-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KHMnLemaBmUv0C7IZqWEd23OulTz/QYuFle4RM+fuYYut/5ZrmmlgmjryMGa077U YIWOf1SDxgzFiIDHPF0HOQ== 0000728376-96-000013.txt : 19960517 0000728376-96-000013.hdr.sgml : 19960517 ACCESSION NUMBER: 0000728376-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DH TECHNOLOGY INC CENTRAL INDEX KEY: 0000728376 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 942917470 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13459 FILM NUMBER: 96564722 BUSINESS ADDRESS: STREET 1: 15070 AVENUE OF SCIENCE CITY: SAN DIEGO STATE: CA ZIP: 92128 BUSINESS PHONE: 6194513485 MAIL ADDRESS: STREET 1: 15070 AVENUE OF SCIENCE CITY: SAN DIEGO STATE: CA ZIP: 92128 10-Q 1 DH TECHNOLOGY 10Q FOR QUARTER END 03/31/96 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1996, or [ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from ___________ to _________ Commission file number: 0-13459 DH Technology, Inc. (Exact name of registrant as specified in its charter) California 94-2917470 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15070 Avenue of Science, San Diego, California 92128 (Address of principal executive office) Registrant's telephone number, including area code: (619) 451-3485 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes XXX No____ As of March 31, 1996 there were 7,928,215 shares of the registrant's Common Stock outstanding. DH TECHNOLOGY, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION PAGE NO. ITEM 1 - Financial Statements Condensed Consolidated Balance Sheets 1 March 31, 1996, and December 31, 1995 Condensed Consolidated Statements of Income 2 Three months ended March 31, 1996 Condensed Consolidated Statements of Cash Flows 3 Three months ended March 31, 1996 Notes to Condensed Consolidated Financial Statements 4 ITEM 2 - Management's Discussion and Analysis of 5 Financial Conditions and Results of Operations PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 9 SIGNATURES 10 EXHIBITS INDEX 11 ============================================================================================================================ PART 1 - FINANCIAL INFORMATION ============================================================================================================================ ITEM 1 - Financial Statements DH TECHNOLOGY, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands)
MARCH 31, DECEMBER 31, 1996 1995 (Unaudited) ASSETS Current assets: Cash and cash equivalents $24,652 $28,971 Short-term investment securities held to maturity 8,650 2,750 Accounts receivable, net 15,972 15,785 Inventories 15,807 14,382 Prepaid expenses and other current assets 2,243 2,317 ------------------- -------------------- Total current assets 67,324 64,205 ------------------- -------------------- Fixed assets 19,388 18,085 Less accumulated depreciation and amortization 12,295 11,795 ------------------- -------------------- 7,093 6,290 Intangibles 13,117 13,312 Other assets 1,297 1,478 ------------------- -------------------- Total assets $88,831 $85,285 =================== ==================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $5,827 $6,383 Current portion of long-term debt 505 980 Accrued payroll 2,224 2,579 Accrued expenses 2,518 2,524 Income taxes payable 3,148 2,128 Deferred revenue 1261 947 ------------------- -------------------- Total current liabilities 15,483 15,541 ------------------- -------------------- Non-current portion of long-term debt 2,089 2,115 Deferred tax liability 148 149 ------------------- -------------------- Total liabilities 17,721 17,805 ------------------- -------------------- Shareholders' equity: Preferred shares, no par value Authorized: 1,000,000 shares, none issued -- -- Common shares: Common stock, authorized: 28,500,000 shares; issued and outstanding: 7,928,215 shares in 1996 and 7,890,090 shares in 1995 12,630 12,335 Foreign currency translation adjustment (218) (519) Retained earnings 58,698 55,664 ------------------- -------------------- Total shareholders' equity 71,110 67,480 ------------------- -------------------- Total liabilities and shareholders' equity $88,831 $85,285 =================== ==================== The accompanying notes are an integral part of these condensed consolidated financial statements.
