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 December 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.)
2283 COSMOS COURT
CARLSBAD, CALIFORNIA 92009
(Address of principal executive offices)
Registrant's telephone number, including area code: (619) 930-9900
21218 VAN OWEN
CANOGA PARK, CALIFORNIA 91303
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 4,794,438 shares outstanding as of January
31, 1996
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEW IMAGE INDUSTRIES, INC.
BALANCE SHEETS
ASSETS
(Unaudited)
December 31, June 30,
1995 1995
------------- ------------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,204,000 $ 1,567,000
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 --
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 500,000
Accounts receivable, net of allowance for doubtful accounts of $399,000 at December 31, 1995
and $280,000 at June 30, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,195,000 5,251,000
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,344,000 5,444,000
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505,000 502,000
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,548,000 13,264,000
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,128,000 842,000
Intangible assets, net of accumulated amortization $1,782,000 at December 31, 1995 and
$1,571,000 at June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,013,000 1,230,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595,000 565,000
------------ ------------
$ 14,284,000 $ 15,901,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,689,000 $ 3,452,000
Accrued payroll. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634,000 595,000
Accrued litigation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,000 836,000
Accrued liabilities related to acquisition . . . . . . . . . . . . . . . . . . . . . . . . . 623,000 623,000
Accrued restructuring and unusual charges. . . . . . . . . . . . . . . . . . . . . . . . . . 1,306,000 1,109,000
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617,000 604,000
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,045,000 7,219,000
------------ ------------
OTHER LONG-TERM LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,000 24,000
------------ ------------
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; 4,794,438 outstanding
at December 31, 1995 and 4,791,000 outstanding at June 30, 1995. . . . . . . . . . . . . . . 5,000 5,000
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,666,000 22,663,000
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,454,000) (14,010,000)
------------ ------------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,217,000 8,658,000
------------ ------------
$ 14,284,000 $ 15,901,000
------------ ------------
------------ ------------
The accompanying notes are an integral part of these financial statements.
2
NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE AND SIX MONTH PERIODS ENDED
DECEMBER 31, 1995 AND 1994
(UNAUDITED)
Three months ended Six months ended
December 31, December 31,
--------------------------- ---------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
Revenues . . . . . . . . . . . . . . . . . . . . . $ 7,498,000 $ 8,710,000 $ 11,876,000 $ 15,680,000
Cost of revenues . . . . . . . . . . . . . . . . . 4,191,000 5,357,000 6,917,000 9,284,000
------------ ------------ ------------ ------------
Gross profit . . . . . . . . . . . . . . . . . . 3,307,000 3,353,000 4,959,000 6,396,000
------------ ------------ ------------ ------------
Selling, general and administrative expenses . . . 2,978,000 3,080,000 5,089,000 5,623,000
Research and development expenses. . . . . . . . . 128,000 248,000 343,000 511,000
Legal/litigation expenses(awards), net . . . . . . (9,000) -- (9,000) --
Interest (income) expense, net . . . . . . . . . . (8,000) (39,000) (21,000) (52,000)
------------ ------------ ------------ ------------
Income (loss) before income taxes. . . . . . . . . $ 218,000 64,000 (443,000) 314,000
Provision for income taxes . . . . . . . . . . . . 1,000 26,000 1,000 128,000
------------ ------------ ------------ ------------
Net income (loss). . . . . . . . . . . . . . . . . $ 217,000 $ 38,000 $ (444,000) $ 186,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income (loss) per share. . . . . . . . . . . . $ 0.05 $ 0.01 $ (0.09) $ 0.04
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares of common stock outstanding 4,794,000 4,762,000 4,793,000 4,742,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
3
NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR EACH OF THE SIX MONTH PERIODS ENDED
DECEMBER 31, 1995 AND 1994
(UNAUDITED)
Six months ended
December 31,
1995 1994
------------ ------------
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . $ (444,000) $ 186,000
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities
Depreciation and amortization. . . . . . . . . . . . . . . 607,000 676,000
Changes in assets and liabilities
(Increase) decrease in:
