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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
For the Fiscal Year Ended June 30, 1995 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
21218 Vanowen Street, Canoga Park, California 91303
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (818) 702-0285
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each Class
-------------------
Common Stock
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K / /
At September 28, 1995, there were outstanding 4,790,638 shares of the
Common Stock of Registrant, and the aggregate market value of the shares held
on that date by non-affiliates of the Registrant, based on the closing price
($2 1/8 per share) of the Registrant's Common Stock on the National Market
System was $10,180,106. For purposes of this computation, it has been
assumed that the shares beneficially held by directors and officers of
Registrant were "held by affiliates"; this assumption is not to be deemed to
be an admission by such persons that they are affiliates of Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement relating to its 1995 annual meeting
of stockholders are incorporataed by reference in part 3 of this report.
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PART I
ITEM 1. BUSINESS.
New Image Industries, Inc. (the Company) designs, develops
and manufactures intraoral cameras and computer imaging systems
(referred to herein as "New Image Systems") exclusively to the
dental market place. These products include the AcuCam-
Registered Trademark- Intraoral Camera System, the MultiCam-TM-
Intraoral Camera System, the AcuCam PC+-TM- Computerized Camera
System and the AcuView-TM- Dental Imaging System.
In fiscal 1995, the Company undertook a significant
restructuring of its product line, its operations and its
management. The Company switched its product focus to a new
product, MultiCam, which is a camera interchange system that
allows a single AcuCam Intraoral Camera to be used in multiple
operatories via docking stations. MultiCam utilizes the AcuCam
Plus camera the Company has manufactured previously. See "--New
Image Systems -- MULTICAM INTRAORAL CAMERA SYSTEM."
Additionally, the Company moved its finished product assembly
from its Canoga Park facility to its facility in San Juan
Capistrano in the third and fourth quarter of fiscal, 1995. The
Company plans to move all of its operations to one facility in
Carlsbad, California in November, 1995. Also, the Company
restructured its senior management team and to date has hired a
new President and Chief Financial Officer (see Note 4 of Notes to
Financial Statements).
The products the Company sells, in addition to the
aforementioned MultiCam, include the AcuCam, which is an
intraoral video camera system which is designed to assist the
dental professional in diagnosing and demonstrating intraoral
problems to the patient. See "-- New Image Systems -- ACUCAM
INTRAORAL CAMERA SYSTEM". The AcuCam PC+ is a computerized
intraoral video camera system that allows images to be stored or
combined with patients' records. See "--New Image Systems -
AcuCam PC+ computerized intraoral camera system." The AcuView
Dental Imaging System is a computerized cosmetic imaging system
which allows a dental professional to show the patient "before
and after" pictures illustrating the effects of a proposed dental
procedure. See "New Image Systems -- ACUVIEW DENTAL IMAGING
SYSTEM". Each of the New Image Systems can be purchased and
utilized alone or can be integrated with any of the other New
Image Systems. Many of the Systems also include the AcuPrinter-
TM-, which can be operated on a hands-free basis using a foot
pedal. See "-- Other Products -- ACUPRINTER AND ACUPRINTER DTS."
NEW IMAGE SYSTEMS
MULTICAM INTRAORAL CAMERA SYSTEM. The Company introduced
the MultiCam Intraoral Camera System (the "MultiCam") in March
1995, and it quickly became the Company's leading selling
product. It is now the focal point of the Company's sales and
promotional effort. MultiCam is a camera interchange system that
allows a single AcuCam Intraoral Camera to be used in multiple
operatories through the use of docking stations. The portable
camera weighs less than three lbs. and is easily moved between
locations. MultiCam is a cost- effective alternative to video
networks, which require wiring and installation. The one
operatory MultiCam has a list price of $8,920.
ACUCAM INTRAORAL CAMERA SYSTEM. In January 1991 the Company
acquired the rights to an intraoral video camera known as the
AcuCam Intraoral Camera (the "AcuCam"). The Company currently
markets systems (the "AcuCam System") incorporating an advanced
version of the AcuCam to the dental industry.
The AcuCam consists of a high-quality camera body and fiber
optic light rod with interchangeable 0 DEG. and 90 DEG. lenses built
into a unit about the size of a standard dental handpiece. The camera
unit also includes an image control processor and a halogen light
source. The 90 DEG. lens is housed in an autoclavable rhodium sleeve
which is heat sterilizable. Alternatively, the 90 DEG. lens can be
encased in a disposable sterile sheath.
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In addition to the camera, the AcuCam System includes a CCD
with a CCU processor, the AcuCam Illumination System, a color
monitor and the AcuPrinter. Customers may purchase upgrades to
the standard System, which include a still image video recorder,
a super VHS video cassette recorder, additional lenses or a 20-
inch super VHS color monitor. The current list price for the
AcuCam System is $7,870. This product had a list price of $9,995
in June of 1994. For the fiscal year ended June 30, 1995,
approximately 58% of the Company's revenues were derived from
sales of the AcuCam System.
AcuCam PC+ Computerized Intraoral Camera System. The
Company introduced its first computerized intraoral camera
system, the AcuCam PC+ Computerized Intraoral Camera System in
November 1993 later improved to the PC+ in October, 1994. The
AcuCam PC+ is a computerized intraoral camera system which allows
the images captured with the intraoral camera to be automatically
transferred to a host computer for storage or combination with
the patient's records. With the AcuCam PC, the dentist can make
notations about a particular image and include the notations with
the image in the file. The AcuCam PC+ also allows for easy
integration of the AcuCam with other imaging modalities.
The standard system components of the AcuCam PC+ are the
AcuCam Camera, a 486AT-compatible computer with 16 Mb RAM and 540
Mb hard drive and proprietary, Windows-based software which ties
the intraoral images to patient files, automatically date stamps
each picture and provides room for clinical notes and treatment
reminders. The System includes a CCD processor and the AcuCam
Fiberoptic Illumination System, the AcuPrinter, a 13" super VGA
monitor, a mouse and cabinet. The AcuCam PC+ has a list price of
$13,435. The AcuCam PC (486AT, 8Mb RAM, 525 Mb hard drive) had a
list price of $16,395 in June of 1994.
ACUVIEW DENTAL IMAGING SYSTEM. In October 1989, the Company
acquired the rights to certain software developed for use in the
plastic surgery and cosmetic dentistry industries, which the
Company has used to develop the AcuView Dental Imaging System.
The Company no longer actively markets a plastic surgery imaging
system, but continues to provides systems for cosmetic dentistry
applications.
The AcuView Dental Imaging System, formerly named the
PreView Imaging System, is a computerized cosmetic imaging system
which allows dentists to visually communicate to their patients
the potential results of one or more cosmetic, restorative or
orthodontic dentistry procedures. The dentist uses the video
camera which is included as part of the System to take a picture
of the patient, and the image is input into the System and
appears on the screen. The dentist can then alter the on-screen
image of the patient, allowing both practitioner and patient to
view the potential outcomes of various procedures. The dentist
may then print out a "before" and "after" picture of the patient
illustrating the potential outcome of the suggested procedure.
The basic equipment utilized in the AcuView System includes
a 486AT-compatible computer with an image processing board, the
Company's proprietary software, an RGB color video camera, an RGB
monitor, an imaging camera system including camera mount, diopter
set and video lighting, a graphics tablet and stylus pen and a
printer. The software program is a paint-type program that is
specifically designed for the cosmetic dentistry application, and
enables the practitioner to make computer-assisted freehand
changes to the image displayed on the screen using a stylus.
The AcuView was upgraded and put on Windows-TM- in 1995. The
AcuView System's current list price is $11,545.
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OTHER PRODUCTS
ACUPRINTER AND ACUPRINTER DTS. The AcuPrinter is a high
speed, high resolution color printer which allows for the
production of multi-format hard copy images for patient and
insurance use. The AcuPrinter DTS, which the Company introduced
in October 1993, allows for the storage of multiple images in
memory and the digital transfer of images to and from a computer.
With the AcuPrinter DTS, four full resolution images can be
displayed in four quadrants, thereby allowing the display of 16
total images. The AcuPrinter DTS uses a Windows-TM- software
program to export and import images from the printer to the
computer.
SOCRATES-TM- INTERACTIVE CD. Beginning in April 1994, the
Company also offers either separately or as a part of any other
System, the Socrates Interactive CD Patient Education System
("Socrates"). Using interactive CD technology, Socrates is used
to educate patients about dentistry and a variety of dental
procedures, either in the waiting room or in the dentist's chair.
Socrates provides patient education on a variety of topics in 3-5
minute segments. The current list price for Socrates is $1,045.
HARDWARE
Except as specifically discussed below, the Company
currently assembles and tests the New Image Systems intended for
sale in the United States at its facility located in San Juan
Capistrano, California. The Company purchases the non-
proprietary hardware components included as part of its New Image
Systems from outside sources. Multiple sources of supply are
available for all parts and components purchased by the Company.
Many of the components of the Company's systems are computer and
video items which have significant alternative uses.
The Company is a value added reseller for certain of the
hardware components included as part of its Systems. The Company
purchases substantially all of the hardware components from its
vendors at a discount from recommended retail list prices.
MARKETING AND SALES
UNITED STATES. The Company's sales of the New Image Systems
in the United States are made through full-time employees working
out of the Company's headquarters and by a national field force
of independent sales representatives who operate under the
supervision of 18 Regional Managers. The majority of the sales
made by the Company are the result of leads created principally
from responses to direct mail solicitations, advertising in trade
publications and attending trade shows. The sales
representatives are compensated on a commission basis, with
commissions generally ranging between 8% and 10% of the sale
price of the unit sold.
INTERNATIONAL SALES
NEW IMAGE INTERNATIONAL. Traditionally, the Company
marketed turnkey New Image Systems in Europe through New Image
International, headquartered in Ghent, Belgium, which was the
Company's exclusive distributor of New Image products in Europe
prior to being acquired by the Company in December 1989. In
April 1992, the Company sold New Image International to an
unrelated Belgian company. The purchaser acquired the stock of
New Image International and the exclusive right to distribute the
Company's dental products in Europe. The terms of the sale were
such that the purchaser paid for the stock with a promissory note
which was secured by the New Image International stock sold. The
purchaser defaulted on the payment of the note and the Company
reacquired ownership of New Image International during fiscal
1993. The Company then terminated all of New Image
International's rights to distribute New Image Systems, and
granted an exclusive license to an unaffiliated third party to
market its products in Europe. Pursuant to an Assignment and
Assumption of License Agreement dated July 29, 1994, the Company
reacquired this license in consideration of the transfer of
100,000 shares of the Company's Common Stock to the licensee. In
connection with its restructuring, the Company has determined
that the amount paid to reacquire
4
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the license will not be realized in the foreseeable future.
Accordingly, the Company has written off the European license
(See Note 4 of Notes to Financial Statements).
CURRENT INTERNATIONAL SALES ARRANGEMENTS. After
reaquiring its rights to market is products in Europe, the
Company has decided to change its international strategy. While
historically, the Company marketed its products outside the
United States primarily through licensees, the Company now
intends to move toward direct marketing of its products through
distributors and dealers.
As of September 28, 1995, the Company had only two active
licensees, one of whose territories is South America and the
other of whose territories includes Australia, Taiwan, South
Africa, Indonesia, Hong Kong, Singapore, Malaysia, Israel and
the Arabic Middle East. In addition, the Company has recently
entered into an arrangement with VTM Medical Marketing, Inc. to
set up a network of independent dealers for New Image products in
both Europe and Japan. VTM will initiate these dealer
arrangements to increase sales of New Image products directly to
them.
The Company's licensees and independent distributors
integrate the software underlying the New Image systems with the
necessary hardware and sell turnkey New Image systems. Software
is sold to resellers who then sell the software to the end user
for use on the end user's hardware.
International sales are subject to certain risks common to
non-United States operations in general, such as governmental
regulation and import restrictions. The Company's international
sales are dollar denominated and, therefore, are not directly
subject to international currency fluctuations.
ADVERTISING AND PROMOTION. The Company uses a combination
of national advertising in selected trade journals, direct mail
and trade show exhibitions to promote the New Image Systems.
During the fiscal years ended June 30, 1995, 1994 and 1993, the
Company incurred approximately $3,042,000, $2,213,000 and
$1,631,000, respectively, in advertising costs and promotional
activities. The Company attended approximately 170 trade shows
during fiscal 1995.
Also as a form of advertising and promotion, the Company
sells or lends New Image Systems to dental schools nationwide.
The Company believes that exposure to the product while a
practitioner is in training may lead to increased sales in the
future.
TRAINING, CUSTOMER SUPPORT AND PRODUCT SERVICE
Management believes that most of the customers who purchase
New Image Systems have little or no prior computer experience.
No training is required to operate the AcuCam or MultiCam
Intraoral Video Camera Systems. The other Systems purchased from
the Company offer half or full day training session conducted at
the customer's location or at a Company facility. At the initial
training session, the customer is instructed in the operation of
the System. A customer may purchase additional training sessions
or refresher courses at any time.
All New Image Systems currently sold by the Company come
with a one year standard limited parts and labor warranty on the
hardware components. Computer imaging technicians are available
to answer customers' telephone inquiries through the Company's
office in San Juan Capistrano during regular working hours.
5
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Company-developed enhancements and upgrades to software
programs are offered periodically by the Company to customers for
purchase. The Company generates additional revenue by selling
film to its customers for use in the printers sold by the
Company, as well as disposable sterilized sheaths and window
clips for the AcuCam lenses.
PRODUCT DEVELOPMENT
During fiscal 1993, the Company introduced the AcuChart
System and the AcuCam PC System. In October 1994, the Company
released the AcuCam PC+ which was an improved AcuCam PC product.
In March, 1995 the Company introduced MultiCam, an AcuCam system
that is expandable to multiple dental operatories. In July, 1995
the company introduced an upgraded AcuView on Windows -TM-, a
dental imaging software product for the cosmetic dentistry
market. The company continues to focus its product development
efforts on improvements of its intraoral camera products.
In March, 1995 the Company entered into a contractual
arrangement with Loral Fairchild Corporation for the joint
development of a new Digital X-ray System for the dental market.
