<PAGE>
- --------------------------------------------------------------------------------
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 fiscal quarter ended June 30, 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: 0-23034
ENCAD, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3672088
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6059 CORNERSTONE COURT WEST 92121
SAN DIEGO, CA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (619) 452-0882
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 .
--- ---
The number of shares outstanding of the Registrant's Common Stock as of June 30,
1996, was 11,202,554.
<PAGE>
ENCAD, INC.
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at
June 30, 1996 and December 31, 1995. . . . . . . . . . 3
Consolidated Statements of Income for the
three and six months ended June 30, 1996 and 1995 . . 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1995 . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . 7-12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . 13
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . 13
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ENCAD, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands) JUNE 30, December 31,
1996 1995
------------------------------
(UNAUDITED) (Note)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,064 $ 3,067
Short-term investments - 6,072
Accounts receivable 16,072 13,029
Inventories 13,396 8,047
Deferred income taxes 2,962 2,254
Prepaid expenses 377 285
------------ ------------
Total current assets 34,871 32,754
PROPERTY - Net 9,787 3,138
OTHER ASSETS 63 236
------------ ------------
TOTAL $ 44,721 $ 36,128
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,679 $ 4,572
Accrued expenses and other liabilities 3,902 2,878
------------ ------------
Total current liabilities 10,581 7,450
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock 12,388 11,827
Accumulated earnings 21,752 16,851
------------ ------------
Total shareholders' equity 34,140 28,678
------------ ------------
TOTAL $ 44,721 $ 36,128
------------ ------------
------------ ------------
Note:
The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to consolidated financial statements
3
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ENCAD, INC.
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
-------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $ 24,752 $ 17,524 $ 44,370 $ 32,190
COST OF GOODS SOLD 12,762 9,648 23,163 17,504
---------- ---------- ---------- ----------
GROSS PROFIT 11,990 7,876 21,207 14,686
MARKETING AND SELLING 4,065 1,968 7,192 3,616
RESEARCH AND DEVELOPMENT 2,136 1,613 3,769 2,740
GENERAL AND ADMINISTRATIVE 1,432 1,029 2,732 1,895
---------- ---------- ---------- ----------
TOTAL EXPENSES 7,633 4,610 13,693 8,251
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 4,357 3,266 7,514 6,435
INTEREST INCOME - Net 24 50 94 109
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 4,381 3,316 7,608 6,544
PROVISION FOR INCOME TAXES 1,576 1,078 2,704 2,315
---------- ---------- ---------- ----------
NET INCOME $ 2,805 $ 2,238 $ 4,904 $ 4,229
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE $ 0.24 $ 0.20 $ 0.42 $ 0.38
---------- ---------- ---------- ----------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 11,800 11,214 11,637 11,138
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
4
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ENCAD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,904 $ 4,229
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Depreciation and amortization 1,175 394
Provision for losses on accounts receivable and inventories 1,058 68
Tax benefit from exercise of stock options 186 57
Changes in assets and liabilities:
Accounts receivable (3,113) (3,271)
Inventories (6,340) (2,162)
Deferred income taxes (708) (535)
Prepaid expenses and other assets 81 (520)
Accounts payable 2,107 623
Accrued expenses and other liabilities 1,024 909
------------ ------------
Cash provided by (used in) operating activities 374 (208)
------------ ------------
INVESTING ACTIVITIES:
Purchases of property (7,824) (492)
Net cash from short-term investments 6,072 1,506
------------ ------------
Cash used in (provided by) investing activities (1,752) 1,014
------------ ------------
FINANCING ACTIVITIES:
Exercise of common stock options and sale of stock under
employee stock purchase plan 375 127
------------ ------------
Cash provided by financing activities 375 127
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,003) 933
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,067 842
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,064 $ 1,775
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 2,574 $ 2,849
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ENCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited
1) The consolidated financial statements at June 30, 1996 and for the three
and six months then ended are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair presentation of the financial position
and operating results for the interim period. The consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in the
Company's Annual Report to Shareholders incorporated by reference in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995. The results of operations for the three and six months ended June
30, 1996, are not necessarily indicative of the results for the entire
fiscal year ending December 31, 1996.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - Cash equivalents consist of
highly liquid investments with original maturities of three months or less.
