SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 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.
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(Exact name of Registrant as specified in its charter)
Delaware 52-1490422
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(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
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(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 November 8, 1996 the Registrant had a total of 8,528,859 of Common Stock,
$.001 par value, outstanding.
<PAGE>
INDEX
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INFINITE MACHINES CORPORATION
PART 1. FINANCIAL INFORMATION
- -----------------------------
Page
----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 1
Consolidated Statements of Operations-Three
and Nine Months Ended September 30, 1996 and 1995 2
Consolidated Statements of Cash Flows-Nine Months
Ended September 30, 1996 and 1995 3
Notes to Unaudited Consolidated Financial
Statements 4 - 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 9
PART II. OTHER INFORMATION
- --------------------------
Items
1-6 Not Applicable 9
SIGNATURES 10
- ----------
<PAGE>
INFINITE MACHINES CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 1,846,022 $ 24,702
Restricted funds 63,885 70,355
Accounts receivable, net of allowance 721,206 909,833
Inventories 193,789 180,546
Other current assets 128,525 134,323
------------ -----------
Total current assets 2,953,427 1,319,759
Property and equipment, net 4,057,960 3,632,648
Other Assets
Patents and technology 1,333,296 --
Notes receivable - stockholders 167,859 195,880
Inventoried parts 161,107 214,810
Net asset of subsidiary sold pursuant to
contractual obligation 399,595 399,595
Other assets, net 998,830 368,110
------------ -----------
3,060,687 1,178,395
------------ -----------
$ 10,072,074 $ 6,130,802
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 300,750 $ 447,371
Accounts payable and accrued expenses 745,569 786,011
Current maturities of long-term debt 158,093 140,409
------------ -----------
Total current liabilities 1,204,412 1,373,791
Long term obligations 6,818,321 4,003,097
Minority interest in Spectra Acquisition Corp. 422,031 --
Stockholders' equity
Common stock, $.001 par value, 20,000,000 6,495 5,490
shares authorized, 6,494,667 and 5,490,189
shares issued and outstanding
Additional paid-in capital 10,858,462 8,779,209
Accumulated deficit (9,237,647) (8,030,785)
------------ -----------
Total stockholders' equity 1,627,310 753,914
------------ -----------
$ 10,072,074 $ 6,130,802
============ ===========
See accompanying notes to unaudited consolidated financial statements
1
<PAGE>
INFINITE MACHINES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Nine Month Period
Ending Sept. 30, Ending Sept. 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 1,161,953 $ 1,184,984 $ 3,756,545 $ 3,667,995
Cost of goods sold 838,461 755,030 2,461,875 2,208,900
----------- ----------- ----------- -----------
Gross profit 323,492 429,954 1,294,670 1,459,095
Costs and expenses
Operating expenses 71,830 34,906 127,047 119,247
Research and development 117,915 101,396 117,915 362,480
General and administrative expenses 386,990 471,273 1,075,187 1,437,435
Selling expenses 127,631 115,717 377,015 328,215
Depreciation and amortization 306,452 212,519 611,712 555,036
----------- ----------- ----------- -----------
Total costs and expenses 1,010,818 935,811 2,308,876 2,802,413
Operating loss 687,326 505,857 1,014,206 1,343,318
Other (income) expense
Interest and dividend income (28,306) (3,949) (40,208) (21,595)
Interest expense 72,727 81,949 246,043 197,354
Loss on sale of equipment -- 1,800 -- 41,923
Other (income) expense 40,674 3,169 (5,364) (9,965)
----------- ----------- ----------- -----------
Total other (income) expense 85,095 82,969 200,471 207,717
Minority interest in net loss (21,910) -- (21,910) --
----------- ----------- ----------- -----------
Loss before provision for income taxes 750,511 588,826 1,192,767 1,551,035
Provision for income taxes (6,904) -- 14,096 --
----------- ----------- ----------- -----------
Net loss $ 743,607 $ 588,826 $ 1,206,863 $ 1,551,035
=========== =========== =========== ===========
Per share:
Net loss per common share $ 0.13 $ 0.11 $ 0.21 $ 0.30
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 5,807,589 5,208,809 5,807,589 5,208,809
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
2
<PAGE>
INFINITE MACHINES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Periods Ended September 30,
-----------------------------------------
1996 1995
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,206,863) ($1,551,035)
Ajustments to reconcile net cash used in operating activities
Depreciation and amortization 611,712 555,036
Minority interest in net loss (21,910) --
