<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 June 30, 1997
or
[X] 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 1, 1997, 4,733,416
shares of common stock.
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INTERNATIONAL IMAGING, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <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 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
10
SIGNATURES 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,1997 March 31, 1997
------------ --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 192 $ 6,668
Short-term investments 17,515 17,815
Accounts receivable - net 184,330 181,343
Inventories 1,219,190 1,310,912
Other current assets 17,185 9,085
---------- ----------
Total current assets 1,438,412 1,525,823
PROPERTY AND EQUIPMENT:
Building 663,868 663,868
Furniture, fixtures and equipment 620,850 621,346
Land 12,560 12,560
---------- ----------
Total property and equipment, at cost 1,297,278 1,297,774
Less-Accumulated depreciation 762,189 744,615
---------- ----------
Net property and equipment 535,089 553,159
OTHER ASSETS:
Intangible and other assets 11,346 10,758
---------- ----------
Total assets $1,984,847 $2,089,740
========== ==========
</TABLE>
3
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INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,1997 March 31, 1997
------------ --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 470,679 $ 632,454
Accrued expenses 163,613 159,163
Deferred compensation 20,000 20,000
Short-term advances - related parties 206,512 206,512
Advances from president 55,146 55,047
Short-term debt 178,886 620,161
Current portion of long term debt 30,000 30,000
----------- -----------
Total current liabilities 1,124,836 1,723,337
NONCURRENT LIABILITIES:
Long-term debt, net of current portion 953,257 467,053
Deferred compensation 37,953 42,953
----------- -----------
Total noncurrent liabilities 991,221 510,006
STOCKHOLDERS' EQUITY:
Common stock 5,680 5,680
Additional paid in capital 2,615,540 2,615,540
Accumulated deficit (2,752,419) (2,764,823)
----------- -----------
Total stockholders' equity (deficit) $ (131,199) $ (143,603)
----------- -----------
Total liabilities and stockholders' equity $ 1,984,847 $ 2,089,740
=========== ===========
</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
-------
1997 1996
----------- -----------
<S> <C> <C>
SALES $ 663,747 $ 1,079,980
COST OF SALES 429,883 629,833
----------- -----------
GROSS PROFIT 233,864 450,147
OPERATING EXPENSES 212,908 356,789
----------- -----------
OPERATING PROFIT 20,956 93,358
OTHER INCOME (EXPENSES)
Interest income 46 418
Interest expense (24,141) (18,948)
Other income (expense), net 15,543 1,840
----------- -----------
Total other income (expenses) (8,852) (16,690)
INCOME BEFORE INCOME TAXES 12,404 76,668
INCOME TAXES - -
----------- -----------
NET INCOME (LOSS) $ 12,404 $ 76,668
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE: $ 0.0026 $ 0.0162
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 4,733,416 4,733,416
=========== ===========
</TABLE>
See Notes to consolidated condensed financial statements.
5
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INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended
June 30
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 12,404 $ 76,668
Adjustments to reconcile net income(loss) to net cash
from operating activities
Depreciation and amortization 19,269 23,024
Gain on sale of property & investments (1,101) 67
Deferred compensation (5,000) (8,160)
Changes in current assets and liabilities -
Decrease (increase) in accounts receivable - net (2,987) (165,326)
Decrease (increase) in inventories 91,722 97,186
Decrease (increase) in other assets (8,100) (109,784)
Increase (decrease) in accounts payable (161,775) (80,071)
Increase (decrease) in accrued liabilities 4,450 (3,267)
Other -- (13,718)
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES (51,118) (183,381)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 2,106 --
Sale of short term investments 300 10,455
Capital expenditures (2,792) --
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (386) 10,455
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt 54,874 --
Reduction of short-term debt (72,275) --
Proceeds from long-term debt 69,929 181,000
Reduction of long-term debt (7,500) (10,878)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 45,028 170,122
--------- ---------
NET INCREASE (DECREASE) IN CASH (6,476) (2,804)
CASH, beginning of period 6,668 12,790
--------- ---------
CASH, end of period $ 192 $ 9,986
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for - Interest $ 28,953 $ 18,948
</TABLE>
See notes to consolidated condensed financial statements.
6
<PAGE> 7
INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. COMPANY INFORMATION:
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.
On April 8, 1997, International Imaging, Inc. filed a prenegotiated Joint Plan
of Reorganization (the "Reorganization Plan") under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the Western
District of Oklahoma (the "Court"). The Reorganization Plan only addresses the
reorganization of International Imaging, Inc. and not the Company's wholly owned
operating subsidiary, ESECO.
The Reorganization Plan calls for a one for five reverse stock split and the
issuance of common stock and warrants to the creditors in exchange for
outstanding debt and accrued interest. Specifically, short-term advances related
parties of $206,512 and accrued interest of $7,249 included in accrued
liabilities in the accompanying consolidated condensed balance sheet would be
exchanged for 500,000 shares of common stock and warrants to purchase 2,000,000
and 1,000,000 shares of common stock at $3.50 and $4.50 per share, respectively.
(All share amounts are subsequent to the one for five reverse stock split.)
The Reorganization Plan was filed in cooperation with the named creditors and
has been voted on and agreed to by a majority of the shareholders. Management
believes the Court will approve the Reorganization Plan. A confirmation hearing
for the plan has been set for August 19, 1997.
Operating Plan
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Although the Company had net income of
$12,404 for the three months ended June 30, 1997, the Company has an accumulated
deficit of $2,752,419 and a net stockholders' deficit of $131,199 through June
30, 1997.
