SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
| For the quarterly period ended | June 30, 2003 | |
| Commission file number | 0-10691 | |
DELPHAX TECHNOLOGIES INC.
| Minnesota | 41-1392000 | |
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| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| 12500 Whitewater Drive | ||
| Minnetonka, Minnesota | 55343-9420 | |
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| (Address of principal executive offices) | (Zip Code) |
(952) 939-9000
Registrant’s telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed since last report
| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. |
Yes X No
| Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). |
Yes No X
| Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of
the latest practical date. As of August 8, 2003, there were 6,214,073 shares outstanding of Common Stock. |
1
INDEX
DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements (Unaudited) | |
| Condensed Consolidated Balance Sheets – June 30, 2003 and September 30, 2002 | ||
| Condensed Consolidated Statements of Operations – Three and nine months ended June 30, 2003 and 2002 | ||
| Condensed Consolidated Statements of Cash Flows – Nine months ended June 30, 2003 and 2002 | ||
| Condensed Notes to Consolidated Financial Statements – June 30, 2003 | ||
| Item 2. | Management’s Discussion and Analysis of Results of Operations and Financial Condition | |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |
| Item 4. | Controls and Procedures |
PART II. OTHER INFORMATION
| Item 6. | Exhibits and Reports on Form 8-K |
SIGNATURES
CERTIFICATIONS
2
PART I. FINANCIAL INFORMATION
DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, | September 30, | |||||||||
| 2003 | 2002 | |||||||||
ASSETS |
||||||||||
CURRENT ASSETS |
||||||||||
Cash and cash equivalents |
$ | 1,198,462 | $ | 1,717,973 | ||||||
Short-term investments |
83,940 | 78,430 | ||||||||
Accounts receivable, less allowance for doubtful
accounts of $220,778 and $253,106 as of June 30,
2003 and September 30, 2002, respectively |
12,632,604 | 10,712,889 | ||||||||
Current portion of notes receivable from customers |
105,377 | — | ||||||||
Inventory: |
||||||||||
Raw materials and component parts |
12,080,755 | 13,602,964 | ||||||||
Work-in-progress |
568,041 | 597,388 | ||||||||
Finished goods |
5,676,955 | 6,672,664 | ||||||||
| 18,325,751 | 20,873,016 | |||||||||
Other current assets |
1,679,387 | 1,525,695 | ||||||||
TOTAL CURRENT ASSETS |
34,025,521 | 34,908,003 | ||||||||
Long-term portion of notes receivable from customers |
614,408 | — | ||||||||
EQUIPMENT AND FIXTURES |
||||||||||
Machinery and equipment |
4,907,654 | 4,853,798 | ||||||||
Furniture and fixtures |
3,588,271 | 3,190,447 | ||||||||
Leasehold improvements |
2,343,421 | 2,386,996 | ||||||||
| 10,839,346 | 10,431,241 | |||||||||
Less accumulated depreciation and amortization |
6,975,847 | 5,671,854 | ||||||||
| 3,863,499 | 4,759,387 | |||||||||
TOTAL ASSETS |
$ | 38,503,428 | $ | 39,667,390 | ||||||
See condensed notes to consolidated financial statements.
3
DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, | September 30, | ||||||||
| 2003 | 2002 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
$ | 4,970,880 | $ | 4,284,465 | |||||
Accrued expenses |
3,764,229 | 3,269,531 | |||||||
Income taxes payable |
151,969 | 482,197 | |||||||
Current portion of bank credit facility |
13,150,000 | 2,300,000 | |||||||
Current portion of capital leases |
37,241 | 33,361 | |||||||
Current portion of deferred revenue |
441,128 | 489,996 | |||||||
TOTAL CURRENT LIABILITIES |
22,515,447 | 10,859,550 | |||||||
Long-term portion of bank credit facility |
— | 12,980,000 | |||||||
Long-term portion of capital leases |
— | 28,217 | |||||||
Long-term portion of deferred revenue |
614,408 | — | |||||||
TOTAL LIABILITIES |
23,129,855 | 23,867,767 | |||||||
SHAREHOLDERS’ EQUITY |
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Common stock — par value $.10 per share — authorized
50,000,000 shares; issued and outstanding: 6,214,073
as of June 30, 2003 and 6,175,898
as of September 30, 2002 |
621,407 | 617,590 | |||||||
Additional paid-in capital |
17,149,097 | 17,039,945 | |||||||
Accumulated other comprehensive loss |
(1,200,044 | ) | (1,912,335 | ) | |||||
(Deficit) retained earnings |
(1,196,887 | ) | 54,423 | ||||||
TOTAL SHAREHOLDERS’ EQUITY |
15,373,573 | 15,799,623 | |||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 38,503,428 | $ | 39,667,390 | |||||
See condensed notes to consolidated financial statements.