Loss (gain) of dispositions of assets -- 41,923
Translation adjustment -- 2,500
Asset write down and allowances 28,021 --
Changes in assets and liabilities:
(Increase) decrease in assets
Accounts receivable 188,627 (415,963)
Other assets (408,743) (147,474)
Inventory and inventoried parts 40,460 --
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 52,869 146,443
Deferred revenue 147,000 --
----------- -----------
Net cash used in operating activities: (568,827) (1,368,570)
Cash flows from investing activities:
Available-for-sale securities redemptions -- 751,973
Purchase of property and equipment (463,873) (757,765)
Purchase of other long term assets -- (100,939)
Purchase of patents and technology (1,289,500) --
Proceeds from sale of equipment -- 255
Cost of intangibles -- 400
----------- -----------
Net cash used in investing activities (1,753,373) (106,076)
Cash flows from financing activities:
Proceeds from convertible debentures, net of expenses 3,764,000 --
Borrowings of long term debt 1,250,000 752,000
Net repayments of short term debt (146,621) (376,417)
Repayments of long term obligations (1,366,863) (440,866)
Decrease (increase) in restricted funds, net 6,470 (2,296)
Net borrowings of notes payable -- 1,548,636
Proceeds from issuance of common stock to minority interests 7,941 --
Proceeds from issuance of preferred stock to minority interests 436,000 --
Proceeds from issuance of common stock 70,093 --
Proceeds from sale of common stock warrants 122,500 --
----------- -----------
Net cash provided by financing activities 4,143,520 1,481,057
----------- -----------
Net increase in cash and cash equivalents 1,821,320 (6,411)
Cash and cash equivalents - beginning of period 24,702 200,879
----------- -----------
Cash and cash equivalents - end of period $ 1,846,022 $ 207,290
=========== ===========
</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 of Infinite Machines Corp.
(the "Company") have been prepared in accordance 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 and nine month
periods ended September 30, 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. - BUSINESS ACQUISITION
- ------------------------------
On August 26, 1996, the Company acquired a preferred stock interest in
Spectra Acquisition Corp., a Delaware corporation ("SAC"). The aggregate
consideration paid for the preferred stock was $2.7 million plus the transfer of
certain technology rights which the Company has licensed from Brown University
Research Foundation. The cash portion of the purchase price was paid 50% in cash
and 50% in a non-interest bearing promissory note. The portion of the promissory
note outstanding at September 30, 1996 was $1,050,000. The preferred stock
represents in excess of 51% of the voting power of Spectra. Simultaneously with
the formation of SAC, SAC acquired substantially all of the assets of Spectra
Science Corp. in a business acquisition accounted for under the purchase method
of accounting.
NOTE 3. - 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 line of credit and a $1,250,000 term promissory note. The
proceeds were used to refinance existing debt obligations.
NOTE 4. - 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 nine months of 1996, the Company issued
an additional $236,000 of debentures and $741,000 of the debentures were
converted into 400,051 shares of common stock.
4
<PAGE>
INFINITE MACHINES CORP.
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 4. - CONVERTIBLE PROMISSORY NOTES (CONTINUED)
- --------------------------------------------------
In June 1996, the Company completed a $4,000,000 private placement
financing through the sale of 6% convertible debentures due June 1998. The
holders may, at their sole option, during the period commencing 90 days after
the date of issuance, convert all or any part of the outstanding principal
amount and accrued and unpaid interest of these notes 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 75% of the average closing price of the
Company's common stock on the five trading days preceding conversion. During the
three months ended September 30, 1996, $966,664 of the debentures were converted
into 464,944 shares of common stock.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
Since 1993, the Company has been engaged in material processing using
sophisticated laser machinery and in research and development programs related
to advanced manufacturing and laser applications. During this quarter, the
Company acquired the majority ownership of Spectra Acquisition Corporation
("Spectra"), an advanced photonic materials and technology company. During the
second quarter, the Company licensed certain photonic technology from Brown
University. These licenses have been assigned to Spectra by Infinite Machines
Corp. as partial consideration for the acquisition.
