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 December 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.)
12500 Whitewater Drive
Minnetonka, Minnesota 55343
(Address of principal executive offices) (Zip Code)
(612) 939-9000
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 - - 6,140,210 shares as of February 7, 1996
INDEX
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - - December 31, 1995 and September 30,
1995
Consolidated statements of operations - - Three months ended December
31, 1995 and 1994.
Consolidated statements of cash flows - - Three months ended December
31, 1995 and 1994
Consolidated statement of stockholders' equity - - Three months ended
December 31, 1995
Notes to consolidated financial statements - - December 31, 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)
December 31, September 30
1995 1995
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,637,656 $ 3,390,356
Short-term investments 4,192,985 4,048,704
Accounts receivable less allowance for
doubtful accounts of $50,000 4,663,529 4,865,712
Inventories
Raw materials and component parts 4,598,824 4,406,202
Work-in-process 140,128 102,736
Finished Goods 1,297,913 1,349,725
----------- -----------
6,036,865 5,858,663
Other current assets 589,452 727,290
----------- -----------
TOTAL CURRENT ASSETS 19,120,487 18,890,725
EQUIPMENT AND FIXTURES
Machinery and equipment 1,901,732 1,974,074
Furniture and fixtures 1,506,145 1,438,888
Leasehold improvements 289,752 262,714
----------- -----------
3,697,629 3,675,676
Less accumulated depreciation and amortization 2,459,514 2,462,844
----------- -----------
1,238,115 1,212,832
----------- -----------
TOTAL ASSETS $20,358,602 $20,103,557
=========== ===========
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, September 30
1995 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,282,244 $ 2,390,906
Employee compensation and related taxes 774,218 889,369
Income taxes payable 375,421 417,777
Deferred revenue 530,088 523,958
Current portion of capital lease obligations 82,082 82,912
------------ ------------
TOTAL CURRENT LIABILITIES 4,044,053 4,304,922
Capital lease obligations -- less current portion 105,946 106,405
------------ ------------
TOTAL LIABILITIES 4,149,999 4,411,327
STOCKHOLDERS' EQUITY
Capital Stock
Common Stock--par value $.10 per share--authorized
7,000,000 shares; issued and outstanding
December 31, 1995--6,138,335 shares;
September 30, 1995--6,112,279 shares 613,834 611,228
Additional paid in capital 15,741,097 15,743,703
Foreign currency translation adjustment (503,241) (453,275)
Retained earnings (deficit) 356,913 (209,426)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 16,208,603 15,692,230
============ ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,358,602 $ 20,103,557
============ ============
</TABLE>
See notes to consolidated financial statements.
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Month Period
Ending December 31,
1995 1994
----------- -----------
Sales:
Printing equipment $ 2,750,650 $ 2,007,798
Maintenance, spares and supplies 3,522,631 3,554,132
----------- -----------
Net Sales 6,273,281 5,561,930
Costs and expenses:
Cost of sales 2,465,894 2,190,510
Selling, general and administrative 2,683,979 2,423,773
Research and Development 528,566 587,983
----------- -----------
5,678,439 5,202,266
----------- -----------
Income from system sales and service 594,842 359,664
Interest (income) (90,477) (60,160)
Unrealized exchange (gain) loss (5,143) (43,129)
----------- -----------
Income before taxes 690,462 462,953
Income taxes 138,000 83,000
----------- -----------
Net Income $ 552,462 $ 379,953
=========== ===========
Earnings per share $ 0.09 $ 0.06
=========== ===========
Weighted average number of shares and
share equivalents outstanding during the period 6,337,523 6,226,974
See notes to consolidated financial statements.
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period
Ending December 31,
1995 1994
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 552,462 $ 379,954
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 94,337 96,925
Other (44,062) (55,092)
Changes in operating assets and liabilities:
Accounts receivable 185,998 (1,226,334)
Inventories (247,825) 110,469
Other current assets 136,692 (130,339)
Accounts payable and accrued expenses (236,544) (507,345)
Deferred revenue 7,633 6,463
----------- -----------
NET CASH FROM (USED IN) OPERATING ACTIVITIES 448,691 (1,325,299)
INVESTING ACTIVITIES
Purchase of equipment and fixtures (122,331) (52,899)
Purchase of short-term investment (2,136,996) (472,042)
Proceeds from sale of short-term investment 2,051,000 1,000,000
----------- -----------
NET CASH FROM (USED IN) INVESTING ACTIVITIES (208,327) 475,059
FINANCING ACTIVITIES
Proceeds from issuance of common stock 0 4,593
Addition of capital leases 38,894 0
Repayment of long-term debt and capital leases (38,284) (13,040)
----------- -----------
NET CASH FROM FINANCING ACTIVITIES 610 (8,447)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 6,326 11,366
----------- -----------
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 247,300 (847,321)
CASH & CASH EQUIVALENTS AT BEGINNING OF YEAR 3,390,356 1,871,314
=========== ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,637,656 $ 1,023,993
=========== ===========
</TABLE>
See notes to consolidated financial statements.
