SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-QSB
-----------
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-21816
INFINITE MACHINES CORP.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 52-1490422
---------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of organization) Identification No.)
923 Incline Way, Suite #9, P.O. Box 8219, Incline Village, NV 89452
-------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(702) 831-4680
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 |_|
As of May 8, 1996 the Registrant had a total of 5,852,032 shares of Common
Stock, $.001 par value, outstanding.
<PAGE>
INDEX
INFINITE MACHINES CORPORATION
PART 1. FINANCIAL INFORMATION
Page
----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 1
Consolidated Statements of Operations-Three Months
Ended March 31, 1996 and 1995. 2
Consolidated Statements of Cash Flows-Three Months
Ended March 31, 1996 and 1995. 3
Notes to Unaudited Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 - 7
PART II. OTHER INFORMATION
Items
1-6 Not Applicable 8
SIGNATURES 9
<PAGE>
INFINITE MACHINES CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
ASSETS 1996 1995
----------- -----------
Current Assets
Cash and cash equivalents $ 26,470 $ 24,702
Restricted funds 118,390 70,355
Accounts receivable, net of allowance 1,036,706 909,833
Inventories 154,698 180,546
Other current assets 84,214 134,323
----------- -----------
Total current assets 1,420,478 1,319,759
Property and equipment, net 3,594,710 3,632,648
Other Assets
Notes receivable - stockholders 185,968 195,880
Inventoried parts 196,909 214,810
Net asset of subsidiary sold pursuant to
contractual obligation 399,595 399,595
Other assets, net 417,327 368,110
----------- -----------
Total other assets 1,199,799 1,178,395
----------- -----------
$ 6,214,987 $ 6,130,802
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 499,289 $ 447,371
Accounts payable and accrued expenses 841,668 786,011
Current maturities of long-term obligations 137,459 140,409
----------- -----------
Total current liabilities 1,478,416 1,373,791
Long term obligations 3,543,437 4,003,097
Stockholders' equity
Common stock, $.001 par value, 20,000,000 5,933 5,490
shares authorized, 5,931,386 and 5,490,189
shares issued and outstanding
Additional paid-in capital 9,445,266 8,779,209
Accumulated deficit (8,258,065) (8,030,785)
----------- -----------
Total stockholders' equity 1,193,134 753,914
----------- -----------
$ 6,214,987 $ 6,130,802
=========== ===========
See accompanying notes to unaudited consolidated financial statements
1
<PAGE>
INFINITE MACHINES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended March 31, Ended March 31,
1996 1995
--------------- ---------------
Sales $ 1,302,835 $ 1,165,539
Cost of goods sold 785,836 750,411
----------- -----------
Gross profit 516,999 415,128
Costs and expenses
Operating expenses 33,438 35,064
Research and development -- 148,857
General and administrative expenses 343,154 482,797
Selling expenses 117,074 99,229
Depreciation and amortization 154,118 165,509
----------- -----------
Total costs and expenses 647,784 931,456
Operating loss 130,785 516,328
Other (income) expense
Interest and dividend income (7) (4,853)
Interest expense 89,032 52,289
Loss/(Gain) on sale of equipment -- 738
Other (income) expense (4,164) (2,904)
----------- -----------
Total other (income) expense 84,861 45,270
----------- -----------
Loss before provision for income taxes 215,646 561,598
Provision for income taxes 11,662 --
----------- -----------
Net loss $ 227,308 $ 561,598
=========== ===========
Per share:
Net loss per common share $ 0.04 $ 0.11
=========== ===========
Weighted average number of common
shares outstanding 5,437,146 5,131,946
=========== ===========
See accompanying notes to unaudited consolidated financial statements
2
<PAGE>
INFINITE MACHINES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, March 31,
1996 1995
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (227,280) $(561,598)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 154,118 165,509
Loss (gain) on dispositions of assets -- 43,281
Translation adjustment -- 23,884
Asset writedown and allowances 9,912 --
Changes in assets and liabilities:
(Increase) decrease in assets
Accounts receivable (126,873) (110,628)
Other assets (58,621) (34,036)
Inventory and inventoried parts 43,749 --
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 107,516 (60,383)
----------- ---------
Net cash used in operating activities: (97,479) (533,971)
Cash flows from investing activities:
Available-for-sale securities
Redemptions -- 751,973
Purchase of property and equipment (56,667) (204,757)
Purchase of other long term assets -- (23,698)
Cost of intangibles -- (300)
----------- ---------
Net cash provided by (used in) investing activities: (56,667) 523,218
Cash flows from financing activities:
Proceeds from convertible debentures 36,000 --
Borrowings of long term debt 1,250,000 --
Net borrowings of short term debt 51,918 (348,800)
Repayments of long term obligations (1,256,469) (44,027)
Increase in restricted funds, net (48,035) (47,819)
Net borrowings of notes payable -- 395,289
Proceeds from excess of common stock warrants 122,500 --
----------- ---------
Net cash provided by (used in) financing activities: 155,914 (45,357)
----------- ---------
Net increase (decrease) in cash and cash equivalents 1,768 (56,110)
Cash and cash equivalents - beginning of period 24,702 200,879
----------- ---------
Cash and cash equivalents - end of period $ 26,470 $ 144,769
=========== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE>
INFINITE MACHINES CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three month
period ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. For further information,
refer to the Company's Annual Report on Form 10-KSB for the year ended December
31, 1995, which includes audited financial statements and footnotes as of and
for the years ended December 31, 1995 and 1994.
