<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 December 31, 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 X No
----- -----
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 20, 1997,
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 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>
Dec. 31, 1996 March 31, 1996
------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 19,415 $ 12,790
Short-term investments 17,515 18,191
Accounts receivable - net 390,372 489,820
Inventories 1,321,295 1,608,226
Other current assets 32,930 19,203
---------- ----------
Total current assets 1,781,527 2,148,230
---------- ----------
PROPERTY AND EQUIPMENT:
Building 663,868 663,848
Furniture, fixtures and equipment 614,136 520,701
Land 12,560 12,560
---------- ----------
Total property and equipment 1,290,564 1,197,109
Less-Accumulated depreciation 722,340 651,335
---------- ----------
Net property and equipment 568,224 545,774
---------- ----------
OTHER ASSETS:
Intangible and other assets 11,629 11,324
---------- ----------
Total assets $2,361,380 $2,705,328
========== ==========
</TABLE>
3
<PAGE> 4
INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, 1996 March 31, 1996
------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 542,441 $ 667,751
Accrued liabilities 164,352 165,228
Deferred compensation 20,000 20,000
Short-term debt 205,030 205,030
Current portion of long-term debt 1,266,981 27,471
----------- ----------
Total current liabilities 2,198,804 1,085,480
NONCURRENT LIABILITIES:
Long-term debt, net of current portion -- 1,032,512
Deferred compensation 45,112 60,112
----------- ----------
Total noncurrent liabilities 45,112 1,092,624
STOCKHOLDERS' EQUITY:
Common stock 5,680 5,680
Additional paid in capital 2,615,540 2,615,540
Accumulated deficit (2,503,756) (2,093,996)
----------- ----------
Total stockholders' equity 117,464 527,224
----------- ----------
Total liabilities and
stockholders' equity $ 2,361,380 $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 Nine Months Ended
December 31, December 31,
--------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES $ 819,327 $ 728,146 $ 2,654,843 $ 2,662,018
COST OF SALES 505,445 626,004 1,705,405 1,978,016
------------ ------------ ------------ ------------
GROSS PROFIT 313,882 102,142 949,438 684,002
OPERATING EXPENSES 492,270 357,283 1,300,561 997,333
------------ ------------ ------------ ------------
OPERATING PROFIT (LOSS) (178,388) (255,141) (351,123) (313,331)
OTHER INCOME (EXPENSES)
Interest income 2,223 2,844 7,617 8,914
Interest expense (34,799) (26,822) (90,157) (58,412)
Other income (expense), net 20,526 (24,859) 23,903 (85,997)
------------ ------------ ------------ ------------
Total other income (expense) (12,050) (48,837) (58,637) (135,495)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (190,438) (303,978) (409,760) (448,826)
INCOME TAXES 0 0 0 0
------------ ------------ ------------ ------------
NET LOSS $ (190,438) $ (303,978) $ (409,760) $ (448,826)
============ ============ ============ ============
NET LOSS PER COMMON SHARE $ (0.04) $ (0.06) $ (0.09) $ (0.10)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,733,416 4,733,416 4,733,416 4,726,393
============ ============ ============ ============
</TABLE>
5
<PAGE> 6
INTERNATIONAL IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (409,760) $ (448,826)
Adjustments to reconcile net loss to net cash from
operating activities
Depreciation and amortization 78,116 41,117
Gain on sale of property & investments (4,532) (8,363)
Deferred compensation (15,000) (15,000)
Changes in current assets and liabilities -
Decrease (increase) in accounts receivable 99,448 50,331
Decrease (increase) in inventories 286,931 (247,308)
Decrease (increase) in other assets (13,727) (24,386)
Increase (decrease) in accounts payable (125,310) 293,823
Increase (decrease) in accrued liabilities (876) 27,719
Other -- (305)
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (104,710) (331,198)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 10,500 11,519
Capital expenditures (106,839) (83,997)
Sale (purchase) of short-term investments 676 301
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (95,663) (72,177)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 87,500
Proceeds from debt 261,885 495,473
Repayment of debt (54,887) (184,882)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 206,998 398,091
------------ ------------
NET INCREASE (DECREASE) IN CASH 6,625 (5,284)
CASH, beginning of period 12,790 51,648
------------ ------------
CASH, end of period $ 19,415 $ 46,364
============ ============
Cash paid during period for -
Interest $ 90,157 $ 58,412
</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 nine months ended December 31, 1996, no options were exercised under
the Company's stock option plan.
