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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1995
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9341
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HOWTEK, INC.
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(Exact name of registrant as specified in its charter)
Delaware 02-0377419
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
21 Park Avenue, Hudson, New Hampshire 03051
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(Address of principal executive offices) (Zip Code)
(603) 882-5200
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(Registrant's telephone number, including area code)
Not Applicable
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(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 requirement for the past 90 days. YES X NO
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As of the close of business on May 2, 1995, there were 7,924,268 shares
outstanding of the issuer's Common Stock, $.01 par value.
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<TABLE>
HOWTEK, INC.
INDEX
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of March 31, 1995
(unaudited) and December 31, 1994 3
Statements of Operations for the three
month periods ended March 31, 1995 and
1994 (unaudited) 4
Statement of Changes in Stockholders' Equity
for the three month period ended
March 31, 1995 (unaudited) 5
Statements of Cash Flows for the three month
periods ended March 31, 1995 and 1994
(unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 6 Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
2
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<TABLE>
HOWTEK, INC.
BALANCE SHEETS
<CAPTION>
March 31, 1995 December 31, 1994
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Assets (unaudited)
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<S> <C> <C>
Current assets:
Cash and equivalents $ 492,564 $ 649,455
Accounts receivable:
Trade-net of allowance for doubtful accounts
of $121,210 in 1995 and $130,000 in 1994 7,465,190 8,000,716
Inventory 8,820,377 7,863,012
Prepaid and other 622,685 378,255
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Total current assets 17,400,816 16,891,438
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Property and equipment:
Engineering and development equipment 9,535,741 9,094,067
Leasehold improvements 376,235 366,835
Furniture and fixtures 185,564 184,444
Motor vehicles 6,050 6,050
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10,103,590 9,651,396
Less accumulated depreciation and amortization 6,696,789 6,373,277
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Net property and equipment 3,406,801 3,278,119
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Other assets:
Software development costs, net 1,268,703 1,244,114
Debt issuance costs, net 134,025 139,114
Patents, net 19,417 21,064
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Total other assets 1,422,145 1,404,292
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Total assets $ 22,229,762 $ 21,573,849
=============== ===============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 3,978,725 $ 3,986,330
Accrued expenses 727,254 825,198
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Total current liabilities 4,705,979 4,811,528
Loan payable to principal stockholder 1,578,604 1,000,000
Convertible subordinated debentures 2,181,000 2,181,000
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Total liabilities 8,465,583 7,992,528
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Commitments and contingencies
Stockholders' equity:
Common stock, $ .01 par value: authorized
25,000,000 shares; issued 7,992,144 in 1995
and 7,985,794 shares in 1994; outstanding
7,924,268 in 1995 and 7,917,918 shares in 1994 79,921 79,858
Additional paid-in capital 43,790,592 43,760,455
Accumulated deficit (29,156,070) (29,308,728)
Treasury stock at cost (67,876 shares) (950,264) (950,264)
--------------- ---------------
Stockholders' equity 13,764,179 13,581,321
--------------- ---------------
Total liabilities and stockholders' equity $ 22,229,762 $ 21,573,849
=============== ===============
</TABLE>
See accompanying notes to financial statements.
3
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<TABLE>
HOWTEK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS THREE MONTHS
MARCH 31, 1995 MARCH 31, 1994
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<S> <C> <C>
Sales $ 5,851,750 $ 4,724,218
Cost of Sales 3,623,628 3,118,118
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Gross Margin 2,228,122 1,606,100
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Operating expenses:
Engineering and product development 775,744 776,398
General and administrative 507,805 472,391
Marketing and sales 696,582 778,369
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Total operating expenses 1,980,131 2,027,158
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Income (loss) from operations 247,991 (421,058)
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Interest expense - net 82,058 59,356
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Income (loss) before tax provision 165,933 (480,414)
Provision for income taxes 13,275 -
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Net income (loss) $ 152,658 $ (480,414)
============ ============
Net income (loss) per share
Primary $ 0.02 $ (0.06)
Weighted average number of shares used in
computing earnings per share
Primary 7,973,393 7,871,294
</TABLE>
See accompanying notes to financial statements.
