SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended April 30, 1996 Commission File No. 0-13042
INFINITE GRAPHICS INCORPORATED
(Exact name of Company as specified in its Charter)
Minnesota 41-0956693
(State of Incorporation) (I.R.S. Employer Identification No.)
4611 East Lake Street
Minneapolis, Minnesota 55406
(Address of Principal Executive Offices)
(612) 721-6283
(Company's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether Company (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 twelve months (or for such shorter period as Company was required to
file such reports) and (2) has been subject to such filing requirements for the
past ninety days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of Company
was $781,753 at June 30, 1996. The market value is based on $ 0.59375 per share,
which was the average of bid and asked prices on June 30, 1996. For this
purpose, shares held by all executive officers and directors have been excluded,
but without admitting all such persons are affiliates for other purposes.
Number of shares of common stock outstanding as of June 30, 1996, was 2,350,575.
Documents incorporated by reference: See item 14 on pages 27-29 of this report.
Total number of pages including cover: 47
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
Infinite Graphics Incorporated (hereinafter referred to as "Company")
was incorporated in Minnesota on November 26, 1969, under the name of Infinite
Graphics Incorporated. On September 5, 1984, the Company became a public company
as a result of a registered offering of common stock.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company has two distinct but related business segments. The first
segment, the Engineering Services Division, designs and produces computer
generated precision graphics, normally on a custom basis and primarily for the
electronics industry. In addition, this segment produces precision glass
products, designs printed circuit boards, and provides CAD/CAM services. The
second business segment, the CAD/CAM Software Division, designs, assembles, and
markets computer-aided design and manufacturing software systems. These design
systems primarily consist of design/manufacturing software for 32 bit
micro-computers. The Company occasionally sells third party vendors' software.
The Company normally sells software only but will integrate hardware/software
when the customers desire a turnkey solution.
The percentage and dollar amount of the Company's sales of its
Engineering Services Division and CAD/CAM Software Division for the years ended
April 30, 1996, 1995, and 1994, are as follows:
<TABLE>
<CAPTION>
Sales for Yr. Ended Sales for Yr. Ended Sales for Yr. Ended
April 30, 1996 April 30, 1995 ARPIL 30, 1994
-------------- -------------- --------------
Product % Amount % Amount % Amount
----- ---------- ----- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
SERVICES
DIVISION 63.0% $3,204,247 61.3% $2,548,288 60.0% $3,088,929
SOFTWARE
DIVISION 37.0% 1,882,806 38.7% 1,608,032 40.0% 2,058,420
----- ---------- ----- ---------- ----- ----------
TOTAL 100.0% $5,087,053 100.0% $4,156,320 100.0% $5,147,349
===== ========== ===== ========== ===== ==========
</TABLE>
Reference is made to Note 11 of the Financial Statements for revenues,
operating profits and identifiable assets attributable to the Company's two
business segments.
(c) BUSINESS.
ENGINEERING SERVICES DIVISION
GENERAL. The Company was organized in 1969 to provide reprographic
services to architects and engineers. In 1973, the Company expanded its graphic
reproduction services primarily into the electronics industry. The precision
graphics produced by the Company are often of an electronic circuit that may be
used to produce a printed circuit board, but may also include precision graphics
for other products. Prior to 1975, the technique used by the Company for
producing precision graphics involved the hand drafting of a large scale model
of the graphic image using precision drafting instruments. The drafting image
was then photographically reduced to the desired size. In 1975, the Company
first began developing computer software programs for artwork generation. These
computer software programs enable the Company to more accurately and quickly
produce most of its precision graphics products. Although the hand drafting and
photographic reduction process is still occasionally used by the Company in
generating precision graphics, substantially all of the precision graphics now
generated by the Company are produced through the use of computer-aided design
(CAD) or computer-aided manufacturing (CAM) systems.
In 1980, the Company acquired substantially all of the assets and
equipment of the printed circuit board design division of Data Graph, Inc. It
was at this time that the Company commenced designing printed circuit boards as
a service for others. In March 1986, the Company acquired a MacDonald-Dettwiler
laser photoplotter which allows the Company to provide same day service to its
customers. Due to increased demands, the Company acquired additional laser
photoplotters in 1988, 1992, and 1995. One of the photoplotters has scanning
capability which also allows the Company to clean up old artwork. In 1993, the
Company wrote software for one of its photoplotters that allows the plotter to
plot various shades of gray scale and has allowed the Company to plot satellite
images and orthophotos for the mapping industry. In 1994, the Company added the
capability of plotting for the graphic arts industry. In 1995, the Company added
a 16,000 dot per inch photoplotter to its Minneapolis facility.
SERVICES. Using the customer's data or design, the Company produces a
precision graphic image, in almost all cases, by using a computer-aided design
system. The precision graphic image produced by the Company is generally
provided to the customer on film or glass. The film or glass is then used to
reproduce the precision graphic image on metal, glass, or plastic material which
has been photographically sensitized. Through chemical etching or electroplating
processes, metal, glass, or plastic materials are then manufactured for the
Company's customer into the desired product, often in a mass production process.
The precision graphic images produced are often that of an electronic circuit
and are generally used to produce thin copper circuits to be assembled into
electronic circuit boards. However, the images may also be of other items, such
as carriers or lead frames for integrated circuit chips, or may be used by the
customer to produce etched or plated parts and scales. Other precision graphic
services provided by the Company involve the production of film or glass
photographic images or the production of precision graphics on paper or on a
magnetic tape or disk. The customer may then use the tape or disk to produce its
own film or product. The Company also assembles its precision graphics with
other components to supply sub-assemblies.
The Company's glass products all involve the generation of precision
graphics by the Company, and include precision rulers and grids, and products
produced to a customer's specifications, such as reticles, and glass rings
(called encoder disks) used in the assembly of high precision machines such as
CAT scanners.
The design of printed circuit boards involves the conversion of the
customer's basic design of the circuit and its various electronic components
into an exact image of that circuit for a board of pre-established size. The
Company uses its computer-aided design systems to supply printed circuit board
artwork.
During fiscal 1989, the Company instituted a scanning service for its
customers. Scanning enables customers to convert old artwork (tape ups) and
drawings to electronic CAD databases. Scanning is an inexpensive solution for
printed circuit board manufacturing houses with tooling changes. The benefits to
the customer from scanning are increased precision artwork, repeatability,
larger yields of boards, faster turnaround, and a wider range of editing
capabilities. The Company purchased additional scanning equipment in fiscal 1990
to increase precision capabilities for its customers.
To service the Los Angeles marketplace, the Company acquired the assets
of a California precision graphics service company from bankruptcy court on
September 13, 1995. The acquisition was accounted for under the purchase method
of accounting. The Company included the results of operations of the California
precision graphics company beginning September 13, 1995 and revenues for fiscal
year 1996 were $382,000.
The Company opened a sales and production facility in Salem, New
Hampshire, on January 3, 1990. It was established to service the Boston and
Northeastern U.S. marketplace. As of May 1, 1994, the Company entered into a
letter of intent to form a joint venture. By contributing substantially all of
the assets of the Company's New Hampshire operation, the Company owns 50 percent
of the equity of the joint venture and a major New Hampshire customer owns the
other 50 percent. Since May 1, 1994, the New Hampshire operation has been
operating as a joint venture pursuant to the letter of intent and is recorded
under the equity method of accounting, therefore revenues are not included in
the financials for fiscal 1996 and 1995. During fiscal 1996, the operation
generated approximately $500,000 in revenue, compared to $544,000 in fiscal 1995
and $449,000 in fiscal 1994. As of June 30, 1996, there are four employees
operating the facility.
EQUIPMENT AND PRODUCTION. In order to produce its precision graphics,
the Company uses its own IGI software products: ProCADD (also configured as
ProFLEX and IGI 2100), CAM, EXT, ICE and PAR; equipment manufactured by
Racal-Redac and Calay, and other software and hardware systems. Using such
computer-aided design systems, the circuit or other graphics are designed by the
Company's personnel to the customer's specifications. A graphic design produced
on the computer-aided design and manufacturing (CAD/CAM) system can then be
stored electronically. This information is then used to feed a plotting device
which draws the design. The plotting device can be a pen and ink plotter, or
more often for precision graphics, a photoplotting device. The Company owns or
leases a number of photoplotting devices, two of which were manufactured by
Gerber Scientific Instruments, Inc. A photoplotting device is a highly stable
platform upon which film is placed. The motion of the light and/or platform is
controlled by information stored on the disk produced on the Company's
computer-aided manufacturing system. These photoplotters include a Gerber 4135
in which the light pen positioning is laser controlled; a Gerber 1434, which is
installed in a class 100 clean room; two MacDonald Dettwiler Fire 9000 laser
photoplotters, and three Optrotech 5008 imaging systems. The Company also owns
photographic equipment used in photo reduction, film processors, step and repeat
equipment, custom equipment, and various other photographic, measuring and
computer equipment.
CUSTOMERS. The Company's Services Division customers are generally in
the business of producing electronic products. During fiscal 1996, sales for the
Services division accounted for approximately 63 percent of the Company's total
sales.
The precision graphic and circuit board design services of the Company
are sometimes requested because of the needed precision, or because certain
phases of the process necessary to produce the required graphics are not within
the customer's capability. However, it is more often the case that some or all
phases of such production are within the customer's capability, but that the
customer has made a business decision to engage the services of the Company.
The Company provided custom precision graphics and circuit board design
services to approximately 400 customers during fiscal 1996. During fiscal 1996,
no one customer in the Services Division accounted for ten percent or more of
the Company's sales.
The Company's potential customers include virtually all of the
approximately 650 captive and merchant printed circuit board fabrication
facilities in the United States.
MARKETING. During fiscal 1996, the Company continued focusing its
marketing activity primarily on PC designer and captive and merchant printed
circuit board manufacturing. This approach continues to take advantage of the
Company's 20-plus years experience in dealing with the printed circuit board
(PCB) industry.
The distribution channels include a combination of direct Company sales
personnel and independent sales agents. These personnel are organized to address
specific segments within the general PCB market. Historically, the product
responsibility of the Company's marketing efforts at a given account has been
split. Since 1992, the Company has combined product responsibilities, first at
printed circuit board manufacturing accounts and later at larger Fortune 500 and
electronics companies.
The sales effort is supported internally by a customer follow-up
program involving in-house sales support. The purpose of the follow-up program
is to identify the impact that the Company's goods and services are having upon
the customers and also to adjust what is being offered to meet current market
needs.
In terms of product being offered, the software portion of the product
line emphasizes manufacturing process automation including panelization,
electrical test, and manufacturability analysis and enhancement.
The service side of the business continues to emphasize phototooling.
Coupled with that are two new services for graphic arts and mapping, designed to
expand the Company's markets. The Company also continues to offer design
capability for the PC and precision graphics marketplace.
BUSINESS BACKLOG. As of April 30, 1996, the Company's backlog of
Services Division orders was approximately $63,000 as compared with
approximately $113,000 at April 30, 1995. All of the Company's April 30, 1996,
backlog is expected to be filled within the current fiscal year. No material
portion of the Company's services business is seasonal.
CAD/CAM SOFTWARE DIVISION
GENERAL. In 1975, the Company began development of computer-aided
design equipment that enables faster and more accurate design of precision
graphics. In 1981, utilizing experience gained through designing its own CAD/CAM
software for its service operations, the Company began development of a desktop
CAD/CAM system to meet growing industry demand. In 1984, the IGI Desktop 2100
CAD/CAM system was introduced to the marketplace.
Additionally, during fiscal 1988, the Company licensed its ECAM
software on an exclusive basis to a Fortune 100 company. The Company maintained
the right to market the software to specified customers and maintained its then
existing installed base. Subsequently, because certain sales objectives were not
attained by the licensee, in 1990 the Company, re-acquired the right to compete
in selling the software covered by this license agreement to the precision
graphics marketplace.
The Company has continued to enhance products to address the tooling
and inspection issues facing printed circuit board fabricators and designers of
flexible and hybrid circuits.
During 1995, the Company continued its focus into the precision
graphics marketplace, increasing its service potential and developing a new
product, ICE, for the analysis and cleanup of digital data from the design and
manufacturing of printed circuit boards.
