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 September 30, 2004
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 0-25186
CAPTARIS, INC.
(Name of Registrant as Specified in Its Charter)
| Washington | 91-1190085 | |
| (State of Incorporation) | (I.R.S. Employer Identification Number) |
| 10885 N.E. 4th Street, Suite 400 Bellevue, WA |
98004 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (425) 455-6000
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of outstanding shares of the registrant’s common stock as of November 2, 2004 was 30,366,604.
FORM 10-Q
For the Quarter Ended September 30, 2004
Table of Contents
| Page | ||||||
| PART I. |
Financial Information | |||||
| Item 1. | Financial Statements (unaudited) | 3 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 28 | ||||
| Item 4. | Controls and Procedures | 29 | ||||
| PART II. |
Other Information | |||||
| Item 1. | Legal Proceedings | 31 | ||||
| Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities and | 31 | ||||
| Item 6. | Exhibits | 32 | ||||
| 33 | ||||||
2
PART I.
CAPTARIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
| September 30, 2004 |
December 31, 2003 | |||||
| ASSETS | ||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ | 29,606 | $ | 41,896 | ||
| Short-term investments, available for sale |
25,297 | 28,081 | ||||
| Accounts receivable, net |
11,191 | 13,638 | ||||
| Inventories |
764 | 1,973 | ||||
| Prepaid expenses and other |
3,603 | 2,516 | ||||
| Deferred income tax assets |
2,283 | 1,770 | ||||
| Total current assets |
72,744 | 89,874 | ||||
| Long-term investments, available for sale |
33,193 | 25,684 | ||||
| Restricted cash |
1,000 | 1,000 | ||||
| Equipment and leasehold improvements, net |
5,255 | 4,605 | ||||
| Intangible and other assets, net |
5,793 | 6,705 | ||||
| Goodwill |
15,832 | 15,541 | ||||
| Deferred income tax assets |
1,592 | 1,346 | ||||
| Total assets |
$ | 135,409 | $ | 144,755 | ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
| Current liabilities: |
||||||
| Accounts payable |
$ | 4,113 | $ | 4,875 | ||
| Accrued compensation and benefits |
2,830 | 4,403 | ||||
| Other accrued liabilities |
1,613 | 1,393 | ||||
| Income taxes payable |
1,098 | 2,999 | ||||
| Deferred revenue |
13,090 | 10,257 | ||||
| Total current liabilities |
22,744 | 23,927 | ||||
| Commitments and contingencies (Note 6) |
||||||
| Redeemable common stock |
3,000 | 3,000 | ||||
| Shareholders’ equity: |
||||||
| Preferred stock, par value $0.01 per share, 2,000 shares authorized; none issued and outstanding |
— | — | ||||
| Common stock, par value $0.01 per share, 120,000 shares authorized; 30,928 and 32,358 outstanding, respectively |
304 | 318 | ||||
| Additional paid-in capital |
59,314 | 67,453 | ||||
| Retained earnings |
49,671 | 49,681 | ||||
| Accumulated other comprehensive income |
376 | 376 | ||||
| Total shareholders’ equity |
109,665 | 117,828 | ||||
| Total liabilities and shareholders’ equity |
$ | 135,409 | $ | 144,755 | ||
See the accompanying notes to unaudited condensed consolidated financial statements.
