<PAGE> 1
U.S. 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
NEXTECH ENTERPRISES INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
INTERNATIONAL IMAGING, INC.
(Former name of small business issuer)
For Quarter Ended: DECEMBER 31, 1997 Commission File Number: 0-26182
DELAWARE 13-3469649
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
910 HAMPSHIRE ROAD, SUITE A, WESTLAKE VILLAGE, CALIFORNIA 91361
(Address of principal executive office)
1875 CENTURY PARK EAST, SUITE 930, LOS ANGELES, CALIFORNIA 90067
(Former address of principal executive office)
(805) 496-0301
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ...X... No....
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the close of the period covered by this report. 16,092,149 common
shares par value $0.001 per share.
Transitional Small Business Disclosure Format: Yes... No...X...
<PAGE> 2
NEXTECH ENTERPRISES INTERNATIONAL, INC.
(FORMERLY INTERNATIONAL IMAGING, INC.)
INDEX
Page
No.
PART I. Financial Information
Item 1. Condensed Consolidated Balance Sheets - 3
December 31, 1997 and March 31, 1997
Condensed Consolidated Statements of Operations - 4
Three and Nine Months Ended December 31, 1997 and 1996
Condensed Consolidated Statement of Stockholders' Equity - 5
Nine Months Ended December 31, 1997
Condensed Consolidated Statements of Cash Flows - 6-7
Nine Months Ended December 31, 1997
Notes to Condensed Consolidated Financial Statements - 8-12
Nine Months Ended December 31, 1997 and 1996
Item 2. Management's Plan of Operation and Discussion and Analysis
of Operations 13-16
PART II. Other Information 17
2
<PAGE> 3
NEXTECH ENTERPRISES INTERNATIONAL, INC.
(FORMERLY INTERNATIONAL IMAGING, INC.)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 101,691 $ 30,189
Accounts receivable 830,816 --
Due from officers, employees and other 12,090 37,500
Inventory 2,130,904 --
Prepaid expenses and other assets 93,021 --
------------ ------------
3,168,522 67,689
Machinery and equipment, net 6,438,388 30,231
Investment in Quantex 2,500,000 2,500,000
Other assets and investments 1,691,050 1,046,011
============ ============
$ 13,797,960 $ 3,643,931
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 2,302,054 236,724
Accrued expenses 76,003 275,000
Notes and advances payable 856,623 1,107,214
Current installments of capital lease and other obligations 118,292 --
Purchase obligations due 2,836,000 1,336,000
Loan from shareholder 405,852 176,280
------------ ------------
6,594,824 3,131,218
Non-current capital lease and other obligations 92,032 --
Subsidiary preferred stock 4,523,143 2,407,820
Minority interest 11,514 --
STOCKHOLDERS' EQUITY
Common stock 16,092 20,000
Additional paid-in capital 6,008,236 5,670
Foreign currency translation adjustment (80,659) --
Retained earnings (deficit) (3,367,222) (1,920,777)
------------ ------------
2,576,447 (1,895,107)
------------ ------------
$ 13,797,960 $ 3,643,931
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
NEXTECH ENTERPRISES INTERNATIONAL, INC.
(FORMERLY INTERNATIONAL IMAGING, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 1,665,709 $ -- $ 1,690,564 $ --
Cost of sales 1,235,704 -- 1,250,120 --
------------ ------------ ------------ ------------
Gross profit 430,005 -- 440,444 --
OTHER COSTS AND EXPENSES
Selling, general and administrative expense 792,394 522,897 2,094,650 872,436
Interest expense 4,205 -- 4,205 --
Environmental expense 35,493 -- 35,493 --
Interest and other income (758) -- (758) --
Equity in joint venture loss 42,753 -- 42,753 --
------------ ------------ ------------ ------------
Total other costs and expenses 874,087 522,897 2,176,343 872,436
------------ ------------ ------------ ------------
Net income (loss) before income taxes
and minority interest (444,082) (522,897) (1,735,899) (872,436)
Deferred income tax benefit (536,000) -- (536,000) --
------------ ------------ ------------ ------------
Net income (loss) before minority interest 91,918 (522,897) (1,199,899) (872,436)
Minority interest (416) -- (416) --
------------ ------------ ------------ ------------
Net income (loss) $ 91,502 $ (522,897) $ (1,200,315) $ (872,436)
============ ============ ============ ============
Net income (loss) per share $ 0.01 $ (0.03) $ (0.07) $ (0.05)
============ ============ ============ ============
Weighted average shares outstanding 16,087,130 16,077,092 16,080,438 16,077,092
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
NEXTECH ENTERPRISES INTERNATIONAL, INC.
