<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 2, 1999
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 - 3,269,494 shares outstanding as
of October 28, 1999.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
<TABLE>
PRINTWARE, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
3 AND 9 MONTHS ENDED OCTOBER 2, 1999 AND OCTOBER 3, 1998
DOLLARS IN THOUSANDS EXCEPT PER SHARE INFORMATION
(UNAUDITED)
<CAPTION>
Three months ended Nine months ended
Oct 2 Oct 3 Oct 2 Oct 3
______ ______ ______ ______
1999 1998 1999 1998
______ ______ ______ ______
<S> <C> <C> <C> <C>
REVENUES FROM NON AFFILIATES $1,352 $1,719 $3,477 $3,972
REVENUES FROM AFFILIATES 3 48 64 1,191
______ ______ ______ ______
TOTAL REVENUES 1,355 1,767 3,541 5,163
COST OF REVENUES 981 1,066 2,306 2,966
______ ______ ______ ______
Gross margin 374 701 1,235 2,197
PERIOD COSTS:
Research and development 177 202 547 554
Selling, general and administrative 327 346 1,193 1,156
______ ______ ______ ______
Total 504 548 1,740 1,710
______ ______ ______ ______
INCOME (LOSS) FROM OPERATIONS (130) 153 (505) 487
Interest and other income 151 194 530 615
______ ______ ______ ______
INCOME BEFORE INCOME TAXES 21 347 25 1,102
INCOME TAXES -- -- -- --
______ ______ ______ ______
NET INCOME $ 21 $ 347 $ 25 $1,102
====== ====== ====== ======
NET INCOME PER COMMON SHARE:
BASIC AND DILUTED $ .01 $ .07 $ .01 $ .22
====== ====== ====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING--BASIC 3,681,397 4,922,160 4,455,639 4,921,857
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING--DILUTED 3,681,397 4,922,160 4,455,639 4,921,857
========= ========= ========= =========
OTHER COMPREHENSIVE INCOME (LOSS),
BEFORE TAX:
Unrealized gains on securities:
Unrealized holding gains (losses)
arising during period $ (25) $ 174 $ (275) $ 161
Less reclassification adjustment for
gains included in net income -- -- -- --
______ ______ ______ ______
OTHER COMPREHENSIVE INCOME (LOSS),
BEFORE TAX (25) 174 (275) 161
INCOME TAX BENEFIT (EXPENSE) RELATED
TO ITEMS OF OTHER COMPREHENSIVE
INCOME (LOSS) (25) (61) 96 (56)
______ ______ ______ ______
OTHER COMPREHENSIVE INCOME
NET OF TAX $ (50) $ 113 $ (179) $ 105
====== ====== ====== ======
COMPREHENSIVE INCOME (LOSS) $ (29) $ 460 $ (154) $1,207
====== ====== ====== ======
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
PRINTWARE, INC.
CONDENSED BALANCE SHEETS
DOLLARS IN THOUSANDS EXCEPT PER SHARE
(UNAUDITED)
ASSETS
October 2, December 31,
1999 1998
____________ ____________
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 150 $ 654
Marketable securities available-for-sale 7,791 11,529
Receivables from non affiliates 570 795
Receivables from affiliates 12 --
Lease receivables - current 675 407
Inventories 2,524 2,162
Deferred income taxes - current 329 243
Prepaid expenses 42 19
_______ _______
Total Current Assets 12,093 15,809
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 197 217
INTANGIBLE ASSETS, net of accumulated
amortization 23 25
LEASE RECEIVABLES - long-term 1,568 1,003
DEFERRED INCOME TAXES - long-term 1,461 1,461
_______ _______
$15,342 $18,515
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 496 $ 512
Accrued expenses 484 516
Deferred revenues 71 72
_______ _______
Total Current Liabilities 1,051 1,100
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
3,269,494 shares at October 2, 1999;
4,834,516 shares at December 31, 1998
respectively 19,031 22,001
Accumulated other comprehensive income (loss) (43) 136
Accumulated deficit (4,697) (4,722)
_______ _______
Total shareholders' equity 14,291 17,415
_______ _______
$15,342 $18,515
======= =======
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
PRINTWARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
9 MONTHS ENDED OCTOBER 2, 1999 AND OCTOBER 3, 1998
DOLLARS IN THOUSANDS
(UNAUDITED)
October 2, October 3,
1999 1998
