<PAGE> 1
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 December 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 5,479,911 shares outstanding as of
February 11, 1997
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, JUNE 30,
1996 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 1,634,000 $ 381,000
Accounts receivable, net of reserves of $1,881,000 at
December 31, 1996 and $1,686,000 at June 30, 1996 . . . . . . . . . 3,699,000 3,279,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,067,000 5,543,000
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . 604,000 550,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 10,004,000 9,753,000
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 999,000 1,235,000
Intangible assets, net of accumulated amortization $2,294,000 at
December 31, 1996 and $2,172,000 at June 30, 1996 . . . . . . . . . . . 278,000 792,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621,000 746,000
------------ ------------
$ 11,902,000 $ 12,526,000
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,128,000 $ 3,895,000
Accrued payroll and other compensation . . . . . . . . . . . . . . . . 768,000 1,312,000
Lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,751,000 2,286,000
Current portion of notes payable . . . . . . . . . . . . . . . . . . . 3,214,000 135,000
Accrued restructuring charges . . . . . . . . . . . . . . . . . . . . . 146,000 954,000
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 3,448,000 3,462,000
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 14,455,000 12,044,000
------------ ------------
Long term liabilities:
Notes payable, net of current portion . . . . . . . . . . . . . . . . . 650,000 1,150,000
Other long term liabilities . . . . . . . . . . . . . . . . . . . . . . 42,000 66,000
------------ ------------
Total long term liabilities . . . . . . . . . . . . . . . . . . . 692,000 1,216,000
------------ ------------
Shareholders' deficit:
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;
5,480,000 outstanding at December 31, 1996 and June 30, 1996 . . . . 5,000 5,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 30,449,000 30,449,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (33,699,000) (31,188,000)
------------ ------------
Total shareholders' deficit . . . . . . . . . . . . . . . . . . . (3,245,000) (734,000)
------------ ------------
$ 11,902,000 $ 12,526,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 3
NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE AND SIX MONTH PERIODS ENDED
DECEMBER 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------- -------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . $ 6,793,000 $ 12,079,000 $ 12,986,000 $ 19,392,000
Cost of revenues . . . . . . . . . . . . . 4,158,000 7,022,000 8,084,000 11,918,000
-------------- -------------- -------------- --------------
Gross profit . . . . . . . . . . . . . . 2,635,000 5,057,000 4,902,000 7,474,000
-------------- -------------- -------------- --------------
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . 3,358,000 5,408,000 6,537,000 9,515,000
Research and development expenses . . . . . 259,000 287,000 542,000 695,000
-------------- -------------- -------------- --------------
Loss from Operations . . . . . . . . . . (982,000) (638,000) (2,177,000) (2,736,000)
-------------- -------------- -------------- --------------
Interest expense, net . . . . . . . . . . . 155,000 85,000 272,000 143,000
Other expense, net . . . . . . . . . . . . 44,000 363,000 59,000 436,000
-------------- -------------- -------------- --------------
Net loss before taxes . . . . . . . . . . . (1,181,000) (1,086,000) (2,508,000) (3,315,000)
-------------- -------------- -------------- --------------
Provision for income taxes . . . . . . . . 2,000 2,000 2,000 2,000
-------------- -------------- -------------- --------------
Net loss . . . . . . . . . . . . . . . . . $ (1,183,000) $ (1,088,000) $ (2,510,000) $ (3,317,000)
============== ============== ============== ==============
Net loss per share . . . . . . . . . . . . $ (0.22) $ (0.20) $ (0.46) $ (0.61)
============== ============== ============== ==============
Weighted average shares of common
stock outstanding . . . . . . . . . . . . 5,480,000 5,444,000 5,480,000 5,446,000
============== ============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
NEW IMAGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE SIX MONTH PERIODS ENDED
DECEMBER 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,510,000) $ (3,317,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 431,000 977,000
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . (11,000) -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . (420,000) (490,000)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 1,476,000 (452,000)
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . (54,000) (55,000)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 101,000 -
Increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . (353,000) (344,000)
Accrued payroll . . . . . . . . . . . . . . . . . . . . . . . . (181,000) 25,000
Accrued restructuring and unusual expenses . . . . . . . . . . . (715,000) (62,000)