(FORMERLY INTERNATIONAL IMAGING, INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Additional Currency Retained
Common Stock Paid-In Translation Earnings
Shares Amount Capital Adjustment (Deficit) Total
<S> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1997 48,917,500 $ 20,000 $ (580) $ - $ (1,920,778) $ (1,901,358)
Recapitalization (37,287,092) (8,370) (2,749,468) 2,757,838 -
------------ --------- ------------- ---------- ------------- -------------
11,630,408 11,630 (2,750,048) - 837,060 (1,901,358)
Acquire Rose Color and SPS Alfachem 3,000,000 3,000 5,992,523 (50,054) 5,945,469
Acquire International Imaging, Inc. 1,446,684 1,447 2,731,897 (2,757,838) (24,494)
Exercise of common stock warrants for cash 15,057 15 33,865 33,880
Conversion of preferred stock warrants for less
than the par value of the preferred stock (246,130) (246,130)
Foreign currency translation adjustment (30,605) (30,605)
Net loss (1,200,315) (1,200,315)
------------ --------- ------------- ---------- ------------- -------------
Balance - December 31, 1997 16,092,149 $ 16,092 $ 6,008,237 $ (80,659) $ (3,367,223) $ 2,576,447
============ ========= ============= ========== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
NEXTECH ENTERPRISES INTERNATIONAL, INC.
(FORMERLY INTERNATIONAL IMAGING, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1997
----
<S> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings (loss) $(1,200,315)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 117,220
Deferred income taxes (536,000)
Minority interest 416
Foreign operations 59,672
Environmental assessment balance 35,493
Preferred stock issued for consulting services 729,310
Changes in assets and liabilities:
Accounts receivable (109,107)
Inventory (164,898)
Prepaid expenses and other assets (74,539)
Accounts payable and accrued expenses 673,931
-----------
Cash flows used in operating activities $ (468,817)
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures (86,333)
Cash acquired in acquisitions 141,387
-----------
Cash flows provided by investing activities $ 55,054
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Increase in amount due shareholder 198,322
Proceeds from sale of subsidiary preferred stock 273,128
Proceeds from exercise of common stock warrants 33,880
Repayment of (advances to) officers and employees 5,683
Repayment of capital lease obligations (25,748)
-----------
Cash flows provided by financing activities $ 485,265
-----------
Net increase (decrease) in cash and cash equivalents 71,502
Cash and cash equivalents, beginning of period 30,189
-----------
Cash and cash equivalents, end of period $ 101,691
===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
NEXTECH ENTERPRISES INTERNATIONAL, INC.
(FORMERLY INTERNATIONAL IMAGING, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1997
----
SUPPLEMENTAL CASH FLOW INFORMATION
<S> <C>
Cash paid for interest and income taxes are as follows:
Interest $ 4,205
Income taxes --
Noncash investing and financing activities are as follows:
Office fixtures acquired for preferred stock of subsidiary $ 276,165
Real estate acquired for preferred stock of subsidiary 165,000
Note receivable received from sale of real estate 165,000
Preferred stock of subsidiary issued as partial consideration
in the acquisition of Hetero-Mins 200,000
Preferred stock of subsidiary issued for consulting services 729,310
Loans converted to preferred stock of subsidiary 219,341
Conversion of subsidiary preferred stock warrants for less
than the par value of the preferred stock 246,130
Conversion of accrued environmental assessment to a
three year monthly payment obligation 92,493
Total obligation 108,000
Less amount representing interest (15,507)
---------
Obligation recorded $ 92,493
=========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
NEXTECH ENTERPRISES INTERNATIONAL, INC.