Restricted cash. . . . . . . . . . . . . . . . . . . . (300,000) --
Accounts receivable. . . . . . . . . . . . . . . . . . 1,056,000 548,000
Inventories. . . . . . . . . . . . . . . . . . . . . . 100,000 1,135,000
Prepaid expenses and other . . . . . . . . . . . . . . (3,000) (281,000)
Increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . . . . . (763,000) (221,000)
Accrued expenses, restructuring and unusual expenses . (217,000) (239,000)
Income taxes payable/Receivable. . . . . . . . . . . . -- 102,000
Long-term liabilities. . . . . . . . . . . . . . . . . (2,000) --
------------ ------------
Net cash provided (used) by operating activities . . . . . 34,000 1,906,000
------------ ------------
Cash flows from investing activities:
(Increase) decrease in other assets. . . . . . . . . . . (192,000) (130,000)
Purchases of property and equipment. . . . . . . . . . . (708,000) (303,000)
(Increase) decrease in short-term investments. . . . . . 500,000 (1,100,000)
------------ ------------
Net cash provided(used) by investing activities (400,000) (1,533,000)
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of stock. . . . . . . . . . . 3,000 32,000
------------ ------------
Net cash provided by financing activities. . . . . . . . . 3,000 32,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (363,000) 405,000
BEGINNING CASH AND CASH EQUIVALENTS. . . . . . . . . . . . 1,567,000 2,950,000
------------ ------------
ENDING CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . $ 1,204,000 $ 3,355,000
------------ ------------
------------ ------------
Supplemental Disclosures:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . 1,000 3,000
------------ ------------
------------ ------------
Taxes paid . . . . . . . . . . . . . . . . . . . . . . . . 1,000 ----
------------ ------------
------------ ------------
Capital lease obligations incurred . . . . . . . . . . . . ---- ----
------------ ------------
------------ ------------
The accompanying notes are an integral part of these financial statements.
4
NEW IMAGE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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. The results of
operations for the six 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, 1995 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 six month period ended December 31, 1995,
no provision or benefit for income taxes has been recorded due to the loss and
the questionable realization of any asset related to net operating losses.
(g) Income(Loss) Per Common Share -- Income(loss) 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 dilutive effect of common share
equivalents as the dilution was not material in 1994 and are anti-dilutive in
1995.
(2) LEGAL
In December 1995 the Company received partial payment of monies owed to it
from a legal judgement. This litigation award was offset almost entirely by
additional reserves the Company accrued.
(3) RESTRICTED CASH
In December 1995 the current processor of credit card transactions deemed
it appropriate to require the Company to establish a $300,000 cash reserve in
a bank.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 1994
Revenues decreased $1,212,000 or 14% for the three month period ended
December 31, 1995 when compared to the same period in 1994. This decrease was
due primarily to lower unit sales, which dropped from approximately 1,090 in
1994 to approximately 960 in 1995. However, the sales revenue for this quarter
increased $2,580,000 or 59% over the prior three month period ended September
30, 1995. Management believes that the primary reason for this increase was the
refocused sales and marketing efforts of the Company and the November 1995
introduction of System One, a cost effective version of the Acucam product, at
an introductory price of $5,495. Unit sales of the System One product were
over 400 units during this period.
Cost of revenues decreased as a percentage of revenues from 61.5% to 55.9% in
the three month period December 31, 1994 and 1995 respectively. This decrease
was primarily due to lower costs associated with the consolidation of operations
into a single facility in November 1995 and other cost reductions and
restructuring that management has implemented.
Selling, General and Administrative(SG&A) expenses decreased by $102,000 or
3% for the three month period ended December 31, 1995 when compared to the same
period in 1994. As a percentage of revenues SG&A expenses increased from 35.4%
to 39.7% in the 1995 period, due primarily to lower revenues. This percentage
is down from the 48.2% reported in the September 30, 1995 quarter.
Research and development expenses decreased from $248,000 for the three month
period ended December 31, 1994 to $128,000 for the three month period ended
December 31, 1995. This decrease is attributable to the elimination of certain
contract obligations for engineering services that were determined to no longer
be beneficial to the company and the negotiation of other expenses to be
included in the unit cost of purchased components.
