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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
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 September 30, 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 November 8, 1995,
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 10
SIGNATURES 11
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30,1995 March 31, 1995
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(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 35,988 $ 51,648
Short-term investments 14,766 15,067
Accounts receivable - net 657,048 477,985
Inventories 1,266,946 1,285,691
Other current assets 67,681 32,294
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Total current assets 2,042,429 1,862,685
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PROPERTY AND EQUIPMENT:
Building 663,868 654,387
Furniture, fixtures and equipment 496,626 447,068
Land 12,561 12,560
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Total property and equipment 1,173,055 1,114,015
Less-Accumulated depreciation 598,120 574,869
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Net property and equipment 574,935 539,146
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OTHER ASSETS:
Intangible and other assets 12,336 11,890
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Total assets 2,629,700 $2,413,721
========== ==========
</TABLE>
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INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30,1995 March 31, 1995
------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 532,846 $ 367,816
Accrued expenses 207,673 178,006
Deferred compensation 20,000 20,000
Current portion of long-term debt 53,140 62,680
----------- -----------
Total current liabilities 813,659 628,502
NONCURRENT LIABILITIES:
Long-term debt, net of current portion 620,424 522,254
Deferred compensation 66,952 76,952
----------- -----------
Total noncurrent liabilities 687,376 599,206
STOCKHOLDERS' EQUITY:
Common stock 5,680 5,628
Additional paid in capital 2,615,540 2,528,092
Accumulated deficit (1,492,555) (1,347,707)
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Total stockholders' equity $ 1,128,665 $ 1,186,013
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Total liabilities and stockholders' equity $ 2,629,700 $ 2,413,721
=========== ===========
</TABLE>
See Notes to consolidated condensed financial statements.
4
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INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------ ------------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 888,857 $ 560,059 $ 1,933,872 $ 1,413,045
COST OF SALES 676,775 414,484 1,352,012 910,112
----------- ----------- ----------- -----------
GROSS PROFIT 212,082 145,575 581,860 502,933
OPERATING EXPENSES 358,707 1,343,306 640,050 1,574,753
----------- ----------- ----------- -----------
OPERATING PROFIT (LOSS) (146,625) (1,197,731) (58,190) (1,071,820)
OTHER INCOME (EXPENSES)
Interest income 2,896 1,401 6,070 3,054
Interest expense (17,429) (14,949) (31,590) (31,185)
Other income (expense), net (17,333) (52,684) (61,138) (96,201)
----------- ----------- ----------- -----------
Total other income (expense) (31,866) (66,232) (86,658) (124,332)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME (178,491) (1,263,963) (144,848) (1,196,152)
TAXES
INCOME TAXES 0 0 0 0
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (178,491) $(1,263,963) $ (144,848) $(1,196,152)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON
SHARE $ (0.04) $ (0.38) $ (0.03) $ (0.60)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,733,416 3,304,829 4,733,416 1,998,474
=========== =========== =========== ===========
</TABLE>
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INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
September 30 _
-----------------------------
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(144,848) $(1,196,152)
Adjustments to reconcile net income (loss) to net cash
from operating activities
Special charges -- 841,677
Depreciation and amortization 23,522 40,399
Gain on sale of property & investments (7,463) (10,348)
Deferred compensation (10,001) (10,001)
Changes in current assets and liabilities -
Decrease (increase) in accounts receivable (179,063) (14,178)
Decrease (increase) in inventories 18,745 214,534
Decrease (increase) in other assets (35,387) (38,121)
Increase (decrease) in accounts payable 165,030 (9,083)
Increase (decrease) in accrued liabilities 29,667 (267,024)
Other (446) 1,001
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NET CASH USED BY OPERATING ACTIVITIES (140,244) (447,296)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 11,519 12,121
Capital expenditures (63,366) (87,611)
Increase (decrease) in short-term investments 301 (137,500)
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NET CASH USED BY INVESTING ACTIVITIES (51,546) (212,990)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 87,500 686,250
Proceeds from long-term debt 120,000 --
Repayment of debt (31,370) (168,041)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 176,130 518,209
--------- -----------
NET INCREASE (DECREASE) IN CASH (15,660) (142,077)
CASH, beginning of period 51,648 345,430
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CASH, end of period $ 35,988 $ 203,353
========= ===========
Cash paid during period for -
Interest $ 31,590 $ 31,185
</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 have been restated to reflect the merger
transaction as a recapitalization. As a result of the divestiture and
distribution of assets, J&E had essentially reverted to a public shell company.
Accordingly, the restated financial statements reflect the merger transaction 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 September 30, 1995.
