<PAGE> 1
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 September 30, 1996
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, 1996,
4,733,416 shares of common stock.
<PAGE> 2
INTERNATIONAL IMAGING, INC.
TABLE OF CONTENTS
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial statements
Condensed Consolidated 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
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30,1996 March 31, 1996
------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 37,789 $ 12,790
Short-term investments 17,515 18,191
Accounts receivable - net 243,240 489,820
Inventories 1,420,415 1,608,226
Other current assets 60,388 19,203
---------- ----------
Total current assets 1,779,347 2,148,230
---------- ----------
PROPERTY AND EQUIPMENT:
Building 663,848 663,848
Furniture, fixtures and equipment 556,226 520,701
Land 12,560 12,560
---------- ----------
Total property and equipment 1,232,634 1,197,109
Less-Accumulated depreciation 698,894 651,335
---------- ----------
Net property and equipment 533,740 545,774
---------- ----------
OTHER ASSETS:
Intangible and other assets 11,771 11,324
---------- ----------
Total assets $2,324,858 $2,705,328
========== ==========
</TABLE>
3
<PAGE> 4
INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, 1996 March 31, 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 520,230 $ 667,751
Accrued expenses 152,641 165,228
Deferred compensation 20,000 20,000
Short-term debt 205,030 205,030
Current portion of long-term debt 27,471 27,471
----------- -----------
Total current liabilities 925,372 1,085,480
NONCURRENT LIABILITIES:
Long-term debt, net of current portion 1,041,472 1,032,512
Deferred compensation 50,112 60,112
----------- -----------
Total noncurrent liabilities 1,091,584 1,092,624
STOCKHOLDERS' EQUITY:
Common stock 5,680 5,680
Additional paid in capital 2,615,540 2,615,540
Accumulated deficit (2,313,318) (2,093,996)
----------- -----------
Total stockholders' equity $ 307,902 $ 527,224
----------- -----------
Total liabilities and stockholders' equity $ 2,324,858 $ 2,705,328
=========== ===========
</TABLE>
See Notes to consolidated condensed financial statements.
4
<PAGE> 5
INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------ ------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 755,536 $ 888,857 $ 1,835,516 $ 1,933,872
COST OF SALES 632,638 676,775 1,199,960 1,352,012
----------- ----------- ----------- -----------
GROSS PROFIT 122,898 212,082 635,556 581,860
OPERATING EXPENSES 388,991 358,707 808,291 640,050
----------- ----------- ----------- -----------
OPERATING PROFIT (LOSS) (266,093) (146,625) (172,735) (58,190)
OTHER INCOME (EXPENSES)
Interest income 4,977 2,896 5,395 6,070
Interest expense (36,410) (17,429) (55,358) (31,590)
Other income (expense), net 1,536 (17,333) 3,376 (61,138)
----------- ----------- ----------- -----------
Total other income (expense) (29,897) (31,866) (46,587) (86,658)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME (295,990) (178,491) (219,322) (144,848)
TAXES
INCOME TAXES 0 0 0 0
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (295,990) $ (178,491) $ (219,322) $ (144,848)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON
SHARE $ (0.06) $ (0.04) $ (0.05) $ (0.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,733,416 4,733,416 4,733,416 4,733,416
=========== =========== =========== ===========
</TABLE>
5
<PAGE> 6
INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
September 30
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(219,322) $(144,848)
Adjustments to reconcile net income (loss) to
net cash from operating activities
Depreciation and amortization 48,006 23,522
Gain on sale of property & investments -- (7,463)
Deferred compensation (10,000) (10,001)
Changes in current assets and liabilities -
Decrease (increase) in accounts receivable 246,580 (179,063)
Decrease (increase) in inventories 187,811 18,745
Decrease (increase) in other assets (41,185) (35,387)
Increase (decrease) in accounts payable (147,521) 165,030
Increase (decrease) in accrued liabilities (12,587) 29,667
Other 458 (446)
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES 52,240 (140,244)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment -- 11,519
Capital expenditures (35,525) (63,366)
Purchase (sale) of short-term investments (676) 301
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (36,201) (51,546)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 87,500
Proceeds from long-term debt 8,960 120,000
Repayment of debt -- (31,370)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,960 176,130
--------- ---------
NET INCREASE (DECREASE) IN CASH 24,999 (15,660)
CASH, beginning of period 12,790 51,648
--------- ---------
CASH, end of period $ 37,789 $ 35,988
========= =========
Cash paid during period for -
Interest $ 55,358 $ 31,590
</TABLE>
See notes to consolidated condensed financial statements.
6
<PAGE> 7
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"), 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.
2. COMMON STOCK AND OPTIONS:
During the six months ended September 30, 1996, no options were exercised under
the Company's stock option plan.
3. INCOME TAXES:
The income tax expense from continuing operations for the six month period ended
September 30, 1996, varied from the statutory federal income tax rate primarily
due to adjustments of a valuation allowance related to the realizability 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
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In December 1995, the Company reorganized its marketing operations and
changed its method of distribution from dealers with protected territories to
field marketing representatives. The decision was made because sales by the
dealer network had been declining for several quarters and the dealers were not
carrying the inventory the Company felt was appropriate for maximum market
penetration. The nine field representatives with whom the Company has entered
into contracts are experienced in the photographic and x-ray fields and it is
anticipated they will produce greater sales than were forthcoming under the
dealer system.
A. CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 VS. THREE MONTHS ENDED SEPTEMBER
30, 1995
Sales decreased to $755,536 for the quarter ended September 30, 1996
compared to $888,857 for the quarter ended September 30, 1995. Processor sales
for the second quarter of fiscal 1996 were $198,000 compared to $254,000 during
the same period in 1995. A price increase was implemented on the smaller
processors resulting in reduced demand for the machines priced between $10,000
and $23,000. This decrease accounted for approximately 40% of the total decrease
in sales for the quarter in 1996 over the comparable period in 1995. Cost of
goods sold increased to 83.7% of sales for the second quarter ended September
30, 1996 compared to 76.1% of sales for the same period in 1995. The more
profitable product lines also decreased by approximately $78,000 due to slack
demand which management thinks is merely a delay in new orders and not a loss of
production. Photographic processors have a lower gross profit margin than
proprietary manufactured product lines such as enlargers and densitometers
resulting in the reduced profitability for the quarter.
SIX MONTHS ENDED SEPTEMBER 30, 1996 VS. SIX MONTHS ENDED SEPTEMBER 30,
1995
During the six month period ending September 30, 1996 as compared to the
same period in 1995, sales decreased by 5.1% percent during the period, while
cost of sales decreased by 11.3%. Gross profit margins increased from 30.1% of
sales in 1995 to 34.6% of sales in 1996. This was primarily due to a small
relative decrease in sales of photographic processors which have lower sales
margins than the products manufactured by the Company and reductions from the
cost cutting programs.
Operating expenses as a percentage of sales increased from 33.1% in 1995
to 44.0% in 1996. This was caused primarily by the additional legal and
accounting costs required due to SEC filings and commissions paid to the
contract field marketing representatives.
B. LIQUIDITY AND CAPITAL RESOURCES
Net working capital decreased by approximately $209,000 compared to March
31, 1996. The working capital ratio was approximately two to one at September
30, 1996. This decrease was a reflection of the reduction in accounts
receivable, inventory, and accounts payable.
The ability of the Company to continue to expand its operations through
the expansion of existing facilities, introduction of new products, 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 provided by operating activities was $52,240 for the six months
ended September 30, 1996, as compared to $140,244 used by operations for the
same period in 1995. The change was due primarily to the decrease in accounts
receivable and inventories, and an increase in accounts payable as a result of
decreased sales levels.
8
<PAGE> 9
The Company's liquidity may be adversely affected by three market factors.
First, liquidity could 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 could negatively impact the profit margins of the Company.
Third, liquidity could be impacted negatively if the Company is 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 weakness in 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. On November 1, 1996 the exchange
rate was 1.5145 DM to the U.S. dollar. The cost of this agreement has not been
material to the Company.
Sales have declined substantially relative to the prior quarter and to the
quarter ended one year previously. Because management is concerned that the
overall sales trend is flat or declining for conventional photographic products,
the Company is developing a digital imaging system that it is anticipated will
strengthen the Company's marketing and financial position. At this time, the
Company expects to have the product ready to sell by March 1997, but there can
be no assurances the Company will in fact be able to develop such a product
prior to various competitors introducing similar equipment. Further, even if the
Company does develop such a product, there can be no assurances that the Company
will have the financial capability to manufacture and market such a product.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27-Financial Data Schedule
(b) Reports on Form 8-K:
The following reports on Form 8-K were prepared and filed during the
quarter ended September 30, 1996:
None
9
<PAGE> 10
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: November _13_, 1996 /s/ Arthur A. Kaminshine
------------------------
Arthur A. Kaminshine, President
Date: November _13_, 1996 /s/ Edward L. Handlin
---------------------
Edward L. Handlin,
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDESED
CONSOLIDATED FINANCIAL STATEMENTS OF INTERNATIONAL IMAGING, INC. AND
SUBSIDIARIES FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB QUARTERLY REPORT FOR THE PERIOD ENDED
SEPTEMBER 30, 1996 OF INTERNATIONAL IMAGING, INC.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 37,789
<SECURITIES> 17,515
<RECEIVABLES> 243,240
<ALLOWANCES> 0
<INVENTORY> 1,420,415
<CURRENT-ASSETS> 1,779,347
<PP&E> 1,232,634
<DEPRECIATION> 698,894
<TOTAL-ASSETS> 2,324,858
<CURRENT-LIABILITIES> 925,372
<BONDS> 1,091,584
0
0
<COMMON> 5,680
<OTHER-SE> 302,222
<TOTAL-LIABILITY-AND-EQUITY> 2,324,858
<SALES> 1,835,516
<TOTAL-REVENUES> 1,835,516
<CGS> 1,199,960
<TOTAL-COSTS> 1,199,960
<OTHER-EXPENSES> 808,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,358
<INCOME-PRETAX> (219,322)
<INCOME-TAX> 0
<INCOME-CONTINUING> (219,322)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (219,322)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
