SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File No.
APRIL 30, 2000 0-13042
INFINITE GRAPHICS INCORPORATED
(Name of Small Business Issuer in its Charter)
MINNESOTA 41-0956693
(State or other jurisdiction of Incorporation (IRS Employer Identification No.)
or Organization)
4611 EAST LAKE STREET, MINNEAPOLIS, MN 55406
(Address of Principal Executive Offices) (Zip Code)
(612) 721-6283
(Issuer's Telephone Number including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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___
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [__].
Registrant's revenues for fiscal year ended April 30, 2000: $8,078,601
Aggregate market value of voting stock held by non-affiliates of
registrant as of July 31, 2000: Approximately $4,767,746 (based on the average
of the high bid and asked prices ($2.562) on July 31, 2000. For this purpose,
shares held by all executive officers and directors have been excluded, but
without admitting all such persons are affiliates for other purposes).
Number of shares outstanding as of July 31, 2000: 3,024,797 shares of
Common Stock, no par value.
Documents incorporated by reference: None.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
Infinite Graphics Incorporated ("IGI" or the "Company") primarily
manufactures and services phototools. Phototools are film, glass or quartz
substrates containing images of electronic circuits that are used as masters -
similar to negatives in a photographic type process. Phototools are used
primarily in the manufacture of precise electronic circuits used for circuit
boards, semiconductors, flat panel displays or other electronic equipment. Those
phototools specifically on glass or quartz are called "photomasks". Creation of
a phototool begins when the Company receives a digital image created by its
customer. This digital image is electronically transmitted to the Company mainly
through the Internet. The Company further processes the data, precisely
positions and transfers the image onto a high-quality substrate containing a
photoemulsion or photoresist coating. The photoimage produced is used by the
Company's customers as a master used during their manufacturing process. The
Company has developed several proprietary technologies to provide a wide variety
of electronic image formats, precisely reproduce the images and promptly ship
the finished phototool to the customer on a custom order basis. In addition to
its phototools product line, the Company also sells its proprietary image
processing software, laser imaging equipment and related materials to its
customers, making IGI a full service precision graphics solution.
Prior to the fourth quarter of Fiscal Year 1998 the Company operated two
divisions focusing on distinct but related business segments. The divisions
were: Engineering Services and Software. During February of 1998 the Company
entered into an agreement to sell or license most of the assets of the Software
Division. In December 1999 the Company terminated all rights under the license
agreement and started selling and developing software as a support product to
its phototooling customers.
INDUSTRY BACKGROUND
Historically, phototools were generally designed and manufactured
internally by various electronic manufacturers in "captive" (produced by the
manufacturer) production facilities. Since the mid-1980's, however, the market
for "merchant" (produced for sale to the manufacturer) phototool manufacturers
has grown. The Company estimates that the merchant phototooling industry
worldwide to be well in excess of $5 billion in 1999. As a result of a number of
factors, including the increasing complexity and pace of technological change in
the phototool industry, the emergence of reliable merchant phototool
manufacturers, and a trend by manufacturers to focus capital resources on core
business, a number of manufacturers have divested their captive phototool
operations and chosen to rely on merchant phototool manufacturers for their
phototool and photomask needs.
The phototool industry is generally comprised of three major market
segments: (1) Film phototools, (2) Large Area Masks (LAM) and (3) Integrated
Circuit (IC) Photomasks. These three market segments of the industry can also be
viewed as a function of the geometries they support. Generally, the Film
Phototools market segment produced phototools with features larger than 100
microns. LAM applications begin at about 100 microns and run down to 2 to 5
microns. IC Photomasks typically start below 5 microns and run down to less than
0.25 microns. The following chart explains each of the phototool industry market
segments, the size of the phototool, the make-up of the phototool, and their
intended uses:
<TABLE>
<CAPTION>
MARKET SEGMENT SIZE SUBSTANCE APPLICATION
-------------- ---- --------- -----------
<S> <C> <C> <C>
Film Phototools Over 100 microns Film Printed Circuit Board,
Flexible Circuit Boards,
Flat Panel Display
Photochemical Milling
</TABLE>
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<TABLE>
<S> <C> <C> <C>
LAM 2 microns to 100 microns Normally glass, Photochemical Milling,
Some quartz Various ICs,
Flat Panel Display,
Flexible Circuit Boards,
IC Packaging, and others
IC Photomasks Sub micron Normally quartz, some Semiconductors, and
glass others
</TABLE>
Still another way to view these market segments is by substrate
size/type. Generally, Film Phototooling is produced using film with a
silver-halide emulsion coating on it. Its sizes may be quite large. LAM's are
normally produced using soda-lime glass with silver-halide emulsion coating or
photosensitive resist coating. Generally, LAM substrates are 9 inches by 9
inches and larger. Lastly, IC Photomasks are usually produced using quartz
substrates with photosensitive resist coatings. They commonly range in size, up
to approximately 8 inches.
The trends with respect to whether a market segment is becoming more
"merchant" or "captive" vary within each category as well. The Company believes
that the Film Phototooling element is become increasingly captive. The processes
and equipment readily support this. The IC Photomask element, however, is
trending towards merchant. Companies are outsourcing because of the extreme
expense associated with new IC Photomask requirements. The Company believes that
currently there is no clear trend in the LAM market segment. The key issue is
that the market segments that require LAM are projected to grow substantially
over the next several years.
MARKETS
The Company has focused its precision graphics technologies towards the
LAM and Film markets and does not compete in the IC Photomask submicron market.
The total market size for LAM is comprised of both merchant and captive. The
Company is a merchant supplier in that it produces photomasks and Glass Products
on a custom order basis for others. The Company estimates that the total
merchant market value for Large Area Mask (LAM) today is approximately $25
million domestically today and $250 million worldwide. By the year-end 2005, the
Company believes that this total will grow to approximately $250 million
domestically and $1.2 billion worldwide.
The Company currently maintains production facilities throughout the
United States to service customer applications, primarily semiconductor
packaging, printed wiring board ("PWB"), photochemical milling, flat panel
display ("FPD"), high density interconnect ("HDI"), flexible circuit boards
("FPD") and electronic equipment manufacturing markets. The Company is in the
process of expanding in Asia in order to penetrate that large potential market.
Approximately 95% of the Company's revenue is derived from the custom
manufacture of phototools and photomasks for these markets. Within these two
market segments, the Company services a variety of customers for applications
such as:
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SEMICONDUCTOR PACKAGING
In the strictest sense, an integrated circuit is simply a silicon die,
which has been processed and is awaiting connection with an electronic circuit.
All integrated circuits require some type of external electrical connection in
order to function. Historically, the packaged IC has consisted of a lead-frame,
very small wires connecting the die to the lead-frame and a plastic or ceramic
coating. The Company's primary activity in the older style package has been in
producing phototools for the production of lead-frames. The past several years
have seen packaging technology, for semiconductors, shift from ceramic to
organic material and lead-style change from perimeter to area grid array. The
net result is that semiconductor packages are becoming PWB-like with
increasingly challenging requirements for small feature size and narrow line
widths and spacing. The current standard technology for area-grid array
packaging involves 1.27mm pitch dimensions. The immediate future will see .8mm
become the standard. The Company's technology is essential for .8mm pitch
applications. Area Grid Array packages are projected to have compound annual
growth rates in the range of 20% to 80% depending on the style. The Company is
currently very active in supplying phototooling to this market segment. Of
special interest to the Company are flip chip styles.
PRINTED WIRING BOARD (PWB)
The PWB market segment is quite large and diverse. Company research
estimates that sales worldwide in 1999 were $35 billion, with 54% controlled by
the United States and Japan. By 2005, we estimate the worldwide market to be
somewhere near $49 billion. The shares by country will be adjusted to include
mainland Asia at 26%, the United States at 22% and Japan at 32%. In general the
overall growth rate within the industry is currently and is projected to remain
modest in the 4% to 6% range. Domestically, the growth will slow to 2% to 3%.
The domestic PWB industry is continuing to undergo consolidation and,
consequently, the number of facilities is expected to drop from approximately
650 in 1999 to 400 by 2003. Concurrently, the fraction of total PWB production
furnished by merchant suppliers is expected to climb to over 90% in the next few
years.
SEMICONDUCTOR (IC)
Based on Company research, the current semiconductor market of about
$144 billion is projected to grow by 54% to $244 billion by the year 2003.
Further, double-digit growth should see the market approaching $300 billion by
the year 2005. The semiconductor market can be segmented a number of different
ways. The market segments focused on by the Company include the Ball Grid Array
(BGA) market segment and the Chip Scale (CSP) market segment. It is the
Company's belief that the current sales levels of BGA and CSP are $3.6 billion
and are projected to grow to $12 billion by 2003. Continued high levels of
growth are expected in these styles from 2003 forward. The associated CSP unit
volumes are ramping from 154 million units in 1998 to 4.4 billion by 2003.
PHOTOCHEMICAL MILLING
This process, also known as Photo Etching, Photo Chemical Machining,
Photofabrication and Chemical Blanking, plays a valuable role worldwide in the
production of precision parts and decorative items, mainly sheets and foils.
Such products include: color television masks, integrated circuit board frames,
surface mount paste screens, heat ladders, plates, and sinks, optical
attenuators, choppers and encoder disks, grills, grids, sieves, and meshes,
washers, shims and gaskets, jewelry, decorative ornaments, and signs, plaques
and nameplates. The Company believes that its revenues in the area of
Photochemical Milling will either remain constant or gradually increase over the
next several years.
