<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] 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 000-23119
KOFAX IMAGE PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0114967
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Jenner Street, Irvine, California 92618
(Address of principal executive offices) (Zip Code)
(949) 727-1733
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former
fiscal year, if changed since last report)
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. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practical date.
Class Outstanding at April 30, 1998
- ----------------------------- -----------------------------
Common Stock, $.001 par value 5,389,432 shares
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KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Balance Sheets - March 31, 1998
(unaudited) and June 30, 1997.......................................... 3
Statements of Operations (unaudited) - Three Months Ended
March 31, 1998 and 1997 and Nine Months Ended March 31,
1998 and 1997.......................................................... 4
Statements of Cash Flows (unaudited) - Nine
Months Ended March 31, 1998 and 1997................................... 5
Notes to Condensed Consolidated Financial
Statements (unaudited)................................................. 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K............................................. 14
Signatures................................................................... 15
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
----------- -----------
<S> <C> <C>
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 15,156 $ 801
Short-term investments 4,897 4,603
Accounts receivable, net 5,180 4,134
Inventory (Note 2) 1,863 2,012
Prepaid expenses and other current assets 906 771
----------- -----------
Total current assets 28,002 12,321
Property and equipment, net 1,882 1,965
Deferred income taxes 1,464 1,464
Other assets 307 577
----------- -----------
Total assets $ 31,655 $ 16,327
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 831 $ 772
Current portion of note payable 0 394
Accrued liabilities:
Compensation 1,284 1,044
Deferred revenue 530 356
Other 1,862 1,080
----------- -----------
Total current liabilities 4,507 3,646
Long term note payable 0 427
Redeemable Convertible Preferred Stock, $.001 par value; 5,000,000 shares
authorized; 2,667,002 shares issued and outstanding at June 30, 1997 0 7,146
Stockholders' equity (Note 3)
Common stock, $.001 par value, 40,000,000 shares authorized; 5,387,432
and 1,327,256 shares outstanding at March 31, 1998 and June 30, 1997 16,905 172
Retained earnings 10,243 4,936
----------- -----------
Total stockholders' equity 27,148 5,108
----------- -----------
Total liabilities and stockholders' equity $ 31,655 $ 16,327
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(unaudited) (unaudited) (unaudited) (unaudited)
Net sales $ 8,509 $ 7,648 $ 24,434 $ 21,658
Cost of sales 1,945 1,935 5,781 5,851
----------- ----------- ----------- -----------
Gross profit 6,564 5,713 18,653 15,807
Operating expenses:
Sales and marketing 2,667 2,466 7,785 6,958
Research and development 2,052 1,764 5,742 4,922
General and administrative 721 529 1,943 1,438
----------- ----------- ----------- -----------
Total operating expenses 5,440 4,759 15,470 13,318
----------- ----------- ----------- -----------
Income from operations 1,124 954 3,183 2,489
Other income, net 232 28 477 45
----------- ----------- ----------- -----------
Income before provision for
income taxes 1,356 982 3,660 2,534
Provision for income taxes 522 378 1,409 975
----------- ----------- ----------- -----------
Net income $ 834 $ 604 $ 2,251 $ 1,559
=========== =========== =========== ===========
Pro forma basic net income
per share (Note 4) $ 0.16 $ 0.15 $ 0.47 $ 0.39
=========== =========== =========== ===========
Pro forma basic weighted
average common shares
(Note 4) 5,367 3,997 4,822 3,989
=========== =========== =========== ===========
Pro forma diluted net income
per share (Note 4) $ 0.15 $ 0.14 $ 0.45 $ 0.37
=========== =========== =========== ===========
Pro forma diluted weighted
average common shares
(Note 4) 5,556 4,216 5,021 4,207
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended March 31
1998 1997
----------- -----------
<S> <C> <C>
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 2,251 $ 1,559
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,153 1,104
Changes in operating assets and liabilities:
Accounts receivable (1,046) (436)
Inventory 149 205
Other current assets (135) (163)
Accounts payable 59 293
Other current liabilities 1,196 314
