-----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, TdzDa6uCVAp/I+hzAxLTYxMmW07KX71saC/H/qH2DN9vMTSIXndxE0jYQH27h7u6 KS9HjN0rtnKMqU6MONSw9Q== 0000897101-99-000365.txt : 19990408 0000897101-99-000365.hdr.sgml : 19990408 ACCESSION NUMBER: 0000897101-99-000365 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990407 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: 99588598 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, 1999. [ ] 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 6, 1999, there were 4,734,087 Common Shares outstanding. Page 1 of 13 IPI, INC. Table of Contents Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of February 28, 1999 and November 30, 1998. 3 Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended February 28, 1999 and February 28, 1998. 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended February 28, 1999 and February 28, 1998. 5 Notes to Condensed Consolidated Financial Statements. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 7-9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports of Form 8-K 10 Signatures 11 2 PART I. FINANCIAL INFORMATION ITEM 1. IPI, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
February 28, November 30, 1999 1998 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,597,000 $ 3,828,000 Short-term investments 2,690,000 1,340,000 Marketable equity securities 5,502,000 4,631,000 Trade accounts receivable 1,204,000 1,225,000 Current maturities of notes receivables, net of allowance for doubtful accounts of $174,000 and $205,000 777,000 746,000 Inventories 314,000 393,000 Prepaid expenses and other 145,000 92,000 Deferred income taxes 998,000 789,000 ------------ ------------ Total current assets 13,227,000 13,044,000 ------------ ------------ PROPERTY AND EQUIPMENT: Property and equipment 1,543,000 1,522,000 Less - Accumulated depreciation (1,030,000) (961,000) ------------ ------------ Property and equipment, net 513,000 561,000 NOTES RECEIVABLE, net of current maturities and allowance for doubtful accounts of $648,000 and $648,000 1,014,000 1,139,000 GOODWILL AND OTHER INTANGIBLES, net of accumulated amortization of $1,453,000 and $1,395,000 3,099,000 3,157,000 ------------ ------------ $ 17,853,000 $ 17,901,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 611,000 $ 534,000 Accrued compensation 57,000 296,000 Accrued financing liabilities 200,000 200,000 Deferred revenues 10,000 14,000 Other accrued liabilities 607,000 564,000 ------------ ------------ Total current liabilities 1,485,000 1,608,000 ------------ ------------ LONG-TERM CAPITAL LEASE OBLIGATIONS 33,000 51,000 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 Retained earnings 1,274,000 900,000 Unrealized loss on marketable securities available for sale, net of related income tax effects (570,000) (289,000) ------------ ------------ Total shareholders' equity 16,335,000 16,242,000 ------------ ------------ $ 17,853,000 $ 17,901,000 ============ ============
The accompanying notes are an integral part of these consolidated balance sheets. 3 IPI, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
Three Months Ended February 28, --------------------------- 1999 1998 ----------- ----------- REVENUES: Royalty fees $ 954,000 $ 987,000 Printing equipment, supplies and services 877,000 1,062,000 Finance and other income 262,000 245,000 ----------- ----------- Total Revenues 2,093,000 2,294,000 ----------- ----------- COSTS AND EXPENSES: Cost of sales 656,000 833,000 Selling, general and administrative expenses 756,000 787,000 Amortization of goodwill 58,000 58,000 ----------- ----------- Total costs and expenses 1,470,000 1,678,000 ----------- ----------- Income before provision for income taxes 623,000 616,000 PROVISION FOR INCOME TAXES 249,000 228,000 ----------- ----------- NET INCOME $ 374,000 $ 388,000 =========== =========== BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.08 $ 0.08 =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON SHARE EQUIVALENTS OUTSTANDING - BASIC 4,734,000 4,734,000 =========== =========== - DILUTED 4,734,000 4,742,000 =========== =========== OTHER COMPREHENSIVE INCOME, NET OF TAX (NOTE 1): Net Income $ 374,000 $ 388,000 Unrealized gain (loss) on marketable securities available for sale, net of related income tax effects (281,000) 345,000 ----------- ----------- Total Comprehensive Income $ 93,000 $ 733,000 =========== ===========
The accompanying notes are an integral part of these consolidated statements. 4 IPI, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended February 28, --------------------------- 1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 374,000 $ 388,000 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 109,000 82,000 Net change in other operating items: Trade accounts receivable 22,000 (51,000) Inventories 79,000 44,000 Prepaid expenses and other (53,000) (78,000) Accounts payable, deferred revenues and other accrued liabilities (123,000) (217,000) ----------- ----------- Net cash provided by operating activities 408,000 168,000 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: (Purchase) Sale of property and equipment, net (21,000) 1,000 Purchase of short-term investments (1,350,000) (670,000) Purchase of marketable equity securities (1,362,000) -- Change in notes receivable, net 94,000 455,000 ----------- ----------- Net cash used in investing activities (2,639,000) (214,000) ----------- ----------- Decrease in cash and cash equivalents (2,231,000) (46,000) CASH AND CASH EQUIVALENTS, beginning of the period 3,828,000 1,294,000 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 1,597,000 $ 1,248,000 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid $ 178,000 $ 53,000 =========== ===========