The Company received partial payment of monies owed to it from a legal
judgement. This litigation award was offset almost entirely by additional
reserves the Company accrued.
SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THE SIX MONTHS ENDED DECEMBER
31, 1994
Revenues decreased $3,804,000 or 24% for the six month period ended December
31, 1995 when compared to the same period in 1994. The decrease was primarily
due to a decline in the number of units sold from 2,114 in the 1994 period to
1320 in the 1995 period.
Cost of revenues decreased as a percentage of revenues from 59.2% to 58.2% in
the six month period ended December 31, 1994 and 1995 respectively. This
improvement is attributed to the benefits of consolidation of operations in the
Carlsbad facility in November 1995.
Selling General and Administrative expenses decreased by $534,000 or 9.5% for
the six month period ended December 31, 1995 when compared to the same period in
1994. As a percentage of revenues SG&A expenses increased from 36% in 1994 to
43% in 1995, due primarily to lower revenues.
Research and development expenses decreased from $511,000 (3.3% of
revenue) for the six month period ended December 31, 1994 to $343,000 (2.9%
of revenue) for the six month period ended December 31, 1995. This decrease
primarily occurred in the last three months as explained above.
Accounts receivable decreased $1,056,000 at December 31, 1995, when compared
to June 30, 1995. The decrease was due in part to increased payments to the
company by its international licensees, improvement in collection practices and
to lower sales volume. Accounts receivable days outstanding decreased from 61
days at June 30, 1995 to 31 days at December 31, 1995. Inventories decreased by
$100,000 at December 31, 1995 when compared to June 30, 1995. This primarily
resulted from the reduction in inventory built up in anticipation of the
Company's move to Carlsbad, as earlier reported. The Company will continue
its efforts to further reduce inventory. Prepaid expenses increased by $3,000.
Accounts payable declined by $763,000 when compared to June 30, 1995. The
decrease occurred due to payments to a few vendors for obligations incurred in
prior periods. Accrued payroll, which includes accrued commissions, increased
from $595,000 on June 30, 1995 to $634,000 on December 31, 1995, primarily due
to the significant increase in sales in December. The litigation reserve was
reduced in the first quarter from $836,000 to $200,000. Favorable developments
in the High Tech Medical Instrumentation ("HTMI") lawsuit and other actions led
to a reduction in the reserve to an amount the Company believes to be a
reasonable estimate of current anticipated costs associated with outstanding
litigation. The reduction in the second quarter of $24,000 was result of legal
bills incurred on these cases. There can be no assurance that any such reserve
will be adequate to cover actual costs of litigation.
6
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995 the Company had cash and short-term investments on hand
of $1,204,000, down $363,000 from the June 30, 1995 amount of $1,567,000. The
decrease was primarily the result of investments in equipment and improvements
in the new facility.
The Company is continuing to invest cash in the business by consolidating its
operations into one facility, upgrading management information systems and
investing in research and development. Notwithstanding these investments, the
Company believes, based on its expected sales level and cost efficiencies
anticipated to be generated from its restructuring, that it has adequate
capitalization for at least the next twelve months. If the Company's
expectations are not met, the Company may be required to seek additional equity
or debt financing. There can be no assurance that such financing will be
available.
The Company's working capital at December 31, 1995 was $5,503,000, a decrease
of $542,000 when compared to June 30, 1995. Working capital decline was
primarily the result using cash to invest in equipment and facility
improvements. The current ratio at December 31, 1995 was 1.9 to 1 compared to
1.8 to 1 at June 30, 1995.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In a complaint filed October 19,1995, in the superior Court of Maricopa
County Arizona, the Company was sued by Network One Strategic Management
Systems, Inc. Network One was the supplier of Socrates patient education
video player module of the Company's dental office product line. Network
One has sued the Company alleging a breach of purchases orders on the
part of the Company. Network One claims damages of $1.2 million. The
Company has denied the alleged breach and intends to vigorously defend
the action.
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
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: February 13, 1996 /s/ Harold R. Orr
----------------------------------
Harold R. Orr
Chief Financial Officer
7