U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1996.
[ ] Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from _______________ to _______________
Commission file number 0-23902
IPI, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
MINNESOTA 41-1449312
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
15155 TECHNOLOGY DRIVE
EDEN PRAIRIE, MN 55344
(Address of Principal Executive Offices)
(612) 975-6200
(Issuer's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
As of October 10, 1996, there were 4,734,087 Common Shares outstanding.
IPI, INC.
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the
Three Months and Nine Months Ended August 31, 1996 and
1995. 3
Condensed Consolidated Balance Sheets as of August 31,
1996 and November 30, 1995. 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended August 31, 1996 and 1995. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports of Form 8-K 9
Signatures 10
PART I. FINANCIAL INFORMATION
ITEM 1.
<TABLE>
<CAPTION>
IPI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
August 31, August 31,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Royalty fees $ 1,046,000 $ 952,000 $ 3,051,000 $ 2,763,000
Printing equipment, supplies and services 1,498,000 1,654,000 4,047,000 4,232,000
Finance and other income 242,000 226,000 766,000 647,000
----------- ----------- ----------- -----------
Total Revenues 2,786,000 2,832,000 7,864,000 7,642,000
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 1,270,000 1,441,000 3,385,000 3,592,000
Selling, general and administrative expenses 793,000 707,000 2,495,000 2,212,000
Amortization of goodwill 58,000 68,000 173,000 126,000
----------- ----------- ----------- -----------
Total costs and expenses 2,121,000 2,216,000 6,053,000 5,930,000
----------- ----------- ----------- -----------
Income before provision for income taxes 665,000 616,000 1,811,000 1,712,000
PROVISION FOR INCOME TAXES (246,000) (243,000) (670,000) (676,000)
----------- ----------- ----------- -----------
NET INCOME $ 419,000 $ 373,000 $ 1,141,000 $ 1,036,000
=========== =========== =========== ===========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
$ 0.09 $ 0.08 $ 0.24 $ 0.22
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,734,000 4,734,000 4,734,000 4,667,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
IPI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
August 31,1996 November 30,
(Unaudited) 1995
-------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 998,000 $ 575,000
Short-term investments 2,748,000 2,648,000
Trade accounts receivable 1,649,000 1,485,000
Current maturities of notes receivables, net of allowance for
doubtful accounts of $120,000 238,000 238,000
Inventories 395,000 266,000
Prepaid expenses and other 172,000 343,000
Deferred income taxes 531,000 531,000
------------ ------------
Total current assets 6,731,000 6,086,000
------------ ------------
PROPERTY AND EQUIPMENT:
Property and equipment 929,000 779,000
Less - Accumulated depreciation (542,000) (544,000)
------------ ------------
Property and equipment, net 387,000 235,000
NOTES RECEIVABLE, net of current maturities and allowance for
doubtful accounts of $594,000 and $535,000 3,083,000 2,751,000
GOODWILL AND OTHER INTANGIBLES, net of accumulated
amortization of $876,000 and $702,000 3,676,000 3,850,000
------------ ------------
$ 13,877,000 $ 12,922,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 468,000 $ 448,000
Accrued compensation 243,000 411,000
Accrued financing liabilities 175,000 175,000
Deferred revenues 144,000 157,000
Other accrued liabilities 459,000 484,000
------------ ------------
Total current liabilities 1,489,000 1,675,000
------------ ------------
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value, 15,000,000 shares authorized:
4,734,087 shares issued and outstanding 47,000 47,000
Additional paid-in capital 15,584,000 15,584,000
Accumulated deficit (3,243,000) (4,384,000)
------------ ------------
Total shareholders' equity 12,388,000 11,247,000
------------ ------------
$ 13,877,000 $ 12,922,000
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
IPI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
August 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,141,000 $ 1,036,000
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization 242,000 189,000
Net change in other operating items:
Trade accounts receivable (164,000) (630,000)
Inventories (129,000) (122,000)
Prepaid expenses and other 47,000 51,000
Accounts payable, accrued liabilities and other (186,000) 428,000
----------- -----------
Net cash provided by operating activities 951,000 952,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments, net (100,000) 1,008,000
Purchase of property and equipment, net (221,000) (74,000)
Cash investment in Copy Boy -- (1,200,000)
Investments in partnerships -- --
Change in notes receivable, net (207,000) (998,000)
----------- -----------
Net cash used by investing activities (528,000) (1,264,000)
----------- -----------
Increase (decrease) in cash and cash equivalents 423,000 (312,000)
CASH AND CASH EQUIVALENTS, beginning of year 575,000 482,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 998,000 $ 170,000
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 606,000 $ 277,000
=========== ===========
Sale of partnership interests for note receivable $ 124,000 $ --
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
IPI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements of
IPI, Inc. ("IPI" or the "Company") and its wholly owned subsidiaries,
Insty-Prints, Inc. ("Insty-Prints") and Digital Output Center ("DOCs"), are
unaudited; however, in the opinion of management, all adjustments necessary
for a fair presentation of such financial statements have been reflected in
the interim periods presented. Such adjustments consisted only of normal
recurring items and all intercompany transactions have been eliminated in
consolidation. The significant accounting policies, certain financial
information and footnote disclosures which are normally included in
financial statements prepared in accordance with generally accepted
accounting principles, but which are not required for interim reporting
purposes, have been condensed or omitted. The operating results for the
interim periods presented are not necessarily indications of the operating
results to be expected for the full fiscal year. The accompanying financial
statements of the Company should be read in conjunction with the Company's
audited financial statements for the years ended November 30, 1995 and 1994
and the notes thereto, included in the Company's Form 10-KSB.
