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 FEBRUARY 28, 1997.
[ ] 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 April 10, 1997, 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 Balance Sheets as of
February 28, 1997 and November 30, 1996. 3
Condensed Consolidated Statements of Operations for
the Three Months Ended February 28, 1997 and
February 29, 1996. 4
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended February 28, 1997 and
February 29, 1996. 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 SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
February 28, 1997 November 30,
(Unaudited) 1996
----------------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,367,000 $ 1,257,000
Short-term investments 3,260,000 3,180,000
Trade accounts receivable 1,489,000 1,298,000
Current maturities of notes receivables, net of allowance for
doubtful accounts of $187,000 and $187,000 917,000 917,000
Inventories 341,000 398,000
Prepaid expenses and other 199,000 167,000
Deferred income taxes 585,000 585,000
------------ ------------
Total current assets 8,158,000 7,802,000
------------ ------------
PROPERTY AND EQUIPMENT:
Property and equipment 1,040,000 914,000
Less - Accumulated depreciation (616,000) (582,000)
------------ ------------
Property and equipment, net 424,000 332,000
NOTES RECEIVABLE, net of current maturities and allowance for
doubtful accounts of $658,000 and $607,000 2,301,000 2,452,000
GOODWILL AND OTHER INTANGIBLES, net of accumulated
amortization of $991,000 and $933,000 3,561,000 3,619,000
------------ ------------
$ 14,444,000 $ 14,205,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 441,000 $ 429,000
Accrued compensation 92,000 296,000
Accrued financing liabilities 200,000 200,000
Deferred revenues 90,000 91,000
Other accrued liabilities 527,000 409,000
------------ ------------
Total current liabilities 1,350,000 1,425,000
------------ ------------
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 (2,537,000) (2,851,000)
------------ ------------
Total shareholders' equity 13,094,000 12,780,000
------------ ------------
$ 14,444,000 $ 14,205,000
============ ============
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<TABLE>
<CAPTION>
IPI, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
February 28, February 29,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
REVENUES:
Royalty fees $ 973,000 $ 908,000
Printing equipment, supplies and services 1,298,000 1,240,000
Finance and other income 187,000 130,000
---------- ----------
Total Revenues 2,458,000 2,278,000
---------- ----------
COSTS AND EXPENSES:
Cost of sales 1,084,000 1,041,000
Selling, general and administrative expenses 818,000 731,000
Amortization of goodwill 58,000 58,000
---------- ----------
Total costs and expenses 1,960,000 1,830,000
---------- ----------
Income before provision for income taxes 498,000 448,000
PROVISION FOR INCOME TAXES 184,000 166,000
---------- ----------
NET INCOME $ 314,000 $ 282,000
========== ==========
NET INCOME PER COMMON SHARE $ 0.07 $ 0.06
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
SHARE EQUIVALENTS OUTSTANDING 4,734,000 4,734,000
========== ==========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
<CAPTION>
IPI, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
February 28, February 29,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 314,000 $ 282,000
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization 91,000 80,000
Net change in other operating items:
Trade accounts receivable (191,000) (182,000)
Inventories 57,000 (36,000)
Prepaid expenses and other (32,000) 112,000
Accounts payable, deferred revenues
and other accrued liabilities (75,000) (250,000)
----------- -----------
Net cash provided by operating activities 164,000 6,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (125,000) (88,000)
Sale (Purchase) of short-term investments (80,000) 100,000
Change in notes receivable, net 151,000 (319,000)
----------- -----------
Net cash used in investing activities (54,000) (307,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in cash and cash equivalents 110,000 (301,000)
CASH AND CASH EQUIVALENTS, beginning of year 1,257,000 575,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,367,000 $ 274,000
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 2,000 $ --
=========== ===========
Sale of partnership interests for note receivable $ -- $ 124,000
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
IPI, INC. AND SUBSIDIARY
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 subsidiary,
Insty-Prints, Inc. ("Insty-Prints"), 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, 1996 and 1995 and the notes thereto, included in
the Company's Form 10-KSB.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
As of February 28, 1997, the Company, through its wholly-owned subsidiary
Insty-Prints, had 291 franchise locations and one Company-owned store.
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as a
percentage of sales for the periods indicated:
Quarter Ended
February 28, February 29,
----------------------------
1997 1996
----- -----
Revenues:
Royalty fees 39.6% 39.9%
Printing equipment, supplies and services 52.8 54.4
Finance and other income 7.6 5.7
----- -----
Total revenues 100.0 100.0
----- -----
Costs and expenses:
Costs of sales 44.1 45.7
Selling, general and administrative expenses 33.3 32.1
Amortization of goodwill 2.3 2.5
----- -----
Total costs and expenses 79.7 80.3
----- -----
Income before provision for income taxes 20.3 19.7
Provision for income taxes 7.5 7.3
----- -----
Net income 12.8% 12.4%
===== =====
FOR THE QUARTERS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
Revenues. Total revenues for the three months ended February 28, 1997,
consisting of royalties, sales of printing equipment, supplies and services,
franchise fees and finance and other income, totaled $2,458,000, an increase of
$180,000 or 7.9% compared to the three months ended February 29, 1996.
