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 January 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: 2,802,575 common shares as of March
20, 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>
January 31, 2000 April 30, 1999
---------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful accounts
of $198,900 and $117,900 respectively $ 1,178,686 $ 1,081,601
Account receivable - other (Note F ) 160,128 512,089
Inventories 467,438 515,704
Prepaid expenses and other 135,751 126,175
------------- -------------
Total current assets 1,942,003 2,235,569
PROPERTY, PLANT, AND EQUIPMENT, NET 2,826,773 2,716,335
PURCHASED SOFTWARE, NET 74,652 68,701
OTHER ASSETS 132,124 28,353
------------- -------------
TOTAL ASSETS $ 4,975,552 $ 5,048,958
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks written in excess of bank balances $ 180,951 $ 205,108
Revolving credit agreement 269,134 252,655
Trade accounts payable 697,453 510,424
Accrued salaries, wages, vacations, and employee withholdings 250,367 228,326
Other accrued expenses 565,783 256,026
Current portion of long-term debt 118,757 112,467
Current portion of capitalized lease obligations 297,744 279,860
------------- -------------
Total current liabilities 2,380,189 1,844,866
LONG-TERM DEBT, less current portion 675,232 765,041
CAPITALIZED LEASE OBLIGATIONS, less current portion 855,437 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 (3,117,003) (2,832,562)
------------- -------------
Total stockholders' equity 1,064,694 1,349,135
------------- -------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,975,552 $ 5,048,958
============= =============
</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 NINE MONTH PERIOD
ENDED JANUARY 31 ENDED JANUARY 31
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 1,695,819 $ 1,097,629 $ 5,699,734 $ 3,244,595
Other income 3,776 0 158,639 0
----------- ----------- ----------- -----------
Total revenues 1,699,595 1,097,629 5,858,373 3,244,595
COSTS AND EXPENSES:
Costs of products sold 1,232,107 822,969 4,181,087 2,257,864
Selling, general and administrative 794,328 139,585 1,787,007 625,654
Interest 56,916 55,119 174,720 117,447
----------- ----------- ----------- -----------
Total costs and expenses 2,083,351 1,017,673 6,142,814 3,000,965
----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (383,756) $ 79,956 $ (284,441) $ 243,630
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Basic 2,802,575 2,752,575 2,802,575 2,698,030
=========== =========== =========== ===========
Diluted 2,802,575 2,874,029 2,802,575 2,785,491
=========== =========== =========== ===========
BASIC NET (LOSS) INCOME PER SHARE $ (0.14) $ 0.03 $ (0.10) $ 0.09
=========== =========== =========== ===========
DILUTED NET (LOSS) INCOME PER SHARE $ (0.14) $ 0.03 $ (0.10) $ 0.09
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
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<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Nine Month Period
Ended January 31
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (284,441) $ 243,630
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 591,240 283,802
Capital expenditures financed through the reduction
of accounts receivable (510,966) 0
Changes in assets and liabilities:
Accounts receivable (97,085) 20,143
Inventories 48,266 (142,126)
Prepaid expenses and other (8,347) (118,710)
Accounts payable, accruals and other accrued expenses 518,827 139,402
----------- -----------
Net cash provided by operating activities 257,494 426,141
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (196,663) (454,794)
Payment for acquisitions, net of liabilities assumed -- (375,000)
Increase in Other Assets (105,000)
Decrease in accounts receivable-other 351,961 17,321
----------- -----------
Net cash provided by (used in) investing activities 50,298 (812,473)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in checks written in excess of bank balances (24,157)
Proceeds from issuance of debt 499,552
Increase in revolving credit agreement 16,479 90,193
Payments on long-term debt and capital lease obligations (300,114) (136,177)
----------- -----------
Net cash used in financing activities (307,792) 453,568
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS -- 67,236
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR -- 195,984
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD -- $ 263,220
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Stock options purchased with note receivable $ 30,938
Equipment acquired by capital lease $ 1,420,000
</TABLE>
See notes to financial statements.
-4-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A:
The Balance Sheet as of January 31, 2000 and the Statements of Operations for
the three and nine month periods ended January 31, 2000 and 1999 and the
Statements of Cash Flows for the three and nine months ended January 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, 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 (loss) income is the same as net (loss)
income.
NOTE C:
Basic net (loss) income per share are computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Diluted net (loss)
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 $510,966 for credit
memos issued during the nine-month period ended January 31, 2000.
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<PAGE>
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
Nine Month
Period Ended January 31
-----------------------
2000 1999
(unaudited)
Revenues $5,858,000 $4,899,000
Net (loss) income $ (284,000) $ 307,000
Net (loss) income per share:
Basic $ (0.10) $ .11
Diluted $ (0.10) $ .11
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
could use the License Software, Modifications and Marks until December 15, 1999.
The Company and GMC have had negotiations for IGI to assume certain assets and
liabilities from GMC including the elimination of any future liability of each
party. However, as of this filing date no definitive agreement has been reached.
The Company is re-engaged in selling its' software.
NOTE G:
On October 24, 1997 the Company entered into a revolving credit agreement. This
note was renewed for one year on October 20, 1999. There were no changes in the
terms of the note.
As of January 31, 2000 the Company was not in compliance with certain covenants
of the revolving credit agreement, mortgage note and equipment note. It has
received a verbal waiver from these defaults from the bank.
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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 JANUARY 31, 2000 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1999
Operations for the three months ended January 31, 2000 resulted in net sales of
$1,696,000 compared to $1,098,000 for the same period last year or an 54%
increase. The increase in sales is primarily due to the acquisition of the
Colorado facility.
The gross margin for the three months ended January 31, 2000 was 27%, compared
to 25% for the same period last year. The $464,000 gross profit for the three
months ended January 31, 2000 compares to $275,000 for the same period last
year.