2. ACQUISITION OF COPY BOY
In June 1995, Insty-Prints acquired the franchise contracts and IPI
acquired certain notes receivable of Copy Boy Corporation ("Copy Boy"), a
franchisor of 21 fast turnaround business printing locations in the Phoenix
and Tucson markets, pursuant to an Asset Purchase Agreement. All 21 Copy
Boy stores were converted to new 20 year Insty-Prints, Inc. franchise
agreements.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
As of August 31, 1996, the Company, through its wholly-owned subsidiary
Insty-Prints, had 307 franchise locations and one Company-owned store. Included
in the franchise locations are 19 former Printhouse Express, Inc. (Printhouse)
stores which were acquired in March 1994, and 21 former Copy Boy stores acquired
in June 1995, all of which were subsequently converted to Insty-Prints stores.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
August 31, August 31,
--------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Royalty fees 37.5% 33.6% 38.8% 36.1%
Printing equipment, supplies and services 53.8 58.4 51.5 55.4
Finance and other income 8.7 8.0 9.7 8.5
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses:
Costs of sales 45.6 50.9 43.0 47.0
Selling, general and administrative expenses 28.4 25.0 31.7 29.0
Amortization of goodwill 2.1 2.4 2.2 1.6
----- ----- ----- -----
Total costs and expenses 76.1 78.3 76.9 77.6
----- ----- ----- -----
Income before provision for income taxes 23.9 21.7 23.0 22.4
Provision for income taxes 8.8 8.6 8.5 8.9
----- ----- ----- -----
Net income 15.1% 13.1% 14.5% 13.5%
===== ===== ===== =====
</TABLE>
FOR THE QUARTERS AND NINE MONTHS ENDED AUGUST 31, 1996 AND 1995
Revenues. Total revenues for the three months ended August 31, 1996,
consisting of royalties, sales of printing equipment, supplies and services,
franchise fees and finance and other income, totaled $2,786,000, a decrease of
$46,000 or 1.6% as compared to the three months ended August 31, 1995. Total
revenues for the nine months ended August 31, 1996, of $7,864,000 were up 2.9%
or $222,000 as compared to the nine months ended August 31, 1995.
Royalty revenue increased to $1,046,000 in the third quarter of 1996 from
$952,000 in 1995, an increase of 9.9%. For the nine months ended August 31,
1996, royalty revenue was $3,051,000, an increase of 10.4% or $288,000 as
compared to the same period a year ago. Royalties increased primarily as a
result of the increased number of franchise locations open during the respective
periods and increased same store sales in 1996 over 1995.
Sales of printing equipment, supplies and services for the third quarter of
1996 decreased $156,000 or 9.4% to $1,498,000 from $1,654,000 for 1995. For the
nine months ended August 31, 1996, sales of products were $4,047,000 or 4.4%
below the sales of $4,232,000 for the same period a year ago. The slight
decrease in 1996 was primarily the result of decreased sales of printing related
equipment, which was partially offset by an increase in the sale of electronic
publishing equipment, both reflecting store owner needs.
Finance and other income was $242,000 for the quarter ended August 31,
1996, which is a $16,000 or 7.1% increase from the same quarter a year ago. For
the nine months ended August 31, 1996, finance and other income was $766,000 or
18.4% greater than the $647,000 for the same period a year ago. For the nine
month period of 1996, the increased revenues were primarily as a result of
increased franchise fee income, which was $88,000 higher than in the 1995
period. Overall, franchise fee revenues are not significant in 1996 or 1995 due
to the Company's emphasis during such periods on increasing existing franchise
location sales and growth through acquisitions.
