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 July 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____ to _____
Commission file number 2-90422-C
Infinite Graphics Incorporated
(Exact name of small business issuer as specified in its charter)
Minnesota 41-0956693
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4611 East Lake Street, Minneapolis, Minnesota 55406
(Address of principal executive offices)
(612) 721-6283
(Issuer's telephone number)
(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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [ ] 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
September 20, 1999
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFINITE GRAPHICS INCORPORATED
BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
July 31, 1999 April 30, 1999
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful accounts
of $159,900 and $117,900 respectively $ 1,143,828 $ 1,081,601
Account receivable - other (Note F) 466,839 512,089
Inventories 458,862 515,704
Prepaid expenses and other 157,316 126,175
----------- -----------
Total current assets 2,226,845 2,235,569
PROPERTY, PLANT, AND EQUIPMENT, net 2,678,225 2,716,335
PURCHASED SOFTWARE, net 79,205 68,701
OTHER ASSETS 27,944 28,353
----------- -----------
TOTAL ASSETS $ 5,012,219 $ 5,048,958
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks written in excess of bank balances $ 201,606 $ 205,108
Revolving credit agreement 368,299 252,655
Trade accounts payable 359,247 510,424
Accrued salaries, wages, vacations, and employee withholdings 238,739 228,326
Other accrued expenses 305,472 256,026
Current portion of long-term debt 109,230 112,467
Current portion of capitalized lease obligations 262,841 279,860
----------- -----------
Total current liabilities 1,845,434 1,844,866
LONG-TERM DEBT, less current portion 731,000 765,041
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 (2,797,277) (2,832,562)
----------- -----------
Total stockholders' equity 1,384,420 1,349,135
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 5,012,219 $ 5,048,958
=========== ===========
</TABLE>
See notes to financial statements.
-2-
<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTH PERIOD
ENDED JULY 31
1999 1998
------------------------
REVENUES:
Net sales $1,846,960 $ 976,370
Other income 27,000 --
---------- ----------
Total revenues 1,873,960 976,370
COSTS AND EXPENSES:
Costs of products sold 1,274,402 699,280
Selling, general and administrative 494,827 219,120
Interest 69,446 20,039
---------- ----------
Total costs and expenses 1,838,675 938,439
---------- ----------
NET INCOME $ 35,285 $ 37,931
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Basic 2,802,575 2,652,575
========== ==========
Diluted 3,065,230 2,732,346
========== ==========
BASIC NET INCOME PER SHARE: $ 0.01 $ 0.01
========== ==========
DILUTED NET INCOME PER SHARE: $ 0.01 $ 0.01
========== ==========
See notes to financial statements.
-3-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Month Period
Ended July 31
1999 1998
-----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 35,285 $ 37,931
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 185,350 74,545
Capital expenditures financed through the reduction
of accounts receivable (127,409) --
Changes in assets and liabilities:
Accounts receivable (62,227) 120,275
Inventories 56,842 (58,409)
Prepaid expenses and other assets (30,732) (61,908)
Accounts payable, accruals and other accrued expenses (91,318) (48,071)
-----------------------
Net cash (used in) provided by operating activities (34,209) 64,363
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (30,335) (82,865)
Decrease in account reveivable-other 45,250 254,654
-----------------------
Net cash provided by investing activities 14,915 171,789
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in checks written in excess of bank balances (3,502) --
Increase / (decrease) in revolving credit agreement 115,644 (104,803)
Payments on long-term debt and capital lease obligations (92,848) (19,737)
-----------------------
Net cash provided by (used in) financing activities 19,294 (124,540)
-----------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS -- 111,612
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR -- 195,984
-----------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ 307,596
=======================
</TABLE>
See notes to financial statements.
-4-
<PAGE>
PART 1- FINANCIAL INFORMATION (CONTINUED)
NOTES TO FINANCIAL STATEMENTS
NOTE A:
The Balance Sheet as of July 31, 1999 and the Statements of Operations for the
three month periods ended July 31, 1999 and 1998 and the Statements of Cash
Flows for the three months ended July 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 are 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 $127,409 for credit
memos issued during the three month period ended July 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 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
Period Ended July 31
--------------------
1999 1998
(unaudited)
Revenues $ 1,873,960 $ 1,456,420
-5-
<PAGE>
Net income $ 35,285 $ 43,692
Net income per share:
Basic $ .01 $ .02
Diluted $ .01 $ .02
NOTE E:
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:
Effective February 27, 1998, the Company sold an exclusive license to use,
market, and distribute the Company's PAR/ICE, ParCAM, and CheckMate (PAR for
Design) software products; sold a nonexclusive license to certain other CAD/CAM
products, including those known as 2100, ProCADD, ProFLEX, and ProCHEM; and sold
certain assets of its software systems business to Global MAINTECH Corporation
(Global MAINTECH). The Company, however, has retained the right to use all of
this software in its own business. The Company has also agreed that for a period
of five years it will not distribute, market, promote, or provide to any third
parties software that is competitive with the software with respect to which
Global MAINTECH was granted an exclusive license. As consideration for the grant
of the license agreements (the Agreements) and the sale of the software systems
division assets to Global MAINTECH, the Company received $500,000 on February
27, 1998 and may receive additional payments totaling not more than $3.5
million, depending on the level of profit performance of the licensed software.
The transaction was recognized as a disposal of business.
At July 31, 1999 and April 30, 1999, the Company has a receivable from Global
MAINTECH of $467,000 and $512,000, respectively. The Company has only recorded a
future receivable to the extent of the realized loss resulting in no loss or
gain on the sale of discontinued operations. Future receipts in connection with
the Agreements will be recorded as a reduction of the Global MAINTECH receivable
and any excess will be recorded as gain on sale of discontinued operations.
