<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 1996, 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: 0-13459
DH Technology, Inc.
(Exact name of registrant as specified in its charter)
California 94-2917470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15070 Avenue of Science, San Diego, California 92128
(Address of principal executive office)
Registrant's telephone number, including area code: (619) 451-3485
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 XXX No____
As of March 31, 1996 there were 7,928,215 shares of the registrant's Common
Stock outstanding.
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DH TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1 - Financial Statements
Condensed Consolidated Balance Sheets 1
March 31, 1996, and December 31, 1995
Condensed Consolidated Statements of Income 2
Three months ended March 31, 1996
Condensed Consolidated Statements of Cash Flows 3
Three months ended March 31, 1996
Notes to Condensed Consolidated Financial Statements 4
ITEM 2 -
Management's Discussion and Analysis of 5
Financial Conditions and Results of Operations
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 9
SIGNATURES 10
EXHIBITS INDEX 11
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<TABLE>
============================================================================================================================
PART 1 - FINANCIAL INFORMATION
============================================================================================================================
ITEM 1 - Financial Statements
DH TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $24,652 $28,971
Short-term investment securities held to maturity 8,650 2,750
Accounts receivable, net 15,972 15,785
Inventories 15,807 14,382
Prepaid expenses and other current assets 2,243 2,317
------------------- --------------------
Total current assets 67,324 64,205
------------------- --------------------
Fixed assets 19,388 18,085
Less accumulated depreciation and
amortization 12,295 11,795
------------------- --------------------
7,093 6,290
Intangibles 13,117 13,312
Other assets 1,297 1,478
------------------- --------------------
Total assets $88,831 $85,285
=================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,827 $6,383
Current portion of long-term debt 505 980
Accrued payroll 2,224 2,579
Accrued expenses 2,518 2,524
Income taxes payable 3,148 2,128
Deferred revenue 1261 947
------------------- --------------------
Total current liabilities 15,483 15,541
------------------- --------------------
Non-current portion of long-term debt 2,089 2,115
Deferred tax liability 148 149
------------------- --------------------
Total liabilities 17,721 17,805
------------------- --------------------
Shareholders' equity:
Preferred shares, no par value
Authorized: 1,000,000 shares, none issued -- --
Common shares:
Common stock, authorized: 28,500,000
shares; issued and outstanding:
7,928,215 shares in 1996 and
7,890,090 shares in 1995 12,630 12,335
Foreign currency translation adjustment (218) (519)
Retained earnings 58,698 55,664
------------------- --------------------
Total shareholders' equity 71,110 67,480
------------------- --------------------
Total liabilities and shareholders' equity $88,831 $85,285
=================== ====================
The accompanying notes are an integral part of these
condensed consolidated financial statements.
