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, 1997
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.
2,462,575 common shares as of September 15, 1997
Total number of pages: 9
Exhibit index on page: 9
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFINITE GRAPHICS INCORPORATED
BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
July 31, 1997 April 30, 1997
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful accounts
of $99,104 and $104,441, respectively $ 1,093,322 $ 1,390,198
Inventories $ 163,337 $ 162,952
Prepaid expenses and other $ 62,289 $ 36,312
----------- -----------
Total current assets $ 1,318,948 $ 1,589,462
PROPERTY, PLANT, AND EQUIPMENT, net $ 635,338 $ 691,002
CAPITALIZED SOFTWARE COSTS, less accumulated amortization
of $5,983,889 and $5,819,399, respectively $ 1,039,011 $ 1,022,628
OTHER ASSETS $ 20,015 $ 30,025
----------- -----------
$ 3,013,312 $ 3,333,117
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit agreement $ 336,239 $ 427,291
Trade accounts payable $ 242,091 $ 317,451
Accrued salaries, wages, vacations and employee withholdings $ 285,464 $ 310,962
Other accrued expenses $ 283,905 $ 317,772
Deferred revenue $ 197,798 $ 259,308
Current portion of long-term debt $ 145,370 $ 175,096
Current portion of capitalized lease obligations $ 39,004 $ 43,054
----------- -----------
Total current liabilities $ 1,529,871 $ 1,850,934
LONG-TERM DEBT, less current portion $ 5,230 $ 7,395
CAPITALIZED LEASE OBLIGATIONS, less current portion $ 102,785 $ 111,465
STOCKHOLDERS' EQUITY:
Common stock, no par value, authorized 10,000,000 shares,
issued and outstanding 2,462,575 at July 31, 1997 and
April 30, 1997 $ 4,112,947 $ 4,112,947
Accumulated deficit ($2,737,521) ($2,749,624)
----------- -----------
Total stockholders' equity $ 1,375,426 $ 1,363,323
----------- -----------
$ 3,013,312 $ 3,333,117
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF INCOME
(Unaudited)
Three Month Period
Ended July 31,
1997 1996
---------- ----------
REVENUES:
Net sales $1,358,803 $1,258,547
Other income $ 40,000
---------- ----------
$1,358,803 $1,298,547
COSTS AND EXPENSES:
Cost of products sold $ 818,215 $ 797,732
Selling, general and administrative $ 440,820 $ 373,042
Research and development costs $ 60,795 $ 82,367
Interest $ 26,870 $ 26,487
---------- ----------
Total costs and expenses $1,346,700 $1,279,628
---------- ----------
OPERATING INCOME $ 12,103 $ 18,919
LOSS OF JOINT VENTURE $ 2,906
---------- ----------
NET INCOME $ 12,103 $ 16,013
========== ==========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE NIL $ 0.01
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 2,738,939 2,672,086
========== ==========
See notes to financial statements.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period
Ended July 31,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,103 $ 16,013
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization $ 241,436 $ 228,760
Equity in income of joint venture $ 2,906
Changes in asset and liabilities:
Accounts receivable $ 296,876 $ 131,568
Inventories ($ 385) ($ 1,409)
Prepaid expenses and other and other assets ($ 15,967) ($ 42,156)
Deferred revenue ($ 61,510) ($ 32,155)
Accounts payable, accruals and other accrued expenses ($134,725) ($117,730)
--------- ---------
Net cash provided by operating activities $ 337,828 $ 185,797
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for capitalized software ($180,873) ($146,974)
Other capital expenditures ($ 21,282) ($ 5,019)
--------- ---------
Net cash used in investing activities ($202,155) ($151,993)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in revolving credit agreement ($ 91,052) $ 18,500
Payments on long-term debt and principal
payments on capital lease obligations ($ 44,621) ($ 52,304)
--------- ---------
Net cash used in financing activities ($135,673) ($ 33,804)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 0 $ 0
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 0 $ 0
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 0 $ 0
========= =========
</TABLE>
See notes to financial statements.
<PAGE>
PART 1 - FINANCIAL INFORMATION (CONTINUED)
NOTES TO FINANCIAL STATEMENTS
NOTE A:
The Balance Sheet as of July 31, 1997 and the Statements of Income for the three
month periods ended July 31, 1997 and 1996 and Statements of Cash Flows for the
three month ended July 31, 1997 and 1996 have been prepared by Infinite Graphics
Incorporated 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. The Balance Sheet as
of April 30, 1997 has been derived from the audited Balance Sheet included in
the Company's April 30, 1997 Annual Report to Shareholders. 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, 1997 Annual
Report to Shareholders.
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 sheet as of
July 31, 1997, current liabilities exceed its current assets by $211,000.
During fiscal 1998, the Company has plans to increase sales approximately the
same level as that achieved in fiscal 1997 and to obtain additional debt and/or
equity financing. If these increased 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
276,364 and 321,511 for the three month periods ended July 31, 1997 and 1996,
respectively from the assumed exercise of outstanding options and warrants using
the treasury stock method.
<PAGE>
PART 1 - FINANCIAL INFORMATION (CONTINUED)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1997 COMPARED TO THREE MONTHS ENDED JULY 31, 1996
Operations for the three months ended July 31, 1997 resulted in sales of
$1,359,000 compared to $1,259,000 for the same period last year or a 8 percent
increase. Engineering Services accounted for $932,000 compared to sales of
$949,000 for the same period last year or a 2 percent decrease. Systems sales
were $427,000 compared to sales of $310,000 for the same period a year ago or a
38 percent increase. The decrease in Engineering Services sales of $17,000 is
attributable to decreases in the Company's core business of $123,000 partially
offset by an increase of $106,000 in sales resulting from the purchase of the
joint venture in November 1996 (the Joint Venture). The increase in System sales
of $117,000 is attributable to new releases of existing products. Other income
for the three months ended July 31, 1996 related to management fees, products,
and services provided to the Joint Venture.
