settlement of its trade creditors
in 2005.
- 11 -
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - CONTINGENCIES -
Litigation:
Two final judgments, in the aggregate amount of $220,000, have
been obtained against the Company's wholly owned subsidiary,
Advanced Imaging Systems. In addition, creditors of Advanced
Imaging Systems, owed an aggregate of approximately $60,000,
have threatened suit in the event of non-payment of such
outstanding debt. Advanced Imaging Systems does not have the
resources to satisfy such judgments and/or claims and is
attempting to negotiate settlements with the creditors. If such
negotiations prove unsuccessful, the Board of Directors of
Advanced Imaging Systems, and the Company, as the sole
shareholder of Advanced Imaging Systems, will have to consider
their alternatives, including the filing of a petition in
bankruptcy by Advanced Imaging Systems.
Going Concern:
A net loss from operations, negative working capital, and a
shareholders' deficiency are issues that raise substantial doubt
about the Company's ability to continue as a going concern.
Management has taken steps to achieve profitable operations by
operating as a broker for companies in printing businesses and
outsourcing its production. In addition, the Company is
generating revenue from its newly formed personnel agency,
Advanced Staffing International, Inc. The accompanying financial
statements have been prepared on the basis of a going concern,
and do not reflect any adjustments resulting from an alternative
assumption.
- 12 -
INTERNATIONAL IMAGING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - SEGMENT REPORTING -
The Company has three segments: Security card sales, photocopier
sales, and personnel placement. Operating segments are identified on
the basis of the nature of products or services offered for sale. The
Company evaluates segment performance and allocates resources based
on several factors, of which net sales and operating income are the
primary financial measures. The accounting policies of the reportable
segments are the sale as those described in the "Summary of
Significant Accounting Policies" footnote to the financial
statements. There are not intersegment sales.
SEGMENT DATA
------------
Security
Card Photocopier Personnel
Sales Sales Agency Total
------------ ------------ ------------ ------------
Revenues $ 61,925 $ 15,870 $ 666,240 $ 744,035
Interest Income 1,245 -- -- 1,245
Interest Expense 26,305 -- 263 26,568
Depreciation 918 -- -- 918
Segment Profit (Loss) (250,011) (47,414) 10,821 (308,246)
Segment Assets 393,560 13,524 38,571 445,655
Expenditures for
Long-Lived Assets
RECONCILIATION TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
Revenues Net Loss
---------- ----------
Segment Total $ 744,035 $ (308,246)
Discontinued Operation (15,870) --
Unallocated G&A Expenses
Relating to Corporate
Operations -- 104,503
---------- ----------
Consolidated Total $ 728,165 $ (412,749)
========== ==========
- 13 -
Item 2 Management's Discussion and Analysis or Plan of Operation
Overview
- --------
The Company was formed in July 1998 and since that time has engaged in the
business of marketing pre-owned, brand name photocopiers and office furniture
for Office Furniture Warehouse, Inc. Such business is now carried on through the
Company's wholly owned subsidiary, Renewable Assets, Inc., a Delaware
corporation, ("Renewable").
Since July 2003 when the Company acquired Advanced Imaging Systems, LLC, a
Delaware limited liability company, ("Advanced"), we have also engaged in the
marketing, and until December 2004, the design and manufacturing of plastic and
paper cards, primarily for the telecommunications industry. Advanced currently
markets plastic and paper cards to such companies as Motorola, and to other less
well-known companies.
Additionally, and in furtherance of such business, in January 2005 our formerly
inactive wholly owned subsidiary, Accurate Images, Inc., a Florida corporation,
("Accurate"), entered into an oral Management Services Agreement with Alcard
Mexico, S.A., ("Alcard"), pursuant to which Accurate agreed to assist Alcard in
the production of paper and plastic cards in Mexico. Accurate and the
shareholders of Alcard also agreed to advance to Alcard the funds required for
furniture, fixtures, and leasehold improvements for the Mexico facility.
Accurate's obligation was limited to $ 382,213, of which $ 210,000 has been
repaid to the Company as of November 8, 2005. Three of the Company's principal
shareholders, Laura Palisa Mujica, Michael D'Angelo, and Lara Sarafianos loaned
the funds to Accurate that it advanced to Alcard.
In May 2005, subsequent to ongoing discussions between Accurate and Alcard, and
the hiring by Alcard of a Mexican national to manage the facility, the oral
agreement between Accurate and Alcard was changed from a Management Services
Agreement to a Sales and Marketing Agreement. Pursuant to the terms of the Sales
and Marketing Agreement, Accurate has become the exclusive sales and marketing
agent for Alcard, and will be entitled to receive a yet to be determined
percentage of all of Alcard's sales after the repayment of the advances made to
Alcard by Accurate and Alcard's shareholders. Accurate and Alcard intend to
reduce the Sales and Marketing Agreement to writing as soon as practicable. In
June 2005, Alcard began manufacturing and shipping product to its first
customer, Telefonica de Mexico.
Also in January 2005, the Company formed Advanced Staffing International, Inc.,
a Florida corporation, ("Staffing"), that is engaged in the business of leasing
employees, and earns revenues on the spread between what it pays its employees
and what it charges it clients for such employees. In March 2005, Staffing
commenced providing employees to its first client, Ramada Vacation Properties.
As discussed below, the three month period ended September 30, 2005 (the "2005
Third Quarter") was characterized by a 45% decrease in sales as compared to the
three month period ended September 30, 2004 (the "2004 Third Quarter"),
resulting in a net loss of $100,438 in the 2005 Third Quarter as compared to a
net loss of $ 106,154 in the 2004 Third Quarter.