The Company markets five software products: CAM, EXT, PAR, ICE, and
ProCADD (also configured as ProFLEX and IGI 2100).
CAM A general product for making tooling for the PWB fabricator.
EXT Generates electrical net list for graphics and has the
capability to compare it to other net lists. It also has full
support of netlist for bare board electrical test.
PAR "Producibility Analysis Report" analyzes and presents to the
user design and manufacturing plans as well as possible design
modifications to increase yields and reduce costs.
ICE "Interactive Conflict Editor" is used to automatically fix the
problems found by PAR.
ProCADD IGI's basic CAD package. It is sold stand alone for general 2D
applications, but is primarily packaged with special software
modules for flex circuit design and chemical milling.
MANUFACTURING. The Company's manufacturing activities related to its
computer-aided design systems consist primarily of developing and enhancing
software, modifying and assembling the various modules of its software system,
and testing of the systems. These manufacturing activities are conducted at the
Company's facilities in Minneapolis.
CUSTOMERS. The Company's Software Division customers are generally in
the business of designing and manufacturing products for the electronics
industry. The Company's customers also generally use CAD/CAM products and are
knowledgeable of what the Company's CAD/CAM products provide. During fiscal
1996, sales for the Software Division accounted for approximately 37 percent of
the Company's total sales. The Company's Software Division sold products and
services to approximately 90 customers during fiscal 1996. No one customer
accounted for ten percent or more of total Company sales during fiscal 1996.
MARKETING AND DISTRIBUTION. The Company has four people involved with
the sales of Software Division products as of June 30, 1996. During fiscal 1996,
approximately 70 percent of sales of software division products were made by
direct sales personnel, and it is anticipated that direct sales personnel,
rather than independent representatives or dealers, will continue to be the
primary distribution channel for North America. Distributors and dealers are the
primary channel for Asia and Europe.
Product sales promotion activity in fiscal 1996 involved the use of
trade shows, direct contact and direct mail, along with press releases to
generate leads for sales follow up.
During fiscal 1996, the Company has continued to concentrate its
marketing and product development activities on supporting the printed circuit
fabrication segment of the electronics industry. Its efforts deal with three
types of applications: flex design, printed wiring board manufacturing, and
electrical test.
BUSINESS BACKLOG. As of April 30, 1996, the Company's backlog of
Software Division orders was approximately $ 0. The Company had a backlog of
orders of approximately $35,000 for its computer-aided design systems as of
April 30, 1995. No material portion of the Company's software business is
seasonal.
SOURCES OF SUPPLY
SERVICES. The Company believes nearly all of the supplies and equipment
used in its precision graphics business are readily available from a number of
sources, except for the following items. During fiscal 1996, the Company
continued to receive single source photo sensitive glass from Eastman Kodak. If
Kodak ceases to provide the Company with such glass, the Company would have
extreme difficulty in finding an alternative source or substitute material. In
addition, the Company continues to rely upon Gerber Scientific Instruments,
Inc., Cymbolic Sciences and Orbotech, Inc. to provide spare parts to repair the
photoplotting instruments purchased from them and used by the Company. The
Company also relies on limited vendors for its iron oxide and chrome glass
blanks. Loss of any source of such supply could adversely affect the Company's
business.
SOFTWARE. The Company believes nearly all of the supplies and equipment
used in its Software business are available from a number of sources. If the
Company is required to change vendors, the Company may have difficulty obtaining
parts as needed because of high industry demand. The Company will become more
dependent on its suppliers as it integrates photoplotters and other hardware
into its software systems business.
COMPETITION
SERVICES DIVISION. The precision graphics services which the Company
offers through its Services Division is composed of three main product areas.
The first is photoplotting and its associated processes. The second is design
and the third is large area fine line tooling and glass products.
In the photoplotting area, there are approximately 100 companies in the
U.S. which offer the same general services. The major differences between the
Company and the competitors are based on the automation, personnel, and actual
type of photoplotting equipment that is employed and the quality of service
offered to their customers.
Based on these differences, the Company can enjoy certain competitive
advantages; however, it is possible for many of the competitors to acquire the
same quality personnel and equipment to improve their service and for the
Company's competitive advantage in photoplotting to be eliminated.
The design services portion of the precision graphics business faces a
minimum of 300 competitors nationally, ranging from very small garage-type
operations to those that are several times the Company's size. Many of these
companies have greater financial resources than the Company.
The large area fine line tooling and glass products portion of the
business has limited competition; however, some of this competition has
substantially greater financial resources than the Company.
The Company must work very hard to maintain levels of service and
quality which permit it to differentiate itself from the competitors.
SOFTWARE DIVISION. The Company's software products face strong
competition in the marketplace, involving those applications at the printed
circuit board manufacturers known as Computer Aided Manufacturing (CAM) from
approximately ten companies.
Competitors include Tibor Darvais, Optrotech, Barco, Valor and CSI Inc.
All of those companies currently have financial, technical, and marketing
resources which are equal or greater than those of the Company.
In addition to the existing competitors, the nature of the business is
such that any number of smaller companies could enter the marketplace and
further dilute the availability of business. The principal method of competition
is based on technical capability.
RESEARCH AND DEVELOPMENT
The Company spent approximately $338,000 on research and development
activities during fiscal 1996, as opposed to $269,000 in fiscal 1995 and
$165,000 in fiscal 1994.
In 1985, the Company primarily completed its research and development
regarding its CAD/CAM software. Since this date, the Company has focused its
activity on enhancing the capabilities and features of its CAD/CAM software in
an effort to improve the marketability and life of the product. The Company
continues to investigate the possibility of acquiring developed products to
complement its current products or to enter into license agreements to market
its developed products.
During 1996, the Company enhanced its existing products, especially its
new ICE product. During fiscal 1997, the Company plans to continue to develop
enhancements to its existing products, which will maintain the Company's
technical leadership on printed circuit board manufacturing applications.
ENVIRONMENTAL COMPLIANCE
The Company believes it is in compliance with all federal, state and
local requirements with regard to air and waste water emissions and has no plans
to make significant capital expenditures for environmental control facilities.
EMPLOYMENT
The Company had 47 full-time and 12 part-time employees as of June 30,
1996. There are also four full-time individuals employed by the New Hampshire
joint venture operation. The number of employees is expected to vary during
fiscal 1997 depending upon the Company's efforts to automate and expand. None of
the Company's employees are covered by a collective bargaining agreement, and
the Company believes its relations with employees are good.
ITEM 2. PROPERTIES.
(a) REAL PROPERTY.
The business of the Company was conducted at the five following
locations during fiscal 1996. The Company sold its Plymouth facility in December
1990 and is leasing back approximately 3000 square feet for its micro production
(clean room facility) and some storage.
The Company substantially utilizes the following facilities and
believes they are suitable for its needs.
Approx.
Square
Location Purpose Footage Terms
- -------- ------- ------- -----
4611 East Lake St. Service operations 9,200 (1)
Minneapolis, MN
4621 East Lake St. Systems operations 5,000 (2)
Minneapolis, MN and administration
12855 Highway 55 Service Operations 3,000 (3)
Mpls. Ind. Park
Plymouth, MN
8 Industrial Way Service Operations 2,500 (4)
Salem, NH and Systems sales
17332 Von Karman Service Operations
Irvine, CA and sales 3,400 (5)
(1) Mortgage between the Company and Republic Acceptance Corporation for
the 4611 E. Lake St. facility. The mortgage is effective as of January
20, 1995. The Company makes monthly principal payments of $4,000 per
month plus interest at fourteen percent per annum. The note requires a
balloon payment of $100,000 at the maturity date of January 20, 1998.
(2) Lease between the Company and Infinite Properties, a partnership of the
Company's Chairman of the Board, Clifford F. Stritch, Jr., and Daniel
R. Shultz, dated October 31, 1983. The original term of the lease
expired on October 31, 1988. The Company exercised its option to renew
the lease for an additional five year period. The lease was
subsequently amended to extend first to April 30, 1995, then to April
30, 1996 and now to April 30, 1997. The rent is $2,750 per month.
(3) Lease between the Company and Anchor Paper is for space for the
Company's clean room housing the Gerber 1434 photoplotter. The rent is
$1,910 per month plus $500 for utilities. The current lease terminates
December 31, 1996, but is cancelable any time with a ninety-day notice
from the Company. The Company is presently looking at various options.
(4) Lease between the Company and Harold J. Brooks, a real estate developer
who owns the property in which the Company's New Hampshire joint
venture is located. The lease was extended two years on January 31,
1995. The basic rent is $15,000 and $15,625 for the first and last
year, respectively. The Company also pays real-estate taxes, utilities
and common-area maintenance fees under the terms of this lease.
(5) Lease between the Company and Superior Investment Company, L.P., a
California limited partnership, for the 17332 Von Karman facility. The
commencement date of the lease is September 1, 1995, for a term of 36
months expiring on August 31, 1998. The rent for the first year is
$32,400 or $2,700 per month. The rent for the second year is $33,696 or
$2,808 per month. The rent for the third year is $34,824 or $2,902 per
month.
The Company believes all of the above properties have unique
characteristics and significant improvements specific to the Company's business
and are of diminished value to a general commercial tenant. Identification and
development of comparable locations would require a significant investment on
the part of the Company.
ITEM 3. LEGAL PROCEEDINGS.
The Company is currently involved in two legal actions. One relates to
a non-compete clause in a former sales executive's employment agreement and the
other relates to a dispute with regard to payment for services alleged rendered
to the Company. The Company believes that the outcome of these lawsuits will not
have a material adverse effect on its financial condition.
There are no other material legal proceedings pending to which the
Company is currently a party or to which the property of the Company is the
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal 1996.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
(a) The Company's Common Stock is quoted in the over-the-counter
market. The following table sets forth the range of high- and low-bid quotations
for each quarter from May 1994 through April 1996.
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
-------------------------- --------------------
High Low High Low
------- ------- ------- -----
<S> <C> <C> <C> <C>
May-July $ 1-1/4 $ 1/2 $ 1-3/8 $ 7/8
August-October $ 1 $ 5/8 $ 1-1/16 $ 7/8
November-January $ 3/4 $ 1/2 $ 13/16 $ 11/16
February-April $ 3/4 $ 1/2 $1-1/4 $ 13/16
</TABLE>
Quotations are from the over-the-counter market and reflect
inter-dealer prices without retail markups, markdowns, or commissions and may
not represent actual transactions.
(b) As of June 30, 1996, the Company had approximately 450 holders of
its Common Stock (no par value).
(c) The Company has paid no dividends to date and does not anticipate
the payment of dividends in the immediate future, retaining cash to fund future
growth. The Company's credit agreement prohibits the payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended April 30
-------------------
1996 1995 1994 1993 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $5,087,053 $4,156,320 $5,147,349 $4,135,989 $4,747,865
Income (Loss)
before Extra-
ordinary Items $143,565 ($384,430) $437,533 ($375,376) ($101,753)
Net Income (Loss) $143,565 ($384,430) $586,628 $481,299 $340,178
Net Income (Loss)
per Common and
Common Equivalent
Share $ .05 ($ .17) $.21 $ .21 $ .15
</TABLE>
Net earnings for year ended April 30, 1994, include approximately
$149,000 in extraordinary items from the forgiveness of debt, net of income tax
effect. (See Financial Statement footnotes 7 and 9.)
Net earnings for year ended April 30, 1993, include $150,000 in
write-down of assets and approximately $857,000 in extraordinary items from the
forgiveness of debt and benefit of net operating loss carryforwards.
Net earnings for year ended April 30, 1992, include $96,000 write-down
of capitalized assets, $158,000 write-down of assets held for sale, and
approximately $442,000 for extraordinary items from the forgiveness of debt and
benefit of net operating loss carryforwards.
<TABLE>
<CAPTION>
April 30
--------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $2,932,565 $2,956,911 $2,639,830 $2,304,126 $2,612,395
Long Term
Obligations 196,164 280,364 140,154 365,888 363,179
Stockholders'
Equity 1,138,607 995,042 1,369,472 695,553 172,254
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SECURITIES LITIGATION REFORM ACT. Except for the historical information
contained herein, the matters discussed in this annual report are
forward-looking statements which involve risks and uncertainties, including but
not limited to economic, competitive, governmental and technological factors
affecting the Company's operations, markets, products, services and prices, and
other factors discussed in the Company's filings with the Securities and
Exchange Commission.
