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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 September 30, 2002
 
or
 
x
 
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 0-25186
 
 
CAPTARIS, INC.
(Name of Registrant as Specified in Its Charter)
 
Washington
   
91-1190085
(State of incorporation)
   
(I.R.S. Employer Identification Number)
 
11410 NE 122nd Way
Kirkland, WA 98034
(Address of principal executive offices)
 
Registrant’s telephone number, including area code: (425) 820-6000
 
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 outstanding shares of the Registrant’s Common Stock as of October 25, 2002 was 31,888,465.
 

Table of Contents
 
As reported in Captaris Inc.’s (the “Company”) Quarterly report on Form 10-Q for the quarterly period ended June 30, 2002 filed on August 19, 2002, and as further discussed in Note 14 to the accompanying unaudited condensed consolidated financial statements, the Company has determined, after consultation with its new independent auditor, that it must restate (1) its consolidated financial statements for the year ended December 31, 2001 and (2) its unaudited condensed consolidated financial statements for the quarterly period ended March 31, 2002 and for each quarterly period during the year ended December 31, 2001. The restatement results from a deferred tax liability related to identified intangible assets associated with the acquisition of Infinite Technologies in January 2001.
 
As a result of the Company’s restatement of its consolidated financial statements for the year ended December 31, 2001, the Company has engaged its independent auditors to reaudit those financial statements. Upon completion of the audit, the Company expects to amend its Annual Report on Form 10-K for the year ended December 31, 2001, its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002 and any other Quarterly Report on Form 10-Q that the Company determines must be amended.
 

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Table of Contents
 
CAPTARIS, INC.
 
FORM 10-Q
For the Quarter Ended September 30, 2002
 
Table of Contents
 
 
        
Page
PART I.
  
Financial information
     
      
4
      
14
      
25
   
Item 4.     Controls and Procedures
   
25
PART II.
  
Other Information
     
      
26
      
27

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Table of Contents
 
Part I.    FINANCIAL INFORMATION
 
Item 1.
  
FINANCIAL STATEMENTS
 
CAPTARIS, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
    
September 30, 2002
     
December 31,
2001
(as restated – see Note 14)
  
    
(in thousands)
  
ASSETS
              
Current assets:
                  
Cash and cash equivalents
   
$
8,540
 
   
$
12,726
 
Short-term investments, available for sale
   
 
61,105
 
   
 
64,446
 
Accounts receivable, net
   
 
15,967
 
   
 
14,597
 
Inventories
   
 
5,175
 
   
 
5,022
 
Deferred and prepaid income taxes
   
 
8,037
 
   
 
8,267
 
Prepaid expenses and other assets
   
 
1,591
 
   
 
1,304
 
    
  
Total current assets
   
 
100,415
 
   
 
106,362
 
Equipment and leasehold improvements, net
   
 
6,636
 
   
 
7,463
 
Goodwill, net
   
 
8,941
 
   
 
12,104
 
Intangibles and other assets, net
   
 
2,923
 
   
 
9,632
 
Deferred income taxes
   
 
2,705
 
   
 
2,769
 
Restricted cash
   
 
1,000
 
   
 
—
 
    
  
Total assets
   
$
122,620
 
   
$
138,330
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
              
Current liabilities:
                  
Accounts payable
   
$
5,105
 
   
$
4,941
 
Accrued compensation and benefits
   
 
5,236
 
   
 
7,985
 
Deferred revenue
   
 
8,076
 
   
 
7,433
 
Other accrued liabilities
   
 
4,077
 
   
 
3,356
 
Current portion of note payable
   
 
—
 
   
 
527
 
    
  
Total current liabilities
   
 
22,494
 
   
 
24,242
 
    
  
Deferred income taxes
   
 
1,366
 
   
 
3,301
 
Note payable, net of current portion
   
 
—
 
   
 
882
 
    
  
Total liabilities
   
 
23,860
 
   
 
28,425
 
    
  
Shareholders’ equity:
                  
Preferred stock, par value $.01 per share, 2,000,000 authorized; none outstanding
   
 
—
 
   
 
—
 
Common stock, par value $.01 per share, 120,000,000 authorized; 31,884,465 and 31,746,067 shares outstanding, respectively, and additional paid-in capital
   
 
63,913
 
   
 
66,260
 
Retained earnings
   
 
35,351
 
   
 
44,173
 
Accumulated other comprehensive loss
   
 
(504
)
   
 
(528
)
    
  
Total shareholders’ equity
   
 
98,760
 
   
 
109,905
 
    
  
Total liabilities and shareholders’ equity
   
$
122,620
 
   
$
138,330
 
    
  
 
 
See accompanying notes to unaudited condensed consolidated financial statements.