_______ ______
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 25 $1,102
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 52 45
Unearned compensation on stock options -- 3
Deferred income taxes (86) 26
Changes in operating assets and liabilities:
Receivables from non affiliates 225 (436)
Receivables from affiliates (12) 353
Inventories (362) (362)
Prepaid expenses (23) (76)
Accounts payable (16) 218
Accrued expenses (32) 149
Deferred revenues (1) (32)
______ ______
Net cash provided by
operating activities (230) 990
INVESTING ACTIVITIES:
Purchases of available-for-sale securities (1,275) 395
Maturities and sales of available-for-sale
securities 4,834 --
Increase in lease receivables (833) (557)
Purchases of property and equipment (30) (136)
______ ______
Net cash (used in) provided by
investing activities 2,696 (298)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 46 56
Common stock redeemed and retired (3,016) --
______ ______
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (504) 748
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 654 348
______ ______
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 150 $1,096
====== ======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Income taxes $ -- $ 35
====== ======
See notes to condensed financial statements.
</TABLE>
<PAGE>
PRINTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
3 AND 9 MONTHS ENDED OCTOBER 2, 1999 AND OCTOBER 3, 1998
1. INTERIM FINANCIAL INFORMATION
The accompanying condensed balance sheets as of October 2, 1999 and
the condensed statements of operations and comprehensive income for the
three and nine months ended October 2, 1999 and October 3, 1998, and the
condensed statements of cash flows for the nine months ended October 2, 1999
and October 3, 1998 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 2, December 31,
1999 1998
_________ ____________
<S> <C> <C>
2. RECEIVABLES FROM NON AFFILIATES:
Trade $ 619 $ 837
Employees 2 3
Allowance for doubtful accounts (51) (45)
______ ______
Total receivables from non affiliates $ 570 $ 795
====== ======
3. INVENTORIES:
Raw materials $1,542 $1,210
Work-in-process 369 388
Finished goods 613 564
______ ______
Total inventories $2,524 $2,162
====== ======
4. PROPERTY AND EQUIPMENT:
Office equipment $ 509 $ 489
Software 108 108
Machinery and equipment 319 310
Leasehold improvements 126 125
Tooling and spares 338 338
Motor vehicles 24 24
______ ______
Total property and equipment 1,424 1,394
Less accumulated depreciation and amortization 1,227 1,177
______ ______
Net property and equipment $ 197 $ 217
====== ======
</TABLE>
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PRINTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
3 AND 9 MONTHS ENDED OCTOBER 2, 1999 AND OCTOBER 3, 1998
(Continued)
<TABLE>
<CAPTION>
October 2, December 31,
1999 1998
______ ___________
<S> <C> <C>
5. INTANGIBLE ASSETS:
License rights $ 560 $ 560
Patents 54 54
______ ______
Total intangible assets 614 614
Less accumulated amortization 591 589
______ ______
Net intangible assets $ 23 $ 25
====== ======
6. ACCRUED EXPENSES:
Accrued payroll and related $ 107 $ 45
Accrued vacation and benefits 247 174
Accrued professional services 30 221
Accrued warranty reserve 47 45
Accrued taxes 28 --
Accrued other 25 31
______ ______
Total accrued expenses $ 484 $ 516
====== ======
</TABLE>
7. MARKETABLE SECURITIES
The Company classifies its marketable securities as available-for-sale.
At October 2, 1999 and December 31, 1998, 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 2, 1999, the Company issued 22,668
shares of Common Stock in connection with the Employee Stock Purchase Plan at
at prices between $1.97 and $2.13 per share.
On July 27, 1999 the Company repurchased all 1,587,690 shares of its
common stock held by Deluxe Corporation, an affiliate, for $1.90 per share.
The Company sold available-for-sale securities to finance the transaction.
9. NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued by the Financial Accounting Standards Board in
June 1998. The Standard will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings, or recognized in other comprehensive income until the hedged item
is recognized in earnings. The change in a derivative's fair value related
to the ineffective portion of a hedge, if any, will be immediately recognized
in earnings. The Company expects to adopt this Standard as of the beginning
of its fiscal year 2001. The effect of adopting the Standard is currently
being evaluated, but is not expected to have a material effect on the
Company's financial position or results in operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED
OCTOBER 2, 1999 AND OCTOBER 3, 1998
Total revenues for the 1999 quarter were $1.36 million, a decrease of
23% from third quarter 1998 revenues of $1.77 million. The decrease
was due primarily to the decline in non affiliate sales in the 1999 quarter
compared to 1998.
The Company's gross margin was $374,000 in the third quarter 1999
versus $701,000 in the comparable quarter in 1998. Gross margin as a
percentage of revenue decreased from 40% in the third quarter 1998 to 28%
in third quarter 1999. The decreased margin in 1999 was due primarily
to higher service costs with more complex installations, write-offs of
certain obsolete inventory, and increased manufacturing variances caused
by increased fixed costs and lower volumes.
Research and development expenses decreased to $177,000 in the third
quarter 1999 from $202,000 in the third quarter in 1998. The decrease
was largely due to lower headcount and related expenses with the maturation
of the PlateStream design.
Selling, general and administrative expenses decreased to $327,000 in
the third quarter of 1999 from $346,000 in the third quarter of 1998.
Selling expenses increased by approximately $63,000 in the third quarter 1999
primarily due to increased costs associated with the field sales force
established in late 1998. General and administrative expenses were down
approximately $82,000 in the 1999 quarter due primarily to lower accrual of
executive incentive compensation.
Interest and other income were $151,000 in the 1999 quarter compared
to $194,000 in the 1998 quarter. The decrease in interest income in 1999 was
due to lower interest rates and a decrease in cash and investment of $4.2
million from the 1998 quarter compared to the 1999 quarter. This was primarily
due to the Company's repurchase of stock from Deluxe and financing of its
leasing activity.
The Company's income tax expense primarily consists of minimum taxes
due, offset by net operating loss carryforwards.
<PAGE>
RESULTS OF OPERATIONS FOR THE 9 MONTHS ENDED OCTOBER 2, 1999 and OCTOBER 3,
1998
Total revenues for the nine months ended October 2, 1999 were $3.54 million,
a decrease of 31% from 1998. The decrease in 1999 revenues versus the year-ago
period was primarily due to a decrease in affiliate supplies sales and slightly
lower equipment sales in 1999.
The Company's gross margin as a percentage of revenues in the 1999
period was 35%, down from 43% in the 1998 period. This was due to increased
manufacturing variances caused by higher fixed costs and lower volumes as well
as higher service costs with more complex installations, and an increase of
write-offs of obsolete inventory.
Research and development expenses for the 1999 period decreased 1.3%
over the same period in 1998 due primarily to lower headcount and related costs.
Selling, general and administrative expenses increased 3% in 1999 compared
to 1998. This was due to a 31% increase in marketing and sales costs associated
with the establishment of the PlateStream field sales force. General and
administrative expenses decreased 22% from 1998 primarily due to lower accrual
of executive incentive compensation.
Interest and other income were $530,000 in the 1999 period compared
to $615,000 in the 1998 period. The decrease in 1999 was due to lower interest
rates and a decrease in cash and investments caused primarily by the Company's
repurchase of stock from Deluxe and financing of its leasing activities.
The Company's income tax expense consists of minimum taxes due,
offset by the net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was over $11.1 million on October 2, 1999 compared to
$14.7 at December 31, 1998. Cash, cash equivalents and investments
decreased by approximately $4.2 million at October 2, 1999 compared to
December 31, 1998. The decrease was primarily due to the repurchase of Deluxe
common stock and an increase in sales-type leases financed by the Company.
Management believes working capital is adequate for its current needs.
As of October 2, 1999 the Company has no material commitments which would
result in a significant cash outflow other than purchases of inventory and
the financing of Platesetter leases.
