<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_______________
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): MAY 31, 1996
NEW IMAGE INDUSTRIES, INC.
--------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-17928 95-4088548
---------------- ------------ --------------
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
2283 COSMOS COURT, CARLSBAD, CALIFORNIA 92009
------------------------------------------ ------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (619) 930-9900
NONE
---------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
- --------------------------------------------------------------------------------
Item 2. Acquisition or Disposition of Assets.
On May 31, 1996, ("Effective Date") the transactions contemplated by
an Agreement and Plan of Reorganization ("Agreement"), by and among New Image
Industries, Inc. (the "Company"), a Delaware corporation, Wisdom Acquisition
Corp. ("Sub"), a California corporation, a subsidiary of the Company, and
Insight Imaging Systems, Inc. ("Insight"), a California corporation, and the
related Agreement of Merger ("Merger Agreement") were consummated by the parties
(which followed a closing of such transactions on May 17, 1996). Under the
Merger Agreement, Sub was merged into Insight and Insight survived as a wholly-
owned subsidiary of the Company. The Company accounted for the transaction as a
pooling of interests.
Insight, for the twelve-month period ended March 31, 1996, had sales in
excess of $13 million. Insight was a privately-owned corporation headquartered
in San Carlos, California, with software operations in Richmond, Virginia, and
an optical assembly operation in Mission Viejo, California. Insight designs,
manufactures, and markets imaging systems for dental offices. It has had
success in generating rapid revenue growth in recent years, however, increases
in marketing and other expenses have exceeded revenue growth. New Image
management believes efficiencies can be realized from the combination of the two
companies.
The current Insight product line includes intraoral and extraoral video
cameras, monitors, printers, mobile carts, and video capture, periodontal and
restorative charting, and cosmetic imaging software. Insight camera systems are
available in a variety of models: cart, portable, or wall-mounted systems. Its
MultiLink network product links individual offices with a dentistry facility.
At the Effective Date, the only class of Insight's capital stock with
shares outstanding was its common stock, without par value ("Insight Common
Stock"). At the Effective Date, there were 6,373,764 shares of Insight Common
Stock issued and outstanding. For each share of Insight Common Stock, the
holder received 0.0554392 shares of the Company's Common Stock, $.001 par value,
353,356 in total. In addition, the Company issued 296,603 shares of the
Company's Common Stock in exchange for each dollar of principal and interest
outstanding on loans to Insight from shareholders which were made prior to
March 1, 1996; and the Company assumed Insight obligations under outstanding
options and warrants to purchase Insight Common Stock and in connection
therewith reserved 158,040 shares of the Company's Common Stock for issuance
upon exercise of such stock options and warrants. Subject to differences caused
by the Company's agreement to round-up all fractional shares, if all options and
warrants are exercised, the Company will have issued 807,999 shares of the
Company's Common Stock to holders of Insight Common Stock, options, warrants,
and shareholder loans made prior to March 1, 1996.
The basis for the exchange was the evaluation by the board of directors and
its advisors of the value of the Insight business on a going-forward basis.
There were no common shareholders, officers, directors or holders of 10% or more
of the Common Stock of the Company and Insight.
The Company required additional funding in connection with the acquisition
from the
<PAGE>
- --------------------------------------------------------------------------------
following sources:
1. The Company's primary line of credit was increased from $2.5 million
to $4 million and is secured by all of the assets of the Company and Insight.
The amount of availability under the line will be a function of the size and age
of the receivables, inventory, and other assets of the combined companies.
2. The Company has borrowed $500,000 of secured subordinated debt. Under
the terms of this loan, the principal sum will be subordinated to the bank's
primary lending relationship and will be senior to the Series A Notes described
below. The loan will bear interest at the rate of 10% per annum. In connection
with this debt, the Company granted the lender a five year warrant to purchase
the Company's Common Stock at $3.06 per share. The warrant will expire if not
exercised by the sooner of (i) expiration of the warrant term or (ii) completion
of a 20 day period where the Company's Common Stock closes at $8.00 or more per
share on the exchange where the stock is primarily traded following the second
year after issuance of the warrant.
3. An Insight shareholder had lent $650,000 and New Image had lent
$200,000 to Insight all prior to or as of the Effective Date, which loans are
evidenced by Insight Series A Unsecured Subordinated Notes ("Series A Notes").
The Series A Notes bear interest at the rate of ten percent (10%) per annum and
are subordinated to up to $8 million of Senior Debt designated from time to
time.
In connection with this acquisition, the Company will be consolidating the
operations of the combined companies into the Company's Carlsbad facility. The
Company plans to reduce the number of employees previously involved in the
Insight Operations and to consolidate certain of the Insight equipment and
facilities. This consolidation effort will result in a significant
restructuring charge in the Company's quarter ending June 30, 1996.
Item 7. Financial Statements, PRO FORMA Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
FINANCIAL STATEMENTS OF
INSIGHT IMAGING SYSTEMS, INC.