The product will be marketed under the New Image name. Loral
is responsible for the development of the Digital X-ray hardware
and New Image is responsible for development of required system
software, obtaining FDA clearance and marketing the Digital
X-ray System. The Company presently contemplates the
introduction of its new Digital X-ray product in the latter half
of calendar 1996. The development of the Digital x-ray product
is still underway. There can be no assurance that this product
will be commercially marketed by the company and, if marketed,
commercially viable.
PATENTS AND PROPRIETARY RIGHTS
The Company regards its imaging systems and applications
software as proprietary trade secrets and attempts to protect
them with confidentiality agreements it has entered into with its
employees and the confidentiality provisions in its agreements
with distributors, licensees and sales representatives. The
Company also relies on copyright protection, which protects
against unauthorized copying of its programs. The Company has a
patent on certian features of the AcuCam Camera (No. 5,124,797).
The Company has also obtained or applied for trademark protection
on the names AcuCam, AcuCam PC, AcuView, AcuChart, AcuRay and
AcuPrinter. Despite the precautions the Company has taken, it
may be possible for third parties to copy aspects of the
Company's products or, without authorization, to obtain and use
information which the Company regards as proprietary. The
Company believes that existing copyright laws afford only limited
practical protection against such risks. The Company believes
that the technical and creative skills and expertise of its
technical staff and marketing and management personnel are more
critical to the Company's success than patent, copyright or
trademark protection.
COMPETITION
There are many companies which compete in the intraoral
camera market which has recently resulted in price competition
and an erosion of margins. The Company believes that the New
Image Systems currently being marketed to the dental industry are
functionally superior to competing products. A few of the
companies with which the Company competes may be better financed
and have more resources than the Company. The markets for the
Company's products are relatively new and may attract additional
competition in the future. There can be no assurance that
competitive pressures will not result in price reductions or that
other developments in the Company's markets might have an adverse
affect on the Company.
6
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EMPLOYEES
At September 28, 1995, the Company had 86 full-time
employees. Of this number, 1 was an officer, 33 were involved in
production, 13 were in customer service, 21 were in
administration, 8 were engaged in sales and marketing and 10 were
involved with research & development. The Company has never had
a work stoppage and no employees are represented by a collective
bargaining agreement.
ITEM 2. PROPERTIES.
The Company's corporate headquarters and principal offices
are currently located in Canoga Park, California, in
approximately 9,825 square feet of space under a lease which
expires on December 31, 1995. The lease provides for aggregate
minimum monthly rental payments of approximately $8,350. For the
fiscal year ended June 30, 1995, the Company had lease costs of
approximately $169,000, pursuant to this lease and its
predecessor. The lease also requires the Company to pay taxes,
maintenance and insurance and provide for periodic rent increases
based on a published price index.
The Company leases approximately 1,700 square feet of space
in an office building in Manhattan Beach, California. The
Company has subleased this space on a pass-through basis.
The Company leases approximately 14,265 square feet in a
building in San Juan Capistrano where it manufactures the AcuCam
under a lease expiring November 30, 1995. The Company acquired
this space in connection with the acquisition of Aerospace
Optics. Lease costs under this lease were approximately $165,000
for the fiscal year ended June 30, 1995. The lease payments
under this lease are currently approximately $15,000 per month.
The Company leases approximately 7,000 square feet of
warehouse space in San Juan Capistrano. Costs under this lease
were approximately $12,000 in 1995. The lease payments are
currently approximately $3,000 per month. The lease expires on
November 30, 1995.
The Company has entered into a new lease which began in
August 1995, for a building in Carlsbad, California. This lease
is for approximately 32,000 square feet and expires on February
28, 2001. The Company is not currently paying any rent but will
pay $11,000 per month beginning October 1, 1995 and approximately
$21,500 per month on March 1, 1996. The Company will vacate its
existing facilities on or about November, 1995 and move all of
its operations to Carlsbad.
ITEM 3. LEGAL PROCEEDINGS.
The following is a summary of certain lawsuits in which the
Company is currently involved, and the settlement terms of a suit
recently settled by the Company.
HIGH TECH MEDICAL INSTRUMENTATION V. NEW IMAGE, ET AL.
On November 20, 1993, High Tech Medical Instrumentation
("HTMI") filed a patent infringement lawsuit against the Company,
captioned "High Tech Medical Instrumentation v. New Image
Industries, Civil Action No. C-93-4152 SBA (the "Action"). On
May 24, 1995, the Company's motion for partial summary judgment
was granted. The Plaintiffs filed a motion seeking
reconsideration of the court's ruling on the New Image motion,
which was denied on October 3, 1995. The Company has been
informed that the Plaintiffs intend to appeal the summary
judgement issued by the court in favor of the Company.
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STEVEN P. HILL V. NEW IMAGE INDUSTRIES, INC., ET AL.
On September 29, 1994, Steven P. Hill, a shareholder of the
Company, filed a class action lawsuit against the Company and
certain of its former officers alleging violations of Sections 10
(b) and 20 of the Securities and Exchange Act of 1934, as
amended. The action purports to be on behalf of all persons who
purchased New Image Common Stock between April 22, 1994 and
September 27, 1994 and alleges that the Company made certain
materially false and misleading statements. The Company does not
believe there is a basis for the claims and intends to vigorously
to defend the action.
BOSTON MARKETING, CO. LTD. V. NEW IMAGE INDUSTRIES, INC.
In July 1995, New Image was served with an action by Boston
Marketing, Co. Ltd. in which Boston Marketing, Co. Ltd. claims
New Image breached certain purchase orders for cameras which are
incorporated in the Company's products. The plaintiffs in the
action seek damages in excess of $7 million. The Company has
denied all of the allegations contained in the Complaint and
intends to vigorously defend the action.
FITZPATRICK AND BLAIR V. NEW IMAGE INDUSTRIES, INC.
In March 1994, Michael Fitzpatrick, a former employee of New
Image, filed an action against New Image alleging that New Image
breached a contract allegedly existing between New Image and the
plaintiff and was involved in certain fraudulent conduct in
connection with that contract. Plaintiff seeks damages in an
amount in excess of $4 million. The Company has denied all of
the allegations contained in the Complaint and intends to
vigorously defend the action.
In addition to the foregoing, the Company is from time to
time involved in litigation arising in the ordinary course of its
business.
The Company believes that the claims asserted are without merit
and it continues to vigorously defend itself. The Company
believes that its litigation reserve is sufficient to cover the
costs of defense of these suits and any potential judgments.
However, there can be no assurances as to the ultimate outcome of
any of these cases.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of fiscal
1995 to a vote of the security holders of the Company.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the NASDAQ National Market
System under the symbol "NIIS". The following table sets forth the high and
low last sale prices for the Company's Common Stock in the NASDAQ National
Market System for the periods indicated, as reported by the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
Price
---------------------
High Low
-------- --------
<S> <C> <C>
Fiscal 1993
First Quarter . . . . . . . . . . . . . 8 5 1/2
Second Quarter . . . . . . . . . . . . . 19 6
Third Quarter. . . . . . . . . . . . . . 22 1/4 14 1/2
Fourth Quarter . . . . . . . . . . . . . 21 12 3/4
Fiscal 1994
First Quarter . . . . . . . . . . . . . 19 1/4 11 3/4
Second Quarter . . . . . . . . . . . . . 16 5/8 11 3/4
Third Quarter . . . . . . . . . . . . . 16 3/8 8 7/8
Fourth Quarter . . . . . . . . . . . . . 12 3/8 8 5/8
Fiscal 1995
First Quarter. . . . . . . . . . . . . . 15 1/8 7 1/16
Second Quarter . . . . . . . . . . . . . 6 3/4 3 5/8
Third Quarter. . . . . . . . . . . . . . 5 1/4 3 5/8
Fourth Quarter . . . . . . . . . . . . . 4 3/8 2 13/16
Fiscal 1996
First Quarter (through September 28, 1995) 4 1/4 1 7/8
</TABLE>
On September 28, the closing price of the Common Stock on the
NASDAQ National Market System was $2 1/8.
As of September 28, 1995, there were approximately 652 record
holders of the Company's Common Stock.
DIVIDEND POLICY. The present policy of the Company is to retain
earnings to provide funds for use in its business. The Company has not paid
cash dividends on its Common Stock and does not anticipate that it will do so
in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data of the Company set forth below at and for
the each of the years shown below has been derived from the Company's audited
financial statements. The financial statements for fiscal years ended June
30, 1995, 1994 and 1993 are included elsewhere herein.
The selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Results of Operation and
Financial Condition" and the Consolidated Financial Statements and related
Notes and other financial information included elsewhere in this Annual
Report.
<TABLE>
<CAPTION>
For Year ended June 30,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net Revenues . . . . . . . . $31,623,000 $31,569,000 $30,589,000 $16,357,000 $ 8,345,000
Cost of Revenues . . . . . 21,319,000 17,069,000 14,705,000 8,602,000 5,232,000
------------ ------------ ------------ ------------ ------------
Gross profit . . . . . . . 10,304,000 14,500,000 15,884,000 7,755,000 3,113,000
------------ ------------ ------------ ------------ ------------
Selling, general and
administrative expenses . 12,105,000 11,517,000 9,044,000 6,863,000 9,421,000
Research and
development expenses . . . 1,220,000 604,000 375,000 84,000 321,000
Unusual charges. . . . . . . 4,350,000 -- -- -- 2,931,000
Club New Image expenses. . . -- -- -- -- 2,675,000
Legal/litigation expenses. . 349,000 2,710,000 217,000 1,395,000 700,000
Loss on disposition
of subsidiary. . . . . . . -- -- -- 474,000 --
Loss on sale of assets . . . 38,000 -- -- -- --
Interest income, net . . . . (85,000) (4,000) (35,000) (48,000) (551,000)
------------ ------------ ------------ ------------ ------------
(Loss) income before
income taxes . . . . . . . (7,673,000) (327,000) 6,283,000 (1,013,000) (12,384,000)
Provision (benefit)
for income taxes . . . . . -- 20,000 675,000 -- . (571,000)
------------ ------------ ------------ ------------ ------------
Net (loss) income. . . . . . $(7,673,000) $ (347,000) $ 5,608,000 $(1,013,000) $(11,813,000)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net (loss) income per
share. . . . . . . . . . . $ (1.61) $ (0.08) $ 1.27 $ (.26) $ (3.00)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average shares
of common stock
outstanding. . . . . . . . 4,762,000 4,612,000 4,429,000 3,973,000 3,932,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<CAPTION>
June 30,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital. . . . . . $ 6,045,000 $11,164,000 $ 9,171.000 $ 4,029,000 $ 4,257,000
Total assets . . . . . . . 15,901,000 21,431,000 18,515,000 9,412,000 11,525,000
Long term debt . . . . . . 24,000 229,000 486,000 104,000 202,000
Total debt . . . . . . . . 33,000 249,000 1,358,000 122,000 1,922,000
Accumulated deficit. . . . (14,011,000) (6,337,000) (5,990,000) (11,598,000) (10,585,000)
Shareholders' equity . . . 8,658,000 14,667,000 12,308,000 6,026,000 6,961,000
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the
percentage of total revenue represented by certain items on the Company's
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
1995 1994 1993 1992
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of revenues. . . . . . . . 67.4 54.1 48.1 52.6
Gross profit . . . . . . . 32.6 45.9 51.9 47.4
Selling, general and
administrative expenses. . . 38.3 36.5 29.6 42.0
Research and
Development expenses . . . . 3.9 1.9 1.2 0.5
Unusual charges . . . . . . . . 13.8 -- -- --
Loss on disposition of subsidiary -- -- -- 2.9
Legal/litigation expenses . . . 1.1 8.6 0.7 8.5
Loss on sale of assets. . . . . 0.1 -- -- --
Interest income, net. . . . . . (0.3) (0.0) (0.1) (0.3)
(Loss)/income before taxes. . . (24.3) (1.0) 20.5 (6.2)
Net (loss) income. . . . . (24.3) (1.1) 18.3 (6.2)
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1995 COMPARED TO THE YEAR END JUNE 30, 1994
Net revenues for the year ended June 30, 1995 were $31,623,000,
relatively flat compared to 1994 net revenues of $31,569,000.
The Company's gross profit percentage decreased from 46% for the year
ended June 30, 1994 to 33% for the year ended June 30, 1995. This reduction
in gross profit percentage is a result of a number of factors, including
significant selling price reductions, higher material costs as a percentage
of selling price for some of the Company's new products, change in mix of
products to lower margin products, higher indirect labor and overhead costs
in manufacturing, production transition costs and increased reserves.
Selling, general and administrative expenses increased $588,000 in
fiscal 1995 when compared to fiscal 1994, and also increased as a percentage
of revenue from 36% to 38%. The increase was due to higher general and
administrative expenses, resulting from a variety of factors notable among
which were higher salaries and depreciation and amortization. Selling
expenses were relatively constant from 1994 to 1995.
Research and Development expenses increased 102% from $604,000 in 1994
to $1,220,000 in 1995. This increase is attributable to activities
undertaken to develop the MultiCam product as well as activities to further
develop the Company's digital x-ray product.
Legal/litigation expenses declined from $2,710,000 to $349,000. A
$2,710,000 charge was recorded in fiscal 1994 for costs of a patent
litigation suit and other matters the company was facing. Approximately
$1,513,000 of litigation costs were charged against the reserve and an
additional $349,000 was provided for in 1995. An accrual of approximately
$836,000 remains at June 30, 1995 to cover additional costs and potiential
judgements. See "BUSINESS -- LITIGATION"
11
<PAGE>
Unusual charges of $4,350,000 were recorded in fiscal 1995. These
charges relate to the termination/resignation of officers and other
management personnel, a writedown of inventory related to discontinued
products, payments related to the termination/modification of supply
contracts and purchase commitments, relocation payments related to the
abandonment of the Canoga Park and San Juan Capistrano leases, write-off of
marketing rights to Europe, and other miscellaneous items (See Note 4 on
Notes to Financial Statements).
Accounts receivable increased $312,000 primarily due to an increase in
international accounts receivable. Inventories declined by $2,172,000
primarily due to reserve of $1,250,000 for materials for discontinued
products and, to a lessor extent, better inventory management. Current
liabilities increased by $684,000, caused by a small increase in payables and
a significant increase in other accrued liabilities as a result of the
restructuring partially offset by a decline in the litigation reserve.