In May 1999, the Company and Global MAINTECH verbally agreed the final earnout
would be $4 million. The earnout would be paid as follows: $3 million in cash
and an ownership interest in a subsidiary of Global MAINTECH with a value,
agreed to by both parties, of $1 million. If the verbal agreement were
finalized, Global MAINTECH would owe the Company approximately $2.1 million in
cash in fiscal 2000.
-6-
<PAGE>
PART 1 - FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE MONTHS ENDED JULY 31, 1999 COMPARED TO THREE MONTHS ENDED JULY 31, 1998
Operations for the three months ended July 31, 1999 resulted in net sales of
$1,847,000 compared to $976,000 for the same period last year or an 89%
increase. The increase in sales is primarily due to an increase in Large Area
Mask business an incremental increase in sales of $600,000 from the Colorado
Springs facility, and additional income related to fees for services provided to
Global MAINTECH.
The gross margin for the three months ended July 31, 1999 was 31%, compared to
28% for the same period last year. The $573,000 gross profit for the three
months ended July 31, 1999 compares to $277,000 for the same period last year.
The increase in sales was the primary contributor to the increase in gross
margin as a percentage of sales and gross margins.
The Company's total selling, general and administrative (S, G & A) expenses for
the three months ended July 31, 1999 were $495,000 compared to $218,000 for the
same period last year, an increase of $276,000 or 126%. 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 July 31, 1999 was $69,000 compared to $20,000 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 during fiscal
1999.
The Company had net income of $35,000 for the three months ended July 31, 1999
compared to net income of $38,000 for the same period last year.
Liquidity. The Company's cash flow used in operations was $34,000 for the three
months ended July 31, 1999, compared to cash provided by operations of $64,000
for the same period last year. The largest components of cash flow used in
operations for the three months ended July 31, 1999 were capital expenditures
financed through the reduction of accounts receivable of $127,000, an increase
in accounts receivable of $62,000, and the decrease in current liabilities of
$91,000 partially offset by depreciation and amortization of $185,000 and a
decrease in inventories of $57,000. The largest component of cash flow from
operations for the three months ended July 31, 1998 were depreciation and
amortization of $75,000 and the decrease in accounts receivable of $120,000.
Cash provided from planned operations, an expected payment in fiscal 2000 from
Global MAINTECH for the software license and asset sale, 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 2000. Although 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 funding, it may not be able to
expand its investment into new operations. The Company's long-term expansion
plan relies on the Company receiving a major portion of the potential $3,300,000
payment in fiscal 2000 for the software licenses and assets sold to Global
MAINTECH.
The Company's cash flows provided by investing activities was $15,000 for the
three months ended July 31, 1999. For the three months ended July 31, 1999, it
consisted primarily of the decrease in other receivables of $45,000, partially
offset by expenditures for capital equipment of $30,000. Cash flows provided by
investing activities were $171,789 for the three months ended July 31, 1998. It
consisted primarily of cash receipts of $255,000 from the sale of the System
Software Division partially offset by payments for other capital expenditures of
$83,000.
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, the $2,000,000 expected payment in fiscal 2000
from Global MAINTECH for the software license and asset sale, leases and
obtaining additional debt and/or equity financing. If the company does not
achieve its operations plan, receive the
-7-
<PAGE>
$2,000,000 payment from Global MAINTECH and additional financing is not
obtained, it will restrict planned business growth.
The Company's cash flows provided by financing activities was $19,000 for the
three months ended July 31, 1999 compared to cash flows used in financing
activities of $125,000 during the same period last year. Cash flows provided by
financing activities for the three months ended July 31, 1999 consisted of an
increase in the revolving credit agreement of $116,000 partially offset by
payments of $93,000 on long-term debt and principal payments on capital lease
obligations and a $4,000 decrease in checks written in excess of bank balances.
Cash flows used in financing activities was $125,000 for the three months ended
July 31, 1998. It consisted of payments on long-term debt and principal payments
on capital lease obligations of $19,700 and a decrease of $105,000 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 four months,
computer systems and/or software products used 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 and the critical accounting
modules are expected to be fully implemented by November 30, 1999.
The review also showed that we have year 2000 issues with non-critical
-8-
<PAGE>
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 are placing orders for all the required workstations. 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
pay for the acquisition of the system from cash flows provided by operating
activities. 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 currently working 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.
-9-
<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
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended July 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.
September 20, 1999 By /S/ Clifford F. Stritch, Jr.
----------------------------
Clifford F. Stritch, Jr.
Chief Executive Officer
Chief Financial Officer
-10-
<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> JUL-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,303,728
<ALLOWANCES> (159,900)
<INVENTORY> 458,862
<CURRENT-ASSETS> 2,226,845
<PP&E> 7,455,538
<DEPRECIATION> (4,777,313)
<TOTAL-ASSETS> 5,012,219
<CURRENT-LIABILITIES> 1,845,434
<BONDS> 1,782,365
0
0
<COMMON> 4,181,697
<OTHER-SE> (2,797,277)
<TOTAL-LIABILITY-AND-EQUITY> 5,012,219
<SALES> 1,846,960
<TOTAL-REVENUES> 1,873,960
<CGS> 1,274,402
<TOTAL-COSTS> 1,274,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,446
<INCOME-PRETAX> 35,285
<INCOME-TAX> 0
<INCOME-CONTINUING> 35,285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,285
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