DH TECHNOLOGY, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (March 31, 1996 and 1995) (In thousands, except per share data)
THREE MONTHS ENDED March 31 (Unaudited) ---------------------------------- 1996 1995 ---------------------------------- Net sales $28,196 $23,255 Cost of net sales 18,470 14,760 --------------- ---------------- Gross margin 9,726 8,495 Operating expenses: Selling, general and administrative 3,960 3,934 Research and development 1,288 1,112 --------------- ---------------- Total operating expenses 5,248 5,046 Income from operations 4,478 3,449 Interest income 330 276 Interest expense 46 74 --------------- ---------------- Income before income taxes 4,762 3,651 Income taxes 1,727 1,286 --------------- ---------------- Net income $3,035 $2,365 =============== ================ Net income per share $.36 $.29 =============== ================ Weighted average number of shares outstanding Per share (primary and fully diluted): 8,469 8,192 The accompanying notes are an integral part of these condensed consolidated financial statements.
DH TECHNOLOGY, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) THREE MONTHS ENDED MARCH 31 (Unaudited)
--------------------------------------- 1996 1995 --------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM: Operating activities: Net income $3,035 $2,365 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 775 902 Provision for loss on accounts receivable 28 116 Undepreciated value of asset disposals 53 11 Changes in assets and liabilities excluding effect of acquisitions (1,149) (244) -------------------------------------- Net cash provided by operating activities 2,742 3,150 Investing activities: Net increase in short-term investment securities held to maturity ($5,900) 0 Capital expenditures (1,271) (407) -------------------------------------- Net cash provided by (used in) investing activities (7,171) (407) Financing activities: Principal repayments on long-term debt (501) (516) Proceeds from the exercise of stock options 295 213 -------------------------------------- Net cash used in financing activities (206) (303) Effect of exchange rate changes on cash 316 (85) Net increase (decrease) in cash and cash equivalents (4,319) 2,355 Cash and cash equivalents at beginning of period 28,971 19,587 -------------------------------------- Cash and cash equivalents at end of period $24,652 $21,942 ====================================== Interest paid on debt $12 $15 Income taxes paid $696 $385 The accompanying notes are an integral part of these condensed consolidated financial statements
DH TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (March 31, 1996 - Unaudited) Note 1: Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in accordance with S.E.C. requirements for interim financial statements. Therefore, they do not include all disclosures that would be presented in the Company's Annual Report on Form 10-K. The financial statements should be read in conjunction with the financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. The information furnished reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of financial position, results of operations, and changes in cash position for the interim period. The results of operations for the periods presented are not necessarily indicative of results to be expected for the full year. The Board of Directors authorized a three-for-two common stock split effective September 22, 1995. All share and per share data have been retroactively restated to give effect to the stock split. Note 2: Inventories The composition of inventories at March 31, 1996, and December 31, 1995, were as follows: 1996 1995 ------ ------ Raw Materials $8,879,000 $8,221,000 Work in Process 1,312,000 940,000 Finished Goods 5,616,000 5,221,000 --------- --------- Totals $15,807,000 $14,382,000 =========== =========== Note 3: Operations subject to Purchase and Sale Agreements On February 28, 1994, DH Technology, Inc. acquired all of the outstanding stock of Stadia Colorado Corp. (Stadia) pursuant to a stock purchase agreement for $6.5 million in cash ($5.5 million paid at closing, and additional payments of $500,000 paid on March 1, 1995, and on March 1, 1996). This business is being operated as a subsidiary of DH Technology, Inc. under the name Stadia Colorado Corp. Stadia, located in Golden, Colorado, supplies labeling and marking solutions to a variety of customers in ten western states. On August 31, 1994, DH Technology, Inc. acquired all of the outstanding stock of Cognitive Solutions, Inc. (Cognitive) and certain technology rights pursuant to a stock purchase agreement for $10 million in cash ($7.9 million paid through 1995, and additional payments of $500,000 each due in 1996 through 1999). Also, the Company is required to make additional payments, not to exceed an aggregate of $3 million, to the former shareholder of Cognitive based upon post-acquisition net sales of a specified Cognitive product line. At