YEAR ENDED JUNE 30, 1994 COMPARED TO THE YEAR ENDED JUNE 30, 1993
Net revenues for the year ended June 30, 1994 increased slightly
(3.2%) from $30,589,000 to $31,569,000. However, revenues for the 1993
fiscal year included revenues from Styles on Video, Inc., a subsidiary of the
Company which was spun off to the Company's shareholders in March 1993.
Excluding revenues derived from Styles on Video ($4,037,000), in fiscal 1993
the Company had revenues attributable to its dental business of $26,552,000.
Revenues attributable to the Company's current business thus increased 19% in
fiscal 1994 from the level experienced in fiscal 1993. The Company believes
that this increase is attributable in large part to the increased awareness
of the Company's products by members of the dental profession, as well as a
substantial increase in the Company's sales force. During fiscal 1994, the
Company aggressively sought to penetrate the market through expansion of its
external sales force and attendance at more trade shows. The increase in
revenues experienced in fiscal 1994 was partially offset by a decline in
revenues experienced in the third quarter of fiscal 1994, which was
attributable in large part to the earthquake in Los Angeles and severe
weather conditions throughout much of the United States. The Company
believes that revenues were further adversely impacted by the issuance of the
preliminary injunction in the HTMI lawsuit which occurred in the fourth
quarter of fiscal 1994. See "Legal Proceedings." Because of the existence
of the injunction, the Company was forced to suspend sales of the AcuCam
camera for approximately one week while it effected a redesign of the camera
to avoid the alleged infringement.
The Company's gross profit percentage decreased from 52% for the year
ended June 30, 1993 to 46% for the year ended June 30, 1994. This reduction
in gross profit percentage is primarily a result of a decrease in the average
sale price of the Company's systems and cameras, which was instituted by the
Company during fiscal 1994 in response to competitive pressures. The Company
anticipates that the lower prices will remain in effect for the foreseeable
future and that the prices may have to be further reduced if the competition
so dictates. Also contributing to the decrease was the fact that revenues
during the 1993 period included sales derived from Styles on Video which
experienced higher margins due to the greater volume of software sales. In
addition, the decline of the dollar against the yen increased the cost of
goods sold for certain products and a reserve for older and damaged inventory
of $550,000 was taken during the third and fourth quarters of fiscal 1994.
Selling, general and administrative expenses increased $2,473,000 in
fiscal 1994 when compared to fiscal 1993, and increased also as a percentage
of revenue from 30% to 36%. This increase is in part attributable to an
increased percentage of the Company's sales being made by independent sales
representatives as opposed to direct sales by the Company's in-house
marketing personnel. The sales representatives are paid commissions ranging
from 8% to 10% of sales. Total commissions paid during this 1994 period
amounted to $2,857,000, or 9% of revenues, versus $1,442,000, or 5.4% of
dental revenues during the 1993 period. Also contributing to the increase
was an increase in advertising expenses of $582,000, an increase in
amortization expenses due to the Aerospace Optics acquisition and increased
personnel costs.
12
<PAGE>
Product development expenses increased 61% from $375,000 in fiscal
1993 to $604,000 in fiscal 1994. This increase is attributable to activities
undertaken in connection with the Company's digital x-ray project, as well as
ongoing improvements to the Company's existing product line.
Legal/litigation expenses increased from $217,000 for fiscal 1993 to
$2,710,000 (9% of revenues) in fiscal 1994 due to the ongoing patent
litigation against the Company. A reserve of $2,000,000 was taken during the
fourth quarter of fiscal 1994 against future costs of this litigation.
Inventories increased $3,136,000 at June 30, 1994 when compared to
June 30, 1993, primarily as a result of an increased need for inventory to
provide to the Company's Regional Managers and outside sales representatives
for their use as demonstration equipment. Also contributing to the increase
in inventories was the AcuTrial program instituted by the Company during
fiscal 1994. This program allows a dentist to order an AcuCam System on a
trial basis and use it for a two week period before making a purchase
decision.
IMPACT OF INFLATION AND CHANGING PRICES.
The Company does not believe it has been significantly impacted by
inflation because the prices of its primary components, camera chips, video
printers and IBM-compatible personal computers and related equipment, have
generally fallen during the past few years.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company had cash on hand of $1,567,000, down
from $2,950,000 at June 30, 1994, a decrease of $1,383,000. The decrease was
primarily the result of the negative cash flow from operations, which was
($1,576,000).
The company is currently investing cash in the business by
consolidating its operations into one facility, upgrading its management
information systems and investing in new product 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 would be available.
The Company's working capital at June 30, 1995 was $6,045,000, a
decrease of $5,119,000 when compared to June 30, 1994. The decrease resulted
primarily from losses incurred and reserves recorded in 1995. The current
ratio was 1.8 to one at June 30, 1995, down from 2.7 to one at June 30, 1994.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
NEW IMAGE INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Public Accountants. . . . . . . . . . . 15
Consolidated Balance Sheets at June 30, 1995 and 1994 . . . . 16
Consolidated Statements of Operations for each of the three
years ended June 30, 1995, 1994 and 1993. . . . . . . . . . 18
Consolidated Statements of Shareholders' Equity for each of
the three years ended June 30, 1995, 1994 and 1993. . . . . 19
Consolidated Statements of Cash Flows for each of the three
years ended June 30, 1995, 1994 and 1993. . . . . . . . . . 20
Notes to Consolidated Financial Statements. . . . . . . . . . 22
</TABLE>
14
0<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To New Image Industries, Inc.
We have audited the accompanying consolidated balance sheets of
NEW IMAGE INDUSTRIES, INC. (a Delaware corporation) and
subsidiary as of June 30, 1995 and 1994, and the related
consolidated statements of operations, shareholders equity and
cash flows for each of the three years in the period ended June
30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of New Image Industries, Inc. and subsidiary as of June 30, 1995
and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended June 30,
1995 in conformity with generally accepted accounting principles.
As more fully discussed in Note 3, the company is a party to
certain significant legal proceedings. The Company believes that
the claims are without merit and will vigorously defend itself.
The Company believes that the litigation reserves of
approximately $800,000 are sufficient to cover the costs of
defense and any potential judgments. However, there are no
assurances as to the ultimate outcome of these matters.
ARTHUR ANDERSEN LLP
Los Angeles, California
October 6, 1995
15
<PAGE>
NEW IMAGE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
June 30,
----------------------
1995 1994
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,567,000 $ 2,950,000
Short-term investments and bank certificate of deposit 500,000 1,296,000
Accounts receivable, net of allowance for doubtful
accounts of $280,000 in 1995 and $281,000 in 1994 5,251,000 4,939,000
Inventories 5,444,000 7,616,000
Refundable income taxes -- 659,000
Prepaid expenses and other 502,000 239,000
----------- -----------
Total current assets 13,264,000 17,699,000
=========== ===========
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 1,873,000 1,825,000
Office furniture and fixtures 156,000 97,000
Vehicles 154,000 201,000
Leasehold improvements 211,000 96,000
----------- -----------
2,394,000 2,219,000
LESS: accumulated depreciation and amortization 1,552,000 1,230,000
----------- -----------
Property and equipment, net 842,000 989,000
----------- -----------
INTANGIBLE ASSETS, net of accumulated amortization
of $1,571,000 in 1995 and $1,296,000 in 1994 1,230,000 2,096,000
CAPITALIZED SOFTWARE AND OTHER ASSETS 565,000 647,000
----------- -----------
$15,901,000 $21,431,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
16
<PAGE>
NEW IMAGE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 3,452,000 $ 3,123,000
Accrued payroll 595,000 513,000
Accrued litigation costs 836,000 2,000,000
Accrued restructuring and unusual charges 1,109,000 --
Accrued liabilities related to acquisition 623,000 635,000
Other accrued liabilities 604,000 264,000
----------- -----------
Total current liabilities 7,219,000 6,535,000
----------- -----------
OTHER LONG TERM LIABILITIES 24,000 229,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 3)
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; 4,791,000 outstanding
at 1995; 4,621,000 outstanding at 1994 5,000 5,000
Capital in excess of par value 22,663,000 20,999,000
Accumulated deficit (14,010,000) (6,337,000)
----------- -----------
Total shareholders' equity 8,658,000 14,667,000
----------- -----------
$15,901,000 $21,431,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
17
<PAGE>
NEW IMAGE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues $31,623,000 $31,569,000 $30,589,000
Cost of revenues 21,319,000 17,069,000 14,705,000
----------- ----------- -----------
Gross profit 10,304,000 14,500,000 15,884,000
----------- ----------- -----------
Selling, general and
administrative expenses 12,105,000 11,517,000 9,044,000
Research and development expenses 1,220,000 604,000 375,000
Legal/litigation expenses 349,000 2,710,000 217,000
Restructuring and unusual charges 4,350,000 -- --
Interest expense (income), net (85,000) (4,000) (35,000)
Loss on sale of assets 38,000 -- --
----------- ----------- -----------
(Loss) income before income taxes (7,673,000) (327,000) 6,283,000
Provision for income taxes -- 20,000 675,000
----------- ----------- -----------
Net (loss) income $(7,673,000) $ (347,000) $ 5,608,000
=========== ========== ===========
Net (loss) income per share $ (1.61) $ (0.08) $ 1.27
=========== ========== ===========
Weighted average shares of
common stock outstanding 4,762,000 4,612,000 4,429,000
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
18
<PAGE>
NEW IMAGE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
Common Stock and
Capital in Excess of
Par Value Total
------------------------ Accumulated Share-
Number of Earnings holders'
Shares Amount (Deficit) Equity
---------- ----------- ------------ ----------
<S> <C> <C> <C>
Balance at June, 30, 1992 4,057,000 17,624,000 (11,598,000) 6,026,000
Exercise of stock options
including related tax benefits 256,000 603,000 -- 603,000
Exercise of stock warrants 100,000 780,000 -- 780,000
Dividend distribution -
Styles on Video -- (709,000) -- (709,000)
Net income -- -- 5,608,000 5,608,000
---------- ----------- ------------ ----------
Balance at June 30, 1993 4,413,000 18,298,000 (5,990,000) 12,308,000
Exercise of stock options
including related tax benefits 65,000 641,000 -- 641,000
Issuance of stock for shareholder
litigation settlement 56,000 1,000,000 -- 1,000,000
Issuance of stock for Aerospace
acquisition 87,000 1,065,000 -- 1,065,000
Net loss -- -- (347,000) (347,000)
---------- ----------- ------------ ----------
Balance at June 30, 1994 4,621,000 21,004,000 (6,337,000) 14,667,000
Exercise of stock options
including related tax benefits 18,000 43,000 -- 43,000
Issuance of stock for European
license acquisition 100,000 1,413,000 -- 1,413,000
Issuance of stock for Aerospace
acquisition 17,000 208,000 -- 208,000
Issuance of stock in connection
with litigation 35,000 -- -- --
Net loss -- -- (7,673,000) (7,673,000)
---------- ----------- ------------ ----------
Balance at June 30, 1995 4,791,000 $22,668,000 $(14,010,000) $8,658,000
========== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
19
<PAGE>
NEW IMAGE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(7,673,000) $ (347,000) $ 5,608,000
Adjustments to reconcile net (loss) income to
net cash provided (used) by operating activities:
Restructuring and unusual charges 1,597,000 -- --
Depreciation and amortization 1,446,000 992,000 877,000
Provision for losses on accounts receivable
and long term receivable 75,000 175,000 30,000
Changes in assets and liabilities, net
of affects from acquisition and sale:
(Increase) decrease in:
Accounts receivable (387,000) (678,000) (3,105,000)
Inventories 2,283,000 (2,586,000) (3,808,000)
Prepaid expenses and other (263,000) (57,000) (285,000)
Income taxes receivable 659,000 (659,000) --
Increase (decrease) in:
Accounts payable 329,000 513,000 2,000,000
Accrued expenses 1,522,000 217,000 (446,000)
Income taxes payable -- (65,000) 215,000
Accrued Litigation (1,164,000) 2,000,000 359,000
----------- ---------- -----------
Net cash (used in) provided by operating
activities (1,576,000) (495,000) 1,445,000
----------- ---------- -----------
Cash flows from investing activities:
(Increase) in capitalized software and
other assets (167,000) (403,000) (8,000)
Purchase of property and equipment (479,000) (573,000) (282,000)
Cash received from sales of
investments and maturities of CDs 796,000 1,122,000 201,000
Net purchases of short-term investments -- -- (2,418,000)
Cash portion of distribution to
shareholders of stock in
subsidiary- -- -- (273,000)
Cash paid in connection with the
acquisition of certain intangible assets -- -- (222,000)
----------- ---------- -----------
Net cash provided by (used) in
investing activities 150,000 146,000 (3,002,000)
----------- ---------- -----------
</TABLE>
20
<PAGE>
NEW IMAGE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS ENDED JUNE 30,
(CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from issuance of stock 43,000 641,000 1,383,000
Net cash provided by (used) in financing activities 43,000 641,000 1,383,000
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,383,000) 292,000 (174,000)
BEGINNING CASH AND CASH EQUIVALENTS 2,950,000 2,658,000 2,832,000
---------- ---------- ----------
ENDING CASH AND CASH EQUIVALENTS $1,567,000 $2,950,000 $2,658,000
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosures:
Interest paid $ 14,000 $ 71,000 $ 33,000
---------- ---------- ----------
---------- ---------- ----------
Taxes paid $ -- $ 624,000 $ 370,000
---------- ---------- ----------
---------- ---------- ----------
Accrued liabilities recorded in connection
with purchase of certain intangible assets $ -- $ -- $1,040,000
---------- ---------- ----------
---------- ---------- ----------
Note payable issued in connection with purchase
of certain intangible assets $ -- $ -- $ 857,000
---------- ---------- ----------
---------- ---------- ----------
Common Stock issued in connection with
Shareholder litigation settlement $ -- $1,000,000 $ --
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
21
<PAGE>
NEW IMAGE INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995, 1994 AND 1993
1. Summary of Significant Accounting Policies
a. Line of Business and Operations -- New Image Industries, Inc.
(the "Company") designs, develops and manufactures intraoral
cameras and computer imaging systems (referred to herein as "New
Image Systems") exclusively to the dental market place. These
products include the MultiCam Intraoral Camera System, AcuCam
Intraoral Camera System, the AcuCam PC+ Computerized Camera
System and the AcuView Dental Imaging System. Prior to March 29,
1993 the Company also designed, manufactured and distributed
hardware and software products related to the beauty industry.