Other accrued liabilities . . . . . . . . . . . . . . . . . . . (14,000) (946,000)
------------ ------------
Net cash used by operating activities . . . . . . . . . . . . . . . . (2,250,000) (4,664,000)
------------ ------------
Cash flows from investing activities:
Increase in capitalized software . . . . . . . . . . . . . . . . . (76,000) 448,000
Purchase of property and equipment . . . . . . . . . . . . . . . . (61,000) (434,000)
Proceeds on sale of asset . . . . . . . . . . . . . . . . . . . . 13,000 -
Cash received from sale of investments and maturities of CDs . . . - 500,000
------------ ------------
Net cash (used in) provided by investing activities . . . . . . . . . (124,000) 514,000
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of stock . . . . . . . . . . . . . . . - 541,000
Bank Line of credit . . . . . . . . . . . . . . . . . . . . . . . 1,465,000 121,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 2,162,000 2,723,000
------------ ------------
Net cash provided by financing activities . . . . . . . . . . . . . . 3,627,000 3,385,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . 1,253,000 (765,000)
BEGINNING CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . 381,000 1,640,000
------------ ------------
ENDING CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . $ 1,634,000 $ 875,000
============ ============
Supplemental disclosures:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 227,000 $ 143,000
============ ============
Noncash financial activities:
Accounts payable converted to notes payable . . . . . . . . . . . . . $ 414,000 $ -
============ ============
Writedown of liability against goodwill related to expired options
granted in conjunction with an acquisition . . . . . . . . . . . $ 363,000 $ -
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
NEW IMAGE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(UNAUDITED)
(1) GENERAL
(a) The accompanying unaudited condensed consolidated 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, 1996 as
filed with the Securities and Exchange Commission.
(b) Principles of Consolidation -- The accompanying financial
statements include the accounts of the Company and its wholly owned subsidiary,
Insight Imaging Systems, Inc. ("Insight"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents -- Cash and cash equivalents include
short-term, highly liquid investments principally in bank CD's and money market
funds with original maturities of three months or less.
(d) Lines of Credit -- During Fiscal 1996, the Company entered into a
bank line of credit agreement with Coast Business Credit. The agreement
provides for maximum borrowing of $5,000,000 limited to a percentage of
eligible accounts receivable and inventory as defined in the agreement. As of
December 31, 1996, the Company had $3,751,000 outstanding under its line of
credit agreement which included $500,000 over the eligible asset base as
described in note 2. The line expires on May 1, 1997, and carries an interest
rate of the greater of 10% or prime plus 2.25% (10.5% at December 31, 1996).
The line is collateralized by accounts receivable, inventory, equipment and
general intangibles, and requires the Company to maintain positive
shareholders' equity. On December 31, 1996, the Company continued to be in
violation of this financial covenant. On September 27, 1996, the Company
received from the bank a letter that waived the covenant violation through
January 1, 1997 and such waiver was subsequently extended by the bank through
March 25, 1997. The letter also authorized an increase in the credit limit
from $4 million to $5 million.
(e) Inventories -- Inventories, which consist primarily of purchased
components, raw materials and finished systems, are priced at the lower of cost
(first-in; first-out) or market. Such amounts include the cost of material
and, when applicable, labor and overhead. Appropriate consideration is given
to deterioration, obsolescence and other factors in determining net realizable
value. The components of inventory as of December 31, 1996 and June 30, 1996
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
Raw materials and
Purchased Components $2,777,000 $4,005,000
Finished systems 1,290,000 1,538,000
---------- ----------
$4,067,000 $5,543,000
========== ==========
</TABLE>
(f) Intangible Assets -- On December 28, 1996, certain options to
purchase Common Stock expired. These options were granted as part of the
purchase of Aerospace Optics. Since they were at an exercise price which
represented a $2.85 per share discount from the then market price, this value
was originally included in goodwill. A total of $363,375, which remained as a
liability on the books, was eliminated and credited to the goodwill.
5
<PAGE> 6
(g) Accrued Liabilities -- Other accrued liabilities as of December
31, 1996 and June 30, 1996 are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
State sales tax $1,173,000 $ 952,000
Litigation settlements and
legal expenses 1,423,000 1,489,000
Acquisition costs 226,000 354,000
Warranty 293,000 319,000
Customer Advances 105,000 119,000
Other 228,000 229,000
---------- ----------
$3,448,000 $3,462,000
========== ==========
</TABLE>
(h) 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.