2. COMMON STOCK AND OPTIONS:
During the six months ended September 30, 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 six month period ended September 30,
1995, varied from the statutory federal income tax rate primarily due to the
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.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In July 1994, 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 the merger with Electronic Systems Engineering Co. ("ESECO"), located in
Cushing, Oklahoma coupled with the disposal of the beauty supply operations,
pursuant to its 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 September 30, 1995. Pro forma information is not presented since the
combination is not considered a business combination.
With 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, 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 SEPTEMBER 30, 1995 VS. THREE MONTHS ENDED SEPTEMBER
30, 1994
Sales increased to $888,857 for the quarter ended September 30, 1995
compared to $560,059 for the quarter ended September 30, 1994. Processor sales
for the second quarter of fiscal 1995 were $254,000 compared to $89,000 during
the same period in 1994. This increase accounted for over 50% of the total
increase in sales for the quarter in 1995 over the comparable period in 1994.
Cost of goods sold increased to 76.1% of sales for the second quarter ended
September 30, 1995 compared to 74.0% of sales for the same period in 1994.
Photographic processors have a lower gross profit margin than other product
lines such as enlargers and densitometers resulting in the reduced profitability
for the quarter.
Non-cash special charges related to the reorganization, resulted in a
$841,677 charge to operating expenses in the quarter ended September 30, 1994.
This was a non-cash adjustment and did not affect the Company's cash flow.
As part of a cost control program, Sales, Engineering, and General
expenses declined in 1995 from 1994 by 60.28%, 5.35%, and 2.52% , respectively.
8
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SIX MONTHS ENDED SEPTEMBER 30, 1995 VS. SIX MONTHS ENDED SEPTEMBER 30,
1994
During the six month period ending September 30, 1995 and 1994, sales
increased by 36.9% percent during the period, while cost of sales increased by
48.6%. Gross profit margins decreased from 35.6% of sales in 1994 to 30.1% of
sales in 1995. This was primarily due to the relative increase in sales of
photographic processors which have lower sales margins than the products
manufactured by ESECO .
Operating expenses as a percentage of sales decreased from 111.4% in
1994 to 33.1% in 1995. This was caused primarily by the special non-cash charges
of $841,677, incurred in 1994 which were 59.6% of sales, offset by decreases in
advertising, sales, and promotional expenses due to tighter cost controls.
B. LIQUIDITY AND CAPITAL RESOURCES
Net working capital decreased by approximately $5,000 compared to March
31, 1995. The working capital ratio was more than two to one at September 30,
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 $140,244 for the six months
ended September 30, 1995, as compared to $447,296 used by operations for the
same period in 1994. The change was due primarily to the decrease in the net
loss from operations.
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 November 1, 1995 the exchange
rate was 1.4088 DM to the U.S. dollar. The cost of this agreement has not been
material to the Company.
ADDITIONAL INFORMATION RELATING TO REVISED FILINGS
Subsequent to filing the 10-QSB Transition Report for the period ending
March 31, 1995, the Company filed a Form 10-SB to allow the Company to become a
reporting company under the Securities Exchange Act of 1934. After SEC review of
the filing and considerable discussion with the SEC, the Company has accepted
the SEC position that J & E as a result of the divestiture and distribution of
assets, had essentially reverted to a public shell company. Accordingly, the
Company has restated the financial statements to reflect the merger
transaction as a recapitalization as discussed below.
The previously issued financial statements treated the transaction as a
business combination using the purchase method accounting with the registrant,
J&E, considered the acquiror. These financial statements were reported as of and
for the year ended
9
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December 31, 1994, J&E's year-end. After the above mentioned dialogue with the
SEC, the Company has accepted the SEC position that J&E had essentially reverted
to a public shell company. Accordingly, the restated financial statements
reflect the merger transaction as a recapitalization in which the transaction
was accounted for as an issuance of ESECO's common stock in exchange for the
public shell. As a result of the change in method of accounting for the merger
transaction, the fiscal year end of the Company changed to March 31, the fiscal
year-end of ESECO, and the quarterly information presented in this 10-QSB/A
represents the Company's second quarter in fiscal year 1996. 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 September 30, 1995.
The historical stockholders' equity of ESECO was adjusted to reflect
the par value of J&E's common stock with an offset to additional paid-in
capital. The retained earnings (deficit) balance reflects only the operations of
ESECO through the date of the merger transaction, and the results of the
combined companies subsequent to July 27, 1994.
This Form 10-QSB/A replaces the previously filed 10-QSB which was filed
November 13, 1995.
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 September 30, 1995: None
10
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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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