<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 30, 1997
( ) 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 0-16055
PHOTOMATRIX, INC.
(Exact name of registrant as specified in its charter)
California 95-3267788
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
11065 Sorrento Valley Court, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
(619) 625-4400
(Registrant's telephone number, including area code)
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 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
--- ---
At June 30, 1997, 5,083,000 shares of Common Stock of the Registrant were
outstanding.
<PAGE>
PHOTOMATRIX, INC.
INDEX
Page
----
PART I -- FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
Condensed consolidated balance sheets as of June 30, 1997
and March 31, 1997 1
Condensed consolidated statements of operations for the
three months ended June 30, 1997 and 1996 2
Condensed consolidated statements of cash flows for the
three months ended June 30, 1997 and 1996 3
Notes to condensed consolidated financial statements 4
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 5
PART II -- OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 8
SIGNATURES 9
<PAGE>
PHOTOMATRIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND MARCH 31, 1997
<TABLE>
<CAPTION>
June 30, 1997
(Unaudited) March 31, 1997
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 412,000 $ 812,000
Accounts receivable, net 1,748,000 1,602,000
Inventories 2,579,000 2,520,000
Prepaid expenses and other 192,000 149,000
------------ ------------
TOTAL CURRENT ASSETS 4,931,000 5,083,000
PROPERTY AND EQUIPMENT, NET 1,193,000 1,346,000
INTANGIBLES AND OTHER ASSETS, NET 1,964,000 2,053,000
OTHER ASSETS 75,000 83,000
------------ ------------
$ 8,163,000 $ 8,565,000
------------ ------------
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 515,000 $ 844,000
Accrued liabilities and other 646,000 590,000
Customer deposits 489,000 613,000
Line of credit -- --
Current portion of notes payable 152,000 152,000
Net liabilities of discontinued operations 775,000 452,000
------------ ------------
TOTAL CURRENT LIABILITIES 2,577,000 2,651,000
NOTES PAYABLE TO RELATED PARTIES 375,000 375,000
OTHER NON-CURRENT LIABILITIES 62,000 40,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, 3,173,000 shares authorized -- --
Common stock, no par value; 30 million shares
authorized, 5,083,000 shares issued and
outstanding 19,351,000 19,351,000
Accumulated deficit (14,343,000) (13,998,000)
Other 141,000 146,000
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 5,149,000 5,499,000
------------ ------------
$ 8,163,000 $ 8,565,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
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PHOTOMATRIX, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1997 1996
---------- ----------
REVENUES $2,271,000 $1,700,000
COST OF REVENUES 1,518,000 1,243,000
---------- ----------
GROSS PROFIT 753,000 457,000
---------- ----------
OPERATING EXPENSES:
Selling, general and administrative 925,000 891,000
Research and development 181,000 182,000
---------- ----------
TOTAL OPERATING EXPENSES 1,106,000 1,073,000
---------- ----------
OPERATING LOSS (353,000) (616,000)
OTHER INCOME (EXPENSE), NET 8,000 (42,000)
---------- ----------
LOSS FROM CONTINUING OPERATIONS (345,000) (658,000)
LOSS FROM DISCONTINUED OPERATIONS -- (80,000)
---------- ----------
NET LOSS $ (345,000) $ (738,000)
---------- ----------
---------- ----------
LOSS PER COMMON SHARE:
CONTINUING OPERATIONS $ (0.07) $ (0.12)
---------- ----------
---------- ----------
DISCONTINUED OPERATIONS $ -- $ (0.01)
---------- ----------
---------- ----------
NET LOSS $ (0.07) $ (0.13)
---------- ----------
---------- ----------
Weighted average number of common and
common stock equivalent shares
outstanding 5,083,000 5,715,000
---------- ----------
---------- ----------
See accompanying notes to condensed consolidated financial statements.
