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, 1997
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.)
300 Metro Center Boulevard, Warwick, RI 02889
----------------------------------------------------
(Address of principal executive office) (Zip Code)
(401) 737-7900
(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 9, 1997 the Registrant had a total of 9,218,475 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, 1997 and December 31, 1996 3
Consolidated Statements of Operations-Three Months
Ended March 31, 1997 and 1996. 4
Consolidated Statements of Cash Flows-Three Months
Ended March 31, 1997 and 1996. 5
Notes to Unaudited Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
PART II. OTHER INFORMATION
Items
1-6 Not Applicable 11
SIGNATURES 12
<PAGE>
INFINITE MACHINES CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,699,136 $ 1,147,791
Restricted funds 116,747 68,601
Accounts receivable, net of allowances 654,040 741,539
Inventories 157,369 138,893
Other current assets 172,717 150,830
------------ ------------
Total current assets 2,800,009 2,247,654
Property and equipment, net 4,539,133 4,303,838
Other assets
Notes receivable - stockholders 124,532 132,258
Purchased technology, net 1,380,920 1,389,367
Inventoried parts 125,306 143,206
Other assets, net 421,902 443,346
------------ ------------
2,052,660 2,108,177
------------ ------------
$ 9,391,802 $ 8,659,669
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 325,300 $ 250,000
Accounts payable and accrued expenses 1,078,438 952,864
Current portion of litigation settlement payable 549,000 549,000
Current maturities of long-term obligations 245,190 245,187
------------ ------------
Total current liabilities 2,197,928 1,997,051
Long term obligations 4,559,172 3,984,557
Litigation settlement payable 100,000 100,000
Minority interest 700,476 476,591
Stockholders' equity:
Common stock, $.001 par value, 20,000,000
shares authorized, 9,240,869 and 8,693,162
shares issued and outstanding 9,241 8,694
Additional paid-in capital 14,017,220 13,423,537
Accumulated deficit (12,192,235) (11,330,761)
------------ ------------
Total stockholders' equity 1,834,226 2,101,470
------------ ------------
$ 9,391,802 $ 8,659,669
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
INFINITE MACHINES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
------------ -----------
Sales $ 1,360,399 $ 1,302,835
Cost of goods sold 832,552 785,836
----------- -----------
Gross profit 527,847 516,999
Costs and expenses
Operating expenses 18,708 33,438
Research and development 512,240 --
General and administrative expenses 597,006 343,154
Selling expenses 130,081 117,074
Depreciation and amortization 293,490 154,118
----------- -----------
Total costs and expenses 1,551,525 647,784
Operating loss (1,023,678) (130,785)
Other income (expense)
Interest and dividend income 9,881 7
Interest expense (87,856) (89,032)
Minority interest in net loss of subsidiary 202,115 --
Gain on sale of technology 38,064 --
Other income -- 4,164
----------- -----------
Total other income (expense) 162,204 (84,861)
Loss before provision for income taxes (861,474) (215,646)
Provision for income taxes -- 11,662
----------- -----------
Net loss $ (861,474) $ (227,308)
=========== ===========
Per share:
Net loss per common share $ (0.13) $ (0.04)
=========== ===========
Weighted average number of common
shares outstanding 6,739,099 5,437,146
=========== ===========
See notes to consolidated financial statements.