(i) Revenue Recognition -- The Company recognizes revenue primarily
from sales of systems and supplies at the time of shipment, net of estimated
sales returns and allowances. Revenues from warranty, maintenance and service
contracts, which have not been significant, are recognized ratably over the
life of the contract.
(j) Income Taxes -- The Company accounts for income taxes based on FASB
Statement No. 109 "Accounting for Income Taxes, SFAS No. 109" under which
deferred tax assets and liabilities are provided on temporary differences
between financial reporting and tax reporting using the enacted tax rates.
(k) 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.
(l) Loss Per Common Share -- 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.
(m) Certain prior period balances have been reclassed to conform to the
current period presentation.
(2) MERGER AGREEMENT
On December 24, 1996, the Company and DENTSPLY International, Inc.
("DENTSPLY") entered into a Letter of Intent under which DENTSPLY agreed to
acquire the Company for $2.00 per share, subject to due diligence. Pursuant to
the Letter of Intent, the Company and DENTSPLY entered into a Credit Agreement
whereby DENTSPLY agreed to provide up to an aggregate principal amount of
$3,000,000 of which $2,500,000 was funded on December 24, 1996. At the same
time, Coast Business Credit loaned an additional $500,000, which was used to pay
off Mercury Partners, LLP, holder of the second lien position. All of DENTSPLY
indebtedness under the Credit Agreement is subordinated to the extent provided
in the Subordination and Intercreditor Agreement with Coast. As of February 11,
1997, $500,000 additional borrowing capacity is available under the DENTSPLY
Credit Agreement. Each advance is, and will be, evidenced by a note and is
reported in notes payable on the Consolidated Balance Sheets. Advances bear
interest on the unpaid principal balance at any time at the floating interest
rate of 4% per annum in excess of prime. The Credit Agreement will terminate
and balance will be due and payable on March 25, 1997 unless earlier by terms
and conditions of a definitive merger agreement. In addition, Coast executed
and delivered to the Company and DENTSPLY a letter, dated December 24, 1996, in
which Coast agreed to forbear from exercising any of its default rights and
remedies in connection with the violation of any and all covenants of which the
Company may have been in breach at the time, and any and all covenant violations
that might occur subsequent through March 25, 1997.
On January 28, 1997, the Company entered into a definitive merger
agreement under which DENTSPLY will commence a cash tender offer for all of the
outstanding shares of the Company at a price of $2.00 per share. Under the
merger agreement, which was approved by the board of directors of each company,
a newly created subsidiary of DENTSPLY, Image Acquisition Corporation, will be
merged into the Company following completion of the tender offer and the Company
will become a wholly owned subsidiary of DENTSPLY. DENTSPLY entered into
agreements with certain stockholders of the Company, including its directors and
senior executive officers, and the William W. Stevens and Virda J. Stevens
Trust, who in the aggregate own approximately 10% of the Company's shares
outstanding, whereby each has agreed to tender his or her shares in the offer.
The shareholders (including outstanding option holders) will receive
approximately $11,400,000.
6
<PAGE> 7
On January 31, 1997, DENTSPLY, through its wholly owned subsidiary,
commenced the cash tender offer. The offer is conditioned upon, among other
things, the tender of 55% of the outstanding shares (as of the date of
commencement of the offer) of New Image's common stock and expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. The
offer and withdrawal rights are scheduled to expire at 12:00 Midnight on
Monday, March 3, 1997, unless extended.
(3) ACQUISITION AND RESTRUCTURING
In May 1996, the Company acquired Insight, a competitor engaged in the
business of designing, manufacturing and marketing of intraoral video cameras.
