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, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______ to _______
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 Identification No.)
incorporation or organization)
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 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: 3,024,797 common shares as of
September 15, 2000
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, 2000 April 30, 2000
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ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 461,890 $ 87,165
Accounts receivable, less allowance for doubtful accounts of
$178,000 and $175,000, respectively 1,308,186 1,278,366
Inventories 515,340 520,449
Prepaid expenses and other 179,262 181,598
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Total current assets 2,464,678 2,067,578
PROPERTY, PLANT, AND EQUIPMENT, net 2,973,530 2,915,556
PURCHASED SOFTWARE, net 151,550 152,526
OTHER ASSETS 24,759 25,044
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$ 5,614,517 $ 5,160,704
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit agreement $ 209,083 $ 305,559
Trade accounts payable 983,740 1,038,294
Accrued salaries, wages, vacations, and employee withholdings 391,770 305,270
Deferred income 206,353 5,534
Other accrued expenses 226,466 419,991
Current portion of long-term debt 320,149 321,912
Current portion of capitalized lease obligations 316,191 303,935
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Total current liabilities 2,653,752 2,700,495
LONG-TERM DEBT, less current portion 472,898 486,511
CAPITALIZED LEASE OBLIGATIONS, less current portion 700,239 778,363
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized 10,000,000 shares, issued
and outstanding 3,024,797 and 2,802,575 shares respectively 4,681,697 4,181,697
Accumulated deficit (2,894,069) (2,986,362)
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Total stockholders' equity 1,787,628 1,195,335
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$ 5,614,517 $ 5,160,704
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</TABLE>
See notes to financial statements.
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<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED JULY 31,
2000 1999
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<S> <C> <C>
REVENUES:
Net sales $2,584,620 $1,846,960
Other income 130,569
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Total revenues 2,584,620 1,977,529
COSTS AND EXPENSES:
Cost of products sold 1,780,090 1,377,971
Selling, general, and administrative 641,721 494,827
Interest 70,516 69,446
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Total costs and expenses 2,492,327 1,942,244
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NET INCOME $ 92,293 $ 35,285
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WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Basic 2,899,193 2,802,575
========== ==========
Diluted 3,159,018 3,065,230
========== ==========
NET INCOME PER SHARE:
Basic $ .03 $ .01
========== ==========
Diluted $ .03 $ .01
========== ==========
</TABLE>
See notes to financial statements.
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<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED JULY 31
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 92,293 $ 35,285
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 235,731 185,350
Contingent acquisition price financed through the reduction
of accounts receivable (161,076) (127,409)
Changes in assets and liabilities:
Accounts receivable (29,820) (62,227)
Inventories 5,109 56,842
Prepaid expenses and other 2,621 (30,732)
Deferred income 200,819
Accounts payable, accruals, and other accrued expenses (161,579) (91,318)
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Net cash provided by (used in) operating activities 184,098 (34,209)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (131,653) (30,335)
Other 45,250
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Net cash (used in) provided by investing activities (131,653) 14,915
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in checks written in excess of bank balances -- (3,502)
(Decrease) increase in revolving credit agreement (96,476) 115,644
Payments on long-term debt and capital lease obligations (81,244) (92,848)
Proceeds from issuance of common stock 500,000
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Net cash provided by financing activities 322,280 19,294
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NET INCREASE IN CASH AND CASH EQUIVALENTS 374,725 --
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 87,165 --
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 461,890 $ --
=========== ===========
</TABLE>
See notes to financial statements.
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<PAGE>
PART 1- FINANCIAL INFORMATION (CONTINUED)
NOTES TO FINANCIAL STATEMENTS -
NOTE A:
The Balance Sheet as of July 31, 2000 and the Statements of Operations for the
three month periods ended July 31, 2000 and 1999 and Statements of Cash Flows
for the three months ended July 31, 2000 and 1999 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, 2000 has been derived from the audited Balance
Sheet included in the Company's April 30, 2000 Annual Report on Form 10-KSB.
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, 2000 Annual Report on Form 10-KSB.
NOTE B:
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 and PCI 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 $161,076 for credit memos
issued or to be issued relating to sales during the three-month period ended
July 31, 2000.
NOTE C:
On October 24, 1997 the Company entered into a revolving credit agreement. This
note was renewed for one additional year and terminates on November 6, 2000. The
lender has notified the Company that due to their being acquired they are no
longer accepting revolving credit agreements of under $1 million. Also, in May
2000, the Company entered into a $16,500 vehicle note, which is collateralized
by the vehicle. The note has an interest rate of 9.5% and is due in monthly
installments of $348.
NOTE D:
During June 2000, the Company received proceeds of $500,000 of equity financing
through a private placement of 222,222 shares of common stock at $2.25 per
share. The common stock sold also has rights requiring the Company to issue
additional shares of common stock if, prior to April 30, 2001, the Company sells
common stock at less than $2.25 per share.
NOTE E:
For the periods presented comprehensive income is the same as net income.
NOTE F:
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 G:
On August 1, 2000, the Company entered into an agreement to sell its film
phototool facility in Irving, CA. We expect to close in the second quarter of
fiscal year 2001 on this transaction and no loss is expected from the
transaction. Sales from the Irving, CA facility for the three months ended July
31, 2000 were $118,000.
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<PAGE>
NOTE H:
In the second quarter of fiscal 2001, the Company made a $250,000 deposit in
connection with an Original Equipment Manufacturing Agreement ("the Agreement").