Royalty revenue increased to $973,000 in the first quarter of 1997 from
$908,000 in 1996, an increase of 7.2%. Royalties increased primarily as a result
of the increased sales by existing franchise locations.
Sales of printing equipment, supplies and services for the first quarter of
1997 increased to $1,298,000 from $1,240,000 for 1996, an increase of 4.7%. The
increase in 1997 was primarily the result of increased sales of printing related
equipment, which was offset by a decrease in the sale of electronic publishing
equipment, both reflecting store owner needs.
Finance and other income was $187,000 for the quarter ended February 28,
1997, which is an increase of $57,000 or 43.8% from the same quarter a year ago.
For the first quarter of 1997, finance and other income was greater due to
increased franchisee fee income and higher interest income, which was recorded
primarily as a result of increased investments. Franchise fee revenues were not
significant in 1996 or 1995 due to the Company's emphasis during such periods on
increasing existing franchise location sales rather than seeking to add new
locations.
Cost of Sales. Cost of sales increased to $1,084,000 for the first quarter
of 1997 from $1,041,000 for 1996, an increase of 4.1% for the quarter. The
increase in the quarter is the result of a related increase in product sales, as
mentioned previously. Margins on equipment, supplies and services increased to
16.5% in the three months ended February 28, 1997 from 16.0% for the same period
in 1996, which is primarily due to sales mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $818,000 for the first quarter of 1997 from
$731,000 for the same period in 1996, an increase of 11.9%. This increase in
expenses was due primarily to increased staff and related compensation programs.
Provision for Income Taxes. The Company's effective combined federal and
state income tax rate is estimated to be 37% for 1997 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 three months ended February 28, 1997, the Company generated
$164,000 from operating activities, an increase of $158,000 from $6,000 of funds
provided from operating activities for the first quarter of 1996. The increase
in funds provided from operating activities was primarily attributable to a
decrease in trade accounts receivable.
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 $200,000 is recorded on the balance sheet at
February 28, 1997, representing estimated losses on these guarantees, net of
equipment value. The aggregate balance outstanding under this facility as of
February 28, 1997 was approximately $3,844,000.
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
On approximately March 20, 1997, proxy statements were mailed to
the holders of record of 4,734,087 shares of common stock to
solicit proxies in connection with the Annual Meeting of
Shareholders on April 9, 1997.Two proposals were submitted to a
vote of shareholders, as follows:
(a) Election of Directors--all current directors (Robert J.
Sutter, Thomas S. Galloway, Irwin L. Jacobs, Daniel T.
Lindsay and Howard Grodnick) were up for re-election to
terms of one year. All directors were re-elected with
4,466,582 shares voting yes, 100 shares voting no and
267,405 shares being withheld.
(b) Ratification and Appointment of Independent Auditors--Arthur
Andersen LLP were auditors for the fiscal year ended
November 30, 1996 and the Company has selected them as
auditors for the year ending November 30, 1997.
The appointment of Arthur Andersen LLP as auditors for
fiscal 1997 was approved by a vote of Shareholders with
4,466,582 shares voting yes; 100 shares voting no; and
267,405 shares withheld.
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 12
27 Financial Data Schedule
(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: April 10, 1997 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
<TABLE>
<CAPTION>
IPI, INC. AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Amounts)
Three Months Ended
February 28, February 29,
-----------------------------
1997 1996
-----------------------------
<S> <C> <C>
Primary and fully diluted earnings per share
Weighted average number of issued shares outstanding 4,734 4,734
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
========= ========
Net Income $ 314 $ 282
========= ========
Primary and fully diluted earnings per share $ .07 $ .06
========= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1997
<CASH> 1,367,000
<SECURITIES> 3,260,000
<RECEIVABLES> 2,406,000
<ALLOWANCES> 187,000
<INVENTORY> 341,000
<CURRENT-ASSETS> 8,158,000
<PP&E> 1,040,000
<DEPRECIATION> 616,000
<TOTAL-ASSETS> 14,444,000
<CURRENT-LIABILITIES> 1,350,000
<BONDS> 0
0
0
<COMMON> 47,000
<OTHER-SE> 13,047,000
<TOTAL-LIABILITY-AND-EQUITY> 14,444,000
<SALES> 1,298,000
<TOTAL-REVENUES> 2,458,000
<CGS> 1,084,000
<TOTAL-COSTS> 1,960,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 498,000
<INCOME-TAX> 184,000
<INCOME-CONTINUING> 314,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 314,000
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
