FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
Commission file number 0-10691
CHECK TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1392000
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1284 Corporate Center Drive
St. Paul, Minnesota 55121
(Address of principal executive offices) (Zip Code)
(612) 454-9300
Registrant's telephone number, including area code
Not Applicable
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 periods 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.
Common Stock, $.10 Par Value - - 6,112,279 shares as of August, 9 1995
INDEX
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - - June 30, 1995 and September 30, 1994
Consolidated statements of operations - - Three months ended June 30,
1995 and 1994, and nine months ended June 30, 1995 and 1994
Consolidated statements of cash flows - - Nine months ended June 30,
1995 and 1994
Consolidated statement of stockholders' equity - - Nine months ended
June 30, 1995
Notes to consolidated financial statements - - June 30, 1995
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
SIGNATURES
Part I. FINANCIAL INFORMATION
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, September 30
1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,620,868 $ 1,871,314
Short-term investments 3,989,182 4,396,535
Accounts receivable less allowance for
doubtful accounts of $50,000 4,023,848 3,110,852
Inventories
Raw materials and component parts 4,855,323 4,511,412
Work-in-process 344,058 259,822
Finished Goods 1,395,980 1,922,046
6,595,361 6,693,280
Other current assets 702,248 365,339
TOTAL CURRENT ASSETS 16,931,507 16,437,320
EQUIPMENT AND FIXTURES
Machinery and equipment 1,984,920 1,974,868
Furniture and fixtures 2,541,341 2,468,243
Leasehold improvements 226,162 209,663
4,752,423 4,652,774
Less accumulated depreciation and amortization 3,765,777 3,486,458
986,646 1,166,316
TOTAL ASSETS $17,918,153 $17,603,636
See notes to consolidated financial statements.
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, September 30
1995 1994
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued expenses $ 1,149,616 $ 2,111,652
Employee compensation and related taxes 539,253 837,451
Income taxes payable 267,569 379,173
Deferred revenue 502,647 489,909
Current portion of capital lease obligations 70,309 74,541
TOTAL CURRENT LIABILITIES 2,529,394 3,892,726
Capital lease obligations -- less current portion 146,231 143,104
TOTAL LIABILITIES 2,675,625 4,035,830
STOCKHOLDERS' EQUITY
Capital Stock
Series B Convertible Preferred Stock--par value $.10
per share--authorized 1,091,000 shares; issued and
outstanding June 30, 1995--zero shares;
September 30, 1994--175,625 shares 0 17,563
Common Stock--par value $.10 per share--authorized
10,000,000 shares; issued and outstanding
June 30, 1995--6,112,279 shares;
September 30, 1994--5,859,515 shares 611,228 585,952
Additional paid in capital 15,892,669 15,771,363
Foreign currency translation adjustment (384,747) (508,284)
Retained earnings (deficit) (876,622) (2,298,788)
TOTAL STOCKHOLDERS' EQUITY 15,242,528 13,567,806
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,918,153 $ 17,603,636
</TABLE>
See notes to consolidated financial statements.
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Nine Month Period
Ending June 30, Ending June 30,
1995 1994 1995 1994
Sales:
<S> <C> <C> <C> <C>
Printing equipment $ 2,305,980 $ 2,352,840 $ 6,963,487 $ 8,170,400
Maintenance, spares and supplies 3,480,413 3,264,419 10,385,565 10,224,858
Net Sales 5,786,393 5,617,259 17,349,052 18,395,258
Costs and expenses:
Costs of sales 2,245,895 2,161,265 6,617,724 7,315,252
Selling, general and administrative 2,424,126 2,357,786 7,358,483 7,566,094
Research and Development 592,186 594,199 1,805,603 1,711,514
5,262,207 5,113,250 15,781,810 16,592,860
Income from system sales and service 524,186 504,009 1,567,242 1,802,398
Interest (income) (66,444) (45,801) (177,976) (94,195)
Unrealized exchange (gain) loss 42,025 (12,318) 4,427 (51,394)
Income before taxes 548,605 562,128 1,740,791 1,947,987
Income taxes 141,000 136,000 355,000 385,000
Net Income $ 407,605 $ 426,128 $ 1,385,791 $ 1,562,987
Earnings per share $ 0.06 $ 0.07 $ 0.22 $ 0.26
Weighted average number of shares and share
equivalents outstanding during the
period 6,281,984 6,185,220 6,262,852 6,128,348
</TABLE>
See notes to consolidated financial statements.
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Period
Ending June 30,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,385,791 $ 1,562,987
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 311,083 264,728
Other (123,995) 36,375
Changes in operating assets and liabilities:
Accounts receivable (847,190) (1,014,902)
Inventories 149,224 (280,505)
Other current assets (325,385) 54,474
Accounts payable and accrued expenses (1,383,467) 1,290,132
Deferred revenue 15,300 1,512
NET CASH FROM (USED IN) OPERATING ACTIVITIES (818,639) 1,914,801
INVESTING ACTIVITIES
Purchase of equipment and fixtures (163,133) (363,152)
Proceeds from sale of equipment 26,059 0
Purchase of short-term investment (2,924,131) (4,389,888)
Proceeds from sale of short-term investment 3,491,854 --
NET CASH FROM (USED IN) INVESTING ACTIVITIES 430,649 (4,753,040)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 129,019 31,102
Addition of capital leases 64,033 104,448
Repayment of long-term debt and capital leases (57,374) (87,793)
NET CASH FROM FINANCING ACTIVITIES 135,678 47,757
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,866 36,061
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (250,446) (2,754,421)
CASH & CASH EQUIVALENTS AT BEGINNING OF YEAR 1,871,314 4,073,159
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,620,868 $ 1,318,738
</TABLE>
See notes to consolidated financial statements.