3
CAPTARIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Quarter Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net revenue |
$ | 18,031 | $ | 18,079 | $ | 54,397 | $ | 51,917 | ||||||||
| Cost of revenue |
6,544 | 6,920 | 18,816 | 19,154 | ||||||||||||
| Gross profit |
11,487 | 11,159 | 35,581 | 32,763 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
2,846 | 2,384 | 7,237 | 7,182 | ||||||||||||
| Selling, general and administrative |
9,781 | 9,330 | 29,898 | 27,733 | ||||||||||||
| Amortization of intangibles |
102 | 57 | 308 | 170 | ||||||||||||
| Restructuring charges |
— | 423 | — | 423 | ||||||||||||
| Stock compensation (benefit) expense |
(413 | ) | 1,057 | (194 | ) | 2,049 | ||||||||||
| Gain on sale of discontinued product line CallXpress |
— | (2,088 | ) | — | (2,088 | ) | ||||||||||
| Total operating expenses |
12,316 | 11,163 | 37,249 | 35,469 | ||||||||||||
| Operating loss |
(829 | ) | (4 | ) | (1,668 | ) | (2,706 | ) | ||||||||
| Other income (expense): |
||||||||||||||||
| Interest |
340 | 338 | 1,011 | 1,143 | ||||||||||||
| Other, net |
(53 | ) | (59 | ) | (338 | ) | (105 | ) | ||||||||
| Other income, net |
287 | 279 | 673 | 1,038 | ||||||||||||
| Income (loss) from continuing operations before income tax (benefit) |
(542 | ) | 275 | (995 | ) | (1,668 | ) | |||||||||
| Income tax (benefit) expense |
(205 | ) | 105 | (378 | ) | (650 | ) | |||||||||
| Income (loss) from continuing operations |
(337 | ) | 170 | (617 | ) | (1,018 | ) | |||||||||
| Discontinued operations: |
||||||||||||||||
| Income (loss) from operations of MediaLinq, net of income taxes |
— | (148 | ) | — | 770 | |||||||||||
| Gain on sale of MediaLinq, net of income taxes |
403 | 5,899 | 607 | 5,899 | ||||||||||||
| Income from discontinued operations, net of income taxes |
403 | 5,751 | 607 | 6,669 | ||||||||||||
| Net income (loss) |
$ | 66 | $ | 5,921 | $ | (10 | ) | $ | 5,651 | |||||||
| Income (loss) per common share: |
||||||||||||||||
| Basic income (loss) per common share from continuing operations |
$ | (0.01 | ) | $ | 0.01 | $ | (0.02 | ) | $ | (0.03 | ) | |||||
| Basic income per common share from discontinued operations |
0.01 | 0.19 | 0.02 | 0.22 | ||||||||||||
| Basic net income per common share |
$ | — | $ | 0.19 | a | $ | — | $ | 0.19 | |||||||
| Diluted income (loss) per common share from continuing operations |
$ | (0.01 | ) | $ | 0.01 | $ | (0.02 | ) | $ | (0.03 | ) | |||||
| Diluted income per common share from discontinued operations |
0.01 | 0.18 | 0.02 | 0.22 | ||||||||||||
| Diluted net income per common share |
$ | — | $ | 0.19 | $ | — | $ | 0.19 | ||||||||
| Weighted average basic common shares |
31,248 | 30,597 | 31,798 | 30,383 | ||||||||||||
| Weighted average diluted common shares |
31,248 | 31,583 | 31,798 | 30,383 | ||||||||||||
| a– | For the quarter ended September 30, 2003, basic net income per share for continuing operations and discontinued operations do not sum to total basic net income per share due to rounding. |
See the accompanying notes to unaudited condensed consolidated financial statements.
4
CAPTARIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | (10 | ) | $ | 5,651 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
2,849 | 3,184 | ||||||
| Loss on disposition of equipment |
— | 118 | ||||||
| Gain on sale of discontinued product line CallXpress |
— | (2,088 | ) | |||||
| Gain on sale of discontinued operations MediaLinq, net of income taxes |
(607 | ) | (5,899 | ) | ||||
| Stock compensation (benefit) expense |
(194 | ) | 2,820 | |||||
| Stock issued for consulting services |
— | 6 | ||||||
| Restructuring charges |
— | 177 | ||||||
| Bad debt provision |
116 | 504 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
2,312 | 1,648 | ||||||
| Inventories |
1,203 | 954 | ||||||
| Prepaid expenses and other assets |
(530 | ) | (756 | ) | ||||
| Deferred income tax assets |
(353 | ) | (1,844 | ) | ||||
| Accounts payable |
(760 | ) | (1,666 | ) | ||||
| Accrued compensation and benefits |
(1,566 | ) | (1,010 | ) | ||||
| Other accrued liabilities |
30 | 672 | ||||||
| Income taxes payable |
(1,753 | ) | 1,856 | |||||
| Deferred revenue |
2,842 | 751 | ||||||
| Net cash flow provided by operating activities |
3,579 | 5,078 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchase of equipment and leasehold improvements |
(2,565 | ) | (2,565 | ) | ||||
| Purchase of investments |
(67,236 | ) | (53,961 | ) | ||||
| Purchase of businesses, net of cash acquired |
(170 | ) | (7,253 | ) | ||||
| Proceeds from sale of discontinued product line CallXpress |
— | 2,500 | ||||||
| Proceeds from sale of discontinued operations MediaLinq, net of income taxes |
||||||||