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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 June 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 August 8, 1995, 4,733,416
shares of common stock.
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INTERNATIONAL IMAGING, INC.
TABLE OF CONTENTS
PAGE NO.
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
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,1995 March 31, 1995
------------ --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 27,577 $ 51,648
Short-term investments 14,767 15,067
Accounts receivable - net 630,588 477,985
Inventories 1,220,510 1,285,691
Other current assets 49,315 32,294
---------- ----------
Total current assets 1,942,757 1,862,685
PROPERTY AND EQUIPMENT:
Building 656,821 654,387
Furniture, fixtures and equipment 457,230 447,068
Land 12,560 12,560
---------- ----------
Total property and equipment 1,126,611 1,114,015
Less-Accumulated depreciation 586,804 574,869
---------- ----------
Net property and equipment 539,807 539,146
OTHER ASSETS:
Intangible and other assets 12,479 11,890
---------- ----------
Total assets $2,495,043 $2,413,721
========== ==========
</TABLE>
3
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INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,1995 MARCH 31, 1995
------------ --------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 323,407 $ 367,816
Accrued expenses 168,768 178,006
Deferred compensation 20,000 20,000
Current portion of long-term debt 53,140 62,680
----------- -----------
Total current liabilities 565,315 628,502
NONCURRENT LIABILITIES:
Long-term debt, net of current portion 550,620 522,254
Deferred compensation 71,952 76,952
----------- -----------
Total noncurrent liabilities 622,572 599,206
STOCKHOLDERS' EQUITY:
Common stock 5,680 5,628
Additional paid in capital 2,615,540 2,528,092
Accumulated deficit (1,314,064) (1,347,707)
----------- -----------
Total stockholders' equity $ 1,307,156 $ 1,186,013
----------- -----------
Total liabilities and stockholders' equity $ 2,495,043 $ 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
JUNE 30
---------------------
1995 1994
---- ----
<S> <C> <C>
SALES $1,045,015 $852,986
COST OF SALES 675,237 495,627
---------- --------
GROSS PROFIT 369,778 357,359
OPERATING EXPENSES 281,343 231,448
---------- --------
OPERATING PROFIT 88,435 125,911
OTHER INCOME (EXPENSE):
Interest income 3,174 1,653
Interest expense (14,161) (16,236)
Other expense, net (43,805) (43,517)
---------- --------
Total other income (expense) (54,792) (58,100)
INCOME BEFORE INCOME TAXES 33,643 67,811
INCOME TAXES -- --
---------- --------
NET INCOME $ 33,643 $ 67,811
========== ========
NET INCOME PER COMMON SHARE $ 0.01 $ 0.10
========== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 4,712,193 677,764
========== ========
</TABLE>
5
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INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30
-------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 33,643 $ 67,811
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and amortization 11,424 20,054
Gain on sale of property & investments (4,602) (10,348)
Deferred compensation (5,001) (5,001)
Changes in current assets and liabilities -
Decrease (increase) in accounts receivable - net (152,603) (175,795)
Decrease (increase) in inventories 65,181 (250,845)
Decrease (increase) in other assets (17,021) (46,365)
Increase (decrease) in accounts payable (44,409) 60,450
Increase (decrease) in accrued liabilities (9,238) 188,240
Other (2,275) 1,001
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES (124,901) (150,798)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 7,100 12,121
Capital expenditures (12,597) (87,611)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (5,497) (75,490)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 87,500 --
Proceeds from long-term debt 35,000 --
Repayment of debt (16,173) --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 106,327
0
--------- ---------
NET INCREASE (DECREASE) IN CASH (24,071) (226,288)
CASH, beginning of period 51,648 345,430
--------- ---------
CASH, end of period $ 27,577 $ 119,142
========= =========
Cash paid during period for -
Interest $ 14,161 $ 16,236
</TABLE>
See notes to consolidated condensed financial statements.
6
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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
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 June 30, 1995.
2. COMMON STOCK AND OPTIONS:
During the three months ended June 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 ended June 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.
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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 June 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 JUNE 30, 1995 VS. THREE MONTHS ENDED JUNE 30, 1994
Sales increased to $1,045,015 for the quarter ended June 30, 1995
compared to $852,986 for the quarter ended June 30, 1994. Because of the change
in product line and the lower profit margins on sales of processors, the cost of
sales as a percentage of sales increased from 58.1% in the quarter ended June
30, 1994 to 64.6% for the same period in 1995. Operating expenses were $281,343
for the quarter ended June 30, 1995 compared to $231,448 for the same period in
1994. Moreover, expenses declined from 27.1% of sales for the three months ended
June 30, 1994 to 26.9% of sales for the three months ended June 30, 1995.
The Company received $87,500 in additional equity capital during the
first quarter of fiscal 1996 through the exercise of non-qualified stock
options. The infusion of equity capital has been critical to the Company's
expansion activities. Specifically, it has made it possible to continue to
advertise and promote the Company's line of photographic processors which was
introduced in 1994.
The Company increased its allowance for bad debts by $20,625 during the
quarter to reflect the doubtful collectibility of a note secured by publicly
traded securities whose value has declined significantly since April 1, 1995.
B. LIQUIDITY AND CAPITAL RESOURCES
The working capital position as of June 30, 1995 increased over the
position at March 31, 1995 by approximately $143,000. Net working capital has
increased by approximately $52,300 compared to June 30, 1994 as a result of the
exercise of non-qualified stock options and decreased inventory. The working
capital ratio was more than three to one at June 30, 1995.
8
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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.
Net cash used by operating activities was $124,901 for the three months
ended June 30, 1995, as compared to $150,798 used by operations for the same
period in 1994. The change was due primarily to a decrease in inventory during
the quarter.
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 control its internal operating 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 July 17, 1995 the exchange
rate was 1.4378 DM to the U.S. dollar. The cost of this agreement has not been
material to the Company.
The Company is currently experiencing difficulty in obtaining enough
processors to meet the demand and has been forced to utilize air freight to
satisfy customer needs. The market in the United States for enlargers and
processors has been weak, mitigating to some extent the supply problems faced by
the Company. This has allowed the Company to allocate its limited supplies to
some extent and reduce customer dissatisfaction due to slow deliveries. Finally,
the Company is developing products for the Russian market that will be marketed
through the ART Technik Group of Austria and Kodak A.O. The ART Technik's German
affiliate, ART Colenta, manufactures processors for the Company and Kodak A.O.
is a subsidiary of Eastman Kodak based in Moscow.
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 enable 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 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.
9
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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 first 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 June 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
August 11, 1995.
A Form 10-QSB quarterly report for period ended September 30, 1995 was
filed with the Commission on November 13, 1995. A 10-QSB/A report reflecting the
change in accounting treatment will be filed with the Commission within ten days
of the filing of this report.
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 June 30, 1995:
On April 15, 1995, the Company filed a Form 8-K reporting the change of
the fiscal year end of the Company to March 31 from December 31, effective April
1, 1995.
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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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