UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 2-90422-C
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Infinite Graphics Incorporated
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(Exact name of small business issuer as specified in its charter)
Minnesota 41-0956693
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4611 East Lake Street, Minneapolis, Minnesota 55406
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(Address of principal executive offices)
(612) 721-6283
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 2,802,575 common shares as of
December 20, 1999
Transitional Small Business Disclosure Format (Check one): Yes [ ] No x
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFINITE GRAPHICS
BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
October 31, 1999 April 30, 1999
---------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful accounts
of $183,900 and $117,900 respectively $ 1,416,791 $ 1,081,601
Accounts receivable - other (Note F) 244,988 512,089
Inventories 516,976 515,704
Prepaid expenses and other 218,219 126,175
----------- -----------
Total current assets 2,396,974 2,235,569
PROPERTY, PLANT, AND EQUIPMENT, NET 2,737,215 2,716,335
PURCHASED SOFTWARE, NET 78,072 68,701
OTHER ASSETS 27,124 28,353
----------- -----------
TOTAL ASSETS $ 5,239,385 $ 5,048,958
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks written in excess of bank balances 37,904 $ 205,108
Revolving credit agreement 464,261 252,655
Trade accounts payable 357,339 510,424
Accrued salaries, wages, vacations, and employee withholdings 280,697 228,326
Other accrued expenses 598,313 256,026
Current portion of long-term debt 106,530 112,467
Current portion of capitalized lease obligations 291,690 279,860
----------- -----------
Total current liabilities 2,136,734 1,844,866
LONG-TERM DEBT, less current portion 602,836 765,041
CAPITALIZED LEASE OBLIGATIONS, less current portion 1,051,365 1,089,916
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized 10,000,000 shares
issued and outstanding 2,802,575 and 2,802,575 respectively 4,181,697 4,181,697
Accumulated deficit (2,733,247) (2,832,562)
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Total stockholders' equity 1,448,450 1,349,135
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 5,239,385 $ 5,048,958
=========== ===========
</TABLE>
See notes to financial statements.
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<PAGE>
PART I- FINANCIAL INFORMATION (CONTINUED)
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTH PERIOD SIX MONTH PERIOD
ENDED OCTOBER 31 ENDED OCTOBER 31
1999 1998 1999 1998
------------------------ ------------------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $2,156,955 $1,170,596 $4,003,915 $2,146,966
Other income 24,294 154,863
---------- ---------- ---------- ----------
Total revenues $2,181,249 1,170,596 $4,158,778 2,146,966
COSTS AND EXPENSES:
Costs of products sold 1,571,009 735,615 2,948,980 1,434,895
Selling, general and administrative 497,852 266,949 992,679 486,069
Interest 48,358 42,289 117,804 62,328
---------- ---------- ---------- ----------
Total costs and expenses $2,117,219 1,044,853 $4,059,463 1,983,292
---------- ---------- ---------- ----------
NET INCOME $64,030 $125,743 $99,315 $163,674
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Basic 2,802,575 2,688,445 2,802,575 2,670,510
========== ========== ========== ==========
Diluted 3,085,931 2,749,601 3,106,632 2,740,974
========== ========== ========== ==========
BASIC NET INCOME PER SHARE $ 0.02 $ 0.05 $ 0.04 $ 0.06
========== ========== ========== ==========
DILUTED NET INCOME PER SHARE $ 0.02 $ 0.05 $ 0.03 $ 0.06
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
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<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Month Period
Ended October 31
1999 1998
----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 99,315 $ 163,674
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 378,234 147,832
Capital expenditures financed through the reduction
of accounts receivable (211,821) --
Changes in assets and liabilities:
Accounts receivable (335,190) 46,194
Inventories (1,272) (138,634)
Prepaid expenses and other (90,815) (28,570)
Accounts payable and other accrued expenses 241,573 113,836
----------------------------------
Net cash provided by operating activities 80,024 304,332
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (196,663) (385,841)
Decrease in accounts receivable-other 267,101 108,026
----------------------------------
Net cash provided by (used in) investing activities 70,438 (277,815)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in checks written in excess of bank balances (167,204) --
Proceeds from issuance of debt -- 256,470
Increase (decrease) in revolving credit agreement 211,606 (81,744)
Payments on long-term debt and capital lease obligations (194,864) (41,885)
----------------------------------
Net cash (used in) provided by financing activities (150,462) 132,841
----------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS -- $ 159,358
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR -- $ 195,984
----------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD -- $ 355,342
==================================
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Stock options purchased with note receivable $ 30,938
Equipment acquired by capital lease $ 990,000
</TABLE>
See notes to financial statements.