Page
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants F-1
Balance Sheets, September 30, 1994 and 1995 F-2
Statements of Operations for the years ended September 30, 1993,
1994 and 1995 F-3
Statements of Shareholders' Deficit for the years ended
September 30, 1993, 1994 and 1995 F-4
Statements of Cash Flows for the years ended September 30, 1993,
1994 and 1995 F-5
Notes to Financial Statements F-6
(b) PRO FORMA Financial Information. The following unaudited pro forma
financial information gives effect to the transaction described in Item 2 under
the pooling of interests method of accounting. This pro forma financial
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred or might have been achieved had the transactions occurred as of an
earlier date, nor are they necessarily indicative of operating results or
financial position that may occur in the future. Further, the pro forma
combined condensed financial statements exclude the transaction costs, the
potential cost savings that may be achieved, and the expenses expected to be
incurred in connection with the integration of New Image's and Insight's
business operations.
The pro forma financial statements are derived from, and should be read in
conjunction with, New Image's audited consolidated financial statements and
Insight's audited financial statements.
PRO FORMA FINANCIAL INFORMATION
Page
Unaudited Pro Forma Consolidated Balance Sheet; New Image
Industries, Inc. - at March 31, 1996; Insight Imaging Systems,
Inc. - at March 31, 1996 F-18
Unaudited Pro Forma Statement of Operations; New Image Industries,
Inc. - for the nine months ended March 31, 1996; Insight Imaging
Systems, Inc. - for the nine months ended March 31, 1996 F-19
Unaudited Pro Forma Statement of Operations; New Image Industries,
Inc. - for the fiscal year ended June 30, 1995; Insight Imaging
Systems, Inc. - for the fiscal year ended September 30, 1995 F-20
Unaudited Pro Forma Statement of Operations; New Image Industries,
Inc. - for the fiscal year ended June 30, 1994; Insight Imaging
Systems, Inc. - for the fiscal year ended September 30, 1994 F-21
<PAGE>
Unaudited Pro Forma Statement of Operations; New Image Industries,
Inc. - for the fiscal year ended June 30, 1993; Insight Imaging
Systems, Inc. - for the fiscal year ended September 30, 1993 F-22
Notes to Pro Forma Combined Condensed Financial Statements (Unaudited) F-23
(c) Exhibits. Exhibits filed herewith are identified in the Schedule of
Exhibits appearing at page 6 hereof.
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
Date: July 26, 1996 New Image Industries, Inc.
By: /s/ Dewey F. Edmunds
----------------------------------------------
Dewey F. Edmunds, President
<PAGE>
SCHEDULE OF EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE
2.1 Agreement and Plan of Reorganization (including all material
exhibits thereto) (previously filed as an exhibit to this
Form 8-K) ___
2.2 Undertaking Concerning Certain Registration Rights (previously
filed as an exhibit to this Form 8-K) ___
4.1 Form of Certificate for the Registrant's Common Stock, $.001
Par Value (previously filed as an exhibit to this Form 8-K) ___
10.1 Senior Subordinated Secured Promissory Note and Common Stock
Purchase Warrant between Mercury Partners and New Image
Industries, Inc. (previously filed as an exhibit to this
Form 8-K) ___
10.2 Amended and Restated Loan and Security Agreement between Coast
Business Credit and New Image Industries, Inc. (previously
filed as an exhibit to this Form 8-K) ___
10.3 Series A Subordinated Promissory Note (previously filed as an
exhibit to this Form 8-K) ___
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Insight Imaging Systems, Inc.:
We have audited the accompanying balance sheets of Insight Imaging Systems, Inc.
as of September 30, 1994 and 1995, and the related statements of operations,
shareholders' deficit and cash flows for each of the three years in the period
ended September 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 Insight Imaging Systems, Inc.
as of September 30, 1994 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 1995,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Coopers & Lybrand LLP
San Jose, California
December 13, 1995, except for Note 8,
for which the date is February 28, 1996
F - 1
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
BALANCE SHEETS, September 30, 1994 and 1995
------
<TABLE>
<CAPTION>
ASSETS 1994 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 73,610
Accounts receivable, net of allowance for doubtful accounts of
$20,000 in 1994 and $51,557 in 1995 $1,163,031 994,725
Other receivables 20,000
Inventories 909,165 1,371,393
Prepaid expenses and other current assets 234,290 297,832
---------- ----------
Total current assets 2,326,486 2,737,560
Property and equipment, at cost, less accumulated depreciation
and amortization 209,723 237,730
Purchased technology and other intangible assets 807,813
---------- ----------
Total assets $2,536,209 $3,783,103
---------- ----------
---------- ----------
LIABILITIES
Current liabilities:
Bank overdraft $129,417
Bank line of credit 600,000 $878,735
Notes payable 47,985 251,321
Notes payable - related parties 550,000 1,610,000
Accounts payable 2,262,385 2,172,757
Accrued expenses 607,762 1,046,746
Customer deposits 40,200 208,277
Lease obligations - current 13,827 22,055
---------- ----------
Total current liabilities 4,251,576 6,189,891
Notes payable - noncurrent 45,000
Lease obligation - noncurrent 15,214 28,245
---------- ----------
Total liabilities 4,266,790 6,263,136
---------- ----------
Commitments (Note 7).
