<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-17928
NEW IMAGE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4088548
(State or other jurisdiction (I.R.S. Employer
or organization) Identification No.)
21218 VANOWEN STREET
CANOGA PARK, CALIFORNIA 91303
(Address of principal executive offices)
Registrant's telephone number, including area code: (818) 702-0285
NONE
Former name, address and fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES /X/ NO / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Common Stock, $.001 Par Value 4,791,438 shares outstanding as of
October 30, 1995
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEW IMAGE INDUSTRIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
1995 1995
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................... $ 1,806,000 $ 1,567,000
Short-term investments ............................ -- 500,000
Accounts receivable, net of allowance for
doubtful accounts of $323,000 at
September 30, 1995 and $280,000 at
June 30, 1995 ................................... 2,526,000 5,251,000
Inventories ....................................... 6,028,000 5,444,000
Prepaid expenses and other ........................ 549,000 502,000
------------ ------------
Total current assets ........................ 10,909,000 13,264,000
Property and equipment, net ......................... 866,000 842,000
Intangible assets, net of accumulated amortization
$1,674,000 at September 30, 1995 and $1,571,000
at June 30, 1995 .................................. 1,122,000 1,230,000
Other assets ........................................ 536,000 565,000
------------ ------------
$ 13,433,000 $ 15,901,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ 2,376,000 $ 3,452,000
Accrued payroll ................................... 179,000 595,000
Accrued litigation costs .......................... 200,000 836,000
Accrued liabilities related to acquisition ........ 623,000 623,000
Accrued restructuring and unusual charges ......... 1,484,000 1,109,000
Other accrued liabilities ......................... 552,000 604,000
------------ ------------
Total current liabilities ................... 5,415,000 7,219,000
------------ ------------
------------ ------------
OTHER LONG-TERM LIABILITIES ....................... 22,000 24,000
------------ ------------
Shareholders' equity:
Preferred stock, par value $0.001 per share;
1,000,000 shares authorized; none outstanding ... -- --
Common stock, par value $0.001 per share;
10,000,000 authorized; 4,791,000 outstanding
at September 30, 1995 and 4,791,000 outstanding
at June 30, 1995 ................................ 5,000 5,000
Capital in excess of par value ................... 22,663,000 22,663,000
Accumulated deficit .............................. (14,672,000) (14,010,000)
------------ ------------
Total shareholders' equity .................. 7,996,000 8,658,000
------------ ------------
$ 13,433,000 $ 15,901,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
Three months ended
September 30,
-------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Revenues ............................................. $4,378,000 $6,970,000
Cost of revenues ..................................... 2,726,000 3,927,000
---------- ----------
Gross profit ....................................... 1,652,000 3,043,000
---------- ----------
Selling, general and administrative expenses ......... 2,111,000 2,543,000
Research and development expenses .................... 215,000 263,000
Interest income (Expense) Net ........................ 13,000 13,000
---------- ----------
Income (loss) before income taxes .................... $ (661,000) 250,000
Provision for income taxes ........................... 0 102,000
---------- ----------
Net income (loss) .................................... $ (661,000) $ 148,000
---------- ----------
---------- ----------
Net income (loss) per share .......................... $ (0.14) $ 0.03
---------- ----------
---------- ----------
Weighted average shares of common stock outstanding .. $4,791,000 $4,721,000
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR EACH OF THE THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
September 30,
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................... $ (661,000) $ 148,000
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities
Depreciation and amortization ....................... 295,000 327,000
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable ............................. 2,725,000 965,000
Inventories ..................................... (584,000) 765,000
Prepaid expenses and other ...................... (47,000) (47,000)
Increase (decrease) in:
Accounts payable ................................ (1,076,000) (1,564,000)
Accrued expenses ................................ (468,000) (241,000)
Litigation Reserve .............................. (636,000) (57,000)
Accrued restructuring and unusual expenses ...... 375,000 0
Income taxes payable/Receivable ................. 0 102,000
Long-term liabilities ........................... (2,000) 0
----------- -----------
Net cash provided (used) by operating activities .... (79,000) 398,000
----------- -----------
Cash flows from investing activities:
(Increase) decrease in other assets ............... (50,000) (102,000)
Purchases of property and equipment ............... (132,000) (138,000)
(Increase) decrease in short-term investments ..... 500,000 (600,000)
----------- -----------
Net cash provided (used)by investing activities ..... 318,000 (840,000)
----------- -----------
Cash flows from financing activities:
Net proceedsfrom issuance of stock .................. 0 32,000
----------- -----------
Net cash provided by financing activities ........... 0 32,000
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ....................................... 239,000 (410,000)
BEGINNING CASH AND CASH EQUIVALENTS ................. 1,567,000 2,950,000
----------- -----------
ENDING CASH AND CASH EQUIVALENTS .................. $ 1,806,000 $ 2,540,000
----------- -----------
----------- -----------
Supplemental Disclosures:
Interest paid ...................................... 1,000 1,000
----------- -----------
----------- -----------
Taxes paid ......................................... -- --
----------- -----------
----------- -----------
Capital lease obligations incurred ................. -- --
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NEW IMAGE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED)
(1) GENERAL
(a) The accompanying unaudited condensed financial statements of New
Image Industries, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been
included and all such adjustments are of a normal and recurring nature. The
results of operations for the three months ended are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the year ended June 30, 1995
as filed with the Securities and Exchange Commission.
(b) Cash and Cash Equivalents -- Cash and cash equivalents include
short-term, highly liquid investments principally tax-exempt money market
funds and municipal securities with original maturities of three months or
less.
