-----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, HeSGSZ9qvaA9Vb70xeT+fjLW4HhvxrF0DMFL9QuQnsCifDA0j3s/Tlw19o3Fhiqi r1ivUCSCHuNu/xnnth7rjQ== 0000950135-96-001540.txt : 19960329 0000950135-96-001540.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950135-96-001540 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER IDENTICS CORP /MA/ CENTRAL INDEX KEY: 0000023023 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 042443539 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11704 FILM NUMBER: 96540312 BUSINESS ADDRESS: STREET 1: 5 SHAWMUT RD CITY: CANTON STATE: MA ZIP: 02021 BUSINESS PHONE: 6178210830 MAIL ADDRESS: STREET 1: 5 SHAWMUT ROAD CITY: CANTON STATE: MA ZIP: 02021 10-K 1 COMPUTER IDENTICS CORPORATION 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) /x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995. OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO Commission file number 0-11704 COMPUTER IDENTICS CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2443539 (State or other jurisdiction (I.R.S. Employer Identification Number) of incorporation or organization) 5 SHAWMUT ROAD, CANTON, MASSACHUSETTS 02021 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 821-0830 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED - ------------------- ------------------------ None None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 per value (Title of Class) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / Non-affiliates of the registrant owned approximately $13,180,000 in the aggregate market value of registrant's voting stock based upon the closing price for such stock in the over-the-counter market on March 15, 1996. As of March 15, 1996, there were outstanding 10,866,793 shares of the registrant's voting common stock, $.10 par value per share. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART INTO WHICH INCORPORATED -------- ---------------------------- Proxy Statement for Annual Meeting of Part III Stockholders to be held May 14, 1996
================================================================================ 2 PART I ITEM 1. BUSINESS General Founded in 1968, Computer Identics Corporation, a Massachusetts corporation (the "Company") designs, manufactures, markets and services standard bar code products, data collection networks, and systems for the data collection and material handling/industrial markets. The Company markets its products in the United States through its direct sales organization and through distributors, system integrators and value added resellers. As an international organization, the Company and its foreign subsidiaries have sales and service offices located in Canada, Belgium, France, Germany and the United Kingdom, as well as a network of distributors and systems integrators in locations throughout the world. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for additional discussion of developments for the year ended December 31, 1995. Bar Code Technology A bar code label consists of bars printed on a contrasting background. By varying the width of the printed bars as well as the spaces between them, a bar code label can be encoded with information such as identification number, origin, composition or destination of the product to which the label is attached. Bar code scanners read bar codes with high intensity light and convert the reflected light patterns into electrical impulses. These impulses are transmitted to a decoding unit which translates them to conventional digital information for use by a customer in accordance with specific application requirements. Scanning and decoding units, as well as other data entry terminals, can be grouped into a network for high speed data transmission between the units and a larger host computer system. Company Products The Company designs, manufactures or purchases for resale, and services a broad line of bar code data collection products, both hardware and software, all of which are within one industry segment. For discussion purposes, however, the Company categorizes its product line into four different product groups: (a) Material Handling Data Identification Products: The Company manufactures a series of fixed position laser scanners for automation and material handling applications found in warehousing, distribution and manufacturing control environments. In 1995, the Company introduced the CiMAX(TM) 7500 scanner. The CiMAX 7500 is an intelligent, fixed position laser scanner with Ethernet networking capabilities. It is designed specifically for material handling applications where high reading rates, high throughput, and local or networked distributed processing and control are important to application success. The CiMAX 7500 combines the capabilities of a scanner, decoder, PC and PLC in one product. The OMNI CIX(TM), an omnidirectional fixed position laser scanner designed specifically for material handling applications where the bar code label or labeled item can be rotated at any angle, was introduced in 1 3 1994. The Scanstar(TM) 10/15 miniature bar code scanner and the Scanstar 80/85 high performance scanner are utilized in factories, warehouses and distribution centers to identify, count, sort or direct objects as they move throughout a facility on a conveyor system. These series of scanners are available with a range of sophisticated operational features whose physical