(FORMERLY INTERNATIONAL IMAGING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements of
NexTech Enterprises International, Inc. formerly International Imaging,
Inc. ("Imaging"), include the accounts of NexTech Enterprises
International, Inc. ("NexTech"), and its wholly owned subsidiaries,
NexTech Healthcare ("Healthcare"), formerly Chiralt Corporation
("Chiralt"), Rose Color, Inc. ("Rose Color") and SPS Alfachem, Inc.
("SPS") and the 80% owned subsidiary of Rose Color, JBW International,
Inc. ("JBW"). (NexTech and its subsidiaries are collectively referred
to as the "Company"). (Rose Color, SPS and JBW are collectively
referred to herein as "Rose NexTech").
On April 8, 1997, Imaging 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, which plan was confirmed on August
19, 1997.
The Reorganization Plan called 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 to related parties in the amount of $206,512 and
accrued interest in the amount of $7,249 were exchanged for 500,000
shares of common stock and warrants to purchase 2,000,000 and 1,000,000
shares of common stock (post split) at $3.50 and $4.50 per share,
respectively.
Subsequent to confirmation of the Reorganization Plan, Imaging entered
into an agreement to sell its wholly owned subsidiary, Electronic
Systems Engineering Co. and to acquire through issuance of 14,630,408
shares of its common stock the common stock of Healthcare, Rose Color
and SPS in a transaction accounted for as a purchase. After the
transaction, the former owners of Healthcare owned approximately 72% of
the combined entities, accordingly, Healthcare is accounted for as the
surviving entity.
The financial statements included in this report have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission for interim reporting and include all adjustments
(consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation. These
financial statements have not been audited.
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 for interim reporting. The Company believes that
the disclosures contained herein are adequate to make the information
presented not misleading. However, these financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report for the year ended March 31,
1997, which is included in the Company's Form 10-KSB which was filed in
July 1997. The financial data for the interim periods presented may not
necessarily reflect the results to be anticipated for the complete
year. Certain reclassifications of the amounts presented for the
comparative period have been made to conform to the current
presentation.
a. NATURE OF BUSINESS
NEXTECH - NexTech is a public company with no direct operations.
8
<PAGE> 9
HEALTHCARE - Healthcare is primarily a marketer of proprietary
healthcare products. Healthcare has developed or obtained
protected nutraceuticals (nutritional supplements), a
mineral-status test and over-the-counter (OTC) drugs.
ROSE COLOR - Rose Color is engaged in the manufacture and
marketing of specialty organic dyes for the petroleum and plastics
industries. Rose Color owns 80% of JBW, which serves primarily as
a consultant to companies involved with specialty organic dyes. In
addition, Rose Color has a 49% interest in Mafatlal Rose Color
Industries Ltd. (MRCI) an Indian company which manufactures dyes
for foreign sales.
SPS - SPS has international alliances that will allow importation
of nutritional herbs and other botanicals, as well as fine
chemicals for nutritional supplements and OTC drugs.
b. REVENUE AND COST RECOGNITION - Revenues from sales are recognized
when the product is shipped. Cost of sales consists of direct
material costs and those indirect costs related to the
manufacturing process, such as indirect labor, supplies,
utilities, repairs and depreciation.
c. INVENTORIES - Raw materials, work in process and finished goods
inventories are stated at the lower of weighted average cost or
market.
d. PROPERTY, PLANT AND EQUIPMENT - Owned property, plant and
equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the
respective assets. Equipment under capital leases is stated at the
lower of the present value of minimum lease payments at the
beginning of the lease term or fair value at the inception of the
lease and is amortized over the estimated useful life of the
related asset.
e. INCOME TAXES - Deferred income taxes are recognized for income and
expense items that are reported for financial reporting purposes
in different years than for income tax purposes.
f. NET EARNINGS PER SHARE - Net earnings per share amounts are
computed using the weighted average number of shares outstanding
during the period. Fully diluted earnings per share are presented
if the assumed conversion of common stock equivalents results in
material dilution. For purposes of the calculation presented
herein, it is assumed that all shares have been outstanding for
the full periods presented prior to the acquisition.
