FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: July 31, 1996
Commission File Number: 2-90422-C
Infinite Graphics Incorporated
(Exact Name of Registrant as Specified in Its Charter)
Minnesota 41-0956693
(State of Jurisdiction) (IRS Employer Identification)
4611 East Lake Street, Minneapolis, Minnesota 55406
(Address of Principal Executive Officer)
(Zip Code)
612-721-6283
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
2,350,575 common shares as of September 13, 1996
Total number of pages: 8
Exhibit index on page: 8
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFINITE GRAPHICS INCORPORATED
BALANCE SHEETS (UNAUDITED)
JULY 31, 1996 APRIL 30, 1996
ASSETS ---------------------------------------
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CURRENT ASSETS:
Accounts receivable, less allowance for doubtful accounts
of $63,682 and $55,140, respectively $843,236 $974,804
Inventories $115,892 $114,483
Prepaid expenses $60,618 $13,312
Other current assets $0 $5,150
---------------------------------------
Total current assets $1,019,746 $1,107,749
PROPERTY, PLANT, AND EQUIPMENT, net $533,537 $597,896
CAPITALIZED SOFTWARE COSTS, less accumulated amortization
of $5,332,228 and $5,172,848, respectively $1,057,872 $1,070,280
INVESTMENT IN JOINT VENTURE $130,681 $133,587
OTHER ASSETS $23,053 $23,053
---------------------------------------
$2,764,889 $2,932,565
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit agreement $283,107 $264,607
Trade accounts payable $268,096 $341,393
Accrued salaries, wages, vacations and employee withholdings $240,425 $277,428
Other accrued expenses $340,125 $347,555
Deferred revenue $142,329 $174,484
Current portion of long-term debt $150,790 $162,697
Current portion of capitalized lease obligations $26,571 $29,630
---------------------------------------
Total current liabilities $1,451,443 $1,597,794
LONG-TERM DEBT, less current portion $150,771 $182,784
CAPITALIZED LEASE OBLIGATIONS, less current portion $8,055 $13,380
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized
10,000,000 shares, issued and outstanding 2,350,575 $4,096,947 $4,096,947
Accumulated deficit ($2,942,327) ($2,958,340)
---------------------------------------
Total stockholders' equity $1,154,620 $1,138,607
---------------------------------------
$2,764,889 $2,932,565
=======================================
See notes to financial statements.
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INFINITE GRAPHICS INCORPORATED
STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTH PERIOD
ENDED JULY 31,
1996 1995
---------------------------------------
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REVENUES:
Net sales $1,258,547 $1,229,917
Other income $40,000 $10,000
---------------------------------------
Total revenues $1,298,547 $1,239,917
COSTS AND EXPENSES:
Cost of products sold $797,732 $619,638
Selling, general and administrative $373,042 $440,642
Research and development costs $82,367 $90,462
Interest $26,487 $26,594
---------------------------------------
Total costs and expenses $1,279,628 $1,177,336
---------------------------------------
OPERATING INCOME $18,919 $62,581
(LOSS) EQUITY IN INCOME OF JOINT VENTURE ($2,906) $ 9,887
---------------------------------------
INCOME BEFORE INCOME TAXES $16,013 $72,468
INCOME TAXES ($1,000)
---------------------------------------
NET INCOME $16,013 $71,468
=======================================
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE: $0.01 $0.03
========================================
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING 2,672,086 2,731,831
========================================
See notes to financial statements.
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INFINITE GRAPHICS INCORPORATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTH PERIOD
ENDED JULY 31,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $16,013 $71,468
Adjustments to reconcile net income to net cash flows provided by operating
activities:
Depreciation and amortization $228,760 $205,927
Loss (equity) in income of joint venture $2,906 ($9,887)
Changes in asset and liabilities:
Accounts receivable $131,568 ($60,642)
Inventories ($1,409) $15,580
Prepaid expenses ($47,306) ($90,026)
Other assets $5,150 $15,018
Deferred revenue ($32,155) ($63,847)
Accounts payable, accruals and other accrued expenses ($117,730) $166,315
---------------------------------------
Net cash provided by operating activities $185,797 $249,906
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for capitalized software ($146,974) ($157,287)
Other capital expenditures ($5,019) ($6,982)
---------------------------------------
Net cash used in investing activities ($151,993) ($164,269)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in revolving credit agreement $18,500 ($48,938)
Payments on long-term debt and principal
payments on capital lease obigations ($52,304) ($36,699)
---------------------------------------
Net cash used in financing activities ($33,804) ($85,637)
---------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $0 $0
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $0 $0
---------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $0 $0
=======================================
See notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
NOTE A:
The Balance Sheet as of July 31, 1996 , Statements of Operations and the
Statements of Cash Flows for the three month periods ended July 31, 1996 and
1995 have been prepared by Infinite Graphics Incorporated (the Company) without
audit. In the opinion of management, these statements reflect all adjustments,
consisting of only normal accruals and adjustments, necessary for the fair
statement of the periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes included in the Company's April 30, 1996 annual report on Form 10-K.