4
<PAGE>
INFINITE MACHINES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (861,474) $ (227,280)
Adjustments to reconcile net cash used
in operating activities:
Depreciation and amortization 293,490 154,118
Gain of dispositions of assets (38,064) --
Minority interest in net loss of subsidiary (202,115)
Asset write down and allowances 7,726 9,912
Changes in assets and liabilities:
(Increase) decrease in assets
Accounts receivable 87,499 (126,873)
Other assets (28,373) (58,621)
Inventory and inventoried parts (576) 43,749
Increase in liabilities:
Accounts payable and accrued expenses 125,574 107,516
----------- -----------
Net cash used in operating activities (616,313) (97,479)
Cash flows from investing activities:
Purchase of property and equipment (384,015) (56,667)
Proceeds from sale of technology 155,898 --
----------- -----------
Net cash used in investing activities (228,117) (56,667)
Cash flows from financing activities:
Proceeds from convertible debentures, net of expenses 968,000 36,000
Borrowings of long term debt -- 1,250,000
Net borrowings of short term debt 75,300 51,918
Repayments of long term obligations (25,379) (1,256,469)
Increase in restricted funds, net (48,146) (48,035)
Proceeds from issuance of preferred stock 426,000 --
Proceeds from issuance of common stock -- 122,500
----------- -----------
Net cash provided by financing activities 1,395,775 155,914
Net increase in cash and cash equivalents 551,345 1,768
Cash and cash equivalents - beginning of period 1,147,791 24,702
----------- -----------
Cash and cash equivalents - end of period $ 1,699,136 $ 26,470
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
INFINITE MACHINES CORP.
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1. - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Infinite Machine 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 month period
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further information, refer to
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996,
which includes audited financial statements and footnotes as of and for the
years ended December 31, 1996 and 1995.
NOTE 2. - CONVERTIBLE PROMISSORY NOTES
As of March 31, 1997, $100,000 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.
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 March 31, 1997, $500,000 of the debentures were converted
into 499,073 shares of common stock. All of the debentures issued in June 1996
have been converted to common stock as of March 31, 1997.
On February 24, 1997, the Company completed an additional $1,100,000
private placement financing through the sale of 6% convertible debentures due
December 31, 1998. The holders may, at their sole option during the period
commencing 120 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 73% of the average closing
price of the Company's common stock on the five trading days preceding
conversion. As of March 31, 1997, none of the related debentures were eligible
for conversion into common stock of the Company.
6
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements made in this Quarterly Report on Form 10-QSB are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. The Company's plans
and objectives are based, in part, on assumptions involving the continued
expansion of business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein particularly in view of the Company's early stage operations, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved.
GENERAL
Infinite Machines Corp., (the "Company"), has two principal operating
subsidiaries, Laser Fare and Spectra Science. Laser Fare was acquired in July
1994 for stock, and is wholly owned. Spectra Science, which is 63% owned by the
Company, was formed in August 1996.
In addition to these two subsidiaries, Infinite has a division of Laser
Fare, Advanced Technology Group ("ATG"), engaged in contract research and
development, and ExpressTool Corp., ("ExpressTool"), a newly formed subsidiary
created to exploit new rapid tooling technology.
Laser Fare
Laser Fare's material processing activities continue to be strong and
operations are profitable. In addition to an expected 20% growth rate from Laser
Fare's historically repeat customers, it is anticipated that several new
customers, who began work with Laser Fare during 1996, will increase their
activity with Laser Fare during 1997. Laser Fare has sufficient facilities and
equipment to support its short-term business expansion.
Spectra Science
Spectra Science, which was formed during the third quarter of 1996, is
operating in accordance with its initial plan. A system for automated
identifications of garments using Spectras' patented LaserPaint(TM) technology
in coded thread has been successfully demonstrated to representatives of the
rental garment industry. Results from the demonstration were very positive and
orders have been received from two large garment rental firms. These orders are
for pilot programs to be implemented in actual working environments. Based on
successful results, substantial follow-on orders are expected.
In October 1996, Spectra Science entered into a contract with the Textile
Rental Association to build and demonstrate an automated system for
identification of rental linens and other flat goods. The system which uses a
LaserPaint(TM) thread woven into the textile will be demonstrated at the annual
convention of the Textile Rental Association in June 1997. If the demonstration
is successful, substantial orders for
7
<PAGE>
LaserPaint(TM) thread and readout instruments could result. Shipment of
LaserPaint(TM) thread and readers may begin as early as the third quarter of
1997.
Spectra has received a Phase II SBIR from the Department of Defense to
develop a high definition projection television system. This work can lead to
production and sale of specialized video systems or licensing to manufacturers.