2
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PHOTOMATRIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Loss from continuing operations $(345,000) $(658,000)
Adjustments:
Depreciation and amortization 235,000 187,000
Change in assets and liabilities:
Accounts receivable (146,000) 526,000
Inventories (59,000) (62,000)
Prepaid expenses and other (43,000) (126,000)
Accounts payable (329,000) (477,000)
Accrued liabilities and other 56,000 18,000
Customer deposits (124,000) (159,000)
--------- ---------
Net cash flow used in continuing operations (755,000) (751,000)
Net operating cash flows provided by
discontinued operations 323,000 892,000
--------- ---------
NET CASH PROVIDED (USED) BY OPERATIONS (432,000) 141,000
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures -- (154,000)
Disposition of capital assets 7,000 --
Decrease (increase) in other assets 8,000 (70,000)
--------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES 15,000 (224,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock -- 8,000
Proceeds from line of credit, net -- 75,000
Increase in deferred rent payable 22,000 (80,000)
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 22,000 3,000
--------- ---------
EFFECTS OF EXCHANGE RATES ON CASH (5,000) 9,000
--------- ---------
NET DECREASE TO CASH (400,000) (71,000)
CASH -- BEGINNING OF PERIOD 812,000 255,000
--------- ---------
CASH -- END OF PERIOD $ 412,000 $ 184,000
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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PHOTOMATRIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1997 AND MARCH 31, 1997
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1. GENERAL
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements reflect the accounts of Photomatrix, Inc. (the
"Company"), together with its majority-owned subsidiaries.
All significant intercompany transactions and balances have
been eliminated.
These unaudited condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information
and disclosures normally included in annual financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to those rules and regulations, although the Company believes
that the disclosures made are adequate to prevent the
information from being misleading. These unaudited condensed
consolidated financial statements reflect, in the opinion of
management, all adjustments (which include only normal
recurring adjustments) necessary to present the results of
operations and financial position as of the dates and for the
periods presented. These unaudited condensed consolidated
financial statements should be read in conjunction with the
audited financial statements and related notes included in the
Company's Form 10-KSB filed with the Securities and Exchange
Commission for the year ended March 31, 1997. The results for
the interim periods presented are not necessarily indicative
of results to be expected for a full year.
2. LINE OF CREDIT
The Company has an unused line of credit with a bank to borrow
a total of $750,000. This line of credit, which expires
August 15, 1997, has been extended at existing terms to
September 15, 1997 while the Company and the bank finalize
terms for a twelve-month extension.
3. REPRICING OF STOCK OPTIONS
On July 18, 1997 the Compensation Committee of the Board of
Directors voted to adjust the exercise price of all
outstanding stock options of all current directors and
employees under its two stock option plans to its then current
fair market value.
4. DISCONTINUATION OF LEXIA SYSTEMS, INC.
The Company continues to evaluate options to discontinue the
operations of its wholly-owned subsidiary Lexia Systems, Inc.
(Lexia). The plan to discontinue the operations was approved
by the Board of Directors in December, 1996 and was discussed
first in the Company's Form 10-Q filed for the quarter ended
December 31, 1996 and again in Part II of the Company's Form
10-KSB filed for the fiscal year ended March 31, 1997. ICL
must consent to any transaction and to date, the Company has
not been able to resolve outstanding issues between Lexia and
ICL and Fujitsu/ICL Computers. One of the options being
discussed involves a leveraged buy-out by the current
management of Lexia.
4
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the condensed consolidated
financial statements and notes to condensed consolidated financial statements
included elsewhere herein.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1996
Consolidated revenues for the quarter ended June 30, 1997 increased $571,000
(34%) to $2,271,000 from $1,700,000 in the quarter ended June 30, 1996. The
primary reason revenues are up is due to an increase of 12 (46%) in the
number of scanners shipped during the quarter just ended, up to 38 as
compared to 26 in the same quarter of the prior year. This increase is a
reflection of the change in the Company's marketing strategy which now
focuses on expanding indirect distribution channels. A second important
reason for the increase in revenues is a significant increase in shipments of
spare parts and repair revenues which increased $322,000 (51%) to $953,000 in
the quarter ended June 30, 1997 from $631,000 in the quarter ended June 30,
1996.
