FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: July 31, 1998
Commission File Number: 2-90422-C
Infinite Graphics Incorporated
(Exact Name of Registrant as Specified in Its Charter)
Minnesota 41-0956693
(State of Jurisdiction) (IRS Employer Identification)
4611 East Lake Street, Minneapolis, Minnesota 55406
(Address of Principal Executive Officer)
(Zip Code)
612-721-6283
(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 and 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
2,652,575 common shares as of September 15, 1998
Total number of pages: 9
Exhibit index on page: 9
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFINITE GRAPHICS
BALANCE SHEET
UNAUDITED
July 31, 1998 April 30, 1998
------------ --------------
ASSETS
CURRENT ASSETS:
Cash $ 307,596 $ 195,984
Accounts receivable, less allowance for doubtful accounts $ 615,595 $ 735,870
of $58,485 and $43,420 respectively
Account receivable - other (Note D) ($0) $ 200,000
Inventories $ 246,152 $ 187,743
Prepaid expenses and other $ 107,590 $ 44,723
----------- -----------
Total current assets $ 1,276,933 $ 1,364,320
PROPERTY, PLANT, AND EQUIPMENT, NET $ 770,538 $ 758,076
PURCHASED SOFTWARE, NET $ 90,222 $ 94,364
ACCOUNTS RECEIVABLE (Note D) $ 258,600 $ 313,254
OTHER ASSETS $ 30,224 $ 31,183
----------- -----------
TOTAL ASSETS $ 2,426,517 $ 2,561,197
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit agreement $ 36,521 $ 141,324
Trade accounts payable $ 198,653 $ 237,834
Accrued salaries, wages, vacations, and employee withholdings $ 193,226 $ 198,762
Other accrued expenses $ 236,319 $ 239,673
Current portion of long-term debt $ 44,434 $ 38,855
Current portion of capitalized lease obligations $ 33,508 $ 34,442
----------- -----------
Total current liabilities $ 742,661 $ 890,890
LONG-TERM DEBT, less current portion $ 386,745 $ 403,651
CAPITALIZED LEASE OBLIGATIONS, less current portion $ 69,319 $ 76,795
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized 10,000,000 shares
issued and outstanding 2,652,575 at both dates $ 4,136,697 $ 4,136,697
Accumulated deficit ($2,908,905) ($2,946,836)
----------- -----------
Total stockholders' equity $ 1,227,792 $ 1,189,861
----------- -----------
TOTAL LIABILITIES & EQUITY $ 2,426,517 $ 2,561,197
=========== ===========
See notes to financial statements.
2
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF INCOME
UNAUDITED
THREE MONTH PERIOD
ENDING JULY 31,
1998 1997
-------------------------
REVENUES $ 976,370 $ 931,432
COSTS AND EXPENSES:
Costs of products sold $ 699,280 $ 661,572
Selling, general and administrative $ 219,120 $ 243,784
Interest $ 20,039 $ 9,712
----------- -----------
Total costs and expenses $ 938,439 $ 915,068
INCOME FROM CONTINUING OPERATIONS $ 37,931 $ 16,364
DISCONTINUED OPERATIONS-Loss from operations
of discontinued software division (Note D) $ 0 ($ 4,261)
----------- -----------
NET INCOME $ 37,931 $ 12,103
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Basic 2,652,575 2,462,575
=========== ===========
Diluted 2,732,346 2,738,939
=========== ===========
BASIC NET INCOME (LOSS) PER SHARE
Continuing operations $ 0.01 $ 0.01
Discontinued operations $ 0.00 (NIL)
----------- -----------
Net income (loss) $ 0.01 $NIL
=========== ===========
DILUTED NET INCOME (LOSS) PER SHARE:
Continuing operations $ 0.01 $NIL
Discontinued operations $ 0.00 (NIL)
----------- -----------
Net income (loss) $ 0.01 $NIL
=========== ===========
See notes to financial statements.