FLAT PANEL DISPLAY (FPD)
According to Company research, the worldwide sales for the FPD industry
were $18.5 billion in 1999, a 65% increase over 1998. Active Matrix LCD or "TFT"
versions rose 97% to $13.6 billion with Large-Area LCD shipments growing 62% to
22.7 million units. The Company believes that this market will grow at a
compound annual growth rate (CAGR) of 25% through 2005. The bulk of this
business growth has occurred outside of the United States. The Company estimates
that 85% of total FPD production occurs in Asia.
The Company is active in the U. S. market and is doing business with a
number of key producers. Additionally, the Company has been awarded a $1.5
million contract from the United States Display Consortium
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(USDC) to improve processes and equipment for the making of photomasks. This
contract will match the Company's spending up to $850,000.
ELECTRONIC EQUIPMENT MANUFACTURING
The members of the National Electrical Equipment Manufacturers (NEMA)
account for a major percentage of the manufacturers in the U.S. According to
their 1999 industry statistics, their members generated in excess of $82 billion
in sales. The products produced by NEMA members are quite diverse, and they
offer many opportunities for IGI to sell phototools. Much of the business
conducted by the Company is with vendors to NEMA members. The share of Company
business from this market segment was 9% in fiscal year 2000. The percentage of
business is not expected to grow and may decline slightly over the next few
years.
STRATEGY
The Company is the leading LAM supplier in the United States. It is
planning to leverage this position of leadership to expand its business
internationally. The Company's objective is to become a leading supplier of LAM
phototools worldwide, by providing excellent service and the most advanced
technology to its customers.
Historically, the Company has competed in the high-end film
phototooling market in the PWB, Photochemical Milling, Flat Panel Display and
Semiconductor Packaging market segments. Over the past several years the ability
of film phototools to meet the needs of these market segments has been
compromised for a variety of technical reasons, including stability and
layer-to-layer registration tolerances. The Company believes that the growing
need for finer features and more accuracy will continue and will require an
increasing use of glass photomasks that are within the current capability of the
Company to produce.
PRODUCTS
The following Products are offered by the Company.
Large Area Masks
Large Area Masks ("LAM") are produced on glass substrates rather than
film which are generally 9 inches by 9 inches or larger. They are ordered when
the customer has requirements for longer phototool life, higher accuracy and/or
greater dimensional stability. They are generally called for when line width and
spacing is below 100 microns. These LAM photomasks are required in many
applications in Semiconductor Packaging, Integrated Circuit (IC) production, and
Flat Panel Display (FPD) production.
Film Phototooling
Film Phototooling is generally used by customers who need feature line
width and spacing accuracy above 100 microns. Film phototooling consists of an
image applied to a silver halide photosensitive coating applied to a
polyester-type substrate (similar to regular film). It is widely used in the
standard tolerance Printed Wiring Board (PWB) industry.
The Company creates all of its phototool and photomask products on a
real-time basis and has built its manufacturing operations to quickly reproduce
an image onto a tool and promptly ship the phototool back to the customer. Upon
receipt of an electronic file containing the precise graphical image, the
Company reproduces that image, typically by using a laser imager, onto a piece
of glass, quartz or film, creating the phototool or photomask. The tool is then
shipped back to the customer for use as a manufacturing master in a variety of
processes to further reproduce the precision graphic image on metal, glass,
plastic or other material that has been photochemically sensitized. The
customer's manufacturing processes may involve chemical etching, electroplating,
or some other process to create a final product from the master phototool or
master photomask.
Occasionally, the Company is asked to produce directly written
substrates, which are not phototools. The process involved is known as Laser
Direct Imaging (LDI). The plates thus produced are used directly by the customer
as components not phototools.
The precision graphic images produced are frequently that of an
electronic circuit and are used to produce copper-based circuit boards or
packages for integrated circuits. The images may also be used to manufacture
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integrated circuit chips, photo-chemically etched and plated parts, scales or
liquid crystal displays ("LCD") and other flat panel displays. Other precision
graphic services provided by the Company involve the production of film or glass
photographic images or images in digital form. The customer may then use the
digital data to produce its own phototools.
Glass Products
Glass Products are similar to phototools in that the production process
is similar. However, rather than being used to create a product in a
lithographic process, they are actually a product themselves. Examples are
scales, grids, encoder disks and sensor windows. Customers range from encoder
manufacturers, medical equipment produced to military hardware suppliers.
The Company also uses its photomask capabilities to manufacture
precision graphical products, which a customer would use as a component part,
not as a phototool. The Company refers to these as "Glass Products". These
products include precision rulers and grids, and other items produced to a
customer's specifications, such as reticules and graphics which are a system of
lines, dots, cross-hairs, or wires in the focus of the eyepiece of an optical
instrument, or glass rings called encoder disks, used in the assembly of high
precision machines such as CAT scanners and laser gyro-directional services. In
contrast to its precision graphic imaging services, the Company's Glass Products
are often mass-produced by the Company for direct installation by the customer
into the customer's product.
Support Products
In addition to the above products, the Company markets and services an
array of support products, including laser photoplotters and imagers, CAD/CAM
software and other support products. Along with offering revenue-increasing
opportunities, these support products augment the ability of the Company to
conduct business with customer classes normally not previously accessible to the
Company.
Image Processing Software
The Company designs and markets software to all its market segments. It
is used to analyze manufacturability, edit, enhance as well as generate the
precision graphics data needed to create phototooling and support various
production processes such as automatic optical inspection and drilling.
Laser Imaging Equipment
The Company is currently a commission sales representative of two
direct write types of imagers and one drum-style film plotter. The Company has
secured the rights to represent Heidelberg Instruments DWL series imagers in
North America. Because the Company uses Heidelberg Imagers in its service
bureaus, it is very familiar with the operating characteristics of these pieces
of equipment. The Company began representing the Heidelberg line during fiscal
year 1999 for which it is paid a commission. The Company sold three systems in
the first year.
Beginning in 2001, the Company has entered into an original equipment
manufacturer (OEM) agreement to have a specially designed imager manufactured
for resale worldwide under its own name. The model is designed the IGI 2100 and
offers much shorter exposure times and less flexibility than the Heidelberg
systems.
One major benefit of marketing these direct write types of imagers is
that the Company has an opportunity not only to generate additional revenues,
but also be a total solution provider in the photomask arena. In the past when a
customer decided to bring business in-house, the Company simply saw sales
disappear or drop to very low levels. Now the Company can sell equipment and
supplies to its customers and secure an on-going relationship.
CUSTOMERS
The Company's primary customers are generally manufacturers of
Semiconductor Packaging, Printed Wiring Boards (PWB), Semiconductors (IC),
Photochemical Milling, Flat Panel Displays (FPD), Electronic Equipment
Manufacturers and other products. The phototooling services of the Company are
more frequently requested because of the increased need for precise dimensional
control and excellent image quality. In addition, customers appear to be
unwilling or unable to produce the desired graphics themselves.
The Company provides custom precision graphics and circuit board design
services to approximately 425 customers during fiscal year 2000 and
approximately 400 in fiscal year 1999. While during fiscal year 1999 one
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customer of the Company accounted for fourteen percent of the Company's sales,
the situation changed in fiscal year 2000. Three customers account for
approximately 35% of the Company's business. The Company expects that business
will become concentrated in fewer and larger accounts in the future.
SOURCES OF SUPPLY
The Company believes nearly all of the supplies and equipment used in
its precision graphics business are readily available from a number of sources,
except for the photosensitive glass and certain photoplotting instruments
discussed herein where replacement items are available, but at a higher cost and
greater lead time. During fiscal year 2000, the Company continued to receive
photosensitive glass from Eastman Kodak, Ulcoat and certain other suppliers.
However, this glass is not supplied to the Company pursuant to any written
agreements between the suppliers and the Company. If the supplier ceases to
provide the Company with such glass, the Company would have to pay higher raw
material prices for higher quality materials from an alternative source that is
available to the Company. In addition, during fiscal year 2000, the Company
continued to rely upon Heidelberg Instruments, GmbH, Cymbolic Sciences,
Orbotech, Inc. and others to provide spare parts to repair and support the
photoplotting instruments purchased from them and used by the Company. The
Company also relies on other limited vendors for its iron oxide and chrome glass
blanks. Although the Company presently has no reason to believe that the loss of
any of these sources of supply will occur, the loss of any such source of supply
could adversely affect the Company's business.
COMPETITION
Within each of the product categories offered by the Company
competition exists.
In the Film Phototool area, there are approximately 25 companies in the
United States which offer the same general services. The major differences
between the Company and its competitors are based on capabilities of
photoplotting equipment, programmers dedicated to automating work flows, and
partnering with our customers through installation of automation software which
increases efficiencies, quality and fast delivery. Based on these differences,
the Company can enjoy certain competitive advantages, such as equipment,
programmers, etc.; however, it is possible that several competitors could
acquire similar equipment, eliminating the Company's competitive advantage in
photoplotting.
The LAM portion of the Company's precision graphics business faces a
minimum of six competitors in the United States and many times that number
internationally. Only one or two of these competitors is totally focused into
the market and some are located near their customers and therefore hold a
competitive advantage. Major U.S. direct imaging competitors include:
Advance Reprographic, Inc. Film Phototools, LAM, IC Masks
Image Technology Bump Masks, IC Masks
Photosciences IC Masks, Glass Products
IMT LAM, Glass Products
The Glass Products market segment generally involves very diverse
competition, which includes internal capability at a customer, as well as other
merchant service bureaus. All of the glass products are customer designed. The
Company does not have a proprietary line of glass products. The Company does,
however, believe that it is better able to produce artwork at the quality levels
and precision demanded by new applications than existing in-house capability.