----------- -----------
Net cash provided by operating activities 3,627 2,876
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (899) (1,315)
Decrease in other assets 99 23
Increase in short-term investments (294) (1,602)
----------- -----------
Net cash used in investing activities (1,094) (2,894)
----------- -----------
Cash flows from financing activities:
Principal payments on notes payable (821) (230)
Net proceeds from issuance of common stock 12,643 9
----------- -----------
Net cash provided by (used in) financing
activities 11,822 (221)
----------- -----------
Net increase (decrease) in cash and cash equivalents 14,355 (239)
Cash and cash equivalents, beginning of period 801 741
----------- -----------
Cash and cash equivalents, end of period $ 15,156 $ 502
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 27 $ 75
=========== ===========
Income taxes paid $ 865 $ 992
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
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KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Kofax Image Products,
Inc. and subsidiary (the "Company") presented herein have been prepared pursuant
to the rules of the Securities and Exchange Commission for quarterly reports on
Form 10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. These statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto for the year ended June 30, 1997, included in the Company's Registration
Statement on Form S-1 (333-34531) declared effective by the Securities and
Exchange Commission on October 10, 1997.
The condensed consolidated financial statements and notes herein are
unaudited, but in the opinion of management, include all the adjustments
(consisting only of normal, recurring adjustments) necessary to present fairly
the consolidated financial position, results of operations and cash flows of the
Company and its subsidiary. The results of operations for the interim periods
shown herein are not necessarily indicative of the results to be expected for
any future interim period or for the entire year.
2. INVENTORY
Inventory, which includes material, labor and manufacturing overhead, are
stated at the lower of cost (first-in, first-out) or market and consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, 1998 JUNE 30, 1997
-------------- -------------
<S> <C> <C>
Raw materials $1,173 $1,064
Work-in-process 381 550
Finished goods 309 398
------ ------
$1,863 $2,012
====== ======
</TABLE>
3. STOCKHOLDERS' EQUITY
On October 16, 1997, the Company completed its initial public offering of
2,000,000 shares of common stock at $11.00 per share. 1,300,000 shares were sold
by the Company resulting in net proceeds of approximately $13.3 million. The
remaining 700,000 shares were sold by certain selling stockholders. Additional
information is contained in the Company's Prospectus dated October 10, 1997
which was part of the Company's Registration Statement on Form S-1 filed with
the Securities and Exchange Commission.
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KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. NET INCOME PER SHARE AND PRO FORMA DILUTED NET INCOME PER SHARE
Effective December 27, 1997, the Company adopted SFAS No. 128, "Earnings
per Share," which changes the method used to calculate earnings per share and to
restate all prior periods. The new requirements include a calculation of basic
earnings per share, from which the dilutive effect of stock options is excluded,
and a calculation of diluted earnings per share.
Pro forma diluted net income per share amounts are based upon the weighted
average number of common shares and dilutive common equivalent shares for each
period presented and the pro forma conversion of preferred stock into common
stock up to the date of such conversion. Pro forma diluted weighted average
common and common equivalent shares include common stock, stock options using
the treasury stock method and the conversion of outstanding shares of preferred
stock into shares of common stock.
5. RECENT ACCOUNTING PRONOUNCEMENT
For the years beginning after July 1, 1998, the Company will adopt SFAS
No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." The Company is reviewing the
impact of such statements on its financial statements, and does not believe
these statements will have a material adverse effect on its financial
statements.
For fiscal years beginning after December 31, 1997, the Company will adopt
Statement of Position 97-2, "Software Revenue Recognition". The Company is
reviewing the impact of this Statement on its financial statements, and does not
believe this Statement will have a material adverse effect on its financial
statements.