During the year ended June 30, 1992 the Company began test
marketing a new program for its beauty industry products, "Styles
on Video". Effective July 1992, the Company transferred to its
then wholly owned subsidiary, Styles on Video, Inc. ("Styles on
Video"), certain assets consisting of certain hardware and
software which Styles on Video based its Styles on Video System,
in consideration of the issuance to the Company of 1,000,000
shares of common stock of Styles on Video. The Company
determined that its own best interests would be served by
transferring all rights in the New Image Salon System and other
beauty products to the new entity, whose management could
concentrate exclusively on the exploitation of these products.
Effective March 29, 1993, the Company undertook a distribution
(the "Distribution") of all of the common stock of Styles on
Video ("Styles Common Stock") held by the Company to its
shareholders of record on the basis of one share of Styles Common
Stock for each five shares of common stock of the Company held at
the close of business on February 8, 1993, the record date for
the Distribution. See Note 6b.
In the third and fourth quarter of fiscal 1995, the Company
undertook a restructuring of its operations in order to become
more competitive and improve operating results. The
restructuring included changes in management personnel, moving
facilities, concentrating on certain products and other items
(See Note 4).
b. Principles of Consolidation -- The accompanying financial
statements include the accounts of the Company and its wholly
owned subsidiary Styles on Video, Inc. (Note 6). The results of
operations for Styles on Video have been included from July 1,
1992 through March 29, 1993, the effective date of the
Distribution. All significant intercompany transactions have
been eliminated in consolidation.
c. 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.
d. Short-term Investments and Bank Certificates of Deposit --
Short-term investments and bank certificates of deposit include
short-term, highly liquid investments; principally tax-exempt
money market funds and municipal securities with original
maturities of greater than three months. The cost of these items
approximated their fair market value at June 30, 1995.
e. 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. Certain of the dental professionals lease the
Company's products through third party leasing companies. Under
the terms of the sales, the leasing companies have no recourse to
the Company.
22
<PAGE>
f. 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. The components of
revenues are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
System sales $29,620,000 $29,610,000 $27,143,000
Software sales - - 1,394,000
Supplies and Other 2,003,000 1,959,000 2,052,000
----------- ----------- -----------
$31,623,000 $31,569,000 $30,589,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
g. Warranty Expenses -- The Company generally warrants its
systems for one year. A provision for estimated future costs
relating to warranty is recorded when systems are shipped.
h. Inventories -- Inventories consist primarily of purchased
components and raw materials and are priced at the lower of cost
(first-in; first-out) or market. Such amounts include the cost
of material and, when applicable, labor and overhead.
Appropriate consideration is given to deterioration, obsolescence
and other factors in determining net realizable value.
i. Property and Equipment -- The Company primarily uses the
straight-line method of depreciation. Estimated useful lives are
as follows:
<TABLE>
<S> <C>
Computer hardware and software 2 to 3 years
Furniture and fixtures 7 years
Vehicles under capital leases 5 years
Leasehold improvements lesser of lease term or asset life
</TABLE>
The Company follows the policy of capitalizing expenditures which
materially increase asset lives, and charging ordinary
maintenance and repairs to operations as incurred. When assets
are sold or otherwise disposed of, the cost and related reserves
are removed from the accounts and any resulting gain or loss is
included in income.
j. Capitalized Software Development Costs -- The Company
capitalizes, and includes in other assets, costs incurred for the
development of certain computer software in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Capitalization of computer software
development costs begins upon the establishment of technological
feasibility. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized computer
software development costs requires external factors, including,
but not limited to, technological feasibility and obsolescence,
anticipated future gross revenues, estimated economic life,
changes in software and hardware technology, and patent and
trademark law and litigation. The net book value of capitalized
software at June 30, 1995 and 1994 was approximately $400,000.
Amortization of capitalized software development costs is
provided for on a product-by-product basis at the greater of the
amount computed using a ratio of current gross revenues for a
product to the total of current and anticipated future
23
<PAGE>
gross revenues or the straight-line method over the remaining
estimated economic life of the product. An original estimated
economic life of 24 months is assigned to capitalized computer
software development costs. Amortization amounted to $249,000,
$48,000 and $138,000 for the periods ended June 30, 1995, 1994,
and 1993, respectively and is included in cost of revenues in the
accompanying statement of operations.
k. Intangible Assets -- Intangible assets consist of the amount
paid for the patent, copyright and other rights to certain
products and goodwill. Amortization is provided on a straight-
line basis over a period of five to twenty years. Intangible
Assets consist of the following as of June 30:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Goodwill $ 838,000 $ 838,000
Non-compete and
Employment Agreement
(See Note 4) $ 690,000 1,281,000
Product and Patent Rights 1,273,000 1,273,000
----------- -----------
2,801,000 3,392,000
Accumulated Amortization (1,571,000) (1,296,000)
----------- -----------
Total $ 1,230,000 $ 2,096,000
----------- -----------
----------- -----------
</TABLE>
l. (Loss) Income Per Common Share -- (Loss) income per common
share for fiscal 1995, 1994 and 1993 are based on the weighted
average number of common shares outstanding and includes the
dilutive effect of options and warrants in fiscal 1993. The
effect of common share equivalents is not included in the loss
per common share calculation for fiscal 1994 and 1995.
2. Income Taxes
On July 1, 1993, the Company adopted FASB Statement No. 109
"Accounting for Income Taxes, SFAS No. 109" under which deferred
tax assets and liabilities are provided on differences between
financial reporting and tax reporting using the enacted tax
rates. The adoption of this new statement did not have a
material effect on the Company's operations or financial
position. Prior to the adoption of this new statement, income
taxes were computed in accordance with FASB Statement No. 96.
The income tax provision (benefit) on (loss) income differs from
the amount obtained by applying the federal statutory rate
because of the following items:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Statutory rate (34.0)% (34.0)% 34.0%
Losses producing no
current tax benefit 34.0 34.0 -
State income tax net of
federal tax effect - - 5.5
NOL used to offset income - - (32.3)
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C> <C>
Alternative minimum tax - 6.1 -
Other - - 3.5
---- ---- ----
Effective rate - % 6.1% 10.7%
---- ---- ----
---- ---- ----
</TABLE>
Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities for
1995 are as follows:
<TABLE>
<CAPTION>
Deferred tax Deferred tax
assets Liabilities
------------ ------------
<S> <C> <C>
Software $ -- $(189,000)
Litigation 337,000
Other Reserves 667,000
Restructuring Reserve 950,000
Net operating loss carryforward 2,383,000
Other 141,000
------------ ----------
4,478,000 (189,000)
Valuation allowance (4,289,000)
------------ ----------
Total deferred taxes $ 189,000 $(189,000)
------------ ----------
------------ ----------
</TABLE>
As of June 30, 1995, the Company has net operating loss
carryforwards for federal and for financial statement purposes of
approximately $5,957,000 and $8,600,000, respectively. Federal
net operating losses will begin to expire after 2005, becoming
fully expired by the year 2007 if not offset against future
taxable income. As a result of the Tax Reform Act, the
availability of net operating loss carryforwards can be limited
due to a change in ownership.
3. Commitments and Contingencies
a. Leases -- The Company leases its facilities under various
operating leases which expire at various dates through fiscal
2001. The lease commitments include the lease for a new facility
in Carlsbad, California which was signed in August, 1995. The
leases require the Company to pay taxes, maintenance and
insurance and provide for periodic rent increases based on a
published price index. Total lease expenses under these
operating leases were $346,000, $251,000 and $203,000 for the
periods ended June 30, 1995, 1994 and 1993, respectively. The
Company also leases certain vehicles under capital leases which
expire at various dates through 1997. The long term obligation
related to the capitalized leases is included in other long term
liabilities, and the current portion is included in other accrued
liabilities.
25
<PAGE>
The net book value of the vehicles under these leases amounted to
approximately $21,000. The aggregate liability for future
rentals under these lease agreements as of June 30, 1995, net of
sublease income which totaled $45,000 during the year, is
summarized as follows:
<TABLE>
<CAPTION>
Year Ended Capital Operating
June 30, Leases Leases Total
----------- --------- ------------ ----------
<S> <C> <C> <C>
1996 $11,000 $ 284,000 $ 295,000
1997 25,000 261,000 286,000
1998 - 270,000 270,000
1999 - 278,000 278,000
2000 - 284,000 284,000
Thereafter 192,000 192,000
------- ---------- ----------
$36,000 $1,569,000 $1,605,000
---------- ----------
---------- ----------
Less: Amount
representing
interest 3,000
-------
33,000
Less: Current
portion 9,000
-------
$24,000
-------
-------
</TABLE>
b. Contracts -- The Company has entered into a five-year, $28
million purchase contract with a vendor for the acquisition of
certain components of New Image's planned digital x-ray products.
The Company plans to distribute and sell the product and
believes, at this time, that the Company will meet its
commitment. There are provisions in the contract allowing New
Image to abandon its obligation, if New Image so chooses, for the
payment of a fee.
c. Litigation -- The Company has been party to certain claims
and legal proceedings. The most significant matters are
summarized as follows:
HIGH TECH MEDICAL INSTRUMENTATION V. NEW IMAGE, ET AL.
On November 20, 1993, High Tech Medical Instrumentation ("HTMI")
filed a patent infringement lawsuit against the Company, captioned
"High Tech Medical Instrumentation v. New Image Industries, Civil
Action No. C-93-4152 SBA (the "Action"). On May 24, 1995, the
Company's motion for partial summary judgment was granted.
Plaintiffs have filed a motion seeking reconsideration of the court's
ruling on the New Image motion, which was denied on October 3, 1995.
The Company has been informed that the Plaintiffs intend to appeal
the summary judgment issued by the court in favor of the Company.
25
<PAGE>
NEW IMAGE INDUSTRIES, INC. V. PERRY MICHAEL WILLIAMS. This is an
action filed by the Company against a former employee for conversion
of 35,000 shares of Common Stock which were mistakenly issued to Mr.
Williams by the Company's transfer agent. Williams filed a cross-
complaint against the transfer agent for indemnification and against
the Company for defamation. In February 1994, the Company obtained a
writ of attachment against Mr. Williams in the amount of $706,120
representing the value of the shares on the date of conversion and
estimated attorneys' fees. The Company has attached Mr. Williams'
home and his stock in two other companies. In August 1994, the court
granted the Company's motion for summary adjudication against Mr.
Williams on the conversion issue, finding him liable to the Company
in the amount of $665,000. The case is set for trial on the
remaining issues. The 35,000 shares have been treated as issued and
outstanding at no value. As amounts are received in connection with
the settlement, they will be recorded as increases to Shareholders'
equity.
STEVEN P. HILL V. NEW IMAGE INDUSTRIES, INC., ET AL.
On September 29, 1994, Steven P. Hill, a shareholder of the
Company, filed a class action lawsuit against the Company and certain
of its former officers alleging violations of Sections 10 (b) and 20
of the Securities and Exchange Act of 1934, as amended. The action
purports to be on behalf of all persons who purchased New Image
Common Stock between April 22, 1994 and September 27, 1994 and
alleges certain that the Company made certain materially false and
misleading statements. The Company does not believe there is a basis
for the claims and intends to vigorously defend the action.
BOSTON MARKETING, CO. LTD. V. NEW IMAGE INDUSTRIES, INC.
In July 1995, New Image was served with an action by Boston
Marketing, Co. Ltd. in which Boston Marketing, Co. Ltd. claims New
Image breached certain purchase orders for cameras which are
incorporated in the Company's products. The plaintiffs in the action
seek damages in excess of $7 million. The Company has denied all of
the allegations contained in the Complaint and intends to vigorously
defend the action.
FITZPATRICK AND BLAIR V. NEW IMAGE INDUSTRIES, INC.
In March 1994, Michael Fitzpatrick, a former employee of New
Image, filed an action against New Image alleging that New Image
breached a contract allegedly existing between New Image and the
plaintiff and was involved in certain fraudulent conduct in
connection with that contract. Plaintiff seeks damages in an amount
in excess of $4 million. The Company has denied all of the
allegations contained in the Complaint and intends to vigorously
defend the action.
EMPLOYEE MATTER
In September, 1995, a former officer (Griswa), filed an action
against the Company alleging, among other things, wrongful
termination and breach of contract. The former employee seeks
damages in an amount in excess of $3,000,000. The Company does not
believe there is a basis for the claim and intends to vigorously
defend the action.
The Company believes that the claims asserted are without merit and
it continues to vigorously defend istself. The Company has provided
reserves to cover the costs of defense of these suits and any
potential judgement. However, there can be no assurance as to the
ultimate outcome of any of these cases.
In addition to the foregoing, the Company is from time to time
involved in litigation arising in the ordinary course of its
business.
27
<PAGE>
4. Unusual Charges
During the third and fourth quarter, the Board of Directors took
several actions designed to impact the Company's operations.
The actions included:
- A restructuring of operations
- The abandonment of the Company's facilities in Canoga Park,
California and San Juan Capistrano, California, and a move
into one primary facility in Carlsbad, California
- The termination or resignation of the Company's three top
officers and other management personnel
- A sales and production emphasis on three primary products
(MultiCam, AcuCam and AcuCam PC+)
- A restructuring of the Company's efforts outside of the United
States
- The termination or changes to certain supply agreements
- A reduction of overhead expenses
- The hiring of management consultants to restructure the
Company's operations
In connection with these actions, certain provisions have been
recorded in the financial statements for the year ended June 30,
1995. Also certain other items will be included as expenses in the
Company's financial statements for the year ended June 30, 1996, in
accordance with current releases of the Securities and Exchange
Commission and the Emerging Issues Task Force of the AICPA related
to restructuring charges.
The unusual charges recorded in the statement of operations for the
year ended June 30, 1995 are detailed as follows:
<TABLE>
<S> <C>
Charges related to termination/resignation of
officers and other management personnel $ 953,000
Write-down of inventory related to discontinued products 1,250,000
Payments related to the termination/modification of
supply contracts and purchase commitments 260,000
Relocation and other payments related to the abandonment
of the Canoga Park and San Juan Capistrano leases 510,000
Other miscellaneous items 93,000
Write-off of marketing rights to Europe 1,284,000
----------
$4,350,000
----------
----------
</TABLE>
The Company expects to incur certain expenses in the year ending June
30, 1996 related to the actions taken by the Board of Directors described
above. Management's estimate of these items include $394,000 for moving and
severance for certain non-management employees and $108,000 related to the
remaining commitment on the management consulting agreement discussed in Note
5b.