9
<PAGE> 10
B. ACQUISITION
The acquisition by NexTech of Healthcare, Rose Color and SPS was
completed effective September 30, 1997. As a result of the size of
NexTech in comparison to the other companies, Healthcare is considered
the acquiring company for financial reporting purposes. The assets
acquired and liabilities assumed are summarized as follows:
<TABLE>
<CAPTION>
Rose Color
and SPS NexTech Total
------- ------- -----
<S> <C> <C> <C>
Current assets, excluding cash $ 2,707,470 $ -- $ 2,707,470
Machinery and equipment, net 6,162,741 6,162,741
Other assets and investments 283,255 40,000 323,255
----------- ----------- -----------
9,153,466 40,000 9,193,466
Notes payable and long-term debt (143,579) (143,579)
Accounts payable (1,006,109) (64,509) (1,070,618)
Accrued expenses (136,583) (136,583)
Deferred income taxes (552,000) (552,000)
Purchase obligations (1,500,000) (1,500,000)
Minority interest (11,098) (11,098)
Foreign currency translation adjustment 50,054 50,054
Common stock issued (5,995,523) 24,494 (5,971,029)
----------- ----------- -----------
Cash acquired $ 141,372 $ 15 $ 141,387
=========== =========== ===========
</TABLE>
If the acquisitions were consummated as of April 1, 1996, revenues for
the nine months ended December 31, 1997 and 1996 would have been
$4,406,000 and $4,819,000, respectively. Net loss for the nine months
ended December 31, 1997 and 1996 would have been $384,000 higher
($.02/share) and $43,000 higher ($.00/share), respectively.
C. INVENTORIES
Inventories consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Raw materials $ 584,777
Work in process 109,889
Finished goods 1,436,238
==========
$2,130,904
==========
</TABLE>
10
<PAGE> 11
D. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997
and March 31, 1997:
<TABLE>
<CAPTION>
December 31, March 31,
<S> <C> <C>
Land $ 500,000 $ --
Buildings and improvements 1,425,726 --
Machinery and equipment 5,126,095 --
Office furniture and equipment 423,428 40,246
----------- -----------
7,475,249 40,246
Accumulated depreciation (1,036,861) (10,015)
----------- -----------
$ 6,438,388 $ 30,231
=========== ===========
</TABLE>
E. LEASES AND LONG-TERM OBLIGATIONS
The Company leases equipment under capital leases that expire over the
next three years. The present value of future minimum capital lease
payments as of December 31, 1997 is $117,831. In addition, the Company
reached agreement with the Passaic Valley Sewerage Commission relating
to an assessment for a discharge violation. The assessment is to be
paid at the rate of $3,000 per month for thirty-six months, commencing
May 1, 1998. The $108,000 assessment has been recorded at its net
present value in the amount of $92,493, of which amount $57,000 had
been accrued at September 30, 1997. Capital leases and other long-term
obligations total $210,324, of which $117,831 is due within the next
year. During the three months ended December 31, 1997, the Company made
principal reductions in the amount of $25,748.
F. PURCHASE OBLIGATIONS
As a part of the acquisition of Rose Color and SPS, the Company agreed
to pay $1,500,000 to a former parent of Rose Color and SPS.
As a part of the acquisition of approximately 62% of the common stock
of Quantex Corporation, Healthcare agreed to issue their preferred
stock with a face value of $1,000,000 and to pay $1,500,000 in cash. To
date Healthcare has issued the preferred stock and paid a total of
$164,000 of this obligation. As a result of the uncertainty of the
Company being able to complete the acquisition, the Company's ownership
interest in Quantex has not been consolidated.
G. NOTES AND ADVANCES PAYABLE
As of December 31, 1997, the Company had a remaining balance of
$856,623 in loans and advances. The Company expects that a significant
portion of these amounts will ultimately be converted to equity in the
Company.
H. COMMON STOCK AND COMMON STOCK WARRANTS
During the nine months ended December 31, 1997 warrants to purchase
2,000,000 shares and 1,000,000 shares of the Company's common stock at
an exercise price of $3.50 and $4.50,
11
<PAGE> 12
respectively, were granted. Warrants to acquire 15,057 shares were
exercised as a part of a special pricing arrangement at $2.25 per share
during October 1997.
I. DEFERRED INCOME TAXES
The acquisitions of Rose Color and SPS by the Company have included the
assumption of a deferred income tax liability in the amount of
$552,000. This amount includes a liability in the amount of $905,000 as
a result of the financial basis of assets exceeding the income tax
basis. The tax effects of other temporary differences, which include
net operating loss carryforwards in the amount of $214,000 and foreign
operations in the amount of $139,000, offset the gross liability.