6. SUBSEQUENT EVENT
On April 27, 1998, the Company announced that its board of directors had
authorized a program, effective immediately, for repurchase of up to 500,000
shares, or 9.3%, of Kofax's outstanding Common Stock, to be used to fund stock
option exercises, employer equity compensation plans, and an employee stock
purchase plan. Repurchases may be made from time to time by the Company in the
open market or in block purchases in compliance with Securities and Exchange
Commission guidelines.
7
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KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this Form 10-Q contains trend analysis and other
forward-looking statements regarding the Company, its business, prospects and
results of operations that are subject to certain risks and uncertainties posed
by many factors and events that could cause the Company's actual business,
prospects and results of operations to differ materially from those that may be
anticipated by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, (i) uncertainty
of future operating results, (ii) fluctuations in quarterly operating results,
(iii) dependence on a limited number of products for current and future
operating results, (iv) dependence on document image processing market and
component software strategy, (v) rapid technological change, (vi) the impact of
competition, (vii) dependence on intellectual property and proprietary rights,
(viii) risks associated with international sales, and (ix) dependence on third
party suppliers of scanners, as well as those discussed under the captions "Risk
Factors" in the Company's Prospectus dated October 10, 1997 which was part of
the Company's Registration Statement on Form S-1 filed with the Securities and
Exchange Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report.
Readers are urged to carefully review and consider the various disclosures made
by the Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business.
OVERVIEW
The Company designs and develops toolkits, and develops and markets a
family of image processing boards, KIPP and Adrenaline, that can be added to
personal computers to facilitate high-speed scanning of paper documents and
image enhancement. The Company also develops and markets two component
application software products, Ascent Capture, which facilitates the scanning
and indexing of documents, and Ascent Storage, which manages the storage of
document images on optical jukebox libraries. As a result of disappointing
revenue, the Company recently decided to discontinue NetScan, a network scan
server for workgroup scanning.
The KIPP and Adrenaline family of products is expected to continue to
account for a majority of the Company's net sales for the next several years.
There is currently an ongoing product transition from the older KIPP series
accelerator boards to the Adrenaline series boards which began shipping in
September, 1997. The Company also expects that its Ascent products, together
with
8
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other products under development, will contribute an increasing share of the
Company's net sales in the future.
The Company sells its products primarily through a channel of distributors
and resellers. The Company typically ships its products within a short period
after acceptance of purchase orders from distributors and other customers.
Accordingly, the Company typically does not have a material backlog of unfilled
orders at the end of any quarter. Revenues from hardware and software sales are
currently recognized at the time of shipment in accordance with AICPA Statement
of Position 91-1, Software Revenue Recognition. Distributors have certain rights
of return and exchange privileges. The Company's distributors generally do not
stock significant amounts of inventory of the Company's products, as these
products are typically incorporated by resellers into complete imaging and
document management systems which are configured shortly before scheduled
delivery to end-user customers. The Company records estimates for such rights of
return and exchange privileges based on historical experience. The Company
provides a warranty for its products against defects in materials and
workmanship. A provision for estimated warranty costs is recorded at the time of
sale. Payments under maintenance contracts are due at the beginning of the
contract; however, revenue is recognized ratably over the term of the contract
which is typically twelve months.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997, AND
THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
The following table sets forth certain income and expense items as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 22.9 25.3 23.7 27.0
-------- -------- -------- --------
Gross profit 77.1 74.7 76.3 73.0
Operating expenses:
Sales and marketing 31.3 32.2 31.8 32.2
Research and development 24.1 23.1 23.5 22.7
General and administrative 8.5 6.9 8.0 6.6
-------- -------- -------- --------
Total operating expenses 63.9 62.2 63.3 61.5
-------- -------- -------- --------
Income from operations 13.2 12.5 13.0 11.5
Other income, net 2.7 0.3 2.0 0.2
-------- -------- -------- --------
Income before provision for income taxes 15.9 12.8 15.0 11.7
Provision for income taxes 6.1 4.9 5.8 4.5
-------- -------- -------- --------
Net income 9.8% 7.9% 9.2% 7.2%
======== ======== ======== ========
</TABLE>
Net Sales. Net sales represent gross sales less discounts, returns and
adjustments. Net sales were $8.5 million and $7.6 million in the quarters ended
March 31, 1998 and 1997,
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respectively, an increase of 11.3%. This revenue increase was primarily
attributable to increased sales of the Company's Ascent component application
software products. Revenues from the Ascent software business increased 68% in
the March quarter over the same period last year. As a result, total software
revenue in the third quarter grew 82% and increased to 35% of total revenues
compared to 21% in the same period last year. Revenue from the NetScan product
line, which was recently discontinued, contributed less than 1% of revenue
during the quarter ended March 31, 1998. For the nine months ended March 31,
1998 and 1997, net sales were $24.4 million and $21.7 million, respectively,
representing an increase of 12.8%. The year-to-date revenue increase was
primarily attributable to increased sales of the Company's Ascent component
application software products.