The financial statements have been prepared on a going-concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in Infinite Graphics Incorporated's
(the Company) balance sheet as of April 30, 1996, the Company's current
liabilities exceeded its current assets by $490,045 and, during fiscal 1996,
certain vendors were not paid in accordance with their credit terms.
During fiscal 1997, the Company has plans to increase sales
approximately the same as that achieved in fiscal 1996. If these sales are not
achieved and additional debt and/or equity financing is not obtained, the
Company will not be able to implement its growth plans and could be required to
reduce software development activity.
Net sales were $5,087,000 in fiscal year 1996, versus $4,156,000 in
1995 and $5,147,000 in 1994. Operating profits (before general, selling, and
administrative and interest expenses) were $1,778,000 in fiscal 1996, versus
$1,360,000 in fiscal 1995 and $2,236,000 in fiscal 1994. Net income was $144,000
in fiscal year 1996, versus a net loss of $384,000 in fiscal 1995 and net income
of $587,000 in fiscal 1994.
In fiscal 1996, the Company concentrated on providing services and
software for the precision graphics marketplace, primarily for the manufacture
of electronic products. The Company focused its software marketing and sales
efforts on the CAM line, particularly the successful PAR module and its
companion module, ICE, introduced in the spring of 1995.
RESULTS OF OPERATIONS. The Company has two business segments:
Engineering Services Division ("Services") and System Software Division
("Software"). The results of these two segments are discussed in the following
discussion and analysis:
<TABLE>
<CAPTION>
NET SALES BY DIVISION
1996 1995 1994
------------------------ ------------------------ ------------------------
$ Percent $ Percent $ Percent
Division Thousands of Total Thousands of Total Thousands of Total
<S> <C> <C> <C> <C> <C> <C>
Services $3,204 63% $2,548 61% $3,089 60%
Software 1,883 37% 1,608 39% 2,058 40%
====== ====== ====== ====== ====== ======
Total Sales $5,087 100% $4,156 100% $5,147 100%
</TABLE>
The Company's Engineering Services Division provides precision graphics
products primarily to the electronics industry. Sales for fiscal 1996 were $
3,204,000, an increase of $656,000 over fiscal 1995, or 26 percent. As a result
of the increase in sales, the Engineering Services Division had an operating
profit of $869,000 in fiscal 1996 versus $608,000 in the prior year. The margins
for the Company increased primarily due to increased revenue. The majority of
the Company's increase in service sales in fiscal 1996 can be attributed to
increased micro products sales and to the acquisition of the California
precision graphics service company, which contributed $382,000 of sales.
Engineering services revenues in fiscal 1995 of $2,548,000 were 17.5 percent
lower than revenues of $3,089,000 in 1994, because of the change in the
Company's method of recording sales from the Company's New Hampshire operations
resulting from the joint venture. Engineering services represented 63 percent of
total revenues in fiscal 1996, up from 61 percent in 1995 and from 60 percent in
1994.
The Company entered into a letter of intent on May 1, 1994 with a major
customer in New Hampshire pursuant to which that customer acquired a 50-percent
ownership of the Company's New Hampshire operation. Management believes that the
operation will benefit from closer hands-on management, which will increase
sales and profitability in the long run. The Company also believes this is a
sound business philosophy to expand its business into other regions. During
fiscal 1995, the New Hampshire operations were recorded using the equity method.
Prior to May 1, 1994, the New Hampshire operations were included in the
operations of the Company. The New Hampshire operation had sales of $500,000 in
fiscal 1996, $544,000 in fiscal 1995, and $449,000 in fiscal 1994.
The Company acquired the assets of Infinite Technologies of Irvine,
California from bankruptcy court on September 13, 1995. Infinite Technologies
has been a leader in photoplotting technologies in the Los Angeles area for the
past seven years. Management believes the addition of the Company's software
technology and state of the art plotting equipment to Infinite Technologies'
leadership will offer a higher level of service and unique capabilities to our
new customers. The acquisition is another step in the Company's strategic plan
to systematically address the world-wide industry demand for precision graphics
software and services.
System Software Division sales were $ 1,883,000 in 1996, an increase of
$275,000 or 17 percent over fiscal 1995. Software had an operating profit in
1996 of $909,000 versus $752,000 in 1995. The increase in software sales was the
result of the Company's newly assembled sales force.
The Software Division continues to focus on phototooling software and
services, having eliminated its mechanical software and hardware systems for
this market. The Company has enhanced its software with advanced capabilities
for the printed circuit market segment and has concentrated its efforts on
marketing and customer development in this segment. Software sales of $1,608,000
in fiscal 1995 were down 22 percent from revenues of $2,058,000 in the prior
year. In fiscal 1996, software sales were 37 percent of total revenues versus 39
percent in 1995 and 40 percent in 1994.
<TABLE>
<CAPTION>
OPERATING PROFIT BY DIVISION
1996 1995 1994
------------------------- ------------------------ --------------------------
Percent of Percent of Percent of
$ Operating $ Operating $ Operating
Thousands Profit Thousands Profit Thousands Profit
<S> <C> <C> <C> <C> <C> <C>
Services 869 49 608 45 1,032 46
Software 909 51 752 55 1,204 54
Total Operating
Profit Before
Unallocable
Expenses 1,778 100 1,360 100 2,236 100
Selling, General
& Administrative,
and Interest
Expenses (1654) (1,803) (1,787)
Net
Income (Loss) 144 (384) 587
</TABLE>
The Company's overall gross margin in fiscal 1996 was 42 percent,
compared to 41 percent in fiscal 1995 and 47 percent in fiscal 1994. The
$2,138,000 gross profit for fiscal 1996 compared to $1,710,000 for fiscal 1995
and $2,402,000 for fiscal 1994.
The Company's total selling, general and administrative (S, G&A)
expenses decreased by $224,000 in fiscal 1996 due to decreases in sales
personnel, commissions and related expenses, bad debt expense, and professional
fees. Total S, G&A expenses as a percentage of sales were 32 percent for fiscal
1996, down from 44 percent for fiscal 1995 and 34 percent for fiscal 1994. As
revenues increased, S, G&A as a percentage of revenues have decreased due to the
change in sales and marketing strategy.
The Company's research and development costs were $338,000 in fiscal
1996, up from $269,000 in fiscal 1995, reflecting enhancement and repackaging of
technology into new products. Fiscal 1995 research and development costs
increased to $269,000 from $165,000 in fiscal 1994, as the new product line
moved from development into production stage. In all three years, the Company's
research and development expenses were between three and seven percent of sales.
The Company's capitalized software development costs decreased $35,000 ($573,000
of additions net of amortization of $608,000) in fiscal 1996, increased $242,000
($795,000 of additions net of amortization of $553,000) in fiscal 1995, and
increased $17,000 ($529,000 of additions net of amortization of $512,000) in
fiscal 1994.
The Company's interest expense was $117,000 in fiscal 1996, $83,000 in
fiscal 1995, and $60,000 in fiscal 1994. The increase in net interest expense
during fiscal 1996 and 1995 is primarily due to an increase in overall debt.
The Company's share of net income of the joint venture for the years
ended April 30, 1996 and 1995, respectively, was $21,199 and $62,388.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1997, the Company will continue to focus on services and
software for the precision graphics market place, primarily for the design and
manufacture of printed circuit boards. The Company will continue to concentrate
on customers to which it can provide both software and services, while also
expanding its breadth of services to include more high-precision graphics and
postscript plotting for the graphic and CAM industry.
The Company will focus its software marketing and sales efforts on the
CAM line, particularly the successful PAR module and its companion module, ICE,
introduced in the spring of 1995. These software application modules address the
Printed Wiring Board (PWB) manufacturing segment. The Company will also increase
its marketing of PAR software for the PWB design segment, based on the
successful reworking of this technology into a lower-cost PWB design package
during the past year. The PWB design market segment is over 30 times larger than
the manufacturing segment.
The Company will also continue its efforts to increase automation and
streamlining of operational support and overhead functions, while maintaining
high technical quality and quick service. The automation of operational
activities will be extended into such functions as accounting, management
information systems and manufacturing resource planning.
The Company's capital expenditures for equipment, automation
improvements and new opportunities in fiscal 1997 are expected to be
approximately $750,000. The Company anticipates that financing for such
expenditures will be derived from planned operations, leases and obtaining
additional debt and/or equity financing. If the Company does not achieve its
operations plan and additional financing is not obtained, it will restrict
planned business growth.
LIQUIDITY. The Company's cash flow from operations was $765,000 for
fiscal 1996. The largest component of cash flow from operations was depreciation
and amortization of $851,000. The Company's cash flow from operations was
$825,000 for fiscal 1995. The largest components of cash flow were depreciation
and amortization of $761,000 and accounts payable accruals and other accrued
expenses of $410,000, being partially offset by the net loss of $384,000. The
Company's cash flow from operations was $1,044,000 in fiscal year 1994,
consisting primarily of depreciation and amortization of $754,000 and net income
of $587,000. In fiscal 1996, the Company invested cash of $597,000 in software
and capital equipment. Additional capital equipment was financed through
accounts payable, long-term debt and capital leases. Cash provided from planned
operations, the obtaining of additional debt and/or equity financing, and
availability under the Company's line of credit are estimated to be sufficient
to support the Company's expected cash needs for fiscal 1997. While the Company
is exploring certain funding possibilities, it has no agreements to provide
additional debt or equity capital and there can be no assurance that additional
funds will be available, or if available, available on terms acceptable to the
Company. If the Company is unable to obtain additional debt and/or equity
financing, it may not be able to expand its investment into new operations, and
may also have to reduce its level of software development. As of April 30, 1996,
the current liabilities exceed current assets by $490,000.
CAPITAL RESOURCES. The Company's capital expenditure for equipment and
improvements, including capital leases and accounts payable, was $117,000 in
fiscal 1996, a decrease of $317,000 from capital expenditures of $434,000 in
fiscal 1995. The Company invested primarily in equipment and improvements
essential for present operations in fiscal 1996, but plans to increase its
investment in capital resources for future operations over the next two or three
years by obtaining additional debt or equity financing.
The Company's cash flow used in investing activities were $599,000,
$1,128,000 and $791,000 in fiscal years 1996, 1995, and 1994, respectively. In
fiscal 1996 cash used in investing activities consisted primarily of
expenditures for capitalized software of $573,000. In fiscal year 1995 it
consisted primarily of expenditures for capitalized software of $795,000 and
capital expenditures of $333,000. In fiscal year 1994 it consisted primarily of
capitalized software of $529,000 and capital expenditures of $262,000.
The Company's cash flow used in financing activities was $166,000 in
fiscal year 1996, consisting primarily of payments on long-term debt of
$148,000. The cash flow provided by financing activities was $190,000 in fiscal
year 1995 consisting primarily of the net effect of borrowings and payments
under revolving credit agreements of $135,000. The cash flow used in financing
activities was $141,000 in fiscal year 1994, consisting primarily of the net
effect of borrowing and payments under revolving credit agreements of $93,000.
OTHER ITEMS. Inflation has not had any significant impact upon the
Company's results of operation.
RECENTLY ISSUED ACCOUNTING STANDARDS. In March 1995, the Financial
Accounting Standards Board issued SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121,
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill and for certain long-lived assets
and intangibles to be disposed of. Under SFAS No. 121, entities are required to
review such assets for impairment whenever circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review of
recoverability of such assets, the entity compares the expected undiscounted
future cash flows that results from the use of the asset and its disposition and
recognizes an impairment loss if such cash flows are less than the carrying
amount of the asset. SFAS No. 121 will be adopted by the Company in fiscal 1997.
The Company has not yet determined the effect adopting SFAS No. 121 will have on
its financial position and results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123, encourages
companies to adopt a new accounting method that accounts for stock compensation
awards based on their estimated fair value at the date they are granted.