EQUIPMENT AND PRODUCTION
In order to produce its precision graphics, the Company uses various
proprietary Company-developed software products, as well as hardware and
software developed by third parties. Using Computer Aided Design ("CAD") and
Computer Aided Manufacturing ("CAM") systems, a customer's data file is
manipulated and modified to the customer's manufacturing panel specifications.
The updated data file information is then input into an imaging device, such as
an ink plotter, or more commonly for higher precision graphics, a laser device.
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A laser-imaging device is a highly stable platform upon which film or
glass is placed. The motion of the light and/or platform is controlled by
information stored on the disk produced on the Company's CAM system. The Company
owns or leases a number of photoplotting devices. These photoplotters include:
Cymbolic Science Fire 9000 laser photoplotters; Orbotech 5008 imaging systems;
Heidelberg Direct Laser Imagers; Texas Instruments Laser Pattern Generators; and
a Large Area Stepper. The Company also owns photographic equipment used in photo
reproduction, film processors, step and repeat equipment, custom equipment, and
various other photographic, measuring and computer equipment.
EXPANSION INTO ASIA
To develop our presence in Asia, the Company is in the process of
negotiating an agreement with a long-time Asian associate with the purpose of
creating an entity to operate a LAM facility in Singapore. The Company believes
that leveraging strategic relationships with some key companies in the same
industry will help the Company achieve several of its goals and objectives. As
the Company's customers become global, the Company will follow them into those
markets and go to where the business is.
ENVIRONMENTAL COMPLIANCE
As part of the manufacturing of the phototools and photomasks, the
Company's operations and use of real property are subject to various
environmental laws and regulations that govern, among other things, the
discharge of pollutants into the air and water and the handling, use, storage,
disposal and clean up of solid and hazardous wastes (including chrome, ammonia
and related emissions). Compliance with such laws and regulations requires that
the Company incur capital expenditures and operating costs in connection with
its ongoing operations. In addition, such laws and regulations may impose
liabilities on owners and operators of businesses and real property without
regard to fault, and such liabilities may be joint and several with other
parties. More stringent environmental laws and regulations may be enacted in the
future which may require us to expend additional amounts on environmental
compliance or may require modifications in our operations.
In early 2000, Hennepin County completed a complete environmental
review in which it was concluded that the Company was in complete compliance
with federal, state and local requirements with regard to the handling, use,
storage, disposal and clean up of solid and hazardous wastes. The Company
believes it is in compliance with such requirements with regard to the other
facilities. The Company currently has no plans to make additional significant
capital expenditures for environmental control facilities.
EMPLOYMENT
The Company has 74 employees, 69 of which are full-time and 5 of which
are part-time, as of June 30, 2000 The number of employees is expected to vary
during fiscal 2001 depending upon the Company's efforts to automate and expand.
None of the Company's employees are covered by a collective bargaining
agreement, and the Company believes its relations with employees are good.
ITEM 2. DESCRIPTION OF PROPERTY.
(a) Location of Principal Plants and Property;
Description of Real Estate and Operating Data.
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The Company substantially utilizes the following facilities and
believes they are suitable for its needs.
Approx. Square
Location Purpose Footage Terms
-------- ------- ------- -----
4611 East Lake St. Service operations 9,200 (1)
Minneapolis, MN
4621 East Lake St. Administration and sales 5,000 (2)
Minneapolis, MN
8 Industrial Way Service operations and sales 2,500 (3)
Salem, NH
815 N. Wooten Road Service operations and sales 27,000 (4)
Colorado Springs, CO
549 Route B Service operations 1,300 (5)
Hallsville, MO
(1) Mortgage note between the Company and Riverside Bank for the 4611 East
Lake St. facility. The mortgage note is effective as of October 24,
1997 and has an original principal balance of $250,000. The Company is
required to make monthly principal and interest payments in an amount
necessary to fully amortize the principal balance over a period of ten
years. Interest on the mortgage note is at Riverside Bank's reference
rate plus 2 percent (currently 11%). The current monthly principal and
interest payments are $3,385.85. The mortgage note matures on October
15, 2000.
(2) Lease between the Company and Infinite Properties, a partnership of the
Company's Chairman of the Board, Clifford F. Stritch, Jr., and Daniel
R. Schultz, dated October 31, 1983. The original term of the lease
expired on October 31, 1988. The Company exercised its option to renew
the lease for an additional five-year period. The lease was
subsequently amended to extend to April 30, 1997. The lease was
subsequently amended by oral agreement to extend to April 30, 2001 on
the same terms and conditions as the prior extension. The rent is
currently $2,750 per month.
(3) Lease between the Company and Harold J. Brooks, a real estate developer
who owns the property in which the Company's New Hampshire operation is
located. The lease on this property expired on December 31, 1997.
Currently, the Company is a month-to-month, at-will tenant of this
property and pays a monthly rent of $1,302.
(4) Lease between the Company and Homburg Holdings (CO) Inc., a Colorado
corporation, for the facility. The current lease term is for five
years, expiring on January 31, 2002. The basic rent is currently
$96,000 per year payable in monthly installments of $8,000.
(5) Lease between the Company and TOWNSQUARE L.L.C., a Missouri Limited
Liability Corporation, for the facility. The current lease term is 38
months, expiring January 31, 2001, but is automatically renewable for
three successive terms of one year each. The basic rent is $2,700 per
month.
(b) Investment Policies.
The Company does not make investments in real estate, real estate
interests, real estate mortgages or securities of or interests in persons
primarily engaged in real estate activities. The Company also does not acquire
assets primarily for possible capital gain or primarily for income.
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ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending to which the Company is
currently a party or to which the property of the Company is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year 2000.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the OTC Bulletin Board under
the symbol "INFG." At June 30, 2000, the number of record holders of the
Company's common stock was 193. The following table sets forth the range of high
bid and low bid quotations for each quarter of the fiscal years ended April 30,
2000 and April 30, 1999. These quotations are from the over-the-counter market
and reflect inter-dealer prices without retail markups, markdowns, or
commissions and may not represent actual transactions.
Year Ended April 30, 2000 Year Ended April 30, 1999
------------------------- -------------------------
Quarter Ended High Bid Low Bid High Bid Low Bid
------------- -------- ------- -------- -------
July 31 $ 2.38 $ 1.70 $ 0.88 $ 0.63
October 31 $ 2.50 $ 1.88 $ 0.88 $ 0.63
January 31 $ 2.31 $ 1.87 $ 1.31 $ 0.63
April 30 $ 3.06 $ 1.94 $ 1.88 $ 1.63
The Company has paid no dividends to date and does not anticipate the
payment of dividends in the immediate future. The Company intends to retain cash
to fund future growth. The Company's General Credit and Security Agreement with
SPECTRUM Commercial Services prohibits the payment of dividends.
As of September 28, 1998, Clifford F. Stritch, Jr., the Company's Chief
Executive Officer, exercised outstanding options to purchase 100,000 shares of
common stock of the Company for a per share exercise price of $.309375 per
share. The $30,937.50 in proceeds received by the Company from such exercise was
used for general working capital purposes. The securities were not registered
under the Securities Act of 1933, as amended, in reliance upon Section 4(2)
promulgated thereunder.
As of April 30, 1999, Edwin F. Snyder, the Company's Executive Vice
President, exercised outstanding options to purchase 50,000 shares of common
stock of the Company for a per share exercise price of $.28125 per share. The
$14,062.50 in proceeds received by the Company from such exercise was used for
general working capital purposes. The securities were not registered under the
Securities Act of 1933, as amended, in reliance upon Section 4(2) promulgated
thereunder.
As of June 21, 2000, Touch Future Technology Ltd. purchased 222,222
shares of common stock of the Company for a per share purchase price of $2.25
per share. The $499,999.50 in proceeds received by the Company from the sale was
used for general working capital purposes. The securities were not registered
under the Securities Act of 1933, as amended, in reliance upon Section 4(2)
promulgated thereunder.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
SECURITIES LITIGATION REFORM ACT
Except for the historical information contained herein, the matters
discussed in this Form 10-KSB 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.
11
<PAGE>
On November 12, 1999 the Company notified Global MAINTECH Corporation
(GMC) that the license granted in the February 27, 1998 license and asset
purchase agreement was terminated for failure to pay the Earn Out Payment within
the required time. The Company began selling software as part of its precision
graphics business in February 2000. In May 2000, GMC terminated all their
employees related to software licensed from the Company. The Company hired
certain of these GMC employees and is now continuing to sell software as part of
its precision graphics business. A strategy of the Company is to continue
selling software primarily to enhance and increase its position in the LAM
marketplace.
On, June 27, 2000, the Company announced that it is partnering in a
$1.5 million project to evaluate, research, develop or purchase state-of-the-art
systems to clean, repair and inspect Large Area Masks (LAM). The project also
includes research and development of enhancements in LAM inspection and
cleaning.
On June 21, 2000, the Company completed a private placement of 222,222
shares at $2.25 per share for $500,000 that will help the Company with its
planned business growth.
Currently, the Company is in the process of negotiating an agreement
with a long-time Asian associate with the purpose of creating an entity to
operate a LAM facility in Singapore and move into the Far East LAM market. This
effort will focus on the exploding growth in the LAM marketplace that is
primarily happening in the Far East marketplace.