The Company's total selling, general and administrative (S, G & A) expenses for
the three months ended January 31, 2000 were $794,000 compared to $140,000 for
the same period last year, an increase of $654,000 or 467%. S, G & A increased
due to increases in selling and administrative costs related to the Colorado
Springs facility, an increase in personnel, and R & D activities. Our R & D
expenditures are related to improving quality and reducing overall costs of
manufacturing. The Company's interest expense for the three months ended January
31, 2000 was $57,000 compared to $55,000 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 a net loss of $384,000 for the three months ended January 31,
2000 compared to a net income of $80,000 for the same period last year. A strong
but temporary late calendar year 1999 sales decline contributed to the net loss
for the period. Also, the distraction of maximizing the earn-out and then
canceling the license of the February 27, 1998 License and Asset purchase
agreement with GMC also contributed to the decrease in sales.
NINE MONTHS ENDED JANUARY 31, 2000 COMPARED TO NINE MONTHS ENDED JANUARY 31,
1999
Operations for the nine months ended January 31, 2000 resulted in net sales of
$5,700,000 compared to $3,245,000 for the same period last year or an 76%
increase. The increase in sales is primarily due to the acquisition of the
Colorado facility.
The gross margin for the nine months ended January 31, 2000 was 27%, compared to
30% for the same period last year. The $1,519,000 gross profit for the nine
months ended January 31, 2000 compares to $987,000 for the same period last
year. The increase in gross profit is primarily due to the increase in sales
relating to the acquisition of the Colorado facility. The inability to reduce
costs was the primary contributor to the decrease in gross margin as a
percentage of sales.
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<PAGE>
The Company's total selling, general and administrative (S, G & A) expenses for
the nine months ended January 31, 2000 were $1,787,000 compared to $626,000 for
the same period last year, an increase of $1,161,000 or 185% increase. S, G & A
increased due to increases in selling and administrative costs related to the
Colorado Springs facility, an increase in personnel, and new R & D efforts. Our
R & D expenditures are related to improving quality and reducing overall costs
of manufacturing. The Company's interest expense for the nine months ended
January 31, 2000 was $175,000 compared to $117,000 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 a net loss of $284,000 for the nine months ended January 31,
2000 compared to net income of $244,000 for the same period last year. A
temporary late calendar year 1999 sales decline slow down contributed to the net
loss for the year. The distraction of maximizing the earn-out and then canceling
the license of the February 27, 1998 License and Asset purchase agreement with
GMC also contributed to the decrease in sales.
LIQUIDITY. The Company's cash flow provided by operations was $257,000 for the
nine months ended January 31, 2000, compared to $426,000 for the same period
last year. The largest components of cash flow provided by operations for the
nine months ended January 31, 2000 were depreciation and amortization of
$591,000, an increase in accounts payable and accrued expenses of $519,000,
partially offset by capital expenditures financed through a reduction of
accounts receivable of $511,000 and the net loss of $284,000. The largest
component of cash flow from operations for the nine months ended January 31,
1999 were net income of $244,000 and depreciation and amortization of $284,000.
A strong but temporary decline in sales late in this three-month period has
caused short-term liquidity problems. Strong sales have resumed in the fourth
quarter and management believes that the 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 in excess of
$1,000,000. 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 $50,000 for the
nine months ended January 31, 2000. For the nine months ended January 31, 2000,
consisted primarily of expenditures for capital equipment of $197,000, a
decrease of other receivables of $352,000, partially offset by an increase in
other assets of $105,000. Cash flows used in investing activities were $812,000
for the nine months ended January 31, 1999. It consisted of payments for capital
expenditures of $455,000 and payments for acquisitions of $375,000.
The Company's cash flows used in financing activities was $308,000 for the nine
months ended January 31, 2000 compared to cash flows provided by financing
activities of $454,000 during the same period last year. Cash flows used in
financing activities for the nine months ended January 31, 2000 consisted of
payments of $300,000 on long-term debt and principal payments on capital lease
obligations and a $24,000 decrease in checks written in excess of bank balances
partially offset by an increase in the revolving credit agreement of $16,000.
Cash flows provided by financing activities for the nine months ended January
31, 1999 consisted of proceeds of $500,000 from the placement of long-term debt
and an increase in the revolving credit agreement of $90,000 partially offset by
payments on long-term debt and principal payments on capital lease obligations
of $136,000.
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.
-8-
<PAGE>
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 of March 20, 2000, the Company has not
experienced and does not expect to experience any significant problems with the
transition to the year 2000. Further, as of March 20, 2000, the Company has not
experienced any operating problems or product failures as a result of Year 2000
issues with its vendors, service providers or customers. All significant aspects
of the Company's Year 2000 plan have been completed by this filing.
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 January 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.
March 21, 2000 By /S/ Clifford F. Stritch, Jr.
----------------------------
Clifford F. Stritch, Jr.
Chief Executive 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> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> JAN-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,377,586
<ALLOWANCES> (198,900)
<INVENTORY> 467,438
<CURRENT-ASSETS> 1,942,003
<PP&E> 7,993,212
<DEPRECIATION> (5,166,439)
<TOTAL-ASSETS> 4,975,552
<CURRENT-LIABILITIES> 2,380,189
<BONDS> 1,530,669
0
0
<COMMON> 4,181,697
<OTHER-SE> (3,117,003)
<TOTAL-LIABILITY-AND-EQUITY> 4,975,552
<SALES> 5,699,734
<TOTAL-REVENUES> 5,858,373
<CGS> 4,181,087
<TOTAL-COSTS> 4,181,087
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174,720
<INCOME-PRETAX> (284,441)
<INCOME-TAX> 0
<INCOME-CONTINUING> (284,441)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (284,441)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
