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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the period ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 0-26182
INTERNATIONAL IMAGING, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3469649
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Eseco Road, Cushing, Oklahoma 74023
(Address of principal executive offices) (Zip Code)
(918) 225-1266
(Registrant's telephone number, including area code)
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 No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of January 8, 1996,
4,733,416 shares of common stock.
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INTERNATIONAL IMAGING, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of
Operations 5
Consolidated Condensed Statements of
Cash Flows 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31,1995 March 31, 1995
------------ --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 46,364 $ 51,648
Short-term investments 14,766 15,067
Accounts receivable - net 427,654 477,985
Inventories 1,532,999 1,285,691
Other current assets 56,680 32,294
---------- ----------
Total current assets 2,078,463 1,862,685
PROPERTY AND EQUIPMENT:
Building 663,868 654,387
Furniture, fixtures and equipment 513,692 447,068
Land 12,561 12,560
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Total property and equipment, at cost 1,190,121 1,114,015
Less-Accumulated depreciation 611,250 574,869
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Net property and equipment 578,871 539,146
OTHER ASSETS:
Intangible and other assets 12,195 11,890
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Total assets 2,669,529 $2,413,721
========== ==========
</TABLE>
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INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31,1995 March 31, 1995
------------ --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 661,639 $ 367,816
Accrued expenses 205,725 178,006
Deferred compensation 20,000 20,000
Current portion of long term debt 53,140 62,680
----------- -----------
Total current liabilities 940,504 628,502
NONCURRENT LIABILITIES:
Long-term debt, net of current portion 842,386 522,254
Deferred compensation 61,952 76,952
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Total noncurrent liabilities 904,338 599,206
STOCKHOLDERS' EQUITY:
Common stock 5,680 5,628
Additional paid in capital 2,615,540 2,528,092
Accumulated deficit (1,796,533) (1,347,707)
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Total stockholders' equity $ 824,687 $ 1,186,013
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Total liabilities and stockholders' equity $ 2,669,529 $ 2,413,721
=========== ===========
</TABLE>
See Notes to consolidated condensed financial statements.
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INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31 December 31
--------------------------------------------------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 728,146 $ 775,730 $ 2,662,018 $ 2,188,775
COST OF SALES 626,004 657,588 1,978,016 1,567,700
----------- ----------- ----------- -----------
GROSS PROFIT 102,142 118,142 684,002 621,075
OPERATING EXPENSES 357,283 160,630 997,333 1,735,383
----------- ----------- ----------- -----------
OPERATING PROFIT (LOSS) (255,141) (42,488) (313,331) (1,114,308)
OTHER INCOME (EXPENSES)
Interest income 2,844 1,088 8,914 4,142
Interest expense (26,822) (15,199) (58,412) (46,384)
Other income (expense), net (24,859) (104,688) (85,997) (200,889)
----------- ----------- ----------- -----------
Total other income (expense) (48,837) (118,799) (135,495) (243,131)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX (303,978) (161,287) (448,826) (1,357,439)
INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (303,978) $ (161,287) $ (448,826) $(1,357,439)
=========== =========== =========== ===========
Net income (loss) per common share $ (0.06) $ (0.04) $ (0.09) $ (0.47)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,733,416 4,576,865 4,733,416 2,861,063
=========== =========== =========== ===========
</TABLE>
See Notes to consolidated condensed financial statements
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INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended
December 31
----------------------------
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(448,826) $(1,357,439)
Adjustments to reconcile net income (loss) to net cash
from operating activities
Special charges -- 841,677
Depreciation and amortization 41,117 77,982
Gain on sale of property & investments (8,363) (18,251)
Deferred taxes -- 39,701
Deferred compensation (15,000) (13,052)
Changes in current assets and liabilities -
Decrease (increase) in accounts receivable - net 50,331 (132,269)
Decrease (increase) in inventories (247,308) 205,066
Decrease (increase) in other assets (24,386) (41,750)
Increase (decrease) in accounts payable 293,823 123,219
Increase (decrease) in accrued liabilities 27,719 (335,287)
Other (305) (6,925)
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NET CASH USED BY OPERATING ACTIVITIES (331,198) (617,328)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 11,519 12,121
Capital expenditures (83,997) (87,611)
(Purchase) & sale of short-term investments, net 301 (137,500)
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NET CASH USED BY INVESTING ACTIVITIES (72,177) (212,990)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 87,500 846,250
Proceeds from long-term debt 495,473 --
Repayment of debt (184,882) (168,041)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 398,091 678,209
--------- -----------
NET INCREASE (DECREASE) IN CASH (5,284) (152,109)
CASH, beginning of period 51,648 345,430
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CASH, end of period $ 46,364 $ 193,321
========= ===========
Cash paid during period for -
Interest $ 58,412 46,384
</TABLE>
See notes to consolidated condensed financial statements.