On August 1, 2000, the Company entered into an agreement to sell its
film phototool facility in Irving, CA effective August 3, 2000. The film
location is not within the Company's growth plan of production of LAM Glass
Photomasks. We expect to close in September on this transaction and no loss is
expected from the transaction.
RESULTS OF OPERATIONS
Net sales were $7,974,000 in fiscal year 2000, an increase of
$2,982,000 or 60% when compared to net sales of $4,992,000 in fiscal year 1999.
The increase in sales is primarily due to our entering into the LAM marketplace,
the growth of the LAM marketplace, the acquisition of the Colorado Springs
facility in the last quarter of fiscal year 1999, and our beginning to sell
software. Our sales generated through our Colorado Springs facility totaled
$2,700,000 in fiscal 2000, an increase of $2,130,000 from fiscal 1999. Our
software sales generated $187,000, as a result of the Company's re-entry into
the software business in fiscal year 2000. Our other income in fiscal 2000 was
derived wholly from commissions from sales of Laser Imagers. The fiscal year
1999 other income was derived from $105,000 from commissions from sales of Laser
Imagers and $109,600 for services provided to GMC.
The gross margin in fiscal year 2000 was 28%, compared to 31% in fiscal
year 1999. The decrease in gross margin is due to very slow third quarter sales
and the inability to reduce direct costs. The $2,333,000 gross profit for fiscal
year 2000 compares to $1,553,000 for fiscal year 1999. Total gross profit
increased $780,000, or 50% for fiscal 2000. This increase in gross profit was
attributable to higher sales.
The Company's total selling, general and administrative (S, G & A)
expenses increased by $781,000, or 53%, in fiscal year 2000 due to increases in
selling and administrative costs related to the Colorado Springs acquisition and
to an increase in personnel. Total S, G & A expenses as a percentage of sales
were 28% and 29% for fiscal 2000 and 1999, respectively.
The Company's interest expense was $245,000 in fiscal year 2000 and
$188,000 in fiscal year 1999. The increase in interest expense during fiscal
year 2000 when compared to fiscal year 1999 is primarily due to increased
borrowing on the revolving line of credit and slightly higher interest rates.
LIQUIDITY. The Company had negative working capital of $633,000 as of
April 30, 2000 and positive working capital of $391,000 as of April 30, 1999. In
addition, the Company had $444,000 available on its revolving credit agreement
at April 30, 2000. The Company's cash flow from operations was $516,000 for the
year ended April 30, 2000 compared with $11,000 for the same period last year.
The increase in cash flow from operations is primarily due to an increase in
accounts payable and accrued expenses.
12
<PAGE>
In fiscal year 2000, the Company invested cash of $390,000 in capital equipment.
Additional capital equipment was financed through accounts payable. The decline
in working capital is partially attributable to a temporary decline in sales in
November and December, 1999, that caused short-term liquidity problems, however
strong sales resumed in the fourth quarter, and have continued in the 2001
fiscal year. An equity investment of $500,000 was received in June 2000 and
management believes that the cash provided from planned operations and
availability under the Company's revolving credit agreement is will be
sufficient to support the Company's expected cash needs for current operations
for fiscal year 2001. The Company 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. 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 beyond 2001.
CAPITAL RESOURCES. The Company's capital expenditure for equipment and
improvements, including capital leases and accounts payable, was $1,105,000 in
fiscal year 2000 and $2,384,000 in fiscal year 1999. In addition we are planning
a capital investment with a business partner in an entity to operate a LAM
facility in Singapore in the second quarter of fiscal year 2001. While this
specific expansion will go forward with our current capital resources,
additional growth and expansions beyond 2001 will be restricted if additional
financing is not obtained in 2001. This is partly due to the extended lead-time
required for capital equipment.
The Company's cash flow provided from investing activities were
$122,000 in fiscal year 2000. In fiscal year 2000, cash used in investing
activities consisted primarily of expenditures for capital equipment of
$390,000. Capital expenditures for equipment, automation and improvement
opportunities in fiscal year 2001, including a capital investment with a
business partner in an entity to operate a LAM facility in Singapore, are
expected to be in excess of $1,500,000. 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 into the future.
Cash flows used in financing activities were $551,000 for fiscal year 2000. This
use of cash included the payment of capital leases and long-term debt of
$399,000 and the decrease in checks written in excess of bank balances.
FOREIGN CURRENCY TRANSACTIONS
Substantially all of the Company's foreign transactions are negotiated,
invoiced and paid in U.S. dollars. However, as we enter the Pacific Rim for new
business, including but not exclusively through our new planned business
expansion, and acquire raw materials and capital equipment for both foreign
locations and domestic, we may be subject to gains or losses from foreign
currency fluctuations.
INFLATION
Management believes inflation has not had a material effect on the
Company's operations or on its financial condition.
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.
13
<PAGE>
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.
ITEM 7. FINANCIAL STATEMENTS.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Infinite Graphics Incorporated
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Infinite Graphics
Incorporated (the Company) as of April 30, 2000 and 1999 and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of April 30, 2000 and 1999
and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
/S/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 24, 2000
14
<PAGE>
INFINITE GRAPHICS INCORPORATED
BALANCE SHEETS
APRIL 30, 2000 AND 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 87,165
Accounts receivable, less allowance for doubtful accounts of
$175,000 and $117,900, respectively 1,278,366 $ 1,081,601
Account receivable - other (Note 3) 512,089
Inventories (Note 4) 520,449 515,704
Prepaid expenses and other 181,598 126,175
------------ ------------
Total current assets 2,067,578 2,235,569
PROPERTY, PLANT, AND EQUIPMENT, net (Note 5) 2,915,556 2,716,335
PURCHASED SOFTWARE, less accumulated amortization
of $219,448 and $180,516, respectively 152,526 68,701
OTHER ASSETS 25,044 28,353
------------ ------------
$ 5,160,704 $ 5,048,958
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks written in excess of bank balances $ 205,108
Revolving credit agreement (Note 6) $ 305,559 252,655
Trade accounts payable 1,038,294 510,424
Accrued salaries, wages, vacations, and employee withholdings 305,270 228,326
Other accrued expenses 425,525 256,026
Current portion of long-term debt (Note 6) 321,912 112,467
Current portion of capitalized lease obligations (Note 7) 303,935 279,860
------------ ------------
Total current liabilities 2,700,495 1,844,866
LONG-TERM DEBT, less current portion (Note 6) 486,511 765,041
CAPITALIZED LEASE OBLIGATIONS, less current portion (Note 7) 778,363 1,089,916
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Note 8):
Common stock, no par value; authorized 10,000,000 shares,
issued and outstanding 2,802,575 shares at both dates 4,181,697 4,181,697
Accumulated deficit (2,986,362) (2,832,562)
------------ ------------
Total stockholders' equity 1,195,335 1,349,135
------------ ------------
$ 5,160,704 $ 5,048,958
============ ============
</TABLE>
See notes to financial statements.
15
<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 2000 AND 1999
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
<S> <C> <C>
2000 1999
REVENUES:
Net sales $ 7,973,601 $ 4,992,246
Other income 105,000 214,600
------------ ------------
Total revenues 8,078,601 5,206,846
COSTS AND EXPENSES:
Cost of products sold 5,740,879 3,439,712
Selling, general, and administrative 2,244,175 1,462,742
Interest 245,347 188,118
------------ ------------
Total costs and expenses 8,230,401 5,090,572
------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES (151,800) 116,274
INCOME TAXES (Note 9) 2,000 2,000
------------ ------------
NET (LOSS) INCOME $ (153,800) $ 114,274
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Basic 2,802,575 2,721,068
============ ============
Diluted 2,802,575 2,845,483
============ ============
NET (LOSS) INCOME PER SHARE - Basic and Diluted $ (.05) $ .04
============ ============
</TABLE>
See notes to financial statements.
16
<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
COMMON STOCK
----------------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
<S> <C> <C> <C> <C>
BALANCES AT APRIL 30, 1998 2,652,575 $ 4,136,697 $ (2,946,836) $ 1,189,861
Options exercised 150,000 45,000 45,000
Net income 114,274 114,274
------------ ------------ ------------ ------------
BALANCES AT APRIL 30, 1999 2,802,575 4,181,697 (2,832,562) 1,349,135
Net loss (153,800) (153,800)
------------ ------------ ------------ ------------
BALANCES AT APRIL 30, 2000 2,802,575 $ 4,181,697 $ (2,986,362) $ 1,195,335
============ ============ ============ ============
</TABLE>
See notes to financial statements.
17
<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 2000 AND 1999
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (153,800) $ 114,274
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 821,732 450,963
Contingent acquisition price financed through the reduction
of accounts receivable (679,907) (123,946)
Changes in assets and liabilities:
Accounts receivable (196,765) (345,731)
Inventories (4,745) (163,961)
Prepaid expenses and other (55,423) (81,452)
Other assets 3,309 2,830
Accounts payable, accruals, and other accrued expenses 781,228 158,189
------------ ------------
Net cash provided by operating activities 515,629 11,166
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (389,719) (458,753)
Decrease in account receivable - other 512,089 1,165
Payment for acquisition (375,000)
------------ ------------
Net cash provided by (used in) investing activities 122,370 (832,588)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in checks written in excess of bank balances (205,108) 205,108
Borrowings under revolving credit agreement 7,766,912 5,404,305
Payments under revolving credit agreement (7,714,008) (5,292,974)
Proceeds from issuance of long-term debt 499,552
Payments on long-term debt (111,152) (64,550)
Principal payments under capital lease obligations (287,478) (171,003)
Proceeds from issuance of common stock 45,000
------------ ------------
Net cash (used in) provided by financing activities (550,834) 625,438
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 87,165 (195,984)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 195,984
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 87,165 $ --
============ ============
</TABLE>
See notes to financial statements.