4
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<TABLE>
HOWTEK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
SHARES ISSUED PAR VALUE CAPITAL DEFICIT STOCK EQUITY
------------- --------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 7,985,794 $ 79,858 $43,760,455 $(29,308,728) $(950,264) $ 13,581,321
Issuance of common stock
pursuant to incentive stock
option plan. 6,350 64 30,137 30,200
Net income - - - 152,658 - 152,658
--------- --------- ----------- ------------ --------- ------------
Balance at March 31, 1995 7,992,144 $ 79,921 $43,790,592 $(29,156,070) $(950,264) $ 13,764,179
========= ========= =========== ============ ========= ============
</TABLE>
See accompanying notes to financial statements.
5
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<TABLE>
HOWTEK, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
THREE MONTHS THREE MONTHS
MARCH 31, 1995 MARCH 31, 1994
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(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 152,658 $ (480,414)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 445,720 348,808
(Increase) decrease:
Accounts receivable 535,526 (257,184)
Inventory (957,365) (45,500)
Other current assets (244,430) (56,166)
Increase (decrease):
Accounts payable (7,605) 424,282
Accrued expenses (97,944) (12,413)
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Total adjustments (326,098) 401,827
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Net cash provided by (used for)
operating activities (173,440) (78,587)
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Cash flows from investing activities:
Patents, software development and other (140,061) (244,050)
Additions to property and equipment (452,194) (407,971)
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Net cash used for investing activities (592,255) (652,021)
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Cash flows from financing activities:
Issuance of common stock for cash 30,200 -
Proceeds of loan payable to principal stockholder 578,604 -
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Net cash provided by financing activities 608,804 -
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Increase (decrease) in cash and equivalents (156,891) (730,608)
Cash and equivalents, beginning of period 649,455 1,756,584
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Cash and equivalents, end of period $ 492,564 $1,025,976
=========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 20,892 $ 69,135
=========== ==========
</TABLE>
See accompanying notes to financial statements.
6
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HOWTEK, INC.
Notes to Financial Statements
March 31, 1995
(1) ACCOUNTING POLICIES
In the opinion of management all adjustments and accruals
(consisting only of normal recurring adjustments) which are necessary
for a fair presentation of operating results are reflected in the
accompanying financial statements. Reference should be made to
Howtek, Inc.'s most recent Annual Report on Form 10-K for the year
ended December 31, 1994 for a summary of significant accounting
policies. Interim period amounts are not necessarily indicative of
the results of operations for the full fiscal year.
(2) LEGAL PROCEEDINGS
On June 7, 1994 the Company filed a complaint in the United
States District Court, District of New Hampshire, against TECO
Electric & Machinery Co., Ltd. ("TECO"), several TECO subsidiaries
a TECO employee, and a number of distributors of TECO products.
The action seeks injunctive and declaratory relief as well as
damages aggregating $17 million based on misappropriation of trade
secrets, civil conspiracy, unfair competition and breach of
contract. The Company claims, inter alia, that TECO breached an
exclusive manufacturing contract it entered into with the Company to
manufacture digital color scanners exclusively for the Company by
selling scanners under its own labels. TECO has answered the
complaint and asserted various counterclaims, including
misrepresentation, and is claiming approximately $800,000 in payment
for past due services. In April, 1995, the court denied Howtek's
request for a preliminary injunction. The matter continues in the
discovery stage and a trial is tentatively scheduled for December,
1995.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the first quarter of 1995 which ended March 31, 1995 were
$5,851,750, an increase of 24% from 1994's first quarter sales of $4,724,218.
The Company attributed the increase in sales during the first quarter of
1995 as compared to the first quarter of 1994 primarily to the increase in sales
of the Scanmaster 7500.
The Company recorded net income of $152,658 for the first quarter of
1995 as compared to a net loss of $480,414 recorded for the same period in 1994.
The Company's gross margin on product sales was 38% for the first quarter of
1995 compared to 34% for the same period in 1994. The increase in gross margin
is attributable primarily to sales of the Scanmaster 7500.
Engineering and product development costs in the first three months of
1995 were $775,744 as compared to $776,398 in the first quarter of 1994.
General and administrative expenses in the first quarter of 1995 were
$507,805 which represents a 7.4% increase from the $472,391 recorded in the
comparable period in 1994. This increase can be attributed mainly to increased
legal expenses applicable to legal proceedings against a contract manufacturer.