SHAREHOLDERS' DEFICIT
Convertible redeemable preferred stock, no par value:
Series A:
Authorized: 1,500,000 shares in 1994 and 1995
Issued and outstanding: 1,493,588 shares in 1994 and 1995 1,473,685 1,473,685
(Liquidation value: $1,493,588 in 1994 and 1995)
Series B:
Authorized: none in 1994 and 3,500,000 shares in 1995
Issued and outstanding: none in 1994 and 2,863,264 shares
in 1995 3,426,954
(Liquidation value: $3,435,917 in 1995)
Common stock, no par value:
Authorized: 8,000,000 shares in 1994 and 10,000,000 shares
in 1995
Issued and outstanding: 1,986,920 shares in 1994 and
1,991,812 shares in 1995 193,692 194,670
Accumulated deficit (3,397,958) (7,575,342)
---------- ----------
Total shareholders' deficit (1,730,581) (2,480,033)
---------- ----------
Total liabilities and shareholders' deficit $2,536,209 $3,783,103
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial staements.
</TABLE>
F - 2
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
STATEMENTS OF OPERATIONS
for the years ended September 30, 1993, 1994 and 1995
------
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $2,251,485 $9,919,117 $12,955,953
Cost of goods sold 2,126,515 6,308,287 8,212,314
---------- ---------- ----------
Gross profit 124,970 3,610,830 4,743,639
---------- ---------- ----------
Costs and expenses:
Research and development 22,526 180,715 767,328
Selling and marketing 1,097,910 4,348,738 6,747,578
General and administrative 493,691 840,076 975,232
---------- ---------- ----------
1,614,127 5,369,529 8,490,138
---------- ---------- ----------
Operating loss (1,489,157) (1,758,699) (3,746,499)
Other income, net 27,256 6,608 5,240
Interest and other expense, net 116,129 436,125
---------- ---------- ----------
Net loss $(1,461,901) $(1,868,220) $(4,177,384)
---------- ---------- ----------
---------- ---------- ----------
Net loss per share $ (1.26) $(0.94) $(2.10)
---------- ---------- ----------
---------- ---------- ----------
Shares used in per share calculation 1,159,037 1,986,920 1,989,812
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F - 3
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
for the years ended September 30, 1993, 1994 and 1995
------
<TABLE>
<CAPTION>
Convertible Redeemable
Preferred Stock Common Stock
-------------------------- ------------------------- Accumulated
Shares Amount Shares Amount Deficit Total
<S> <C> <C> <C> <C> <C> <C>
----------- ---------- ---------- ---------- ---------- ----------
Balances, September 30, 1992 $(67,837) $(67,837)
Convertible redeemable Series A
preferred stock issued for
cash ($30,556) and in lieu
of debt repayment ($244,444),
net of issuance costs in
February 1993 511,110 $499,110 499,110
Common stock issued for cash
($28,334), in lieu of debt
repayment ($30,556), in lieu
of compensation ($1,500) and
for property and equipment
($133,302) in February 1993,
net of issuance costs 1,986,920 $193,692 193,692
Net loss (1,461,901) (1,461,901)
----------- ---------- ---------- ---------- ---------- ----------
Balances, September 30, 1993 511,110 499,110 1,986,920 193,692 (1,529,738) (836,936)
Convertible redeemable Series A
preferred stock, issued for cash,
net of issuance costs of $7,903 982,478 974,575 974,575
Net loss (1,868,220) (1,868,220)
----------- ---------- ---------- ---------- ---------- ----------
Balances, September 30, 1994 1,493,588 1,473,685 1,986,920 193,692 (3,397,958) (1,730,581)
Convertible redeemable Series B
preferred stock issued for cash
and in lieu of debt repayment
($1,900,000), net of issuance
costs of $8,963 2,416,666 2,891,037 2,891,037
Convertible redeemable Series B
preferred stock issued as a result
of Chart-It acquisition 446,598 535,917 535,917
Common stock, issued for cash 4,892 978 978
Net loss (4,177,384) (4,177,384)
----------- ---------- ---------- ---------- ---------- ----------
Balances, September 30, 1995 4,356,852 $4,900,639 1,991,812 $194,670 $(7,575,342) $(2,480,033)
----------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
for the years ended September 30, 1993, 1994 and 1995
------
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,461,901) $(1,868,220) $(4,177,384)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 117,459 45,220 143,537
Shares issued in lieu of compensation 1,500
Write-off of purchased research and development 33,432
Changes in assets and liabilities:
Receivables (176,380) (1,006,652) 168,306
Inventories (16,766) (892,399) (462,228)
Prepaid expenses (52,646) (181,644) (63,542)
Accounts payable 605,056 1,643,433 (89,628)
Accrued liabilities 148,006 459,756 438,984
Customer deposits 22,387 7,813 168,077
------------ ------------ ------------
Net cash used in operating activities (813,285) (1,792,693) (3,840,446)
------------ ------------ ------------
Cash flows from investing activities:
Additions to property and equipment (20,413) (180,584) (120,796)
Additions to purchased technology and other intangibles (52,515)
------------ ------------ ------------
Net cash used in investing activities (20,413) (180,584) (173,311)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from:
Bank overdraft 129,417 (129,417)
Bank line of credit 600,000 278,735
Notes payable 575,000 247,985 2,958,336
Payments of capital lease obligations (7,046) (12,302)
Issuance of common stock 28,334 978
Issuance of preferred stock 254,666 974,575 991,037
------------ ------------ ------------
Net cash provided by financing activities 858,000 1,944,931 4,087,367
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents 24,302 (28,346) 73,610
Cash and cash equivalents, beginning of year 4,044 28,346 -
------------ ------------ ------------
Cash and cash equivalents, end of year $28,346 $ - $73,610
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ - $100,158 $118,094
------------ ------------ ------------
------------ ------------ ------------
Cash paid during the period for income taxes $800 $800 -
------------ ------------ ------------
------------ ------------ ------------
SIGNIFICANT NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of bridge loans into common stock $30,556
------------
------------
Conversion of bridge loans into convertible preferred stock $244,444 $620,978 $1,900,000
------------ ------------ ------------
------------ ------------ ------------
Common stock issued for assets $133,302
------------
------------
Common stock issued in lieu of compensation $1,500
------------
------------
Preferred stock issued in consideration for interest in Chart-It $535,917
------------
------------
Note issued in consideration for interest in Chart-It $250,000
------------
------------
Property and equipment acquired under capital leases $33,561
------------
------------
Note receivable forgiven 20,000
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F- 5
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
------
1. BUSINESS OPERATIONS:
Insight Imaging Systems, Inc. (Insight) was formed in 1992 for the purpose
of designing, manufacturing and marketing a family of intraoral video
cameras for the dental industry. Insight has introduced to the market high
resolution extraoral and intraoral video cameras integrated with high
intensity light sources, monitors and printers.