18
<PAGE>
INFINITE GRAPHICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000 AND 1999
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Infinite Graphics Incorporated (the Company)
primarily manufactures and services phototools. Phototools are film,
glass, or quartz substrates containing images of electronic circuits
that are used as masters - similar to negatives in a photographic type
process. Phototools are used primarily in the manufacture of precise
electronic circuits used for circuit boards, semiconductors, flat panel
displays, or other electronic equipment. In addition to its phototools
product line, the Company also sells its proprietary image processing
software and is a commissioned sales representative of laser imaging
equipment and related materials, offering its customers a full-service
precision graphics solution.
CASH EQUIVALENTS - The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out) or market.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are
carried at cost less accumulated depreciation and amortization.
Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of five to twenty-five years for
buildings and improvements, five years for leasehold improvements, and
three to ten years for equipment.
PURCHASED SOFTWARE - Certain acquired software technology ($152,526 and
$68,701, net of accumulated amortization at April 30, 2000 and 1999,
respectively) is being amortized over its estimated remaining useful
life of three to five years.
RECOVERABILITY OF LONG-LIVED ASSETS - The Company reviews long-lived
assets for impairment whenever events or changes in circumstances
indicate the carrying value amount of an asset or group of assets may
not be recoverable. The Company considers a history of operating losses
to be its primary indicator of potential impairment. Assets are grouped
and evaluated for impairment at the lowest level for which there are
identifiable cash flows, by geographic location. A geographic location
is deemed impaired if a forecast of undiscounted future cash flows
directly related to the geographic location, including disposal value,
if any, is less than its carrying amount. If a geographic location is
determined to be impaired, the loss is measured as the amount by which
the carrying amount of the geographic location exceeds its discounted
estimated future cash flows as if the decision to continue to use the
impaired geographic location were a new investment decision.
Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly
from such estimates. To date, management has determined that no
impairment of these assets exists.
REVENUE RECOGNITION - Revenue on sales of the phototools product line
and software (core products and services) is recognized when the
products are shipped to the customer. If the Company is subject to
insignificant obligations on sales of software, the costs of performing
these insignificant obligations are accrued at the time revenue on the
sale of software is recognized.
19
<PAGE>
OTHER INCOME - Other income relates to non-core services performed by
the Company for other companies. Other income is recognized when the
service is performed and collection of the amount is not contingent on
any future events.
STOCK-BASED COMPENSATION - The Company has adopted Statement of
Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. This Statement defined a fair value-based
method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However,
it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Under the fair value-based
method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period, which is
usually the vesting period. Under the intrinsic value-based method,
compensation cost is the excess, if any, of the quoted market price of
the stock at the grant date or other measurement date over the amount an
employee must pay to acquire the stock. The Company accounts for stock
option grants and awards to employees in accordance with APB Opinion No.
25 and related interpretations.
INCOME TAXES - Income taxes are deferred for all temporary differences
between the financial statement and tax basis of assets and liabilities.
Deferred taxes are recorded using the enacted tax rates scheduled by tax
law to be in effect when the temporary differences are expected to be
settled or realized. Deferred tax assets are reduced by a valuation
allowance to the extent that the assets may not be realizable.
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK - Most of the Company's
business activity is conducted with customers located within the United
States. Accounts receivable transactions are generally unsecured. A
provision for estimated doubtful accounts is provided for accounts
receivable. There are no concentrations of business transacted with a
particular customer or supplier nor concentrations of revenue from a
particular service or geographic area that could severely impact the
Company in the near future, except for sales to three customers that
represented 12%, 12%, and 14% of net sales for the year ended April 30,
2000. In fiscal year 1999, sales to one customer accounted for 14% of
net sales.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NET (LOSS) INCOME PER SHARE - Basic (loss) income per share is computed
by dividing net (loss) income by the weighted average number of common
shares outstanding. Diluted (loss) income per share assumes the exercise
of stock options using the treasury stock method, if dilutive.
Diluted (loss) income per share is computed by dividing net (loss)
income by the weighted average common and common equivalent shares
outstanding. For the year ended April 30, 2000, common stock equivalents
were not included in the weighted average common and common equivalent
shares outstanding due to their anti-dilutive effect. For the year ended
April 30, 1999, common stock equivalents (stock options) increased the
weighted average common and common equivalent shares outstanding by
124,415 shares.
20
<PAGE>
Options to purchase 660,000 shares of common stock at a weighted average
exercise price of $1.44 per share were outstanding during 2000 but were
not included in the computation of diluted loss per share because the
options were anti-dilutive.
Options to purchase 138,310 shares of common stock at a weighted average
exercise price of $.96 per share were outstanding during 1999 but were
not included in the computation of diluted income per share because the
options' exercise prices were greater than the average market price of
the common shares.
COMPREHENSIVE INCOME - For each of the years ended April 30, 2000 and
1999, there was no difference between net (loss) income and
comprehensive (loss) income.
STATEMENTS OF CASH FLOWS - Supplemental disclosure of cash flow
information for the years ended April 30 is as follows:
2000 1999
Cash paid for interest $ 246,263 $ 187,202
Noncash investing and financing activities are as follows: Current
liabilities include invoices for equipment purchases of $101,654 and
$108,569 at April 30, 2000 and 1999, respectively. In fiscal year 2000,
the Company entered into a note to purchase a vehicle for $42,067.
Capital lease obligations of $1,429,542 were incurred when the Company
entered into leases for new equipment in fiscal year 1999.
RECENTLY ISSUED ACCOUNTING STANDARDS - 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.
SEGMENT INFORMATION - Net sales relating to the phototools product line
were $7,786,306 and $4,992,246 in fiscal years 2000 and 1999,
respectively. The Company's re-entry into the software business in
fiscal year 2000 generated net sales of $187,295. Additional information
about profit or loss and assets regarding the businesses the Company
operates is not presented, as management does not assign costs to the
business to allocate resources and evaluate performance.
21
<PAGE>
2. ACQUISITION
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. The acquired assets were used
in the production of precision glass products. The Company paid $375,000
of the purchase price in cash on January 28, 1999. In addition, the
Company will pay or credit PCI over a period of 36 months following
January 28, 1999, at a rate not to exceed $150,000 per quarter on a
cumulative basis, the following: (a) 50% of all net invoices of certain
large area masks (LAM) shipped to or for PCI and (b) 10% of the net
invoice amount received from the sale of LAM to existing and identified
PCI customers.
Assets acquired:
Inventories $ 164,000
Equipment 288,092
---------
Total assets 452,092
Liabilities assumed -
Accrued expenses 77,092
---------
Cash consideration $ 375,000
=========
The Company increased the value of the equipment acquired by $679,907 and
$123,946 for credit memos issued or to be issued in accordance with the
Asset Purchase Agreement relating to LAM shipments in fiscal years 2000
and 1999, respectively. The remaining purchase price, a sum which is not
certain, will be funded from certain LAM sales specified in the Asset
Purchase Agreement made by the Company during the 21-month period
following April 30, 2000. The remaining purchase price will be recorded
as property until the acquired property is recorded at fair value
(estimated at $1.65 million) and any excess will be recorded as goodwill.
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 statement of
operations reflects the combined operations 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 year
1999. The unaudited pro forma condensed combined statement of operations
may not necessarily reflect the actual results of operations 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 and does
not reflect any contingent payments made after April 30, 1999.
Pro Forma Combined
Year Ended April 30,
1999
Revenues $ 6,647,000
Net income 178,000
Net income per share:
Basic .07
Diluted .06
22
<PAGE>
3. TERMINATION OF LICENSE AGREEMENTS
Effective February 27, 1998, the Company sold an exclusive license to
use, market, and distribute certain of the Company's software products;
sold a nonexclusive license to certain other CAD/CAM products; and sold
certain assets of its software systems business to Global MAINTECH
Corporation (Global MAINTECH). The transaction was recognized as a
disposal of a business in fiscal year 1998. The Company terminated the
license agreements in December 1999 due to Global MAINTECH's inability
to pay the outstanding consideration due. In February 2000, the Company
resumed selling software.
The Company's receivable from Global MAINTECH of $512,089 at April 30,
1999 was collected in fiscal year 2000. The Company did not realize any
gain or loss on the sale or termination of the license agreements.
4. INVENTORIES
April 30
--------------------------
2000 1999
Raw materials $ 485,801 $ 509,286
Work-in-process and finished goods 34,648 6,418
----------- -----------
$ 520,449 $ 515,704
=========== ===========
5. PROPERTY, PLANT, AND EQUIPMENT
April 30
-------------------------
2000 1999
Land $ 20,000 $ 20,000
Buildings and improvements 523,248 520,468
Leasehold improvements 415,101 406,575
Machinery and equipment 7,081,973 6,155,350
Vehicles 85,272 42,705
Furniture and fixtures 173,218 171,693
----------- -----------
8,298,812 7,316,791
Less accumulated depreciation and
amortization 5,383,256 4,600,456
----------- -----------
$ 2,915,556 $ 2,716,335
=========== ===========
The above amounts include equipment under capital leases with a cost of
$1,744,992 and $1,744,992 and accumulated amortization of $597,842 and
$213,850 at April 30, 2000 and 1999, respectively.