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Foreign
Series B Convertible Additional Currency Retained
Common Stock Preferred Stock Paid-In Translation Earnings
Shares Amount Shares Amount Capital Adjustment (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1994 5,859,515 $585,952 175,625 $ 17,563 15,771,363 $(508,284) $(2,298,788)
Net Income 1,385,791
Exercise of stock options 55,000 5,500 123,531
Conversion of Series B
Convertible preferred stock 175,625 17,563 (175,625) (17,563)
Conversion of warrants 22,139 2,213 (2,225)
Vesting of restricted stock 36,375
Foreign currency translation 123,537
Balance June 30, 1995 6,112,279 $611,228 0 $ 0 15,892,669 $(384,747) $ (876,622)
</TABLE>
See notes to consolidated financial statements.
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1995
NOTE A - - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended September 30, 1994.
Reclassifications have been made in the prior year to conform with
classifications in the current year.
Income per share of common stock is computed by dividing the net income for the
period by the weighted average number of shares of common stock and common stock
equivalents outstanding during the period.
NOTE B -- INCOME TAXES
The components of income tax expenses for the nine month periods ended June 30,
1995 and 1994 are as follows:
Nine-Month Period Ended
June 30,
1995 1994
Current:
Federal $ (10,000) $ 20,000
State 6,000 30,000
Foreign 359,000 335,000
Total Income Expenses $ 355,000 $ 385,000
NOTE C -- NOTE PAYABLE
The Company has an unsecured line of credit agreement with a bank which provides
for a $2,500,000 revolving credit line. Advances under the line of credit bear
interest at the bank's reference rate. Advances made under the line of credit
agreement shall mature no later than March 31, 1996. As of June 30, 1995, the
revolving line of credit was unused.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
The Company's revenues consist of (i) sales of document production systems and
related equipment, and (ii) maintenance contracts, spare parts, supplies and
consumable items. For the three and nine month periods ended June 30, 1995,
revenues from the sale of document production equipment decreased 2% and 15%,
respectively, due primarily to reduced revenues from Latin America.
For the three and nine months periods ended June 30, 1995, revenues from
maintenance contracts, spare parts, supplies and consumables items increased 7%
and 2%, respectively. The increase is due primarily to the increase in the
Company's cumulative installed system base.
Gross margin percentages for the three and nine month periods ended June 30,
1995, were 61% and 62%, respectively, compared to 62% and 60% in the comparable
prior periods. The changes were primarily due to differences in product mix.
Selling, general and administrative expenses during the three month period ended
June 30, 1995, increased 3% over the comparable period last year, primarily due
to increased marketing expenses. For the nine month period ended June 30, 1995,
selling, general and administrative expenses decreased 3% as a result of lower
revenues.
Research and development expenses for the three months ended June 30, 1995, were
flat as compared with the comparable quarter last year. For the nine months
ended June 30, 1995, research and development expenses increased 5% primarily
due to increased expenditures on the Company's program to develop a new family
of check production systems.
The Company had an unrealized currency exchange loss for the current quarter of
$42,000 and a loss for the nine months of $4,000. For the prior year, the
Company had an unrealized exchange gain of $12,000 for the quarter and a gain of
$51,000 for the nine month period. These unrealized currency exchange gains and
losses are due to the strengthening and weakening of the U.S. dollar against the
currencies of the Company's foreign subsidiaries and the resulting effect on the
valuation of the intercompany accounts and certain assets, which are denominated
in U.S. dollars. The Company anticipates that it will continue to have
unrealized currency exchange gains or losses.
Liquidity and Capital Resources
Working capital increased from $12,545,000 at September 30, 1994 , to
$14,402,000 at June 30, 1995. Stockholders' equity increased to $15,243,000 at
June 30, 1995, compared to $13,568,000 at September 30, 1994.
The Company's long-term debt to equity ratio was 0.01 at June 30, 1995, and
September 30, 1994. The Company maintains a $2.5 million unsecured bank line of
credit. At June 30, 1995, the line was unused. The credit agreement expires
March 31, 1996. The Company believes that its current financial arrangements and
anticipated level of internally generated funds will be sufficient to fund its
working capital requirements in fiscal 1995.
At June 30, 1995, the Company had no material commitments for capital
expenditures.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months ended
June 30, 1995.
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.
CHECK TECHNOLOGY CORPORATION
Registrant
Date August 11, 1995 /s/ Jay A. Herman
Jay A. Herman
President and Chief Executive Officer
Date August 11, 1995 /s/ Paul W.B. Stephenson
Paul W.B. Stephenson
Vice President, Finance and Administration
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,620,868
<SECURITIES> 3,989,182
<RECEIVABLES> 4,073,848
<ALLOWANCES> 50,000
<INVENTORY> 6,595,361
<CURRENT-ASSETS> 702,248
<PP&E> 4,752,423
<DEPRECIATION> 3,765,777
<TOTAL-ASSETS> 17,918,153
<CURRENT-LIABILITIES> 2,529,394
<BONDS> 0
<COMMON> 611,228
0
0
<OTHER-SE> 14,631,300
<TOTAL-LIABILITY-AND-EQUITY> 17,918,153
<SALES> 17,349,052
<TOTAL-REVENUES> 17,349,052
<CGS> 6,617,724
<TOTAL-COSTS> 15,781,810
<OTHER-EXPENSES> (173,549)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,740,791
<INCOME-TAX> 355,000
<INCOME-CONTINUING> 1,385,791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,385,791
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