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<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
NOTES TO FINANCIAL STATEMENTS
NOTE A:
The Balance Sheet as of October 31, 1999 and the Statements of Operations for
the three and six month periods ended October 31, 1999 and 1998 and the
Statements of Cash Flows for the three and six months ended October 31, 1999 and
1998 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, 1999 has been derived from
the audited Balance Sheet included in the Company's April 30, 1999 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, 1999 Annual Report to Shareholders.
NOTE B:
For the periods presented comprehensive income is the same as net income.
NOTE C:
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted net income per share
assumes the exercise of stock options using the treasury stock method, if
dilutive.
NOTE D:
The Company acquired certain assets and assumed certain liabilities of
Photronics Colorado, Inc. (PCI), a Colorado corporation, effective as of January
28, 1999 under the terms of an Asset Purchase Agreement dated January 28, 1999
between the Company, PCI, and Photronics, Inc. for a total purchase price not to
exceed $2 million in the aggregate. Pursuant to the Asset Purchase agreement,
the Company increased the value of the equipment acquired by $211,821 for credit
memos issued during the six-month period ended October 31, 1999.
The acquisition has been accounted for using the purchase method of accounting,
and accordingly, the statement of operations includes the results of operations
of the acquired business since January 28, 1999. The following unaudited pro
forma condensed combined statements of operations reflects the combined
operation of the Company and the acquired business adjusted for related
financing costs, as if the acquisition and financing had occurred at the
beginning of fiscal 1999. The unaudited pro forma condensed combined statement
of operations may not necessarily reflect the actual results of the
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<PAGE>
Company which would have resulted had the acquisition and related financing
occurred as of May 1, 1998. The unaudited pro forma information is not
necessarily indicative of future results of operations.
Pro Forma Combined
Six Month period
Period Ended October 31
-----------------------
1999 1998
(unaudited)
Revenues $4,158,778 $3,151,966
Net income $ 99,315 $ 229,674
Net income per share:
Basic $ 04 $ .09
Diluted $ .03 $ .08
NOTE E:
For In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." In July
1999, FASB issued SFAS No. 137, delaying the effective date of SFAS No. 133 for
one year, to fiscal years beginning after June 15, 2000. The Company has not yet
determined the effects SFAS No. 133 will have on its financial position or the
results of its operations.
NOTE F:
On November 12, 1999 the Company notified Global MAINTECH (GMC) that the license
granted in the February 27, 1998 License and Asset Purchase Agreement was
terminated. The reason for the termination was that GMC has not paid the Earn
Out Payment within the required time. The termination of the license is
controlled by section 10.3 of the License Agreement. Under this section, GMC can
use the License Software, Modification and Marks until December 15, 1999. On
November 15, 1999 ownership of the transferred assets has reverted to the
Company. The Company and GMC are in discussions as how to transfer the assets in
a way that both parties can support. Agreement as to how the software business
continues and future liabilities is planned to be reached by December 31, 1999.
As part of the agreement, it is expected that neither party will pay the other
any significant amounts of cash.
NOTE G:
On October 24, 1997 the Company entered into a revolving credit agreement, a
mortgage note, and an equipment note. This note was renewed for one year on
October 20, 1999. There were no changes in the terms of the note.
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<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 1999 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1998
Operations for the three months ended October 31, 1999 resulted in net sales of
$2,157,000 compared to $1,171,000 for the same period last year or an 84%
increase. The increase in sales is primarily due to an increase in Large Area
Mask business, and an incremental increase in sales of $715,000 from the
Colorado Springs facility.
The gross margin for the three months ended October 31, 1999 was 27%, compared
to 37% for the same period last year. The $586,000 gross profit for the three
months ended October 31, 1999 compares to $435,000 for the same period last
year. The decrease in gross margin was caused primarily by increases associated
with increasing capacity and continued growth. They were primarily increases in
depreciation, maintenance costs, and process and material development.