Short-term investments have original maturities of greater than three
months but less than one year and are highly liquid.
2) BALANCE SHEET DETAILS
INVENTORIES: IN THOUSANDS JUNE 30, December 31,
1996 1995
---------------------------------------------------------------------------
Raw materials $ 8,004 4,601
Work-in-process 277 224
Finished goods 5,115 3,222
----------- -------------
Total $ 13,396 8,047
----------- -------------
----------- -------------
3) SHAREHOLDERS' EQUITY
Effective May 31, 1996, for shareholders of record on May 17, 1996, the
Company effected a two-for-one stock split payable in the form of a stock
dividend resulting in the issuance of 5,599,007 shares of common stock.
The effects of the stock split have been retroactively restated in these
financial statements.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
This discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risks and
Uncertainties" below.
FOR THE SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995
REVENUE - The Company's 1996 second quarter revenue of $24,752,000 increased
41% over second quarter 1995 revenue of $17,524,000. This increase is primarily
attributable to an increased sales volume of the Company's NovaJet product line,
including sales of the NovaJet Pro and the NovaJet Pro 50 which were introduced
in November 1995 and February 1996, respectively. The Company's original
equipment manufacturer ("OEM") sales for the quarter ended June 30, 1996
increased to 23% of revenue as compared with 17% of revenue in the second
quarter of 1995. During the quarter ended June 30, 1996 one OEM customer
accounted for 12% of revenue. International sales accounted for approximately
60% and 63% of the Company's revenue for the second quarter of 1996 and the
second quarter of 1995, respectively.
COST OF GOODS SOLD - Cost of goods sold for the second quarter as a
percentage of revenue decreased to 52% in 1996 compared to 55% for the same
period in 1995. This decrease in the cost of goods sold is due primarily to a
favorable product mix including the higher margin NovaJet products. The Company
may experience slightly lower gross margins throughout the remainder of 1996 due
to competitive price pressures and increased revenues from products, such as
supplies and accessories, which have lower gross margins. In addition, short
product life cycles and reductions in unit selling prices due to competitive
pressures over the life of a specific product are common and may adversely
affect the Company's gross margins.
MARKETING AND SELLING - Marketing and selling expenses for the second quarter
of 1996 increased approximately $2,097,000 over the same quarter in 1995 and
represented 16% of revenue for the second quarter of 1996 as compared to 11% of
revenue for the second quarter of 1995. Most of the increase is related to
costs associated with the advertising of new products, increased emphasis on
promoting the supplies portion of the Company's business and increased tradeshow
activity compared to the same quarter in the prior year. Marketing and selling
expenses in absolute dollars and as a percent of revenue are expected to
continue to increase over prior year amounts as the Company promotes its
competitive products and supports its marketing and selling activities.
RESEARCH AND DEVELOPMENT - Research and development expenses for the second
quarter of 1996 increased to $2,136,000 from $1,613,000 in the same quarter of
1995, remaining at approximately 9% of revenue in both quarters. The $523,000
increase was primarily attributable to increased staffing and related costs due
to an increase in the number of development projects, and increased consulting
expenses. The Company expects to continue to invest significant resources in
new product development and enhancements to existing products. The Company
expects that research and development expenses will continue to increase in
absolute dollars and may increase as a percentage of revenue as compared to
prior periods.
7
<PAGE>
GENERAL AND ADMINISTRATIVE - General and administrative expenses for the
second quarter as a percentage of revenue remained relatively constant at
approximately 6% in 1995 and 1996. The $403,000 increase in absolute dollars
was due to higher staffing levels necessary to support increased Company
staffing.
