<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the quarterly period ended September 30, 1997
or
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the transition period from to
------------- -------------
Commission file number:
KENTEK INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3577 22-2406249
(State or other jurisdiction of (Primary Standard Industrial Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2945 Wilderness Place, Boulder, CO 80301
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (303) 440-5500
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 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.
(1) Yes X No___
(2) Yes X No___
Number of shares outstanding of the issuer?s common stock, as of
September 30, 1997:
7,064,743 shares of Common Stock, $.01 par value per share
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KENTEK INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
INDEX
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<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
September 30, 1997 and June 30, 1996 3
Consolidated Statements of Operations -
for the three months ended September 30, 1997
and 1996 4
Consolidated Statements of Cash Flows -
for the three months ended September 30, 1997
and 1996 5
Notes to 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. Submissions of Matters to a vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
KENTEK INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
ASSETS
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<CAPTION>
September 30, June 30,
1997 1997
-------------- ----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 16,497 $ 18,216
Marketable securities 19,288 16,374
Accounts receivable, net of allowance 6,107 6,213
Inventories (Note 2) 10,720 10,074
Deferred income taxes 2,848 2,848
Other 1,004 1,045
-------- --------
Total current assets 56,464 54,770
Property and equipment, at cost, net of
accumulated depreciation and amortization 1,628 1,721
Deposits and other 1,140 1,161
-------- --------
Total assets $ 59,232 $ 57,652
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,278 $ 3,324
Accrued expenses:
Income taxes 320 0
Other 3,318 3,165
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Total current liabilities 6,916 6,489
Other 478 502
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Total liabilities 7,394 6,991
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Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par - shares authorized, 12,000;
shares outstanding, 7,065 and 6,929 71 69
Additional paid-in-capital 44,507 43,945
Foreign currency translation (1,216) (753)
Retained earnings 8,476 7,400
-------- --------
Total stockholders' equity 51,838 50,661
-------- --------
Total liabilities and stockholders' equity $ 59,232 $ 57,652
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
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KENTEK INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except per share data)
(Unaudited)
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<CAPTION>
Three months ended
September 30,
------------------------
1997 1996
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<S> <C> <C>
Net sales:
Printers $ 2,239 $ 2,239
Consumable supplies and spare parts 9,415 11,813
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Total net sales 11,654 14,052
Cost of sales 6,496 7,679
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Gross profit 5,158 6,373
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Operating Expenses:
Selling, general and administrative 2,102 2,544
Research and development 1,905 2,310
-------- --------
Total operating expenses 4,007 4,854
-------- --------
Operating income 1,151 1,519
Other income (expense) 787 (544)
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Income before income taxes 1,938 975
Income tax expense 727 768
-------- --------
Net income $ 1,211 $ 207
======== ========
Net income applicable to common stockholders $ 1,211 $ 207
======== ========
Net income per common share $ 0.17 $ 0.03
======== ========
Weighted average common and common
equivalent shares outstanding 7,166 6,996
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
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KENTEK INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
----------------------
1997 1996
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<S> <C> <C>
Operating activities:
Net income $ 1,211 $ 207
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 307 298
Loss on disposal of property and equipment 0 872
Changes in operating assets and liabilities:
Trade receivables 106 1,075
Inventories (738) (355)
Other current assets (625) (526)
Other assets (12) 317
Accounts payable and accrued expenses 899 (1,565)
-------- --------
Net cash provided by operating activities 1,148 323
-------- --------
Investing activities:
Purchase of marketable securities (2,914) 0
Purchase of equipment (147) (250)
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Net cash used in investing activities (3,061) (250)
-------- --------
Financing activities:
Principal payments of long-term debt 0 (27)
Proceeds from issuance of common stock 564 75
Dividends paid (139) (132)
-------- --------
Net cash provided by (used in) financing activities 425 (84)
-------- --------
Effect of exchange rate changes on cash (231) 188
-------- --------
Net increase (decrease) in cash and cash
equivalents (1,719) 177
Cash and cash equivalents, beginning of
period 18,216 25,992
-------- --------
Cash and cash equivalents, end of period $ 16,497 $ 26,169
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
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KENTEK INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
Note 1. Statement of Accounting Presentation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to fairly state the Company?s consolidated
financial position and operating results for the interim periods. The results
of operations for the three months ended September 30, 1997 are not necessarily
indicative of the results for the full year. These financial statements and
notes should be read in conjunction with the Company?s audited annual
consolidated financial statements for the year ended June 30, 1997.