Consolidated gross margin increased $296,000 (65%) from $457,000 in the
quarter ended June 30, 1996 to $753,000 in the quarter ended June 30, 1997.
Gross margin as a percent of sales increased 6.3%, up to 33.2% in the
quarter just ended compared to 26.9% in the same quarter of the prior year.
This increase in gross margin resulted from a favorable product mix and an
across-the-board product price increase effective April 1, 1997 coupled with
production efficiencies. The increased efficiencies being realized result
from the implementation of cost cutting techniques in both the fourth
quarter of Fiscal 1997 and continued during the first quarter of Fiscal 1998,
together with favorable material procurement variances.
Selling, general and administrative expenses ("SG&A") increased by $34,000
(4%) from $891,000 in the quarter ended June 30, 1996 to $925,000 in the
quarter ended June 30, 1997. This increase consists of additional costs to
develop the Company's sales and marketing channels plus $20,000 of costs to
relocate key personnel from Culver City to San Diego. As a percent of sales,
SG&A decreased considerably, from 52% in the quarter ended June 30, 1996 to
41% in the quarter ended June 30, 1997. The improvement in this percent is
attributable to the increase in sales volume.
Product Development expenses decreased by $1,000 (.5%) from $182,000 in the
quarter ended June 30, 1996 to $181,000 in the quarter ended June 30, 1997.
Product Development expenditures that were capitalized because they related
to technologically feasible projects remained constant at $38,000 in both
the prior quarter and in the current quarter. Product Development spending
decreased by $1,000, from $220,000 in the prior quarter to $219,000 in the
current quarter and as a percentage of sales by 3%, from 11% in the prior
quarter to 8% in the current quarter. The improvement in this percent is
attributable to the increase in sales volume.
Other income and expense changed by $50,000 from a $42,000 expense in the
prior quarter to $8,000 of income in the current quarter. Interest expense
decreased $34,000 from $42,000 in the quarter ended June 30, 1996 to $8,000
in the current quarter and reflects the elimination of the line of credit
and bank loan balances and the reduction in interest-bearing long term debt.
The Company has been able to finance operations with cash reserves and has
not required the use of the line of credit through the quarter ended June
30, 1997. Other income in the current quarter reflects the sale of
manufacturing rights for a duplicator line by Photomatrix, Ltd.
5
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Increased revenues and gross margins, coupled with only small increases in
operating expenses resulted in a loss from continuing operations for the
quarter ended June 30, 1997 of $345,000 or $0.07 per share. This compares to
a loss from continuing operations of $658,000 or $0.12 per share for the
quarter ended June 30, 1996. Loss from discontinued operations decreased
$80,000, from $80,000 or $0.01 per share in the quarter ended June 30, 1996
to zero in the current quarter. Net loss for the quarter decreased
significantly, by $393,000, from $738,000 or $0.13 per share in the prior
quarter to $345,000 or $0.07 per share in the current quarter.
LIQUIDITY AND CAPITAL RESOURCES
Following is a discussion of the Company's recent and future sources
of and demands on liquidity as well as an analysis of liquidity levels.
RECENT AND FUTURE SOURCES OF AND DEMANDS ON LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended June 30, 1997, the Company's primary sources of
liquidity were the increase in accrued liabilities ($56,000), cash flows
provided by discontinued operations ($323,000), disposition of capital assets
($7,000), reduction in refundable deposits ($8,000), increase in deferred
rent payable ($22,000) and cash reserves. Primary uses of cash in the
quarter ended June 30, 1997 were the increase in accounts receivable
($146,000), increase in inventories ($59,000), increase in prepaid expenses
($43,000), reduction in accounts payable ($329,000) and reduction in customer
deposits ($124,000). During the quarter ended June 30, 1997, the Company's
cash balance decreased $400,000, from $812,000 to $412,000.