During the three month period ended December 31, 1997, the Company
reduced the reserve they had established against their net operating
loss by $536,000 which amount is offset by the liability previously
established by Rose Color as a result of the financial basis of assets
exceeding the income tax basis.
J. ENVIRONMENTAL
The Passaic Valley Sewerage Commission ("PVSC") on June 9, 1997
obtained a Temporary Restraining Order on Rose Color, for alleged
transgressions of the sewer permit. On December 15, 1997, Rose Color
agreed to a consent order which provided that Rose Color would pay to
the PVSC a base amount of $108,000 in monthly payments of $3,000
commencing May 1, 1998 for thirty-six months. In the event Rose Color
does not meet certain effluent discharge limitations, at predetermined
testing times, the assessment could increase by an additional $88,000.
Rose Color expects to install the necessary testing and treating
equipment to allow it to comply with the discharge standards within the
time limits specified.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
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.
As was discussed in the notes to the consolidated financial statements,
the completion of the merger has amalgamated the nucleus of a science
and technology-based company. NexTech Healthcare is primarily a
marketer of proprietary healthcare products. It has already developed
or obtained protected nutraceuticals (nutritional supplements), a
mineral-status test and, over-the-counter (OTC) drugs.
Healthcare already has a broad licensing agreement with the company
that owns the patent rights to the unique non-invasive intracellular
mineral EXATM Test, and is negotiating to acquire controlling interest
in the company. Hetero-Mins, which the Company has under contract to
purchase, has developed a unique liquid mineral product that can be
co-marketed with the EXA Test, and should provide substantial marketing
synergy in both the human and animal market segments. Additionally, the
minerals have commercial importance in certain segments of the
agribusiness industry. A clinical laboratory (Chiralt Clinical Labs)
operates as a division of Healthcare and provides the analytical
support required by the EXA Test procedure.
Rose Color produces and supplies dyes, pigments and other specialty
colors, as well as related chemicals and intermediary products to a
wide variety of industrial uses, but with current emphasis on petroleum
products, plastics, coatings, including paints and inks, with
developing positions in textiles, paper, leather, wood, hair and
others. Rose Color has been in operation since 1987.
Through SPS, the Company offers nutritional supplements, natural
products and extracts, fine chemicals, pharmaceutical, flavor and
fragrance and agrochemical products and intermediates in addition to
providing custom/toll product development and manufacturing
capabilities. SPS provides a complementary supply of products to the
marketing strengths of Healthcare.
In addition, Healthcare has an agreement to acquire controlling
interest in Quantex Corporation ("Quantex"). Quantex is presently
employing its proprietary phosphor/electron trapping technology to
produce products for use in non-destructive testing,
electroluminescence, and infrared detection.. It plans on rapidly
expanding the technology to create chemical-free, reusable, "filmless"
digital radiography systems.
The Company's ultimate profitability projections are based upon a
number of assumptions, including the acquisition of a number of
companies and the acquisition or license of a number of technologies.
If the Company is unable to raise sufficient capital to complete its
targeted acquisition program, it cannot be guaranteed that the choice
of alternatives would provide the same synergy and ultimate revenue or
profitability believed to be possible with the currently identified
acquisitions.
13
<PAGE> 14
HEALTHCARE PRODUCTS AND SERVICES
The Company, through Healthcare, has developed or acquired the rights
to market several leading edge medical and nutritional products and
technologies. The Company has integrated these products and
technologies into a unique marketing strategy that allows penetration
into multiple healthcare markets, thus maximizing the financial
contribution that each product or service brings to the Company.
In 1996, the American public spent billions of dollars on nutritional
supplements. The nutritional supplement market and the homeopathic drug
market are growing rapidly. The Company plans to participate in this
market by marketing its animal and human healthcare products to both
the professional and retail sectors. The complementary nature of the
different lines, which include laboratory tests and services,
nutritional supplements (nutraceuticals), OTC drugs, and medical
devices, provide for unique opportunities to penetrate multiple
markets. These markets have been identified as the "Professional
Sector," which includes physicians, chiropractors, other traditional
and alternative medicine healthcare professionals and veterinarians;
and the "Retail Sector," which includes nutritional outlets,
pharmacies, mass merchandisers, and health and sports clubs.