PROVISION FOR INCOME TAXES - The Company's combined state, federal and
foreign tax rate was approximately 36% for the quarter ended June 30, 1996,
compared to 33% for the same period in 1995. The increase in effective tax rate
is due primarily to the expiration of the federal research and experimentation
credit effective June 30, 1995. The combined tax rate differed from the federal
statutory rate primarily as a result of the imposition of state taxes, the tax
benefit derived from the Company's Foreign Sale Corporation, and foreign
earnings taxed at local rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations primarily through cash flow provided by
operations. As of June 30, 1996, the Company had cash, cash equivalents and
short-term investments totaling $2,064,000, and working capital of $24,290,000.
The corresponding amounts at December 31, 1995 were $9,139,000 and $25,304,000,
respectively.
The Company has received and anticipates it will continue to receive the
majority of its cash from collections on its accounts receivable, which are
generated from its worldwide distributors and a small number of OEMs. These
groups have a history of timely payments; however, an increase in international
sales tends to increase the aggregate amount of the Company's accounts
receivable due to typically slower payments by international customers.
The Company currently invests its excess cash in certificates of deposit,
U.S. Treasury bills and money market accounts. The Company has established
guidelines relative to diversification and maturities to maintain safety and
liquidity. These guidelines are periodically reviewed and modified to take
advantage of trends in yields and interest rates. The Company has not
experienced, to date, any losses on its short-term investments.
At June 30, 1996 inventories had increased by $5,349,000 from $8,047,000 at
the end of 1995. The increase was due to increased inventories of ink and media
intended to support the Company's plans to place greater emphasis on the
development and marketing of supplies and increased inventories to support the
increased sales of the NovaJet product lines.
In the six month periods ended June 30, 1996, and 1995, the Company made
capital expenditures of $7,824,000 and $492,000, respectively. The capital
expenditures for the quarter ended June 30, 1996, included approximately
$6,000,000 for the purchase of the Company's headquarter facilities.
The Company's overall level of operating expense is expected to increase,
primarily due to increased expense associated with costs of developing and
marketing new products. Management believes that its existing cash, cash
equivalents, short-term investments, cash generated from operations, borrowing
capacity on its recently purchased facilities, and up to $5,000,000 available
under a bank line of credit will be sufficient to satisfy its currently
anticipated working capital needs through 1997. The line of credit expires in
June 1998. As of June 30, 1996, the Company had not incurred any indebtedness
under the line of credit. The growth of the Company's business will require the
commitment of substantial capital resources. Actual cash requirements may vary
from planned amounts, depending on timing of product introductions and extent of
acceptance of new products. To date, inflation has not had a significant effect
on the Company's operating results.
8
<PAGE>
RISKS AND UNCERTAINTIES
POTENTIAL FLUCTUATION IN QUARTERLY PERFORMANCE - The Company's quarterly
operating results can fluctuate significantly depending on factors such as the
timing of product announcements and introductions by the Company and its
competitors, availability and cost of components, timing of shipments of the
Company's products, mix of product families shipped, market acceptance of new
products, seasonality, currency fluctuations, changes in prices by the Company
and its competitors, price protection for selling price reductions offered to
distributors and OEMs, the timing of expenditures for staffing and related
expenditures, advertising, promotion, research and development and changes in
general economic conditions. Any one of these factors could have a material
adverse effect on the Company's results of operations. The Company may
experience significant quarterly fluctuations in total revenues as well as
operating expenses with respect to future new product introductions. In
addition, the Company's component purchases, production and spending levels are
made based upon forecast demand for the Company's products. Accordingly, any
inaccuracy in forecasting could adversely affect the Company's results of
operations. Demand for the Company's products could be adversely affected by a
slowdown in the overall demand for computer systems or printer products. As is
common in many high technology industries, the Company has historically
experienced an increase in the number of orders and shipments in the latter part
of each calendar quarter; however, there can be no assurance that this pattern
will continue. The Company's failure to receive anticipated orders or to
complete shipments in the latter part of a quarter could have a material adverse
effect on the Company's results of operations for that quarter. Quarterly
results are not necessarily indicative of future performance for any particular
period, and there can be no assurance that the Company can maintain the levels
of revenue and profitability experienced over the past three years on a
quarterly or annual basis.