3. INCOME TAXES:
The income tax expense from continuing operations for the nine month period
ended December 31, 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 entered into
contracts are experienced in the photographic and x-ray fields and it was
anticipated they would produce greater sales than were forthcoming under the
dealer system. To date, the Company has not experienced an improvement in its
marketing results as a result of this change.
A. CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 VS. THREE MONTHS ENDED DECEMBER
31, 1995
Sales increased to $819,327 for the quarter ended December 31, 1996
compared to $728,146 for the quarter ended December 31, 1995. Processor sales
for the third quarter of fiscal 1996 were $349,000 compared to $227,000 during
the same period in 1995. Cost of goods sold decreased to 61.7% of sales for the
quarter ended December 31, 1996 compared to 86.0% of sales for the same period
in 1995. Gross profit improved primarily due to the higher margins realized on
processor sales due to a price increase in the first quarter of fiscal 1997.
NINE MONTHS ENDED DECEMBER 31, 1996 VS. NINE MONTHS ENDED DECEMBER 31,
1995
During the nine month period ending December 31, 1996 as compared to
the same period in 1995, sales decreased by 0.27% percent during the period,
while cost of sales decreased by 13.8%. Gross profit margins increased from
25.7% of sales in 1995 to 35.8% of sales in 1996. This change was primarily due
to price increases on some photographic processors and cost reductions from
voluntary salary reductions and downsizing.
Operating expenses as a percentage of sales increased from 37.5% in
1995 to 49.0% in 1996. This was caused primarily by the additional legal and
accounting costs incurred due to SEC filings, increased research and
development expenses, and commissions paid to the contract field marketing
representatives.
B. LIQUIDITY AND CAPITAL RESOURCES
Net working capital decreased by approximately $1,480,000 compared to
March 31, 1996. The working capital ratio was approximately 0.81 to one at
December 31, 1996. This decrease was primarily a reflection of the
reclassification of long-term debt to short-term debt. Management believes the
financing will be renewed by the bank when it matures but has classified the
debt as short term debt in the December 31, 1996 financial statements.
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 used by operating activities was $104,710 for the nine months
ended December 31, 1996, as compared to $331,198 used by operations for the
same period in 1995. The change was due primarily to the losses incurred and
the decrease in accounts receivable, inventories, and accounts payable as a
result of decreased sales levels.
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
8
<PAGE> 9
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 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 would enjoy a benefit.
On January 20, 1996 the exchange rate was 1.6264 DM to the U.S. dollar. The
cost of this agreement has not been material to the Company.
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 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.
The Company incurred combined losses of $2,510,667 during fiscal years
1996 and 1995 in addition to the $409,760 loss thus far in fiscal 1997. These
losses included special non-cash charges of $841,677 in fiscal 1995 resulting
from management's plan to revise its product line and normal operating losses
related primarily to the introduction of the photographic processor line and
the increased overhead in administrative, accounting and legal expenses,
incurred as a result of operating as a public company. The Company has funded
these losses through the sale of stock in the amount of $1,666,763 and bank and
related party borrowings of $1,287,388. The Company's management anticipates
that, if new products sell as expected and if costs can be reduced, the Company
should return to profitability during fiscal year 1998. New products include
digital imaging devises mentioned above.
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, 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: February 4, 1997 /s/ Arthur A. Kaminshine
-------------------------------------
Arthur A. Kaminshine, President
Date: February 4, 1997 /s/ Edward L. Handlin
-------------------------------------
Edward L. Handlin,
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,415
<SECURITIES> 17,515
<RECEIVABLES> 390,372
<ALLOWANCES> 0
<INVENTORY> 1,321,295
<CURRENT-ASSETS> 1,781,527
<PP&E> 1,290,564
<DEPRECIATION> 722,340
<TOTAL-ASSETS> 2,361,380
<CURRENT-LIABILITIES> 2,198,804
<BONDS> 0
0
0
<COMMON> 5,680
<OTHER-SE> 111,784
<TOTAL-LIABILITY-AND-EQUITY> 2,361,380
<SALES> 2,654,843
<TOTAL-REVENUES> 2,654,843
<CGS> 1,705,405
<TOTAL-COSTS> 3,096,123
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (409,760)
<INCOME-TAX> 0
<INCOME-CONTINUING> (409,760)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (409,760)
<EPS-PRIMARY> (0.087)
<EPS-DILUTED> (0.087)
</TABLE>
