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, 1998.
[ ] 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, 1998, there were 4,734,087 Common Shares outstanding.
<PAGE>
IPI, INC.
Table of Contents
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of February
28, 1998 and November 30, 1997. 3
Condensed Consolidated Statements of Operations
for the Three Months Ended February 28, 1998
and February 28, 1997. 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended February 28, 1998
and February 28, 1997. 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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1.
IPI, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
------------ ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,248,000 $ 1,294,000
Short-term investments 1,470,000 800,000
Marketable equity securities 5,562,000 5,014,000
Trade accounts receivable 1,325,000 1,274,000
Current maturities of notes receivables, net of allowance for
doubtful accounts of $163,000 and $163,000 987,000 987,000
Inventories 271,000 315,000
Prepaid expenses and other 197,000 119,000
Deferred income taxes 390,000 593,000
------------ ------------
Total current assets 11,450,000 10,396,000
------------ ------------
PROPERTY AND EQUIPMENT:
Property and equipment 1,356,000 1,356,000
Less - Accumulated depreciation (830,000) (790,000)
------------ ------------
Property and equipment, net 526,000 566,000
NOTES RECEIVABLE, net of current maturities and allowance for
doubtful accounts of $663,000 and $522,000 1,397,000 1,852,000
GOODWILL AND OTHER INTANGIBLES, net of accumulated amortization
of $1,222,000 and $1,164,000 3,330,000 3,388,000
------------ ------------
$ 16,703,000 $ 16,202,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 386,000 $ 417,000
Accrued compensation 55,000 411,000
Accrued financing liabilities 200,000 200,000
Deferred revenues 41,000 52,000
Other accrued liabilities 744,000 563,000
------------ ------------
Total current liabilities 1,426,000 1,643,000
------------ ------------
LONG-TERM CAPITAL LEASE OBLIGATIONS 93,000 107,000
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 (745,000) (1,132,000)
Unrealized gain (loss) on marketable securities available for sale,
net of related income tax effeects 298,000 (47,000)
------------ ------------
Total shareholders' equity 15,184,000 14,452,000
------------ ------------
$ 16,703,000 $ 16,202,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE>
IPI, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
February 28,
------------------------
1998 1997
---------- ----------
REVENUES:
<S> <C> <C>
Royalty fees $ 987,000 $ 973,000
Printing equipment, supplies and services 1,062,000 1,298,000
Finance and other income 245,000 187,000
---------- ----------
Total Revenues 2,294,000 2,458,000
---------- ----------
COSTS AND EXPENSES:
Cost of sales 833,000 1,084,000
Selling, general and administrative expenses 787,000 818,000
Amortization of goodwill 58,000 58,000
---------- ----------
Total costs and expenses 1,678,000 1,960,000
---------- ----------
Income before provision for income taxes 616,000 498,000
PROVISION FOR INCOME TAXES 228,000 184,000
---------- ----------
NET INCOME $ 388,000 $ 314,000
========== ==========
BASIC EARNINGS PER COMMON SHARE $ 0.08 $ 0.07
========== ==========
DILUTED EARNINGS PER COMMON SHARE $ 0.08 $ 0.07
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
SHARE EQUIVALENTS OUTSTANDING
- BASIC 4,734,000 4,734,000
========== ==========
- DILUTED 4,742,000 4,734,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
IPI, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
February 28,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 388,000 $ 314,000
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization 82,000 91,000
Net change in other operating items:
Trade accounts receivable (51,000) (191,000)
Inventories 44,000 57,000
Prepaid expenses and other (78,000) (32,000)
Accounts payable, deferred revenues
and other accrued liabilities (217,000) (75,000)
----------- -----------
Net cash provided by operating activities 168,000 164,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net 1,000 (125,000)
Purchase of short-term investments (670,000) (80,000)
Change in notes receivable, net 455,000 151,000
----------- -----------
Net cash used in investing activities (214,000) (54,000)
----------- -----------
Increase (decrease) in cash and cash equivalents (46,000) 110,000
CASH AND CASH EQUIVALENTS, beginning of the period 1,294,000 1,257,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,248,000 $ 1,367,000
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 53,000 $ 2,000
=========== ===========
Equipment acquired under capital leases $ -- $ 167,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
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, 1997 and 1996 and the notes
thereto, included in the Company's Form 10-KSB.
In August 1997, marketable equity securities were purchased to enhance
returns on cash funds. In accordance with Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt
and Equity Securities, these securities are shown on the balance sheet at
market value and unrealized gains (losses) are reflected as a separate
component of shareholders equity, net of related income taxes.