3
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF CASH FLOWS
UNAUDITED
Three Month Period
Ended July 31,
1998 1997
--------- ---------
CASH FLOWS FROM OPERATINE ACTIVITIES:
Net income $ 37,931 $ 12,103
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization $ 74,545 $ 241,436
Changes in assets and liabilities:
Accounts receivable $ 120,275 $ 296,876
Inventories ($ 58,409) ($ 385)
Prepaid expenses and other ($ 61,908) ($ 15,967)
Accounts payable, accruals and other accrued expenses ($ 48,071) ($196,235)
--------- ---------
Net cash provided by operating activities $ 64,363 $ 337,828
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for capitalized software ($180,873)
Other capital expenditures ($ 82,865) ($ 21,282)
Decrease in account receivable-other $ 54,654
Proceeds from sale of discontinued operations $ 200,000
--------- ---------
Net cash provided by (used in) investing activities $ 171,789 ($202,155)
CASH LOWS FROM FINANCING ACTIVITIES:
Decrease in revolving credit agreement ($104,803) ($ 91,052)
Payments on long-term debt and capital lease obligations ($ 19,737) ($ 44,621)
--------- ---------
Net cash used in financing activities ($124,540) ($135,673)
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 111,612 $ 0
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 195,984 $ 0
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 307,596 $ 0
========= =========
See notes to financial statements.
4
NOTES TO FINANCIAL STATEMENTS
NOTE A:
The Balance Sheet as of July 31, 1998 and the Statements of Income for the three
month periods ended July 31, 1998 and 1997 and Statements of Cash Flows for the
three month ended July 31, 1998 and 1997 have been prepared by Infinite Graphics
Incorporated without audit. In the opinion of management, these statements
reflect all adjustments, consisting of only normal accruals and adjustments,
necessary for the fair statement of the periods presented. The Balance Sheet as
of April 30, 1998 has been derived from the audited Balance Sheet included in
the Company's April 30, 1998 Annual Report to Shareholders. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. It
is suggested that these financial statements be read in conjunction with the
financial statements and notes included in the Company's April 30, 1998 Annual
Report to Shareholders.
Effective May 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." For the periods presented
comprehensive income is the same as net income.
Reclassifications - Certain amounts in the financial statements have been
reclassified for fiscal year 1998 to conform with fiscal 1999 presentation.
NOTE B:
Basic (loss) income per share is computed by dividing (loss) income by the
weighted average number of common shares outstanding. Diluted (loss) income per
share assumes the exercise of stock options and warrants using the treasury
stock method, if dilutive.
NOTE C:
During 1998, the Company installed equipment costing approximately $1,100,000.
The Company is not required to pay for the equipment until it is operating
within specific tolerances. The vendor has agreed to assist the Company in
obtaining financing for the equipment. The Company had reached an agreement with
a financing company to lease the equipment at the time of acceptance. However,
the financing company terminated its agreement due to delays in the Company
accepting the equipment caused by the equipment not operating within specific
tolerances. The Company has not accepted the equipment and is searching for
alternative financing.
NOTE D:
Effective February 27, 1998, the Company sold an exclusive license to use,
market and distribute the Company's PAR/ICE, ParCAM, and CheckMate (PAR for
Design) software products; sold a nonexculsive license to certain other CAD/CAM
products, including those known as 2100, ProCADD, ProFLEX, and ProCHEM; and sold
certain assets of its software systems business to Global MAINTECH Corporation
(Global MAINTECH). The Company, however, has retained the right to use all of
this software in its own business. The Company has also agreed that for a period
of five years it will not distribute, market, promote, or provide to any third
parties software that is competitive with the software with respect to which
Global MAINTECH was granted an exclusive license. As consideration for the grant
of the license agreements ( the Agreements) and the sale of the software systems
division assets to Global MAINTECH, the Company received
5
$500,000 on February 27, 1998 and $200,000 on June 2, 1998 and may receive
additional payments totaling not more than $3,300,000 on or before June, 1999,
depending on the level of profit performance of the licensed software.
The above transaction was recognized as a disposal of a business. At July 31,
1998, the Company has a $258,600 receivable from Global MAINTECH
At the present time, management of the Company believes the future payments in
connection with the Agreements will exceed $258,600. The Company has only
recorded a future receivable to the extent of the realized loss resulting in no
loss gain on the sale of discontinued operations. Future receipts in connection
with the Agreements will be recorded as a reduction of the Global MAINTECH
receivable and any excess will be recorded as gain on sale of discontinued
operations.