The Company has a line of credit with a bank to borrow a total of $750,000
which was unused at June 30, 1997. The line of credit will expire in
September, 1997 and the Company is in the process of extending the line of
credit with the bank.
The Company is obligated under a series of notes payable totaling $527,000 to
a related party as of June 30, 1997. These notes bear interest at a rate of
8% per annum and mature in April, 2000. In April, 1997 the Company stopped
making payments on these notes.
The Company has accounts payable and unpaid rent due to ICL and related
entities in the amount of $725,000. The Company is disputing the value
received related to certain of these liabilities and is attempting to settle
with ICL at a discount. There is no assurance that the Company will be
successful in resolving these disputed amounts.
The Company's assured sources of future short-term liquidity are its cash
balance of $412,000 as of June 30, 1997 and the unused portion of its line
of credit. Availability under the line of credit can be further limited
based on the balance of eligible accounts receivable.
The Company currently is obligated to pay approximately $20,000 per month in
lease payments. Aside from these commitments, the Company has not made any
material capital commitments.
The Company is concentrating on increasing sales and improving gross
margins. If it is successful, then it should have sufficient liquidity to
fund its operations during the next twelve months. If it is unsuccessful it
may have to rely upon its line of credit and raise additional capital to fund
its operations. In addition, the Company is continuing discussions with
various candidates in an attempt to explore the possibility of a synergistic
merger or strategic combination.
In March, 1997, the Financial Accounting Standards Board issued SFAS 128,
EARNINGS PER SHARE, effective for fiscal years ending after December 15,
1997. SFAS 128 requires the presentation of "basic"
6
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earnings per share which excludes the dilutive effect of all common stock
equivalents. Presentation of "diluted" earnings per share, which reflects
the dilutive effects of all common stock equivalents, will also be required.
The diluted presentation is similar to the current presentation of fully
diluted earnings per share, but uses the average market price of the stock
during the period. The Company is currently evaluating the impact of
implementation of SFAS 128.
THIS 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS
RELATING TO THE COMPANY'S PLANS AND OBJECTIVES FOR FUTURE OPERATIONS
INCLUDING INCREASING SALES AND IMPROVING MARGINS, ASSUMPTIONS AND STATEMENTS
RELATING TO THE COMPANY'S FUTURE ECONOMIC PERFORMANCE AND OTHER
NON-HISTORICAL INFORMATION. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, WITHOUT LIMITATION, THOSE RISKS
DISCUSSED IN ITEM 7 UNDER THE HEADING "ADDITIONAL RISK FACTORS" AS WELL AS
OTHER FACTORS AS DISCUSSED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR
THE FISCAL YEAR ENDED MARCH 31, 1997.
7
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PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter
ended June 30, 1997.
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHOTOMATRIX, INC.
Date: August 11, 1997 by /s/ SUREN G. DUTIA
------------------
Suren G. Dutia
President
Chief Executive Officer
Date: August 11, 1997 by /s/ ROY L. GAYHART
------------------
Roy L. Gayhart
Chief Financial Officer
Date: August 11, 1997 by /s/ CHARLES H. FRADY
--------------------
Charles H. Frady
Controller
Principal Accounting Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 412,000
<SECURITIES> 0
<RECEIVABLES> 1,914,000
<ALLOWANCES> 166,000
<INVENTORY> 2,579,000
<CURRENT-ASSETS> 4,931,000
<PP&E> 1,943,000
<DEPRECIATION> 750,000
<TOTAL-ASSETS> 8,163,000
<CURRENT-LIABILITIES> 2,577,000
<BONDS> 437,000
0
0
<COMMON> 19,351,000
<OTHER-SE> (14,202,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,163,000
<SALES> 0
<TOTAL-REVENUES> 2,271,000
<CGS> 0
<TOTAL-COSTS> 1,518,000
<OTHER-EXPENSES> 1,106,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (8,000)
<INCOME-PRETAX> (345,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (345,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (345,000)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