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 the Company's balance sheets as of
July 31, 1996, current liabilities exceed its current assets by $431,697.
During fiscal 1997, the Company has plans to increase sales approximately the
same level as that achieved in fiscal 1996 and to obtain additional debt and/or
equity financing. 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.
NOTE B:
Net income per common and common equivalent share was computed by dividing net
income by the weighted average number of common and common equivalent shares
outstanding during each period. This amount includes common stock equivalents of
321,511 and 381,256 for the three month period ended July 31, 1996 and 1995,
respectively, from the assumed exercise of outstanding options and warrants
using the treasury stock method.
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Operations for the three months ended July 31, 1996 resulted in sales of
$1,259,000 compared to $1,230,000 for the same period last year or a 2 percent
increase. Engineering Services sales accounted for $949,000 compared to sales of
$744,000 for the same period last year or a 28 percent increase. Systems sales
were $310,000 compared to sales of $486,000 for the same period a year ago, or a
$176,000 decrease. The increase in Engineering Services sales is attributable to
the sales of $127,000 associated with the September 13, 1995 acquisition of a
California precision graphics service company, and an $78,000 increase in the
Company's core business. The decrease in System sales is attributable to the
delay in the release of new revisions and products. The Company had net income
of $16,000 for three months ended July 31, 1996, compared to net income of
$71,000 at July 31, 1995. The decrease in net income is attributable to the mix
of the Company's sales. Systems sales have a more significant impact on the
Company's bottom line than Engineering Services sales. The increase in
Engineering Services' sales was not enough to offset the decrease in Systems
sales. The decrease in Systems sales was also the main contributor to the gross
margin dropping to 37 percent for quarter end July 31, 1996, compared to 50
percent for the same period last year. Other income increased $30,000 because of
products and services provided to the joint venture.
The Company's total selling, general and administrative (S, G & A) expenses for
the period ended July 31, 1996 were $373,000 compared to $441,000 for the same
period last year, a decrease of $68,000 or 15 percent. The decrease is
attributable primarily to decreases in sales and marketing salaries,
commissions, profit sharing and travel expenses. S, G & A decreased because of
the Company's strategy to reduce costs this fiscal year. Research and
development costs were $82,000 compared to $90,000 or a 9 percent decrease.
Equity in income of joint venture decreased by $13,000. This decrease is
attributable to the increase in the joint venture's operating expenses.
Liquidity. The Company's cash flow from operations was $186,000 for the three
months ended July 31, 1996, compared to $250,000 for the same period last year.
The largest components of cash flow from operations for both periods were
depreciation and amortization of $229,000 and $206,000, respectively.
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 July 31, 1996, the current liabilities exceed
current assets by $432,000.
Capital Resources. The Company has invested primarily in equipment and
improvements essential for present operations in fiscal 1997, but plans to
increase its investment in capital resources for future operations over the next
two or three years by obtaining additional debt and/or equity financing.
The Company's cash flow used in investing activities was $152,000 and $164,000
for periods ended July 31, 1996 and 1995, respectively. For both periods it
consisted primarily of expenditures for capitalized software of $147,000 for the
three months ended July 31, 1996 and $157,000 for the three months ended July
31, 1995.
The Company's cash flow used in financing activities was $34,000 and $86,000 for
the periods ended July 31, 1996 and 1995, respectively. The largest component of
cash flows used in financing activities for period ended July 31, 1996 consisted
of payments on long-term debt and principal payments on capital lease
obligations of $52,000 and an $18,000 increase in the revolving credit
agreement. The largest components of cash flows used in financing activities for
period ending July 31, 1995 were the decrease in the revolving credit agreement
of $49,000 and payments on long-term debt and principal payments on capital
lease obligations of $37,000.
Other Items. Inflation has not had any significant impact upon the Company's
results of operation.
Recently Issued Accounting Standards. 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 and thereafter.
The Company has determined that it will not adopt the fair value method
prescribed by SFAS 123. The "as if" disclosures will be included in the
Company's annual financial statements for the year ending April 30, 1997.
Securities Litigation Reform Act. Except for the historical information
contained herein, the matters discussed in this 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.
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
September 13, 1996
Infinite Graphics Incorporated
by /s/ Clifford F. Stritch, Jr.
Clifford F. Stritch, Jr.
Chief Executive Officer and
Chief Financial Officer
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JUL-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 906,918
<ALLOWANCES> (63,682)
<INVENTORY> 115,892
<CURRENT-ASSETS> 1,019,746
<PP&E> 4,221,887
<DEPRECIATION> 3,688,350
<TOTAL-ASSETS> 2,764,889
<CURRENT-LIABILITIES> 1,451,443
<BONDS> 0
0
0
<COMMON> 4,096,947
<OTHER-SE> (2,942,327)
<TOTAL-LIABILITY-AND-EQUITY> 2,764,889
<SALES> 1,258,547
<TOTAL-REVENUES> 1,298,547
<CGS> 797,732
<TOTAL-COSTS> 797,732
<OTHER-EXPENSES> 481,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,487
<INCOME-PRETAX> 16,013
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,013
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
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