the end of each calendar year, the company will calculate the amount of the additional payment as defined in the stock purchase agreement. Each payment will be treated as additional acquisition cost, and will be recorded as additional goodwill, amortized straight-line over the remaining life of the asset. This business is being operated as a subsidiary of DH Technology, Inc. under the name Cognitive Solutions, Inc. and is located in Paso Robles, California. Cognitive designs, manufactures, and markets thermal bar code printers and complementary label media for use in automatic data collection systems. The Stadia and Cognitive acquisitions were accounted for using the purchase method; accordingly, the assets and liabilities of the acquired companies have been recorded at their estimated fair values at the dates of acquisition. In conjunction with the acquisitions of Stadia and Cognitive, the excess of purchase price over the estimated fair values of the net assets acquired has been recorded as goodwill of $4,062,000 and $5,590,000, respectively, which is being amortized over 25 years using the straight-line method. On October 30, 1995 the Company acquired certain assets and liabilities of Mos Magnetics, a privately held company in San Diego, California, for $752,000 cash. Mos Magnetics designs, manufactures, and markets magnetic read and write heads and modules for credit card and debit card readers, check readers, and airline ticket readers. The Company is required to make additional payments, not to exceed an aggregate of $1.3 million, to Mos Magnetics based upon post-acquisition net sales by the Company of a specific Mos product line. At the end of each calendar year, the company will calculate the amount of the additional payment as defined in the asset purchase agreement. Each payment will be treated as additional acquisition cost, and will be recorded as additional goodwill, amortized straight-line over the remaining life of the asset. The consolidated statements of income include the operations of Stadia from February 28, 1994, Cognitive from August 31, 1994, and the Magnetics Division from October 30, 1995. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with DH Technology, Inc.'s condensed consolidated financial statements and the notes related thereto included herein. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THREE MONTHS ENDED MARCH 31, 1995 Net sales of $28.2 million for the quarter ended March 31, 1996, increased 21.2% over net sales of $23.3 million for the same period last year. The growth was primarily attributable to the increased unit shipments of transaction printers for the first quarter of 1996. A significant percentage of this growth is attributable to a single customer. Cost of net sales increased to 65.5% of net sales for the first quarter of 1996 compared to 63.5% of net sales for the first quarter of 1995. There were four factors that primarily contributed to the increase. The first was a mix shift in the printhead business to products with higher material content as a percentage of net sales. The second was a price decrease initiated at Cognitive where efforts to lower the associated costs continue. The third factor involved price increases at Stadia initiated in the first quarter of 1995 prior to anticipated cost increases, which occurred later in 1995. The final factor was start-up costs associated with the roll-out and initial delivery of a new product in the first quarter of 1996. Selling, general, and administrative expenses decreased to 14.0% of net sales in the first quarter of 1996 from 17.0% in the same period in 1995 due to net sales increasing at a faster rate than selling, general, and administrative expenses. These expenses increased in absolute dollars to $4.0 million in the first quarter of 1996 from $3.9 million in the first quarter of 1995. This increase was primarily attributable to the inclusion of results for the Magnetics Division for the entire first quarter of 1996. Research and development expenses decreased to 4.6% of net sales in the first quarter of 1996 compared to 4.8% in the same period in 1995 due to net sales increasing at a faster rate than research and development expenses. Total dollars expended for research and development increased to $1.3 million in the first quarter of 1996 from $1.1 million in the same period in 1995. The Company believes that the continued timely development of new products and enhancements to its existing products are essential to maintaining the Company's competitive position. Accordingly, the Company anticipates that such expenses will continue to increase in absolute dollars. Income from operations as a percentage of net sales increased to 15.9% for the quarter ended March 31, 1996, compared to 14.8% for the same period in 1995 primarily due to lower operating expenses as a percentage of revenue as discussed above. Interest income increased to $330,000 in the first quarter of 1996 compared to $276,000 in the first quarter of 1995 as a result of higher cash balances and higher interest rates in the first quarter of 1996. Interest expense decreased to $46,000 for the quarter ended March 31, 1996, from $74,000 for the same period in 1995 due to the payment of debt related to the Cognitive acquisition. Income taxes as a percentage of income before income taxes increased to 36.3% for the first quarter of 1996 from 35.2% for the same period in 1995, due primarily to the reduced impact of the federal research and development tax credit. Factors That May Affect Forward Looking Statements. - --------------------------------------------------- The Company may from time to time make oral forward looking statements. The following factors set forth below are important factors that could cause actual results to differ materially from those projected in any such forward looking statements. Management of Acquisitions. Historically, the Company has achieved a portion of its growth through acquisitions of other businesses and continues to pursue additional acquisitions as part of its growth strategy. There are a number of risks associated with any acquisition, including the substantial time and attention required from management of the Company in connection with such transactions, the difficulty of predicting whether the operations will perform as expected and other problems inherent with any transition of one business organization into another. There can be no assurance that the anticipated benefits of any acquisition will be realized. A failure by the Company to manage any such acquisitions effectively could materially and adversely affect the Company's business and operating results. Additionally, future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, any of which could materially adversely affect the Company's operating results and financial condition. Technological Change; Competition; Dependence on New Products. The markets for some of the Company's products are characterized by frequent new product introductions and declining average selling prices over product life cycles. The Company's future success is highly dependent upon the timely completion and introduction of new products at competitive price/performance levels. In addition, the Company must respond to current competitors, who may choose to increase their presence in the Company's markets, and to new competitors, who may choose to enter those markets. If the Company is unable to make timely introduction of new products or respond to competitive threats, its business and operating results could be materially adversely affected. Fluctuation in Demand. The Company's customers encounter uncertain and changing demand for their products. They typically order products from the Company based on their forecasts. If demand falls below customers' forecasts, or if customers do not control their inventories effectively, they may cancel or reschedule shipments previously ordered from the Company. The Company has in the past experienced, and may at any time and with minimal notice in the future experience, cancellations and postponements of orders. Future Operating Results Subject to Fluctuation. The Company's operating results may fluctuate in the future as a result of a number of factors, including the timing of receipts of customer orders, timing of completion of existing customer contracts, variations in the Company's sales channels or the mix of products it sells, changes in pricing policies by the Company's suppliers, fluctuations in manufacturing yields, the market acceptance of new and enhanced versions of the Company's products and the timing of acquisitions of other businesses, products and technologies and any associated charges to earnings. Further, the Company's expense levels are based in part on expectations of future revenues, and the Company has been increasing and expects to continue to increase operating expenditures and inventory as it expands its operations. The rate of new orders may vary significantly from month to month; consequently, if anticipated sales and shipments in any quarter do not occur when expected, operating expenses and inventory levels could be disproportionately high and the Company's operating results for that quarter, and potentially for future quarters, would be adversely affected. In addition, the Company's results could be affected by general economic conditions. Fluctuations in operating results may cause volatility in the price of the Company's Common Stock. FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES The Company's primary source of liquidity has been cash flow generated from operations. Cash, cash equivalents, and short-term investment securities held to maturity totaled approximately $33.3 million on March 31, 1996, compared to $31.7 million on December 31, 1995. OPERATING ACTIVITIES For the three-month period ended March 31, 1996, the Company generated approximately $2.7 million in net cash