However, companies are permitted to continue following current accounting
requirements for employee stock-based transactions, which generally do not
result in an expense charge for most options if the exercise price is at least
equal to the fair market value of the stock at the date of grant. Companies that
follow existing standards would be required to disclose in a note to the
financial statements the effect on net income (loss) had the Company recognized
expense for options based on SFAS No. 123. SFAS No. 123 is effective for the
Company's fiscal year ending April 30, 1997 and would require disclosure
information in those financial statements about stock options granted in fiscal
1996 and thereafter. The Company has not yet determined if it will elect to
change to the fair value method, nor has it determined the effect SFAS No. 123
will have on net income (loss) and earnings (loss) per share should it elect to
make such change. Adoption of SFAS No. 123 will not have any effect on the
Company's cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(a) FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
Description Page
- ----------- ----
Independent Auditors' Report F-1
Balance Sheets at April 30, 1996 and 1995 F-2
Statements of Operations for the years ended
April 30, 1996, 1995, and 1994 F-3
Statements of Stockholders' Equity for the years
ended April 30, 1996, 1995, and 1994 F-4
Statements of Cash Flows for the years
ended April 30, 1996, 1995, and 1994 F-5
Notes to Financial Statements for the years
ended April 30, 1996, 1995, and 1994 F-6 thru F-16
(b) SUPPLEMENTARY DATA.
None
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Infinite Graphics Incorporated
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Infinite Graphics
Incorporated (the Company) as of April 30, 1996 and 1995 and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended April 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of April 30, 1996 and 1995
and the results of its operations and its cash flows for each of the three years
in the period ended April 30, 1996 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Minneapolis, Minnesota
August 8, 1996
<TABLE>
<CAPTION>
INFINITE GRAPHICS INCORPORATED
BALANCE SHEETS
APRIL 30, 1996 AND 1995
1996 1995
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful accounts
of $55,140 and $135,121, respectively $ 974,804 $ 793,241
Inventories (Note 3) 114,483 134,914
Prepaid expenses 13,312 12,310
Other 5,150 21,760
----------- -----------
Total current assets 1,107,749 962,225
PROPERTY, PLANT, AND EQUIPMENT, net (Note 4) 597,896 753,273
CAPITALIZED SOFTWARE COSTS, less accumulated amortization
of $5,172,848 and $4,564,514, respectively 1,070,280 1,105,305
INVESTMENT IN JOINT VENTURE (Note 5) 133,587 112,388
OTHER ASSETS 23,053 23,800
----------- -----------
$ 2,932,565 $ 2,956,991
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit agreement (Note 6) $ 264,607 $ 258,940
Trade accounts payable 341,393 384,396
Accrued salaries, wages, vacations, and employee withholdings 277,428 206,755
Other accrued expenses 347,555 402,607
Deferred revenue 174,484 239,572
Current portion of long-term debt (Note 6) 162,697 157,054
Current portion of capitalized lease obligations (Note 7) 29,630 32,261
----------- -----------
Total current liabilities 1,597,794 1,681,585
LONG-TERM DEBT, less current portion (Note 6) 182,784 241,811
CAPITALIZED LEASE OBLIGATIONS, less current portion (Note 7) 13,380 38,553
LEASE COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY (Note 8):
Common stock, no par value; authorized 10,000,000 shares,
issued and outstanding 2,350,575 shares 4,096,947 4,096,947
Accumulated deficit (2,958,340) (3,101,905)
----------- -----------
Total stockholders' equity 1,138,607 995,042
----------- -----------
$ 2,932,565 $ 2,956,991
=========== ===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1996, 1995, AND 1994
1996 1995 1994
<S> <C> <C> <C>
REVENUES (Note 11):
Net sales $ 5,087,053 $ 4,156,320 $ 5,147,349
Other income 63,175 44,317 28,182
----------- ----------- -----------
Total revenues 5,150,228 4,200,637 5,175,531
COSTS AND EXPENSES:
Cost of products sold 2,949,549 2,446,112 2,745,422
Selling, general, and administrative 1,620,978 1,845,480 1,754,978
Research and development costs 337,985 268,653 165,424
Interest 117,350 83,210 60,119
----------- ----------- -----------
Total costs and expenses 5,025,862 4,643,455 4,725,943
----------- ----------- -----------
OPERATING INCOME (LOSS) 124,366 (442,818) 449,588
EQUITY IN INCOME OF JOINT VENTURE (Note 5) 21,199 62,388
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 145,565 (380,430) 449,588
INCOME TAXES (Note 9) 2,000 4,000 12,055
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 143,565 (384,430) 437,533
EXTRAORDINARY ITEM -
Debt forgiveness, net of income tax effect
of $4,000 (Note 7) 149,095
----------- ----------- -----------
NET INCOME (LOSS) $ 143,565 $ (384,430) $ 586,628
=========== =========== ===========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE:
Income (loss) before extraordinary item $ .05 $ (.17) $ .16
Extraordinary item .05
----------- ----------- -----------
Net income (loss) $ .05 $ (.17) $ .21
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 2,710,259 2,283,945 2,744,823
=========== =========== ===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
------------------------ ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
<S> <C> <C> <C> <C>
BALANCES AT APRIL 30, 1993 2,221,686 $3,999,656 $(3,304,103) $ 695,553
Issuances of common stock for:
Cash 40,000 10,000 10,000
Services 8,889 2,500 2,500
Contributions to capital 74,791 74,791
Net income 586,628 586,628
--------- ---------- ----------- ----------
BALANCES AT APRIL 30, 1994 2,270,575 4,086,947 (2,717,475) 1,369,472
Warrants exercised 80,000 10,000 10,000
Net loss (384,430) (384,430)
--------- ---------- ----------- ----------
BALANCES AT APRIL 30, 1995 2,350,575 4,096,947 (3,101,905) 995,042
Net income 143,565 143,565
--------- ---------- ----------- ----------
BALANCES AT APRIL 30, 1996 2,350,575 $4,096,947 $(2,958,340) $1,138,607
========= ========== =========== ==========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996, 1995, AND 1994
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 143,565 $ (384,430) $ 586,628
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 850,723 760,637 754,479
Equity in income of joint venture (21,199) (62,388)
Gain on disposal of fixed assets (300)
Issuance of common stock in lieu of commissions 2,500
Extraordinary gain on forgiveness of debt, net of tax (149,095)
Changes in assets and liabilities:
Accounts receivable (171,861) 65,122 (116,419)
Inventories 20,431 (16,140) (240)
Prepaid expenses (1,002) (6,266) (1,630)
Other assets 17,357 (14,009) (14,524)
Accounts payable, accruals, and other accrued expenses (8,000) 410,120 (49,771)
Deferred revenue (65,088) 72,799 32,630
----------- ----------- -----------
Net cash provided by operating activities 764,926 825,445 1,044,258
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for capitalized software (573,308) (794,626) (529,259)
Other capital expenditures (23,562) (332,896) (262,314)
Investment in joint venture (500)
Purchase of California precision graphics service company,
net of cash acquired (26,500)
Proceeds from the sale of property, plant, and equipment 24,594 300
----------- ----------- -----------
Net cash used in investing activities (598,776) (1,128,022) (791,273)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 5,536,789 5,245,341 5,321,144
Payments under revolving credit agreement (5,531,122) (5,110,120) (5,414,255)
Proceeds from issuance of long-term debt 10,338 244,545 145,023
Payments on long-term debt (148,492) (160,042) (213,833)
Principal payments under capital lease obligations (33,663) (39,395) (63,607)
Proceeds from exercise of stock warrants 10,000
Proceeds from issuance of common stock 10,000
Contribution to capital 74,791
----------- ----------- -----------
Net cash (used in) provided by financing
activities (166,150) 190,329 (140,737)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (112,248) 112,248
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 112,248
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ -- $ -- $ 112,248
=========== =========== ===========
See notes to financial statements.
</TABLE>
INFINITE GRAPHICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996, 1995, AND 1994
1. FINANCIAL CONDITION AND MANAGEMENT'S PLAN TO
OVERCOME FINANCIAL CHALLENGES
The financial statements have been prepared on a going-concern basis,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in Infinite
Graphics Incorporated's (the Company) balance sheet as of April 30,
1996, the Company's current liabilities exceeded its current assets by
$490,045 and, during fiscal 1996, certain vendors were not paid in
accordance with their credit terms.
The Company's continuation as a going concern is dependent upon its
ability to generate cash flow sufficient to meet its obligations as they
become due or continue to extend payment terms of existing obligations;
obtain additional debt and/or equity financing; continue to fund
required software development efforts; and sustain profitability. The
Company has implemented plans to increase sales, pay vendors in
accordance with their credit terms, and obtain additional debt and/or
equity financing in the near future. Management of the Company believes
these plans will be sufficient to fund future operations. However, there
can be no assurance that the Company's business will develop as
anticipated by management or that additional financing will be
available. If management's plans are not achieved, it may not be able to
expand operations and may also have to reduce its level of software
development.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - The Company designs, assembles, integrates,
and markets computer-aided design/computer-aided manufacturing (CAD/CAM)
systems and software. The Company produces computer-generated precision
graphics on a custom basis primarily for the electronics industry and
designs printed circuit boards and produces precision glass products.
REVENUE RECOGNITION - Revenue on sales of CAD/CAM systems and precision
graphics is recognized when the products are shipped to the customer. If
the Company is subject to insignificant obligations on sales of CAD/CAM
systems, the costs of performing these insignificant obligations are
accrued at the time revenue on the sale of CAD/CAM systems is
recognized. Maintenance contract revenues are deferred and recognized as
income over the contract period.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out) or market.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are
carried at cost less accumulated depreciation and amortization.
Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of five to twenty-five years for
buildings and improvements, five years for leasehold improvements, and
three to ten years for equipment.
CAPITALIZED SOFTWARE COSTS - The Company capitalizes certain costs
incurred in developing and enhancing its software products in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86, COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED, and amortizes such
costs over the remaining economic life of the related products, which is
estimated to be three years for its internally developed products
($1,040,616 and $1,009,486, net of accumulated amortization at April 30,
1996 and 1995, respectively). Certain acquired software technology
($29,664 and $95,819, net of accumulated amortization at April 30, 1996
and 1995, respectively) is being amortized over its estimated remaining
useful life of three to five years. The Company regularly evaluates the
ability to realize capitalized software costs from product sales and
charges any unrecoverable costs to operations when determinable.
Amortization of capitalized software charged to cost of goods sold
amounted to $608,334, $556,618, and $512,149 for the years ended April
30, 1996, 1995, and 1994, respectively.
INVESTMENT IN JOINT VENTURE - The Company's investment in a joint
venture is accounted for using the equity method.
INCOME TAXES - Income taxes are deferred for all temporary differences
between the financial statement and tax basis of assets and liabilities.
Deferred taxes are recorded using the enacted tax rates scheduled by tax
law to be in effect when the temporary differences are expected to be
settled or realized. Deferred tax assets are reduced by a valuation
allowance to the extent that the assets may not be realizable.
NET INCOME (LOSS) PER SHARE - Net income (loss) per share is based upon
the weighted average common and common equivalent shares outstanding.
For the year ended April 30, 1995, common stock equivalents (stock
options and warrants) are not included since their effect was
antidilutive. For the years ended April 30, 1996 and 1994, common stock
equivalents (stock options and warrants) increased the weighted average
common and common equivalent shares outstanding by 359,684 and 407,569
shares, respectively.
STATEMENTS OF CASH FLOWS - Supplemental disclosures of cash flow
information for the years ended April 30 are as follows:
1996 1995 1994
Cash paid for interest $ 120,518 $ 91,427 $ 92,402
Cash paid for taxes 4,745 14,823 3,668
Noncash investing and financing activities are as follows:
The Company acquired the assets of a California precision graphics
service company from bankruptcy court on September 13, 1995. The fair
value of the assets acquired was $103,500. The Company paid $27,500 in
cash and financed the remaining $76,000 with a note payable. Interest on
the note is at the prime rate plus 2%. The note requires monthly
principal and interest payments of $3,533 until September 1, 1997, at
which time the entire remaining balance is due. This note is secured by
the assets acquired.