In September 1995, the Company acquired all of the issued and outstanding
common stock of Chart-It, Inc., a Virginia Corporation, for total
consideration of $805,917 comprising:
Issuance of 446,598 shares of convertible
redeemable Series B preferred stock
at $1.20 per share $ 535,917
Note payable due December 13, 1996 250,000
Note receivable forgiven 20,000
---------
$ 805,917
---------
---------
Expenses incurred in relation to the acquisition totaled $48,318. The
purchase price and capitalized expenses were allocated on the basis of
their estimated fair market value as follows:
Purchased technology $ 725,000
Goodwill 100,000
Purchased research and development 33,432
Net current liabilities (4,196)
---------
$ 854,236
---------
---------
The technological feasibility of the purchased research and development had
not been established and the technology being developed has no alternative
future use. Therefore the amount has been charged to operations.
The results of operations of Chart-It subsequent to its September 1995
acquisition date have been recorded in the Company's results of operations
for the year ended September 30, 1995. If the acquisition had occurred on
October 1, 1994, the Company's results of operations for fiscal 1995 would
not have been materially different.
F-6
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the Company's significant accounting policies:
GOING CONCERN:
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has sustained
recurring losses from operations and at September 30, 1995 had a working
capital deficiency and shareholders' deficit of $2,480,033. Management is
pursuing additional debt and equity financing as well as seeking strategic
corporate partners; however, there is no assurance that any of these
activities would be sufficient to ensure the Company's continued existence.
These factors among others, raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION:
Revenue from equipment sales is recognized at the time products are
shipped, net of an allowance for estimated returns.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash equivalents.
F - 7
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets, generally three to five years.
RESEARCH AND DEVELOPMENT EXPENDITURES:
Research and development expenditures are charged to operations as
incurred.
CONCENTRATION OF CREDIT RISK:
All of the Company's cash at September 30, 1995 is held at one financial
institution.
INCOME TAXES:
The Company accounts for income taxes under Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using current tax laws and rates. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
PURCHASED TECHNOLOGY AND INTANGIBLE ASSETS:
Purchased technology and other intangible assets acquired (see Note 1) are
amortized over the estimated useful lives of the assets on a straight-line
basis. The estimated useful lives are as follows:
Purchased technology 4 years
Goodwill 4 years
Goodwill represents the excess of the total purchase price over the assets and
liabilities acquired.
F - 8
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
RECENT ACCOUNTING PRONOUNCEMENTS:
During March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" (SFAS No. 121), which requires the
Company to review for impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In certain situations, an impairment loss would be
recognized. SFAS No. 121 will be effective for the Company's fiscal year
1997. The Company has studied the implications of the statement and, based
on its initial evaluation, does not expect it to have a material impact on
the Company's financial condition or results of operations.
During October 1995, the Financial Accounting Standards Board Issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123). This accounting standard permits
the use of either a fair value based method or the current Accounting
Principals Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB No. 25) when accounting for stock-based compensation arrangements.
Companies that do not follow the new fair value based method will be
required to disclose pro forma net income and earnings per share computed
as if the fair value based method had been applied. The disclosure
provisions of SFAS No. 123 are effective for fiscal years beginning after
December 15, 1995. Management has not determined if it will adopt the fair
value based method of accounting for stock-based compensation arrangements
nor the impact of SFAS No. 123 on the Company's financial statements.
COMPUTATION OF EARNINGS PER SHARE:
Earnings per share is computed by dividing the net loss (income) by the
weighted average number of common and common equivalent (when dilutive)
shares outstanding during the period.