from operating activities primarily as a result of approximately $3.0 million in net income and $800,000 in depreciation and amortization, offset by an increase in net operating assets of $1.2 million. Since December 31, 1995, inventories increased $1.4 million in anticipation of second quarter sales. INVESTING ACTIVITIES The Company's principal investing activities in the first quarter of 1996 were the purchase of property and equipment for product development and production and the investment in short-term securities held to maturity. The majority of the securities mature before 1996 year end. As of March 31, 1996, other than the required payments for Stadia and Cognitive described below, the Company has no material commitments for capital expenditures. However, the Company anticipates capital expenditures in 1996 between 3 to 5 million dollars principally for new product tooling, manufacturing equipment and a new worldwide MIS system. The Company is also required to make additional payments, not to exceed an aggregate of $3 million, to the former shareholder of Cognitive based upon the attainment of specified net sales by a particular Cognitive product line. The Company does not expect the payment to be material in 1996. See Note 3 of notes to consolidated financial statements. The Company continues to evaluate potential acquisitions of businesses that would complement the Company's existing businesses and product lines, and any such acquisitions could require the use of the Company's cash resources and/or additional borrowings. FINANCING ACTIVITIES The Company's major financing activities in first quarter of 1996 were the principal repayment on long-term debt, including the notes payable associated with the Stadia and Cognitive acquisitions. As of March 31, 1996, the Company had $2.6 million in debt outstanding of which the current portion was approximately $500,000. This long-term debt includes $2.0 million payable to the former owner of Cognitive in annual installments of $500,000 each due in 1996 through 1999 to the former owner of Cognitive. On August 15, 1995, the Company renewed a $6.5 million line of credit agreement originally signed on August 15, 1994. The line of credit includes a subfeature to issue standby and/or commercial letters of credit not to exceed $1.5 million. Borrowings under the line bear interest at a rate per annum equal to the prime rate in effect from time to time. As of December 31, 1995, no amounts have been drawn against this line of credit. The Company currently expects that current cash balances and cash generated from operations will adequately fund the Company's anticipated cash needs for the next 12 months. However, the Company continues to evaluate potential acquisitions of businesses that would complement the Company's existing businesses and product lines, and any such acquisitions could require the use of the Company's cash resources and/or additional borrowings. The Company reviews potential foreign currency risks on an ongoing basis and to date has been able to effectively manage this risk through natural currency offsets. Item 6 - Exhibits and reports on Form 8-K (a) Exhibits: Exhibit 11 Computation of Net Income Per Share. Exhibit 27 Financial Data Schedule. (b) Reports on Form 8-K No report on Form 8-K was filed during the quarter ended March 31, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DH Technology, Inc. by: May 14, 1996 /s/Janet W. Shanks ------------ ------------------ Date Janet W. Shanks, Chief Accounting Officer (Chief Accounting Officer) DH TECHNOLOGY, INC. EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 EXHIBIT DESCRIPTION NUMBERED PAGE - -------------------------------------------------------------------------------- 11 Computation of Net Income Per Share 12 27 Financial Data Schedule 13 EXHIBIT 11 DH TECHNOLOGY, INC. AND SUBSIDIARIES Computation of Net Income Per Share (In thousands, except per share data) THREE MONTHS ENDED MARCH 31, -------------------------------- 1996 1995 ------------------------------- Primary and fully diluted:* Average shares outstanding 7,906 7,743 Net effect of dilutive stock options and warrants based on the treasury stock method using average market price 563 449 ------------- ------------- Average common and common equivalent shares outstanding 8,469 8,192 Net income $3,035 $2,365 Per share (primary and fully diluted) ============= ============== Net income per share $.36 $.29 ============= ============== * There is no significant difference between primary and fully diluted earnings per share. EX-27 2 FDS 10Q QUARTER ENDED 03/31/96
5 EXHIBIT 27 - 10Q FOR QUARTER ENDED 03/31/96 0000728376 DH TECHNOLOGY, INC 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 24,652 8,650 17,127 (1,154) 15,807 67,324 19,388 (12,295) 88,831 15,483 2,089 0 0 12,630 58,480 88,831 28,196 28,196 18,470 18,470 5,248 28 46 4,762 1,727 3,035 0 0 0 3,035 .36 .36
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