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INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The consolidated condensed financial statements included herein have been
prepared by International Imaging, Inc. (the "Company"), formerly J & E Beauty
Supply, Inc. ("J&E"), and subsidiaries, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the opinion of
management, include all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the resulting operations for the indicated
periods. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's latest
annual report on Form 10-KSB/A. As set forth in that report, the Company has
reflected the merger transaction as a recapitalization.
J&E merged with Electronic Systems Engineering Co. ("ESECO") on July 27, 1994.
Prior to the combination with ESECO, J&E operated as a cosmetic and beauty
supply distributor at both the retail and wholesale levels. These operations
were never profitable and J&E divested itself of this line of business
subsequent to the merger and the net assets of J&E were distributed to one of
the principals of J&E who was involved in arranging the merger. The accompanying
consolidated financial statements reflect the merger transaction as a
recapitalization in which ESECO's common stock was issued in exchange for the
public shell company. The financial statements presented reflect the historical
operating results of ESECO through July 27, 1994, and the results of the
combined companies from the date of the merger transaction, July 27, 1994,
through December 31, 1995.
2. COMMON STOCK AND OPTIONS:
During the nine months ended December 31, 1995, shares exercised under the
Company's stock option plan totaled 43,750 at $2.00 per share.
3. INCOME TAXES:
The income tax expense for the quarter and nine month period ended December 31,
1995, varied from the statutory federal income tax rate primarily due to
adjustments of a valuation allowance related to the realization of net operating
loss carryforwards. The Company's net tax operating loss carryforwards expire at
specific future dates and utilization of certain carryforwards is limited to
specific amounts each year. Due to past performance and the expiration dates,
the ultimate realization of such tax benefits is uncertain. The Company has
established a valuation allowance against these carryforward benefits and will
recognize the benefits only as reassessment demonstrates they are realizable.
Realization is primarily dependent upon future earnings.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In July 1994, International Imaging, Inc. (the "Company") reorganized
its operations and changed its core business from beauty supply operations to
the manufacture and sale of photographic, graphic arts and x-ray equipment. This
change was accomplished through a merger with Electronic Systems Engineering Co.
("ESECO"), located in Cushing, Oklahoma coupled with the disposal of the beauty
supply operations, pursuant to a restructuring plan. As a result of this
restructuring, the results of operations set out in this report, for the listed
periods, reflect the historical operating results of ESECO through July 27, 1994
and the results of the combined companies from the date of the merger
transaction, July 27, 1994, through December 31, 1995.
After the merger with ESECO, the corporate name was changed to
International Imaging, Inc. to reflect the change in business direction and the
international nature of the business. As set forth in Form 8-K/A, filed October
10, 1994, ESECO's primary assets at the time of the merger on July 27, 1994
consisted of production line machinery, equipment, and a manufacturing facility.
ESECO is a company which manufactures and sells photographic laboratory, graphic
arts, and x-ray equipment products used by several departments of the U.S.
Government, including the U.S. Navy, the FBI, NASA, and the U.S. Naval
Observatory. In addition, such products are utilized by companies in the private
sector such as Eastman Kodak, DuPont, IBM, and United Technologies. ESECO's
international customers include the United Kingdom's Royal Air Force and
departments of the Australian and Canadian governments.
A. CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995 VS. THREE MONTHS ENDED DECEMBER
31, 1994
Sales decreased to $728,146 for the quarter ended December 31, 1995
compared to $775,730 for the quarter ended December 31, 1994. Processor sales
for the quarter in 1995 were approximately $227,000 compared to $177,000 during
the same period in 1994. This increase was not enough to offset a 23% decline in
sales of darkroom doors for the period and an overall weaker quarter. Cost of
Goods Sold increased to 86% of sales for the quarter ended December 31, 1995,
compared to 84.8% of sales for the same period in 1994. Photographic processors
have a lower gross profit margin than enlargers and densitometers resulting in
the reduced gross profit margins for the quarter.