</TABLE>
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<TABLE>
DH TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(March 31, 1996 and 1995)
(In thousands, except per share data)
<CAPTION>
THREE MONTHS
ENDED
March 31
(Unaudited)
----------------------------------
1996 1995
----------------------------------
<S> <C> <C>
Net sales $28,196 $23,255
Cost of net sales 18,470 14,760
--------------- ----------------
Gross margin 9,726 8,495
Operating expenses:
Selling, general and administrative 3,960 3,934
Research and development 1,288 1,112
--------------- ----------------
Total operating expenses 5,248 5,046
Income from operations 4,478 3,449
Interest income 330 276
Interest expense 46 74
--------------- ----------------
Income before income taxes 4,762 3,651
Income taxes 1,727 1,286
--------------- ----------------
Net income $3,035 $2,365
=============== ================
Net income per share $.36 $.29
=============== ================
Weighted average number of shares outstanding
Per share (primary and fully diluted): 8,469 8,192
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
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<TABLE>
DH TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
THREE MONTHS ENDED
MARCH 31
(Unaudited)
<CAPTION>
---------------------------------------
1996 1995
---------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM:
<S> <C> <C>
Operating activities:
Net income $3,035 $2,365
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 775 902
Provision for loss on accounts receivable 28 116
Undepreciated value of asset disposals 53 11
Changes in assets and liabilities excluding effect of acquisitions (1,149) (244)
--------------------------------------
Net cash provided by operating activities 2,742 3,150
Investing activities:
Net increase in short-term investment securities held to maturity ($5,900) 0
Capital expenditures (1,271) (407)
--------------------------------------
Net cash provided by (used in) investing activities (7,171) (407)
Financing activities: Principal repayments on long-term debt (501) (516)
Proceeds from the exercise of stock options 295 213
--------------------------------------
Net cash used in financing activities (206) (303)
Effect of exchange rate changes on cash 316 (85)
Net increase (decrease) in cash and cash equivalents (4,319) 2,355
Cash and cash equivalents at beginning of period 28,971 19,587
--------------------------------------
Cash and cash equivalents at end of period $24,652 $21,942
======================================
Interest paid on debt $12 $15
Income taxes paid $696 $385
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
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DH TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(March 31, 1996 - Unaudited)
Note 1: Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared
in accordance with S.E.C. requirements for interim financial statements.
Therefore, they do not include all disclosures that would be presented in the
Company's Annual Report on Form 10-K. The financial statements should be read in
conjunction with the financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
The information furnished reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of financial position, results of operations, and changes in
cash position for the interim period. The results of operations for the periods
presented are not necessarily indicative of results to be expected for the full
year.
The Board of Directors authorized a three-for-two common stock split effective
September 22, 1995. All share and per share data have been retroactively
restated to give effect to the stock split.
Note 2: Inventories
The composition of inventories at March 31, 1996, and December 31, 1995, were as
follows:
1996 1995
------ ------
Raw Materials $8,879,000 $8,221,000
Work in Process 1,312,000 940,000
Finished Goods 5,616,000 5,221,000
--------- ---------
Totals $15,807,000 $14,382,000
=========== ===========
Note 3: Operations subject to Purchase and Sale Agreements
On February 28, 1994, DH Technology, Inc. acquired all of the outstanding stock
of Stadia Colorado Corp. (Stadia) pursuant to a stock purchase agreement for
$6.5 million in cash ($5.5 million paid at closing, and additional payments of
$500,000 paid on March 1, 1995, and on March 1, 1996). This business is being
operated as a subsidiary of DH Technology, Inc. under the name Stadia Colorado
Corp. Stadia, located in Golden, Colorado, supplies labeling and marking
solutions to a variety of customers in ten western states.
On August 31, 1994, DH Technology, Inc. acquired all of the outstanding stock of
Cognitive Solutions, Inc. (Cognitive) and certain technology rights pursuant to
a stock purchase agreement for $10 million in cash ($7.9 million paid through
1995, and additional payments of $500,000 each due in 1996 through 1999). Also,
the Company is required to make additional payments, not to exceed an aggregate
of $3 million, to the former shareholder of Cognitive based upon
post-acquisition net sales of a specified Cognitive product line. At the end of
each calendar year, the company will calculate the amount of the additional
payment as defined in the stock purchase agreement. Each payment will be treated
as additional acquisition cost, and will be recorded as additional goodwill,
amortized straight-line over the remaining life of the asset. This business is
being operated as a subsidiary of DH Technology, Inc. under the name Cognitive
Solutions, Inc. and is located in Paso Robles, California. Cognitive designs,
manufactures, and markets thermal bar code printers and complementary label
media for use in automatic data collection systems.
<PAGE>
The Stadia and Cognitive acquisitions were accounted for using the purchase
method; accordingly, the assets and liabilities of the acquired companies have
been recorded at their estimated fair values at the dates of acquisition. In
conjunction with the acquisitions of Stadia and Cognitive, the excess of
purchase price over the estimated fair values of the net assets acquired has
been recorded as goodwill of $4,062,000 and $5,590,000, respectively, which is
being amortized over 25 years using the straight-line method.
