-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OYIEbv+/pfOOaul0Ipe9xhpuL4vx2o+3zExUk0N6d5JnzioAhcd3s/8YIne08QbT rgagj77ytQJTVSpX995LxA== 0000897101-98-000425.txt : 19980415 0000897101-98-000425.hdr.sgml : 19980415 ACCESSION NUMBER: 0000897101-98-000425 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980414 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IPI INC CENTRAL INDEX KEY: 0000921753 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 411449312 STATE OF INCORPORATION: MN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23902 FILM NUMBER: 98592766 BUSINESS ADDRESS: STREET 1: 15155 TECHNOLOGY DR CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 6129756200 MAIL ADDRESS: STREET 1: 15155 TECHNOLOGY DRIVE CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 10QSB 1 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. 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 PART I. FINANCIAL INFORMATION ITEM 1. IPI, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
February 28, November 30, 1998 1997 ------------ ------------ ASSETS CURRENT ASSETS: 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 ============ ============
The accompanying notes are an integral part of these consolidated balance sheets. IPI, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended February 28, ------------------------ 1998 1997 ---------- ---------- REVENUES: 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 ========== ==========
The accompanying notes are an integral part of these consolidated statements. IPI, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended February 28, --------------------------- 1998 1997 ----------- ----------- 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 =========== ===========
The accompanying notes are an integral part of these consolidated statements. 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. 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. 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. 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 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) EX-11 2 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 IPI, INC. AND SUBSIDIARY STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE (In Thousands, Except Per Share Amounts)
Three Months Ended February 28, ---------------------- 1998 1997 ---------------------- 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 ======== ========
EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS NOV-30-1998 FEB-28-1998 1,248,000 7,032,000 2,475,000 163,000 271,000 11,450,000 1,356,000 830,000 16,703,000 1,426,000 0 0 0 47,000 15,137,000 16,703,000 1,062,000 2,294,000 833,000 1,678,000 0 0 0 616,000 228,000 388,000 0 0 0 388,000 .08 .08
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