The diversity of the target markets presents unique opportunities and
marketing challenges for the Company, which is in the early stage of
its development. To capitalize on the opportunities and meet the
distribution, sales, and advertising challenges necessary to
successfully execute the marketing plan and meet financial projections,
the Company is in the process of establishing a series of distribution
networks designed to penetrate the different markets.
To date, the Company has established, or is establishing, several
distribution networks throughout the United States and Canada. These
distribution networks consist of independent manufacturers'
representatives, brokers, and distributors that have established a
clientele base in one of the Company's target market segments.
Distribution networks are being established for the direct marketing to
chiropractors, acupuncturists, and other alternative medicine
practitioners; for the direct marketing to veterinarians and other
animal health professionals; for nutrition centers, health and sports
clubs, and other non-traditional retail outlets; and to pharmacies,
supermarkets, mass merchandisers and other retail outlets. The use of
an out-sourced sales force allows marketing penetration of many markets
without the need for hiring a large sales force.
The products to be offered by the Company are introduced to the
professional or retail sector by a salesperson of the distribution
network. The salesperson is responsible for all sales activities,
including education and account service, and receives a commission
(typically 15% of net sales) on each completed sale. The salesperson is
typically responsible to a Regional Distributor, who is in turn
responsible to Healthcare's Marketing Management team. The Regional
Distributor is responsible for all sales and sales management in the
region, and will operate against mutually agreed upon sales performance
criteria. By establishing these criteria, the Company believes that it
can forecast sales with the level of accuracy necessary for efficient
manufacturing and inventory control.
Healthcare has developed an advertising strategy that includes
targeting both the layperson and the healthcare professional. Programs
oriented to laypersons, consisting of television and print ads and
articles, are being developed. This program will serve to educate the
public with regards to the benefits of the products and create an
awareness that will either result in a direct sale or in an inquiry to
their healthcare professional. A complementary print program, use of
the Internet and video-based professional education and communications
program are also being developed.
A major portion of the business of the Company will be to develop,
finance, produce, distribute and otherwise exploit alternative
healthcare products. The alternative healthcare industry is a highly
competitive industry and the market appeal and profitability of any
particular product or
14
<PAGE> 15
service cannot by predicted with any degree of certainty. The market
appeal and success of a product depends on a number of factors,
including the popularity of other products then being distributed,
competition for advertising, practitioner sponsorship, major authority
sponsorship, the availability of alternative forms of treatment,
critical reviews of practices and, to a very large degree, public
perception generally, all of which will change and cannot be predicted.
Although the Company has and will continue to utilize the judgment of
informed alternative medical practitioners to evaluate the commercial
and medical elements involved in its products and services and although
the Company intends to consult with additional distributors regarding
the exploitation of the products and services, there can be no
assurance of the ultimate success of the products and services. A
number of factors cannot be predicted, such as new Food and Drug
Administration ("FDA") and state regulations, new limitations on the
willingness of insurance companies to cover testing services, or to pay
prices for the testing services which remain profitable for the
Company, or the emergence of competing technologies and medical
methodologies. Even if critically acclaimed and properly distributed,
the financial success of the alternative healthcare products and
services cannot be predicted and there can be no assurances that
revenue received by the Company will be sufficient for it to remain
viable.
DYES, PIGMENTS AND SPECIALTY CHEMICALS
Rose Color's original product line was in solvent dyes, with its
Rosanol dyes utilized in the coloration of petroleum products and its
Rosaplast dyes utilized primarily for the coloration of plastics. Rose
Color currently represents approximately 7% of the domestic solvent dye
market and approximately 3% of the worldwide market which is
approximately $200-$250 million annually. As a consequence of the
considerable diversity of substrates to be colored, colors required and
their application properties, as well as cost, it is essential to
expand the range of products offered in order to increase sales.
Rose Color has elected to concentrate its initial expansion into the
pigment dye market. Current estimates are a worldwide market of
approximately $2.5 billion. Aside from the much larger market, the same
customer base also utilizes pigment dyes, thus allowing for a lower
initial cost of marketing.