The assets acquired and consideration paid are as follows:
Cash $ 1,000
Accounts receivable 9,702
Equipment 92,798
---------
Total assets 103,500
Note issued 76,000
---------
Cash paid $ 27,500
=========
The acquisition was accounted for under the purchase method of
accounting. The Company included the results of operations of the
California precision graphics company beginning September 13, 1995.
In connection with the formation of a joint venture in fiscal 1995, the
following items were contributed by the Company for a 50% equity
interest in the joint venture:
Assets contributed:
Cash $ 500
Accounts receivable 71,855
Inventories 14,531
Property and equipment 19,831
Other 16,400
---------
123,117
Liabilities assumed by joint venture:
Accounts payable 5,593
Accrued liabilities and compensation 37,428
Payable to the Company 30,096
---------
73,117
---------
Investment in joint venture $ 50,000
=========
In fiscal 1994, 8,889 shares of common stock (market value of $2,500)
were issued in lieu of payment of sales commissions payable to an
employee of the Company.
Accounts payable includes invoices for equipment purchases of $33,305
and $52,687 at April 30, 1996 and 1995, respectively. In fiscal 1996,
the Company entered into an equipment loan to purchase $14,052 of
equipment. Capital lease obligations of $5,859, $48,773, and $38,163
were incurred when the Company entered into leases for new equipment in
fiscal 1996, 1995, and 1994, respectively.
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK - Most of the Company's
business activity is conducted with customers located within the United
States. Accounts receivable transactions are generally unsecured. A
provision for estimated doubtful accounts is provided for accounts
receivable. There are no concentrations of business transacted with a
particular customer or supplier nor concentrations of revenue from a
particular service or geographic area that could severely impact the
Company in the near future.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS - In March 1995, the Financial
Accounting Standards Board issued SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF. SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill and
for certain long-lived assets and intangibles to be disposed of. Under
SFAS No. 121, entities are required to review such assets for impairment
whenever circumstances indicate that the carrying amount of an asset may
not be recoverable. In performing the review of recoverability of such
assets, the entity compares the expected future cash flows that result
from the use of the asset and its disposition and recognizes an
impairment loss if such cash flows are less than the carrying amount of
the asset. SFAS No. 121 will be adopted by the Company in fiscal 1997.
The Company has not yet determined the effect adopting SFAS No. 121 will
have on its financial position and results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123
encourages companies to adopt a new accounting method that accounts for
stock compensation awards based on their estimated fair value at the
date they are granted. However, companies are permitted to continue
following current accounting requirements for employee stock-based
transactions, which generally do not result in an expense charge for
most options if the exercise price is at least equal to the fair market
value of the stock at the date of grant. Companies that follow existing
standards would be required to disclose in a note to the financial
statements the effect on net income (loss) and net income (loss) per
share had the Company recognized expense for options based on SFAS No.
123. SFAS No. 123 is effective for the Company's fiscal year ending
April 30, 1997 and would require disclosure information in those
financial statements about stock options granted in fiscal 1996. The
Company has not yet determined if it will elect to change to the fair
value method, nor has it determined the effect SFAS No. 123 will have on
net income (loss) and net income (loss) per share should it elect to
make such change. Adoption of SFAS No. 123 will not have any effect on
the Company's cash flows.
3. INVENTORIES
April 30
-----------------------
1996 1995
Raw materials $ 106,799 $ 130,152
Work-in-process and finished goods 7,684 4,762
--------- ---------
$ 114,483 $ 134,914
========= =========
4. PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
April 30
-----------------------------
1996 1995
<S> <C> <C>
Land $ 20,000 $ 20,000
Buildings and improvements 415,124 415,124
Leasehold improvements 248,664 248,664
Machinery and equipment 3,337,058 3,266,176
Vehicles 30,628 16,576
Furniture and fixtures 165,394 164,532
------------- ------------
4,216,868 4,131,072
Less accumulated depreciation and amortization 3,618,972 3,377,799
------------- ------------
$ 597,896 $ 753,273
============= ============
</TABLE>
The above amounts include equipment under capital leases with a cost of
$122,566 and $122,962 and accumulated amortization of $81,879 and
$47,967 at April 30, 1996 and 1995, respectively.
5. INVESTMENT IN JOINT VENTURE
Effective May 1, 1994, the Company entered into a verbal agreement to
form a joint venture in which, upon contribution of substantially all of
the net assets of the Company's New Hampshire facility (approximately
$50,000), the Company would own 50% of the equity of the new
corporation. The assets were transferred at their historical carrying
values.
Summarized financial information from the unaudited financial statements
of the joint venture, accounted for by the equity method, are as
follows:
April 30
------------------------
1996 1995
Current assets $ 92,557 $ 117,005
Noncurrent assets 246,931 160,661
Current liabilities 72,314 52,890
Stockholders' equity 267,174 224,776
The Company's share of the corporate joint venture's equity is $133,587
and $112,388 at April 30, 1996 and 1995, respectively.
Years Ended April 30
------------------------
1996 1995
Net sales $ 500,486 $ 544,011
Costs and expenses 458,088 419,235
Net income 42,398 124,776
The Company's share of net income of the joint venture for the years
ended April 30, 1996 and 1995, respectively, was $21,199 and $62,388.
During fiscal 1996, the Company provided software and services to a
customer of the joint venture with an approximate value of $125,000 for
which the amount of the reimbursement to the Company has not yet been
negotiated or reflected in unaudited financial statements of the joint
venture.
6. REVOLVING CREDIT AGREEMENTS AND NOTES PAYABLE
April 30
--------------------------
1996 1995
Revolving credit agreements $ 264,607 $ 258,940
========= =========
Notes payable:
Promissory notes $ 235,488 $ 228,000
Term loan 50,435 85,718
Equipment loans 59,558 85,147
--------- ---------
345,481 398,865
Less current maturities 162,697 157,054
--------- ---------
$ 182,784 $ 241,811
========= =========
The $264,607 and $258,940 payable under the revolving credit agreements
(the Agreements) at April 30, 1996 and 1995, respectively, is due on
demand. The amount available under the Agreements is at the lender's
discretion and is limited to 80% of engineering service receivables and
50% of software receivables. The required payments under the Agreements
are the Company's daily cash receipts. The Agreements continue in effect
until terminated by either party with at least 30 days prior written
notice. Substantially all assets of the Company are pledged as
collateral under the Agreements. The weighted average interest rate was
20.0% and 23.6% for the years ended April 30, 1996 and 1995,
respectively. Effective May 1, 1994, the terms of the Agreements were
modified to include a reduction in the monthly minimum interest charge
from $2,500 to $2,000, a waiving of the $500 monthly examination fee,
and an increase in the advance rate of software receivables from 20% to
50%. Effective January 20, 1995, the terms of the Agreements were also
modified to include a reduction in the interest rate from prime plus 10%
to prime plus 6% (14.25% at April 30, 1996), with an additional
promissory note, obtained for $240,000 at an interest rate of 14%, to be
paid back in installments of $4,000 per month plus interest, with a
final payment of $100,000 due on January 20, 1998. Effective May 16,
1996, the terms of the Agreements were also modified to change the
advance rate of engineering service and software receivables to 70%.
During fiscal 1996, in connection with the Company's purchase of assets
of a California precision graphics service company from bankruptcy
court, the Company entered into a promissory note for $76,000 which
bears interest at prime plus 2% (10.25% at April 30, 1996 and is payable
in twenty-four equal monthly payments). The note is secured by the
assets acquired. The balance outstanding at April 30, 1996 was $55,488,
of which $38,286 is classified as a current liability.
The term loan bears interest at 8%, is payable in monthly installments
of $2,500, and is collateralized by a security interest in the Company's
equipment and proceeds and products of such equipment. At April 30, 1996
and 1995, the amount payable under this note is $47,500 of principal
plus $2,935 of future interest and $77,500 of principal plus $8,218 of
future interest, of which $32,935 and $35,283, respectively, is
classified as a current liability.
During fiscal 1996 and 1994, the Company entered into various equipment
loans, each of which is collateralized by the equipment purchased.
Principal borrowings on these loans as of April 30, 1996 and 1995 total
$59,558 and $85,147, respectively, at interest rates of 6.9% to 13%. One
of these loans, with a balance of $24,994 at April 30, 1996, is due on
demand, with the remaining loans due beginning in fiscal 1997.
These agreements contain certain covenants, and the Company is
restricted from declaring or paying dividends or applying any funds,
properties, or assets to the purchase, redemption, or other retirement
of any shares of capital stock.
Principal maturities on the notes outstanding at April 30, 1996 are
payable as follows:
Years ending April 30:
1997 $ 162,697
1998 175,389
1999 7,395
---------
$ 345,481
=========
The carrying amounts of notes payable and long-term debt approximate
fair market value at April 30, 1996. Rates currently available to the
Company for debt with similar terms and remaining maturities are used to
estimate the fair value of the existing debt.
7. LEASE COMMITMENTS
The Company leases certain of its facilities and equipment under
operating leases (see Note 10). Rent expense incurred on these leases
was approximately $167,000, $174,000, and $259,000 for the years ended
April 30, 1996, 1995, and 1994, respectively.
Future minimum lease payments required under operating and capital
leases that have initial or remaining noncancelable lease terms in
excess of one year at April 30, 1996 are as follows:
CAPITAL OPERATING
Years ending April 30:
1997 $ 34,007 $ 100,860
1998 13,615 44,395
1999 345 8,706
-------- ---------
Total minimum lease payments 47,967 $ 153,961
=========
Less amounts representing interest 4,957
--------
Present value of net minimum obligations 43,010
Less current portion 29,630
--------
Long-term obligations at April 30, 1996 $ 13,380
========
On April 7, 1992, the Company reached a settlement with a lessor of
certain equipment on which the Company had a dispute over functionality
and support and, therefore, ceased making payment of its capital lease
obligation. The settlement modified the terms of the capital lease to
effectively cure the defaults and provided that the Company pay an
agreed-upon amount. Due to lack of sufficient technological upgrades on
this equipment, the Company wrote off the equipment's net book value of
$96,000 at April 30, 1992. The final payment of $11,167 was paid by the
Company in June 1993, and the remaining obligation was forgiven, which
resulted in an extraordinary gain from debt forgiveness of $149,095, net
of income tax effect of $4,000, during the year ended April 30, 1994.
8. STOCKHOLDERS' EQUITY
The Company has an Incentive Stock Option Plan for key employees and
directors. The Company has reserved 450,000 shares of common stock for
the plan. The option exercise price is to be not less than the fair
market value of the stock at the date of grant. The options are
exercisable over a period not to exceed ten years from the date of
grant. Activity under the Incentive Stock Option Plan is as follows:
<TABLE>
<CAPTION>
SHARES
EXERCISE AVAILABLE
SHARES PRICE FOR GRANT
<S> <C> <C> <C>
Balances at April 30, 1993 215,000 $0.19-1.25 235,000
Granted 180,000 (180,000)
Canceled (70,000) 70,000
Expired (55,000) 55,000
--------- ---------
Balances at April 30, 1994 270,000 0.19-0.31 180,000
Expired (80,000) 80,000
--------- ---------
Balances at April 30, 1995 and 1996 190,000 0.19-0.31 260,000
========= =========
</TABLE>
The incentive options granted are exercisable as follows: 20% after the
first year, 40% after the second year, 60% after the third year, 80%
after the fourth year, and 100% after the fifth year. At April 30, 1996,
options to purchase 172,000 shares of common stock were exercisable at a
weighted average exercise price of $0.26 per share.
In addition, the Company has reserved 165,000 shares of common stock for
issuance under a nonqualified plan. During fiscal 1994, options to
purchase 50,000 shares at $0.28 per share and expiring September 1998
were granted to a director of the Company. At April 30, 1996, 100% of
these options are exercisable. During fiscal 1996, options to purchase
50,000 shares at $0.69 per share and expiring December 2000 were granted
to a director of the Company. At April 30, 1996, 20% of these options
are currently exercisable, with the remaining 80% exercisable in 20%
increments on the anniversary dates of the grant.
In November 1992, warrants to purchase 350,000 shares of common stock at
an exercise price of $0.125 per share were issued as part of a debt
restructuring. During fiscal 1995, warrants to purchase 80,000 shares of
common stock were exercised. The remaining warrants are currently
exercisable and expire November 17, 1997.
