SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-17928
NEW IMAGE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4088548
(State or other jurisdiction (I.R.S. Employer
or organization) Identification No.)
21218 VANOWEN STREET
CANOGA PARK, CALIFORNIA 91303
(Address of principal executive offices)
Registrant's telephone number, including area code: (818) 702-0285
NONE
Former name, address and fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the 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 the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Common Stock, $.001 Par Value 4,781,000 shares outstanding as of
May 11, 1995
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEW IMAGE INDUSTRIES, INC.
BALANCE SHEETS
ASSETS
(Unaudited)
March 31, June 30,
1995 1994
--------- --------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . $ 2,487,000 $ 2,950,000
Short-term investments . . . . . . . . . . . . . . . . 500,000 1,296,000
Accounts receivable, net of allowance for doubtful
accounts of $168,000 at March 31, 1995 and
$281,000 at June 30, 1994 . . . . . . . . . . . . . 4,921,000 4,939,000
Inventories. . . . . . . . . . . . . . . . . . . . . . 6,064,000 7,616,000
Refundable income taxes. . . . . . . . . . . . . . . . 659,000 659,000
Prepaid expenses and other . . . . . . . . . . . . . . 530,000 239,000
----------- ---------
Total current assets . . . . . . . . . . . . . . . 15,161,000 17,699,000
Property and equipment, net. . . . . . . . . . . . . . . 1,114,000 989,000
Intangible assets, net of accumulated amortization
$1,799,000 at March 31, 1995 and
$1,296,000 at June 30, 1994 . . . . . . . . . . . . 3,000,000 2,096,000
Other assets . . . . . . . . . . . . . . . . . . . . . . 601,000 647,000
---------- ----------
$19,876,000 $21,431,000
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . $ 3,182,000 $ 3,123,000
Accrued litigation costs . . . . . . . . . . . . . . . 1,218,000 2,000,000
Accrued liabilities related to acquisition . . . . . . 623,000 635,000
Accrued payroll . . . . . . . . . . . . . . . . . . . 996,000 513,000
Other accrued liabilities. . . . . . . . . . . . . . . 1,010,000 264,000
----------- -----------
Total current liabilities. . . . . . . . . . . . . 7,029,000 6,535,000
----------- -----------
OTHER LONG-TERM LIABILITIES. . . . . . . . . . . . . . 26,000 229,000
----------- -----------
Shareholders' equity:
Preferred stock, par value $0.001 per share;
1,000,000 shares authorized;
none outstanding . . . . . . . . . . . . . . . . . -- --
Common stock, par value $0.001 per share;
10,000,000 authorized; 4,781,000 outstanding at
March 31, 1995 and 4,621,000
outstanding at June 30, 1994 . . . . . . . . . . . 5,000 5,000
Capital in excess of par value . . . . . . . . . . . . 22,653,000 20,999,000
Accumulated deficit. . . . . . . . . . . . . . . . . . (9,837,000) (6,337,000)
---------- ----------
Total shareholders' equity . . . . . . . . . . . . 12,821,000 14,667,000
---------- ----------
19,876,000 $21,431,000
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
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NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE AND NINE MONTH PERIODS ENDED
MARCH 31, 1995 AND 1994
(UNAUDITED)
Three months ended Nine months ended
March 31, March 31,
------------------ -----------------
1995 1994 1995 1994
--------- --------- ---------- ---------
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $7,880,000 $6,735,000 $23,560,000 $23,109,000
Cost of revenues . . . . . . . . . . . . . . . . . . . . 5,631,000 3,937,000 14,915,000 12,248,000
----------- ---------- ----------- -----------
Gross profit . . . . . . . . . . . . . . . . . . . . . 2,249,000 2,798,000 8,645,000 10,861,000
----------- ---------- ----------- -----------
Selling, general and administrative expenses . . . . . . 3,335,000 3,810,000 8,958,000 8,647,000
Research and Development expenses . . . . . . . . . . . 548,000 165,000 1,059,000 399,000
Restructuring Expenses . . . . . . . . . . . . . . . . . 2,200,000 --- 2,200,000 ---
Interest income (Expense) Net . . . . . . . . . . . . . 20,000 (23,000) 72,000 (26,000)
----------- ---------- ----------- -----------
Income (loss) before income taxes. . . . . . . . . . . . (3,814,000) (1,200,000) (3,500,000) 1,789,000
Provision for income taxes . . . . . . . . . . . . . . . (128,000) (360,000) --- 531,000
----------- ---------- ----------- -----------
Net income (loss). . . . . . . . . . . . . . . . . . . . $(3,686,000) $(840,000) (3,500,000) 1,258,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Net income (loss) per share . . . . . . . . . . . . . . . $ (0.77) $ (0.18) $(0.74) $0.28
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Weighted average shares of common stock outstanding . . 4,781,000 4,567,000 4,754,000 4,572,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
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NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR EACH OF THE NINE MONTH PERIODS ENDED
MARCH 31, 1995 AND 1994
(UNAUDITED)
Nine months ended
March 31,
1995 1994
---------- -----------
Cash flows from operating activities:
Net income (Loss). . . . . . . . . . . . . . . . . . . . $(3,500,000) $1,258,000
Adjustments to reconcile net income to net
cash provided (used) by operating activities . . . .