23
<PAGE>
6. REVOLVING CREDIT AGREEMENTS AND NOTES PAYABLE
April 30
---------------------------
2000 1999
Revolving credit agreement $ 305,559 $ 252,655
=========== ===========
Notes payable:
Mortgage note $ 207,723 $ 225,668
Equipment note 560,195 651,840
Vehicle note 40,505
----------- -----------
808,423 877,508
Less current maturities 321,912 112,467
----------- -----------
$ 486,511 $ 765,041
=========== ===========
The revolving credit agreement (the Revolver), at the lender's
discretion, allows the Company to borrow 75% of its eligible services
receivable, up to $750,000, as defined. Interest on outstanding
borrowings is payable monthly and is the greater of prime plus 4.5%,
never to be readjusted below 10%, with a minimum monthly interest charge
of $2,500. In the event of default, the interest rate increases to the
greater of prime plus 9.5%, never to be readjusted below 13%, with a
minimum monthly interest charge of $3,450. The Revolver also requires
payment of a $1,500 quarterly administrative fee. The Revolver
terminates the earlier of a date determined at the lender's discretion,
the date the Company terminates the Revolver, or October 23, 2000. If
approved by the lender and the Company, the termination date may be
extended for nine months. If the Revolver is terminated by the Company,
the Company is required to pay a prepayment charge of $2,500 multiplied
by the number of calendar months from the prepayment date to October 23,
2000, unless the funds used to prepay the Revolver are borrowed from
Riverside Bank, in which case no prepayment charge is due. As of April
30, 2000, the amount outstanding relating to the Revolver was $305,559
and the interest rate was 13%.
The mortgage note provided for a $250,000 term loan and interest payable
at the bank's reference rate, as defined, plus 2% (11% at April 30,
2000). The Company is required to make monthly principal and interest
payments in an amount necessary to fully amortize the principal balance
over a period of ten years. The mortgage note matures on October 15,
2000. Monthly principal and interest payments are currently $3,385. As
of April 30, 2000, the amount outstanding relating to this note payable
was $207,723.
The equipment note provides for a $700,000 line of credit for the
purchase of machinery, equipment, furniture, and fixtures, and the
balance outstanding as of April 30, 2000 was $560,195. The term of the
equipment note is from October 24, 1997 to October 24, 2004. Interest on
borrowings under the equipment note is payable at prime plus 2% (11% at
April 30, 2000), and is adjusted quarterly if the prime rate changes.
The bank writes individual term notes under the equipment note after
purchases are made and advances are requested and submitted by the
Company. The individual term notes require the Company to make monthly
principal and interest payments in an amount necessary to fully amortize
the principal balance from the date of the borrowings to October 24,
2004. Monthly principal and interest payments are $12,864.
Borrowings under the Revolver, mortgage note, and equipment note are
secured by substantially all of the Company's assets and personally
guaranteed by the Company's Chief Executive Officer. The Revolver,
mortgage note, and/or equipment note contain various restrictive
covenants relating to a net loss of no more than $100,000 for each
succeeding six-month period beginning January 31,
24
<PAGE>
1998, limitations on additional indebtedness and capital expenditures,
prohibition of dividend payments, and other matters. As of April 30,
2000, the Company was not in compliance with certain covenants. The
Company has obtained a waiver of these defaults from the bank through
fiscal year 2001.
During fiscal year 2000, the Company entered into a vehicle note, which
is collateralized by the vehicle. The note has an interest rate of 5.9%
and is due in monthly installments of $986 through March 2004.
Principal maturities on the notes outstanding at April 30, 2000 are
payable as follows:
Years ending April 30:
2001 $ 321,912
2002 125,432
2003 137,798
2004 149,422
2005 73,859
---------
$ 808,423
=========
The carrying amounts of notes payable and long-term debt approximate
fair market value at April 30, 2000. Rates currently available to the
Company for debt with similar terms and remaining maturities are used to
estimate the fair value of the existing debt.
7. COMMITMENTS AND CONTINGENCIES
LEASES - The Company leases certain of its facilities and equipment
under operating leases (see Note 10). Rent expense incurred on these
leases was approximately $243,000 and $171,000 for the years ended April
30, 2000 and 1999, respectively.
Future minimum lease payments required under operating and capital
leases that have initial or remaining noncancelable lease terms in
excess of one year at April 30, 2000 are as follows:
Capital Operating
Years ending April 30:
2001 $ 382,088 $ 170,043
2002 361,165 110,043
2003 346,220 38,043
2004 157,751 33,000
----------- ----------
Total minimum lease payments 1,247,224 $ 351,129
==========
Less amounts representing interest 164,926
-----------
Present value of net minimum obligations 1,082,298
Less current portion 303,935
-----------
Long-term obligations at April 30, 2000 $ 778,363
===========
DEVELOPMENT AGREEMENT - In fiscal year 2000, the Company entered into an
agreement with U.S. Display Consortium (USDC). USDC has agreed to
reimburse 50% of the Company's costs incurred up to $850,934 to develop
a large mask inspection system, a large mask repair station, and a large
plate cleaning system. USDC's reimbursements are based on a milestone
schedule starting in fiscal year 2001. The Company expects to complete
the majority of the developments in fiscal year 2001.
25
<PAGE>
8. STOCKHOLDERS' EQUITY
STOCK OPTIONS - In October 1999, the Board of Directors and stockholders
approved an additional stock option plan, referred to as the 1999 Stock
Option Plan. This plan permits the granting of nonqualified and
incentive options to employees and others providing services to the
Company. With the addition of this plan, the Company has four Incentive
Stock Option Plans (the Plans) for employees, directors, and company
consultants. The Company has reserved 1,160,000 shares of common stock
for the Plans. The option exercise price is to be not less than the fair
market value of the stock at the date of grant. The options are
exercisable over a period not to exceed ten years from the date of
grant. The options granted are exercisable as follows: 20% after the
first year, 40% after the second year, 60% after the third year, 80%
after the fourth year, and 100% after the fifth year. Activity under the
Plans is as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------- -------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 720,000 $ 1.27 390,000 $ .63
Granted 100,000 2.19 520,000 1.53
Exercised (150,000) .30
Expired/terminated (160,000) 1.13 (40,000) .88
----------- -----------
Outstanding at end of year 660,000 $ 1.44 720,000 $ 1.27
=========== ======= =========== =======
Options exercisable at end of year 182,000 $ 1.16 48,000 $ .84
=========== ======= =========== =======
Options available for future grant 540,000 30,000
=========== ===========
</TABLE>
Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards,
consistent with the provisions of SFAS No. 123, the Company's net (loss)
income and net (loss) income per common share would have changed to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
2000 1999
-------------------------- -------------------------
As Reported Pro Forma As Reported Pro Forma
<S> <C> <C> <C> <C>
Net (loss) income $ (153,800) $ (193,714) $ 114,274 $ 66,552
========== ========== ========== ==========
Basic net (loss) income per share $ (.05) $ (.07) $ .04 $ .02
========== ========== ========== ==========
Diluted net (loss) income per share $ (.05) $ (.07) $ .04 $ .02
========== ========== ========== ==========
</TABLE>
The fair value of each option grant was estimated on the grant date
using the Black-Scholes option-pricing model with the following
assumptions and results for the grants:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Dividend yield None None
Expected volatility 65.67% 102.49%
Expected life of option 5 years 5 years
Risk-free interest rate 6.60% 4.68%
Fair value of options on grant date $1.34 $1.06
</TABLE>
26
<PAGE>
The following table summarizes information about stock options
outstanding at April 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Life Exercise Number Exercise
Prices Outstanding (Years) Price Exercisable Price
<S> <C> <C> <C> <C> <C> <C>
$.80-$.88 170,000 2.37 $ .84 94,000 $ .84
1.44 245,000 3.67 1.44 59,000 1.44
1.63 145,000 3.77 1.63 29,000 1.63
2.19-2.31 100,000 4.86 2.19
--------- ---------
.80-1.63 660,000 3.53 1.44 182,000 1.16
========= =========
</TABLE>
9. INCOME TAXES
The income tax benefit for fiscal year 2000 has been offset by a
valuation allowance because the Company's net operating loss could not
be carried back and future realization of the net operating loss
carryforward was not expected. The majority of the income tax expense
for fiscal year 1999 has been offset by a reversal of valuation
allowance for deferred taxes. Income tax expense for the years ended
April 30, 2000 and 1999 relates to minimum taxes due to various states
in which the Company operates.
For the years ended April 30, the provisions for income taxes differ
from the expected income tax (benefit) expense based on the federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Federal tax (benefit) expense at statutory rate $ (50,000) $ 40,000
State taxes 11,000 2,000
Change in valuation allowances 77,000 (49,000)
Other (36,000) 9,000
---------- ----------
$ 2,000 $ 2,000
========== ==========
</TABLE>
Deferred tax assets and liabilities represent the tax impact of
temporary differences between the basis of assets and liabilities for
financial reporting purposes and income tax purposes.
27
<PAGE>
Deferred taxes as of April 30 consist of the following:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Current deferred tax assets (liabilities):
Allowance for doubtful accounts and other accruals $ 130,000 $ 93,000
Less valuation allowance (130,000) (93,000)
---------- -----------
Net current deferred tax assets (liabilities) $ -- $ --
========== ===========
Long-term deferred tax (liabilities) assets:
Unrealized gain on discontinued operations $ (331,000)
Excess of tax over book depreciation $ (307,000) (269,000)
Tax net operating loss carryforward 880,000 1,133,000
General business credit 160,000 160,000
Less valuation allowance (733,000) (693,000)
---------- -----------
Net long-term deferred tax (liabilities) assets $ -- $ --
========== ===========
</TABLE>
The Company has recorded valuation allowances to reduce the recorded net
deferred tax assets to zero after considering evidence regarding future
realization of the deferred amounts.
