<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended October 3, 1998
Commission file Number 000-20729
PRINTWARE, INC.
(Exact name of registrant as specified in its charter.)
Minnesota 41-1522267
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Eagan Industrial Road, St. Paul, MN 55121
(Address of principal executive offices) (Zip Code)
(651) 456-1400
(Registrant's telephone number, including area code)
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 [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, no Par Value - 4,937,284 shares outstanding as
of October 28, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
<TABLE>
PRINTWARE, INC.
CONDENSED STATEMENTS OF OPERATIONS
3 AND 9 MONTHS ENDED OCTOBER 3, 1998 AND OCTOBER 4, 1997
DOLLARS IN THOUSANDS EXCEPT PER SHARE
(UNAUDITED)
<CAPTION>
Three months ended Nine months ended
Oct 3 Oct 4 Oct 3 Oct 4
______ ______ ______ ______
1998 1997 1998 1997
______ ______ ______ ______
<S> <C> <C> <C> <C>
REVENUES FROM NON AFFILIATES $1,719 $ 648 $3,972 $1,932
REVENUES FROM AFFILIATES 48 975 1,191 3,463
______ ______ ______ ______
TOTAL REVENUES 1,767 1,623 5,163 5,395
COST OF REVENUES 1,066 892 2,966 2,987
______ ______ ______ ______
Gross margin 701 731 2,197 2,408
PERIOD COSTS:
Research and development 202 215 554 678
Selling, general and administrative 346 322 1,156 972
______ ______ ______ ______
Total 548 537 1,710 1,650
______ ______ ______ ______
INCOME FROM OPERATIONS 153 194 487 758
Interest and other income 194 194 615 585
______ ______ ______ ______
INCOME BEFORE INCOME TAXES 347 388 1,102 1,343
INCOME TAXES -- -- -- --
______ ______ ______ ______
NET INCOME $ 347 $ 388 $1,102 $1,343
====== ====== ====== ======
NET INCOME PER COMMON SHARE:
BASIC $ .07 $ .08 $ .22 $ .28
====== ====== ====== ======
DILUTED $ .07 $ .08 $ .22 $ .28
====== ====== ====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING--BASIC 4,922,160 4,888,651 4,921,857 4,864,600
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING--DILUTED 4,922,160 4,905,931 4,921,857 4,881,880
========= ========= ========= =========
See notes to condensed financial statements.
</TABLE>
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<TABLE>
PRINTWARE, INC.
CONDENSED BALANCE SHEETS
DOLLARS IN THOUSANDS EXCEPT PER SHARE
(UNAUDITED)
ASSETS
October 3, December 31,
1998 1997
____________ ____________
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,096 $ 348
Marketable securities available-for-sale 11,580 11,868
Receivables from non affiliates 1,000 564
Receivables from affiliates 6 359
Inventories 2,304 1,942
Deferred income taxes - current 238 264
Prepaid expenses 91 15
_______ _______
Total Current Assets 16,315 15,360
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 226 135
INTANGIBLE ASSETS, net of accumulated
amortization 26 28
LEASE RECEIVABLES - long-term 731 174
DEFERRED INCOME TAXES - long-term 850 850
_______ _______
$18,148 $16,547
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 675 $ 457
Accrued expenses 561 412
Deferred revenues 8 40
_______ _______
Total Current Liabilities 1,244 909
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, no specified par value;
1,000,000 shares authorized;
none issued and outstanding -- --
Common Stock, no par value, authorized
15,000,000 shares: issued and outstanding
4,937,284 shares at October 3, 1998;
4,914,939 shares at December 31, 1997 22,231 22,175
Net unrealized gain on available-for-sale
securities 227 122
Unearned compensation on stock options (1) (4)
Accumulated deficit (5,553) (6,655)
_______ _______
Total shareholders' equity 16,904 15,638
_______ _______
$18,148 $16,547
======= =======
See notes to condensed financial statements.