F - 9
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------
3. INVENTORIES:
Inventories consist of:
September 30,
-------------------------------
1994 1995
---------- ----------
Raw materials $356,209 $515,020
Finished goods 552,956 856,373
---------- ----------
$909,165 $1,371,393
---------- ----------
---------- ----------
4. PROPERTY AND EQUIPMENT:
Property and equipment comprise:
September 30,
-------------------------------
1994 1995
---------- ----------
Office and computer equipment $87,888 $152,447
Manufacturing equipment 127,360 147,023
Leased office equipment 36,086 69,647
Leasehold improvements 18,332 31,462
Sales and marketing equipment 23,444
---------- ----------
269,666 424,023
Less accumulated depreciation 59,943 186,293
---------- ----------
$209,723 $237,730
---------- ----------
---------- ----------
Depreciation expense totaled $117,459, $45,220 and $126,350 for the years
ended September 30, 1993, 1994 and 1995, respectively.
At September 30, 1994 and 1995, property and equipment included assets
acquired under capitalized leases with a cost of $36,086 and $69,647,
respectively. Related accumulated amortization totaled $5,829 and $19,378,
respectively.
F - 10
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------
5. PURCHASED TECHNOLOGY AND OTHER INTANGIBLE ASSETS:
At September 30, 1995, purchased technology and other intangible assets are
stated net of accumulated amortization as follows:
Purchased technology $725,000
Goodwill 100,000
-------
825,000
Less accumulated amortization (17,187)
-------
$807,813
-------
-------
Amortization for the year ended September 30, 1995 totaled $17,187 and none
for the years ended September 30, 1994 and 1993.
6. CAPITAL LEASE OBLIGATIONS:
At September 30, 1995, future minimum lease payments under capital lease
obligations are summarized as follows:
FISCAL YEAR
1996 $ 28,445
1997 21,611
1998 10,911
-------
Total minimum lease payments 60,967
Less amounts representing interest at
annual interest rates ranging
from 7% to 16% (10,667)
-------
50,300
Less current portion (22,055)
-------
Long-term capital lease obligations $ 28,245
-------
-------
F - 11
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------
7. COMMITMENTS:
On October 26, 1993, the Company entered into a four-year lease for office
facilities. The Company is responsible for insurance and property taxes.
The lease term began on December 1, 1993 and runs through November 30,
1997. The Company also leases its Southern California manufacturing
facilities under a two-year operating lease expiring in April 1996. Future
minimum rental payments under these leases, as of September 30, 1995, are
as follows:
FISCAL YEAR
1996 $ 89,254
1997 80,472
1998 13,412
-------
$183,138
-------
-------
Rent expense was $31,648, $57,832 and $93,787 in fiscal years September 30,
1993, 1994 and 1995, respectively.
8. BANK LINE OF CREDIT:
The Company has available a $1,000,000 revolving line of credit with a bank
collateralized by all assets. At September 30, 1995, $878,735 was
outstanding under the line of credit with $121,265 remaining available for
future use. Borrowings under the line of credit bear interest at 11% per
annum and are due no later than September 18, 1996. The agreement requires
the Company to comply with certain covenants including, among others, net
loss before taxes for the quarter ending December 31, 1995. The line of
credit is guaranteed by a director of the Company.
At December 31, 1995, the Company was in default of the net loss and quick
ratio covenant restrictions. On February 28, 1996, the Company obtained a
waiver of its violation of these covenants.
F - 12
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------
9. NOTES PAYABLE AND NOTES PAYABLE - RELATED PARTIES:
Notes payable at September 30, 1994 and 1995 consist of the following:
1994 1995
-------- --------
Note payable by monthly
installments of $15,000
bearing no interest $225,000
Borrowings under advance
lease funding agreement
bearing no interest, due
on demand $47,985 55,325
Other 15,996
-------- --------
47,985 296,321
Less noncurrent portion
of note payable 45,000
-------- --------
$47,985 $251,321
-------- --------
-------- --------
Notes payable - related parties at September 30, 1994 and 1995 comprise
various notes payable to officers of the Company and shareholders.
The notes bear interest at rates ranging from 0% to 10%, and borrowings and
accrued interest are payable in full one year from the date of the notes.
The notes are repayable at various dates prior to September 30, 1996.
The notes payable include the right to purchase warrants at $0.001 per
share, which entitle the holder to purchase common stock of the Company at
$0.50 per share. The number of shares that can be purchased under the
warrants equals 5% of the original principal of the note, increased by 2%
for each complete 30 day period in which the note remains unpaid. The
warrants expire five years from the date of the note (see Note 10).
F - 13
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------
10. SHAREHOLDERS' DEFICIT:
CONVERTIBLE REDEEMABLE PREFERRED STOCK:
The Company is authorized to issue 5,000,000 shares of preferred stock of
which 1,500,000 shares are designated Series A and 3,500,000 are designated
Series B. The Company's Board of Directors is authorized to determine the
rights, preferences and privileges of any authorized but undesignated
preferred stock.
The rights, preferences and privileges of the Series A and Series B
preferred stock are as follows:
DISTRIBUTIONS:
Holders of Series A and Series B preferred stock are entitled to the
payment of dividends in preference to any distribution to the holders
of common stock at the rate of $0.08 and $0.10 per share,
respectively. Dividends are not cumulative and are only payable when
declared by the Board of Directors. At September 30, 1995, no
dividends had been declared. After payment of such dividends, any
additional dividends or distributions are distributed among the
holders of Series A and Series B preferred stock and common stock in
proportion to the number of shares of common stock into which each
could be converted.