Depreciation and amortization. . . . . . . . . . . . . . 993,000 739,000
Reserve for inventory. . . . . . . . . . . . . . . . . . 1,290,000 ---
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable. . . . . . . . . . . . . . . . 18,000 (946,000)
Inventories. . . . . . . . . . . . . . . . . . . . 262,000 (1,393,000)
Prepaid expenses and other . . . . . . . . . . . . (291,000) (335,000)
Increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . . . 59,000 (746,000)
Accrued expenses . . . . . . . . . . . . . . . . . 1,229,000 672,000
Litigation Reserve . . . . . . . . . . . . . . . . (782,000) ---
Income taxes payable/Receivable. . . . . . . . . . --- (95,000)
--------- --------
Net cash provided (used) by operating activities . . . . (722,000) (846,000)
--------- --------
Cash flows from investing activities:
(Increase) decrease in other assets . . . . . . . . . (125,000) (283,000)
Purchases of property and equipment . . . . . . . . . (445,000) (320,000)
(Increase) decrease in short-term investments . . . . 796,000 568,000
--------- --------
Net cash provided (used) by investing activities . . . . 226,000 (35,000)
--------- --------
Cash flows from financing activities:
Net proceeds from issuance of stock . . . . . . . . . 33,000 650,000
--------- --------
Net cash provided by financing activities. . . . . . . . 33,000 650,000
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . (463,000) (231,000)
BEGINNING CASH AND CASH EQUIVALENTS. . . . . . . . . . . 2,950,000 2,658,000
--------- ---------
ENDING CASH AND CASH EQUIVALENTS . . . . . . . . . . . . $2,487,000 $2,427,000
--------- ---------
--------- ---------
Supplemental Disclosures:
Interest paid. . . . . . . . . . . . . . . . . . . . . . $ 6,000 $ 60,000
--------- --------
--------- --------
Taxes paid . . . . . . . . . . . . . . . . . . . . . . . $ ---- $607,000
--------- --------
--------- --------
Capital lease obligations incurred . . . . . . . . . . . $ ---- $ ----
--------- --------
--------- --------
The accompanying notes are an integral part of these financial statements.
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NEW IMAGE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
(1) GENERAL
(a) The accompanying unaudited condensed financial statements of New
Image Industries, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been
included and all such adjustments are of a normal and recurring nature except
as disclosed otherwise. The results of operations for the three months ended
are not necessarily indicative of the results to be expected for the full
year. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended June 30, 1994 as filed with the Securities and Exchange
Commission.
(b) Cash and Cash Equivalents -- Cash and cash equivalents include
short-term, highly liquid investments principally tax-exempt money market
funds and municipal securities with original maturities of three months or
less.
(c) Short-term Investments -- Short-term investments include short-term,
highly liquid investments; principally tax-exempt money market funds and
municipal securities with original maturities of greater than three months,
but which are readily convertible to cash.
(d) Major Customers -- No customer accounted for more than ten percent of
revenues in any of the periods presented. The majority of the Company's
current customers consist of dental professionals.
(e) Revenue Recognition -- The Company recognizes revenue from system,
supplies and software sales at the time of shipment, net of estimated sales
returns and allowances. Revenues from software sales and licenses are
recognized in compliance with the A.I.C.P.A.'s statement of position No.
91-1, software revenue recognition. Revenues from warranty, maintenance and
service contracts, which have not been significant are recognized ratably
over the life of the contract.
(f) Income Taxes -- In February 1992 the FASB issued Statement No. 109
(accounting for income taxes). At the beginning of fiscal 1994, the Company
adopted the new Statement, which did not have a material effect on its net
income or financial position. For the nine month period ended March 31,
1995, the provision for income taxes has been computed using the effective
tax rate expected for the year ended June 30, 1995.
(g) Income Per Common Share -- Income per common share for the 1995 and
1994 periods are based on the weighted average number of common shares
outstanding and does not include the dillutive effect of common share
equivalents as the dilution was not material.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1994.
Revenues increased $1,145,000 or 17% for the three month period ended
March 31, 1995 when compared to the same period in 1994. The increase was
primarily due to international sales through the Company's licensees which
comprised 16% of revenues in the 1995 period compared to 8% in the 1994
period. Domestic revenues increased 7% when comparing the two periods.
Domestic unit sales decreased 10% to 650 in the 1995 period compared to 725
in 1994. However, the average selling price per unit increased form $8,550
in 1994 to $9,120 in 1995. The Company's mix of products changed
dramatically in the 1995 period compared to 1994 due to new product
introductions. The new AcuCam family of products, which include the AcuCam
Plus, the MultiCam and new AcuCam systems, together comprised 49% of
revenues. The AcuCam P.C. Plus comprised 11% of revenues. Digital & Video
Network systems comprised 5% of revenues and the older version AcuCam
comprised 4% of revenues for the 1995 period. In the 1994 period 82% of
revenues were derived from sales of the AcuCam system.