HIGHLY COMPETITIVE INDUSTRY - The market for the Company's products is
highly competitive and rapidly changing and the Company believes that new
competitors will likely enter the market. The Company's principal competitor in
the United States and overseas is Hewlett-Packard Company ("Hewlett-Packard"),
which dominates the wide-format inkjet market. In addition to direct
competition in inkjet printers, the Company's products also face competition
from other technologies in the wide-format market, including pen, electrostatic
and thermal. Some of the Company's current and prospective competitors,
particularly Hewlett-Packard, have significantly greater financial, technical,
manufacturing and marketing resources than the Company. The Company's ability
to compete in the wide-format inkjet market depends on a number of factors
within and outside its control, including the success and timing of product
introductions by the Company and its competitors, price, performance, product
distribution, marketing ability, and customer support. A key element of the
Company's strategy is to provide competitively priced, quality products. There
can be no assurance that the Company's products will continue to be
competitively priced. The Company has reduced prices on certain of its products
in the past and there can be no assurance that price reductions will not be
required in the future. Price reductions, if not offset by similar reductions
in cost of goods sold, will affect gross margins and may adversely affect the
Company's results of operations.
SHORT PRODUCT LIVES AND TECHNOLOGICAL CHANGE - The market for wide-format
printers is characterized by rapidly evolving technology, frequent new product
introductions and significant price competition. Consequently, short product
life cycles and reductions in unit selling prices due to competitive pressures
over the life of a product are common. The Company's future success will depend
on its ability to continue to develop and manufacture competitive products and
achieve cost reductions for its existing products. Advances in technology will
require increased investment in product engineering to maintain the Company's
market position. In
9
<PAGE>
addition, the Company monitors new technology developments and coordinates with
suppliers, distributors and dealers to enhance existing products and lower
costs. The Company's future operating results could be adversely affected if
the Company is unable to develop and manufacture new, competitive products in a
timely manner.
COMPONENT AVAILABILITY AND COST; DEPENDENCE ON SINGLE SOURCES - While most
components are available locally from multiple vendors, certain components used
in the Company's products are only available from single sources. Although the
Company generally buys components under purchase orders and does not have
long-term agreements with its suppliers, it expects its suppliers to be able to
continue to satisfy its requirements. The Company's plan is to develop strategic
relationships with single suppliers of its components rather than to develop
second sources. Although alternate suppliers are readily available for most of
these components, for some components the process of qualifying replacement
suppliers, replacing tooling or ordering and receiving replacement components
could take up to six months and cause substantial disruption to the Company's
operations. The Company maintains a material requirements planning system that
is intended to aid in making "Just-in-Time" decisions; however, if a supplier is
unable to meet the Company's needs or supplies parts which the Company finds
unacceptable, the Company may not be able to meet production demands. Certain
key components of the Company's products are supplied directly or indirectly by
its principal competitor, Hewlett-Packard. The Company believes that
Hewlett-Packard supplies these components to many other customers. Any
significant increase in component prices or decrease in component availability
could have a material adverse effect on the Company's results of operations.