LIQUIDATION:
In the event of liquidation of the Company, holders of Series A and
Series B preferred shares are entitled to a distribution in preference
to common shareholders of $1.00 and $1.20 per share, respectively,
plus any dividends declared but unpaid on such shares. After payments
have been made to preferred shareholders, the holders of common stock
are entitled to receive the remaining assets of the Company pro rata,
based upon the number of shares of common stock then outstanding. A
consolidation or merger of the Company with or into any other
corporation is deemed a liquidation.
F - 14
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------
10. SHAREHOLDERS' DEFICIT, continued:
CONVERTIBLE REDEEMABLE PREFERRED STOCK, continued:
CONVERSION:
The preferred stock is convertible at the option of the holder, at any
time into common stock on a one-to-one basis. Each share of Series A
preferred stock shall automatically be converted into one share of
common stock with the consent of the holders of at least 67% of the
outstanding preferred stock or immediately upon the closing of a
public offering of the Company's common stock for which the aggregate
gross proceeds exceed $7,500,000. Holders of preferred shares stock
are entitled to vote on an "as converted" basis along with common
shareholders.
REDEMPTION:
The preferred stock is redeemable at the election of holders of 67% of
the then outstanding Series A and Series B preferred stock by paying
in cash a sum per share equal to $1.00 and $1.20, respectively, plus
any declared but unpaid dividends.
COMMON STOCK:
The Company is authorized to issue 10,000,000 shares of common stock.
The Company has sold common stock to the founders, officers and employees
of the Company subject to executed stockholder agreements. The agreements
provide the Company the right of first refusal on all sales of common stock
by the holders. Each stockholder is entitled to one vote for every share
of stock. Dividends may be issued, when and if declared by the Board of
Directors. No dividends have been declared to date.
At September 30, 1995, 1,493,588 and 2,863,264 shares of common stock have
been reserved for conversion of the Series A and Series B preferred stock,
respectively.
STOCK OPTION PLAN:
The Board of Directors has reserved 1,350,000 shares of common stock under
its 1994 Stock Option Plan (the Plan) for issuance to employees and
directors of the Company. Under the terms of the Plan, options may not be
granted at prices lower than 85% of the fair market value (100% for
incentive stock options).
F - 15
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------
10. SHAREHOLDERS' DEFICIT, continued:
STOCK OPTION PLAN, continued:
Under the terms of the Plan options may be exercised before they are fully
vested. Any unvested shares are subject to repurchase by the Company at
the exercise price paid per share. At the vesting commencement date, 25%
of the shares are fully vested. The Company's repurchase right shall
lapse, and the optionee acquires a vested interest in an additional 25% of
the option shares after completion of one year's service as measured from
the vesting commencement date. The remaining balance vests, and the
repurchase option lapses in two equal successive annual installments upon
the completion of the next two years of service.
Activity under the plan is as follows:
<TABLE>
<CAPTION>
Shares
Available Number Exercise Aggregate
For Grant of Shares Price Price
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, October 1, 1993 - - - $-
Shares authorized 1,165,000 - - -
Options granted (158,000) 158,000 $0.20 31,600
Options canceled 1,500 (1,500) $0.20 (300)
Options exercised - - - -
---------- ---------- ---------- ----------
Balance, September 30, 1994 1,008,500 156,500 $0.20 31,300
Options granted (773,700) 773,700 $0.20 154,740
Options canceled 77,708 (77,708) $0.20 (15,542)
Options exercised (4,892) $0.20 (978)
Additional shares authorized 185,000 - - -
---------- ---------- ---------- ----------
Balance, September 30, 1995 497,508 847,600 $0.20 $169,520
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
As of September 30, 1995, 568,675 options were subject to repurchase. The
Company has the right to first refusal in the event a shareholder decides
to sell or transfer a share acquired under the Plan.
The Company has also issued stock options outside the Plan. At both
September 30, 1995 and 1994, options to purchase 640,000 shares at a price
of $0.20 had been granted outside the Plan. No options have been
exercised. The options vest in the same manner as these issued under the
Plan, except in the event of the Company being acquired, all options vest
immediately. At September 30, 1995, 217,500 options were subject to
repurchase.
F - 16
<PAGE>
INSIGHT IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------
10. SHAREHOLDERS' DEFICIT, continued:
WARRANTS:
In connection with borrowings under several notes, the Company has issued
options to purchase warrants at $0.001 per warrant. The warrants entitle
the holder to purchase shares of common stock at $0.50 per share. The
number of shares of common stock that may be exercised under the warrants
will be increased by the product of the initial amount of principal of each
note multiplied by the product of $.02 and the number of complete 30-day
periods that the principal under the notes remains outstanding. The
warrants expire five years from the date of each note.
At September 30, 1995, warrants to purchase 622,993 shares of common stock
were outstanding at $0.50 per share and expire through September 2000, if
not exercised.
11. INCOME TAXES:
There is no provision for income taxes for fiscal year 1993, 1994 or 1995.