Spectra is also actively evaluating LasePaint(TM) techniques for use in
photodynamic cancer therapy. Initial testing has been successful with animals
and further tests are being conducted at the request of pharmaceutical
producers. It is management's belief that LaserPaint(TM) will significantly
reduce the capital investment which a clinic or doctor needs to incur prior to
offering photodynamic therapy. This reduction in investment and lower treatment
costs may speed up the acceptance of photodynamic cancer therapy.
Spectra currently owns or controls through license three worldwide patents.
Additionally there are eight U. S. patents pending and a number of others in the
application process. The staff at Spectra consists of ten full time employees
and two consultants, which includes four Ph.D. scientists and two research
engineers, all with outstanding qualifications
ExpressTool
ExpressTool is believed to have key technical capabilities which will
allow molds and other types of tools to be made more rapidly than is possible
with traditional methods. The technology was developed over the last few years
under a collaborative R&D agreement with a major industrial company. Laser Fare
has exclusive rights to the technology for all industries other than those the
industrial partner competes in. Manufacturers are striving to reduce the time
required to bring their new products to market for competitive advantages. In
most instances, building molds and other tools requires half or more of the
total new product development cycle. Therefore building tools more rapidly is
very desirable and sought after.
ExpressTool's techniques have been proven on a small scale and in small
quantities. Although ExpressTool's techniques for rapid tooling are unique, the
company is not experienced in all aspects of the tooling business. Management is
currently searching for organizations having the needed capabilities that can be
combined, through acquisition or some other business arrangement, to integrate
our new technology with their its business base. These arrangements coupled with
8
<PAGE>
established relationships with major manufactures as customers should accelerate
ExpressTool's business growth.
Advanced Technology Group
The Advanced Technology Group is continuing development of advanced
ignition systems. In January 1997, ATG received a contract from the firm which
sponsored the rapid tooling project to work more broadly with them in advanced
manufacturing methods. In November 1996, ATG was informed that they had been
selected for a Phase II SBIR. The SBIR with the United States Air Force and
Phillips Laboratory, is a follow-on to an earlier contract and is for the
commercialization of high powered diode lasers.
Liquidity
Infinite Machines has several projects which may result in near term
increases in orders. To fulfill increased orders, additional financing for
equipment purchases and increased working capital will be required. The Company
is investigating various approaches for funding these potential requirements.
During 1996, the Company completed a financing through the sale of
$4,000,000 of Subordinated Convertible Debentures. The Debentures bore interest
at the rate of 6% per annum until maturity on June 1, 1998. The Debentures were
converted into Shares. Through January 1997, all $4,000,000 of principal amount
and related interest of such Debentures was converted into 3,039,855 shares.
In February 1997, the Company completed a financing through the sale of
$1,100,000 of Subordinated Convertible Notes. The notes bear interest at the
rate of 6% per annum until maturity on December 31, 1998. The Notes are
convertible into Shares at a conversion price equal to 73% of the average
closing bid price of the Shares on the five trading days preceding the date of
conversion. No more than fifty percent (50%) of the principal amount of any Note
may be converted prior to the one-hundred twentieth (120th) day following the
issuance.
At the present time, The Company has minimal working capital and its
continued operation as a going concern is dependent on improving the operating
performance of its sole operating subsidiary, Laser Fare, commercialization of
the technology being developed and marketed by ExpressTool and Spectra Science,
controls in general and administrative costs, and raising additional debt and/or
equity capital. Management is working to achieve these objectives, however,
there are no
9
<PAGE>
assurances that such efforts will be sufficiently successful to enable the
continued operation of the Company as a going concern.
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. From inception, through March
31, 1997, an aggregate of approximately $15.1 million, net of expenses, has been
provided by debt and equity offerings. As of March 31, 1996, the Company had
cash, cash equivalents and marketable securities totaling approximately
$1,699,136 available for its working capital needs and planned capital asset
expenditures.