Cost of revenues increased as a percentage of revenues from 58% to 71% in
the 1995 period. This increase was due to the increase in international
sales, as a percentage of revenues, which carry a substantially lower profit
margin than domestic sales, a book to physical inventory adjustment of
$600,000, and increased warrantee expenses. Further contributing to the
increase was competitive pricing pressure and the devaluation of the dollar
versus the yen as many of the system components are made in Japan. The
Company has found that the market is interested in more complex and
technically advanced products, however competitive pricing pressures have not
allowed the Company to obtain selling prices sufficient to maintain
historical gross profit margins.
Selling General and Administrative expenses decreased by $475,000 or 12%
for the 1995 period compared to 1994. As a percentage of revenues these
expenses decreased from 57% in 1994 to 42% in 1995. The decrease was
primarily due to decreased legal costs in the 1995 period as expenses related
to defending patent litigation were reserved for in the fourth quarter of
fiscal 1994. This decrease was partially offset in the 1995 period by higher
marketing and personnel expenses.
Research and Development expenses increased $383,000 or 232% from
$165,000 (2% of revenues) in the 1994 period to $548,000 (7% of revenues) in
the 1995 period. The increase was due to the continuing development of new
products and product introductions including the AcuCam Plus, AcuCam P.C.
Plus, MultiCam, Digital X-Ray.
During the third quarter, the Company began a significant restructuring
of its operations to enable it to better compete in its market place. The
restructuring of the operations includes changes in executive management,
consolidation of manufacturing facilities, staff reductions, and the
elimination of certain products. The Company has provided $2.2 million for
this restructuring, which is included in restructuring expense. The major
components of the change include a write-down of inventory related to
discontinued products of $1.25 million, severance, consolidation and
relocation costs of approximately $650,000, consulting fees of $150,000 and
other items of $150,000.
Management's intent is that the restructuring will enable it to better
compete due to the operating efficiencies these changes are expected to
achieve. However, there is no assurance that the changes being made will
produce desired results.
NINE MONTHS ENDED MARCH 31, 1995 COMPARED TO THE NINE MONTHS ENDED
MARCH 31, 1994.
Revenues increased $451,000 or 2% for the nine month period ended March
31, 1995 when compared to the same period ended in 1994. The increase was
exclusively due to domestic sales and the increase in average selling price
as discussed above.
Cost of revenues increased as a percentage of revenues from 53% in 1994
to 63% in 1995. The causes of the increase are the same as described in the
three month discussion above.
Selling General and Administrative expenses increased $311,000 or 4% for
the 1995 period when compared to 1994. The increase was due to higher
marketing and personnel expenses and was offset by lower legal costs in the
1995 period. As a percentage of revenues SG&A costs increased from 37% in
1994 to 38% in 1995.
Research and Development expenses increased $660,000 or 165% from
$399,000, 2% of revenues in the 1994 period to $1,059,000 or 4% of revenues
in the 1995 period. The causes of the increase are the same a described in
the three month discussion above.
Liquidity and Capital Resources
At March 31, 1995 the Company had cash and short-term investments on hand
of $2,987,000, down $1,259,000 from the June 30, 1994 amount of $4,246,000.
The decrease was primarily the result of operational losses and capital
expenditures. The Company is a party to pending patent litigation and
securities law class action litigation. There can be no assurance as to the
ultimate outcome of these lawsuits or the impact an adverse finding could
have on the Company's operations or financial position. The Company expects
cash flow from operations to provide adequate capitalization for the Company
on both a short-term and long-term basis.
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The Company's working capital at March 31, 1995 was $8,132,000, a
decrease of $3,032,000 when compared to June 30, 1994. Working capital
decrease was primarily the result of a decrease in inventory and cash. The
current ratio at March 31, 1995 was 2.2 to 1 compared to 2.7 to 1 at June 30,
1994.
PART II.OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
HIGH TECH MEDICAL INSTRUMENTATION V. NEW IMAGE, ET. AL. This suit claims
infringement by the Company's AcuCam camera of Examination Certificate
United States Patent No. B 4,858,001 (the '001 Patent), which was a
reexamination from U.S. Patent No. 4,858,001. As previously disclosed, on
June 2, 1994, the District Court issued an Order preliminary enjoining
New Image from infringing Claim 24 of the '001 Patent. New Image
appealed the granting of the Order to the United States Court of Appeals for
the Federal Circuit and that Court has reversed the District Court's
Order. Trial in the action (which was originally set for June 12, 1995)
has been postponed upon order by the Court. A new trial date has not yet
been set.
NEW IMAGE SECURITIES LITIGATION. The three class action lawsuits
previously pending against the Company and certain of its officers has
been consolidated into a single action purportedly on behalf of all persons
who purchased New Image Common Stock during the specified class period.
New Image's Motion to Dismiss the consolidated class action was granted
by the Court in May 1995, with leave to amend. Plaintiffs in the action
are expected to file a First Amended Complaint.
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
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
None
(b) REPORTS ON FORM 8-K.
None
SIGNATURE
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.
NEW IMAGE INDUSTRIES, INC.
Date: May 11 , 1995
/s/ TOM COMPERE
-----------------------------
Tom Compere
Chief Financial Officer
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