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, 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_____________
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
December 15, 2000
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFINITE GRAPHICS
BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
October 31, 2000 April 30, 2000
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 129,149 $ 87,165
Accounts receivable, less allowance for doubtful accounts
of $175,000 at both dates 1,524,074 1,278,366
Refundable deposit 500,000 --
Inventories 501,332 520,449
Prepaid expenses and other 368,127 181,598
-------------- --------------
Total current assets 3,022,682 2,067,578
PROPERTY, PLANT, AND EQUIPMENT, NET 3,021,137 2,915,556
PURCHASED SOFTWARE, NET 111,990 152,526
OTHER ASSETS 34,276 25,044
-------------- --------------
TOTAL ASSETS $ 6,190,085 $ 5,160,704
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit agreement $ 395,973 $ 305,559
Trade accounts payable 571,901 1,038,294
Customer deposit 500,000 --
Accrued salaries, wages, vacations, and employee withholdings 526,308 305,270
Other accrued expenses 358,329 419,991
Deferred income 237,317 5,534
Current portion of long-term debt 162,376 321,912
Current portion of capitalized lease obligations 282,589 303,935
-------------- --------------
Total current liabilities 3,034,793 2,700,495
LONG-TERM DEBT, less current portion 600,413 486,511
CAPITALIZED LEASE OBLIGATIONS, less current portion 627,478 778,363
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, respectively 4,681,697 4,181,697
Accumulated deficit (2,754,296) (2,986,362)
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Total stockholders' equity 1,927,401 1,195,335
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 6,190,085 $ 5,160,704
============== ==============
</TABLE>
See notes to financial statements.
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<PAGE>
PART 1 - FINANCIAL INFORMATION (CONTINUED)
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTH PERIOD SIX MONTH PERIOD
ENDED OCTOBER 31, ENDED OCTOBER 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 2,475,955 $ 2,156,955 $ 5,060,575 $ 4,003,915
Other income -- 24,294 -- 154,863
------------ ------------ ------------ ------------
Total revenues 2,475,955 2,181,249 5,060,575 4,158,778
COSTS, EXPENSES AND OTHER:
Costs of products sold 1,626,604 1,571,009 3,406,694 2,948,980
Selling, general and administrative 678,455 497,852 1,320,176 992,679
Gain on sale of California operations (28,221) -- (28,221) --
Interest 59,344 48,358 129,860 117,804
------------ ------------ ------------ ------------
Total costs and expenses 2,336,182 2,117,219 4,828,509 4,059,463
------------ ------------ ------------ ------------
NET INCOME $ 139,773 $ 64,030 $ 232,066 $ 99,315
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Basic 3,024,797 2,802,575 2,961,995 2,802,575
Diluted 3,311,256 3,085,931 3,235,137 3,106,632
BASIC NET INCOME PER SHARE $ 0.05 $ 0.02 $ 0.08 $ 0.04
============ ============ ============ ============
DILUTED NET INCOME PER SHARE $ 0.04 $ 0.02 $ 0.07 $ 0.03
============ ============ ============ ============
</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,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 232,066 $ 99,315
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 472,584 378,234
Contingent acquisition price financed through the reduction
of accounts receivable (385,686) (211,821)
Gain on sale of California operations (28,221) --
Changes in assets and liabilities:
Accounts receivable (245,708) (335,190)
Inventories 9,559 (1,272)
Refundable deposit (500,000) --
Prepaid expenses and other (98,144) (90,815)
Customer deposit 500,000 --
Deferred income 231,783 --
Accounts payable, accruals and other accrued expenses (307,017) 241,573
------------ ------------
Net cash (used in) provided by operating activities (118,784) 80,024
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (215,281) (196,663)
Proceeds from sale of California operations 20,000 --
Decrease in accounts receivable-other -- 267,101
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Net cash (used in) provided by investing activities (195,281) 70,438
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in checks written in excess of bank balances -- (167,204)
Proceeds from issuance of common stock 500,000 --
Increase in revolving credit agreement 90,414 211,606
Payments on long-term debt and capital lease obligations (234,365) (194,864)
------------ ------------
Net cash provided by (used in) financing activities 356,049 (150,462)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 41,984 --
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 87,165 --
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 129,149 $ --
============ ============
</TABLE>
See notes to financial statements.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A:
The Balance Sheet as of October 31, 2000 and the Statements of Operations for
the three and six month periods ended October 31, 2000 and 1999 and the
Statements of Cash Flows for the six months ended October 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 $385,686 for credit memos
issued or to be issued relating to sales during the six-month period ended
October 31, 2000.
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:
On October 24, 1997 the Company entered into a revolving credit agreement. This
note was renewed for one additional year and terminated on November 6, 2000. The
lender has extended the revolving credit agreement for 90 days ending on
February 10, 2001. There were no changes in the terms of the note. 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 $1,348. On November 7, 2000 the Company extended its Mortgage
Note to November 7, 2005. The Note amount also has been increased to $275,000,
providing the Company with $74,000 of loan proceeds. The note continues the
current interest rate of prime plus 2.0%, currently 11.50%, and monthly payments
$3,892.
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:
Effective August 3, 2000, the Company has sold its film phototool facility in
Irving, CA. The sale resulted in a gain of $28,221. Sales from the Irving, CA
facility were $122,000 for the six-month period ended October 31, 2000.
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<PAGE>
NOTE F:
In the second quarter of fiscal 2001, the Company made a $500,000 refundable
deposit in connection with an Original Equipment Manufacturing Agreement ("the
Agreement"). In connection with this Agreement, the Company has received a
refundable deposit of $500,000 as a down-payment for equipment from a potential
business partner. Depending on the successful evaluation period, the minimum
future commitment under the Agreement is the deposit plus an additional
$300,000.
