<PAGE>
THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON MAY 16, 1996 PURSUANT TO
A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
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 March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-17928
NEW IMAGE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4088548
(State or other jurisdiction (I.R.S. Employer
or organization) Identification No.)
2283 COSMOS COURT
CARLSBAD, CALIFORNIA 92009
(Address of principal executive offices)
Registrant's telephone number, including area code: (619) 930-9900
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 4,809,538 shares outstanding as of May 3,
1996
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEW IMAGE INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
(Unaudited)
March 31, June 30,
1996 1995
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ 916,000 $ 1,567,000
Restricted cash ............................................... 300,000 --
Short-term investments ........................................ -- 500,000
Accounts receivable, net of allowance for
doubtful accounts of $481,000 at March 31, 1996
and $280,000 at June 30, 1995 ................................ 3,802,000 5,251,000
Inventories ................................................... 4,697,000 5,444,000
Prepaid expenses and other .................................... 603,000 502,000
----------- ------------
Total current assets ..................................... 10,318,000 13,264,000
Property and equipment, net ........................................ 1,246,000 842,000
Intangible assets, net of accumulated amortization
$1,828,000 at March 31, 1996 and
$1,571,000 at June 30, 1995 ...................................... 967,000 1,230,000
Other assets ....................................................... 456,000 565,000
----------- ------------
$12.987,000 $ 15,901,000
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 3,237,000 $ 3,452,000
Accrued payroll ............................................... 398,000 595,000
Notes payable ................................................. 90,000 --
Accrued litigation costs ...................................... 105,000 836,000
Accrued liabilities related to acquisition .................... 623,000 623,000
Accrued restructuring and unusual charges ..................... 169,000 1,109,000
Other accrued liabilities ..................................... 797,000 604,000
----------- ------------
Total current liabilities ..................................... 5,419,000 7,219,000
----------- ------------
----------- ------------
OTHER LONG-TERM LIABILITIES ................................... 87,000 24,000
----------- ------------
Shareholders' equity:
Preferred stock, par value $0.001 per share; 1,000,000
shares authorized; none outstanding .......................... ---- ----
Common stock, par value $0.001 per share; 10,000,000
authorized; 4,794,438 outstanding at March 31, 1996
and 4,791,000 outstanding at June 30, 1995 ................... 5,000 5,000
Capital in excess of par value ................................ 22,898,000 22,663,000
Accumulated deficit ........................................... (15,422,000) (14,010,000)
----------- ------------
Total shareholders' equity ............................... 7,481,000 8,658,000
----------- ------------
$12,987,000 $ 15,901,000
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE AND NINE MONTH PERIODS ENDED
MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
-------------------------- --------------------------
1996 1995 1996 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues .............................................. $5,934,000 $ 7,880,000 $17,810,000 $23,560,000
Cost of revenues ...................................... 4,284,000 5,631,000 11,201,000 14,915,000
---------- ----------- ----------- -----------
Gross profit ........................................ 1,650,000 2,249,000 6,609,000 8,645,000
---------- ----------- ----------- -----------
Selling, general and administrative expenses .......... 2,363,000 3,335,000 7,452,000 8,958,000
Research and development expenses ..................... 209,000 548,000 552,000 1,059,000
Restructuring and unusual expenses..................... -- 2,200,000 -- 2,200,000
Legal/litigation expenses(awards), net ................ 52,000 -- 43,000 --
Interest (income) expense, net ........................ (6,000) (20,000) (27,000) (72,000)
---------- ----------- ----------- -----------
Loss before income taxes .............................. (968,000) (3,814,000) (1,411,000) (3,500,000)
Provision for income taxes ............................ -- (128,000) 1,000 --
---------- ----------- ----------- -----------
Net Loss .............................................. $ (968,000) $(3,686,000) $(1,412,000) $(3,500,000)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Net Loss per share .................................... $(0.20) $(0.77) $(0.29) $(0.74)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Weighted average shares of common stock outstanding ... 4,794,000 4,781,000 4,793,000 4,754,000
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</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 NINE MONTH PERIODS ENDED
MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
March 31,
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................ $ (1,412,000) $(3,500,000)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities
Depreciation and amortization ............................ 848,000 993,000
Reserve for inventory .................................... -- 1,290,000
Changes in assets and liabilities
(Increase) decrease in:
Restricted cash ...................................... (300,000) --
Accounts receivable .................................. 1,449,000 18,000
Inventories .......................................... 747,000 262,000
Prepaid expenses and other ........................... (101,000) (291,000)
Increase (decrease) in:
Accounts payable ..................................... (215,000) 59,000
Accrued expenses, restructuring and unusual expenses . (1,509,000) 447,000
------------- ------------
Net cash provided (used) by operating activities ......... (493,000) (722,000)
------------- ------------
Cash flows from investing activities:
(Increase) decrease in other assets .................... (119,000) (125,000)
Purchases of property and equipment .................... (955,000) (445,000)
(Increase) decrease in short-term investments .......... 500,000 796,000
------------- ------------
Net cash provided (used) by investing activities ......... (574,000) 226,000
------------- ------------
Cash flows from financing activities:
Net proceeds from issuance of stock .................... 235,000 33,000
Net proceeds from notes payable ........................ 90,000 --
Net proceeds from capital leases ....................... 91,000 --
------------- ------------
Net cash provided by financing activities .............. 416,000 33,000
------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .... (651,000) (463,000)
BEGINNING CASH AND CASH EQUIVALENTS ...................... 1,567,000 2,950,000
------------- ------------
ENDING CASH AND CASH EQUIVALENTS ......................... $ 916,000 $ 2,487,000
------------- ------------
------------- ------------
Supplemental Disclosures:
Interest paid ............................................ $4,000 $6,000
------------- ------------
------------- ------------
Taxes paid ............................................... $1,000 $ --
------------- ------------
------------- ------------
Capital lease obligations incurred ....................... $96,000 $ --
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NEW IMAGE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(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 nine month period ended March 31, 1996,
no provision or benefit for income taxes has been recorded due to the loss and
the questionable realization of any asset related to net operating losses.