NOTE 2. - BANK FINANCING
In February 1996, the Company's subsidiary, HGG Laser Fare, Inc. finalized
certain financing agreements with a bank that provided for, among other things,
a $400,000 revolving promissory note and a $1,250,000 term promissory note. This
debt was used to refinance existing debt obligations.
NOTE 3. - CONVERTIBLE PROMISSORY NOTES
At December 31, 1995, $605,000 of 7% convertible debentures due July 2000
were outstanding. The holder may, at his or her sole option, convert all or any
part of the outstanding principal amount and accrued and unpaid interest of this
note into that number of shares of the common stock of the Company, par value
$.001, as is equal to such amount then being converted divided by 80% of the
average closing price of the Company's common stock on the ten trading days
preceding conversion. During the first quarter of 1996, the Company issued
$36,000 of the debentures and $419,000 of the debentures were converted into
222,148 shares of common stock.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company had been in the development stage since its formation in
October 1986. Its primary activities had involved research and development of
high-performance, multifuel rotary engines and securing funding for these
efforts. In mid-1994, two acquisitions were completed. HGG Laser Fare, Inc., a
contract laser machining, applications development and consulting firm, was
acquired for stock; however, subsequently funds were advanced by the Parent to
meet working capital and equipment acquisition needs. The second acquisition,
FTD Infinite Limited, involved the purchase of operating assets and technology
of an engineering firm with expertise in pneumatic and hydraulic systems and
engine design.
Development of the rotary engine was completed during 1995, but the Company
was not successful in obtaining any orders. In September, management concluded
that until the issuance of EPA regulations, controlling the emissions from boats
and personal watercraft, the probability of securing orders was remote.
Accordingly, operations at the development facility were suspended. This
decision prompted management to reevaluate the recoverability of its investment
in assets of this business segment and provision was made to reduce the assets'
carrying values.
Laser Fare operations have been profitable and growth in sales and earnings
are expected. New equipment acquired during 1995 and more aggressive selling are
contributing to the growth. During 1995, several major new customers were added.
These new customers will contribute to increase sales volume during 1996.
Laser Fare's Advanced Technology Group performs technical consulting and
manages research and development programs for industrial customers. In addition
to being compensated for services performed, Laser Fare obtains intellectual
property rights to the technology developed under these programs, which may
provide future opportunities for the Company. One area of concentration is in
advanced manufacturing techniques aimed at reducing the time required to bring
new products to market, encompassing work in rapid prototyping and rapid
tooling. On March 21, 1996, the Company announced a joint research project
between Laser Fare and Hasbro Inc. (AMEX:HAS) aimed at finding ways to bring
products to market more quickly by using Laser Fare's proprietary technologies.
Separately, the Company announced it had been awarded a small business
technology grant by the United States Air Force Phillips Laboratory for the
commercialization of diode laser technology.
The Company sold $1,041,000 of Subordinated Convertible Debentures during
1995 and 1996, including $36,000 during the quarter ended March 31, 1996. An
additional $100,000 was sold April 2, 1996. The Debentures bear interest at the
rate of 7% per annum until maturity on July 21, 2000. The Debentures are
convertible into Shares at a conversion price equal to 80% of the average
closing bid price of the Shares on the ten trading days preceding conversion.
Through March 31, 1996, $819,000 of principal amount of such debentures had been
converted into 460,250 shares. In addition, the Company's majority shareholder
and others have provided funding through promissory notes issued in 1995
totaling $873,636, of which $125,000 was converted into 66,489 shares as of
March 31, 1996.
In February 1996, Laser Fare refinanced its bank obligations with the
result that short term obligations amounting to $499,680 were converted to long
term and an operating line of credit amounting to $400,000 was obtained.
5
<PAGE>
At the present time, the Company has a working capital deficiency and its
continued operation as a going concern is dependent on improving the operating
performance of its sole operating subsidiary, further reduction in general and
administrative costs, and raising additional debt and/or equity resources.
Management is working to achieve these objectives, however, it can offer no
assurances that success will be attained.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its product development activities through a
series of private placements of debt and equity securities, and through the
October, 1993 public offering of its common stock. Since its inception to
December 31, 1995, an aggregate of approximately $9 million, net of expenses,
has been provided by debt and equity offerings. As of March 31, 1996, the
Company had cash and cash equivalents totaling approximately $144,860 available
for its working capital needs and planned capital asset expenditures.