4
DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Sales: |
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Maintenance, spares and supplies |
$ | 12,243,799 | $ | 11,185,673 | $ | 36,637,123 | $ | 26,339,621 | |||||||||
Printing equipment |
2,560,897 | 2,345,341 | 7,873,071 | 12,035,974 | |||||||||||||
NET SALES |
14,804,696 | 13,531,014 | 44,510,194 | 38,375,595 | |||||||||||||
Costs and Expenses: |
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Cost of sales |
7,106,386 | 5,945,671 | 21,247,471 | 18,380,591 | |||||||||||||
Selling, general and administrative |
6,072,547 | 5,832,610 | 18,290,267 | 15,392,324 | |||||||||||||
Research and development |
1,424,863 | 1,708,238 | 4,086,998 | 4,194,553 | |||||||||||||
Restructuring costs |
— | — | 1,185,000 | — | |||||||||||||
| 14,603,796 | 13,486,519 | 44,809,736 | 37,967,468 | ||||||||||||||
INCOME (LOSS) FROM SYSTEM SALES AND SERVICE |
200,900 | 44,495 | (299,542 | ) | 408,127 | ||||||||||||
Net interest expense |
145,467 | 240,791 | 581,215 | 533,026 | |||||||||||||
Net realized exchange loss (gain) |
154,244 | (22,948 | ) | 163,318 | (13,377 | ) | |||||||||||
Net unrealized exchange loss (gain) |
5,880 | (46,747 | ) | 207,235 | (77,024 | ) | |||||||||||
LOSS BEFORE INCOME TAXES |
(104,691 | ) | (126,601 | ) | (1,251,310 | ) | (34,498 | ) | |||||||||
Income tax benefit |
— | (116,800 | ) | — | (84,500 | ) | |||||||||||
NET (LOSS) INCOME |
$ | (104,691 | ) | $ | (9,801 | ) | $ | (1,251,310 | ) | $ | 50,002 | ||||||
Basic and diluted (loss) earnings per common share |
$ | (0.02 | ) | $ | (0.00 | ) | $ | (0.20 | ) | $ | 0.01 | ||||||
Weighted average number of shares outstanding
during the period |
6,190,765 | 6,171,365 | 6,180,854 | 6,164,267 | |||||||||||||
Weighted average number of shares and equivalents
outstanding during the period, assuming dilution |
6,190,765 | 6,171,365 | 6,180,854 | 6,349,815 | |||||||||||||
See condensed notes to consolidated financial statements
5
DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | |||||||||
| June 30, | |||||||||
| 2003 | 2002 | ||||||||
OPERATING ACTIVITIES |
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Net (loss) income |
$ | (1,251,310 | ) | $ | 50,002 | ||||
Adjustments to reconcile net (loss) income to net cash
provided by operating activities: |
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Depreciation and amortization |
1,376,050 | 1,193,793 | |||||||
Gain on disposal of equipment and fixtures |
— | (11,562 | ) | ||||||
Other |
74,192 | (5,923 | ) | ||||||
Changes in operating assets and liabilities: |
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Accounts receivable, net |
(1,567,214 | ) | 3,668,355 | ||||||
Inventory |
2,882,636 | (2,493,999 | ) | ||||||
Other current assets |
(703,399 | ) | (1,108,093 | ) | |||||
Notes receivable |
(105,377 | ) | — | ||||||
Accounts payable and accrued expenses |
648,204 | 1,249,592 | |||||||
Deferred revenue |
563,113 | (717,814 | ) | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
1,916,895 | 1,824,351 | |||||||
INVESTING ACTIVITIES |
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Business acquisition |
— | (16,673,000 | ) | ||||||
Purchase of equipment and fixtures |
(472,447 | ) | (463,360 | ) | |||||
Purchase of short-term investments |
— | (125,106 | ) | ||||||
Proceeds from sale of short-term investments |
— | 66,687 | |||||||
NET CASH USED IN INVESTING ACTIVITIES |
(472,447 | ) | (17,194,779 | ) | |||||
FINANCING ACTIVITIES |
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Issuance of common stock |
112,968 | 73,356 | |||||||
Repurchase of common stock |
— | (22,050 | ) | ||||||