A plan of restructuring was adopted during the fourth quarter of fiscal year
1996 which included Insight's operations being relocated to Carlsbad,
California in July 1996. A restructuring reserve of $962,000 was recorded in
fiscal year 1996 to cover estimated costs for personnel termination and
severance, relocation and other costs associated with Insight's facilities and
operations, inventory write-down for product integration and miscellaneous
items. The Company's management believes that this acquisition has placed the
Company in a leading market position with respect to intraoral cameras for the
dental industry. Management also believes that as a result of the acquisition,
significant cost reductions can be achieved because of consolidation of
operating facilities and deletion of duplicative Selling, General and
Administrative ("SG&A") expenses. The acquisition of Insight has been
accounted for as a pooling of interests and accordingly, the Company's
consolidated financial statement and discussion and analysis of such statements
reflect the combined results of the pooled business. The Company's December
1995 financial statements have been restated to include the result of Insight's
operations.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues
Revenues decreased $5,286,000 or 44% for the three month period ended
December 31, 1996 when compared to the same period in 1995. This decrease was
due to 1) lack of working capital to purchase raw materials, 2) demand for
Concept III exceeded forecast and required lead time for component deliveries
compounded by the lack of working capital negatively impacted shipments, 3)
demand for some of the Company's older products declined. The Company's
backlog increased to $2,175,000 as of December 31, 1996 because of parts
shortages.
Cost of Revenues
Cost of revenues increased as a percentage of revenues from 58% to 61% in
the three month period ended December 31, 1995 and 1996 respectively. The 61%
cost of revenue is an improvement from the first quarter results of 63% and is
the same as the prior year six month results even though revenues are
significantly lower. The Company implemented a five (5%) percent price
increase in December 1996 and has lowered fixed manufacturing costs.
Management anticipates improved gross profit percentages with higher sales
levels since the working capital constraint will be eliminated by the merger
with DENTSPLY.
Operating Expenses
SG&A expenses decreased by $2,050,000 or 38% for the three month period
ended December 31, 1996 when compared to the same period in 1995. This
decrease in expenses is primarily due to a reduction in costs as defined in the
Insight acquisition plan of restructuring initiated during the fourth quarter
of fiscal year 1996. Another contributing factor to the decrease in expenses
was that lower commission expenses were incurred in proportion to the lower
sales revenue. As a percentage of revenues, SG&A expenses increased from 45%
to 49% when compared to the 1995 three month period. The lower sales revenue
in this period contributed to this result.
Research and development expenses decreased from $287,000 for the three
month period ended December 31, 1995 to $259,000 for the three month period
ended December 31, 1996. The decrease is due primarily to the reduction in
costs as defined in the Insight restructuring plan.
Loss from Operations
Loss from operations for the three months ending December 31 increased
from $638,000 in 1995 to $982,000 in 1996. This increased loss is primarily
caused by the drop in revenues. In addition, the Company wrote off
aproximately $250,000 of demonstration inventory during the quarter and
established an additional $70,000 reserve for potential product obsolescence.
The loss from operations from the first six months of fiscal 1997 was
$2,177,000 compared to a loss of $2,736,000 for the same period in the prior
year.
Cash Flow
At the end of December 1996, the Company obtained a $2,500,000 advance as
a note payable under a Credit Agreement with DENTSPLY. See discussion under
Notes to Consolidated Financial Statements (Note 2).
Accounts receivable increased $420,000 at December 31, 1996 when compared
to June 30, 1996. The increase was due in part to a large volume of foreign
shipments during September 1996 which had 120 day terms and a high volume of
sales shipped during the last week of December. Accounts payable decreased by
$767,000 when compared to June 30, 1996. The decrease is primarily due to
negotiated payment terms in the form of notes payable with certain major
vendors and a decrease in material purchases on credit terms. Inventory
decreased from $5,543,000 on June 30, 1996 to $4,067,000 on December 31, 1996.
Approximately $400,000 of this represents demonstration equipment inventory
which was either written off or reserved at values less than cost. The
remaining reduction of slightly over $1,000,000 is the result of not being able
to purchase an adequate supply of raw materials due to a lack of working
capital and restricted credit from vendors.
The line of credit with the Company's bank has been increased to the
maximum amount possible. As a result, amounts owing under the lines of credit
have increased from $2,286,000 on June 30, 1996 to $3,751,000 on December 31,
1996. Likewise, the current portion of notes payable has increased from
$135,000 on June 30, 1996 to $3,214,000 on December 31, 1996. This amount
consists of $2,500,000 owed to DENTSPLY and the remaining amount to major
vendors supplying either material components or services to the Company.