</TABLE>
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<TABLE>
PRINTWARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
9 MONTHS ENDED OCTOBER 3, 1998 AND OCTOBER 4, 1997
DOLLARS IN THOUSANDS
(UNAUDITED)
October 3, October 4,
1998 1997
_______ ______
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $1,102 $1,343
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 45 42
Unearned compensation on stock options 3 7
Deferred income taxes 26 (11)
Changes in operating assets and liabilities:
Receivables from non affiliates (436) 190
Receivables from affiliates 353 6
Inventories (362) (198)
Prepaid expenses (76) 12
Accounts payable 218 (90)
Accrued expenses 149 (8)
Deferred revenues (32) (246)
______ ______
Net cash provided by
operating activities 990 1,047
INVESTING ACTIVITIES -
Purchases of property and equipment (136) (53)
Purchases of available-for-sale securities 393 (1,186)
Decrease in intangible assets 2 --
Increase in lease receivables (557) (49)
______ ______
Net cash used in investing activities (298) (1,288)
FINANCING ACTIVITIES -
Proceeds from issuance of Common Stock 56 170
______ ______
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 748 (71)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 348 524
______ ______
CASH AND CASH EQUIVALENTS,
END OF PERIOD $1,096 $ 453
====== ======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Income taxes $ 35 $ 2
====== ======
See notes to condensed financial statements.
</TABLE>
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PRINTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
3 AND 9 MONTHS ENDED OCTOBER 3, 1998 AND OCTOBER 4, 1997
1. INTERIM FINANCIAL INFORMATION
The accompanying condensed balance sheets as of October 3, 1998 and
December 31, 1997, the condensed statements of operations for the three and
nine months ended October 3, 1998 and October 4, 1997, the condensed
statements of cash flows for the nine months ended October 3, 1998 and
October 4, 1997 and the interim information as of and for the nine months
ended October 3, 1998 appearing in the notes to condensed financial
statements are unaudited. In the opinion of management, such unaudited
financial statements include all adjustments, consisting of only normal,
recurring accruals necessary for a fair presentation thereof. The results
of operations for any interim period are not necessarily indicative of the
results for the year.
<TABLE>
<CAPTION>
October 3, December 31,
1998 1997
_________ ____________
<S> <C> <C>
2. RECEIVABLES FROM NON AFFILIATES:
Trade $ 786 $ 556
Leases - current 257 37
Employees 4 4
Allowance for doubtful accounts (47) (33)
______ ______
Total receivables from non affiliates $1,000 $ 564
====== ======
3. INVENTORIES:
Raw materials $1,343 $ 995
Work-in-process 333 260
Finished goods 628 687
______ ______
Total inventories $2,304 $1,942
====== ======
4. PROPERTY AND EQUIPMENT:
Office equipment $ 484 $ 430
Software 108 108
Machinery and equipment 310 281
Leasehold improvements 125 75
Tooling and spares 338 335
Motor vehicles 24 24
______ ______
Total property and equipment 1,389 1,253
Less accumulated depreciation and amortization 1,163 1,118
______ ______
Net property and equipment $ 226 $ 135
====== ======
</TABLE>
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PRINTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
3 AND 9 MONTHS ENDED OCTOBER 3, 1998 AND OCTOBER 4, 1997
(Continued)
<TABLE>
<CAPTION>
October 3, December 31,
1998 1997
______ ___________
<S> <C> <C>
5. INTANGIBLE ASSETS:
License rights $ 560 $ 560
Patents 54 54
______ ______
Total intangible assets 614 614
Less accumulated amortization 588 586
______ ______
Net intangible assets $ 26 $ 28
====== ======
6. ACCRUED EXPENSES:
Accrued payroll and related $ 86 $ 44
Accrued vacation and benefits 194 158
Accrued professional services 192 143
Accrued warranty reserve 42 37
Accrued income taxes 21 15
Accrued other 26 15
______ ______
Total accrued expenses $ 561 $ 412
====== ======
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7. MARKETABLE SECURITIES
The Company classifies its marketable securities as available-for-sale.
At October 3, 1998 and December 31, 1997, securities available-for-sale are
carried at fair value with the net unrealized holding gain or loss included
in shareholders' equity.