28
<PAGE>
5. Capital Transactions
a. Stock Option Plans -- Under the Company's Stock Incentive
Plans, non-qualified stock options, incentive stock options and
stock purchase rights are available for grant to employees,
officers, directors and outside consultants of the Company and
its subsidiaries. Options granted generally become exercisable in
25% increments maturing on each of the first through fourth
anniversaries of the grant date of the option. All options
granted were at market price on the date of grant. Certain
options granted to directors, employees and outside consultants
become exercisable immediately. All options must be exercised
within ten years of the date of grant. Effective December 23,
1993, 170,000 options granted to certain employees with exercise
prices ranging from $14.50 to $14.88 were canceled and replaced
by a grant of options to purchase 170,000 shares at $11.88 per
share, the market price on December 23, 1993. Effective December
12, 1994 1,000,600 options granted to certain employees with
exercise prices ranging from $7.25 to $15.00 were, with
shareholder approval, canceled and replaced by a grant of options
to purchase 1,000,600 shares at $3.63 per share, the market price
on December 12, 1994.
29
<PAGE>
Information with respect to the Company's stock option plans is
as follows:
<TABLE>
<CAPTION>
Director Stock
Stock Incentive Plans Incentive Plans
----------------------- -------------------------------
Shares Under Option Shares Under Option
Option Prices Option Prices
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance
June 30, 1992 133,000 $0.75-$3.19 125,000 $ 0.75
Granted 344,000 $2.00-$14.88 125,000 $12.00
Exercised (131,000) $0.75-$7.25 (125,000) $ 0.75
Canceled (3,000) $0.75-$3.19 - -
- ------------------------------------------------------------------------------------------------
Balance
June 30, 1993 343,000 $0.75-$14.88 125,000 $12.00
Granted 459,000 $9.00-$11.88 115,000 $11.88-$15.00
Exercised (20,000) $0.75-$7.25 (45,000) $12.00
Canceled (176,000) $7.25-$14.88 - -
- ------------------------------------------------------------------------------------------------
Balance
June 30, 1994 606,000 $0.75-$12.75 195,000 $11.88-$15.00
Granted 1,114,000 $3.63-$4.00 195,000 $3.63
Exercised (18,000) $0.75-$7.25 - -
Canceled (825,000) $0.75-$12.75 (270,000) $11.88-$15.00
- ------------------------------------------------------------------------------------------------
Balance
June 30, 1995 877,000 $0.75-$4.00 120,000 $3.63
- ------------------------------------------------------------------------------------------------
Exercisable
June 30, 1995 466,000 $0.75-$4.00 120,000 $3.63
- ------------------------------------------------------------------------------------------------
Available For
Grant At
June 30, 1995 149,000 - 135,000 -
- ------------------------------------------------------------------------------------------------
</TABLE>
On July 26, 1995, the Board voted to increase the number of
shares under the 1993 plan from 300,000 to 500,000.
b. Warrants -- In connection with its initial public offering,
warrants to purchase 100,000 shares of common stock at $7.80 per
share were issued. The warrants were exercised during the year
ended June 30, 1993. Effective March 1995 the president of the
Company resigned from his position as Chairman of the Board of
Directors and as Chief Executive Officer of the Company. In
connection with his resignation the company extended the
expiration date of his 280,000 options one year from the
effective date of his resignation. In March, 1995 Colman Furlong
& Co. was retained by the Company to effect a management
restructuring. Robert S. Colman acted as interim Chief Executive
Officer in April and May 1995 and Colman Furlong & Co. is
providing assistance on an ongoing basis. Colman
30
<PAGE>
Furlong & Co. received warrants to purchase 275,000 shares of
common stock at $3.875 per share (fair market value on the date of
grant) and a $12,000 per month fee. Colman Furlong & Co. has also
provided an interim Chief Financial Officer and is receiving an
additional $10,000 per month for these services.
6. Related Party Transactions
a. Visual Technology -- During the year ended June 30, 1991, the
Company sold certain equipment, primarily computer equipment,
software and certain software products under development to
Visual Technology for $586,000. Visual Technology was a
development stage enterprise in which a shareholder and former
officer/director of the Company is a minority shareholder. The
purchase price approximated the book value of the assets sold.
At June 30, 1994, $247,000 of the purchase price was unpaid and
included in accounts receivable in the accompanying June 30, 1994
balance sheet. During the year ended June 30, 1995, the Company
received payments of approximately $100,000, received the source
code for certain window imaging software valued at $100,000 and
forgave the balance of approximately $50,000.
Visual Technology subleases from the Company a facility on a pass
through basis ($3,700 a month through June 1996).
b. Styles on Video - As discussed in Note 1a, the Company
distributed on March 29, 1993 to shareholders of record on
February 8, 1993, as a dividend, its interest in its subsidiary
Styles on Video. The net assets of Styles at the distribution
date were:
<TABLE>
<S> <C>
Current assets $1,789,000
Other assets 63,000
Fixed assets 595,000
Due to New Image (595,000)
Current liabilities (576,000)
----------
Net Assets $ 709,000
----------
----------
</TABLE>
Subsequent to the distribution, the Company entered into an
agreement whereby Styles developed certain software related to
the Company's dental imaging systems. The Company paid $225,000
related to this agreement.
At June 30, 1994 and 1995, the Company had no receivables or
payables to Styles on Video.
31
<PAGE>
7. European Marketing Rights
Effective July 28, 1994, the Company reacquired the exclusive
licensing rights to Europe from Fimarco, N.V. a Belgium
Corporation, in exchange for 100,000 shares of the Company's
Common Stock. The fair value of the shares issued
(approximately $1,400,000) was recorded as an intangible asset by
the Company. In connection with its restructuring in the fourth
quarter of the year ended June 30, 1995, new management
determined that the realization of the amount capitalized in the
foreseeable future was doubtful. Accordingly, the Company
included the write-off of this license in the unusual charges
recorded in 1995. (See Note 4)
8. Aerospace Optics Acquisition
On February 5, 1993, the Company completed the acquisition of
Aerospace Optics, the manufacturer of the AcuCam Intraoral Video
Camera. The acquisition was accounted for using the purchase
method; accordingly, the assets have been recorded at their
estimated fair value at the date of acquisition and the excess
purchase price over the estimated fair value of assets acquired
has been recorded as goodwill. The results of operations of
Aerospace Optics have been included in the statements of
operations since the effective date of the acquisition.
The purchase price called for payment in cash of $482,000,
issuance of 50,000 shares of "restricted" common stock (valued at
$12.24 per share, or $612,000) to be distributed in installments
over a three year period; issuance of a note payable due in one
year payable in 70,000 shares of "restricted" common stock
(valued at $12.24 per share, or $857,000) which were issued in
January, 1994; and a grant of 150,000 options to purchase common
stock at $14.88 per share which represents a discount of $2.85
per share from the then market price, or $427,000, which has been
included in the purchase price. In December 1993, 150,000 of
these options were canceled and replaced by an option to purchase
150,000 shares of Common Stock at an exercise price of $11.88 per
share, the fair market value of the Common Stock on December 23,
1993. The total consideration equates to $2,378,000 and has been
allocated to inventory and equipment ($260,000), a covenant not
to compete ($690,000), an employment agreement ($591,000) and
goodwill ($838,000). The covenant not to compete is being
amortized over a five year period (the length of contract) and
goodwill is being amortized over a 20 year period, in all cases
using the straight line method. Included in accrued acquisition
liability and other long term liabilities in the Company's
balance sheet are amounts related to the purchase price which
were unpaid at June 30, 1994 and 1995.
The following unaudited pro forma summary combines the results of
operations of the Company for the year ended June 30, 1993,
assuming the spin-off of the Company's subsidiary Styles on
Video, Inc. and the acquisition of Aerospace Optics had occurred
on July 1, 1992, and giving effect to certain adjustments
including amortization of goodwill and other intangible assets,
income tax effects and the increase in common shares outstanding.
<TABLE>
<CAPTION>
Dollars in Thousands
Except Per Share Data Year Ended
(Unaudited) 6/30/93
--------------------- ----------
<S> <C>
Revenues $26,687
-------
-------
Income Before Tax $ 5,786
-------
-------
Net Income $ 5,204
-------
-------
Earnings Per Share $ 1.17
-------
-------
</TABLE>
One of the individuals who has an employment agreement is an
owner of a company that provides product development consulting
services to the Company. Total fees paid to the consulting firm
were approximately $487,000 in 1995.
32
<PAGE>
9. Employee Benefit Plan
The Company has one defined contribution retirement plan covering all
employees who have completed one year service with the Company. The plan
allows eligible employees to contribute a portion of their gross pay and
allows the Company to contribute certain discretionary amounts. During
fiscal 1995, 1994 and 1993 the Company did not make contributions to the
plan.
10. Allowance for Doubtful Accounts
Activity in the allowance for doubtful accounts is summarized as
follows:
<TABLE>
<CAPTION>
Balance At Amounts Balance at
Beginning Charged to Amounts End of
of Period Expenses Written Off of Period
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
June 30, 1993
- -------------
Allowance for Doubtful Accounts:
- Accounts receivables $189,000 $30,000 $(89,000) $130,000
- Long-term receivables 134,000 - (114,000) 20,000
June 30, 1994
- -------------
Allowance for Doubtful Accounts:
- Accounts receivables 130,000 175,000 (24,000) 281,000
- Long-term receivables 20,000 - (20,000) -
June 30, 1995
- -------------
Allowance for Doubtful Accounts
- Accounts receivables 281,000 75,000 (76,000) 280,000
- Long-term receivables - - - -
</TABLE>
33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
The following table sets forth certain information with respect
to the nominee, continuing directors and executive officers of the
Company as of October, 1995.
Name Age Position
---- --- --------
Dewey F. Edmunds 52 Chief Executive Officer,
President and Director
Harold J. Meyers 62 Director
Robert S. Colman 54 Director, Chairman of the Board
Ralph M. Richart 62 Director
Kenneth B. Sawyer 30 Director
Richard P. Greenthal 41 Director
Doug Golay 29 Vice President of Product
Development
In accordance with the Certificate of Incorporation and Bylaws of the
Company, the Board of Directors of the Company is divided into three classes.
At each annual meeting of the stockholders of the Company, directors
constituting one class are elected for three-year terms. The Board of
Directors will consist of six members, consisting of two Class I
Directors, with a term expiring in 1997, two Class II Directors, with a
term expiring in 1995, and two Class III Directors with a term expiring in
1996.
All officers are appointed by and serve at the discretion of the Board
of Directors. There are no family relationships between any directors or
officers of the Company.
34
<PAGE>
MR. EDMUNDS joined the company in May of 1995 as the President and Chief
Executive Officer. He was appointed to the board at the same time as a class
II director to fill the vacancy caused by the resignation of Roger
Leddington. In 1987, Mr. Edmunds was one of three founding employees of
Secomerica, Inc., a U.S. holding company for a $2 billion Japanese
conglomerate. During his employ from 1987 to 1995, Mr. Edmunds acted as
President, Chief Financial Officer and Chief Operating Officer and was then
appointed Vice President of Corporate Development. Mr. Edmunds received an
MBA in International Finance from the University of Southern California and a
BA in History/Economics from the University of California, Los Angeles.
MR. MEYERS was first elected to the Board of Directors of the Company
following completion of the Company's initial public offering in August 1989.
Mr. Meyers was then elected to the Board as a Class I Director at the
Company's 1990 Annual Meeting and was reelected for a three-year term
expiring in 1994 at the Company's 1991 Annual Meeting. Mr. Meyers has been
the Chairman of the Board of H.J. Meyers & Co., Inc. and a
principal shareholder of the parent corporation of H.J. Meyers & Co., Inc.
since 1982. Mr. Meyers served as President and Chief Executive Officer of
McDonald, Kreiger & Bowyer, an investment banking firm and the predecessor of
H.J. Meyers & Co., Inc. from 1978 to 1982. From 1974 to 1978, Mr. Meyers
served as west coast Senior Partner of Loeb Rhoades. Mr. Meyers is also a
member of the Board of Directors of Styles on Video, Inc.
MR. COLMAN was appointed to the Board of Directors in February 1994 as a
Class I member to fill the vacancy caused by the resignation of Gerald
Wiener. His term expires in 1997. He is a partner of Colman Furlong & Co.,
a private merchant banking firm, which he co-founded in 1991. In January
1989 he founded R.S. Colman Company, a merchant banking firm, where he
remained until he founded Colman Furlong. From 1978 until December 1988, Mr.
Colman was a founding partner of Robertson, Colman & Stephens, an investment
banking firm. Mr. Colman serves on the Board of Directors of Healthcare
Compare Corp., a health care cost management firm, Cleveland Cliffs, Inc., a
producer and processor of iron ore, and Access Healthnet, Inc., a company
which supplies information and telecommunication systems to the healthcare
industry.
DR. RICHART was appointed to the Board of Directors of the company in
July, 1995 as a class III member. He is currently a professor of Pathology
for Columbia University where he has taught since 1969. Mr. Richart has also
been an Attending Pathologist for The Presbyterian Hospital since 1969. Mr.
Richart is the founder and owner of Kyto Diagnostics, Inc., a clinical
pathology lab in New York. Mr. Richart received an MD from the University of
Rochester, School of Medicine and Dentistry and a BA from Johns Hopkins
University. Mr. Richart also serves on the board of Neopath, Inc., a medical
diagnostic instrument company.
MR. GREENTHAL was appointed to the Board of Directors of the Company in
July 1995 as a class III member. Mr. Greenthal is the co-owner and Vice
President of Sentex Systems, Inc., a manufacturer of access control systems.
Mr. Greenthal co-founded the company in 1983. From 1977 to 1983 Mr.
Greenthal was Senior Engagement Manager for McKinsey & Co., Inc. a management
consulting firm. Mr. Greenthal received an MBA from Harvard Business School
and a BA in Economics from Cornell University.