(g) Income(Loss) Per Common Share -- Income(loss) per common share for the
1996 and 1995 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 1995 and are anti-dilutive in
1996 .
(2) MERGER AGREEMENT
On April 23, 1996 the Company announced that it signed a definitive
agreement to merge in a stock transaction with Insight Imaging Systems, Inc.,
the nation's second largest manufacturer of intraoral dental cameras, subject to
the completion of due diligence, obtaining of suitable financing and the
approval of both boards of directors. The transaction consists of an exchange
of approximately 650,000 shares of New Image common stock for all the
outstanding capital stock of Insight and the assumption of about $4.3 million in
liabilities. With the added depth of management, expanded sales organization
and Insight's product lines, the Company expects to be better positioned to
deliver consistent high quality, cost-effective, technology-driven products to
the dental market.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1995
Revenues decreased $1,946,000 or 25% for the three month period ended
March 31, 1996 when compared to the same period in 1995. This decrease was due
primarily to lower unit sales, which dropped from approximately 800 in 1995 to
approximately 675 in 1996. System One product sales were over 300 units during
this period, however the System One average selling price of $5495 during this
period caused the total average selling price to decrease approximately 10%
compared to the same period last year. The lower unit sales was the result of
an increased number of competitors and the effects of more severe winter weather
than usual throughout the eastern United States.
Cost of revenues remained consistent as a percentage of revenues increasing
slightly from 71% to 72% in the three month period ended March 31, 1995 and 1996
respectively. This increase included a book to physical inventory adjustment of
over $600,000, which had the effect of reducing gross profit percentage 10%
during this period. The Company has recorded the entire book to physical
adjustment in the current quarter as management cannot determine the effect on
prior periods. Improved inventory control procedures have been implemented to
provide more timely and accurate cost of goods sold and inventory data.
Selling, General and Administrative (SG&A) expenses decreased by $972,000
or 29% for the three month period ended March 31, 1996 when compared to the same
period in 1995 . As a percentage of revenues SG&A expenses decreased from 42.3%
to 39.8% in the 1996 period. This decrease in expenses is primarily the result
of cost reductions and other restructuring that management has implemented.
Research and development expenses decreased from $548,000 for the three
month period ended March 31, 1995 to $209,000 for the three month period ended
March 31, 1996. This decrease is attributable to the elimination of certain
contract obligations for engineering services that were determined to no longer
be beneficial to the company and the negotiation of other expenses to be
included in the unit cost of purchased components.
NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE NINE MONTHS ENDED MARCH
31, 1995
Revenues decreased $5,750,000 or 24% for the nine month period ended March
31, 1996 when compared to the same period in 1995 . The decrease was primarily
due to a decline in the number of units sold from approximately 2,800 in the
1995 period to 2,000 in the 1996 period.
Cost of revenues remained a consistent 63% of revenues in the nine month
periods ended March 31, 1995 and 1996.
Selling, General and Administrative expenses decreased by $1,506,000 or 17%
for the nine month period ended March 31, 1996, when compared to the same period
in 1995 . As a percentage of revenues SG&A expenses increased from 38% in 1995
to 42% in 1996, due primarily to lower revenues.
Product development expenses decreased from $1,059,000 (4.5% of revenue)
for the nine month period ended March 31, 1995 to $552,000 (3.1% of revenue)
for the nine month period ended March 31, 1996. This decrease primarily
occurred in the last six months as explained above.