While revenues were realized in the first three months of 1997, the
majority of revenues were attributed to Laser Fare. While improved revenue is
anticipated by the Company and expense containment measures continue to be
implemented, management is, nonetheless, pursuing several strategies for raising
additional resources through debt and equity transactions.
The Board of Directors has given approval for management to vigorously
purse several alternate sources of funding including conventional bank
financing, private placement of debt and/or equity securities, and application
for available governmental funds in the form of interest subsidized financing.
Management believes that a total of $2.5 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 part of this
amount on satisfactory terms or that it will be sufficient to fund operations
and scheduled debt repayment.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to The Three Months Ended March
31, 1996
Consolidated revenues for the three months ended March 31, 1997 were
$1,360,399 and consisted primarily of laser division sales. Cost of sales
totaled $832,552 and a gross profit of $527,847 was realized for the quarter.
Revenues for the three months ended March 31, 1996, sales totaled $1,302,835 and
consisted of only laser division sales. Cost of sales for the three months ended
March 31, 1996 was $785,836, and a gross profit of $516,999 was realized for the
quarter.
10
<PAGE>
Operating expenses decreased from $33,438 during the first quarter of
1996, to $18,708 for the first quarter of 1997. The decrease was a result of the
companies' cost reduction/control activities
Research and development expenses were $512,240 in the first quarter
ending March 31, 1997, as compared to zero in the first quarter of 1996. The
increase in the first quarter of 1997 is contributed to the research and
development efforts in the company's new subsidiaries, Spectra Science in the
amount of $307,276 and ExpressTool in the amount of $204,964.
General and administrative expenses increased to $597,006 for the three
months ended March 31, 1997 from $343,154 for the first quarter of 1996. The
increase of $253,852 was primarily due to the addition of Spectra Science
subsidiary, contributing approximately $210,000 or 82% of the increase. Selling
expenses were $130,081 for the first three months of 1997, compared to $117,074
for the first quarter of 1996. The increase of $13,007 was primarily attributed
to increase Laser Fare sales activity
Depreciation and amortization expenses totaled $293,490 for the first
quarter of 1997, compared to $154,118 during the first quarter of 1996. Increase
depreciation and amortization expense of $139,372, or 47%, from the prior year
period resulted from increased capital expenditures, as well as amortization of
deferred financing costs
Interest expense was $87,856 and $89,032 during the quarters ended March
31, 1997 and March 31, 1996 respectively.
The Company had a consolidated net loss, before provisions for income tax,
of $861,474 for the quarter, as compared to a net loss of $215,618 during the
quarter ended March 31, 1996. The 1997 period loss is primarily attributed to
research and development expenses of the Company's Spectra Science subsidiary in
the amount of $590,719, and research and development expenses in its ExpressTool
subsidiary amounting to $211,694.
Part II - Other Information
Not Applicable
11
<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
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-QSB,
3/31/97 and is qualified in it's entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,815,883
<SECURITIES> 0
<RECEIVABLES> 686,705
<ALLOWANCES> 32,665
<INVENTORY> 157,369
<CURRENT-ASSETS> 2,800,009
<PP&E> 5,848,312
<DEPRECIATION> 1,309,179
<TOTAL-ASSETS> 9,391,802
<CURRENT-LIABILITIES> 2,197,928
<BONDS> 5,129,662
0
0
<COMMON> 9,241
<OTHER-SE> 1,824,985
<TOTAL-LIABILITY-AND-EQUITY> 9,391,802
<SALES> 1,360,399
<TOTAL-REVENUES> 1,360,399
<CGS> 832,552
<TOTAL-COSTS> 1,551,525
<OTHER-EXPENSES> (162,204)
<LOSS-PROVISION> 11,341
<INTEREST-EXPENSE> 87,856
<INCOME-PRETAX> (861,474)
<INCOME-TAX> 0
<INCOME-CONTINUING> (861,474)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (861,474)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