35
<PAGE>
MR. SAWYER was appointed to the Board of Directors in July 1995 as a
Class II member. His term expires in 1995. He is a principal of Colman
Furlong & Co., a private merchant banking firm. Mr. Sawyer worked previously
for Morgan Stanley & Co., an investment banking firm in the Mergers and
Acquisitions department in New York and Chicago. Mr. Sawyer previously owned
and managed an employment agency and publishing operations in Illinois.
MR. GOLAY joined the Company in as an engineer in the Company's product
development department in 1987. He was appointed the Vice President of
Software Development in October 1991.
36
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from Registrant's Proxy Statement issued
in connection with its 1995 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from Registrant's Proxy Statement issued in
connection with its 1995 annual meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference from Registrant's Proxy Statement issued in
connection with its 1995 annual meeting of stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation of Registrant (1)
3.2 Bylaws of Registrant, as currently in effect (1)
10.1 1989 Stock Incentive Plan of Registrant, as amended (6)
10.2 Form of Indemnification Agreement between Registrant
and its Directors (1)
10.3 Standard Industrial Lease dated February 29, 1988
between Registrant and Warner Business Park Partnership (1)
10.4 Standard Industrial Lease dated January 14, 1989
between Registrant and Warner Business Park Partnership (1)
10.5 Standard Industrial Lease dated September 5, 1989
between Registrant and Warner Business Park Partnership (2)
10.6 Standard Industrial Lease dated November 27, 1989
between Registrant and Warner Business Park Partnership (2)
10.7 Office Lease dated October 16, 1989 between Registrant
and 1st National Bank of Des Plaines (2)
10.8 Sale and License Agreement dated as of May 14,
1991, by and between Visual Technology, a California
corporation and the Company (5)
10.9 1992 Stock Incentive Plan of the Company (6)
10.10 1992 Director Incentive Plan of the Company (6)
37
<PAGE>
10.11 1993 Stock Incentive Plan (8)
10.12 1993 Director Incentive Plan (8)
10.13 Distribution Agreement dated March 18, 1994
between the Company and International Imaging Company
10.14 Agreement dated September 20, 1994 between
Registrant and Visual Technologies, Inc. a California
corporation.
10.15 Consulting Agreement between the Company and
Colman Furlong & Co. dated March 24, 1995.
10.16 Warrant issued by the Company to Colman Furlong &
Co. dated March 24, 1995.
10.17 Employment Agreement betwen the Company and Dewey
Emdunds dated May 30, 1995.
10.18 Severance Agreement between the Company and Roger
Leddington dated March 24, 1995.
24.1 Consent of Arthur Andersen LLP
_____________________________
(1) Incorporated herein by reference from Registrant's
Statement on Form S-18, File No. 33-3050-LA
(2) Incorporated herein by reference from Registrant's
Statement on Form S-1, File No. 33-33501
(3) Intentionally omitted
(4) Incorporated herein by reference from Registrant's
Current Form on Form 8-K filed on February 1, 1991
(5) Incorporated herein by reference from Registrant's
Quarterly Report on Form 10-Q for the Quarterly Period
ended March 31, 1991
(6) Incorporated herein by reference from Registrant's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1992
(7) Incorporated herein by reference from Registrant's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1993
(8) Incorporated herein by reference from Registrant's
Proxy Statement relating to its Annual Meeting of
Stockholders held December 23, 1993
(9) Incorporated herein by reference from Registrant's
Current Report on Form 8-K filed with the Commission on
February 8, 1993
(10) Incorporated herein by reference from Registrant's
Current Report on Form 8-K filed with the Commission on
July 29, 1994
(b) None
38
<PAGE>
(c) None
(d) None
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the Registrant has caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEW IMAGE INDUSTRIES, INC.
(Registrant)
By: /s/ DEWEY F. EDMUNDS
______________________
Dewey F. Edmunds
Chief Executive Officer
Date: October 13, 1995
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Report has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ DEWEY F. EDMUNDS Chief Executive Officer October 13, 1995
____________________________ and President
Dewey F. Edmunds (Principal Executive
Officer and Director)
/s/ KENNETH B. SAWYER Chief Financial Officer October 13, 1995
____________________________ (Principal Financial
Kenneth B. Sawyer Officer and Principal
Accounting Officer and
Director)
/s/ ROBERT S. COLMAN Director October 13, 1995
____________________________
Robert S. Colman
/s/ GUY DE VREESE Director October 13, 1995
____________________________
Guy de Vreese
/s/ HAROLD J. MEYERS Director October 13, 1995
____________________________
Harold J. Meyers
/s/ RALPH M. RICHART Director October 13, 1995
____________________________
Ralph M. Richart
/s/ RICHARD P. GREENTHAL Director October 13, 1995
____________________________
Richard P. Greenthal
40
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
10.15 Consulting Agreement between the Company and Colman Furlong & Co.
dated March 24, 1995.
10.16 Warrant issued by the Company to Colman Furlong & Co. dated
March 24, 1995.
10.17 Employment Agreement betwen the Company and Dewey Emdunds dated
May 30, 1995.
10.18 Severance Agreement between the Company and Roger Leddington dated
March 24, 1995.
41
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To New Image Industries, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference in the Registration Statement on Form S-8, File No, 33-34074, dated
March 29, 1990, of New Image Industries, Inc. of our report dated October 6,
1995, relating to the consolidated balance sheets of New Image Industries,
Inc. and subsidiary as of June 30, 1995 and 1994 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended June 30, 1995, which reports appear in the
Annual Report on Form 10-K of New Image Industries, Inc. for the fiscal year
ended June 30, 1995. It should be noted that we have not audited any
financial statements of the Company subsequent to June 30, 1995 or performed
any audit procedures subsequent to June 30, 1995 or performed any audit
procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Los Angeles, California
October 6, 1995
EXHIBIT 24.1
<PAGE>
ENGAGEMENT AGREEMENT
This Engagement Agreement (this "Agreement") is made and entered into
as of the 24th day of March 1995, by and between New Image Industries, Inc.,
a Delaware corporation (the "Company"), and Colman Furlong & Co.
("Colman-Furlong").
1. ENGAGEMENT. On the terms set forth below, the Company has engaged
Colman-Furlong for the purpose of providing general investment banking
advice, management consultation and assistance to the Company with respect to
the management of the Company's operations, the selection and retention of
senior management and an analysis of its financial and operational affairs.
In the context of its general investment banking advice and management
consulting assistance, Colman-Furlong will, at mutually agreeable times and
consistent with Colman-Furlong's obligations to others, make available Robert
S. Colman as Chairman of the Board of Directors of the Company and as interim
Chief Executive Officer. The Company and Colman-Furlong acknowledge and agree
that Mr. Colman's services will be provided hereunder on a part-time and not
a full-time basis. While serving in such capacities, Mr. Colman shall have
the duties and responsibilities customarily vested with a chief executive
officer of the Company. Mr. Colman will not be separately compensated by the
Company for such services. Colman-Furlong shall devote such amount of time
and effort and will make such independent investigations in providing advice
and assistance to the Company pursuant to this engagement as Colman-Furlong
deems reasonable and appropriate, and Colman-Furlong agrees to apply its
professional knowledge and skill to all assignments subject to this letter
agreement. Colman-Furlong's engagement hereunder shall not extend to advice
and assistance in connection with any financing or merger or acquisition
transaction. Any such services in such regard shall be subject to a separate
agreement among the parties. In connection with its engagement hereunder,
Colman-Furlong shall be authorized to retain legal counsel, accountants,
consultants and financial advisors which it determines are reasonably
necessary to perform its duties hereunder, and the costs associated therewith
shall be reimbursed by the Company under Section 4 below.
2. TERM OF ENGAGEMENT. Colman-Furlong's engagement pursuant to this
Agreement shall commence on the date set forth above and shall be terminable
by either Colman-Furlong or the Company at any time.
3. CASH COMPENSATION. During the term hereof, Colman-Furlong shall be
paid a monthly fee of $12,000 per month.
4. REIMBURSEMENT. Colman-Furlong shall be entitled to reimbursement from
the Company for the reasonable costs and expenses incurred in connection with
the performance of the duties and obligations provided for in this Agreement.
Reimbursement shall be paid upon prompt presentation of expense statements or
vouchers and such other supporting information as the Company may from time
to time require.
- 1 -
EXHIBIT: 10.15
<PAGE>
5. WARRANTS. Concurrently with the execution of this Agreement, and as
additional consideration for the services to be rendered hereunder, the
Company has granted to Colman-Furlong warrants to purchase up to 275,000
shares of the Company's Common Stock at a per share exercise price equal to
the closing price of the Company's Common Stock on Wednesday, March 22, 1995
(the date the parties reached an agreement in principal to enter into this
engagement). Of the Warrants, warrants to purchase 125,000 shares shall be
fully vested and exercisable on the date hereof and warrants to purchase the
remaining 150,000 of such shares shall vest and become exercisable in 12
equal monthly installments commencing on the date hereof. The Warrants shall
have a term of five years from the date hereof.
6. SCOPE OF ENGAGEMENT. This letter of agreement does not require
Colman-Furlong to render any written opinions or to provide other written
analysis as to any matter with respect to which the Company may seek its
advice. Colman-Furlong does not assume any responsibility for the accuracy,
completeness or fairness of the information and data supplied to it by the
Company or its representatives. The Company understands that in order for
Colman-Furlong properly to advise the Company, Colman-Furlong must be
provided with all material information relating to the Company, its business
condition (financial or otherwise) and prospects, and the Company represents,
warrants and agrees that all data and other written and oral information
supplied to Colman-Furlong by the Company and its representatives will be
true, correct and complete in all material respects, and will not contain
any untrue statements of material fact or omit to state a material fact
necessary to make the information supplied to Colman-Furlong not misleading.
The Board of Directors and the Company will separately be advised by
legal counsel as to all legal matters with respect to the Company and
Colman-Furlong will assume no responsibility to render any legal services
hereunder. Further, the Company understands and agrees that it is solely
responsible for its compliance with its duties and obligations under
applicable federal and state securities laws and neither Colman-Furlong nor
any of its officers, directors, employees, agents or representatives
(including but not limited to Robert Colman) assumes any responsibility in
connection with this engagement with respect to such matters.
7. INDEMNIFICATION. The Company hereby agrees to indemnify
Colman-Furlong and Robert S. Colman, and the partners, employees, and agents
of Colman Furlong & Co. (collectively and individually referred to as
"Colman-Furlong") and to hold Colman-Furlong harmless against and from any
and all losses, claims, damages, or liabilities, joint or several, to which
Colman-Furlong may become subject in connection with this agreement or any
transaction or services contemplated hereby, under any of the federal
securities laws or under any other statute, common law or otherwise. The
Company agrees to reimburse Colman-Furlong for any legal or other expenses
(including the cost of any investigation and preparation) incurred by
Colman-Furlong arising out of or in connection with any action or claim
whether or not resulting in any liability. Notwithstanding the foregoing, the
Company shall not be liable to the extent that any loss, claim damage or
liability is found in a final judgment by a court of competent jurisdiction
to have resulted from the willful wrongdoing of Colman-Furlong for its own
pecuniary benefit. Promptly after receipt by Colman-Furlong of notice of the
- 2 -
<PAGE>
commencement of any action in respect of which indemnity may be sought
against the Company, Colman-Furlong will notify the Company in writing. The
Company shall be entitled to participate at its own expense in the defense of
any such action and, if the Company so elects within a reasonable time after
receipt of such notice, shall assumed the defense of any such action, such
defense to be conducted by counsel chosen by the Company and reasonably
acceptable to Colman-Furlong. If the defendants in any such action include
both the Company and Colman-Furlong, and Colman-Furlong has been advised in
writing by its counsel that it is undesirable for the same counsel to
represent both the Company and Colman-Furlong, Colman-Furlong shall have the
right to employ its own counsel in such action, which counsel shall be
reasonably acceptable to the Company, and, in such event, the fees and
expenses of such counsel shall be borne by the Company. The Company shall not
without the prior written consent of Colman-Furlong settle any pending or
threatened proceeding in respect of which Colman-Furlong is or could have
been a party and indemnity could have been sought hereunder, unless such
settlement includes an unconditional release of Colman-Furlong from all
liability arising out of such proceeding. Except as provided in the preceding
sentence, the Company shall have the sole control over the defense or
settlement of any action or proceeding which is subject to this
indemnification and Colman-Furlong agrees to cooperate with the Company in
connection therewith.
8. MISCELLANEOUS.
(a) NOTICES. All notices, requests and other communications
(collectively, "Notices") given pursuant to this Agreement shall be in
writing, and shall be delivered by personal service or by United States first
class, registered or certified mail (return receipt requested), postage
prepaid, addressed to the party at the address set forth below:
If to Company:
New Image Industries, Inc.
21218 Vanowen Street
Canoga Park, California 91303
Attn: Board of Directors
If to Colman-Furlong:
Robert S. Colman
Colman Furlong & Co.,
Three Embarcadero Center,
Suite 2260,
San Francisco, CA 94111
Any Notice shall be deemed duly given when received by the addressee thereof,
provided that any Notice sent by registered or certified mail shall be deemed
to have been duly given three
- 3 -
<PAGE>
days from date of deposit in the United States mails, unless sooner received.
Either party may from time to time change its address for further Notices
hereunder by giving notice to the other party in the manner prescribed in
this section.
(b) ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein. No
representations, oral or otherwise, express or implied, other than those
contained in this Agreement have been relied upon by any party to this
Agreement.
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES THEREOF.
(d) CAPTIONS. The various captions of this Agreement are for
reference only and shall not be considered or referred to in resolving
questions of interpretation of this Agreement.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement and all obligations and
benefits of Colman-Furlong and the Company hereunder shall bind and inure to
the benefit of Colman-Furlong and the Company, their respective affiliates,
and their respective successors and assigns. Conversely, no assignment of
this Agreement, of any of the rights and/or duties hereunder by any party
hereto shall be valid without the prior written consent of the other party.
(g) AMENDMENTS AND WAIVERS. No amendment or waiver of any term or
provision of this Agreement shall be effective unless made in writing. Any
written amendment or waiver shall be effective only in the instance given
and then only with respect to the specific term or provision (or portion
thereof) of this Agreement to which it expressly relates, and shall not be
deemed or construed to constitute a waiver of any other term or provision (or
portion thereof) waived in any other instance.