In fiscal 1994, an officer of the Company purchased and sold stock of
the Company. The profit of $74,791 earned on this transaction was paid
to the Company and was recorded as a contribution to capital.
9. INCOME TAXES
Income tax expense for the year ended April 30, 1996 has been partially
offset by a reduction in the valuation allowances for deferred taxes.
Income tax expense for the year ended April 30, 1996 relates to minimum
taxes due to various states the Company operates in. The income tax
benefit for fiscal 1995 has been offset by a valuation allowance because
the Company's net operating loss could not be carried back and future
realization of the net operating loss carryforward was uncertain. Income
tax expense for the year ended April 30, 1994, which has been reduced as
the result of the utilization of income tax net operating loss
carryforwards which were previously offset by a valuation allowance, was
allocated $12,055 to income from continuing operations and $4,000 to the
extraordinary item - debt forgiveness.
For the years ended April 30, the provisions for income taxes differ
from the expected income tax based on income (loss) before extraordinary
item at the federal statutory tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal tax at statutory rate $ 51,000 $ (133,000) $ 157,356
State taxes, net of federal benefit 2,000 2,000 6,923
Change in estimated future tax rates 86,000
Change in valuation allowances (91,000) 57,000 (157,356)
State net operating loss carryforward (10,000)
Alternative minimum taxes 3,146
Other 40,000 2,000 1,986
--------- ---------- ----------
$ 2,000 $ 4,000 $ 12,055
========= ========== ==========
</TABLE>
Deferred tax assets and liabilities represent the tax impact of
temporary differences between the basis of assets and liabilities for
financial reporting purposes and income tax purposes.
Deferred taxes as of April 30 consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts and other accruals $ 86,000 $ 128,000
Less valuation allowance (86,000) (128,000)
----------- ------------
Net current deferred tax assets $ - $ -
=========== ============
Long-term deferred tax (liabilities) assets:
Software development costs $ (395,000) $ (383,000)
Excess of tax over book depreciation (494,000) (322,000)
Tax net operating loss carryforward 1,481,000 1,346,000
General business credit 359,000 359,000
Less valuation allowance (951,000) (1,000,000)
----------- ------------
Net long-term deferred tax assets (liabilities) $ - $ -
=========== ============
</TABLE>
The Company has recorded valuation allowances to reduce the recorded net
deferred tax assets to zero after considering evidence regarding future
realization of the deferred amounts.
The Company has income tax net operating loss carryforwards of
approximately $3,900,000 for federal and $2,100,000 for state as of
April 30, 1996. If not used, these carryforwards will begin to expire in
2000 for federal and 2003 for state. The Company also has federal
general business credits of approximately $359,000 which will begin to
expire in 2003.
10. RELATED-PARTY TRANSACTIONS
The Company leases one of its facilities from a partnership which is 50%
owned by the chairman of the board of the Company. Monthly rentals under
this lease are $2,750. The lease contains a renewal option for an
additional five-year period. Rent expense incurred on this lease was
$33,000 for years ended April 30, 1996, 1995, and 1994, respectively.
The Company leases production equipment from a partnership of which the
chairman of the board is a partner. Rent expense incurred on this lease
was $38,340 for the years ended April 30, 1996, 1995, and 1994.
At April 30, 1996 and 1995, respectively, other accrued expenses include
$173,378 and $100,244 due to the joint venture in which the Company has
an equity interest of 50%.
11. SEGMENT INFORMATION
The Company has two business segments: designing and producing precision
graphics products (Engineering Services Division) and designing,
assembling, and marketing CAD/CAM systems (Systems Software Division).
Summarized financial information by business segment as of and for the
years ended April 30 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Engineering services $ 3,204,247 $ 2,548,288 $ 3,088,929
Systems software 1,882,806 1,608,032 2,058,420
Other income 63,175 44,317 28,182
----------- ----------- -----------
$ 5,150,228 $ 4,200,637 $ 5,175,531
=========== =========== ===========
Operating income (loss):
Engineering services $ 869,205 $ 608,045 $ 1,032,372
Systems software 909,124 752,484 1,204,131
General corporate expenses (including
unallocable selling expenses) (1,536,616) (1,724,004) (1,727,189)
Interest expense (117,347) (79,343) (59,726)
----------- ----------- -----------
$ 124,366 $ (442,818) $ 449,588
=========== =========== ===========
Identifiable assets:
Engineering services $ 1,185,282 $ 1,178,913 $ 911,804
Systems software 1,482,418 1,575,338 1,398,875
General corporate 264,865 202,740 329,151
----------- ----------- -----------
$ 2,932,565 $ 2,956,991 $ 2,639,830
=========== =========== ===========
Capital expenditures:
Engineering services $ 100,014 $ 347,953 $ 185,981
Systems software 13,339 53,231 52,561
General corporate 3,536 33,172 61,935
----------- ----------- -----------
$ 116,889 $ 434,356 $ 300,477
=========== =========== ===========
Depreciation and amortization:
Engineering services $ 150,642 $ 55,356 $ 107,498
Systems software 664,956 647,118 554,944
General corporate 35,125 58,163 92,037
----------- ----------- -----------
$ 850,723 $ 760,637 $ 754,479
=========== =========== ===========
</TABLE>
12. DEFERRED SAVINGS AND BONUS PLANS
The Company has a defined contribution savings plan for employees who
have completed 1 year of service (amended effective April 30, 1993 to 30
days of service) and attained the age of 21 and a discretionary cash
bonus plan. The defined contribution savings plan allows for employee
compensation deferral contributions under Section 401(k) of the Internal
Revenue Code and discretionary contributions by the Company. During the
year ended April 30, 1994, the Company accrued a discretionary
contribution of approximately $22,000, while no such discretionary
contributions were made during fiscal 1996 or 1995. The Company accrued
approximately $50,000, $0, and $76,000 for the years ended April 30,
1996, 1995, and 1994, respectively, relating to the discretionary cash
bonus plan.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with the Company's
accountants on any accounting or financial disclosure matters.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
(a) THE DIRECTORS OF THE COMPANY. The Bylaws of the Company provide
that the Board of Directors shall consist of one or more members. Currently, the
Board of Directors of the Company consists of three persons, each of whose term
expires at the 1996 annual meeting.
The Bylaws of the Company provide that the number of members of the
Board of Directors to be elected at any meeting of the shareholders shall be
determined from time to time by the Board of Directors. If the Board of
Directors does not expressly fix the number of directors to be so elected, then
the number of directors shall be the number of directors elected at the
preceding regular meeting of the shareholders. The Board of Directors has fixed
the number of directors to be elected at the 1996 annual meeting at three
directors, but has not named nominees for the vacancies that will occur. The
current directors of the Company are:
<TABLE>
<CAPTION>
Current Position Principal Occupations Director
Name of Director Age With the Company During Past 5 Years Since
- ---------------- --- ---------------- ------------------- -----
<S> <C> <C> <C> <C>
Clifford F. Stritch, Jr. 49 Chairman of the Chairman of the Board, Aug
Board, CEO CEO of the Company. 1970
Edwin F. Snyder 53 Director Since March 1995, Vice- Sept
Director President of Sales and 1990
Marketing with Johnstech
International. From Feb-
ruary 1992 through March
1995, Vice-President of
Marketing with Visu-Com
of Baltimore, MD. Vice-
President of the Company
from 1990 through
February, 1992.
James D. Bonneville 56 Director Since July 1993, President August
and COO of Connect, a 1995
Norstan Company. January
1992 through April 1993,
CEO and President with
United Recycling Inc. May
1991 through December 1991,
independent consultant
</TABLE>
(b) THE EXECUTIVE OFFICERS OF THE COMPANY. Each of the Executive
Officers is elected annually by the Board of Directors and holds the office at
the will of the Board of Directors. The current executive officers of the
Company are:
<TABLE>
<CAPTION>
Principal Occupations
Name Age Position with the Company During Past 5 Years
- ---- ----------------------------- -------------------
<S> <C> <C> <C>
Clifford F. Stritch, Jr. 49 Chairman of the Board, Chairman of the Board since
Chief Executive Officer, 1982, Chief Executive
Director, Chief Financial Officer since 1984,
Officer Director since 1970,
Chief Financial Officer
since November 1995.
David R. Roesler 34 Vice-President/Engineering From September 1989
to July 1995 Director
of Engineering of IGI.
Since July 1993 Vice-President
of Engineering.
</TABLE>
(c) COMPLIANCE WITH SECTION 16 (a) OF THE SECURITIES EXCHANGE ACT OF
1934. Section 16 (a) of the Securities Exchange Act of 1934 requires the
Company's directors, officers, and persons who own more than ten percent of a
registered class of the Company's equity securities to file with the Security
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended April 30, 1996, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth certain information regarding
compensation paid to or accrued for the chief executive officer during the
fiscal years indicated. No other executive officer had compensation in excess of
$100,000 during any of the fiscal years for which information is provided.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Other
Principal Annual
Position Year Salary Bonus Compensation
- -------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Clifford F. Stritch, Jr. 1996 $130,000 0 $4,546 (1)
CEO
1995 $130,000 0 $4,765 (1)
1994 $130,000 $30,000 $3,547 (1)
</TABLE>
1 Includes insurance and car allowance
OPTIONS GRANTED DURING FISCAL 1996
No options were granted to Mr. Stritch during the Company's 1996 fiscal
year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR,
AND FY-END OPTION/SAR VALUE
The following table provides information related to options exercised by
Mr. Stritch during fiscal 1996 and the number and value of options held by him
at fiscal year-end. The Company does not have any outstanding stock appreciation
rights.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised in-the-Money
Options/SARs at Options/SARs at
Shares Fiscal Year-end Fiscal Year-end
Acquired on Value Exercisable / Exercisable/
Name Exercise (#) Realized ($) Unexercisable (#) Unexercisable ($)1
- ------------------------- ------------ ------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Clifford F. Stritch, Jr. 0 0 100,000 / 0 $19,000/ 0
</TABLE>
1 Options are "in-the-money" if the fair market value of the underlying
shares at fiscal year-end is greater than the exercise price. The
amount set forth represents the difference between the fair market
value of the Company's Common Stock on April 30, 1996 ($0.50), and the
option price multiplied by the number of shares subject to the option.
DIRECTOR COMPENSATION. Each non-employee director of the Company
receives $2,500 per quarter. On September 29, 1993, Edwin F. Snyder, a
non-employee director of the Company, was granted an option to purchase 50,000
shares of the Company's Common Stock at an exercise price of $0.28125 per share.
This option was granted at an exercise price equal to the fair market value on
the date of the grant. The option is immediately exercisable for up to fifty
percent of the shares subject to the option and becomes exercisable for up to 75
percent and up to 100 percent of the shares on the first and second anniversary
of the grant, respectively, provided that Mr. Snyder is still serving as a
director on such anniversary dates. The option expires five years and ninety
days from the date of grant.
On September 27, 1995, James D. Bonneville, a non-employee director of
the Company, was granted an option to purchase 50,000 shares of the Company's
common stock at an exercise price of $0.6875 per share. This option was granted
at an exercise price equal to the fair market value on the date of the grant.
The option is immediately exercisable for up to twenty percent of the shares
subject to the option and becomes exercisable for up to 40 percent, 60 percent,
80 percent, and 100 percent of the shares on the first, second, third and fourth
anniversary of the grant, provided that Mr. Bonneville is still serving as a
director on such anniversary dates. The option expires five years and ninety
days from the date of grant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. To the best of the
Company's knowledge, the only beneficial owners of more than 5% of the Company's
outstanding Common Stock, as of June 30, 1996, are listed below. Except as
indicated below, the Company believes that each of such persons has the sole (or
jointly with spouse) voting and investment powers with respect to such shares.
Shares Percent
Name of Beneficially of
Beneficial Owner Owned Class
---------------- ----- -----
Clifford F. Stritch, Jr. (1) (2) 1,116,050 45.5 %
4611 East Lake Street
Minneapolis, Minnesota 55406
Robert Fink (3) 350,000 13.4 %
1850 Arvin Drive
Mendota Heights, Minnesota 55118
(1) Includes 100,000 shares of Common Stock that Mr. Stritch has the right
to acquire by the exercise of currently exercisable options held by Mr.