8. SHAREHOLDERS' EQUITY
During the nine months ended October 3, 1998, the Company issued a
total of 22,345 shares of Common Stock to certain employees as part of the
Company's Stock Purchase Plan at prices ranging from $2.34 to $2.66 per share.
9. COMPREHENSIVE NET INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires the disclosure of comprehensive income and its components in
the Company's financial statements. The Company had comprehensive income of
$461,000 and $440,000 for the quarters ended October 3, 1998 and October 4,
1997, respectively, which consists of net income in addition to the net
unrealized gain on available-for-sale securities and unearned compensation on
stock options.
10. NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." SFAS No. 131
redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about a company's operating
segments. This statement does not have a material impact on results reported
in the financial statements.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED
OCTOBER 3, 1998 AND OCTOBER 4, 1997
Total revenues for the 1998 quarter were $1.77 million, an increase of
9% over those of third quarter 1997 which were $1.62 million. The increase
was due to an increase in Platesetter sales partially offset by the decline
of supplies sales in the 1998 quarter compared to 1997.
Model 3240 Platesetter sales included sales to the Company's OEM
customer and sales of the new PlateStream model. The decline in supplies
sales was primarily due to loss of Deluxe Corporation as a supplies customer.
The Company's gross margin was $701,000 in the third quarter 1998
versus $731,000 in the comparable quarter in 1997. Gross margin as a
percentage of revenue decreased from 45% in the third quarter 1997 to 40%
in third quarter 1998. The decreased margin in 1998 was due primarily
to higher occupancy costs and a shift in product mix towards lower-margin
distributor and private-label products.
Research and development expenses decreased to $202,000 in the third
quarter 1998 from $215,000 in the third quarter in 1997. The decrease
was primarily due to completion of the development of the new PlateStream
product in mid 1997.
Selling, general and administrative expenses were $346,000 in the
third quarter of 1998 up from $322,000 in the third quarter of 1997.
Marketing and sales expenses were about the same in the third quarter 1998
and the comparable quarter in 1997. General and administrative expenses
were up in the 1998 quarter due primarily to higher occupancy costs.
Operating income in the 1998 period was $153,000 or 9% of revenues,
compared to $194,000 or 12% of revenues in the 1997 period. The decrease
was due to higher period costs from investment spending on the new
PlateStream program and higher occupancy costs.
Interest and other income were $194,000 in the 1998 quarter compared
to $194,000 in the 1997 quarter. Interest income stayed the same due to
higher cash balances with decreases in interest rates over the past year.
The increase in cash balances was largely due to the Company's positive cash
flow from operations.
The Company's income tax expense primarily consists of minimum taxes
due, offset by net operating loss carryforwards.
Net income for the third quarter of 1998 was $347,000, or $.07 per
common basic and diluted share, down from $388,000 or $.08 per share in
1997 due largely to the increase in occupancy costs in the 1998 quarter.
<PAGE>
RESULTS OF OPERATIONS FOR THE 9 MONTHS ENDED OCTOBER 3, 1998 and OCTOBER 4,
1997
Total revenues for the first nine months of 1998 were $5.16 million or an
decrease of 4% from 1997. The decrease in 1998 revenues versus the year-ago
period was because stronger sales of the PlateStream model nearly offset
the decrease in supplies sales.
The Company's gross margin as a percentage of revenues in the 1998
period was 43%, down from 45% in the 1997 period.
Research and development expenses for the 1998 period decreased 18%
over the same period in 1997 due primarily to completion of the new
PlateStream product in 1997.
Selling, general and administrative expenses were 19% higher in 1998
compared to 1997 primarily due to higher marketing and sales costs
associated with the new PlateStream product and higher occupancy costs.
Operating income in the 1998 period was $487,000 or 9% of revenues,
compared to $758,000 or 14% of revenues in the 1997 period. The decrease
was due primarily to write-downs associated with the loss of supplies
business largely offset by increased PlateStream sales.
Interest and other income were $615,000 in the 1998 period compared
to $585,000 in the 1997 period. The increase in 1998 is due primarily to
an increase in cash and investments from profitable operations.
The Company's income tax expense consists of minimum taxes due,
offset by the net operating loss carryforwards.