Spectra holds licenses and owns a number of worldwide patents in the fields
of generation of laser light, high performance display phosphor materials and
the use of lasers to directly write micro patterns on glass. Spectra is a
company in its development stage and currently generates minimal revenues.
Management believes that Spectra has technology that will find profitable
application in many fields, including identification of products for anti
counterfeiting and anti pirating purposes, medical devices, optical display
devices and in consumer products that use small scale optics such as compact
discs, photo copiers and fax machines. The techniques are also expected to find
application in instruments widely used in the biotechnology industry. Although
management anticipates rapid growth from Spectra, all current work is
developmental and involved in customer trials. There are no assurances that
Spectra's anticipated sales growth will be achieved.
The Company's Laser Fare subsidiary does contract machining for a broad
range of customers. Services include cutting, drilling, welding, marking and
engraving. The business is profitable and revenues are growing approximately 20%
per year. New equipment purchased during 1995 and 1996 and more focused selling
have contributed to sales growth. Management anticipates this trend will
continue, however, there are no assurances that this growth will continue.
The Advanced Technology Group (a division of Laser Fare) performs technical
consulting and contract research and development for industrial customers. In
addition to being compensated for services performed, the Advanced Technology
Group, in some instances, obtains limited rights to technology created during
these development programs. It is expected that these new technologies will
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. This effort involves work in rapid prototyping and rapid
manufacture of tools, such as molds for injection molding.
Recently, the Company announced the formation of ExpressTool, Inc., a
subsidiary entering the business of rapid tooling and part manufacturing.
ExpressTool will utilize proprietary technology stemming from an Advanced
Technology Group development program. The subsidiary will, during the balance of
1996, have minimal sales of trial and demonstration items.
6
<PAGE>
Management anticipates sales growth in 1997, however, there are no assurances
that this will be achieved.
In June 1996, the Company completed a $4,000,000 private placement
financing through the sale of convertible debentures. The majority of the
proceeds were used to complete the acquisition of Spectra. The balance is to be
used for general working capital. During the quarter ending September 30, 1996,
approximately $966,664 of the debentures were converted into 464,944 common
shares.
At the present time, the Company has adequate working capital, however,
growth and expansion plans will require additional working capital. Management
is presently investigating approaches to raising additional capital, including
various forms of equity and debt financing.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has financed its product development activities through a
series of private placements of debt and equity securities and an October, 1993
public offering of common stock. Since its inception, an aggregate of
approximately $11 million, net of expenses, has been provided by debt and equity
offerings. As of September 30, 1996, the Company had cash and cash equivalents
totaling approximately $1,846,022 available for its working capital needs and
planned capital asset expenditures.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended September 30, 1996 Compared To The Three Months Ended
- ------------------------------------------------------------------------
September 30, 1995
- ------------------
Consolidated revenues for the three months ended September 30, 1996 were
$1,161,953, derived solely from Laser Fare. Cost of sales totaled $838,461, and
a gross profit of $323,492 was realized for the quarter. Consolidated revenues
for the three months ended September 30, 1995 were $1,184,984 and consisted of
laser division sales of $980,384, and engineering and design sales of $204,660.
Cost of sales totaled $755,030, and a gross profit of $429,954 was realized for
the three months ended September 30, 1995. The engineering and design operations
were sold during 1995.
Operating expenses for the three months ended September 30, 1996 increased
by $36,924 from the third quarter of 1995. This increase was related to expenses
associated with the Company's termination of its engine facility. Research and
development expenses increased to $117,915 during the third quarter of 1996.
This increase was attributable to research and development expense incurred by
Spectra, the Company's subsidiary.
General and administrative expenses were $386,990 for the three months
ended September 30, 1996 as compared to $471,273 during the third quarter of
1995. The decrease of $84,283, or 18%, was primarily due to cost reductions.
Selling expenses were $127,631 for the quarter ended September 30, 1996, as
compared to $115,717 for the third quarter of 1995. The increase of $11,914 was
a result of increased sales efforts at the laser division.
7
<PAGE>
Depreciation and amortization expense totaled $306,452 for the third
quarter of 1996, as compared to $212,519 during the third quarter of 1995.