- 4 -
<PAGE>
In witness whereof, the parties have executed this Agreement as of the
date first set forth above.
Company: Colman Furlong & Co.
New Image Industries, Inc.
By: /s/ Roger Leddington /s/ Robert S. Colman
-------------------------- ----------------------------
Roger Leddington Robert S. Colman
President Its: G.P.
-----------------------
- 5 -
<PAGE>
WARRANT AGREEMENT
This WARRANT AGREEMENT (this "AGREEMENT") is made and entered into as of
the 24th day of March, 1995, by and between NEW IMAGE INDUSTRIES, INC., a
Delaware corporation (the "Company"), and COLMAN FURLONG & CO., ("Holder").
In consideration of these premises and the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged, the Company and Holder
agree as follows:
1. GRANT OF WARRANT.
In consideration of the sum of $275.00 ($0.001 per Warrant) and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company hereby grants to Holder the right and option
(the "Warrant"), upon the terms and subject to the conditions set forth in
this Agreement, to purchase all or any portion of 275,000 shares of the
Common Stock, par value $0.001 per share, of the Company (the "Shares") at an
exercise price of $3.875 per share (the "Exercise Price").
2. TERM OF WARRANT.
The Warrant shall terminate and expire at 5:00 p.m., Los Angeles time, on
March 23, 2000 (the "Warrant Expiration Date"), unless sooner terminated as
provided herein.
3. VESTING.
(a) The Warrant shall be exercisable with respect to 125,000 shares
of Common Stock commencing on the date hereof. The remaining portion of this
Warrant shall vest in 12 equal monthly installments of 12,500 Shares each on
the last day of each month after the date hereof, commencing on March 30,
1995. Once vested, the Warrant, or portion thereof, shall be exercisable in
full by the holder hereof at any time from and after the date hereof and
prior to the Warrant Expiration Date.
(b) If that certain Engagement Agreement, by and between the Company
and Holder, dated March 24, 1995 (the "Engagement Agreement") should
terminate prior to the vesting of all of the Shares hereunder, Holder shall
only be entitled to exercise its rights hereunder with respect to those
Shares which were vested on the date of termination of the Engagement
Agreement.
(c) Notwithstanding the foregoing, the Warrant shall fully vest
immediately prior to the closing of a merger, consolidation, sale of
substantially all of the assets of the Company or other corporate
reorganization (collectively, a
EXHIBIT: 10.16
<PAGE>
"Reorganization") in which the Company is not the "surviving corporation."
For these purposes, a determination as to whether the Company is the
surviving corporation shall be made on the basis of the relative equity
interests of the shareholders in the corporation existing after the
Reorganization, as follows: If the holders of the securities of the Company
prior to the Reorganization own equity securities possessing more than 50% of
the voting power of the corporation existing after the Reorganization, then
for the purposes of this Agreement, the Company shall be the surviving
corporation. In all other bases, the Company shall not be the surviving
corporation.
(d) Notwithstanding anything to the contrary contained in this
Agreement, the Warrant may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all state and federal laws and
regulatory agencies shall have been fully complied with to the satisfaction
of the Company and its counsel.
4. EXERCISE OF WARRANT.
There is no obligation to exercise the Warrant, in whole or in part. The
Warrant may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Agreement stating the number of Shares then
being purchased (the "Purchased Shares"); and
(b) payment of the Exercise Price of the Purchased Shares by wire
transfer of immediately available Federal funds.
Upon receipt of the foregoing, the Company shall promptly issue in the
name of the Holder a stock certificate evidencing the Purchased Shares being
purchased by such exercise and deliver such certificate to the Holder.
5. RESTRICTIONS ON PURCHASED SHARES.
Holder shall not sell, transfer (with or without consideration), assign,
pledge, hypothecate or otherwise dispose of (collectively, "Transfer") any of
the Purchased Shares unless the Purchased Shares are disposed of pursuant to
and in conformity with an effective registration statement filed with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Act"), or pursuant to an available
exemption from the registration and prospectus delivery requirements of the
Act, and the proposed disposition will not result in a violation of the
securities laws of any state of the United States.
2
<PAGE>
If requested by the Company, Holder shall, prior to the transfer of such
Purchased Shares, deliver to the Company a written opinion of counsel,
satisfactory to the Company and its counsel, that the proposed disposition
will comply with the requirements set forth in this paragraph 5.
Any attempted Transfer which is not in full compliance with this
Paragraph 5 shall be null and void AB INITIO, and of no force or effect.
6. ADJUSTMENTS UPON RECAPITALIZATION.
(a) In the event the Company should at any time or from time to time
after the date of this Warrant (the "Issuance Date") fix a record date for
the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive, directly or indirectly, additional shares of
Common Stock (hereinafter referred to as "Common Stock Equivalents") without
payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares
of Common stock issuable upon conversion or exercise thereof), then, as of
such record date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Exercise Price shall be
appropriately decreased (i.e., the per share Exercise Price shall be adjusted
such that the aggregate exercise price for all Shares issuable upon exercise
of the Warrants in full, as adjusted, shall remain the same) and the number
of Shares shall be increased in proportion to such increase in the aggregate
number of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the Issuance Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination,
the Exercise Price shall be appropriately increased (i.e., the per share
Exercise Price shall be adjusted such that the aggregate exercise price for
all Shares issuable upon exercise of the Warrants in full, as adjusted, shall
remain the same) and the number of Shares shall be decreased in proportion to
such decrease in the aggregate number of shares of Common Stock outstanding
and those issuable with respect to such Common Stock Equivalents.
(c) In case of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or a recapitalization
described in Section 6(a) or 6(b) of this Agreement), or the consolidation of
the Company with, or a sale of substantially all of the assets of the Company
to (which
3
<PAGE>
sale is followed by a liquidation or dissolution of the Company), or merger of
the Company with, another person, the Holder shall thereafter be entitled
upon exercise of the Warrant to purchase the kind and number of shares of
stock or other securities or the amount or value of any cash, assets or other
property receivable upon such event by a holder of the number of shares of
the Common Stock which the Warrant entitles the holder of the Warrant to
purchase from the Company immediately prior to such event; and in any such
case, appropriate adjustment shall be made in the application of the
provisions set forth in this Agreement with respect to the Holder's rights
and interests thereafter, to the end that the provisions set forth in this
Agreement (including the specified changes and other adjustments to the
Exercise Price) shall thereafter be applicable in relation to any shares or
other property thereafter purchasable upon exercise of the Warrant.
(d) In the event the Company should at any time or from time to time
after the Issuance Date fix a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock or the
securities or such rights of any other corporation (other than Common Stock
Equivalents covered be Section 6(a) hereof), the Holder shall thereafter be
entitled upon exercise of the Warrant to receive, in addition to the
Purchased Shares being purchased upon such exercise, the securities or rights
convertible into securities receivable upon such event by a holder of the
number of shares of the Common Stock which the Holder is purchasing upon such
exercise.
(e) If it is expected that there will occur any event described in
Section 6(c) or 6(d) hereof, the Company shall give the holder of the
Warrants notice thereof, which notice shall be given at such time or times as
notice is given to the holders of the Company's Common Stock.
(f) The provisions of this Section 6 are intended to be exclusive,
and the holder of the Warrant shall have no rights other than as set forth
in this Agreement (and the rights of a stockholder upon exercise of the
Warrant) upon the occurrence of any of the events described in this Section 6.
(g) The grant of the Warrant shall not affect in any way the right
or power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure, or to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any part of
its business or assets.
4
<PAGE>
7. REPRESENTATIONS AND WARRANTIES OF HOLDER.
Holder makes the following representations and warranties:
(a) Holder is acquiring the Warrants for its own account with the
present intention of holding such securities for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable
federal and state securities laws).
(b) Holder is an experienced and sophisticated investor and has such
knowledge and experience in financial and business matters that it is capable
of evaluating the relative merits and the risks of an investment in the
Warrants and in the Shares and of protecting its own interests in connection
with this transaction.
(c) Holder is willing to bear and is capable of bearing the economic
risk of an investment in the Warrants and the Shares.
(d) The Company has made available, prior to the date of this
Agreement, to Holder the opportunity to ask questions of the Company and its
officers, and to receive from the Company and its officers information
concerning the terms and conditions of the Warrants and this Agreement and to
obtain any additional information with respect to the Company, its business,
operations and prospects, as reasonably requested by Holder.
(e) Holder is an "accredited investor" as that term is defined under
Rule 501(a)(8) of Regulation D promulgated by the Securities and Exchange
Commission under the Act.
(f) For purposes of the application of federal and state securities
laws, Holder acknowledges that the offer and sale of the Warrants to such
Holder occurred in the State of California and that such Holder is a resident
of the State of California.
8. LEGEND ON STOCK CERTIFICATES.
Holder agrees that all certificates representing the Purchased Shares
will be subject to such stock transfer orders and other restrictions as the
Company may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Common Stock is then listed and any applicable federal or
state securities laws, and the Company may cause the following legend to be
put on such certificates to make appropriate reference to such restrictions:
5
<PAGE>
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED
OR OTHERWISE HYPOTHECATED WITHOUT REGISTRATION UNDER SUCH ACT OR PURSUANT
TO AN EXEMPTION THEREFROM.
9. NO RIGHTS AS STOCKHOLDER.
Holder shall have no rights as a stockholder of the Company with respect
to the Shares until the date of the issuance to Holder of a stock certificate
or stock certificates evidencing such Shares. Except as may be provided in
Paragraph 6 of this Agreement, no adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued.
10. MODIFICATION.
The Board or a committee thereof may modify, extend or renew the Warrant
or accept the surrender of, and authorize the grant of a new option in
substitution for, the Warrant (to the extent not previously exercised). No
modification of the Warrant shall be made without the consent of Holder which
would alter or impair any rights of Holder under the Warrant.
11. DISPUTES.
(a) ARBITRATION. All disputes arising in connection with this
Agreement shall be finally settled by arbitration in Los Angeles, California,
in accordance with the rules of the American Arbitration Association (the
"Rules of Arbitration") and judgment on the award rendered by the
arbitration panel (the "Arbitration Panel") may be entered in any court or
tribunal of competent jurisdiction.
(b) Any party which desires to initiate arbitration proceedings as
provided in Section 11(a) above may do so by delivering written notice to the
other party (the "Arbitration Notice") specifying (A) the nature of the
dispute or controversy to be arbitrated, (B) the name and address of the
arbitrator appointed by the party initiating such arbitration and (C) such
other matters as may be required by the Rules of Arbitration.
(c) The Parties shall appoint a single arbitrator who shall
constitute the Arbitration Panel hereunder. Should the parties not agree upon
the appointment of the arbitrator within 30 days of delivery of the
Arbitration Notice, the Arbitrator shall be appointed in accordance with the
Rules of Arbitration.
(d) In any arbitration proceeding conducted pursuant to the
provisions of this Section 11, both parties shall have the
6
<PAGE>
right to discovery, to call witnesses and to cross-examine the opposing
party's witnesses, either through legal counsel, expert witnesses or both.
(e) FINALITY OF DECISION. All decisions of the Arbitration Panel
shall be final, conclusive and binding on all parties and shall not be
subject to judicial review. The arbitrator shall divide all costs (other
than fees of counsel) incurred in conducting the arbitration proceeding and
the final award in accordance with what they deem just and equitable under
the circumstances.
(f) LIMITATIONS. Notwithstanding anything to the contrary
contained in Sections 11(a) and 11(b) above, any claim by either party for
injunctive or other equitable relief, including specific performance, may be
brought in any court of competent jurisdiction and any judgment, order or
decree relating thereto shall have precedence over any arbitral award or
proceeding.
12. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Holder shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Agreement.
(b) NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be given to
the parties hereto as follows:
If to the Company, to:
NEW IMAGE INDUSTRIES, INC.
21218 Vanowen Street
Canoga Park, California 91303
Attention: President
If to Holder, to the address set
forth in the records of the Company,
or at such other address or addresses as may have been furnished by either
party in writing to the other party hereto. Any such notice, request, demand
or other communication shall be effective (i) if given by mail, two days
after such communication is deposited in the mail by first-class certified
mail, return receipt requested, postage prepaid, addressed as aforesaid, or
(ii) if given by any other means, when delivered at the address specified in
this subparagraph (b).
7
<PAGE>
(c) GOVERNING LAW. THIS Agreement SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE. JURISDICTION
AND VENUE OVER ANY LEGAL ACTION BROUGHT HEREUNDER SHALL RESIDE EXCLUSIVELY IN
THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA. EACH OF THE PARTIES HERETO
WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO ANY SUCH LEGAL ACTIONS.
(d) ATTORNEYS' FEES. In the event that any action, suit or
arbitration or other proceeding is instituted upon any breach of this
Agreement, the prevailing party shall be paid by the other party thereto an
amount equal to all of the prevailing party's costs and expenses, including
attorneys' fees incurred in each and every such action, suit or proceeding
(including any and all appeals or petitions therefrom). As used in this
Agreement, "attorneys' fees" shall mean the full and actual cost of any legal
services actually performed in connection with the matter involved calculated
on the basis of the usual fee charged by the attorney performing such
services and shall not be limited to "reasonable attorneys' fees" as defined
in any statute or rule of court.
(e) AMENDMENT; WAIVER. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors, heirs and personal representatives. No provision of this
Agreement may be amended or waived unless in writing signed by all of the
parties to this Agreement. Waiver of any one provision of this Agreement
shall not be deemed to be a waiver of any other provision.
(f) NO FINDERS. The parties each agree to indemnify and hold
harmless the other against any expense incurred by reason of any consulting,
brokerage commission or finder's fee alleged to be payable to any person in
connection with the transactions contemplated hereby because of any act,
omission or statement of indemnifying party or any dealings by the
indemnifying party with any consultant, broker or finder.
(g) EXPENSES. Each of the parties shall pay its own expenses
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby.
(h) SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be or
become prohibited or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
8
<PAGE>
(i) COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding
on all parties hereto, notwithstanding that all of the parties have not signed
the same counterpart.
(j) ENTIRE AGREEMENT. This Agreement constitutes and embodies the
entire understanding and agreement of the parties hereto relating to the
subject matter hereof and there are no other agreements or understandings,
written or oral, in effect between the parties relating to such subject
matter except as expressly referred to herein.