Marketing and sales expenses in the first three months of 1995 were
$696,582 which represents a $81,787, or 11%, decrease over the comparable period
in 1994. The decrease results mostly from the reduction in salaries due to the
departure of personnel during the quarter.
Net interest expense for the first quarter of 1995 was $82,058 compared
to $59,356 for the first quarter of 1994. The increase resulted from the
increase in the Revolving Loan Agreement with its Chairman, Robert Howard, from
$1,000,000 to $1,578,604.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995 the Company had current assets of $17,400,816, current
liabilities of $4,705,979, working capital of $12,694,837, and the ratio of
current assets to current liabilities was 3.7:1.
8
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Accounts receivable decreased by $535,526 during the first quarter of
1995. The decrease is due primarily to higher revenues in the fourth quarter of
1994 as compared to the first quarter of 1995.
Inventory increased during the first quarter of 1995 in order to meet
anticipated demand for the introduction of the new Scanmaster DX, Pro-G and 2500
product lines, as well as continued demand for the Scanmaster 7500 and
Scanmaster 4500 product lines.
Accounts payable increased slightly during the first quarter of 1995.
The increase is due primarily to the purchase of materials for the Scanmaster
7500, Scanmaster 4500, Scanmaster DX, Pro-G and 2500 product lines.
Pursuant to the exercise of employee stock options, the Company received
$30,200 during the first quarter of 1995 compared to the first quarter of 1994
during which there were no stock options exercised. The exercise of stock
options depends upon the market price of the Company's stock and the option
exercise price for individual employees and its effect on future liquidity
cannot be anticipated.
Capital spending for equipment in the first quarter of 1995 amounted to
$452,194 compared to $407,971 during the comparable period in 1994. The slight
increase is attributable to production of the Scanmaster 7500 and Scanmaster
4500. The Company anticipates continuing the same level of capital spending for
the balance of the year.
The Company believes it can adequately fund its working capital and
capital equipment requirements based upon its operations and line of credit
available under the Revolving Loan Agreement with its Chairman of which
$6,421,396 was available as of March 31, 1995.
9
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 7, 1994 the Company filed a complaint in the United States
District Court, District of New Hampshire, against TECO Electric & Machinery
Co., Ltd. ("TECO"), several TECO subsidiaries, a TECO employee, and a number of
distributors of TECO products. The action seeks injunctive and declaratory
relief as well as damages aggregating $17 million based on misappropriation of
trade secrets, civil conspiracy, unfair competition and breach of contract.
The Company claims, inter alia, that TECO breached an exclusive manufacturing
contract it entered into with the Company to manufacture digital color scanners
exclusively for the Company by selling scanners under its own labels. TECO has
answered the complaint and asserted various counterclaims, including
misrepresentation, and is claiming approximately $800,000 in payment for past
due services. In April, 1995, the court denied Howtek's request for a
preliminary injunction. The matter continues in the discovery stage and a
trial is tentatively scheduled for December, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOWTEK, INC.
-----------------------------
Company
Date: May 3, 1995 By: /s/ Anthony Finizio
-------------------------
Anthony Finizio
President and Chief
Operating Officer
Date: May 3, 1995 By: /s/ Robert J. Lungo
-------------------------
Robert J. Lungo
Chief Financial Officer
11
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3 MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 492,564
<SECURITIES> 0
<RECEIVABLES> 7,586,400
<ALLOWANCES> 121,210
<INVENTORY> 8,820,377
<CURRENT-ASSETS> 17,400,816
<PP&E> 10,103,590
<DEPRECIATION> 6,696,789
<TOTAL-ASSETS> 22,229,762
<CURRENT-LIABILITIES> 4,705,979
<BONDS> 3,759,604
<COMMON> 79,921
0
0
<OTHER-SE> 13,684,258
<TOTAL-LIABILITY-AND-EQUITY> 22,229,762
<SALES> 5,851,750
<TOTAL-REVENUES> 5,851,750
<CGS> 3,623,628
<TOTAL-COSTS> 3,623,628
<OTHER-EXPENSES> 1,980,131
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,058
<INCOME-PRETAX> 165,933
<INCOME-TAX> 13,275
<INCOME-CONTINUING> 152,658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,658
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
Additional current asset prepaid and other at $622,685.
Other assets of $1,422,145, loan.
</TABLE>