On October 30, 1995 the Company acquired certain assets and liabilities of Mos
Magnetics, a privately held company in San Diego, California, for $752,000 cash.
Mos Magnetics designs, manufactures, and markets magnetic read and write heads
and modules for credit card and debit card readers, check readers, and airline
ticket readers. The Company is required to make additional payments, not to
exceed an aggregate of $1.3 million, to Mos Magnetics based upon
post-acquisition net sales by the Company of a specific Mos product line. At the
end of each calendar year, the company will calculate the amount of the
additional payment as defined in the asset purchase agreement. Each payment will
be treated as additional acquisition cost, and will be recorded as additional
goodwill, amortized straight-line over the remaining life of the asset.
The consolidated statements of income include the operations of Stadia from
February 28, 1994, Cognitive from August 31, 1994, and the Magnetics Division
from October 30, 1995.
ITEM 2 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with DH
Technology, Inc.'s condensed consolidated financial statements and the notes
related thereto included herein.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Net sales of $28.2 million for the quarter ended March 31, 1996, increased 21.2%
over net sales of $23.3 million for the same period last year. The growth was
primarily attributable to the increased unit shipments of transaction printers
for the first quarter of 1996. A significant percentage of this growth is
attributable to a single customer.
Cost of net sales increased to 65.5% of net sales for the first quarter of 1996
compared to 63.5% of net sales for the first quarter of 1995. There were four
factors that primarily contributed to the increase. The first was a mix shift in
the printhead business to products with higher material content as a percentage
of net sales. The second was a price decrease initiated at Cognitive where
efforts to lower the associated costs continue. The third factor involved price
increases at Stadia initiated in the first quarter of 1995 prior to anticipated
cost increases, which occurred later in 1995. The final factor was start-up
costs associated with the roll-out and initial delivery of a new product in the
first quarter of 1996.
Selling, general, and administrative expenses decreased to 14.0% of net sales in
the first quarter of 1996 from 17.0% in the same period in 1995 due to net sales
increasing at a faster rate than selling, general, and administrative expenses.
These expenses increased in absolute dollars to $4.0 million in the first
quarter of 1996 from $3.9 million in the first quarter of 1995. This increase
was primarily attributable to the inclusion of results for the Magnetics
Division for the entire first quarter of 1996.
<PAGE>
Research and development expenses decreased to 4.6% of net sales in the first
quarter of 1996 compared to 4.8% in the same period in 1995 due to net sales
increasing at a faster rate than research and development expenses. Total
dollars expended for research and development increased to $1.3 million in the
first quarter of 1996 from $1.1 million in the same period in 1995. The Company
believes that the continued timely development of new products and enhancements
to its existing products are essential to maintaining the Company's competitive
position. Accordingly, the Company anticipates that such expenses will continue
to increase in absolute dollars.
Income from operations as a percentage of net sales increased to 15.9% for the
quarter ended March 31, 1996, compared to 14.8% for the same period in 1995
primarily due to lower operating expenses as a percentage of revenue as
discussed above.
Interest income increased to $330,000 in the first quarter of 1996 compared to
$276,000 in the first quarter of 1995 as a result of higher cash balances and
higher interest rates in the first quarter of 1996.
Interest expense decreased to $46,000 for the quarter ended March 31, 1996, from
$74,000 for the same period in 1995 due to the payment of debt related to the
Cognitive acquisition.
Income taxes as a percentage of income before income taxes increased to 36.3%
for the first quarter of 1996 from 35.2% for the same period in 1995, due
primarily to the reduced impact of the federal research and development tax
credit.
Factors That May Affect Forward Looking Statements.
- ---------------------------------------------------
The Company may from time to time make oral forward looking statements. The
following factors set forth below are important factors that could cause actual
results to differ materially from those projected in any such forward looking
statements.