The accompanying notes are an integral part of these consolidated statements. 5 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, 1998 and 1997 and the notes thereto, included in the Company's Form 10-KSB. In August 1997 and February 1999, 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 March 1997, the Financial Accounting Standards Board issues SFAS No. 128 "Earnings per Share," which changes the way companies calculate their earnings per share (EPS). SFAS No. 128 replaces primary EPS with basic EPS and fully diluted EPS with diluted EPS. Basic EPS is computed by dividing reported gain by the weighted average shares outstanding, excluding potentially dilutive securities while diluted EPS includes the dilutive securities. The Company adopted SFAS No. 128 in the first quarter of 1998 and all prior periods EPS data has been restated. In fiscal year 1999, the Company adopted SFAS No. 130 "Reporting Comprehensive Income," which establishes new rules for the reporting and presentation of comprehensive income and its components in a full set of financial statements. The Company's comprehensive income is comprised of net income and unrealized gains (losses) on marketable securities held for resale. The adoption of SFAS No. 130 had no impact on the Company's net income or total shareholders' equity. Prior to the adoption of SFAS No. 130, unrealized gains (losses) on marketable securities held for resale were reported separately in the statement of shareholders' equity. The comprehensive income amounts in the prior fiscal years' financial statements have been reclassified to conform to SFAS No. 130. The Company is principally engaged in one business segment--the franchising and servicing of business printing centers under the trade name of Insty-Prints(R). 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW As of February 28, 1999, the Company, through its wholly-owned subsidiary Insty-Prints, had 250 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, --------------------- 1999 1998 ---- ---- Revenues: Royalty fees 45.6% 43.0% Printing equipment, supplies and services 41.9 46.3 Finance and other income 12.5 10.7 ----- ----- Total revenues 100.0 100.0 ----- ----- Costs and expenses: Cost of sales 31.3 36.3 Selling, general and administrative expenses 36.1 34.3 Amortization of goodwill 2.8 2.5 ----- ----- Total costs and expenses 70.2 73.1 ----- ----- Income before provision for income taxes 29.8 26.9 Provision for income taxes 11.9 10.0 ----- ----- Net income 17.9% 16.9% ===== ===== FOR THE QUARTERS ENDED FEBRUARY 28, 1999 AND 1998 Revenues. Total revenues for the three months ended February 28, 1999, consisting of royalties, sales of printing equipment, supplies and services, franchise fees and finance and other income, totaled $2,093,000, a decrease of $201,000 or 8.8% compared to the three months ended February 28, 1998. Royalty revenue decreased to $954,000 in the first quarter of 1999 from $987,000 in 1998, a decrease of 3.3%. Royalties decreased primarily as a result of a reduced number of franchise locations in 1999 versus 1998, which was offset by increased same store sales by existing franchise locations. Sales of printing equipment, supplies and services for the first quarter of 1999 decreased to $877,000 from $1,062,000 in 1998, a decrease of 17.4%. The decrease in sales for 1999 resulted primarily from reduced demand from franchise owners for printing equipment and direct mail services. Finance and other income was $262,000 for the quarter ended February 28, 1999, which is an increase of $17,000 or 6.9% from the same quarter a year ago. For the first quarter of 1999, finance and other income was greater due primarily to the increased level of investments, which was offset by reduced note interest. Note interest was lower due to decreased levels of outstanding notes to franchise owners. 7 Cost of Sales. Cost of sales decreased to $656,000 for the first quarter of 1999 from $833,000 for 1998, a decrease of 21.2% 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 25.1% in the three months ended February 28, 1999 from 21.6% for the same period in 1998, which is primarily due to sales mix and increased margins on certain products. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $756,000 for the first quarter of 1999 from $787,000 for the same period in 1998, a decrease of 3.9%. Expenses decreased due to reduced equipment and general administrative expenses and improvements in corporate owned store results. Provision for Income Taxes. The Company's effective combined federal and state income tax rate is estimated to be 40% for 1999 compared to 37% for 1998 due primarily to increases in state income tax obligations. LIQUIDITY AND CAPITAL RESOURCES During the three months ended February 28, 1999, the Company generated $408,000 from operating activities, an increase of $240,000 from $168,000 of funds provided from operating activities for the first quarter of 1998. The increase in funds provided from operating activities was primarily attributable to increased depreciation expense in the 1999 period, net decreases in prepaid and other assets and increased accounts payable and other liabilities. During the three months ended February 28, 1999, the Company purchased $1,350,000 of short-term investments and $1,362,000 of marketable equity securities held for resale. All marketable equity securities reflected on the balance sheet as of February 28, 1999 are common shares of stock in a Real Estate Investment Trust, which have been purchased to improve yields on invested funds. As reflected in the equity section of the balance sheet and in Comprehensive Income, unrealized gains or losses for changes in the market value of the stock are shown. 