At April 30, 2000, the Company has income tax net operating loss
carryforwards of approximately $2,300,000 for federal and $1,300,000 for
Minnesota tax purposes. If not used, these carryforwards will begin to
expire in 2004. The Company also has federal general business credits of
approximately $160,000 which will begin to expire in 2001.
10. RELATED-PARTY TRANSACTIONS
The Company leases one of its facilities from a partnership which is 50%
owned by the Chairman of the Board of the Company. Monthly rentals under
this lease are $2,750. Rent expense incurred on this lease was $33,000
for each of the years ended April 30, 2000 and 1999.
The Company leases production equipment from a partnership of which the
Chairman of the Board is the major partner. Rent expense incurred on
this lease was $36,000 and $3,000, respectively, for each of the years
ended April 30, 2000 and 1999.
The Company also paid the Chairman of the Board $20,000 in each of the
years ended April 30, 2000 and 1999 for his personal guarantee of the
Company's borrowings.
11. DEFERRED SAVINGS PLANS
The Company has a defined contribution savings plan for employees who
have completed 30 days of service and attained the age of 21. The
defined contribution savings plan allows for employee compensation
deferral contributions under Section 401(k) of the Internal Revenue Code
and discretionary contributions by the Company. No such discretionary
contributions were made for the years ended April 30, 2000 or 1999. The
Company also has a discretionary cash bonus plan. No such discretionary
contributions were made for the years ended April 30, 2000 or 1999.
28
<PAGE>
12. SUBSEQUENT EVENT
PRIVATE PLACEMENT OF COMMON STOCK - 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. The following
unaudited pro forma balance sheet information as of April 30, 2000 gives
effect to the issuance of common stock as if it had occurred on April
30, 2000:
Unaudited
Pro Forma Amount
Current Assets $ 2,567,578
===========
Current Liabilities $ 2,700,495
===========
Stockholders' Equity:
Common stock $ 4,681,697
Accumulated deficit (2,986,362)
-----------
$ 1,695,335
===========
Shares of common stock outstanding 3,024,797
===========
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with the Company's
accountants on any accounting or financial disclosure matters during fiscal year
2000 and fiscal year 1999.
29
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSON; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of June 30, 2000
are as follows:
<TABLE>
<CAPTION>
CURRENT POSITION
NAME OF DIRECTOR OR OFFICER AGE WITH THE COMPANY DIRECTOR SINCE
--------------------------- --- ---------------- --------------
<S> <C> <C> <C>
Clifford F. Stritch, Jr. 53 Chairman of the Board, Director Aug. 1970
and CEO
Barry B. Onufrock 45 Chief Financial Officer ------
Edwin F. Snyder 57 Executive Vice President, Director Sept. 1990
Durwood L. Airhart 63 Director Sept. 1997
Michael J. Evers 65 Director Sept. 1997
</TABLE>
CLIFFORD F. STRITCH, JR. Chairman of the Board, Director, and CEO of
the Company. Mr. Stritch graduated from Hamline University in June of 1969. He
has been employed by the Company since 1970. Prior to joining the Company, Mr.
Stritch was employed by Man/Machine Interface Company.
BARRY B. ONUFROCK. Joined the Company in February 2000 and became Chief
Financial Officer of the Company as of May 24, 2000. From 1998 through 1999 Mr.
Onufrock was Controller of Donatelle Plastics, Inc., a manufacturer of precision
medical plastic injection molded products and tooling. From 1988 to 1998 Mr.
Onufrock was the Assistant Controller and Tax Manager of Marvin Windows and
Doors of Warroad, Minnesota, a manufacturer of wood windows and doors. From 1980
to 1988 Mr. Onufrock held various positions as a CPA in public accounting firms
in Minneapolis. Mr. Onufrock also served as a Consultant to a non-profit
Minnesota Foundation and serves as a Director of a privately held corporation in
the real estate and storage industry.
EDWIN F. SNYDER. From November 1998, Executive Vice President of the
Company. From October 1996 to November 1998, Vice President of Marketing and
Sales with Wavecrest of Edina, Minnesota. From March 1995 to September 1996,
Vice President of Sales and Marketing with Johnstech International, a
manufacturer of high performance test contacts. From February 1992 to March
1995, Vice President of Visu-Com, Inc. of Baltimore, Maryland, a manufacturer of
personal communications products.
DURWOOD L. AIRHART. Since 1996, Technical Consultant with Litchfield
Precision Components, a manufacturer of electronic components and a division of
Innovex, Inc. of Litchfield, Minnesota. From 1975 to 1995, President and CEO
with Litchfield Precision Components of Litchfield, Minnesota.
MICHAEL J. EVERS. Since 1974, Dean Emeritus of the Graduate School of
Business, Professor and Assistant Professor of Strategic Management and
Marketing with University of St. Thomas, Minneapolis, Minnesota. Mr. Evers
serves as a director of Cellex Biosciences, Inc. and Wavecrest Corporation of
Edina, Minnesota.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
30
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and person who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater than ten percent shareholders
are also required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended April 30, 2000, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent shareholders were timely complied with except that Edwin F. Snyder,
the Company's Executive Vice President, failed to timely file one report with
respect to one transaction.
ITEM 10. EXECUTIVE COMPENSATION.
CASH COMPENSATION
The following table summarizes the annual compensation paid by the
Company during the fiscal years ended April 30, 1998, 1999 and 2000 to Clifford
F. Stritch, the Chief Executive Officer of the Company. No other executive
officers of the Company had compensation in excess of $100,000 during any of the
fiscal years for which information is provided. Mr. Stritch is sometimes
referred to herein as the "Named Executive Officer."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Salary Bonus Other
Name and Principal Position Year $ $ $
--------------------------- ---- ------- -------- ------
<S> <C> <C> <C> <C>
Clifford F. Stritch, Jr. 2000 145,134 45,200 (1)(2) 5,410 (3)(4)
Chief Executive Officer, 1999 142,000 10,000 (2) 5,390 (3)(4)
President and
Director 1998 142,000 15,000 (2) 5,380 (3)(4)
</TABLE>
(1) Includes amount for the sales of the software division and the achievement
of other specified goals.
(2) Bonuses relate to applicable fiscal year but were paid in subsequent years.
(3) Includes insurance and car allowance.
(4) Does not include $20,000 as payment for personal guarantee of Company's bank
loan.
STOCK OPTIONS
No options were granted to or exercised by the Named Executive Officer
during the Company's fiscal year ended April 30, 2000.
BOARD OF DIRECTOR COMPENSATION
Employee directors do not receive additional compensation for serving
on the Board of Directors. Non-employee directors are eligible to receive $2,500
per quarter.
Non-employee director Michael J. Evers was granted options to purchase
50,000 shares of common stock on November 3, 1997 at an exercise price of
$0.84375 pursuant to the terms of the Infinite Graphics Incorporated Stock
Option Plan of 1997. The option was immediately exercisable for 20% of the
amount granted and is exercisable in 40%, 60%, 80%, and 100% increments on the
first, second, third, and fourth anniversaries of the option grant. The option
expires on February 2, 2003. Mr. Evers also was granted options to purchase
50,000 shares of common stock on December 15, 1998 at an exercise price of
$1.4375 pursuant to the terms of the Infinite Graphics Incorporated Stock Option
Plan of 1993. The option was immediately exercisable for 20% of the amount
31
<PAGE>
granted and is exercisable in 40%, 60%, 80%, and 100% increments on the first,
second, third, and fourth anniversaries of the option grant. The option expires
on March 15, 2003. These options are part of a consulting arrangement with
Infinite Graphics Incorporated and not part of his services as a director.
Non-employee director Durwood L. Airhart has declined any cash
compensation to date. In addition, on November 3, 1997, Mr. Airhart was granted
options to purchase 50,000 shares of common stock at an exercise price of
$0.84375 pursuant to the terms of the Infinite Graphics Incorporated Stock
Option Plan of 1997. The option was immediately exercisable for 20% of the
amount granted and is exercisable in 40%, 60%, 80%, and 100% increments on the
first, second, third, and fourth anniversaries of the option grant. The option
expires on February 2, 2003.
32
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table set forth, as of July 31, 2000, certain information
regarding the beneficial ownership of shares of common stock of the Company by
(i) each person or entity who is known by the Company to own more than 5% of the
Company's common stock, (ii) each director of the Company, (iii) each person
listed in the Summary Compensation Table, and (iv) all directors and executive
officers of the Company as a group.
Common Stock
Name/Address ---------------------------------------
Of Amount Beneficially Percent of
Shareholder/Director Owned Class (1)
--------------------------------------------------------------------------------
Clifford F. Stritch, Jr. 1,096,050 (2) 36.2%
4611 East Lake Street
Minneapolis, MN 55406
Robert J. Fink 279,000 9.2%
1850 Arvin Drive
Mendota Heights, MN 55118
Touch Future Technology LTD 222,222 7.3%
C/O Hang Seng Bank LTD
83 Des Vocux Road Central
Hong Kong, China
Edwin F. Snyder 87,800 (3) 2.9%
7275 Bush Lake Road
Edina, MN 55439
Durwood L. Airhart 30,000 (4) *
1 Precision Drive
Litchfield, MN 55355
Michael J. Evers 50,000 (5) 1.6%
1000 LaSalle Ave., MPL331
Minneapolis, Minnesota 55403
Directors and Executive Officers as a 1,263,850 (6) 40.4%
Group (5 persons)
* Less than one percent of shares outstanding.