(Repayment) borrowing on bank credit facility, net |
(2,130,000 | ) | 15,679,371 | ||||||
Principal payments on capital lease obligations |
(24,337 | ) | — | ||||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
(2,041,369 | ) | 15,730,677 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
77,410 | (47,847 | ) | ||||||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
(519,511 | ) | 312,402 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
1,717,973 | 591,536 | |||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 1,198,462 | $ | 903,938 | |||||
See condensed notes to consolidated financial statements.
6
DELPHAX TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2003
NOTE A – Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by the accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended September 30, 2002.
Reclassifications have been made in the prior year to conform to classifications in the current year.
NOTE B – Earnings per Share
The following table sets forth the computation of basic and diluted loss and earnings per share:
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Numerator: |
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Net (loss) income |
$ | (104,691 | ) | $ | (9,801 | ) | $ | (1,251,310 | ) | $ | 50,002 | ||||||
Numerator for basic and diluted loss and
earnings per share — (loss) income
applicable to common shareholders |
$ | (104,691 | ) | $ | (9,801 | ) | $ | (1,251,310 | ) | $ | 50,002 | ||||||
Denominator: |
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Denominator for basic loss and earnings
per share, weighted average shares |
6,190,765 | 6,171,365 | 6,180,854 | 6,164,267 | |||||||||||||
Dilutive potential common shares, employee
stock options |
— | a | — | a | — | a | 185,548 | ||||||||||
Denominator for diluted loss and earnings
per share, adjusted weighted average shares |
6,190,765 | 6,171,365 | 6,180,854 | 6,349,815 | |||||||||||||
(Loss) earnings per common share |
$ | (0.02 | ) | $ | (0.00 | ) | $ | (0.20 | ) | $ | 0.01 | ||||||
(Loss) earnings per common share,
assuming dilution |
(0.02 | ) | (0.00 | ) | (0.20 | ) | 0.01 | ||||||||||
a – No incremental shares related to employee stock options are included because the impact would be antidilutive.
7
NOTE C – Comprehensive Income
The components of comprehensive income and loss, net of related tax, for the three and nine months ended June 30, 2003 and 2002 were as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net (loss) income |
$ | (104,691 | ) | $ | (9,801 | ) | $ | (1,251,310 | ) | $ | 50,002 | |||||
Foreign currency translation adjustment |
510,189 | 100,059 | 712,291 | 33,165 | ||||||||||||
Comprehensive income (loss) |
$ | 405,498 | $ | 90,258 | $ | (539,019 | ) | $ | 83,167 | |||||||
NOTE D – Accounting for Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123) as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (SFAS 148). Pro forma net loss and loss per share determined as if the Company had accounted for its employee stock options under the fair value method of those Statements, for the three- and nine-month periods ended June 30, 2003 and 2002 were as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net (loss) income, as reported |
$ | (104,691 | ) | $ | (9,801 | ) | $ | (1,251,310 | ) | $ | 50,002 | |||||
Stock-based compensation determined under
fair value based method for all awards |
(23,725 | ) | (44,037 | ) | (127,023 | ) | (146,353 | ) | ||||||||
Adjusted net loss, assuming fair value
method for all stock-based awards |
$ | (128,416 | ) | $ | (53,838 | ) | $ | (1,378,333 | ) | $ | (96,351 | ) | ||||
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