The Company's total selling, general and administrative (S, G & A) expenses for
the three months ended October 31, 1999 were $498,000 compared to $267,000 for
the same period last year, an increase of $231,000 or 86%. S, G & A increased
due to increases in selling and administrative costs related to the Colorado
Springs facility and to an increase in personnel. The Company's interest expense
for the three months ended October 31, 1999 was $48,000 compared to $42,000 for
the same period last year. The increase in interest expense is primarily due to
the interest charges associated with the purchase of new equipment in fiscal
1999.
The Company had net income of $64,000 for the three months ended October 31,
1999 compared to net income of $126,000 for the same period last year.
SIX MONTHS ENDED OCTOBER 31, 1999 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1998
Operations for the six months ended October 31, 1999 resulted in net sales of
$4,004,000 compared to $2,147,000 for the same period last year or an 86%
increase. The increase in sales is primarily due to an increase in Large Area
Mask business and an incremental increase in sales of $1,321,000 from the
Colorado Springs facility
The gross margin for the six months ended October 31, 1999 was 26%, compared to
33% for the same period last year. The $1,055,000 gross profit for the six
months ended October 31, 1999 compares to $712,000 for the same period last
year. The decrease in gross margin was caused primarily by increases associated
with increasing capacity and continued growth. They were primarily increases in
depreciation, maintenance costs, and process and material development
The Company's total selling, general and administrative (S, G & A) expenses for
the six months ended October 31, 1999 were $993,000 compared to $486,000 for the
same period last year, an increase of $507,000 or 104%. S, G & A increased due
to increases in selling and administrative costs related to the Colorado Springs
facility and to an increase in personnel. The Company's interest expense for the
six months ended October 31, 1999 was $118,000 compared to $62,000 for the same
period last year. The
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<PAGE>
increase in interest expense is primarily due to the interest charges associated
with the purchase of new equipment in fiscal 1999.
The Company had net income of $99,000 for the six months ended October 31, 1999
compared to net income of $164,000 for the same period last year.
Liquidity. The Company's cash flow provided by operations was $80,000 for the
six months ended October 31, 1999, compared to $304,000 for the same period last
year. The largest components of cash flow provided by operations for the six
months ended October 31, 1999 were depreciation and amortization of $378,000, an
increase in capital expenditures financed through the reduction of accounts
receivable of $212,000, an increase in accounts receivable of $335,000, the
increase in prepaids of $91,000 and the increase of current liabilities of
$242,000. The largest component of cash flow provided by operations for the six
months ended October 31, 1998 were depreciation and amortization of $148,000 and
the decrease in inventories of $139,000.
Cash provided from planned operations and availability under the Company's
revolving credit agreement is estimated to be sufficient to support the
Company's expected cash needs for fiscal 2000.
Capital Resources. The Company's capital expenditures for equipment, automation
and improvement opportunities in fiscal 2000 are expected to be approximately
$2,000,000. 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.
The Company's cash flows provided by investing activities was $70,000 for the
six months ended October 31, 1999. For the six months ended October 31, 1999, it
consisted primarily of expenditures for capital equipment of $197,000 and a
decrease accounts receivable-other of $267,000. Cash flows used in investing
activities were $278,000 for the six months ended October 31, 1998, and it
consisted of payments for capital expenditures of $386,000 partially offset by a
decrease in other accounts receivable.
The Company's cash flows used in financing activities was $150,000 for the six
months ended October 31, 1999 compared to cash flows provided by financing
activities of $133,000 during the same period last year. Cash flows used in
financing activities for the six months ended October 31, 1999 consisted of an
increase in the revolving credit agreement of $212,000 partially offset by
payments of $195,000 on long-term debt and principal payments on capital lease
obligations and a $167,000 decrease in checks written in excess of bank
balances. Cash flows provided by financing activities was $133,000 for the six
months ended October 31, 1998. It consisted of proceeds of $256,000 from the
placement of long-term debt partially offset by payments on long-term debt and
principal payments on capital lease obligations of $42,000, and a decrease of
$82,000 in the revolving credit agreement.
Other Items. Inflation has not had any significant impact upon the Company's
results of operation.
Year 2000 Compliance. The year 2000 issue focuses on whether computer systems
will properly recognize date-sensitive information in the year 2000 and beyond.