POSSIBILITY OF CHALLENGE TO COMPANY'S PRODUCTS OR INTELLECTUAL PROPERTY
RIGHTS - From time to time, certain competitors, including Hewlett-Packard, have
asserted patent, copyright and other intellectual property rights relevant to
the Company's business. The Company expects that this may continue. The
Company carefully evaluates each assertion relating to its products. If the
Company is not successful in establishing that any asserted rights have not been
violated, or has licensed a disputed technology, the Company could be prohibited
from marketing the products that incorporate such technology. The Company could
also incur substantial costs to redesign its products or to defend any legal
action taken against the Company. If the Company's products should be found to
infringe upon the intellectual property rights of others, the Company could be
enjoined from further infringement and be liable for any damages. The Company
relies on a combination of trade secret, copyright, trademark and patent
protection and non-disclosure agreements to protect its proprietary rights.
There can be no assurance, however, that the measures adopted by the Company for
the protection of its intellectual property will be adequate to protect its
interests, or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technologies.
10
<PAGE>
DEPENDENCE ON EXPORT SALES - For the quarters ended June 30, 1996 and 1995,
sales outside the United States represented approximately 60% and 63% of total
revenues, respectively. The Company expects export sales to continue to
represent a significant portion of its total revenues. All of the Company's
products sold in the international markets are denominated in U.S. dollars. An
increase in the value of the U.S. dollar relative to foreign currencies could
make the Company's products less competitive in foreign markets. International
sales and operations may also be subject to risks such as the imposition of
governmental controls, export license requirements, restrictions on the export
of critical technology, currency exchange fluctuations, political instability,
trade restrictions, changes in tariffs, difficulties in staffing and managing
international operations and collecting accounts receivable. In addition, the
laws of certain countries do not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States. As the
Company continues to expand its international business, there can be no
assurance that these factors will not have an adverse effect on the Company's
future international sales and, consequently, on the Company's results of
operations.
FUTURE CAPITAL NEEDS - Although the Company first achieved profitability on
an annual basis in 1992, there can be no assurance that future profitability or
revenue growth, if any, will continue on a quarterly or annual basis. Losses
may occur on a quarterly or annual basis for a number of reasons outside the
Company's control. The growth of the Company's business will require the
commitment of substantial capital resources. If funds are not available from
operations, the Company may need to raise additional funds. The Company may
seek such additional funding through public and private financing, including
equity financing. Adequate funds for these purposes, whether through financial
markets or from other sources, may not be available when needed or if available
not on terms acceptable to the Company. Insufficient funds may require the
Company to delay, reduce or eliminate some or all of its planned activities.
The Company anticipates that its existing cash, cash equivalents, short-term
investments, cash generated from operations, borrowing capacity on its recently
purchased facilities and up to $5,000,000 available under a bank line of credit
will be sufficient to satisfy its currently anticipated working capital needs
through 1997.
RELIANCE ON INDIRECT DISTRIBUTION - The Company markets and sells it
products domestically and internationally primarily through specialty
distributors, dealers and VARs. The Company's sales are principally made
through distributors which may carry competing product lines. Such distributors
could reduce or discontinue sales of the Company's products which could have a
material adverse effect on the Company's operating results. There can be no
assurance that these independent distributors will devote the resources
necessary to provide effective sales and marketing support of the Company's
products. In addition, the Company is dependent upon the continued viability
and financial stability of these distributors, many of which are small
organizations with limited capital. These distributors, in turn, are
substantially dependent on general economic conditions and other factors
affecting the wide-format printer market. The Company believes that its future
growth and success will continue to depend in large part upon its distribution
channels. Although the Company believes that it provides adequate allowances
for bad debts and, to date, has not experienced significant amounts of bad
debts, there can be no assurance that actual bad debts will not exceed recorded
allowances resulting in a material adverse effect on operating results. To
expand its distribution channels, the Company has entered into selected OEM and
private label arrangements that allow it to address specific market segments or
geographic areas. To the extent that OEM and private label customers do not
purchase products as anticipated, the Company may need to convert such products
to make them salable to other customers to avoid any inventory writedowns.