In the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128") "Earnings per
Share," which is effective for interim periods ending after December 15,
1997. As a result, all prior period earnings per share data has been
restated. This adoption of SFAS No. 128 did not have any significant
impact on previously reported earnings per share. Basic earnings per share
was computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per
share was computed similar to the computation for basic earnings per
share, except that the denominator is increased for the assumed exercise
of dilutive options and other dilutive securities using the treasury stock
method.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
As of February 28, 1998, the Company, through its wholly-owned subsidiary
Insty-Prints, had 266 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,
----------------------
1998 1997
---- ----
Revenues:
Royalty fees 43.0% 39.6%
Printing equipment, supplies and services 46.3 52.8
Finance and other income 10.7 7.6
------- -------
Total revenues 100.0 100.0
------- -------
Costs and expenses:
Cost of sales 36.3 44.1
Selling, general and administrative expenses 34.3 33.3
Amortization of goodwill 2.5 2.3
------- -------
Total costs and expenses 73.1 79.7
------- -------
Income before provision for income taxes 26.9 20.3
Provision for income taxes 10.0 7.5
------- -------
Net income 16.9% 12.8%
======= =======
FOR THE QUARTERS ENDED FEBRUARY 28, 1998 AND 1997
Revenues. Total revenues for the three months ended February 28, 1998,
consisting of royalties, sales of printing equipment, supplies and services,
franchise fees and finance and other income, totaled $2,294,000, a decrease of
$164,000 or 6.7% compared to the three months ended February 28, 1997.
Royalty revenue increased to $987,000 in the first quarter of 1998 from
$973,000 in 1997, an increase of 1.4%. 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 1998 decreased to $1,062,000 from $1,298,000 in 1997, a decrease of 18.2%.
The decrease in sales for 1998 resulted primarily from the elimination of
selling certain electronic publishing equipment, envelopes and inks.
Finance and other income was $245,000 for the quarter ended February 28,
1998, which is an increase of $58,000 or 31% from the same quarter a year ago.
For the first quarter of 1998, finance and other income was greater due to
higher yielding investments and the increased level of investments.
Cost of Sales. Cost of sales decreased to $833,000 for the first quarter
of 1998 from $1,084,000 for 1997, a decrease of 23.2% for the quarter. The
decrease in the quarter is the result of a related decrease in product sales, as
mentioned previously. Margins on equipment, supplies and services increased to
21.6% in the three months ended February 28, 1998 from 16.5% for the same period
in 1997, which is primarily due to sales mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $787,000 for the first quarter of 1998 from
$818,000 for the same period in 1997, a decrease of 3.8%. Expenses decreased due
to the elimination of one executive position and the expiration of a long-term
outside consulting agreement effective in the first quarter of 1998, which was
offset by general inflationary increases in other operating expenses.
<PAGE>
Provision for Income Taxes. The Company's effective combined federal and
state income tax rate is estimated to be 37% for 1998 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, 1998, the Company generated
$168,000 from operating activities, an increase of $4,000 from $164,000 of funds
provided from operating activities for the first quarter of 1997. The increase
in funds provided from operating activities was primarily attributable to
increased net income.
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 U.S. Bank (formerly
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, annually. A loss reserve of
$200,000 is recorded on the balance sheet at February 28, 1998, representing
estimated losses on these guarantees, net of equipment value. The aggregate
balance outstanding under this facility as of February 28, 1998 was
approximately $3,311,000.
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.
<PAGE>
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 6, 1998, 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 2, 1998. Two proposals were
submitted to a vote of shareholders, as follows:
(a) Election of Directors--all current directors (Robert J.
Sutter, Dennis M. Mathisen, Irwin L. Jacobs, Daniel T.
Lindsay, Dr. Kenneth J. Roering and Howard Grodnick) were up
for re-election to terms of one year. All directors were
re-elected with 4,534,516 shares voting yes, zero shares
voting no and zero shares being withheld.
(b) Ratification and Appointment of Independent Auditors--Arthur
Andersen LLP were auditors for the fiscal year ended November
30, 1997 and the Company has selected them as auditors for the
year ending November 30, 1998.
The appointment of Arthur Andersen LLP as auditors for fiscal
1998 was approved by a vote of Shareholders with 4,534,516
shares voting yes; zero shares voting no; and zero 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 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
<PAGE>
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 14, 1998 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 SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
February 28,
----------------------
1998 1997
----------------------
<S> <C> <C>
Net Income $ 388 $ 314
======== ========
Weighted average number of issued shares outstanding 4,734 4,734
======== ========
4,734 4,734
Shares used in computation of basic earnings per common stock
Dilutive effect of outstanding stock options and stock warrants after
application of treasury stock method 8 0
-------- --------
Common and common equivalent shares outstanding-diluted 4,742 4,734
======== ========
Basic earnings per common share $ .08 $ .07
======== ========
Diluted earnings per common share $ .08 $ .07
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> FEB-28-1998
<CASH> 1,248,000
<SECURITIES> 7,032,000
<RECEIVABLES> 2,475,000
<ALLOWANCES> 163,000
<INVENTORY> 271,000
<CURRENT-ASSETS> 11,450,000
<PP&E> 1,356,000
<DEPRECIATION> 830,000
<TOTAL-ASSETS> 16,703,000
<CURRENT-LIABILITIES> 1,426,000
<BONDS> 0
0
0
<COMMON> 47,000
<OTHER-SE> 15,137,000
<TOTAL-LIABILITY-AND-EQUITY> 16,703,000
<SALES> 1,062,000
<TOTAL-REVENUES> 2,294,000
<CGS> 833,000
<TOTAL-COSTS> 1,678,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 616,000
<INCOME-TAX> 228,000
<INCOME-CONTINUING> 388,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 388,000
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