A business partner financed the deposit. Depending on the successful evaluation
period, the minimum future commitment under the Agreement is the deposit plus an
additional $150,000.
NOTE I.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This
Statement requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. In July
1999, the 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.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101 that provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
The Company is required to modify its revenue recognition policy to comply with
SAB No. 101, as amended, no later than April 30, 2001. Management has not yet
determined the effects SAB No. 101 will have on the Company's financial position
or the results of its operations.
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<PAGE>
PART 1 - FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE MONTHS ENDED JULY 31, 2000 COMPARED TO THREE MONTHS ENDED JULY 31, 1999
Operations for the three months ended July 31, 2000 resulted in net sales of
$2,585,000 compared to $1,847,000 for the same period last year, a 40% increase.
The increase in sales is a result of both the offering of additional products
and increased phototooling demand. The other income of $131,000 for the three
months ended July 31, 1999 related to fees for non-recurring services provided
in connection with a license agreement sold in 1998.
The gross margin for the three months ended July 31, 2000 was 31%, compared to
25% for the same period last year. The $805,000 gross profits for the three
months compared to $469,000 for the same period last year. The increase in gross
margin as a percentage of sales and gross margins is primarily due to the
increase in sales and a significant portion of cost of products sold being
fixed.
The Company's total selling, general and administrative (S, G & A) expenses for
the three months ended July, 31, 2000 were $642,000 compared with $495,000 for
the same period last year, an increase of 30%. S, G & A increased due to
increases in the number of employees and compensation expenses.
The Company's interest expense for the three months ended July 31, 2000 was
$71,000 compared with $69,000 for the same period a year ago. The slight
increase in interest expense was due to higher interest rates partially offset
by a reduction in our revolving credit line.
The Company had net income of $92,000 for the three months ended July 31, 2000
compared to net income of $35,000 for the same period last year.
Liquidity. The Company had negative working capital of $189,000 at July 31, 2000
and $633,000 at April 30, 2000. The change in working capital is primarily due
to the receipt of $500,000 of equity financing in June 2000. The Company's cash
flow provided by operations was $184,000 for the three months ended July 31,
2000, compared with cash used in operations of $34,000 for the same period last
year. The increase in cash flow from operations is primarily due to an increase
in deferred income and depreciation and amortization. The increase in deferred
income relates to the maintenance contracts and the deferral of certain software
sales. The increase in depreciation and amortization is primarily due to the
capital expenditures in fiscal 2000 which principally include additional
purchase price of the Colorado acquisition.
For the three months ended July 31, 2000 the Company invested cash of $132,000
in capital equipment and purchased software. The Company's cash flows provided
by investing activities were $15,000 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.
Capital Resources. An equity investment of $500,000 was received in June 2000
and management believes that the cash provided from planned operations and
availability under a new anticipated revolving credit agreement will be
sufficient to support the Company's expected cash needs for current operations
for fiscal year 2001. The Company currently has a revolving credit agreement, at
the lender's discretion, allows the Company to borrow 75% of its eligible
services receivable, up to $750,000. This agreement ends in November 2000. The
Company's mortgage note matures on October 15, 2000 and the Company is also
anticipating its renewal. The Company is currently having discussions with its
current bank as well as other financial institutions concerning a replacement
credit facility. Although the Company is exploring additional funding
possibilities, it has
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<PAGE>
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 need to limit its investments into new
operations in fiscal 2001 and may not be able to expand its investment into new
operations beyond 2001.
The Company's cash flow provided by financing activities was $322,000 for the
three months ended July 31, 2000 compared to cash flow provided by financing
activities of $19,000 during the same period last year. Cash flows provided by
financing activities for the three months ending July 31, 2000 consisted of the
sale of common stock of $500,000, partially offset by decreases in revolving
credit agreement of $96,000, payments on long-term debt and capital lease
obligations of $81,000. Cash flows provided by financing activities for the
three months ending July 31, 1999 consisted of an increase in the revolving
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. The Company is planning a capital
investment with a business partner in an entity to operate a Large Area Mask
facility in Singapore in the second quarter of fiscal year 2001. Additionally,
the Company has a payable of $250,000 to a business partner and is committed to
an additional minimum $150,000 in connection with an Original Equipment
Manufacturing Agreement ("the Agreement"). The $400,000 represents the minimum
purchase requirements under the Agreement. While these specific expansion plans
will go forward with our current capital resources and refinancing of existing
debt, additional growth and expansions in 2001 and beyond will be restricted if
additional financing is not obtained in 2001. This is partly due to the extended
lead-time required for capital equipment.
Other Items. Inflation has not had any significant impact upon the Company's
results of operation.
Recently Issued Accounting Pronouncements. In June 1998, the Financial
Accounting Standards Board (FASB) issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This Statement requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. In July 1999, the 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.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101 that provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
The Company is required to modify its revenue recognition policy to comply with
SAB No. 101, as amended, no later than April 30, 2001. Management has not yet
determined the effects SAB No. 101 will have on the Company's financial position
or the results of its operations.
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, the Company's
ability to (i) sell its Irvine, CA facility, (ii) replace its existing credit
facility and (iii) open the proposed Large Area Mask facility in Singapore; and
other factors discussed in the Company's filings with the Securities and
Exchange Commission.
-8-
<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, 2000, 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 19, 2000 By /S/ Clifford F. Stritch, Jr.
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Clifford F. Stitch, Jr.
Chief Executive Officer
By /S/ Barry B. Onufrock
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Barry B. Onufrock
Chief Financial Officer
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<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
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27.1 Financial Data Schedule
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