6
PART 1 - FINANCIAL INFORMATION (CONTINUED)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1998 COMPARED TO THREE MONTHS ENDED JULY 31, 1997
Operations for the three months ended July 31, 1998 resulted in sales of
$976,370 compared to $931,432 for the same period last year or a 5 percent
increase The increase is primarily due to increased sales from our west coast
operations.
The Company's total selling, general and administrative (S, G & A) expenses for
the three months ended July 31, 1998 were $219,120 compared to $243,784 for the
same period last year, a decrease of $24,664 or 10 percent. S, G & A decreased
because of decreases in salary expense, travel and commissions. Interest expense
increased due to a portion of the interest expense for the three months ended
July 31, 1997 is being allocated to operations of discontinued software
division.
The Company had net income from continuing operations of $37,931 for three
months ended July 31, 1998, compared to net income from continuing operations of
$16,364 for the three months ended July 31, 1997.
Liquidity and Capital Resources. The Company's cash flow from operations was
$64,383 for the three months ended July 31, 1998, compared to $337,828 for the
same period last year. The largest components of cash flow from operations for
three months ended July 31, 1998 were depreciation and amortization of $74,545
and the decrease in accounts receivable of $120,275. The largest component of
cash flow from operations for three months ended July 31, 1997 was depreciation
and amortization of $241,436 and decrease in accounts receivable of $296,876.
The Company has invested primarily in equipment and improvements essential for
present operations in fiscal 1999, but plans to increase its investment in
capital resources for future operations over the next two or three years by
obtaining additional debt and/or equity financing. The Company's capital
expenditures for equipment, automation improvements and new opportunities during
fiscal 1999 are expected to be approximately $2,500,000, which includes
$1,100,000 of equipment ordered, delivered and not accepted. The Company
anticipates that financing for such expenditures will be derived from planned
operations, leases and obtaining additional debt and/or equity financing.
Although the Company is exploring additional funding possibilities, it has no
agreements to provide additional debt or equity capital and there can be no
assurance that additional funds will be available, or if available, available on
terms acceptable to the Company. If the Company does not achieve its operations
plan and additional financing is not obtained, it will restrict planned business
growth.
The Company's cash flow provided by investing activities was $171,789 for the
three month period ending July 31, 1998 . In fiscal 1999 cash provided by
investing activities consisted primarily of cash receipts of $254,654 from the
sale of the System Software Division partially offset by payments for other
capital expenditures of $82,865. For the three months ended July 31, 1997 cash
flow provided by investing activities was $202,155.
7
The Company's cash flow used in financing activities was $124,540 for the three
months ended July 31, 1998 compared to $135,673 in the same period last year.
Cash flows used in financing activities for period ended July 31, 1998 consisted
of payments on long-term debt and principal payments on capital lease
obligations of $19,737 and a decrease of $104,803 in the revolving credit
agreement. Cash flows used in financing activities for period ended July 31,
1997 were payments on long-term debt and principal payments on capital lease
obligations of $44,621, partially offset by the decrease in the revolving credit
agreement of $91,052.
Other Items. Inflation has not had any significant impact upon the Company's
results of operation.
Year 2000 Compliance. The Company has conducted a review of its computer systems
to identify those areas that could be affected by the Year 2000 problem and is
developing an implementation plan to resolve the issues identified. The
Company's accounting software is not Year 2000 compliant. The Company is
currently evaluating vendor software packages to meet its future needs. The
Company believes the Year 2000 problem will not pose any significant operational
concerns and is not anticipated to be material to the Company's financial
position or results of operations in any given year.
Securities Litigation Reform Act. Except for the historical information
contained herein, the matters discussed in this report are forward-looking
statements which involve risks and uncertainties, including but not limited to
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and prices, and other factors
discussed in the Company's filings with the Securities and Exchange Commission.
8
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule (for SEC use only)
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.
September 21, 1998 by /S/ CLIFFORD F. STRITCH, JR.
----------------------------
Clifford F. Stritch, Jr.
Chief Executive Officer
Chief Financial Officer
9