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Foreign
Additional Currency Retained
Common Stock Paid-In Translation Earnings
Shares Amount Capital Adjustment (Deficit)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance September 30, 1995 6,112,279 $ 611,228 15,743,703 $ (453,275) $ (209,426)
Net Income 552,462
Exercise of stock options 26,056 2,606 (2,606)
Vesting of restricted stock 13,877
Foreign currency translation (49,966)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1995 6,138,335 $ 613,834 15,741,097 $ (503,241) $ 356,913
</TABLE>
See notes to consolidated financial statements.
CHECK TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 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, 1995.
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 three month periods ended December
31, 1995 and 1994 as follows:
Three Month Period Ended
December 31,
----------------------------
1995 1994
------------ -----------
Current:
Federal $ 31,000 $ 20,000
State 5,000 2,000
Foreign 102,000 61,000
=========== ===========
Total Income Tax Expense $ 138,000 $ 83,000
=========== ===========
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 December 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 (i) sales of document production systems and
related equipment, and (ii) maintenance contracts, spare parts, supplies and
consumable items. For the three month period ended December 31, 1995, revenues
from the sale of document production equipment increased 37% over the comparable
quarter in the prior year due primarily to increased sales in the Americas,
France and Africa.
For the three month period ended December 31, 1995, revenues for maintenance
contracts, spare parts, supplies and consumable items were flat with the
comparable quarter in the prior year. Revenues for the quarter were affected by
the timing of purchases of supplies and consumables by certain major customers.
The gross margin percentage for the three month period ended December 31, 1995,
was 61% compared to 61% in the comparable prior period.
Selling, general and administrative expenses during the three month period ended
December 31, 1995, increased 10% over the comparable period last year primarily
due to increased marketing expenses.
Research and development expenses decreased 10% over the comparable period last
year. The decrease was primarily due to the timing of expenditures on the
Company's program to develop a new family of check production systems.
The Company had an unrealized currency exchange gain for the current quarter of
$5,000 compared to an unrealized exchange gain of $43,000 in the comparable
period last year. 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 $14,586,000 at September 30, 1995, to $15,077,000
at December 31, 1995. Stockholders' equity increased from $15,692,000 at
September 30, 1995, to $16,209,000 at December 31, 1995.
The Company's long-term debt to equity ratio was 0.01 at December 31, 1995, and
September 30, 1995. The Company maintains a $2.5 million unsecured bank line of
credit. At December 31, 1995, the line was unused. The credit agreement expires
March 31, 1996 and the Company presently expects to negotiate a new bank line of
credit. 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 1996.
At December 31, 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
December 31, 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 February 13, 1996 /s/ Jay A. Herman
Jay A. Herman
President and Chief Executive Officer
Date February 13, 1996 /s/ Paul W. B. Stephenson
Paul W.B. Stephenson
Vice President, Finance and
Administration
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,637,656
<SECURITIES> 4,192,985
<RECEIVABLES> 4,713,529
<ALLOWANCES> 50,000
<INVENTORY> 6,036,865
<CURRENT-ASSETS> 589,452
<PP&E> 3,697,629
<DEPRECIATION> 2,459,514
<TOTAL-ASSETS> 20,358,602
<CURRENT-LIABILITIES> 4,044,053
<BONDS> 0
613,834
0
<COMMON> 0
<OTHER-SE> 15,594,769
<TOTAL-LIABILITY-AND-EQUITY> 20,358,602
<SALES> 6,273,281
<TOTAL-REVENUES> 6,273,281
<CGS> 2,465,894
<TOTAL-COSTS> 5,678,439
<OTHER-EXPENSES> (95,620)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 690,462
<INCOME-TAX> 138,000
<INCOME-CONTINUING> 552,462
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 552,462
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