11
<PAGE>
DEPENDENCE ON KEY PERSONNEL - The success of the Company is dependent, in
part, on its ability to attract and retain qualified management and technical
personnel. Competition for such personnel is intense, and the inability to
attract additional key employees or the loss of one or more current key
employees could adversely affect the Company. None of the Company's current
senior management is subject to an employment agreement with the Company. There
can be no assurance that the Company will retain its key personnel. In
addition, as part of its research and development efforts, ENCAD relies heavily
on industry consultants to assist and influence design decisions, to ensure
continued compatibility with software and hardware leaders, to keep abreast of
technological advances, and to design for manufacture. A delay in product
introduction is possible to the extent key consultants become unavailable.
MANAGEMENT OF GROWTH - The Company has recently experienced significant
growth as annual revenues from product sales have increased to approximately
$65.5 million in 1995 from approximately $43.6 million in 1994 and from
approximately $23.2 million in 1993. Such growth has placed, and, if continued,
will continue to place, a significant strain on the Company's management,
information systems and operations. The Company's future operating results will
depend on its ability to broaden the Company's senior management group, to
attract, hire and retain skilled employees, and to implement and enhance the
Company's operational and financial control systems. There can be no assurance
that any new personnel hired by the Company will be successfully integrated into
the business. The Company's inability to manage growth effectively could have a
material adverse effect on the Company's results of operations
DEVELOPING WIDE-FORMAT PRINTER MARKET AND APPLICATIONS - The market for
wide-format, color inkjet printers is relatively new and is still developing.
The Company believes that there has been growing market acceptance for inkjet
printers. There can be no assurance that the market and applications for
wide-format printers will continue to grow. In addition, other technologies
are constantly improving and there can be no assurance that products based on
these other technologies will not have an adverse effect on the market for the
Company's products.
ABSENCE OF DIVIDENDS - No cash dividends have been paid on the Company's
Common Stock to date and the Company does not anticipate paying cash dividends
in the foreseeable future.
VOLATILITY OF STOCK PRICE - The market price of the Company's Common Stock
has fluctuated significantly since the Company's initial public offering of
Common Stock in December 1993. The Company believes that factors such as
announcements of developments related to the Company's business, fluctuations in
the Company's operating results, general conditions in the computer peripheral
market and the markets served by the Company or the worldwide economy, a
shortfall in revenue or earnings from securities analysts' expectations,
announcements of technological innovations or new inkjet products or
enhancements by the Company or its competitors, developments in patents or other
intellectual property rights and developments in the Company's relationships
with its customers and suppliers could cause a further significant fluctuation
the price of the Company's Common Stock. In addition, in recent years the stock
market in general, and the market for shares of technology stocks in particular,
have experienced extreme price fluctuations, which have often been unrelated to
the operating performance of affected companies. There can be no assurance that
the market price of the Company's Common Stock will not experience significant
fluctuations that are unrelated to the Company's performance.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
Effective May 31, 1996, for shareholders of record on May 17, 1996, the Company
effected a two-for-one stock split payable in the form of a stock dividend
resulting in the issuance of 5,599,007 shares of common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1996 Annual Meeting of Shareholders ("Annual Meeting") was held on
June 18, 1996. The matters voted on at the Annual Meeting were:
1. To approve an amendment to the Bylaws to increase the size of the Board of
Directors;
2. To approve an amendment to the Articles of Incorporation to classify the
Board of Directors into two classes;
3. To approve an amendment to the Articles of Incorporation to provide
supermajority provisions;
4. To elect the Directors of the Company for the ensuing year;
5. To ratify and approve a proposal to amend ENCAD's 1993 Employee Stock
Purchase Plan ("the Plan") to increase the authorized number of shares
authorized for issuance under the plan by 200,000 shares (as adjusted for
the stock dividend);
6. To ratify the selection of Deloitte & Touche LLP as independent auditors of
the Company for fiscal 1996.