Stritch under the Company's Stock Option Plan.
(2) An irrevocable trust of which Mr. Stritch's daughter, Kendra L.
Stritch, is the beneficiary is the owner of 27,800 common shares of the
Company. The common shares held in that trust are included in the
number of shares set forth above, although Mr. Stritch denies any
beneficial interest in those shares. An irrevocable trust of which Mr.
Stritch's son, Carter Francis Stritch, is the beneficiary is the owner
of 21,500 common shares of the Company. The common shares held in that
trust are included in the number of shares set forth above, although
Mr. Stritch denies any beneficial interest in these shares. Mr. Stritch
is not a trustee of either trust.
(3) Includes 270,000 shares of common stock that Mr. Fink has the right to
acquire by the exercise of currently exercisable warrants.
(b) SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth
the number of shares of the Company's Common Stock beneficially owned by each
director and nominee for director of the Company and by all corporate or
executive officers and directors of the Company as a group, as of June 30, 1996.
Except as indicated below, the Company believes that each of such persons has
the sole (or jointly with spouse) voting and investment powers with respect to
such shares.
Shares Percent
Name of Director Beneficially of
or Identity of Group Owned Class
-------------------- ----- -----
Clifford F. Stritch, Jr. (1) (2) 1,116,050 45.5 %
Edwin F. Snyder (3) 67,889 2.8 %
James D. Bonneville (4) 10,000 *
Directors and Executive Officers
as a Group (4 persons) (1) (2) (3) (4) (5) 1,225,939 48.2 %
* Less than one percent.
(1) See note (1) to the preceding table.
(2) See note (2) to the preceding table.
(3) Includes 50,000 shares of common stock that Mr. Snyder has the right to
acquire by exercise of stock options that are currently exercisable.
(4) Includes 10,000 shares of common stock that Mr. Bonneville has the
right to acquire by exercise of stock options that are currently
exercisable.
(5) Includes 32,000 shares of common stock that Mr. Roesler has the right
to acquire by exercise of stock options that are currently exercisable.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During fiscal 1996, the Company leased the properties at 4621 East Lake
Street from Infinite Properties, a partnership of the Company's Chairman of the
Board, Clifford F. Stritch, Jr., and Daniel R. Shultz. The lease for 4621 East
Lake Street is dated October 31, 1983, and had an original term of five years.
In 1988, the Company exercised its option to renew this lease for an additional
five year term. The lease was subsequently amended to extend for one year terms
expiring April 30, 1995, April 30, 1996, and April 30, 1997. Under the terms of
this lease, the Company pays monthly rent of $2,750. The Company intends to
negotiate a new lease on the building.
During fiscal 1996, the Company leased certain production equipment
from Precision Imaging partnership in which Clifford F. Stritch Jr. is a
partner. At April 30, 1996, Mr. Stritch held a 67 percent interest in the
partnership. The Company was unable to finance the equipment directly; therefore
leased the equipment through Precision Imaging. Under the terms of the lease,
the Company pays monthly rent of $3,195.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS.
(1) The Financial Statements of the Company, including the Report
of the Independent Auditors, are set forth at Item 8 of this
Form l0-K.
(3) The following Exhibits required by Item 601 of Regulation S-K are filed
with this report or incorporated by reference as indicated herein.
3.1 Articles of Incorporation of Infinite Graphics Incorporated, filed as
Exhibit 3.1 to the Annual Report on Form 10-K for the year ended April
30, 1989, and incorporated herein by reference.
3.2 Bylaws of Infinite Graphics Incorporated, filed as Exhibit 3.2 to the
Annual Report on Form 10-K for the year ended April 30, 1989, and
incorporated herein by reference.
4 Form of Certificate for Common Stock of Infinite Graphics Incorporated,
filed as Exhibit 4 to the Annual Report on Form 10-K for the year ended
April 30, 1989, and incorporated herein by reference.
10.1 Incentive Stock Option Plan of Infinite Graphics Incorporated, filed as
Exhibit 10.1 to the Annual Report on Form 10-K for the year ended April
30, 1993, and incorporated herein by reference.*
10.2 Lease between the Company and Infinite Properties, dated October 31,
1983, for property at 4621 East Lake Street, Minneapolis, Minnesota,
filed as Exhibit 10.2 to the Annual Report on Form 10-K for the year
ended April 30, 1989, and incorporated herein by reference.
10.3 License agreement between the Company and Calos, Inc., dated December
21, 1984, filed as Exhibit 10.5 to the Annual Report on Form 10-K for
the year ended April 30, 1989, and incorporated herein by reference.
10.4 Lease between the Company and Harold J. Brooks, dated November 15,
1989, for the property at 8 Industrial Way, Salem, New Hampshire, filed
as Exhibit 10.13 to the Annual Report on Form 10-K for the year ended
April 30, 1990, and incorporated herein by reference.
10.5 Amendment to Revolving Credit and Term Loan Agreement between the
Company and National City Bank of Minneapolis, dated as of August 31,
1990, filed as Exhibit 10.14 to the Annual Report on Form 10-K for the
year ended April 30, 1991, and incorporated herein by reference.
10.6 Amended and Restated Security Agreement between the Company and
National City Bank of Minneapolis, dated as of August 31, 1990, filed
as Exhibit 10.15 to the Annual Report on Form 10-K for the year ended
April 30, 1991, and incorporated herein by reference.
10.7 Amendment and Restatement of Promissory Note, dated August 31, 1990
(Revolving Loan), filed as Exhibit 10.16 to the Annual Report on Form
10-K for the year ended April 30, 1991, and incorporated herein by
reference.
10.8 Amendment and Restatement of Promissory Note, dated August 31, 1990
(Term Loan), filed as Exhibit 10.17 to the Annual Report on Form 10-K
for the year ended April 30, 1991, and incorporated herein by
reference.
10.9 Lease between Company and Anchor Paper, dated December 20, 1990, for
3,000 square feet of space in the Plymouth building filed as Exhibit
10.21 to the Annual Report on Form 10-K for the year ended April 30,
1991, and incorporated herein by reference.
10.10 Settlement agreement between CIT and Company dated April 7, 1992, filed
as Exhibit 10.24 to the Annual Report on Form 10-K for the year ended
April 30, 1992, and incorporated herein by reference.
10.11 National City Bank financing agreements dated November 17, 1992, filed
as Exhibit 10.25 to the Annual Report on Form 10-K for the year ended
April 30, 1993, and incorporated herein by reference.
10.12 Robert J. Fink financing agreements dated November 17, 1992, filed as
Exhibit 10.26 to the Annual Report on Form 10-K for the year ended
April 30, 1993, and incorporated herein by reference.
10.13 Republic Acceptance Corporation financing agreements dated November 17,
1992, filed as Exhibit 10.27 to the Annual Report on Form 10-K for the
year ended April 30, 1993, and incorporated herein by reference.
10.14 Amended lease between the Company and Infinite Properties dated
November 30, 1993, filed as Exhibit 10.28 to the Annual Report on Form
10-K for the year ended April 30, 1994, anincorporated herein by
reference.
10.15 Amended lease between the Company and Anchor Paper Company dated
January 1, 1994, filed as Exhibit 10.29 to the Annual Report on Form
10-K for the year ended April 30, 1994, and incorporated herein by
reference.
10.16 Extended lease between the Company and Harold J. Brooks dated January
31, 1995, filed as Exhibit 10.30 to the Annual Report on Form 10-K for
the year ended April 30, 1995, and incorporated herein by reference.
10.17 Republic Acceptance Corporation first mortgage dated January 20, 1995,
filed as Exhibit 10.31 to the Annual Report on Form 10-K for the year
ended April 30, 1995, and incorporated herein by reference.
10.32 Amended lease between the Company and Anchor Paper Company dated
January 1, 1996, filed as Exhibit 10.32 to the Annual Report on Form
10-K for the year ended April 30, 1996.**
10.33 Lease between the Company and Superior Investment Company dated
September 1, 1995, filed as Exhibit 10.33 to the Annual Report on form
10-K for the year ended April 30, 1996.***
11 Computation of per share income (loss) can be determined from the
material contained in the financial data schedule.
27 Financial data schedule.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
* Indicates management contracts or compensatory plan or arrangement
required to be filed is an exhibit to form.
** Filed herewith.
*** Previously submitted to the SEC via form SE on August 12, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: August 13, 1996 By: /s/ Clifford F. Stritch Jr.
--------------------------------
Clifford F. Stritch, Jr.
Chairman of the Board
Chief Executive Officer
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Date: August 13, 1996 By: /s/ Clifford F. Stritch Jr.
-----------------------------
Clifford F. Stritch, Jr.
Chairman of the Board
Date: August 13, 1996 By: /s/ Edwin F Snyder
--------------------
Edwin F. Snyder
Director
Date: August 13, 1996 By: /s/ James D. Bonneville
-------------------------
James D. Bonneville
Director
INDEX TO EXHIBITS
Amended lease between the Company and Anchor Paper Company
dated January 1, 1996
Amended lease between the Company and Superior Investment Company
dated September 1, 1995
Financial data schedule
EXHIBIT 10.32
SUBLEASE
THIS SUBLEASE made and entered into this 1st day of January, 1996,
between ANCHOR PAPER COMPANY, a Minnesota corporation ("Sublessor"), and
INFINITE GRAPHICS INCORPORATED, a Minnesota corporation ("Sublessee").
RECITALS:
A. A lease ("Prime Lease") dated December 20, 1990 was made and entered
into between Hamel Hartinger and Jeanne Hartinger, as Landlord and Sublessor, as
Tenant, pertaining to a one-story office/warehouse building located at 12855
Highway 55, Plymouth, Minnesota containing approximately 30,250 square feet.
B. It is the wish of the parties hereto that the Sublessor sublet to
the Sublessee and that the Sublessee take from the Sublessor a portion of the
premises leased under the Prime Lease (hereinafter referred to as the "sublet
Area") comprising approximately 3,000 square feet as cross-hatched on Exhibit A,
attached hereto and made a part hereof.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter contained, but subject to the consent thereto by Landlord,
the Sublessor does hereby sublet the Sublessee and the Sublessee does hereby
rent and take from Sublessor, the Sublet Area together with the non-exclusive
right for so long as this Sublease is in effect to the use in common of the
parking lot and the lavatory facilities, subject to the following terms and
conditions:
1. Subject to the provisions of paragraph 17 below, this Sublease shall
commence January 1, 1996 and shall continue thereafter for a term of 12 calendar
months to and including December 31, 1996.
2. As rent for the Sublet Area, Sublessee shall pay to the Sublessor
$1,910.00 per month, consisting of $1,437.50 (Base rate of $5.75 per square
foot) rent plus $472.50 (Base rent $1.89 per square foot) common area
maintenance and taxes, payable in advance on the first day of each month during
the term of this Sublease, such rent to be paid to the Sublessor at the address
set forth below. For any monthly rent payment not actually received by Sublessor
by the 5th day of the calendar month, Sublessee shall also be obligated to pay a
late charge of $50.00 per day for each day beyond the 5th day of the month.
3. In addition to the monthly rent payable pursuant to paragraph 2
above, Sublessee shall also pay to Sublessor as additional rent hereunder,
$500.00 per month in advance on the first day of each calendar month during the
term of this Sublease commencing January 1, 1996, such amount to be deemed
payment for the electricity consumed by the "clean room" to be operated by
Sublessee pursuant to the provisions of this Sublease. At the option of the
Sublessor and at its expense, Sublessor may cause the "clean room" to be
separately metered in which case Sublessee shall pay the electricity for the
"clean room" directly in lieu of the $500.00 per month payments otherwise
required pursuant to this paragraph 3. Sublessee shall also pay Sublessor as
additional rent hereunder commencing on the first day of 1996 and on the first
day of each and every calendar month thereafter during the term of this Sublease
the amount, if any, by which 1/12th of the Sublessee's prorata portion of the
real estate taxes payable for the calendar year in question for the premises of
which the Sublet Area is a part, and any installments of special assessments
payable therewith exceeds $342.43. For the purposes hereof, the Sublessee's
prorata portion shall be deemed to be 9.92%.