Note 2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
---- ----
<S> <C> <C>
(thousands)
Finished printers, consumable supplies and spare parts $ 6,419 $ 6,064
Raw Materials 4,301 4,010
------- --------
$10,720 $ 10,074
======= ========
</TABLE>
Note 3. Deferred Income Taxes
At September 30, 1997 the Company had a deferred income tax asset in
the amount of $3,338,000 ($2,848,000 classified as short term with the balance
of $490,000 as long term) based on management?s assessment that it is more
likely than not that it will have sufficient taxable income in future periods to
realize the corresponding tax benefit resulting from the recognition of the
deferred tax asset. Management reviews the deferred tax asset on a quarterly
basis and makes appropriate adjustments as necessary.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
presented here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section and those
discussed in the Company's Form 10-K for the year ended June 30, 1997,
particularly those contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Total net sales. Total net sales decreased 17.1% from $14,052,000 in
the three months ended September 30, 1996 to $11,654,000 in the three months
ended September 30, 1997. Printer sales revenue remained constant at
$2,239,000 for both the three months ended September 30, 1996 and the three
months ended September 30, 1997. Consumable supplies and spare parts sales
decreased by 20.3% from $11,813,000 in the three months ended September 30,
1996 to $9,415,000 in the three months ended September 30, 1997. This decrease
was due to some large customers adjusting their inventory levels before the end
of the calendar year, a declining printer installed base which resulted in lower
consumable supply sales and an increase in market competition by third party
remanufacturors of consumable supplies.
Gross profit. Gross profit decreased by 19.1% from $6,373,000 in the
three months ended September 30, 1996 to $5,158,000 in the three months ended
September 30, 1997. The gross margin decreased from 45.4% to 44.3% in the same
period. The decreases were due to lower sales of consumable supplies and spare
parts during the period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by 17.4% from $2,544,000 in the three months
ended September 30, 1996 to $2,102,000 in the three months September 30, 1997.
The decrease was a result of lower legal expenses due to settlement of all
pending litigation and a decrease in bonus expense.
Research and Development Expense. Research and development expenses
decreased by 17.5% from $2,310,000 in the three months ended September 30, 1996
to $1,905,000 in the three months ended September 30, 1997. The three months
ended September 30, 1996 included a higher level of expenses associated with
the development of prototype KW60 series printers.
Interest Income and Other Income (Expense). Interest income and other
income (expense) increased from $544,000 of expense in the three months ended
September 30, 1996 to $787,000 of income in the three months ended September
30, 1997 due primarily to the book loss related to the sale of the Tama
property in Japan recorded in the three months ended September 30, 1996.
Net interest income for the three months ended September 30, 1997
increased $475,000 from the three months ended September 30, 1996 as a result
of greater cash available for investment.
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Income Tax Expense. Income tax expense for the three months ended
September 30, 1996 was $768,000 compared to $727,000 for the three months ended
September 30, 1997. Income tax expense for the three months ended September 30,
1996 included a one-time tax expense of $378,000 related to the sale of the Tama
property in Japan.
LIQUIDITY AND CAPITAL RESOURCES
Changes in cash and cash equivalents during the three months ended
September 30, 1997 resulted in a net decrease of $1,719,000 as compared to an
increase of $177,000 in the three months ended September 30, 1996. The
primary reason for this decrease is the purchase of marketable securities of
$2,914,000. The increase of $825,000 in cash provided by operations is a
result of a significant increase in net income and accrued expenses.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently not involved in any legal proceedings.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submissions of Matters to a vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Form 8-K
None.
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KENTEK INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
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.
Date: November 14, 1997 KENTEK INFORMATION SYSTEMS, INC.
/s/ PHILIP W. SHIRES
-------------------------------------
Philip W. Shires
President and Chief Executive Officer
(Principal Executive Officer)
/s/ CRAIG G. LAMBORN
-------------------------------------
Craig G. Lamborn
Vice President, Finance and
Administration
(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,497
<SECURITIES> 19,288
<RECEIVABLES> 6,107
<ALLOWANCES> 0
<INVENTORY> 10,720
<CURRENT-ASSETS> 56,464
<PP&E> 17,250
<DEPRECIATION> 15,622
<TOTAL-ASSETS> 59,232
<CURRENT-LIABILITIES> 6,916
<BONDS> 0
0
0
<COMMON> 71
<OTHER-SE> 51,767
<TOTAL-LIABILITY-AND-EQUITY> 59,232
<SALES> 11,654
<TOTAL-REVENUES> 11,654
<CGS> 6,496
<TOTAL-COSTS> 10,503
<OTHER-EXPENSES> (787)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,938
<INCOME-TAX> 727
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,211
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