(k) MISCELLANEOUS. Titles and captions contained in this Agreement
are inserted for convenience of reference only and do not constitute a part
of this Agreement for any other purpose. Except as specifically provided
herein, neither this Agreement nor any right pursuant hereto or interest
herein shall be assignable by any of the parties hereto without the prior
written consent of the other party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
NEW IMAGE INDUSTRIES, INC.
By: /s/ Roger Leddington
--------------------------------
Its: PRESIDENT
--------------------------------
COLMAN FURLONG & CO.
By: /s/ Robert S. Colman
--------------------------------
Its: G.P.
--------------------------------
9
<PAGE>
EXHIBIT "A"
NOTICE OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT)
TO: New Image Industries, Inc.
The undersigned hereby irrevocably elects (to the extent indicated
herein) to exercise the purchase right represented by the Warrant granted to
the undersigned on March 24, 1995 and to purchase thereunder________ shares of
Common Stock of New Image Industries, Inc., a Delaware corporation (the
"Company"). The closing of the exercise of the purchase right shall take
place at_______ on ____________________ , ____ at the principal executive
office of the Company located at 21218 Vanowen Street, Canoga Park,
California 91303.
COLMAN FURLONG & CO.
By: ________________________________
Its: ________________________________
10
<PAGE>
NEW IMAGE INDUSTRIES, INC.
21218 VANOWEN STREET
CANOGA PARK, CALIFORNIA 91303
May 22, 1995
Mr. Dewey F. Edmunds
3921 Sandune Lane
Carona Del Mar CA 92625
RE: EMPLOYMENT RELATIONSHIP WITH NEW IMAGE INDUSTRIES
Dear Mr. Edmunds:
I am pleased to offer you the position of President and Chief Executive
Officer of New Image Industries, Inc. (the "Company") with an effective date
of Tuesday May 30, 1995. In this position you will report to the Board of
Directors and the Chairman of the Board. Offices will be provided at the
Company's headquarters in Canoga Park, California.
Your salary will be paid at an annual rate of $180,000 per year, payable
semi-monthly. You will receive stock options to purchase 200,000 shares of
the Company's Common Stock under the Company's Stock Option Plan. The date of
grant will be May 30, 1995 and the exercise price will be the closing price
of the Company's Common Stock on NASDAQ/NMS on Friday May 26, 1995. These
options will vest based on your continued service as follows: 30,000 options
will vest immediately upon grant, and 30,000 options, 60,000 options, and
80,000 options will vest on the first, second and third anniversaries of
commencement of your employment, respectively. All options will be subject to
immediate vesting upon the closing of a "Change in Control" of the Company.
Vested options will be exercisable for five years from the date of grant.
"Change in Control" means either the sale of all or substantially all of
the assets of the Company, or the acquisition of the Company by another
entity by means of a consolidation or merger (other than a reorganization,
consolidation or merger in which the holders of voting securities of the
Company immediately before the reorganization, consolidation or merger own
(immediately after the consolidation or merger) voting securities of the
surviving or acquiring corporation, or of a parent entity of such
Exhibit 10.17
<PAGE>
Mr. Dewey F. Edmunds
May 22, 1995
Page 2
surviving or acquiring corporation, possessing more than 50% of the voting
power of the surviving or acquiring corporation or parent entity); in making
determinations of ownership by the shareholders of the Company, immediately
after the reorganization, consolidation or merger, of voting securities as
provided above, voting securities which they owned immediately before the
reorganization, consolidation or merger as shareholders of another party to
the transaction shall be disregarded; and voting power shall be calculated by
assuming the conversion of all equity securities convertible (immediately or
at some future time) into shares entitled to vote, but not assuming the
exercise of any warrant or right to subscribe to or purchase such shares).
You will be entitled to three weeks vacation per year and will be
eligible to participate in all benefits plans and programs on the same basis
as the Company's executive team.
If acceptance of employment with the Company requires relocation of
your residence, the Company will pay or promptly reimburse you for all
reasonably necessary moving expenses, including commission on the sale of
your residence, related to the relocation of your residence, and for the
rental of a temporary residence pending your move into a new residence.
Moving expenses are subject to review and prior approval by the Chairman of
the Board.
Your employment with the Company is at will, and therefore may be
terminated by you or the Company at any time and for any reason, with or
without cause and with or without notice. This at will employment
relationship will remain in effect throughout your employment with the
Company and any of its subsidiaries or affiliated entities, and may only be
modified by an express written contract for a specified term signed by you
and the Chairman of the Company.
I am looking forward to your leading the Company's team and becoming the
driving force for its growth and success. You may indicate your acceptance of
this offer by signing the acknowledgment below and returning it to me,
together with an executed copy of the enclosed Inventions and Nondisclosure
Agreement by May 30, 1995.
<PAGE>
Mr. Dewey F. Edmunds
May 22, 1995
Page 3
If you have any questions or concerns please do not hesitate to call.
Very truly yours,
NEW IMAGE INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Robert S. Colman
--------------------------
Its: C.E.O.
----------------
APPROVED AND ACCEPTED:
/s/ Dewey P. Edmunds
- --------------------------
Dewey P. Edmunds
<PAGE>
SEVERANCE AGREEMENT AND GENERAL RELEASE
This Severance Agreement and General Release (this "Agreement") is made
and entered into as of the 24th day of March 1995, by and between New Image
Industries, Inc., a Delaware corporation (the "Company"), and Roger Leddington
("Executive").
1. RESIGNATION. Executive hereby confirms that effective as of March 24,
1995, Executive resigned from his positions as Chairman of the Board of
Directors and Chief Executive Officer of the Company. Effective as of the date
Executive is no longer employed by the Company pursuant to Sections 2 and 3
hereof, Executive hereby resigns his position as a Director of the Company and
any and all positions he holds as an officer of the Company or any subsidiary
thereof.
2. CONTINUING ENGAGEMENT AND DUTIES. In consideration of the severance
payment and other consideration provided for herein, Executive hereby agrees
as follows:
(a) Executive agrees to continue to be employed as President of the
Company for the term provided in Section 3 hereof and to assist and cooperate
in the transfer of his duties and responsibilities to his successor. Executive
shall be compensated during such term at the same base salary and shall
receive the other perquisites as he received at March 24, 1995. During such
period, Executive shall have the duties and responsibilities customarily
accorded to a President or Chief Operating Officer of a corporation and shall
serve at the direction and shall report to the Chief Executive Officer of the
Corporation.
(b) During the term of this Agreement, Executive agrees to devote his
primary business time, energies, skills, effort and attention to his duties
hereunder and will not render any material services to any other business
concern.
3. TERM. Executive's employment hereunder shall terminate on the earlier
to occur of the following:
(a) June 23, 1995;
(b) at any time upon Executive's voluntary resignation; and
(c) at any time upon delivery by the Company to Executive of written
notice of termination; or
(d) upon the death or permanent disability of Executive.
EXHIBIT: 10.18
<PAGE>
4. AUTOMOBILE. During the term of this Agreement, Executive shall be
entitled to the full use of that certain BMW 735i automobile (the "Automobile"
currently leased by the Company for the benefit of Executive. Upon the
termination of this Agreement, Executive shall have the right to (a) return
the Automobile to the Company, in which event Executive will have no
obligations with respect to the Automobile, or (b) request that the lease
of the Automobile be assigned to him, in which event Executive shall become
and be fully responsible for all payments under such lease and all other
payments associated with the Automobile. If Executive elects the opinion set
forth in subpart (b) directly above, the Company will use its reasonable
efforts to have the lease assigned to Executive.
5. STOCK OPTIONS. Executive agrees and acknowledges that he currently
holds options to purchase 200,000 shares of the Company's Common Stock granted
under the Company's employee stock incentive plans (the "Employee Options")
and options to purchase 80,000 shares of the Company's Common Stock under the
Company's 1993 Director Incentive Plan (the "Director Options"). All of such
options provide that they shall terminate on the 90th day following the date
Executive is no longer rendering services to the Company. If Executive remains
employed by the Company through June 23, 1995 (or if he is earlier terminated
by the Company without "cause"), then at such date the Company shall amend the
Employee Options to provide that they shall remain exercisable through
June 22, 1996 at which time they shall terminate. Executive and the Company
hereby agree that the Director Options terminated and are no longer exercisable
as of March 24, 1995. For these purposes, the term "cause" shall mean
termination by reason of: any act or omission knowingly undertaken or omitted
by Executive with the intent of causing damage to the Company, its properties,
assets or business or its stockholders, officers, directors or employees, any
act of Executive involving a material personal profit to Executive, including,
without limitation, any fraud, misappropriation or embezzlement, involving
properties, assets or funds of the Company or any of its subsidiaries;
Executive's consistent and continuing failure to perform his normal duties
or any provision of this Agreement, in either case, as directed by the Board
of Directors of the Company (the "Board"), after Executive has received
written notice from the Board of his failure to so perform; conviction of,
or pleading NOLO CONTENDERE to, (A) any crime or offense involving monies
or other property of the Company, (B) any felony offense, or (C) any crime
of moral turpitude; or (V) the chronic or habitual use of non-prescription
drugs or consumption of alcoholic beverages.
6. COMPENSATION UPON TERMINATION. In consideration of Executive
performing his duties under Section 2 hereof, if Executive remains employed
by the Company through June 23, 1995 (or if he is earlier terminated by
the Company without "cause" or as a result of his death or permanent
disability), then on such date Company shall pay Executive, or, if
termination is caused by Executive's death or disability the Company shall
instead pay to Gunnel Leddington, a severance payment equal to 20.8 weeks
Base Salary (i.e., $110,000), plus one day of Base Salary for each day of
unused vacation accrued by Executive through the date of termination
(together, the "Severance Payment") in full and final satisfaction of all
obligations of the Company to Executive.
<PAGE>
7. CONFIDENTIALITY AND TRADE SECRETS. Executive shall not, at any time
during the term of his employment or for any period thereafter exploit, use
for any purpose not specifically related to Executive's employment by the
Company pursuant to the terms of this Agreement or disclose to any person
(except as required by law after first notifying the Company and giving them
an opportunity to object) any confidential information, including price
lists, pricing information, customer lists, customer names, financial
information, knowledge, trade secrets, know-how, unprinted or printed data,
and related intangible property developed during or prior to the term of
this Agreement, belonging to, used by, or developed by or for the benefit
of the Company (collectively, the "Trade Secrets"). For purposes of this
Agreement "Trade Secrets" do not include information available to diligent
business persons from sources other than the Company or persons in a
fiduciary or confidential relationship with the Company ("Independent
sources"), and which is not available not as a result of any breach of
trust or agreement with the Company by such Independent Source.
8. RETURN OF CORPORATE PROPERTY AND TRADE SECRETS. Upon any termination
of employment, Executive shall turn over to the Company, as appropriate,
all property, writings or documents then in his possession or custody
belongings to or relating to the affairs of the Company or comprising or
relating to Trade Secrets.
9. WAIVER UNDER SECTION 1542 OF THE CALIFORNIA CIVIL CODE. With regard
to any claims which may exist or arise out of the Executive's current or
any prior affiliation with the Company (the "Disputes"), Executive expressly
waives all claims against the Company, including, without limitation, any
and all rights under Section 1542 of the Civil Code of the State of
California which provides as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
Executive waives and releases any right or benefit which he has or may
have under any similar law or rule of any other jurisdiction pertaining to
the Disputes. It is the intention of Executive, through this Agreement, and
with the advice of counsel, fully, finally, and forever to settle and
release all such matters and claims relative thereto which have existed,
do now exist or may exist between the parties arising out of or related to
the Disputes. In furtherance of such intention, the release herein given
shall be, and remain in effect as, a full and complete release of such
matters notwithstanding the discovery of the existence of any additional
claims or facts relating thereto. Notwithstanding the foregoing, Executive
expressly does not waive any claim for indemnity for any losses arising out
of his conduct as an officer or director of the Company.
<PAGE>
10. MISCELLANEOUS.
(a) NOTICES. All notices, requests and other communications
(collectively, "Notices") given pursuant to this Agreement shall be in
writing, and shall be delivered by personal services or by United States
first class, registered or certified mail (return receipt requested),
postage prepaid, addressed to the party at the address set forth below:
If to Company:
New Image Industries, Inc.
21218 Vanowen Street
Canoga Park, California 91303
Attn: Board of Directors
If to Executive:
Roger Leddington
6116 Tapia Drive
Malibu, California 90265
Any Notice shall be deemed duly given when received by the addressee thereof,
provided that any Notice sent by registered or certified mail shall be
deemed to have been duly given three days from date of deposit in the United
States mails, unless sooner received. Either party may from time to time
change its address for further Notices hereunder by giving notice to the
other party in the manner prescribed in this section.
(b) ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein. No representations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this agreement.
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES THEREOF.
(d) CAPTIONS. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
<PAGE>
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
(f) AMENDMENTS AND WAIVERS. No amendment or waiver of any term or
provision of this Agreement shall be effective unless made in writing. Any
written amendment or waiver shall be effective only in the instance given
and then only with respect to the specific term or provision (or portion
thereof) of this Agreement to which it expressly relates, and shall not
be deemed or construed to constitute a waiver of any other term or provision
(or portion thereof) waived in any other instance.
In witness whereof, the parties have executed this Agreement as of the
date first set forth above.
Company: Executive:
New Image Industries, Inc.
By: /s/ Robert S. Colman /s/ Roger Leddington
----------------------------------- ------------------------------------
Robert S. Colman Roger Leddington
Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 1,567,000
<SECURITIES> 500,000
<RECEIVABLES> 5,531,000
<ALLOWANCES> 280,000
<INVENTORY> 5,444,000
<CURRENT-ASSETS> 13,264,000
<PP&E> 2,394,000
<DEPRECIATION> 1,552,000
<TOTAL-ASSETS> 15,901,000
<CURRENT-LIABILITIES> 7,219,000
<BONDS> 0
<COMMON> 22,658,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,901,000
<SALES> 31,623,000
<TOTAL-REVENUES> 31,623,000
<CGS> 21,319,000
<TOTAL-COSTS> 21,319,000
<OTHER-EXPENSES> 18,062,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,000
<INCOME-PRETAX> (7,673,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 4,350,000
<CHANGES> 0
<NET-INCOME> (7,673,000)
<EPS-PRIMARY> (1.61)
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