4. The Sublessee may use the Sublet Area for generating photo tools for
the electronics industry and for no other purposes whatsoever.
5. The Sublessee will not use the Sublet Area of permit the Sublet Area
to be used in violation of any of the terms, covenants or conditions of the
Prime Lease. Sublessee will maintain and operate the Sublet Area in compliance
with all applicable governmental rules and regulations. Sublessee will keep at
its own expense said Sublet Area and the equipment, plumbing, drains, fixtures,
appliances and machinery in, upon, serving or appurtenant to said Sublet Area,
in good repair and in good sanitary condition during the term of this Sublease.
Sublessee shall not release, threaten to release, permit or allow the release or
threatened release of pollutants and/or contaminants (including petroleum
products or by-products), or hazardous wastes or hazardous substances into the
ground water, soils or atmosphere. Sublessee shall not make any undue or
unseemly noise or otherwise and shall not do or permit to be done in and about
the Sublet Area anything which will be dangerous to life or limb. Sublessee will
make no alterations in or additions to the Sublet Area, without first obtaining
the prior written consent of the Sublessor and of the Landlord. Sublessee will
not use or permit anything upon said Sublet Area that will increase the rate of
insurance thereon above the rate being paid by Sublessee when it was the fee
owner of the premises of which the Sublet Area is a part. All of Sublessee's
employees shall be bonded and shall be subject to the same rules and regulations
that are applicable to the employees of Sublessor relative to the use of the
premises of which the Sublet Area is a part, including, without limitation,
restrictions on access, loud noises, use of lavatory facilities, lighting and
cleaning of the Sublet Area. Parking by Sublessee and its employees and invitees
shall be limited to the southwest quadrant of the parking lot. Notwithstanding
the foregoing, up to four Sublesse's employees shall have the access to the
Sublet Area on a 24-hour per day basis. Sublessee shall provide Sublessor with
the names of such employees.
6. The Sublessor will keep and perform promptly, each of the terms,
covenants and conditions of the Prime Lease except for those provisions thereof
which, under the terms of this Sublease, the Sublessee is to keep or perform.
7. Subject to the provisions of paragraph 3 above whereby Sublessee
will pay Sublessor $500.00 per month for the electricity consumed by the "clean
room", all utilities, including sewer, water, gas and electricity shall be
furnished by Sublessor at its expense.
8. Addendum to water service with regard to Section 2 of lease for
Sublessee and Sublessor, Sublessee agrees to be responsible for the water used
in their clean room and rented area. The water will be tracked by a dedicated
water meter on a dedicated waterline that is routed directly to Sublessee's
leased area.
Sublessee will be billed on a monthly basis and it is to be understood
by both Sublessor and Sublessee that these bills will be paid in a timely
manner.
A reading will be made at the beginning of each month and a bill will
be given to Sublessee. The rates will be at the current charges the city uses as
the time of the billing. The billing will include usage of water, sewage, and
any applicable taxes and/or improvements.
9. On the last day of the term or upon the sooner termination thereof,
Sublessee shall peaceably surrender the Sublet Area leaving it in the condition
which, by the terms of the Prime Lease, Sublessor is obliged to leave the same.
On or before the last day of the term or the sooner termination thereof,
Sublessee shall at its own expense remove all of its equipment and other
personal property from the Sublet Area, repairing any damage caused thereby, and
any property not removed shall be deemed abandoned. In addition, all
alterations, additions, fixtures and leasehold improvements made by Sublessee,
including the "clean room" shall be removed by Sublessee on or before the last
day of the term or the sooner termination thereof, with Sublessee repairing any
damage to the Sublet Area caused thereby.
10. Neither Sublessor nor Landlord shall be liable to Sublessee, or
those claiming through or under Sublessee, for injury, death or property damage
occurring, on or about the Sublet Area or the building of which the Sublet Area
is a part, and appurtenances thereto, and Sublessee shall indemnify Sublessor
and Landlord and hold them harmless from any claim or damage arising out of any
injury, death or property damage occurring in, on or about the Sublet Area or
said building and appurtenances to Sublessee or an employee, customer or invitee
of the Sublessee.
11. Without limiting the generality of the immediately preceding
paragraph, Sublessee shall, at its expense, maintain public liability insurance
during the term of this Sublease as required under Article 10 of the Prime Lease
in one or more companies acceptable to Sublessor and Landlord, naming Sublessor,
Landlord and Sublessee as insureds, in form and substance reasonably acceptable
to Sublessor and Landlord (such insurance to insure performance by Sublessee of
its obligations under the immediately preceding paragraph), such insurance to be
in those amounts as set forth under Article 10 of the Prime Lease. In addition,
Sublessee shall also carry and cause to be in full force and effect fire and
extended coverage insurance on the equipment and other property owned, leased to
or otherwise in possession of Sublessee. Each policy of insurance hereunder
shall contain a provision requiring thirty (30) days written notice to Sublessor
and to Landlord before cancellation of the policy.
Sublessor shall carry and cause to be in full force and effect the
insurance coverages required to be carried by it pursuant to Article 10 of the
Prime Lease, including fire and extended coverage insurance under Article 10(b).
Sublessor and Sublessee hereby release the other from any and all liability or
responsibility to the other or anyone claiming through or under them by way of
subrogation or otherwise for any loss or damage to property caused by fire or
any of the extended coverage or supplementary contract casualties, even if such
fire or other casualty shall have been caused by default or negligence of the
other party, or anyone for whom such party may be responsible, provided,
however, that this release shall be applicable and in force and effect only with
respect to loss or damage occurring during such times as the releasing party's
policy shall contain a clause or endorsement to the effect that any such release
would not adversely affect or impair said policy or prejudice the right of the
releasing party to recover thereunder. Sublessor and Sublessee agree that they
will request their insurance carriers to include in their policies such a clause
or endorsement. The parties shall provide the other with evidence of the
insurance coverages required to be carried under this paragraph 11 and shall
provide the other with at least 15 days written notice prior to any modification
of the terms of coverage.
12. The Landlord shall have no obligations whatsoever to the Sublessee
hereunder.
13. The Sublessor and Landlord, their authorized agents or attorneys,
may at any reasonable time, enter the Sublet Area to inspect, make repairs,
improvements and/or changes in the Sublet Area or other premises in the building
of which the Sublet Area is a part as the Sublessor and/or Landlord may deem
proper; and there shall be no diminution of rent or liability on the part of the
Sublessor or Landlord by reason of any reasonable inconvenience, annoyance, or
injury to business.
14. If the Sublessee defaults in the observance or performance of any
of the Sublessee's covenants, agreements or obligations hereunder wherein the
default can e cured by the expenditure of money, either the Sublessor or the
Landlord may, but without obligation and without limiting any other remedies
which they may have by reason of such default, cure the default, charge the
costs thereof to the Sublessee and the Sublessee shall pay the same forthwith
upon demand, together with interest thereon at the highest permissible rate of
interest allowed under the usury statues of the State of Minnesota or in case no
such maximum rate of interest is provided, at the rate of 12% per annum.
15. If the Sublessee shall default in the payment of any installment of
monthly or additional rent and such continues for a period of 10 days or in the
observance or performance of any of the Sublessee's covenants, agreements or
obligations hereunder and such continues for a period of 30 days after written
notice thereof by Sublessor, or if any proceeding is commenced by or against the
Sublessee for the purpose of subjecting the assets of the Sublessee to any law
relating to bankruptcy or insolvency or for an appointment of a receiver of
Sublessee or of any of Sublessee's assets, or if Sublessee makes a general
assignment of Sublessee's assets for the benefit of creditors, then, in any such
event, the Sublessor may, without process, re-enter immediately into the Sublet
Area and remove all persons and property therefrom, and at its option, nullify
and cancel this Sublease as to all future rights of the Sublessee and Sublessee
hereby expressly waives the service of any notice in writing of intention to
re-enter as aforesaid, and also all right of restoration to possession of the
Sublet Area after re-entry as aforesaid, and also all right of restoration to
possession of the Sublet Area after re-entry or after judgment for possession
thereof. Notwithstanding re-entry by Sublessor or forfeiture, termination or
cancellation of this Sublease, the liability of Sublessee for the rent and all
other sums provided for herein shall continue for a period ending as of the last
day of the first full calendar month following such re-entry or forfeiture,
termination or cancellation. Sublessee shall be responsible for, in addition to
the rentals and other sums agreed to be paid hereunder, the costs of any
necessary maintenance, repair, restoration, reletting (including related cost of
removal or modification of tenant improvements) or cure as well as reasonable
attorney's fees incurred or awarded in any suit or action instituted by
Sublessor to enforce the provisions of this Sublease, regain possession of the
Sublet Area or the collection of the rentals due Sublessor hereunder. Sublessee
agrees to pay interest at the highest permissible rate of interest allowed under
the usury statues of the State of Minnesota or in case no such maximum rate of
interest is provided, at the rate of 12% per annum on all rentals and other sums
due Sublessor hereunder not paid within 10 days from the date of the same
becomes due and payable. Each right or remedy of Sublessor provided for in the
Sublease shall be cumulative and shall be in addition to every other right or
remedy provided for in this Sublease now or hereafter existing at law or in
equity or by statute or otherwise.
16. The Sublessee shall not have the right to assign this Sublease or
sublet all or any part of the Sublet Area without the prior written consent of
the Sublessor and of the Landlord.
Landlord's right to assign the Prime Lease and Sublessor's right to
assign this Sublease are and shall remain unqualified provided Sublessee's right
to quiet possession of the Sublet Area shall not be disturbed if Sublessee is
not in default under this Sublease and so long as Sublessee shall pay the rent
and observe and perform all of the provisions of this Sublease, unless this
Sublease is otherwise terminated pursuant to its terms.
17. At any time Sublessee may terminate this Sublease by giving at
least ninety (90) days prior written notice to Sublessor to correspond with the
calendar month end. At any time the Sublessor may terminate this Sublease by
giving at least ninety (90) days prior written notice to Sublessee to correspond
with the calendar month end.
18. It is mutually agreed that this Sublease shall be subordinate to
any and all mortgages, including any renewals, modification, consolidations,
replacements and extensions thereof now or hereafter imposed on the premises of
which the Sublet Area is a part by Landlord. Sublessee's right to quiet
possession of the Sublet Area shall not be disturbed if Sublessee is not in
default and so long as Sublessee shall pay the rent and observe and perform all
of the provisions of this Sublease, unless this Sublease is otherwise terminated
pursuant to its terms. In confirmation of such subordination, Sublessee, upon
request shall promptly execute and deliver a subordination, non-disturbance and
attornment agreement, as required by Landlord's mortgagee, if any.
19. Any notice provided for herein shall be deemed to be duly given if
made in writing and delivered in person to an office of such party or mailed by
first class registered or certified mail, postage prepaid, addressed as follows:
If to Sublessor: Anchor Paper Company
480 Broadway Street
St. Paul, MN 55101
If to Sublessee: Infinite Graphics Incorporated
4611 East Lake Street
Minneapolis, MN 55406
or to such other address with respect to either party hereto, as such party
shall notify the other party hereto in writing.
IN WITNESS WHEREOF, Sublessor and Sublessee have executed this Sublease
as of the day and year first above written.
SUBLESSOR: SUBLESSEE:
Anchor Paper Company Infinite Graphics Incorporated
By: /s/James P. Kemmer By: /s/James F. Belfiori
Its CEO Its Finance Manager
<TABLE> <S> <C>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,029,944
<ALLOWANCES> (55,140)
<INVENTORY> 114,483
<CURRENT-ASSETS> 1,107,749
<PP&E> 4,216,868
<DEPRECIATION> (3,618,972)
<TOTAL-ASSETS> 2,932,565
<CURRENT-LIABILITIES> 1,597,794
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0
0
<COMMON> 4,096,947
<OTHER-SE> (2,958,340)
<TOTAL-LIABILITY-AND-EQUITY> 2,932,565
<SALES> 5,087,053
<TOTAL-REVENUES> 5,150,228
<CGS> 2,949,549
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<INTEREST-EXPENSE> 117,350
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<INCOME-TAX> 2,000
<INCOME-CONTINUING> 143,565
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<EXTRAORDINARY> 0
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<NET-INCOME> 143,565
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