Management of Acquisitions. Historically, the Company has achieved a portion of
its growth through acquisitions of other businesses and continues to pursue
additional acquisitions as part of its growth strategy. There are a number of
risks associated with any acquisition, including the substantial time and
attention required from management of the Company in connection with such
transactions, the difficulty of predicting whether the operations will perform
as expected and other problems inherent with any transition of one business
organization into another. There can be no assurance that the anticipated
benefits of any acquisition will be realized. A failure by the Company to manage
any such acquisitions effectively could materially and adversely affect the
Company's business and operating results. Additionally, future acquisitions
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, any of which could materially adversely
affect the Company's operating results and financial condition.
Technological Change; Competition; Dependence on New Products. The markets for
some of the Company's products are characterized by frequent new product
introductions and declining average selling prices over product life cycles. The
Company's future success is highly dependent upon the timely completion and
introduction of new products at competitive price/performance levels. In
addition, the Company must respond to current competitors, who may choose to
increase their presence in the Company's markets, and to new competitors, who
may choose to enter those markets. If the Company is unable to make timely
introduction of new products or respond to competitive threats, its business and
operating results could be materially adversely affected.
Fluctuation in Demand. The Company's customers encounter uncertain and changing
demand for their products. They typically order products from the Company based
on their forecasts. If demand falls below customers' forecasts, or if customers
do not control their inventories effectively, they may cancel or reschedule
shipments previously ordered from the Company. The Company has in the past
experienced, and may at any time and with minimal notice in the future
experience, cancellations and postponements of orders.
<PAGE>
Future Operating Results Subject to Fluctuation. The Company's operating results
may fluctuate in the future as a result of a number of factors, including the
timing of receipts of customer orders, timing of completion of existing customer
contracts, variations in the Company's sales channels or the mix of products it
sells, changes in pricing policies by the Company's suppliers, fluctuations in
manufacturing yields, the market acceptance of new and enhanced versions of the
Company's products and the timing of acquisitions of other businesses, products
and technologies and any associated charges to earnings. Further, the Company's
expense levels are based in part on expectations of future revenues, and the
Company has been increasing and expects to continue to increase operating
expenditures and inventory as it expands its operations. The rate of new orders
may vary significantly from month to month; consequently, if anticipated sales
and shipments in any quarter do not occur when expected, operating expenses and
inventory levels could be disproportionately high and the Company's operating
results for that quarter, and potentially for future quarters, would be
adversely affected. In addition, the Company's results could be affected by
general economic conditions. Fluctuations in operating results may cause
volatility in the price of the Company's Common Stock.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
The Company's primary source of liquidity has been cash flow generated from
operations. Cash, cash equivalents, and short-term investment securities held to
maturity totaled approximately $33.3 million on March 31, 1996, compared to
$31.7 million on December 31, 1995.
OPERATING ACTIVITIES
For the three-month period ended March 31, 1996, the Company generated
approximately $2.7 million in net cash from operating activities primarily as a
result of approximately $3.0 million in net income and $800,000 in depreciation
and amortization, offset by an increase in net operating assets of $1.2 million.
Since December 31, 1995, inventories increased $1.4 million in anticipation of
second quarter sales.
INVESTING ACTIVITIES
The Company's principal investing activities in the first quarter of 1996 were
the purchase of property and equipment for product development and production
and the investment in short-term securities held to maturity. The majority of
the securities mature before 1996 year end. As of March 31, 1996, other than the
required payments for Stadia and Cognitive described below, the Company has no
material commitments for capital expenditures. However, the Company anticipates
capital expenditures in 1996 between 3 to 5 million dollars principally for new
product tooling, manufacturing equipment and a new worldwide MIS system.
The Company is also required to make additional payments, not to exceed an
aggregate of $3 million, to the former shareholder of Cognitive based upon the
attainment of specified net sales by a particular Cognitive product line. The
Company does not expect the payment to be material in 1996. See Note 3 of notes
to consolidated financial statements.