International sales (primarily to Western European countries) accounted
for 34.4% and 38.4% of net sales in the quarters ended March 31, 1998 and 1997,
respectively, and 34.1% and 34.5% in the nine months ended March 31, 1998 and
1997, respectively. Management expects that the Company's international
operations will continue to provide a significant portion of total net sales;
however, international sales could be adversely affected if the U.S. dollar
continues to strengthen against international currencies.
Gross Profit. Cost of sales primarily consist of the costs of components
and subassemblies, labor and manufacturing overhead and, with respect to the
Company's software products, software duplication and royalty expenses. The
Company believes that its gross margins reflect the high content of proprietary
firmware in the Company's hardware accelerator boards as well as the increasing
percentage of total software revenue in the Company's product mix. Gross profit
was 77.1% and 74.7% of net sales in the quarters ended March 31, 1998 and 1997,
respectively, and 76.3% and 73.0% of net sales in the nine months ended March
31, 1998 and 1997, respectively. Substantially all of the increase in gross
profit percentage in the March quarter was attributable to the Company's
increased software revenues. For the nine months ended March 31, 1998, most of
this increase in gross profit percentage was attributable to increased sales of
the Company's Ascent software products, which have higher gross margins, and to
a lesser extent, changes in accelerator board product mix and the declining
costs of DRAM components used in the Company's accelerator boards.
Sales and Marketing. Sales and marketing expenses, which consist primarily
of salaries and commissions, customer support, trade shows, advertising and
other promotional expenses, were $2.7 million and $2.5 million, and 31.3% and
32.2% of net sales, in the quarters ended March 31, 1998 and 1997, respectively.
Sales and marketing expenses were $7.8 million and $7.0 million, and 31.8% and
32.2% of net sales, in the nine months ended March 31, 1998 and 1997,
respectively. The increases in fiscal 1998
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were primarily attributable to increased sales personnel, increased salaries and
commissions, and related occupancy expenses. The Company expects that sales and
marketing expenses will continue to increase in absolute dollar amounts and will
fluctuate as a percentage of net sales.
Research and Development. Research and development expenses, which consist
primarily of personnel costs and related occupancy expenses, were $2.1 million
and $1.8 million, and 24.1% and 23.1% of net sales, in the quarters ended March
31, 1998 and 1997, respectively. Research and development expenses were $5.7
million and $4.9 million, and 23.5% and 22.7% of net sales, in the nine months
ended March 31, 1998 and 1997, respectively. The increase in both periods of
fiscal 1998 was primarily attributable to increased engineering staffing and
increased contract labor costs. The Company expects that research and
development expenses will continue to increase in absolute dollar amounts and
will fluctuate as a percentage of net sales, depending upon the timing of
material research and product development projects.
Despite the fact that the Company's net sales have increased, research and
development expenses as a percentage of net sales have continued to increase
because of ongoing research and development efforts related to the high software
content of the Company's KIPP and Adrenaline family of products and the
continued development of its Ascent application software products.