FINANCE
The Company has significant expansion plans and will require capital to
implement their business plan. The Company expects to utilize both debt
and equity to fund their expansion, with the asset base of Rose Color
expected to provide the assets necessary to fund initial working
capital requirements.
RESULTS OF OPERATIONS
The operations of the Company are primarily within two segments, the
manufacturing and marketing of dyes and fine chemicals by Rose NexTech
(Rose Color, JBW and SPS) and the healthcare products and services of
Healthcare. Revenues for the nine months ended December 31, 1997
include $1,579,752 from the Rose NexTech operations and $110,812 from
the Healthcare operations. Revenues during the three months ended
December 31, 1997 include $1,579,752 from Rose NexTech operations and
$85,957 from the Healthcare operations. The Healthcare operations are
still in an early stage of development and are discussed above.
The revenues for the three months ended December 31, 1996 of Rose
NexTech were $1,958,282 with gross profit in the amount of $380,334
(19%). Despite a decline in revenues in the amount
15
<PAGE> 16
of $378,530 (19%) from the year earlier period, revenues during the
three months ended December 31, 1997 generated gross profits in the
amount of $393,929 (25%).
The decline in revenues is the result of a combination of factors, the
more significant of which was a result of the reduced manufacturing
allowed under the PVSC Temporary Restraining Order. Despite the revenue
reduction, Rose NexTech's gross profit was higher than in the 1996
period. During the 1996 period an inventory adjustment in the amount of
$75,203 negatively impacted gross profit, while a similar adjustment
did not reoccur during the 1997 period.
During the three months ended December 31, 1997 and 1996, Rose NexTech
had losses in the amount of $14,098 and income in the amount of
$99,287, respectively, before income taxes and minority interest. The
majority of the difference consists of two items, Rose Color's
investment in MRCI realized income during the 1996 period in the amount
of $37,422 as compared to a loss during the 1997 period in the amount
of $42,753. The second item was the balance of the environmental
assessment realized during the 1997 period in the amount of $35,493.
16
<PAGE> 17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Passaic Valley Sewerage Commission ("PVSC") on June 9, 1997
obtained a Temporary Restraining Order on Rose Color, for alleged
transgressions of the sewer permit. On December 15, 1997, Rose Color
agreed to a consent order which provided that Rose Color would pay to
the PVSC a base amount of $108,000 in monthly payments of $3,000
commencing May 1, 1998 for thirty-six months. In the event Rose Color
does not meet certain effluent discharge limitations, at predetermined
testing times, the assessment could increase by an additional $88,000.
Rose Color expects to install the necessary testing and treating
equipment to allow it to comply with the discharge standards within the
time limits specified.
Item 2 through 5 of Part II have been omitted as not required, not
significant, or because the information has been previously reported.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K - The Company filed Form 8-K on September
17, 1997 to report the acquisition of NexTech Healthcare, Rose
Color, Inc. and SPS Alfachem, Inc. Pro forma financial
schedules were filed on November 17, 1997 which gave effect to
the acquisition.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NEXTECH ENTERPRISES INTERNATIONAL, INC.
Date: February 13, 1998 By: /s/Ronald J. Amen
Ronald J. Amen, President
and Principal Accounting Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND FOR THE NINE MONTH PERIOD THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-QSB FOR
THE QUARTER ENDED DECEMBER 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 101,691
<SECURITIES> 0
<RECEIVABLES> 921,816
<ALLOWANCES> 91,000
<INVENTORY> 2,130,904
<CURRENT-ASSETS> 105,111
<PP&E> 7,475,249
<DEPRECIATION> 1,036,861
<TOTAL-ASSETS> 13,797,960
<CURRENT-LIABILITIES> 6,594,824
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<COMMON> 16,092
<OTHER-SE> 2,560,355
<TOTAL-LIABILITY-AND-EQUITY> 13,797,960
<SALES> 1,690,564
<TOTAL-REVENUES> 1,690,564
<CGS> 1,250,120
<TOTAL-COSTS> 1,250,120
<OTHER-EXPENSES> 2,176,343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,735,899)
<INCOME-TAX> (536,000)
<INCOME-CONTINUING> (1,200,315)
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