The Shareholders voted to approve or ratify the following matters; 1) the
increase in the number of the Board of Directors to not less than five nor more
than nine directors; 2) the election of all of management's nominees for
Director, as listed in the proxy statement relating to the Annual Meeting; 3)the
increase in the authorized shares under the Plan and; 4) the selection of
Deloitte & Touche LLP as the Company's independent auditors. The results of the
shareholders' vote on each matter are set forth below:
1. INCREASE THE SIZE OF THE BOARD OF DIRECTORS
VOTES PERCENTAGE
----- ----------
For 5,021,255 89.64
Against 61,237
Abstain 10,594
2. CLASSIFICATION OF BOARD OF DIRECTORS INTO TO CLASSES
VOTES PERCENTAGE
----- ----------
For 1,733,946 30.96
Against 700,307
Abstain 15,008
13
<PAGE>
3. PROVIDE FOR SUPERMAJORITY PROVISIONS
VOTES PERCENTAGE
----- ----------
For 1,745,003 31.15
Against 684,894
Abstain 19,364
4. ELECTION OF DIRECTORS
NOMINEE FOR WITHHELD
------- --------- --------
David A. Purcell 5,031,188 91,275
Robert V. Adams 4,903,881 218,582
Ronald J. Hall 5,030,838 91,625
Howard L. Jenkins 5,031,238 91,225
Charles E. Volpe 5,029,738 92,725
Richard A. Plante 5,029,548 92,915
Craig S. Andrews 5,030,538 91,925
5. AMEND 1993 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE SHARES
VOTES PERCENTAGE
----- ----------
For 4,157,706 74.23
Against 72,443
Abstain 12,378
6. RATIFICATION OF AUDITORS
VOTES PERCENTAGE
----- ----------
For 5,096,849 91.00
Against 9,580
Abstain 16,034
14
<PAGE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement regarding computation of earnings per share. S1
27 Summary Financial Data
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter ended June 30, 1996.
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.
Dated: August 14, 1996
ENCAD, Inc.
(Registrant)
/s/ Todd Schmidt
---------------------------------------------
(Todd Schmidt)
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE>
EXHIBIT 11.1
ENCAD, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Three months ended Six months ended
June 30, 1996 June 30, 1996
------------------ ----------------
EARNINGS PER SHARE
(in thousands, except for per share amounts)
PRIMARY
Weighted average number of common
shares outstanding 11,177 11,196
Assumed exercise of outstanding stock
options (1) 460 604
------------------ ----------------
Weighted average common and common
equivalent shares 11,637 11,800
------------------ ----------------
------------------ ----------------
Net income $ 2,805 $ 4,904
------------------ ----------------
------------------ ----------------
Primary earnings per share $ .24 $ .42
------------------ ----------------
------------------ ----------------
FULLY DILUTED EARNINGS PER SHARE
Weighted average number of common
shares outstanding 11,177 11,196
Assumed exercise of outstanding stock
options (1) 519 604
------------------ ----------------
Weighted average common and common
equivalent shares 11,696 11,800
------------------ ----------------
------------------ ----------------
Net income $ 2,805 $ 4,904
------------------ ----------------
------------------ ----------------
Fully diluted earnings per share (2) $ .24 $ .42
------------------ ----------------
------------------ ----------------
(1) Computed using the treasury stock method.
(2) Fully diluted earnings per share is not relevant since the amounts are
antidilutive.
S-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1995 AND
1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2064
<SECURITIES> 0
<RECEIVABLES> 16072
<ALLOWANCES> 0
<INVENTORY> 13396
<CURRENT-ASSETS> 34871
<PP&E> 13467
<DEPRECIATION> 3680
<TOTAL-ASSETS> 44721
<CURRENT-LIABILITIES> 10581
<BONDS> 0
0
0
<COMMON> 12388
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 44721
<SALES> 44370
<TOTAL-REVENUES> 44370
<CGS> 23163
<TOTAL-COSTS> 23163
<OTHER-EXPENSES> 13693
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7608
<INCOME-TAX> 2704
<INCOME-CONTINUING> 4904
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4904
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