General and Administrative. General and administrative expenses consist of
personnel costs for administration, finance, information systems, human
resources and general management, as well as professional services. General and
administrative expenses were $0.7 million and $0.5 million, and 8.5% and 6.9% of
net sales, in the quarters ended March 31, 1998 and 1997, respectively. General
and administration expenses were $1.9 million and $1.4 million, and 8.0% and
6.6% of net sales, in the nine months ended March 31, 1998 and 1997,
respectively. The increase in both periods of fiscal 1998 was attributable to
increased legal expenses, increased staffing in information systems and other
increases related to the administrative requirements of a public company. The
Company anticipates that it will incur increased general and administrative
costs in the future related to the additional insurance and administrative
requirements of a public company.
Other Income, net. Other Income, net consists primarily of interest income
earned on the Company's cash and cash equivalents and short-term investments
less interest expense on the Company's note payable. As a result of the initial
public offering of the Company's stock, interest expense on bank borrowing was
eliminated due to repayment of the previously outstanding bank term loan.
Interest income was also higher as a result of investing the proceeds from the
offering.
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Provision for Income Taxes. The Company's effective tax rate was 38.5% for
the periods ended March 31, 1998 and 1997. The Company expects the effective tax
rate in future periods to not fluctuate significantly from this rate.
Year 2000 Problems of Third Parties. It is possible that the currently
installed computer systems, software products or other business systems of the
Company's distributors, resellers, suppliers, manufacturers or customers,
working either alone or in conjunction with other software systems, will not
accept input of, store, manipulate and output dates in the Year 2000 or
thereafter without error or interruption (the "Year 2000 Problem"). The
Company's software products do not have any material Year 2000 Problems. In
addition, the Company has completed a review of its business systems, including
its computer systems, and based on information gathered to date, has determined
that such systems are also not subject to any material Year 2000 Problems. The
Company is querying its distributors, resellers, suppliers, manufacturers and
customers as to their progress in identifying and addressing Year 2000 Problems.
The expenses of the Company's efforts or the expenses or liabilities to which
the Company may become subject as a result of such problems, are not expected to
have a material adverse effect on the Company's business, results of operations,
cash flows and financial condition.
The Company's past operating results have been, and its future operating
results will be, subject to fluctuations due to a number of factors, including
the timing of orders from, and shipments to, major customers; the timing of new
product introductions by the Company or its competitors; variations in the mix
of products sold by the Company; changes in pricing policies by the Company, its
competitors or suppliers, including possible decreases in average selling prices
of the Company's products in response to competitive pressures; product returns
or price protection charges from customers; market acceptance of new and
enhanced versions of the Company's products; the availability and cost of key
components; the availability of manufacturing capacity; delays in the
introduction of new products or product enhancements by the Company, the
Company's competitors or other providers of hardware, software and components
for the document imaging market; dependence upon capital spending budgets; and
fluctuations in general economic conditions. As a result, the Company believes
that period-to-period comparisons of its results of operations should not be
relied upon as indications of future performance.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, combined cash, cash equivalents, and short-term
investments totaled $20.1 million, an increase of $14.6 million from June 30,
1997. Net cash provided by operating activities was $3.6 million, and was
generated primarily from net
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income before depreciation and amortization. Net cash used in investing
activities was $1.1 million, primarily purchases of property and equipment. Net
cash provided by financing activities was $11.8 million, as a result of the
proceeds from the Company's initial public offering.
The Company financed its operations and capital requirements from 1986
through 1989 from the sale of approximately $4.0 million of preferred stock and,
thereafter, through cash flow from operations. In October 1997, the Company
completed its initial public offering selling 1,300,000 shares of its common
stock, and received net proceeds, after subtracting expenses incurred in the
offering, of approximately $12.5 million, $723,000 of which was used to repay
outstanding indebtedness.
