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: March 31, 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 (IRS Employer
of 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 - - 6,060,279 shares as of May 5, 1995
INDEX
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - - March 31, 1995 and September 30,
1994
Consolidated statements of operations - - Three months ended
March 31, 1995 and 1994, and six months ended March 31, 1995 and
1994
Consolidated statements of cash flows - - Six months ended March
31, 1995 and 1994
Consolidated statement of stockholders' equity - - Six months
ended March 31, 1995
Notes to consolidated financial statements - - March 31, 1995
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and reports on Form 8-K
SIGNATURES
Part I. FINANCIAL INFORMATION
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,134,987 $ 1,871,314
Short-term investments 3,953,101 4,396,535
Accounts receivable less allowance for doubtful accounts of $50,000 4,660,186 3,110,852
Inventories
Raw materials and component parts 4,757,036 4,511,412
Work-in-process 249,733 259,822
Finished Goods 1,738,234 1,922,046
6,745,003 6,693,280
Other current assets 456,260 365,339
TOTAL CURRENT ASSETS 16,949,537 16,437,320
EQUIPMENT AND FIXTURES
Machinery and equipment 1,998,016 1,974,868
Furniture and fixtures 2,530,414 2,468,243
Leasehold improvements 225,929 209,663
4,754,359 4,652,774
Less accumulated depreciation and amortization 3,684,714 3,486,458
1,069,645 1,166,316
TOTAL ASSETS $ 18,019,182 $ 17,603,636
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, September 30
1995 1994
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,543,342 $ 2,111,652
Employee compensation and related taxes 408,141 837,451
Income taxes payable 506,776 379,173
Deferred revenue 549,691 489,909
Current portion of capital lease obligations 72,524 74,541
TOTAL CURRENT LIABILITIES 3,080,474 3,892,726
Capital lease obligations -- less current portion 137,080 143,104
TOTAL LIABILITIES 3,217,554 4,035,830
STOCKHOLDERS' EQUITY
Capital Stock
Series B Convertible Preferred Stock--par value $.10
per share--authorized 1,091,000 shares; issued and 600 17,563
outstanding March 31, 1995--6,000 shares;
September 30, 1994--175,625 shares
Common Stock--par value $.10 per share--authorized
10,000,000 shares; issued and outstanding
March 31, 1995--6,066,279 shares; 606,628 585,952
September 30, 1994--5,859,515 shares
Additional paid in capital 15,816,669 15,771,363
Foreign currency translation adjustment (331,168) (508,284)
Retained earnings (deficit)
(1,291,101) (2,298,788)
TOTAL STOCKHOLDERS' EQUITY 14,801,628 13,567,806
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,019,182 $ 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 Six Month Period
Ending March 31, Ending March 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales:
Printing equipment $ 2,649,709 $2,945,141 $ 4,657,507 $ 5,817,560
Maintenance, spares and supplies 3,351,022 3,515,980 6,905,154 6,960,439
Net Sales 6,000,731 6,461,121 11,562,661 12,777,999
Costs and expenses:
Costs of sales 2,181,319 2,520,218 4,371,829 5,153,987
Selling, general and administrative 2,510,584 2,687,276 4,934,357 5,208,308
Research and Development 625,435 570,631 1,213,418 1,117,315
5,317,338 5,778,125 10,519,604 11,479,610
Income from system sales and service 683,393 682,996 1,043,057 1,298,389
Interest (income) (51,372) (26,191) (111,532) (48,394)
Unrealized exchange (gain) loss 5,531 (46,341) (37,598) (39,076)
Income before taxes 729,234 755,528 1,192,187 1,385,859
Income taxes 131,000 136,000 214,000 249,000
Net Income $ 598,234 $ 619,528 $ 978,187 $ 1,136,859
Earnings per share $ 0.10 $ 0.10 $ 0.16 $ 0.19
Weighted average number of shares and share
equivalents outstanding during the 6,280,183 6,149,097 6,253,286 6,099,912
period
</TABLE>
See notes to consolidated financial statements.
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Month Period
Ending March 31,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 978,187 $ 1,136,859
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 207,181 168,822
Other (92,482) 29,500
Changes in operating assets and liabilities:
Accounts receivable (1,445,074) (597,436)
Inventories 28,658 239,150
Other current assets (78,982) 246,543
Accounts payable and accrued expenses (884,144) 1,031,450
Deferred revenue 57,434 84,910
NET CASH FROM (USED IN) OPERATING ACTIVITIES (1,229,222) 2,339,798
INVESTING ACTIVITIES
Purchase of equipment and fixtures (109,843) (328,687)
Proceeds from sale of equipment
Purchase of short-term investment (1,940,526) -----
Proceeds from sale of short-term investment 2,505,942 -----
NET CASH FROM (USED IN) INVESTING ACTIVITIES 455,573 (328,687)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 49,019 7,500
Addition of capital leases 21,657 84,265
Repayment of long-term debt and capital leases (26,879) (64,920)
NET CASH FROM FINANCING ACTIVITIES 43,797 26,845
EFFECT OF EXCHANGE RATE CHANGES ON CASH (6,475) 12,289
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (736,327) 2,050,245
CASH & CASH EQUIVALENTS AT BEGINNING OF YEAR 1,871,314 4,073,158
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,134,987 $ 6,123,403
</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 978,187
Exercise of stock options 15,000 1,500 47,531
Conversion of Series B
Convertible preferred stock 169,625 16,963 (169,625) (16,963)
Conversion of warrants 22,139 2,213 (2,225)
Vesting of restricted stock 29,500
Foreign currency translation 177,116
Balance March 31, 1995 6,066,279 $606,628 6,000 $ 600 15,816,669 $(331,168) $(1,291,101)
</TABLE>
See notes to consolidated financial statements.