(1) In calculating percentage ownership, all shares of common stock which a
named shareholder has the right to acquire within 60 days from July 31,
2000 upon exercise of options or warrants are deemed to be outstanding for
the purpose of computing the percentage of common stock owned by that
shareholder, but are not deemed to be outstanding for the purpose of
computing the percentage of common stock owned by any other shareholders.
(2) An irrevocable trust of which Mr. Stritch's daughter, Kendra L. Stritch,
is the beneficiary is the owner of 23,800 shares of common stock of the
Company. The common stock held in that trust are included in the number of
shares set forth above, although Mr. Stritch denies any beneficial
interest in those shares. An irrevocable trust of which Mr. Stritch's son,
Carter Francis Stritch, is the beneficiary is the owner of 21,500 shares
of common stock of the Company. The common stock held in that trust are
included in the number of shares set forth above, although Mr. Stritch
denies any beneficial interest in these shares. Mr. Stritch is not a
trustee of either trust.
(3) Includes options for purchase of 20,000 shares of common stock, but
excludes option to purchase 80,000 shares of common stock that are not
exercisable during the next 60 days after July 31, 2000
33
<PAGE>
(4) Includes options for the purchase of 30,000 shares of common stock, but
excludes options for the purchase of 20,000 shares of common stock that
are not exercisable during the next 60 days after July 31, 2000.
(5) Includes options for the purchase of 50,000 shares of common stock, but
excludes options for the purchase of 50,000 shares of common stock that
are not exercisable during the next 60 days after July 31, 2000.
(6) Includes options for the purchase of 100,000 shares of common stock, but
excludes options for the purchase of 200,000 shares of common stock that
are not exercisable during the next 60 days after July 31, 2000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During fiscal 2000, the Company leased the properties at 4621 East Lake
Street from Infinite Properties, a partnership of the Company's Chairman of the
Board, Clifford F. Stritch, Jr. and Daniel R. Schultz. The lease for 4621 East
Lake Street is dated October 31, 1983, and had an original term of five years.
In 1988, the Company exercised its option to renew this lease for an additional
five-year term. The lease has been amended several times to extend the term.
Currently, the lease has been orally amended to extend to April 30, 2001. The
rent is currently $2,750 per month.
The Company leased certain production equipment from Clifford F.
Stritch under the name "Hidden Ponds". Under the terms of the lease, the Company
pays a monthly rent of $3,000 through April, 2001.
The Company pays Clifford Stritch $20,000 as a fee for his being
required to personally sign as guarantor of the Company's debt.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K.
(a) For Financial Statements filed as part of this Form 10-KSB,
reference is made to the Financial Statements beginning on page 14 of this Form
10-KSB. For a list of Exhibits filed as part of this Form 10-KSB, see Exhibit
Index on page 36 of this Form 10-KSB.
(b) During the last quarter of the period covered by this Form 10-KSB,
the Company did not file any reports on Form 8-K.
34
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 31, 2000 By: /s/ Clifford F. Stritch, Jr.
--------------------------------------
Clifford F. Stritch, Jr.
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated have signed this report below.
Date: August 31, 2000 By: /s/ Clifford F. Stritch, Jr.
--------------------------------------
Clifford F. Stritch, Jr.
Chairman of the Board
Chief Executive Officer
Date: August 31, 2000 By: /s/ Barry B. Onufrock
--------------------------------------
Barry B. Onufrock
Chief Financial Officer
Principal Accounting Officer
Date: August 31, 2000 By: /s/ Edwin F. Snyder
--------------------------------------
Edwin F. Snyder
Director
Date: August 31, 2000 By: /s/ Durwood L. Airhart
--------------------------------------
Durwood L. Airhart
Director
Date: August 31, 2000 By: /s/ Michael J. Evers
--------------------------------------
Michael J. Evers
Director
35
<PAGE>
INFINITE GRAPHICS INCORPORATED
INDEX TO EXHIBITS
Form 10-KSB (for the year ended April 30, 2000)
3.1 Articles of Incorporation of Infinite Graphics Incorporated (1)
3.2 Bylaws of Infinite Graphics Incorporated (1)
4 Form of Certificate for Common Stock of Infinite Graphics Incorporated
(1)
10.1 Incentive Stock Option Plan of Infinite Graphics Incorporated# (4)
10.2 Lease between the Company and Infinite Properties, dated October 31,
1983, for property at 4621 East Lake Street, Minneapolis, Minnesota (1)
10.3 License agreement between the Company and Calos, Inc., dated December
21, 1984 (1)
10.4 Lease between the Company and Harold J. Brooks, dated November 15,
1989, for the property at 8 Industrial Way, Salem, New Hampshire (2)
10.5 Intentionally omitted.
10.6 Settlement agreement between CIT and Company dated April 7, 1992 (3)
10.7 Robert J. Fink financing agreements dated November 17, 1992 (4)
10.8 Intentionally omitted
10.9 Amended lease between the Company and Infinite Properties dated
November 30, 1993 (5)
10.10 Intentionally omitted
10.11 Extended lease between the Company and Harold J. Brooks dated January
31, 1995 (6)
10.12 Intentionally omitted
10.13 Lease between the Company and Superior Investment Company dated
September 1, 1995 (7)
10.14 Intentionally omitted
10.15 License and Asset Purchase Agreement dated February 27, 1998 between
the Company and Global MAINTECH Corporation (8)
10.16 General Credit and Security Agreement dated as of October 24, 1997
between the Company and SPECTRUM Commercial Services (9)
10.17 Revolving Note dated October 24, 1997 in original principal amount of
$750,000 (9)
10.18 Term Loan Agreement dated as of October 24, 1997 between the Company
and Riverside Bank (9)
10.19 Mortgage Note dated October 24, 1997 in original principal amount of
$250,000 (9)
36
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10.20 Combination Mortgage, Security Agreement, Fixture Financing Statement
and Assignment of Rents dated as of October 24, 1997 between the
Company and Riverside Bank (9)
10.21 Guaranty of Clifford F. Stritch, Jr. to Riverside Bank with respect to
$250,000 Mortgage Loan dated October 24, 1997 (9)
10.22 Guaranty of Clifford F. Stritch, Jr. to SPECTRUM Commercial Services
dated October 24, 1997 (9)
10.23 Subordination Agreement dated as of October 24, 1997 between SPECTRUM
Commercial Services and Robert J. Fink relating to loans by SPECTRUM
Commercial Services to the Company (9)
10.24 1997 Stock Option Plan of Infinite Graphics Incorporated# (11)
10.25 Lease Agreement dated as of November 23, 1998 between the Company and
TOWNSQUARE L.L.C. without exhibits (11)
10.26 Master Lease Agreement dated as of September 2, 1997 between the
Company and General Electric Capital Corporation, as amended as of
November 11, 1998, together with Exhibit A dated as of November 11,
1998, Schedule No. 001, Annex A to Schedule No. 001 dated as of October
16, 1998, Index Rate Addendum to Schedule No. 001 dated as of November
11, 1998, Buyer's Verification Report and Certificate of Acceptance to
Schedule No. 001 dated as of October 23, 1998, Schedule No. 002, Annex
A to Schedule No. 002 dated as of October 16, 1998, Index Rate Addendum
to Schedule No. 002 dated as of December 2, 1998 and Buyer's
Verification Report and Certificate of Acceptance to Schedule No. 002
dated as December 1, 1998 (11)
10.27 Asset Purchase Agreement dated January 28, 1999 between Infinite
Graphics Incorporated, Photronics Colorado, Inc. and Photronics, Inc.
without exhibits or schedules (10)
10.28 Lease Agreement dated as of November 21, 1991 between Homburg Holdings
(CO) Inc. and Microphase Laboratories, Inc. together with Addendum to
Lease dated as of December 2, 1996 and December 12, 1996 between
Homburg Holdings (CO) Inc. and Photronics Colorado, Inc. (subsequently
assigned by Microphase Laboratories, Inc. to Photronics Colorado, Inc.)
(11)
10.29 Assignment dated as of January 28, 1999 between the Company and
Photronics Colorado, Inc., assigning the interest of Photronics
Colorado, Inc. under the Lease Agreement dated as of November 21, 1991
between Homburg Holdings (CO) Inc. and Microphrase Laboratories, Inc.,
as amended (listed above as Exhibit 10.28) to the Company (11)
10.30 1999 Stock Option Plan of Infinite Graphics Incorporated # *
27 Financial data schedule. *
-------------------------
# Indicates management contracts or compensatory plan or arrangement
required to be filed is an exhibit to Form 10-K or Form 10-KSB.
* Filed herewith.
(1) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1989, and incorporated herein by reference.
(2) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1990, and incorporated herein by reference.
(3) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1992, and incorporated herein by reference.
(4) Filed with the Company's Annual Report on Form 10K for the year ended
April 30, 1993, and incorporated herein by reference
37
<PAGE>
(5) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1994, and incorporated herein by reference.
(6) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1995, and incorporated herein by reference.
(7) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1996, and incorporated herein by reference.
(8) Filed with the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1998, and incorporated herein by reference.
(9) Filed with the Company's Annual Report on Form 10-KSB for the year
ended April 30, 1998, and incorporated herein by reference.
(10) Filed with the Company's Current Report on Form 8-K with a date of
report of January 28, 1999, and incorporated herein by reference.
(11) Filed with the Company's Annual Report on Form 10-KSB for the year
ended April 30, 1999, and incorporated herein by reference.
38