The Company has an unsecured $2.0 million revolving credit line with
Silicon Valley Bank (the "Bank") and as of March 31, 1998 had no outstanding
balance under the revolving line of credit. The Company signed an agreement in
January 1998 that renewed the line of credit through January, 1999. The line of
credit agreement requires the Company to maintain its primary banking
relationship with the Bank while any obligations to the Bank remain outstanding,
prohibits the incurrence of additional debt from sources other than the Bank,
except for purchases or leases of equipment up to $700,000, requires the Company
to maintain certain tangible net worth levels, current ratio percentages and
profitability levels and restricts the payment of dividends without the Bank's
prior approval.
On April 27, 1998, the Company announced that its board of directors had
authorized a program for repurchase of up to 500,000 shares, or 9.3%, of Kofax's
outstanding Common Stock, to be used to fund stock option exercises, employer
equity compensation plans, and an employee stock purchase plan. Aside from this
program, the Company currently has no significant capital spending or purchase
commitments other than normal purchase commitments and commitments under
facilities leases.
The Company believes that the net proceeds from the initial public
offering together with cash flow from operations, if any, existing cash balances
and credit available under the Company's existing credit facility, will be
sufficient to meet its cash requirements for at least the next 12 months.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Silicon Valley Bank Amendment to Loan and Security Agreement dated January
6, 1998
11.1 Computation of pro forma diluted net income per share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated December 22, 1997, regarding financial results
for the quarter ended December 31, 1997 (filed January 12, 1998).
Items 1, 2, 3, 4, and 5 are not applicable and have been omitted.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KOFAX IMAGE PRODUCTS, INC.
Dated: May 12, 1998 /s/ Ronald J. Fikert
-----------------------------------------
Ronald J. Fikert
Chief Financial Officer
(principal financial and
accounting officer and duly
authorized officer)
15
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SILICON VALLEY BANK
AMENDMENT TO LOAN AND SECURITY AGREEMENT
BORROWER: KOFAX IMAGE PRODUCTS, INC.
ADDRESS: 3 JENNER STREET
IRVINE, CALIFORNIA 92718
DATE: JANUARY 6, 1998
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"). The Parties
agree to amend the Loan and Security Agreement between them, dated February 28,
1992, as amended by that certain Amendment to Loan Agreement dated March 9,
1993, as amended by that certain Amendment to Loan Agreement dated October 10,
1994, as amended by that certain Amendment to Loan Agreement dated October 5,
1995, as amended by that certain Amendment to Loan Agreement dated January 20,
1996, as amended by that certain Amendment to Loan Agreement dated October 31,
1996, and as amended by that Amendment to Loan and Security Agreement dated
September 18, 1997, (as so amended and as otherwise amended from time to time,
the "Loan Agreement"), as follows, effective on the date hereof. (Capitalized
terms used but not defined in this Amendment, shall have the meanings set forth
in the Loan Agreement.)
1. AMENDED MATURITY DATE. Section 5.1 of The Maturity Date as set forth
in the Schedule to Loan Agreement is amended effective as of the date hereof,
to read as set forth on the Amended Schedule to Loan and Security Agreement
attached hereto.
"MATURITY DATE (Section 5.1): JANUARY 5, 1999, other than with respect to
the Term Loan Facility. The Term Loan
Facility shall be due and payable in
accordance with the provisions set forth in
Section 1.1 above."
2. AMENDED FINANCIAL COVENANTS. The section of the Schedule to Loan
Agreement entitled "Financial Covenants" is
amended to read as follows:
"FINANCIAL COVENANTS
(Section 4.1): Borrower shall comply with all of the following
covenants. Compliance shall be determined as of
the end of each quarter, except as otherwise
specifically provided below:
TANGIBLE NET WORTH: Borrower shall maintain a tangible net worth of
not less than $25,000,000.
1
<PAGE> 2
SILICON VALLEY BANK AMENDMENT TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
PROFITABILITY: Borrower shall not incur a loss (after taxes) for any
fiscal quarter.
DEFINITIONS: "Tangible net worth" means the excesses of total assets
over total liabilities, determined in accordance with
generally accepted accounting principles, excluding
however all assets which would be classified as
intangible assets under generally accepted accounting
principles, including without limitation goodwill,
licenses, patents, trademarks, trade names, copyrights,
and franchises.
SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing covenants
do not include indebtedness which is subordinated to
the indebtedness to Silicon under a subordination
agreement in form specified by Silicon or by language
in the instrument evidencing the indebtedness which is
acceptable to Silicon."
3. FACILITY FEE. The borrower shall pay Silicon concurrently herewith a
facility fee in the amount of $5,000, which shall be in addition to all
interest and all other fees payable to Silicon and shall be non-refundable.
4. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct as of the date hereof.
5. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower,
and the other written documents and agreements between Silicon and the Borrower
set forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements
between Silicon and the Borrower shall continue in full force and effect and
the same are hereby ratified and confirmed.
BORROWER: SILICON:
KOFAX IMAGE PRODUCTS, INC. SILICON VALLEY BANK
By [SIG] By [SIG]
---------------------------- ------------------------
PRESIDENT OR VICE PRESIDENT Title VP
-----------------
By [SIG]
-----------------------------
SECRETARY OR ASS'T SECRETARY
-2-
<PAGE> 1
COMPUTATION OF PRO FORMA DILUTED NET INCOME AND DILUTED
NET INCOME PER SHARE
EXHIBIT 11.1
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAR 31, 1998 MAR 31, 1998
----------------------------- ----------------------------
<S> <C> <C>
CALCULATION OF PRO FORMA DILUTED EPS AT MARCH 31, 1998
Weighted average common shares 5,367,122 3,343,968
Conversion of Preferred Stock to Common Stock 1,478,447
All other options outstanding using the treasury stock method 188,956 198,899
-------------- ---------------
Total weighted average shares outstanding 5,556,078 5,021,314
Net income $ 834,180 $2,251,381
Pro forma diluted net income per share 0.15 0.45
============== ===============
All other options: 355,325 355,325
Weighted average exercise price $ 3.02 $ 3.02
-------------- -------------
Gross proceeds 1,073,082 1,073,082
Repurchase price $ 6.45 $ 6.86
-------------- -------------
Shares repurchased 166,369 156,426
-------------- -------------
Net shares 188,956 198,899
============== =============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAR 31, 1997 MAR 31, 1997
----------------------------- ----------------------------
<S> <C> <C>
CALCULATION OF PRO FORMA DILUTED EPS AT MARCH 31, 1997
Weighted average common shares 1,330,449 1,321,909
Conversion of Preferred Stock to Common Stock 2,667,002 2,667,002
All other options outstanding using the treasury stock method 218,497 218,497
-------------- ---------------
Total weighted average shares outstanding 4,215,948 4,207,408
Net income $ 603,087 $1,559,074
Pro forma diluted net income per share 0.14 0.37
============== ===============
All other options: 340,338 340,338
Weighted average exercise price $ 1.79 $ 1.79
-------------- -------------
Gross proceeds 609,205 609,205
Repurchase price $ 5.00 $ 5.00
-------------- -------------
Shares repurchased 121,841 121,841
-------------- -------------
Net shares 218,497 218,497
============== =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 15,156
<SECURITIES> 4,897
<RECEIVABLES> 5,624
<ALLOWANCES> 444
<INVENTORY> 1,863
<CURRENT-ASSETS> 28,002
<PP&E> 6,681
<DEPRECIATION> 4,799
<TOTAL-ASSETS> 31,655
<CURRENT-LIABILITIES> 4,507
<BONDS> 0
0
0
<COMMON> 16,905
<OTHER-SE> 10,243
<TOTAL-LIABILITY-AND-EQUITY> 31,655
<SALES> 0
<TOTAL-REVENUES> 24,434
<CGS> 0
<TOTAL-COSTS> 5,781
<OTHER-EXPENSES> 15,470
<LOSS-PROVISION> 77
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,660
<INCOME-TAX> 1,409
<INCOME-CONTINUING> 2,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,251
<EPS-PRIMARY> 0.47<F1>
<EPS-DILUTED> 0.45
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