(c) Short-term Investments -- Short-term investments include
short-term, highly liquid investments; principally tax-exempt money market
funds and municipal securities with original maturities of greater than three
months, but which are readily convertible to cash.
(d) Major Customers -- No customer accounted for more than ten percent
of revenues in any of the periods presented. The majority of the Company's
current customers consist of dental professionals.
(e) Revenue Recognition -- The Company recognizes revenue from system,
supplies and software sales at the time of shipment, net of estimated sales
returns and allowances. Revenues from software sales and licenses are
recognized in compliance with the A.I.C.P.A.'s statement of position No.
91-1, software revenue recognition. Revenues from warranty, maintenance and
service contracts, which have not been significant are recognized ratably
over the life of the contract.
(f) Income Taxes -- In February 1992 the FASB issued Statement No.
109 (accounting for income taxes). At the beginning of fiscal 1994, the
Company adopted the new Statement, which did not have a material effect on
its net income or financial position. For the three month period ended
September 30, 1995, no provision or benefit for income taxes has been
recorded due to the loss and the questionable realization of any asset
related to net operating losses.
(g) Income Per Common Share -- Income per common share for the 1995
and 1994 periods are based on the weighted average number of common shares
outstanding and does not include the dilutive effect of common share
equivalents as the dilution was not material in 1994 and anti-dilutive in
1995.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues decreased $2,592,000 or 37% for the three month period ended
September 30, 1995 when compared to the same period in 1994. This decrease
was due primarily to lower unit sales, which dropped from approximately 660
in 1994 to approximately 360 in 1995. The product mix changed significantly
with the Company's Multicam product accounting for approximately 60% of sales
in 1995 and AcuCam accounting for 13%. In 1994, AcuCam accounted for
approximately 82% of sales while the Multicam had not been introduced.
Cost of revenues increased as a percentage of revenues from 56.3% to
62.3% in the three month period September 30, 1994 and 1995 respectively.
This increase was primarily due to lower margins earned on sales of Multicam
versus the AcuCam sold in the same period previously and to a higher
percentage of manufacturing overhead due to lower sales volume.
Selling, General and Administrative expenses decreased by $648,000 or
25% for the three month period ended September 30, 1995 when compared to the
same period in 1994. As a percentage of revenues SG&A expenses increased from
36% to 43% in the 1995 period, due primarily to lower revenues.
Research and development expenses decreased from 263,000 (4% of
revenues) for the three month period ended September 30, 1994 to $215,000 (5%
of revenues) for the three month period ended September 30, 1995. This
decrease is attributable to lower costs associated with the Digital X-ray
Project.
Accounts receivable decreased $2,725,000 at September 30, 1995, when
compared to June 30, 1995. The decrease was due in part to increased payments
to the company by its international licensees, improvement in collection
practices and to lower sales volume. Accounts receivable days outstanding
decreased from 61 days at June 30, 1995 to 32 days at September 30, 1995.
Inventories increased by $642,000 at September 30, 1995 when compared to June
30, 1995 as the company built up inventory in anticipation of its facilities
move to Carlsbad. Prepaid expenses increased by $47,000 primarily due to
deposits on tradeshows and rent. Accounts payable declined by $1,076,000 when
compared to June 30, 1994. The decrease occurred due to payments to a few
vendors for obligations incurred in prior periods as well as a general
reduction in purchases overall due to lower sales volume. Accrued payroll
declined from $595,000 on June 30, 1995 to $179,000 in September primarily
due to lower accrued commissions. The litigation reserve was reduced in the
first quarter from $836,000 to $200,000. Favorable developments in the High
Tech Medical Instrumentation ("HTMI") lawsuit and other actions led to a
reduction in the reserve to an amount the Company believes to be a reasonable
estimate of current anticipated costs associated with outstanding litigation.
There can be no assurance that any such reserve will be adequate to cover
actual costs of litigation. The reduction in litigation reserve was offset
by an increase in restructuring reserves.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995 the Company had cash and short-term investments on
hand of $1,806,000, up $239,000 from the June 30, 1995 amount of $1,567,000.
The increase was primarily the result of the conversion of $500,000 of
short-term investments to cash equivalents offset somewhat by cash flow from
operations which was $79,000 negative.
The Company is currently investing cash in the business by consolidating
its operations into one facility, upgrading 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 will
be available.
The Company's working capital at September 30, 1995 was $5,494,000, a
decrease of $551,000 when compared to June 30, 1994. Working capital decline
was primarily the result of a reduction in accounts receivable The current
ratio at September 30, 1995 was 2.0 to 1 compared to 1.8 to 1 at June 30,
1994.
6
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW IMAGE INDUSTRIES, INC.
Date: November 13, 1995 /s/ KENNETH B. SAWYER
---------------------------
Kenneth B. Sawyer
Chief Financial Officer
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,806,000
<SECURITIES> 0
<RECEIVABLES> 2,849,000
<ALLOWANCES> 323,000
<INVENTORY> 1,023,000
<CURRENT-ASSETS> 10,909,000
<PP&E> 2,526,000
<DEPRECIATION> (1,660,000)
<TOTAL-ASSETS> 13,433,000
<CURRENT-LIABILITIES> 5,415,000
<BONDS> 0
<COMMON> 22,661,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,413,000
<SALES> 4,378,000
<TOTAL-REVENUES> 4,378,000
<CGS> 2,724,000
<TOTAL-COSTS> 2,726,000
<OTHER-EXPENSES> 2,326,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (661,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (661,000)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> 0
</TABLE>