Accounts receivable decreased $1,449,000 at March 31, 1996, 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 43 days at March 31, 1996. Inventories decreased by
$747,000 at March 31, 1996 when compared to June 30, 1995. Management efforts
to reduce inventory and the consolidation of operations contributed to this
reduction. The Company has also implemented improvements in its management
information systems to provide on line real time inventory data to further
reduce inventory. The litigation reserve was reduced in the first quarter from
$836,000 to $200,000. Favorable developments in the High Tech Medical
Instrumentation ("HTMI") lawsuit and other actions led to a reduction in the
reserve to an amount the Company believes to be a reasonable estimate of current
anticipated costs associated with outstanding litigation. The reductions in the
second and third quarter totaling $95,000 was the result of legal bills incurred
on these cases. Litigation expenses and reserves were reviewed by management and
reflect their best estimate of the Company's exposure to legal matters at this
time. There can be no assurance that any such reserve will be adequate to cover
actual costs of litigation. As a result of a litigation award related to the
issuance of stock, the Company transferred $232,000 from accrued liabilities to
shareholder's equity.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996 the Company had cash on hand of $916,000, down $651,000
from the June 30, 1995 amount of $1,567,000. The decrease was primarily the
result of investments in equipment, improvements in the new facility and cash
used in operations.
The Company is continuing to invest cash in the business by consolidating
its operations into one facility, upgrading management information systems and
investing in research and development. Notwithstanding these investments, the
Company believes, based on its expected sales level and cost efficiencies
anticipated to be generated from its restructuring, that it has adequate
capitalization for at least the next twelve months. If the Company's
expectations are not met, the Company may be required to seek additional equity
or debt financing.
In April 1996, the Company obtained a $2.5 million line of credit with a
financial institution which is collateralized by substantially all the assets of
the Company and has no financial covenants.
The Company's working capital at March 31, 1996 was $4,899,000, a decrease
of $1,146,000 when compared to June 30, 1995. Working capital decline was
primarily the result of investments in equipment, facility improvements, and
cash used in operations. The current ratio at March 31, 1996 was 1.9 to 1
compared to 1.8 to 1 at June 30, 1995.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NEW IMAGE INDUSTRIES, INC. V. PERRY MICHAEL WILLIAMS. We continued to
pursue and receive payment against the judgment previously entered in favor of
the Company.
NETWORK ONE V. NEW IMAGE INDUSTRIES, INC. This litigation, initially
described in the Company's report on Form 10Q for the period ended December 31,
1995, has been settled by verbal agreement in principle. If the final
settlement conforms to the agreement in principle, the Company's liability to
Network One will not exceed its litigation reserve relating to the case.
FITZPATRICK AND BLAIR V. NEW IMAGE INDUSTRIES, INC. This matter, described
in a previous report, has been settled for a payment of a nominal amount to
the plaintiffs by the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1995 Annual Meeting of Shareholders on January 10,
1996, in the Baton Rouge Room of the Olympic Resort and Spa, 6111 El Camino
Real, Carlsbad, California. At that meeting, the shareholders voted on nominees
for election as Class II Directors (Directors who will next be subject to
election at the Company's 1998 Annual Meeting of Shareholders), and acted upon
proposals to adopt the Company's 1995 Stock Incentive Plan and amend the
Company's 1993 Stock Incentive Plan. There were 4,794,438 shares issued and
outstanding on the record date of which 4,589,630 were present in person or by
proxy. A quorum was present at the meeting. Mr. Dewey F. Edmunds and Mr.
Kenneth B. Sawyer were the nominees to the positions of Class II Director.
At the meeting, the shareholders elected Mr. Edmunds and Mr. Sawyer as
Class II Directors, approved the Company's 1995 Stock Incentive Plan, and
approved an amendment to the Company's 1993 Stock Incentive Plan. The votes on
these matters were as follows:
DIRECTOR OR PROPOSAL FOR AGAINST ABSTAIN BROKER NON-VOTES
-------------------- --- ------- ------- ----------------
Dewey F. Edmunds 4,278,777 0 310,853 0
Kenneth B. Sawyer 4,261,474 0 328,156 0
1995 Stock Incentive Plan 779,232 463,437 20,859 2,981,774
1993 Stock Incentive Plan 734,268 468,784 20,854 2,942,152
Amendment
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
None
7
<PAGE>
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: May 10, 1996
-------------------------------
Harold R. Orr
Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,216,000
<SECURITIES> 0
<RECEIVABLES> 4,283,000
<ALLOWANCES> 481,000
<INVENTORY> 4,697,000
<CURRENT-ASSETS> 10,318,000
<PP&E> 2,736,000
<DEPRECIATION> (1,490,000)
<TOTAL-ASSETS> 12,987,000
<CURRENT-LIABILITIES> 5,419,000
<BONDS> 0
0
0
<COMMON> 5,000
<OTHER-SE> 7,476,000
<TOTAL-LIABILITY-AND-EQUITY> 12,987,000
<SALES> 17,810,000
<TOTAL-REVENUES> 17,810,000
<CGS> 11,201,000
<TOTAL-COSTS> 11,201,000
<OTHER-EXPENSES> 8,020,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,411,000)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,412,000
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> 0
</TABLE>