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, 1999, representing estimated losses on these guarantees, net of equipment value. The aggregate balance outstanding under this facility as of February 28, 1999 was approximately $2,581,000. 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. YEAR 2000 COMPLIANCE The Company has adopted a plan to achieve Year 2000 compliance and an assessment of its internal systems has essentially been completed. Most desktop computers are Macintosh-based and are Year 2000 compliant, as well as the software utilized. Those desktop systems not compliant will be upgraded to new systems that are Year 2000 compliant by the third quarter of 1999. Software updates to the Company's mainframe systems are substantially complete and expected to be finalized by the end of the second quarter of 1999. The vendor supplying the Point of Sale system used by most franchisees has verified that the system is Year 2000 compliant. The Company has completed an analysis of its vendor relationships in which the risk of each vendor's non-compliance with Year 2000 was assessed. Survey letters were sent to major vendors in 8 mid-year 1998 to ascertain the status of each vendor's Year 2000 compliance. The survey process of vendors has essentially been completed and will be monitored on an ongoing basis. Total costs associated with the Year 2000 compliance project are expected to be less than $50,000. The Company provided its franchisees an assessment guide in October 1998, which serves as a step-by-step planning document for their use addressing Year 2000 compliance. Most of the primary equipment used by franchisees is not date sensitive nor does it contain embedded chips. The Company does not have vendor or customer relationships in which critical data is exchanged electronically. The Company would suffer if a service provider such as a telecommunications or utility vendor was not Year 2000 compliant and their respective service was interrupted or terminated. In such a case, the Company would be required to revert to its disaster recovery plan for the specific issue. If a large number of vendors that provide product to our franchisees were not compliant and unable to provide our franchisees products, it is likely that the Company would recognize a material reduction of royalties from the franchisees' lost sales. To date, the Company has not identified any suppliers who do not plan to be Year 2000 compliant; this analysis is ongoing. If non-compliant vendors are identified, the Company intends to develop appropriate contingency plans. While the Company believes its planning efforts are adequate to address its Year 2000 concerns, the Year 2000 readiness of the Company's suppliers and business partners may lag behind the Company's efforts. Although the Company does not believe that the Year 2000 matters discussed above will have a material impact on its business, financial condition and results of operations, it is uncertain as to what extent the Company may be affected by such matters. FORWARD LOOKING STATEMENTS Except for historical financial information , the information contained in this quarterly report constitute forward-looking statements and are based on management's goals, estimates, assumptions and projections. Important factors could cause results to differ materially from those expected by management. Some of these factors, such as increased competition from other business printing centers or reduced demand for printed media could decrease sales by franchised locations and decrease sales of products to franchisees by the Company. This would reduce royalty revenue from franchised locations and sales of products to such locations by the Company, thus reducing revenues and profits. Due to factors noted above and elsewhere in this quarterly report, the Company's future earnings and Common Stock price may be subject to volatility. Any shortfall in revenue or earnings from anticipated levels could have a significant effect on the trading price of the Company's Common Stock in any given period. 9 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 April 5, 1999, 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 May 10, 1999. 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. (b) Ratification and Appointment of Independent Auditors--Arthur Andersen LLP. 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 (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 10 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 7, 1999 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) 11 EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 IPI, INC. AND SUBSIDIARY STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE (In Thousands, Except Per Share Amounts)
Three Months Ended February 28, ------------------ 1999 1998 ------- ------- Net Income $ 374 $ 388 ======= ======= 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 0 8 ------- ------- Common and common equivalent shares outstanding-diluted 4,734 4,742 ======= ======= Basic and diluted earnings per common share $ .08 $ .08 ======= =======
12 EX-27 3 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 3-MOS NOV-30-1999 FEB-28-1999 1,597,000 8,192,000 2,155,000 (174,000) 314,000 13,227,000 1,543,000 (1,030,000) 17,853,000 1,485,000 0 0 0 47,000 16,288,000 17,853,000 877,000 2,093,000 656,000 1,470,000 0 0 0 623,000 249,000 374,000 0 0 0 374,000 .08 .08
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