The increase in System sales was the primary contributor to the gross margin
increasing to 40 percent for the three months ended July 31, 1997 compared to 37
percent for the same period last year.
The Company's total selling, general and administrative (S, G & A) expenses for
the three months ended July 31, 1997 were $441,000 compared to $373,000 for the
same period last year, an increase of $68,000 or 18 percent. S, G & A increased
because of increases in salary expense due to three new employees and additional
spending on advertising and trade shows. Research and development costs were
$61,000 compared to $82,000, or a 26 percent decrease. The decrease is
attributable to the Company developing a new CAM product and capitalizing costs
relating to the new product as software development costs. Interest expense
remained the same during the three months ended July 31, 1997, when compared to
the same period in 1996.
The Company's portion of the loss of joint venture for the three months ended
July 31, 1996 related to the operations of the Joint Venture, which was aquired
in November 1996. The operations of the former Joint Venture are now included in
the individual line items in the statements of income.
The Company had net income of $12,000 for three months ended July 31, 1997,
compared to net income of $16,000 for the three months ended July 31, 1996.
<PAGE>
Liquidity. The Company's cash flow from operations was $338,000 for the three
months ended July 31, 1997, compared to $186,000 for the same period last year.
The largest components of cash flow from operations for three months ended July
31, 1997 were depreciation and amortization of $241,000 and the decrease in
accounts receivable of $297,000. The largest component of cash flow from
operations for three months ended July 31, 1996 was depreciation and
amortization of $229,000.
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 the
remainder of fiscal 1998. The Company is currently completing the approval
process for a $700,000 new equipment loan. The proposed term of the new
equipment loan is for 7 years at an 8.5% interest rate. Payments would begin one
month from the date of the note and the monthly payment would be $11,820. The
Company is also currently completing the approval process for a $250,000
mortgage note for the 4611 East Lake Street Facility, of which $116,000 of the
proceeds would be used to pay the existing mortgage between the Company and
Republic Acceptance Corporation. The Company is currently negotiating the term
of the mortgage note and interest rate. The Company expects the approval
processes to be finalized in the second quarter of fiscal 1998. However, there
can be no assurance the loans will be finalized. The Company is exploring
additional 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, 1997, current
liabilities exceed current assets by $211,000.
Capital Resources: The Company has invested primarily in equipment and
improvements essential for present operations in fiscal 1998, 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 capital expenditures for equipment, automation improvements and new
opportunities during fiscal 1998 are expected to be approximately $2,500,000.
The Company has no commitments at this time. 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.
The Company's cash flow used in investing activities was $202,000 and $152,000
for the three month periods ended July 31, 1997 and 1996, respectively. For
three months ended July 31, 1997 it consisted primarily of expenditures for
capitalized software of $181,000 and $21,000 for other capital expenditures. For
the three months ended July 31, 1996 it consisted primarily of expenditures for
capitalized software of $147,000.
The Company's cash flow used in financing activities was $136,000 for the three
months ended July 31, 1997 compared to $34,000 in the same period last year.
Cash flows used in financing activities for period ended July 31, 1997 consisted
of payments on long-term debt and principal payments on capital lease
obligations of $45,000 and a decrease of $91,000 in the revolving credit
agreement. Cash flows used in financing activities for period ended July 31,
1996 were payments
<PAGE>
on long-term debt and principal payments on capital lease obligations of
$52,000, partially offset by the increase in the revolving credit agreement of
$18,000.
Other Items. Inflation has not had any significant impact upon the Company's
results of operation.
RECENTLY ISSUED ACCOUNTING STANDARDS. In February 1997, the Financial Accounting
Standards Board issued SFAS No. 128 EARNINGS PER SHARE, which is effective for
interim and annual reporting periods ending after December 15, 1997. SFAS No.
128 supersedes Accounting Principles Board Opinion No. 15, EARNINGS PER SHARE,
and replaces the presentation of primary earnings per share with a presentation
of basic earnings per share. It also requires dual presentation for all entities
with complex capital structures and provides guidance on other computational
changes. The implementation of SFAS No. 128 is expected to change earnings per
share by an immaterial amount.
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.
<PAGE>
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 - Financial Data Schedule (for SEC use only)
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 15, 1997 by /S/ CLIFFORD F. STRITCH, JR.
----------------------------
Clifford F. Stritch, Jr.
Chief Executive Officer
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JUL-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,192,426
<ALLOWANCES> (99,104)
<INVENTORY> 163,337
<CURRENT-ASSETS> 1,318,948
<PP&E> 4,681,212
<DEPRECIATION> (4,045,874)
<TOTAL-ASSETS> 3,013,312
<CURRENT-LIABILITIES> 1,529,871
<BONDS> 0
<COMMON> 4,112,947
0
0
<OTHER-SE> (2,737,521)
<TOTAL-LIABILITY-AND-EQUITY> 3,013,312
<SALES> 1,358,803
<TOTAL-REVENUES> 1,358,803
<CGS> 818,215
<TOTAL-COSTS> 818,215
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,870
<INCOME-PRETAX> 12,103
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,103
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
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