Firm Drawn Into Dispute Over Computer Imaging : Patents: New Image lets companies give a preview of their work. But a rival firm plans to sue over rights to the system.
One recent day at the Michael Berg Beauty Salon in Encino, Catalina Ramirez looked into a computer screen and liked what she saw. For a $35 fee, a hairstylist was using a computer imaging device called the New Image Salon System to show Ramirez a video picture of what she would look like if she tried a couple of new hairdos.
Holding a lock of her reddish-brown, shoulder-length hair, Ramirez said: “Than this , anything is better.” But she wasn’t about to leap into a new hairstyle without a preview and some coaxing.
“You look like Meryl Streep there,” urged stylist Mia Bakewell, pointing to an image of Ramirez with dark brown hair in a “layered bob” cut. “I’m serious. You have similar bone structure.”
For Ramirez, it was a sale. She was hooked by Streep’s bones, the new cut, and the computer system. “It’s really fabulous,” she said.
Some investors have been just as easily charmed by New Image Industries Inc., the company that makes the salon system, and several other computer-imaging systems for landscapers, builders, cosmetic surgeons and weight-loss clinics. New Image’s stock has soared after it went public in August, from an offering price of $6.50 to about $11 recently.
Based on results for the company’s fiscal year that ended June 30--when profits increased nearly twenty-fold to $804,000--the latest stock price runs about 30 times annual earnings-per-share, or better than double the average on Wall Street.
New Image has been profitable since it incorporated in February, 1987. Indeed, in the most recent quarter that ended Sept. 30, profits tripled to $229,000 from the same period a year before. Sales, meanwhile, increased 36% to $2.1 million.
And some forecasts for the company are rosy, because it’s selling more and more hairdressers on their computer system. Richard Edelman, senior vice president of research for Southwest Securities in Dallas, predicts that New Image’s profits will increase 50% to 100% each year for the next three years. New Image chief executive Robert Gurevitch says if all goes according to plan, the company will sell computer systems to 10% of the nation’s 250,000 salons within about two to four years.
But despite the company’s fast start, it still has much to worry about. Gurevitch’s long-term sales goal is a huge jump from the approximately 600 to 700 computer units the company has sold thus far in the United States. To meet that goal, New Image will have to increase its staff dramatically.
New Image also has to worry about a patent dispute with a rival company, a Florida firm called Combputer Images. So far, Combputer Images doesn’t look like a fierce competitor, posting a loss of about $36,000 on sales of about $30,000 for the six months ended June 30.
But Combputer Images “intends to file suit very shortly” against New Image, said president Alex Grief. The Florida company has two patents that cover the idea of using computers and video equipment to preview hairstyles, Grief said. Combputer Images is in the midst of a $1.4-million public stock offering and the money should give the company the funds it needs to launch a legal campaign. “Right is right,” said Grief. “We obtained the patents.”
Gurevitch counters that Combputer Images doesn’t have a case, arguing Combputer Images’ patents are so narrow that New Image’s equipment doesn’t infringe on them. And Gurevitch asserted that his lawyers say Combputer Images’ patents aren’t valid anyway.
Still, if Combputer Images sues and wins, New Image could be forced out of its most lucrative market--beauty parlor sales, which accounted for 73% of New Image’s revenues in its latest fiscal year, or it might be forced to pay the Florida company under a licensing agreement.
Another problem is that the computer-imaging field is crowded with young companies, said Richard Schwarz, an industry analyst with Shearson Lehman Hutton in New York. Schwarz said he has not followed New Image closely, but said he has files on nearly 1,000 companies making a variety of computer-imaging systems--including one to help police departments reconstruct criminals’ faces. A number of those firms have already failed, Schwarz said.
There’s also the question of just how many beauticians, builders and others will pay the $10,000 to $22,000 it costs for a New Image system. Gurevitch said it’s not so tough to persuade builders and landscapers--who can earn back the price of a machines in just a few jobs--to buy one. But with beauticians, who use the equipment to push $50 perms, it’s a more difficult sell, he admitted.
Telephone salespeople in Canoga Park now sell most of New Image’s computer systems, but the company recently opened sales offices in Chicago, Miami and Westport, Conn. Virtually all of New Image’s sales are made with leasing deals, so buyers can get their payments down to a couple of hundred dollars a month.
Under its ambitious expansion plans, New Image plans to open as many as three more sales offices, and to meet Gurevitch’s lofty sales predictions, New Image must also hire plenty of competent middle managers and stay ahead of burgeoning cash and capital needs. Thanks to its stock offering, however, the company has had about $4.4 million in cash as of Sept. 30.
But, said analyst Edeleman: “The risk is always that they will grow too fast and lose control internally.”
New Image was formed in 1986 when Kirk La Mar, a Woodland Hills beauty parlor owner, teamed up with one of his customers, John Halloran, a computer-imaging consultant for Lockheed. Halloran and La Mar borrowed about $10,000, and invested $15,000 of their own money to build an experimental model of the Salon System. Their first buyer was a salon owner who saw them on a local cable television program. When the two incorporated New Image in 1987, they brought in Gurevitch, a former executive with Gillette and Revlon who was then the chief executive of a sportswear company.
New Image makes no computer hardware--it simply repackages computer equipment with its own software and a kind of pictorial glossary. A stylist aims a video camera at a client and the computer records the client’s face. Then the computer can replace the image of the client’s hair with one of the hairstyles loaded into its memory.
It’s a tool for marketing to the cautious--or as Encino beauty parlor owner Michael Berg calls them, “the glamour resistant.” Said Berg: “They’re afraid of change. They want to say, ‘show me.’ ”
New Image also makes systems for builders, landscape designers and weight-loss clinics. And since buying McGhan InstruMed Corp. of Carpinteria last month for about $200,000, New Image has been in the business of selling similar computer systems to cosmetic surgeons too.
The company has been helped by a flood of publicity--mostly centered around the beauty shop systems. New Image has been featured in 750 newspaper and magazine articles, and La Mar has put in 30 television appearances touting the computer device. But when La Mar appeared on “Late Night with David Letterman” in August, 1988, his usual TV game plan didn’t work. Letterman’s first comment, according to La Mar, was “ ‘You look like you manage wrestlers.’ ”
Wrestling with the company’s growth will be his next task.