Net income for the 1998 period was $1,102,000 or 21% of revenues, down
4% from $1,343,000 or 25% of revenues in 1997. Basic and diluted earnings
per share were $.22 in the 1998 period versus $.28 per share for the 1997
period.
LIQUIDITY AND CAPITAL RESOURCES
The current ratio was over 13 to 1 on October 3, 1998 compared to over
16 to 1 on December 31, 1997. Working capital was $15.1 million on
October 3, 1998 compared to $14.5 at December 31, 1997. Long-term lease
receivables were $731,000 at October 3, 1998 compared to $174,000 at
December 31, 1997 due to the expanding number of leases financed by the
Company's Leasing Division. The Company has financed nearly $1,000,000 in
lease sales inception to date. Cash, cash equivalents and investments
increased by approximately $460,000 at October 3, 1998 compared to
December 31, 1997, due to the past nine months of profitable operations,
partially offset by the increase in lease receivables.
As of October 3, 1998 the Company has no material commitments which would
result in a significant cash outflows other than purchases of inventory and
the financing of Platesetter leases.
MILLENNIUM CHANGE
The Company has conducted a review and continues to conduct further
reviews of its computer systems to identify those areas that could be
affected by the "Year 2000" issue. The Company presently believes, with
modification to existing software, the Year 2000 problem will not pose
significant operational problems, and the costs are not anticipated to be
material to its financial position or results of operations in any given year.
<PAGE>
PART II - OTHER INFORMATION
Item #6 Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11. Statement re computation of per share earnings
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No reports have been filed on Form 8-K during this
quarter.
<PAGE>
PRINTWARE, INC.
SIGNATURES
Pursuant to the requirement 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.
PRINTWARE, INC.
Registrant
Date: October 28, 1998 /s/ THOMAS W. PETSCHAUER
________________________
Thomas W. Petschauer
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
(Principal Financial Officer)
Date: October 28, 1998 /s/ DANIEL A. BAKER
________________________
Daniel A. Baker, Ph.D.,
PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
<PAGE>
<TABLE>
PRINTWARE, INC.
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Three months ended Nine months ended
Oct 3, Oct 4, Oct 3, Oct 4,
1998 1997 1998 1997
_________ _________ _________ _________
<S> <C> <C> <C> <C>
BASIC EPS:
Weighted average number of
common shares outstanding 4,922,160 4,888,651 4,921,857 4,864,600
_________ _________ _________ _________
Total shares 4,922,160 4,888,651 4,921,857 4,864,600
========= ========= ========= =========
Net income (000's) $ 347 $ 388 $ 1,102 $ 1,343
========= ========= ========= =========
Earnings per share $ .07 $ .08 $ .22 $ .28
========= ========= ========= =========
DILUTED:
Weighted average number of
common shares outstanding 4,922,160 4,888,651 4,921,857 4,864,600
Common share equivalents
from assumed exercise of
options and warrants -- 17,280 -- 17,280
_________ _________ _________ _________
Total shares 4,922,160 4,905,931 4,921,857 4,881,880
========= ========= ========= =========
Net income (000's) $ 347 $ 388 $ 1,102 $ 1,343
========= ========= ========= =========
Earnings per share $ .07 $ .08 $ .22 $ .28
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jul-05-1998
<PERIOD-END> Oct-03-1998
<CASH> 1096
<SECURITIES> 11580
<RECEIVABLES> 1053
<ALLOWANCES> (47)
<INVENTORY> 2304
<CURRENT-ASSETS> 16315
<PP&E> 1389
<DEPRECIATION> 1163
<TOTAL-ASSETS> 18148
<CURRENT-LIABILITIES> 1244
<BONDS> 0
<COMMON> 22231
0
0
<OTHER-SE> (5327)
<TOTAL-LIABILITY-AND-EQUITY> 18148
<SALES> 1767
<TOTAL-REVENUES> 1767
<CGS> 1066
<TOTAL-COSTS> 1066
<OTHER-EXPENSES> 548
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (194)
<INCOME-PRETAX> 347
<INCOME-TAX> 0
<INCOME-CONTINUING> 347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 347
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