NOTE G:
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 OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 2000 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1999
Operations for the three months ended October 31, 2000 resulted in net sales of
$2,476,000 compared to $2,157,000 for the same period last year or a 15%
increase. The increase in sales is a result of both the offering of additional
products and increased phototooling demand, primarily in the Large Area Mask
business.
The gross margin for the three months ended October 31, 2000 was 34%, compared
to 27% for the same period last year. The $849,000 gross profit for the three
months ended October 31, 2000 compares to $586,000 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 October 31, 2000 were $678,000 compared to $498,000 for
the same period last year, an increase of $180,000 or 36%. S, G & A increased
due to increases in selling and administrative costs related to an increase in
personnel. The Company's interest expense for the three months ended October 31,
2000 was $59,000 compared to $48,000 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 and higher interest rates.
On August 1, 2000, the Company entered into an agreement to sell its film
phototool facility in Irving, CA, effective August 3, 2000. A gain on the sale
of $28,221 is reported in the three months ended October 31, 2000. Sales from
the Irving, CA facility for the three months ended October 31, 2000 were $4,000.
The Company has sold this facility as it no longer fits its plans in the Large
Area Mask business. We expect to collect the remaining $110,000 of the
sale price in the third quarter of fiscal year 2001.
The Company had net income of $140,000 for the three months ended October 31,
2000 compared to net income of $64,000 for the same period last year.
SIX MONTHS ENDED OCTOBER 31, 2000 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1999
Operations for the six months ended October 31, 2000 resulted in net sales of
$5,061,000 compared to $4,004,000 for the same period last year or a 26%
increase. The increase in sales is a result of both the offering of additional
products and increased phototooling demand, primarily in the Large Area Mask
business.
The gross margin for the six months ended October 31, 2000 was 33%, compared to
26% for the same period last year. The $1,654,000 gross profit for the six
months ended October 31, 2000 compares to $1,055,000 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 six months ended October 31, 2000 were $1,320,000 compared to $993,000 for
the same period last year, an increase of $327,000 or 33%. S, G & A increased
due to increases in selling and administrative costs related to an increase in
personnel. The Company's interest expense for the six months ended October 31,
2000 was $130,000 compared to $118,000 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 and higher interest rates.
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<PAGE>
On August 1, 2000, the Company entered into an agreement to sell its film
phototool facility in Irving, CA, effective August 3, 2000. A gain on the sale
of $28,221 is reported in the six months ended October 31, 2000. Sales from the
Irving, CA facility for the six months ended October 31, 2000 were $122,000. The
Company has sold this facility as it no longer fits its plans in the Large Area
Mask business. We expect to collect the remaining $110,000 of the transaction in
the third quarter of fiscal year 2001.
The Company had net income of $232,000 for the six months ended October 31, 2000
compared to net income of $99,000 for the same period last year.
Liquidity. The Company had negative working capital of $12,000 at October 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 used in operations was $119,000 for the six months ended October 31,
2000, compared to cash provided by operations of $80,000 for the same period
last year. The decrease in cash flow from operations is primarily due to the
continued non-cash sales as payment of the contingent purchase price of the 1999
Colorado acquisition and the payment of current liabilities. This was offset by
increases in net income, depreciation and amortization, and deferred income,
which is a new component of cash flow for the Company. This deferred income
relates to the maintenance contracts and the deferral of certain software sales.
For the six months ended October 31, 2000, the Company invested cash of $215,000
in capital equipment and purchased software and received $20,000 from the sale
of the California operations. Cash flows provided by investing activities were
$70,000 for the six months ended October 31, 2000. It consisted primarily in the
decrease in other receivables of $267,000 partially offset by expenditures for
capital equipment of $197,000.
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, that allows the Company to borrow 75% of its eligible
services receivable, up to $750,000. This agreement ends in February 2001. The
Company's mortgage note which matured on October 15, 2000 has been extended and
provided an additional $74,000 in November 2000. The Company is currently having
discussions with its current bank as well as other financial institutions
concerning a replacement revolving credit facility. 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 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 $356,000 for the
six months ended October 31, 2000 compared to cash flow used in financing
activities of $150,000 during the same period last year. Cash flows provided by
financing activities for the six months ended October 31, 2000 consisted of the
sale of common stock of $500,000 and increases in the revolving credit agreement
of $90,000 partially offset by payments on long-term debt and capital lease
obligations of $234,000. Cash flows used in financing activities for the six
months ended October 31, 1999 consisted of a decrease in checks written in
excess of bank balances of $167,000 and payments of $195,000 on long-term debt
and principal payments on capital lease obligations partially offset by increase
in the revolving credit agreement of $212,000. 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 third quarter of fiscal year 2001. In connection
with an Original Equipment Manufacturing Agreement ("the Agreement"), the
Company made a $500,000 refundable deposit on equipment. Until an evaluation
period is completed the transaction may be cancelled. If the evaluation period
is successful, the minimum future commitment under the Agreement is $800,000.
Additionally, the Company has received a customer deposit of $500,000 from a
potential business partner who has verbally agreed to commit an additional
$300,000. The Company is also anticipating entering into a joint venture
agreement with the potential business
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<PAGE>
partner. If the joint venture were established, the Company's $800,000 future
commitment would be transferred to the newly formed entity. 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) replace its existing revolving credit facility and (ii) open the
proposed Large Area Mask facility in Singapore; 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
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 October 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.
December 20, 2000 By /S/ Clifford F. Stritch, Jr.
----------------------------
Clifford F. Stritch, Jr.
Chief Executive Officer
By /S/ Barry Onufrock
------------------
Barry Onufrock
Chief Financial Officer
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<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
----------- ---------------------- --------
27.1 Financial Data Schedule
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