The provision for income taxes at the Company's effective tax rate differed
from the benefit from income taxes at the statutory rate due to the
increase in valuation allowance and net operating losses not being
benefited.
The federal and state tax effects of temporary differences that give rise
to significant portions of the deferred tax assets are presented below:
September 30,
-------------------------------
1994 1995
---------- ----------
Net operating loss carryforward $1,035,088 $2,472,850
Accruals, reserves and allowances 226,232 289,291
Valuation allowance (1,261,320) (2,762,141)
---------- ----------
Net deferred tax asset $ - $ -
---------- ----------
---------- ----------
The Company has placed a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
At September 30, 1995, the Company had federal and state income tax net
operating loss carryforwards for tax purposes of approximately $6,600,000
and $3,300,000, respectively. These federal and state carryforwards expire
in the years 2008 and 2000, respectively.
F - 17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
------------------------------------------------------------
NEW IMAGE INDUSTRIES, INC. AND INSIGHT IMAGING SYSTEMS, INC.
<TABLE>
<CAPTION>
New Image Industries, Inc. - At March 31, 1996
Insight Imaging Systems, Inc. - At March 31, 1996
Historical Historical Pro Forma Pro Forma
New Image Insight Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 916,000 $ 5,000 $ - $ 921,000
Restricted cash 300,000 - - 300,000
Accounts receivable, net 3,802,000 1,093,000 - 4,895,000
Inventories 4,697,000 1,379,000 - 6,076,000
Prepaid expenses and other current assets 603,000 151,000 - 754,000
------------ ------------ ------------ ------------
Total current assets 10,318,000 2,628,000 - 12,946,000
Property and equipment, net 1,246,000 220,000 - 1,466,000
Purchased technology and other intangible assets, net 967,000 29,514 - 996,514
Other assets 456,000 - - 456,000
------------ ------------ ------------ ------------
Total assets $ 12,987,000 $ 2,877,514 $ - $ 15,864,514
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES
Current liabilities:
Accounts payable $ 3,237,000 $ 2,817,000 $ - $ 6,054,000
Bank line of credit - 1,000,000 - 1,000,000
Accrued expenses 2,092,000 1,614,000 - 3,706,000
Notes payable 90,000 307,000 - 397,000
Notes payable - related parties - 2,110,000 (2,110,000) -
------------ ------------ ------------ ------------
Total current liabilities 5,419,000 7,848,000 (2,110,000) 11,157,000
Long term liabilities 87,000 214,000 - 301,000
------------ ------------ ------------ ------------
Total liabilities 5,506,000 8,062,000 (2,110,000) 11,458,000
Shareholders' equity:
Common stock 5,000 5,100,329 (5,099,679) 5,650
Capital in excess of par value 22,898,000 - 7,209,679 30,107,679
Accumulated deficit (15,422,000) (10,284,815) - (25,706,815)
------------ ------------ ------------ ------------
Total shareholders' equity (deficit) 7,481,000 (5,184,486) 2,110,000 4,406,514
Total liabilities and shareholders'
equity (deficit) $ 12,987,000 $ 2,877,514 $ - $ 15,864,514
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
F-18
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
-------------------------------------------
NEW IMAGE INDUSTRIES, INC. AND INSIGHT IMAGING SYSTEMS, INC.
New Image Industries, Inc. - For The Nine Months Ended March 31, 1996
Insight Imaging Systems, Inc. - For The Nine Months Ended March 31, 1996
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
New Image Insight Adjustments Combined
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net sales $ 17,810,000 $ 10,760,143 $ - $ 28,570,143
Cost of revenues 11,201,000 6,801,923 - 18,002,923
------------ ------------ ----------- ------------
Gross profit 6,609,000 3,958,220 - 10,567,220
Selling, general and
administrative expenses 7,452,000 6,822,221 - 14,274,221
Research and development expenses 552,000 510,484 - 1,062,484
Legal/litigation expenses 43,000 - - 43,000
Interest & other expense (income), net (27,000) 223,803 - 196,803
------------ ------------ ----------- ------------
(Loss) before income taxes (1,411,000) (3,598,288) - (5,009,288)
Provision for income taxes 1,000 800 - 1,800
------------ ------------ ----------- ------------
Net (loss) $ (1,412,000) $ (3,599,088) $ - $ (5,011,088)
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Net (loss) per common share $ (0.92)
------------
------------
Weighted Average number of
common shares outstanding 5,442,959
------------
------------
</TABLE>
F - 19
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
-------------------------------------------
NEW IMAGE INDUSTRIES, INC. AND INSIGHT IMAGING SYSTEMS, INC.