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CAPTARIS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
    
Quarter ended
September 30,
    
Nine months ended
September 30,
  
    
2002
     
2001
(as restated – see Note 14)
     
2002
     
2001
(as restated – see Note 14)
  
    
(in thousands, except per share data)
  
Net sales
   
$
23,087
 
   
$
23,737
 
   
$
67,378
 
   
$
67,714
 
Cost of sales
   
 
8,920
 
   
 
9,174
 
   
 
25,268
 
   
 
25,549
 
    
  
  
  
Gross profit
   
 
14,167
 
   
 
14,563
 
   
 
42,110
 
   
 
42,165
 
Operating expenses:
                                    
Research and development
   
 
3,088
 
   
 
3,408
 
   
 
8,535
 
   
 
10,911
 
Sales, general and administrative
   
 
11,659
 
   
 
14,898
 
   
 
37,112
 
   
 
45,330
 
Stock compensation
   
 
(633
)
   
 
—
 
   
 
(1,247
)
   
 
—
 
Impairment of intangible assets
   
 
—
 
   
 
—
 
   
 
5,529
 
   
 
—
 
Non-recurring charges
   
 
—
 
   
 
—
 
   
 
2,994
 
   
 
2,942
 
    
  
  
  
Total operating expenses
   
 
14,114
 
   
 
18,306
 
   
 
52,923
 
   
 
59,183
 
    
  
  
  
Operating income (loss)
   
 
53
 
   
 
(3,743
)
   
 
(10,813
)
   
 
(17,018
)
Other income, net
   
 
506
 
   
 
771
 
   
 
1,388
 
   
 
2,586
 
    
  
  
  
Income (loss) before income taxes and cumulative effect of change in accounting principle
   
 
559
 
   
 
(2,972
)
   
 
(9,425
)
   
 
(14,432
)
Income tax expense (benefit)
   
 
196
 
   
 
(891
)
   
 
(3,298
)
   
 
(4,902
)
    
  
  
  
Income (loss) before cumulative effect of change in accounting principal
   
 
363
 
   
 
(2,081
)
   
 
(6,127
)
   
 
(9,530
)
Cumulative effect of change in accounting principle
   
 
—
 
   
 
—
 
   
 
(2,695
)
   
 
—
 
    
  
  
  
Net income (loss)
   
$
363
 
   
$
(2,081
)
   
$
(8,822
)
   
$
(9,530
)
    
  
  
  
Net income (loss) per common share, basic and diluted:
                                    
Prior to cumulative effect of change in accounting principle
   
$
0.01
 
   
$
(0.06
)
   
$
(0.19
)
   
$
(0.30
)
Cumulative effect of change in accounting principle
   
 
—
 
   
 
—
 
   
 
(0.09
)
   
 
—
 
    
  
  
  
Net income (loss) per common share, basic and diluted
   
$
0.01
 
   
$
(0.06
)
   
$
(0.28
)
   
$
(0.30
)
    
  
  
  
Weighted average common shares outstanding, basic
   
 
31,914
 
   
 
32,075
 
   
 
31,876
 
   
 
32,137
 
Weighted average common shares outstanding, diluted
   
 
32,047
 
   
 
32,075
 
   
 
31,876
 
   
 
32,137
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 

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Table of Contents
 
CAPTARIS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
    
Nine months ended September 30,
  
    
2002
     
2001
(as restated – see Note 14)
  
    
(in thousands)
  
Cash flows from operating activities:
                  
Net loss
   
$
(8,822
)
   
$
(9,530
)
Adjustments to reconcile net income to net cash provided by operating activities:
                  
Depreciation and amortization
   
 
4,032
 
   
 
5,902
 
Loss on disposal of assets
   
 
353
 
   
 
—  
 
Deferred income taxes
   
 
(1,935
)
   
 
3,333
 
Stock compensation
   
 
(1,247
)
   
 
—  
 
Purchased in-process research and development, expensed
   
 
—  
 
   
 
1,900
 
Impairment of intangibles
   
 
5,529
 
   
 
—  
 
Cumulative effect of change in accounting principle
   
 
2,695
 
   
 
—  
 
Changes in assets and liabilities, net of amounts acquired:
                  
Accounts receivable
   
 
(1,370
)
   
 
1,420
 
Inventories
   
 
(127
)
   
 
458
 
Prepaid income taxes
   
 
294