The restructuring reserve associated with the Insight merger has decreased
to $146,000 from $954,000 on June 30, 1996, reflecting payments for the
integration of management and discontinuance of duplicative manufacturing and
marketing activities as defined in the Insight restructuring plan. The reserve
appears to be adequate to accommodate the remaining restructuring costs.
8
<PAGE> 9
Product Development
The Company introduced the Concept III intraoral camera system in the late
Spring of 1996. This product, with a price of $9,495 for a single operatory,
accounted for approximately 30% of sales for the quarter ended December 31,
1996. In late September, the Concept III intraoral camera system received the
highest rating from the leading independent review agency for dental industry
products. Since that time, sales have exceeded forecast.
In June 1996, the Company entered into a 15-month private label contract
with Sunrise Technologies to become an OEM remarketer of its air abrasion
cavity preparation system, under the tradename Soft PrepTM. The Company began
selling the product in late-September. The sales cycle for the product is
fairly long; therefore, it is too early to ascertain the level of market
acceptance. However, the market for air abrasion systems is forecasted by an
independent research organization to grow 30-35% annually for the next three
years. During the quarter, the Company has received favorable response from
its marketing efforts, but a lack of working capital has restricted our ability
to equip our sales force with an adequate supply of demonstration units.
The Company is continuing it's development efforts for its Digital X-ray
product and has obtained FDA approval for the Digital X-Ray. Market
introduction is expected early February 1997. A survey by Dental Practice &
Finance indicates a market potential of 6,000-8,000 digital x-ray systems could
be sold domestically by all manufacturers during the next year. To date, about
3,000 systems have been sold in the U.S. by three competitors.
Liquidity and Capital Resources
At December 31, 1996, the Company had cash on hand of $1,634,000, up
$1,253,000 from the June 30, 1996 amount of $381,000. The increase was the
result of obtaining a $2,500,000 advance from DENTSPLY in conjunction with a
letter of intent to merge, certain bank agreements, and a Credit Agreement.
The Company's previous constraints on liquidity have been temporarily
resolved by the Credit Agreement with DENTSPLY. If, however, the planned
merger with DENTSPLY is not completed, then the Company would not be able to
pay back the note to DENTSPLY when due without infusion of additional debt or
equity capital. In management's opinion, prospects for raising such funds from
other sources is very doubtful and would not be timely. Such a series of
events would once again raise substantial doubt as to the Company's ability to
continue as a going concern. For these reasons, and those further described in
the Company's Schedule 14D-9 filed on January 31, 1997, the Board of Directors
unanimously approved the Merger Agreement and recommended that each shareholder
tender their shares.
This report contains forward-looking statements that involve substantial
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Steven P. Hill v. New Image Industries, Inc. et al
This case is a securities class action alleging violation of
certain securities laws by prior management. An agreement has been
reached to settle this matter on terms that will have no impact on the
Company's financial condition. A final written agreement between the
parties has been approved by the court. Notice thereof has been given the
class and the settlement fund has been deposited in the plaintiff's trust
account by the Company's insurance carrier.
New Image Industries, Inc. v. New Image Industries Pty. Ltd. and
International Imaging Company, Ltd.; New Image Industries Pty. Ltd. and
International Imaging Company, Ltd. v. New Image Industries, Inc.
On April 11, 1996, the Company filed suit to collect a debt
in the sum of $370,215 for goods sold to the foreign distributors New
Image Industries Pty., Ltd. and International Imaging Company, Ltd. On
September 25, 1996, the Company began discussions to settle the suit. If
the suit ultimately settles according to the terms under discussion, no
additional reserves will be required. The settlement discussions have
been placed on hold to accommodate the Company's acquisition by DENTSPLY.
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.
27 Financial Data Schedule
(b) Reports on Form 8-K
During the Company's second fiscal quarter of 1997, it filed one
report on Form 8-K dated January 27, 1997 to report that the Company had
entered into an Agreement and Plan of Merger with DENTSPLY International, Inc.,
a Delaware corporation ("Parent") and Image Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Parent.
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: February 14, 1997 /s/ HAROLD R. ORR
-------------------------------------
Harold R. Orr
Chief Financial Officer
10
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<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,634,000
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