Operating expenses more than doubled to $357,283 in 1995 from $160,630
in 1994. This increase was primarily due to an increase in both domestic and
international marketing costs of over $98,000. General and Administrative
expense was up almost $19,000, from $141,047 to $159,625, caused by volume and
activity related expenses. Interest expense increased approximately $12,000 due
to the cost of carrying increased receivables.
NINE MONTHS ENDED DECEMBER 31, 1995 VS. NINE MONTHS ENDED DECEMBER 31,
1994
Sales increased by 21.6% for the nine month period ended December 31,
1995 compared to the same period ended December 31, 1994. Processor sales for
the first nine months in fiscal 1995-96 were approximately $851,000 compared to
approximately $383,000 during the same period in 1994. Cost of Goods Sold
increased to 74.3% of sales for the nine months ended December 31, 1995 compared
to 71.6% of sales for the same period in 1994. Photographic processors have a
lower gross profit margin than enlargers and densitometers resulting in the
reduced gross profit margins for the quarter.
Operating expenses as a percentage of sales decreased from 79.3% in
1994 to 37.5% in 1995. This was caused primarily by the non-cash special charges
which were incurred in fiscal 1995.
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B. LIQUIDITY AND CAPITAL RESOURCES
Net working capital at December 31, 1995 decreased by approximately
$96,000 compared to March 31, 1995. The working capital ratio was more than two
to one at December 31, 1995.
The ability of the Company to continue to expand its operations through
the expansion of existing facilities or the acquisition of new facilities or
businesses may require additional funding beyond the Company's current working
capital. Such additional funding may come from public or private financial
sources, bank financing or a combination thereof. However, there are no
assurances that any such additional funds may be obtained. The Company is
currently seeking additional bank lines of credit to support additional
international sales.
Net cash used by operating activities was $331,198 for the nine months
ended December 31, 1995, as compared to $617,328 used by operations for the same
period in 1994. The change was due primarily to an increase in accounts payable
to suppliers resulting from increased sales demand and a decrease in accounts
receivable resulting from fewer sales to dealers and more sales to export
customers who typically pay more promptly than do domestic dealers.
The Company's liquidity may be adversely affected by three market
factors. First, liquidity would be adversely affected if the Company were not
able to pass along to its customers any increases in the cost of importing
equipment should exchange rates deteriorate. Second, the introduction of a
product by a competitor company would negatively impact the profit margins of
the Company. Third, liquidity would be impacted negatively if the Company were
not able to effectively contain its internal costs.
TRENDS
The Company anticipates that by mid-1997 nearly one-half of its sales
volume will consist of processors imported from Germany. These machines are
priced in U.S. dollars, but the continued weakness of the U.S. dollar relative
to the Deutsche Mark ("DM") results in higher costs to the Company. This results
because the Company absorbs all exchange rate declines below 1.50 DM to the U.S.
dollar under an agreement entered into April 1, 1995. This agreement calls for
the Company to adjust its payments to Colenta so that Colenta will not receive
less than 1.50 DM to the U.S. dollar on purchases from Colenta by the Company.
This same agreement sets a ceiling of 1.67 DM to the dollar so that if the
dollar should strengthen against the Deutsche Mark the Company will enjoy a
benefit should the exchange rate exceed 1.67 Marks. Exchange rates have been
below that level since prior to April 1, 1995. On January 31, 1996 the exchange
rate was 1.4983 DM to the U.S. dollar. The cost of this agreement has not been
material to the Company.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
The following reports on Form 8-K were prepared and filed during the
quarter ended December 31, 1995:
None
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SIGNATURES
Pursuant to the regulations of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL IMAGING, INC.
Date: October 31, 1996 /s/ Arthur A. Kaminshine
------------------------
Arthur A. Kaminshine, President
Date: October 31, 1996 /s/ Edward L. Handlin
---------------------
Edward L. Handlin,
Chief Financial Officer
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