The Company continues to evaluate potential acquisitions of businesses that
would complement the Company's existing businesses and product lines, and any
such acquisitions could require the use of the Company's cash resources and/or
additional borrowings.
<PAGE>
FINANCING ACTIVITIES
The Company's major financing activities in first quarter of 1996 were the
principal repayment on long-term debt, including the notes payable associated
with the Stadia and Cognitive acquisitions. As of March 31, 1996, the Company
had $2.6 million in debt outstanding of which the current portion was
approximately $500,000. This long-term debt includes $2.0 million payable to the
former owner of Cognitive in annual installments of $500,000 each due in 1996
through 1999 to the former owner of Cognitive.
On August 15, 1995, the Company renewed a $6.5 million line of credit agreement
originally signed on August 15, 1994. The line of credit includes a subfeature
to issue standby and/or commercial letters of credit not to exceed $1.5 million.
Borrowings under the line bear interest at a rate per annum equal to the prime
rate in effect from time to time. As of December 31, 1995, no amounts have been
drawn against this line of credit.
The Company currently expects that current cash balances and cash generated from
operations will adequately fund the Company's anticipated cash needs for the
next 12 months. However, the Company continues to evaluate potential
acquisitions of businesses that would complement the Company's existing
businesses and product lines, and any such acquisitions could require the use of
the Company's cash resources and/or additional borrowings.
The Company reviews potential foreign currency risks on an ongoing basis and to
date has been able to effectively manage this risk through natural currency
offsets.
<PAGE>
Item 6 - Exhibits and reports on Form 8-K
(a) Exhibits:
Exhibit 11 Computation of Net Income Per Share.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter
ended March 31, 1996.
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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.
DH Technology, Inc. by:
May 14, 1996 /s/Janet W. Shanks
------------ ------------------
Date Janet W. Shanks, Chief Accounting Officer
(Chief Accounting Officer)
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DH TECHNOLOGY, INC.
EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
EXHIBIT DESCRIPTION NUMBERED PAGE
- --------------------------------------------------------------------------------
11 Computation of Net Income Per Share 12
27 Financial Data Schedule 13
<PAGE>
EXHIBIT 11
DH TECHNOLOGY, INC. AND SUBSIDIARIES
Computation of Net Income Per Share
(In thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1996 1995
-------------------------------
Primary and fully diluted:*
Average shares outstanding 7,906 7,743
Net effect of dilutive stock
options and warrants based on
the treasury stock method using
average market price 563 449
------------- -------------
Average common and common
equivalent shares outstanding 8,469 8,192
Net income $3,035 $2,365
Per share (primary and fully diluted)
============= ==============
Net income per share $.36 $.29
============= ==============
* There is no significant difference between primary and fully diluted earnings
per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 - 10Q FOR QUARTER ENDED 03/31/96
</LEGEND>
<CIK> 0000728376
<NAME> DH TECHNOLOGY, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 24,652
<SECURITIES> 8,650
<RECEIVABLES> 17,127
<ALLOWANCES> (1,154)
<INVENTORY> 15,807
<CURRENT-ASSETS> 67,324
<PP&E> 19,388
<DEPRECIATION> (12,295)
<TOTAL-ASSETS> 88,831
<CURRENT-LIABILITIES> 15,483
<BONDS> 2,089
0
0
<COMMON> 12,630
<OTHER-SE> 58,480
<TOTAL-LIABILITY-AND-EQUITY> 88,831
<SALES> 28,196
<TOTAL-REVENUES> 28,196
<CGS> 18,470
<TOTAL-COSTS> 18,470
<OTHER-EXPENSES> 5,248
<LOSS-PROVISION> 28
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 4,762
<INCOME-TAX> 1,727
<INCOME-CONTINUING> 3,035
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,035
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