- 14 -
Results of Operations
- ---------------------
Sales
Sales for the 2005 Third Quarter were $421,288 as compared to sales of $ 770,025
for the 2004 Third Quarter, a decline of 45%. Sales for the nine month period
ended September 30, 2005 (the "2005 Period") were $728,165 as compared to sales
of $ 2,381,220 for the same period in the prior year (the "2004 Period"), a
decline of 69%. Such declines in sales were attributable to the cessation of the
in-house manufacturing of its products by Advanced during December 2004.
Approximately 90% of the sales in the 2005 Third Quarter and in the 2005 Period
was attributable to Staffing. Approximately 90% of total revenues during the
Third Quarter was derived from two customers.
Gross Profit
Gross Profit as a percentage of sales ("Gross Margin") increased to 100% in the
2005 Third Quarter from 24% in the 2004 Third Quarter. Gross Margin increased to
100% for the 2005 Period from 27% for the 2004 Period. Consistent with the
decreases in sales, such increases in Gross Margins were attributable to the
cessation of the in-house manufacturing of its products by Advanced during
December 2004.
General and Administrative Expenses
General and Administrative Expenses ("G&A") were $472,173, or 112% of net sales
in the 2005 Third Quarter as compared to $ 289,524, or 38% of net sales in the
2004 Third Quarter. G&A were $1,055,853, or 145% of sales for the 2005 Period as
compared to $ 973,131, or 41% of sales for the 2004 Period. Once again, such
increases in G&A as a percentage of net sales were attributable to the cessation
of the in-house manufacturing of its products by Advanced during December 2004.
Other Expenses
Interest expense declined in the 2005 Third Quarter to $3,322 from $ 10,336 in
the 2004 Third Quarter. Interest expense declined for the 2005 Period to $20,769
from $ 40,895 in the 2004 Period. Such declines were attributable to the
satisfaction of debt during 2005.
Liquidity and Capital Resources
- -------------------------------
The Company financed its operations during the nine month period ended September
30, 2005 through revenues from operations, the receipt of note payments of
$64,314, shareholder advances of $589,800 and net proceeds of $30,500 from the
sale of 305,000 shares of the Company's common stock in a private placement. As
of September 30, 2005 the Company's principal sources of liquidity consisted of
cash of $9,630 and net accounts receivable of $60,108. The Company believes that
- 15 -
such funds, together with expected revenues from operations will be sufficient
to fund the Company's operations for the foreseeable future, assuming that the
Company returns to profitable operations. Despite the efforts of the Company,
however, no assurance can be given that operations will in fact return to
profitability. To continue operations, the Company intends to seek to raise
capital from both existing and new shareholders. There can be no assurance that
the Company will be able to find sources of financing on terms acceptable, if at
all. If the Company does not find sources to finance its operations, it may
become necessary for the Company to curtail certain of its business activities.
Two final judgments in the aggregate amount of $ 220,000 have been obtained
against the Company's wholly owned subsidiary, Advanced Imaging Systems. In
addition, creditors of Advanced Imaging Systems that are owed an aggregate of $
60,000 have threatened suit in the event of non-payment of such outstanding
debt. Advanced Imaging Systems does not have the resources to satisfy such
judgments and/or claims and is attempting to negotiate settlements with the
creditors. If such negotiations prove unsuccessful, the board of directors of
Advanced Imaging Systems, and the Company, as the sole shareholder of Advanced
Imaging Systems, will have to consider all of their alternatives, including the
filing of a petition in bankruptcy by Advanced Imaging Systems.
Item 3 Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
------------------------------------------------
We conducted an evaluation, with the participation of the Chief Executive and
Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Our disclosure
controls and procedures are designed to ensure that information required to be
disclosed by International Imaging Systems, Inc. in the reports we file under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is
recorded, processed, summarized, and reported on a timely basis. Based upon that
evaluation, the Chief Executive and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of the end of the period
covered by this report so as to alert him in a timely fashion to material
information required to be disclosed in reports we file under the Exchange Act.
(b) Changes in Controls
-------------------
None.
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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 set forth below.
1. On July 29, 2005 and August 9, 2005, the Registrant sold in a
private placement an aggregate of 305,000 shares of its common
stock, par value $.001 per share, to three accredited investors for
an aggregate consideration of $30,500 ($.10 per share).
2. On September 21, 2005, the Registrant issued 210,000 shares of its
common stock, par value $.001 per share, to two accredited investors
upon exercise of such investors' rights to exchange an aggregate of
$105,000 of promissory notes issued by the Registrant's wholly owned
subsidiary, Advanced Imaging Systems LLC, in accordance with the
terms of such notes.
With respect to issuances of the securities referred to above, each of
the investors/acquirors was furnished with information regarding the
Registrant and the offering and issuance, and had the opportunity to
verify information supplied. Additionally, the Registrant obtained a
representation from each investor/acquiror of his, her or its intent to
acquire the security for the purpose of investment only, and not with a
view toward the subsequent distribution thereof. Each of the securities
bears an appropriate restrictive legend. The securities were issued in
reliance upon Section 4 (2) of the Securities Act of 1933, as amended,
and Regulation D promulgated thereunder.
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
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Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of the Chief Executive and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350.
(b) Reports on Form 8-K
A current report on Form 8-K was filed on August 9, 2005 with the
Securities and Exchange Commission relating to the entry in to a
material agreement and the sale of unregistered securities.
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 duly authorized.
INTERNATIONAL IMAGING SYSTEMS, INC.
By: /s/ C. LEO SMITH
-----------------------------------------
C. Leo Smith, Chief Executive Officer,
Chief Financial Officer, and President
Dated: November 15, 2005
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