Increased depreciation and amortization expense of $93,933, or 44%, from the
third quarter of 1995, was primarily contributed by amortization of deferred
commissions expense for the sale of convertible debentures. During the third
quarter of 1996, interest income increased $19,357 from the comparable three
month period in 1995, due to interest earned on the proceeds from the June 1996
private placement. In addition, interest expense was $72,727 during the third
quarter of 1996, as compared to $81,949 during the third quarter of 1995. The
decrease in interest expense of $9,212 was a result of decreased bank debt.
The Company had a consolidated net loss, before provision for income taxes,
of $750,511 for the three months ended September 30, 1996 as compared to the net
loss of $588,821 for the three months ended September 30, 1995.
Nine Months Ended September 30, 1996 Compared To The Nine Months Ended
- ----------------------------------------------------------------------
September 30, 1995
- ------------------
Consolidated revenues for the nine months ended September 30, 1996 were
$3,756,545 and consisted solely of laser division sales. Cost of sales totaled
$2,461,875, and a gross profit of $1,294,670 was realized for the period. For
the nine months ended September 30, 1995, sales totaled $3,667,995 and consisted
of laser division sales of $3,116,995, FTD Infinite Ltd. sales of $538,500 and
rotary engine development revenue of $12,500. Consolidated cost of sales were
$2,208,900 for the first nine months of 1995 and the Company realized a gross
profit of $1,459,095 for that period.
Operating expenses increased from $119,247 during the first nine months of
1995, to $127,047 for the first nine months of 1996. The increase was the net
result of the Company's cost reduction activities, offset against expenses
associated with the termination of the engine facility. Research and development
expenses decreased from $362,480 during the first nine months of 1995 to a
negligible amount for the comparable 1996 period, primarily as a result of the
suspension of the rotary engine development efforts.
Expenditures for general and administrative expense decreased to $1,075,187
for the nine months ended September 30, 1996 from $1,437,435 for the first nine
months of 1995. The decrease of $362,248 was primarily due to cost reductions.
Selling expenses were $377,015 for the first nine months of 1996, compared to
$328,215 for the first nine months of 1995. The increase of $48,800 was a result
of increased sales efforts at Laser Fare.
Depreciation and amortization expense totaled $611,712 for the first nine
months of 1996 compared to $555,036 during the first nine months of 1995.
Increased depreciation and amortization expense of $56,676 from the prior year
period resulted from the purchase of new equipment and amortization of deferred
commissions expense incurred in the issuance of convertible debentures.
Interest expense was $246,043 and $197,354 during the nine month period
ended September 30, 1996 and September 30, 1995, respectively. The increase in
interest expense of $48,689 in 1996 was due to interest expense on obligations
of acquired laser equipment and notes
8
<PAGE>
payable. Interest and other income for the first nine months of 1996 increased
by $18,613 due to interest earned on the proceeds of the June 1996 private
placement.
The Company had a consolidated net loss, before provision for income tax,
of $1,206,863 for the nine months ending September 30, 1996, as compared to a
net loss of $1,551,036 during the nine months ended September 30, 1995.
PART II. - OTHER INFORMATION
- ----------------------------
Item 6: Reports on Form 8-K
- ------- -------------------
During the quarter the Company issued a Current Report on Form 8-K dated
August 26, 1996 pursuant to Item 2 thereof, with respect to the registrant's
investment in Spectra Acquisition Corp.
9
<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.
November 12, 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
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form
10-2SB 9/30/96 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,909,907
<SECURITIES> 0
<RECEIVABLES> 751,577
<ALLOWANCES> 30,371
<INVENTORY> 193,789
<CURRENT-ASSETS> 2,953,427
<PP&E> 5,555,901
<DEPRECIATION> 1,497,941
<TOTAL-ASSETS> 10,072,074
<CURRENT-LIABILITIES> 1,204,412
<BONDS> 7,277,164
0
0
<COMMON> 6,495
<OTHER-SE> 1,620,815
<TOTAL-LIABILITY-AND-EQUITY> 10,072,074
<SALES> 3,756,545
<TOTAL-REVENUES> 3,756,545
<CGS> 2,461,875
<TOTAL-COSTS> 2,308,876
<OTHER-EXPENSES> 200,471
<LOSS-PROVISION> 41,243
<INTEREST-EXPENSE> 246,043
<INCOME-PRETAX> (1,192,767)
<INCOME-TAX> 14,096
<INCOME-CONTINUING> (1,206,863)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,206,863)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