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 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 six month periods ended March 31,
1995 and 1994 as follows:
<TABLE>
<CAPTION>
Six-Month Period Ended
March 31,
1995 1994
Current:
<S> <C> <C>
Federal $ 0 $ 20,000
State 5,000 21,000
Foreign 209,000 208,000
Total Income Expenses $ 214,000 $ 249,000
</TABLE>
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 March 31, 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 (1) sales of document production systems and
related equipment and (2) maintenance contracts, spare parts, supplies and
consumable items. For the three and six month periods ended March 31, 1995,
revenues from the sale of document production equipment decreased 10% and 20%
respectively primarily due to reduced sales in the Americas.
For the three and six month periods ended March 31, 1995, revenues for
maintenance contracts, spare parts, supplies and consumable items decreased 5%
and 1%, primarily due to reduced sales of consumables.
The gross margin percentage for the three and six months periods ended March 31,
1995, were 64% and 62% respectively, compared to 61% and 60% in the comparable
prior period. The changes were primarily due to differences in product mix.
Selling, general and administrative expenses during the three and six month
periods ended March 31, 1995, decreased 7% and 5% over the comparable period
last year as a result of lower revenues.
Research and development expenses increased 10% and 9% over the comparable
period last year. The increase was due primarily to spending 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
$6,000 and a gain for the six months ended March 31, 1995, of $38,000. For the
prior year, the Company had an unrealized exchange gain of $46,000 for the
quarter and a gain of $39,000 for the six month period. These unrealized
currency gains and losses are due to the strengthening and weakening of the U.S.
dollar against the currencies of the countries in which the Company's foreign
subsidiaries are located 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
$13,869,000 at March 31, 1995. Stockholders' equity increased to $14,802,000 at
March 31, 1995, compared to $13,568,000 at September 30, 1994.
The Company's long-term debt to equity ratio was 0.01 at March 31, 1995, and
September 30, 1994. The Company maintains a $2.5 million unsecured bank line of
credit. At March 31, 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 March 31, 1995, the Company had no material commitments for capital
expenditures.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on March 16, 1995. The
shareholders took the following actions: (i) The shareholders elected five
directors to serve for a term ending in 1996 and until their successors are
elected. The shareholders present in person or by proxy cast the following
numbers of votes in connection with the election of directors, resulting in the
election of all of the nominees:
Votes For Votes Withheld
Robert Reznick 5,040,974 324,671
Jay A. Herman 5,351,045 14,600
Thomas H. Garrett, III 5,037,026 328,619
Gary R. Holland 5,346,697 18,948
Oscar Victor 5,350,720 14,925
(ii) The shareholders approved the selection of Ernst & Young as the Company's
independent public accountants for 1995. 5,321,642 votes were cast for the
resolution; 5,800 votes were cast against the resolution; shares representing
38,203 votes abstained.
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
March 31, 1995.
Exhibit 27 - Financial Data Schedule (for SEC use)
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 May 12, 1995 /s/ Jay A. Herman
Jay A. Herman
President and Chief
Executive Officer
Date May 12, 1995 /s/ Paul W.B. Stephenson
Paul W.B. Stephenson
Vice President, Finance
and Administration
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,134,987
<SECURITIES> 3,953,101
<RECEIVABLES> 4,710,186
<ALLOWANCES> 50,000
<INVENTORY> 6,745,003
<CURRENT-ASSETS> 456,260
<PP&E> 4,754,359
<DEPRECIATION> 3,684,714
<TOTAL-ASSETS> 18,019,182
<CURRENT-LIABILITIES> 3,080,474
<BONDS> 0
<COMMON> 606,628
0
600
<OTHER-SE> 14,194,400
<TOTAL-LIABILITY-AND-EQUITY> 18,019,182
<SALES> 11,562,661
<TOTAL-REVENUES> 11,562,661
<CGS> 4,371,829
<TOTAL-COSTS> 10,519,604
<OTHER-EXPENSES> (149,130)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,192,187
<INCOME-TAX> 214,000
<INCOME-CONTINUING> 978,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 978,187
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