<PAGE>
YEAR 2000 ("Y2K")
The Year 2000 problem is due to the past software practice of coding
years using only two digits. This is predicted to cause many computer-related
malfunctions because year "00" could be taken to mean year 1900 rather than
2000. In 1998, the Company began to investigate Y2K compliance in areas of
its Platesetter products, business computer systems (Information Technology or
"IT"), production equipment, vendor readiness, non-IT systems, and contingency
plans.
The Company's Y2K readiness status is: current platesetter products are
Y2K compliant, though some RIPs produced from 1993 through 1996 may be non-
compliant; the central IT software system was certified Y2K-compliant by a
third party; ancillary software packages developed and sold by the company
tested compliant; equipment used in production does not use dates to control
operations; compliance/impact assessments of the PBX, security, and alarm
non-IT systems is complete; statements of compliance were received from
the RIP software vendors; sent and received compliance questionnaires from
key vendors. To complete readiness and remediation by mid-November, 1999, the
Company plans to: finish testing and remedy compliance with key IT system and
personal productivity PCs and their applications; complete processing of
compliance questionnaires re-sent to the remaining key vendors that did not
report compliance initially, and assess overall results; complete contingency
plan.
The Company has spent approximately $40,000 to date on its Y2K-related
activities, and estimates $50,000 to be adequate for its related 1999
activities. The Company does not anticipate purchasing Y2K liability
insurance. Because of the current state of Y2K readiness and the date
insensitivity of its products, the Company believes the most likely
worst-case scenario to be short term delays in receiving production
inventory.
The Company anticipates completing its contingency plan by end mid-
November, 1999, based on its knowledge at that time. As of this writing, no
serious material shortages are anticipated. The Company's most-likely
contingency plan is projected to primarily be the ordering of extra
production inventory to be received near year-end thereby averting key
vendor or transport interruptions going into 2000.
Although the Company does not at this time expect a significant impact on
its financial position, results of operations, and cash flows, our internal
Y2K review has not been completed and there can be no assurance that the
systems of other companies or the systems of the Company will not have a
corresponding adverse effect on the Company.
<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, 1999 /s/ THOMAS W. PETSCHAUER
________________________
Thomas W. Petschauer
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
(Principal Financial Officer)
Date: October 28, 1999 /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 2, Oct 3, Oct 2, Oct 3,
1999 1998 1999 1998
_________ _________ _________ _________
<S> <C> <C> <C> <C>
BASIC EPS:
Weighted average number of
common shares outstanding 3,681,397 4,922,160 4,455,639 4,921,857
_________ _________ _________ _________
Total shares 3,681,397 4,922,160 4,455,639 4,921,857
========= ========= ========= =========
Net income (000's) $ 21 $ 347 $ 25 $ 1,102
========= ========= ========= =========
Earnings per share $ .01 $ .07 $ .01 $ .22
========= ========= ========= =========
DILUTED:
Weighted average number of
common shares outstanding 3,681,397 4,922,160 4,455,639 4,921,857
Common share equivalents
from assumed exercise of
options and warrants 0 0 0 0
_________ _________ _________ _________
Total shares 3,681,397 4,922,160 4,455,639 4,921,857
========= ========= ========= =========
Net income (000's) $ 21 $ 347 $ 25 $ 1,102
========= ========= ========= =========
Earnings per share $ .01 $ .07 $ .01 $ .22
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jul-04-1999
<PERIOD-END> Oct-02-1999
<CASH> 150
<SECURITIES> 7791
<RECEIVABLES> 1308
<ALLOWANCES> (51)
<INVENTORY> 2524
<CURRENT-ASSETS> 12093
<PP&E> 1424
<DEPRECIATION> 1227
<TOTAL-ASSETS> 15342
<CURRENT-LIABILITIES> 1051
<BONDS> 0
<COMMON> 18988
0
0
<OTHER-SE> (4697)
<TOTAL-LIABILITY-AND-EQUITY> 15342
<SALES> 1355
<TOTAL-REVENUES> 1355
<CGS> 981
<TOTAL-COSTS> 981
<OTHER-EXPENSES> 504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (151)
<INCOME-PRETAX> 21
<INCOME-TAX> 0
<INCOME-CONTINUING> 21
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