The Company is developing new products and is modifying existing products to
enhance sales. One product, the Digimatic Universal, a digital imaging system,
has been demonstrated at various trade shows and has received positive
recognition in selected trade publications. However, no sales were made of this
product to end users. Management is uncertain as to the market's acceptance or
level of sales that can be achieved by this new product.
The Reorganization Plan described above proposes to reduce the Company's current
liabilities; however, the effect of the Reorganization Plan will not
significantly impact the Company's future cash flows or operating results.
Management's plan for operating in fiscal year 1998 is highly contingent on the
ability to produce and sell the Digimatic Universal, maintaining sales levels on
existing products, reductions of general and administrative costs and the
availability of continued financing.
7
<PAGE> 8
2. COMMON STOCK AND OPTIONS:
During the three months ended June 30, 1997, no shares were exercised under the
Company's stock option plan.
3. INCOME TAXES:
The income tax expense from continuing operations for the quarter ended June 30,
1997, 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.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
From time to time, the Company may publish forward-looking statements
relating to certain matters including anticipated financial performance,
business prospects, product development, and other similar matters. All
statements other than statements of historical fact contained in this Form
10-QSB or in any other report of the Company are forward-looking statements. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of that safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements. In
addition, the Company disclaims any intent or obligation to update those
forward-looking statements.
On April 8, 1997, International Imaging, Inc. filed a prenegotiated Joint
Plan of Reorganization (the "Reorganization Plan") in the United States
Bankruptcy Court for the Western District of Oklahoma (the Court") case no.
97-13285BH. The Reorganization Plan only addresses the reorganization of
International Imaging, Inc. and not the Company's wholly owned operating
subsidiary, ESECO.
The Reorganization Plan calls for a one for five reverse stock split and
the issuance to the Company's creditors of 500,000 shares of common stock and
warrants to purchase 3,000,000 shares of common stock of IMGI in exchange for
outstanding debt to related parties of $206,512 and accrued interest of $7,249
recorded as accrued liabilities in the accompanying consolidated balance sheet.
The Company's Plan was filed in cooperation with the named creditors and
has been approved by a majority of the shareholders. Management believes the
Court will approve the Reorganization Plan. A confirmation hearing for the plan
has been set for August 19, 1997.
A. CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 VS. THREE MONTHS ENDED JUNE 30, 1996
Sales decreased from $1,079,980 for the quarter ended June 30, 1996 to
$663,747 for the quarter ended June 30, 1997, a 38.5% decrease. Management feels
sales of processors and analyzers are down due to a reluctance on the part of
customers to invest in non-digital laboratory equipment. The cost of sales as a
percentage of sales increased from 58.3% in the quarter ended June 30, 1996 to
64.8% for the same period in 1997. This decrease in gross profit margins is the
result of the fixed cost component of cost of sales becoming relatively more
important due to the decline in sales. Virtually all sales lines were down for
the quarter, but automatic enlargers and processors each showed approximately a
50% decrease in sales from the prior year.
Operating expenses were $212,908 for the quarter ended June 30, 1997
compared to $356,789 for the same period in 1996. Operating expenses decreased
to 32% of sales for the three months ended June 30, 1997 compared to 33% of
sales for the three months ended June 30, 1996. This decrease in operating
expense reflects the reduction in overhead expenses the Company has made over
the last two years, including a 25% reduction in personnel.
B. LIQUIDITY AND CAPITAL RESOURCES
The working capital position as of June 30, 1997 increased by $511,090
compared to working capital at March 31, 1997. The improvement in working
capital was primarily caused by the refinancing of the Company's $500,000 line
of credit, which allowed the debt to be reflected as long term on the balance
sheet. The working capital ratio was approximately 1.28 to one at June 30, 1997.
9
<PAGE> 10
The Company continues to have a negative stockholder's equity, $131,199 at
June 30, 1997. This reflects the severe strain that past operating losses have
had on the Company.
The ability of the Company to continue its operations through new products
or 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 in operating activities was $183,381 for the three months
ended June 30, 1996, as compared to $51,118 used by operations for the same
period in 1997. The change was due primarily to the changes in inventory and
accounts payable resulting from the decreased sales activity.
TRENDS
The Company has experienced a significant reduction in demand for its
densitometers, color analyzers and enlargers. The expected demand for processors
has not materialized and sales of processor and related parts are down by 52%
for the first quarter ending June 30, 1997 compared to the same quarter in 1996.
The Company's management feels the decrease in demand is caused by the
current interest in digital imaging and a reluctance on the part of photography
laboratories to invest in capital equipment until the popularity and feasibility
of digital imaging is evident. Management is unable to forecast how long this
period of weak demand will persist.
The Company has developed a digital imaging device, but to date no units
have been placed in service.
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, 1996: None
10
<PAGE> 11
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: August 13, 1997 /s/ Arthur A. Kaminshine
------------------------
Arthur A. Kaminshine, President
Date: August 13, 1997 /s/ Edward L. Handlin
--------------------------
Edward L. Handlin,
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 192
<SECURITIES> 17,515
<RECEIVABLES> 184,330
<ALLOWANCES> 0
<INVENTORY> 1,219,190
<CURRENT-ASSETS> 1,438,412
<PP&E> 1,297,278
<DEPRECIATION> 762,189
<TOTAL-ASSETS> 1,984,847
<CURRENT-LIABILITIES> 1,124,836
<BONDS> 991,221
0
0
<COMMON> 5,680
<OTHER-SE> (136,879)
<TOTAL-LIABILITY-AND-EQUITY> 1,984,847
<SALES> 663,747
<TOTAL-REVENUES> 663,747
<CGS> 429,883
<TOTAL-COSTS> 212,908
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,141
<INCOME-PRETAX> 12,404
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,404
<EPS-PRIMARY> .003
<EPS-DILUTED> .003
</TABLE>