The Company proceeded with planned rotary engine developments through
September, 1995. Due to the absence of orders, development work was stopped and
all personnel associated with the effort were furloughed. During 1995, the
Company incurred approximately $1.4 million on engine development activities
including capital expenditures of approximately $321,000. A substantial portion
of the net carrying value of these assets, together with prior year's
acquisitions, were charged off to operations in recognition of management's
assessment of their estimated value. At the present time, management has not
initiated a formal plan for the disposal or alternate use of those assets.
Currently, expenses related to the engine development are limited to storage,
safeguarding of engine related material and equipment, and satisfaction of
existing lease and contract requirements. For the first three months of 1996,
engine expenses averaged $5,400 per month. When and if exhaust emissions
regulations are issued by the EPA, a demand for the Infinite engine may develop,
in which case, the Company may reactivate engine related activities. There is no
assurance, however, that this will occur.
The cessation of engine activity, other steps taken, including reductions
in corporate staff and expenses, sale of FTD Infinite and efforts to improve
operating margins and sales volume at Laser Fare, have been implemented to
reduce net cash outflow. Management continues to focus on and measure the
results of each cost reduction activity and anticipates a continued reduction in
net cash outflow for the balance of 1996.
The Board of Directors has given approval for management to vigorously
pursue several alternate sources of funding including conventional bank
financing, private placement of debt and/or equity securities, and application
has been made for available governmental funds in the form of interest
subsidized financing. Management believes that a total of $1.5 million of funds
would satisfy all of its cash requirements for the next eighteen months. There
is no assurance, however, that management will be successful in raising all or a
part of this amount on satisfactory terms, or at all.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to The Three Months Ended March 31,
1995
Consolidated revenues for the three months ended March 31, 1996 were
$1,302,835 and consisted of only laser division sales. Cost of sales totaled
$785,836, and a gross profit of $516,999 was realized for the quarter. For the
three months ended March 31, 1995, sales totaled $1,165,539 and consisted of
laser division sales of ($996,339), FTD Infinite Ltd. sales of
6
<PAGE>
($156,700) and rotary engine development revenue of ($12,500). As of December
31, 1995, FTD Infinite Ltd. was sold, accordingly no revenues were recorded for
1996.
Operating expenses decreased from $35,064 during the first quarter of 1995,
to $33,438 for the first quarter of 1996. The decrease was a result of the
company's costs reductions activities.
Expenditures for general and administrative cost decreased to $343,126 for
the three months ended March 31, 1996 from $482,727 for the first quarter of
1995. The decrease of $139,601 was primarily due to the suspension of rotary
engine operations and cost reduction results. Selling expenses were $117,074 for
the first three months of 1996, compared to $99,229 for the first quarter of
1995. The increase of $17,845 was primarily attributed to increase sales efforts
at Laser Fare.
Depreciation and amortization costs totaled $154,118 for the first quarter
of 1996 compared to $165,509 during the first quarter of 1995. Decreased
depreciation and amortization expense of $11,391 or 7% from prior year period
resulted from the year end write off of engine development assets.
Interest expense was $89,032 and $52,289 during the quarters ended March
31, 1996 and March 31, 1995, respectively. The increase in interest expense of
$36,743 in 1996 was due to interest expense incurred in connection with newly
acquired laser machinery and accrued interest on notes payable. Interest and
other income for the first quarter of 1996 decreased by $3,586 due to the
decreased level of temporary investments and marketable debt securities held.
The Company had a consolidated net loss, before provision for income tax,
of $215,618 for the quarter, as compared to a net loss of $561,598 during the
quarter ended March 31, 1995.
7
<PAGE>
PART II. OTHER INFORMATION
Not Applicable.
8
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
May 13, 1996 INFINITE MACHINES CORP.
By: /s/ Clifford G. Brockmyre
-------------------------
Clifford G. Brockmyre, President
and Chief Operating Officer
By: /s/ Daniel T. Landi
-------------------
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 3/31/96
10-QSB and is qualified in it's entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 26,470
<SECURITIES> 0
<RECEIVABLES> 1,059,498
<ALLOWANCES> 22,792
<INVENTORY> 154,698
<CURRENT-ASSETS> 1,420,478
<PP&E> 4,383,248
<DEPRECIATION> 788,538
<TOTAL-ASSETS> 6,214,987
<CURRENT-LIABILITIES> 1,478,416
<BONDS> 3,543,437
0
0
<COMMON> 5,933
<OTHER-SE> 1,187,201
<TOTAL-LIABILITY-AND-EQUITY> 6,214,987
<SALES> 1,302,835
<TOTAL-REVENUES> 1,302,835
<CGS> 785,836
<TOTAL-COSTS> 647,756
<OTHER-EXPENSES> 84,861
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,032
<INCOME-PRETAX> (215,618)
<INCOME-TAX> 11,662
<INCOME-CONTINUING> (227,280)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (227,280)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