Many installed computer systems and software products are coded to accept only
two digit entries in the date code field. As the year 2000 approaches, these
code fields will need to accept four digit entries to distinguish years
beginning with "19" from those beginning with "20." This inability to recognize
or properly treat the year 2000 may cause systems to process financial and
operational information incorrectly. As a result, in less than one month,
computer systems and/or software products used
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<PAGE>
by many companies may need to be upgraded to comply with such year 2000
requirements. The Company is dependent on computer processing in its business
activities and the year 2000 issue creates risk for the Company from unforeseen
problems in the Company's computer system and from third parties with whom the
Company does business. The failure of the Company's computer systems and/or
third parties computer systems from unforeseen problems could have a material
adverse effect on the Company's ability to conduct its business.
The Company has conducted a review of its computer systems to identify those
areas that could be affected by the year 2000 problem. The review showed that
the primary critical system with compliance problems is the Wang accounting
system. The accounting system is considered critical because its failure could
cause problems making timely reports of financial results. It is not considered
critical operationally as billing, order entry, inventory control and scheduling
are being run on year 2000 compliant systems. As of this date, the new
accounting hardware and software has been installed. Full implementation of the
accounting software is expected by December 31, 1999.
The review also showed that we have year 2000 issues with non-critical data
preparation workstations. All are quite old and have been slated for replacement
because of performance and obsolescence. In all cases existing maintenance
contracts or already purchased upgrades cover the software and will be provided
and installed by the manufacturers after the hardware has been delivered. We
have purchased all the required workstations and the required Y2K compliant
software has been received. These new stations will be running both vendor
supplied and IGI software. The IGI software is already year 2000 compliant. Even
without the new vendor software, year 2000 compliance will be achieved with the
IGI new hardware systems. It is important to note that these secondary systems
are not involved with key IGI business segments. Their main application is on
printed circuit board applications.
A comprehensive year 2000 implementation plan has been developed and is being
implemented. Additionally, a contingency plan has been developed which addresses
alternative solutions in the event compliance is not achieved in the planned
timeframe. The Company currently estimates the cost to purchase and implement
the accounting system will not exceed $45,000. The Company intends to finance
the acquisition of the system through a multiple year lease arrangement. The
Company anticipates that the acquisition cost of the non-recurring transition
costs will be financed through the use of the Company's available operating cash
flow and advances under its line of credit. The Company does not expect that its
operations will be negatively impacted in the future.
The Company is continuing to work with its customers and suppliers to certify
year 2000 compliance. In the event that a significant number of suppliers
cannot, in a timely manner, provide the company with products and services
because of the year 2000 issue, the Company's operating results could be
materially affected.
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.
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<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
On October 5, 1999, Infinite Graphics Incorporated (the "Company")
held an annual meeting of shareholders, and the persons nominated
by management as listed in the Company's proxy statement dated
September 9, 1999 (Clifford F. Stritch, Jr., Edwin F. Snyder,
Durwood L. Airhart and Michael J. Evers) were elected to the
Company's Board of Directors in a solicitation of proxies in
accordance with Regulation 14A under the Securities Exchange Act
of 1934. There was no solicitation in opposition.
By the affirmative vote of 1,252,915 shares and the negative vote
of 33,868 shares with 100 abstentions, the shareholders of the
Company approved the adoption by the Company of the 1999 Stock
Option Plan as proposed in the Company's proxy statement dated
September 9, 1999.
No other matters were voted upon at the annual meeting.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended October 31, 1999, Infinite
Graphics Incorporated did not file with the Securities and
Exchange Commission any current reports on Form 8-K.
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.
December 20, 1999 By /S/ Clifford F. Stritch, Jr.
----------------------------
Clifford F. Stritch, Jr.
Chief Executive Officer
Chief Financial Officer
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<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
----------- ---------------------- --------
27.1 Financial Data Schedule
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,600,724
<ALLOWANCES> (183,933)
<INVENTORY> 516,976
<CURRENT-ASSETS> 2,396,974
<PP&E> 7,697,821
<DEPRECIATION> (4,960,606)
<TOTAL-ASSETS> 5,239,385
<CURRENT-LIABILITIES> 2,136,734
<BONDS> 1,654,201
0
0
<COMMON> 4,181,697
<OTHER-SE> (2,733,247)
<TOTAL-LIABILITY-AND-EQUITY> 5,239,383
<SALES> 4,003,915
<TOTAL-REVENUES> 4,158,778
<CGS> 2,948,980
<TOTAL-COSTS> 2,948,980
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117,804
<INCOME-PRETAX> 99,315
<INCOME-TAX> 0
<INCOME-CONTINUING> 99,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,315
<EPS-BASIC> .04
<EPS-DILUTED> .03
</TABLE>