Cost of Sales. Cost of sales decreased to $1,270,000 for the third quarter
of 1996 from $1,441,000 for 1995, a decrease of 11.9% for the quarter. Average
margins in products and services were slightly higher for the nine months of
1996 at 16.4% compared to 15.1% for the 1995 period. The decrease in the third
quarter is the result of a related decrease in sales of printing equipment,
supplies and services. Nine month cost of sales amounts totaled $3,385,000 in
1996, compared to $3,592,000 in 1995, a decrease of $207,000 or 5.8%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $793,000 for the third quarter 1996 compared to
$707,000 for 1995, an increase of 12.2%. Total expenses for the nine months
ended August 31, 1996 were $2,495,000 compared to $2,212,000 for 1995,
representing a 12.8% increase. The increase in expenses was due primarily to
increased compensation expense for salary increases, staff additions, incentive
program accruals and the start-up of the DOCs subsidiary in March 1996.
Amortization of Goodwill. Increases in the amortization of goodwill for the
nine month period in 1996 results from the June 1995 Copy Boy acquisition.
Income Tax Expense. The Company's effective combined federal and state
income tax rate is estimated to be 37% for 1996 due primarily to the effect of
state income taxes, non-taxable income on municipal securities and
non-deductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ending August 31, 1996, the Company generated
$951,000 from operating activities, compared to $952,000 of funds provided from
operating activities for the nine month period of 1995. While net cash provided
by operations was essentially the same for the two periods, there were
offsetting factors as shown on the Statements of Cash Flow.
The Company has no bank debt or credit facility. Operations are funded from
cash generated by the business.
Franchise owners may finance their equipment purchases through a $6,000,000
equipment financing facility established with First Bank Systems by Insty-Prints
for the benefit of the franchise owners. This facility is guaranteed by IPI and
Insty-Prints, whose contingent liability under this agreement is capped at
$2,400,000. A loss reserve of $175,000 is recorded on the balance sheet at
August 31, 1996, representing estimated losses on these guarantees, net of
equipment value. The aggregate balance outstanding under this facility as of
August 31, 1996 was approximately $3,859,000.
The Insty-Prints' franchise business is not highly seasonal, and franchise
owners' sales generally follow overall economic trends. The business is not
impacted materially by inflation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiary are involved in various legal
proceedings arising in the normal course of business, none of
which is expected to result in any material loss to the Company
or its subsidiary.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to Vote of Security-Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K Page
(a) Exhibits.
*11 Statement Re: Computation of per share earnings 11
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for
which this report is filed.
----------------------
*Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: October 10, 1996 IPI, Inc.
By: /S/ Robert J. Sutter
Robert J. Sutter
President and Chief Executive Officer
(Principal Executive Officer)
By: /S/ David M. Engel
David M. Engel
Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT 11
IPI, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Primary and fully diluted earnings per share
<S> <C> <C> <C> <C>
Weighted average number of issued shares
outstanding 4,734 4,734 4,734 4,667
Effect of:
1994 Long-Term Incentive Plan -- -- -- --
1994 Non-Employee Directors' Stock Option Plan
-- -- -- --
------ ------ ------ ------
Shares outstanding used to compute primary and fully
diluted earnings per share 4,734 4,734 4,734 4,667
====== ====== ====== ======
Net Income $ 419 $ 373 $1,141 $1,036
====== ====== ====== ======
Primary and fully diluted earnings per share $ 0.09 $ 0.08 $ 0.24 $ 0.22
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 3,746,000
<SECURITIES> 0
<RECEIVABLES> 2,007,000
<ALLOWANCES> 120,000
<INVENTORY> 395,000
<CURRENT-ASSETS> 6,731,000
<PP&E> 929,000
<DEPRECIATION> 542,000
<TOTAL-ASSETS> 13,877,000
<CURRENT-LIABILITIES> 1,489,000
<BONDS> 0
0
0
<COMMON> 47,000
<OTHER-SE> 12,341,000
<TOTAL-LIABILITY-AND-EQUITY> 13,877,000
<SALES> 4,047,000
<TOTAL-REVENUES> 7,864,000
<CGS> 3,385,000
<TOTAL-COSTS> 6,053,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,811,000
<INCOME-TAX> 670,000
<INCOME-CONTINUING> 1,141,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,141,000
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