New Image Industries, Inc. - For The Fiscal Year Ended June 30, 1995
Insight Imaging Systems, Inc. - For The Fiscal Year Ended September 30, 1995
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
New Image Insight Adjustments Combined
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 31,623,000 $ 12,955,953 $ - $ 44,578,953
Cost of revenues 21,319,000 8,212,314 - 29,531,314
------------ ------------ ------------ ------------
Gross profit 10,304,000 4,743,639 - 15,047,639
Selling, general and
administrative expenses 12,105,000 7,722,810 - 19,827,810
Research and development expenses 1,220,000 767,328 - 1,987,328
Legal/litigation expenses 349,000 - - 349,000
Restructuring and unusual charges 4,350,000 - - 4,350,000
Interest & other expense (income), net (85,000) 430,885 - 345,885
Loss on sale of assets 38,000 - - 38,000
------------ ------------ ------------ ------------
(Loss) before income taxes (7,673,000) (4,177,384) - (11,850,384)
Provision for income taxes - - - -
------------ ------------ ------------ ------------
Net (loss) $ (7,673,000) $ (4,177,384) $ - $(11,850,384)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net (loss) per common share $ (2.19)
------------
------------
Weighted Average number of
common shares outstanding 5,411,959
------------
------------
</TABLE>
F - 20
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
-------------------------------------------
NEW IMAGE INDUSTRIES, INC. AND INSIGHT IMAGING SYSTEMS, INC.
New Image Industries, Inc. - For The Fiscal Year Ended June 30, 1994
Insight Imaging Systems, Inc. - For The Fiscal Year Ended September 30, 1994
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
New Image Insight Adjustments Combined
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 31,569,000 $ 9,919,117 $ - $ 41,488,117
Cost of revenues 17,069,000 6,308,287 - 23,377,287
------------- ------------- ------------- ------------
Gross profit 14,500,000 3,610,830 - 18,110,830
Selling, general and
administrative expenses 11,517,000 5,188,814 - 16,705,814
Research and development expenses 604,000 180,715 - 784,715
Legal/litigation expenses 2,710,000 - - 2,710,000
Interest & other expense (income), net (4,000) 109,521 - 105,521
------------- ------------- ------------- ------------
(Loss) before income taxes (327,000) (1,868,220) - (2,195,220)
Provision for income taxes 20,000 - - 20,000
------------- ------------- ------------- ------------
Net (loss) $ (347,000) $ (1,868,220) $ - $ (2,215,220)
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
Net (loss) per common share $(0.42)
------------
------------
Weighted Average number of
common shares outstanding 5,261,959
------------
------------
</TABLE>
F - 21
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
------------------------------------------------------------
NEW IMAGE INDUSTRIES, INC. AND INSIGHT IMAGING SYSTEMS, INC.
New Image Industries, Inc. - For The Fiscal Year Ended June 30, 1993
Insight Imaging Systems, Inc. - For The Fiscal Year Ended September 30, 1993
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
New Image Insight Adjustments Combined
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 30,589,000 $ 2,251,485 $ - $ 32,840,485
Cost of revenues 14,705,000 2,126,515 - 16,831,515
------------ ------------ ------------- ------------
Gross profit 15,884,000 124,970 - 16,008,970
Selling, general and
administrative expenses 9,044,000 1,591,601 - 10,635,601
Research and development expenses 375,000 22,526 - 397,526
Legal/litigation expenses 217,000 - - 217,000
Interest & other expense (income), net (35,000) (27,256) - (62,256)
------------ ------------ ------------- ------------
Income (loss) before income taxes 6,283,000 (1,461,901) - 4,821,099
Provision for income taxes 675,000 - - 675,000
------------ ------------ ------------- ------------
Net income (loss) $ 5,608,000 $ (1,461,901) $ - $ 4,146,099
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Net income (loss) per common share $ 0.82
------------
------------
Weighted Average number of
common shares outstanding 5,078,959
------------
------------
</TABLE>
F - 22
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
1. The unaudited pro forma combined condensed balance sheet reflects the
issuance of 353,356 shares of New Image Common Stock in exchange for
6,373,764 shares of Insight Common Stock and the issuance of 296,603
shares of New Image Common Stock in exchange for the outstanding balance
of principal and interest at March 31, 1996 on loans to Insight from its
shareholders.
2. Earnings per common share for each period is based on the weighted average
number of shares of New Image Common Stock outstanding plus the 649,959
shares of New Image Common Stock issued to Insight as stated in the above
note. An additional 158,040 shares of New Image Common Stock are
reserved for outstanding Insight options and warrants but are not included
in the earnings per common share calculation because the effect the
outstanding options and warrants are antidilutive.
3. The pro forma combined condensed financial statements of New Image and
Insight exclude any nonrecurring costs and expenses associated with
combining the operations of the companies and also excludes anticipated
savings associated with the elimination of redundant operations and
expenses. The costs of combining operations, including transaction costs,
are expected to result in a charge to New Image's earnings. New Image's
management anticipates the charge to earnings will approximate $1.5 million
to $2.0 million. Such charge may be increased by unanticipated additional
expenses incurred in connection with the Merger which would have a negative
impact on New Image's results of operations in the period the charge is
recorded. Of the expected charge, approximately $500,000 is anticipated to
be incurred in connection with transaction costs and approximately $1.0
million to $1.5 million is anticipated to be incurred in connection with
costs associated with the combination of operations and related activities,
all of which will be incurred to eliminate duplicate facilities, excess
manufacturing capacity and duplicative selling, general and administrative
expenses. The exact timing of this charge cannot be determined but
management expects the majority to be recorded in the quarter in which the
Merger was consummated.
4. The pro forma combined condensed financial information contains no
adjustments to conform the accounting policies of New Image and Insight,
because any such adjustments are estimated to be immaterial by the
management of New Image.
F - 23