characteristics and built-in options address a wide variety of customer requirements. (b) Factory Data Collection Terminals and Networks: For factory data collection applications, which includes scanners, terminals and workstations, as well as a network to provide data communications between its various units, the Company manufactures the Starnode Data Collection System. These products are used in a wide range of applications such as production accounting, labor reporting and work-in-process tracking where accurate data collection and management is essential. The heart of the Starnode system is an intelligent network controller which when connected to a series of bar code data collection terminals and scanning devices, provide the necessary components for a turnkey batch data collection system, an on-line data collection system or a store and forward system for a host computer. The Starnode(TM) Data Collection System also includes software to operate the system and assist in various applications. In 1995, the Company introduced the CiMAX 6000, an open system based data collection terminal. The CiMAX 6000 is ideal for applications such as quality control, work in process and shipping and receiving. It interfaces to any host computer using the established TCP/IP connectivity protocol and Ethernet transport hardware. Additionally, the CiMAX 6000 is supported by the Company's widely deployed Starnode Data Collection Network enabling users to select the computing environment that best suits their requirements. (c) Bar Code Tools: The Company also manufactures or purchases for resale a range of bar code data collection tools. Included in this category are bar code label printers, decoders, hand held scanning devices and portable bar code terminals. (d) Customer Support Services: The Company's service organization offers its customers a variety of support services including custom software and systems, field or depot repair, site installation services, training and technical support. Customers; Marketing Arrangements; Exports The Company's customers encompass a wide cross-section of businesses and institutions, including postal services, freight companies, and manufacturers of electronics, pharmaceuticals, consumer goods, textiles and automobiles. 2 4 During 1993, one customer, Canada Post, accounted for approximately 10% of the Company's revenue. During 1995 and 1994 no one customer accounted for more than 10% of revenue. The Company's product line is sold by its direct sales organizations in the United States and its foreign subsidiaries in Canada, Belgium, France, Germany and the United Kingdom. It also distributes its products in these areas and other parts of the world through distributors, value added resellers and systems integrators. The Company also sells products and components to original equipment manufacturers ("OEMs"), including materials handling equipment manufacturers and system integration firms. These firms combine the Company's products with other hardware and software to create customized information and control systems for sale to end-users. The Company offers a six month to one year warranty on its products. Warranty claims have not been significant in the last 10 years. Sales by the Company's Canadian subsidiary, its four European subsidiaries and other export sales, principally to Korea, Australia, New Zealand, and other non-European countries, accounted for approximately 60%, 52%, and 57% of the Company's revenue in 1995, 1994, and 1993, respectively. For additional information regarding foreign and domestic operations, see Note 9 to the Consolidated Financial Statements in Part II. Manufacturing and Supply The Company designs and manufactures the majority of the items in its product line. The Company's manufacturing operations consist primarily of assembling electrical and mechanical components that have been purchased from vendors, testing the resulting products, and shipping finished products to customers. Some suppliers are the Company's sole source for certain components. Should products become unavailable from existing suppliers, other sources would be available, although added costs and manufacturing delays might result. From time to time, the Company experiences difficulty in obtaining product components during periods when there is a general shortage of parts in the electronics industry resulting in production and shipping delays. The Company's Service Division provides repair and maintenance for all product lines. Most service activities are performed on a return-to-factory basis. Competition The bar code industry is highly competitive. Several of the firms with which the Company competes directly have greater financial, technical and marketing resources than the Company. In the area of information and control systems, the Company also competes with OEMs and end-users who act as their own system assemblers and integrators. The Company faces the possibility of changes in market 3 5 share due to technological innovation, shifting product emphasis among existing competitors and new entrants into the marketplace. The Company also faces competition in some applications from companies offering automatic identification equipment and systems not based on bar code technology. Examples of such alternative technologies include optical character recognition, magnetic character recognition and radio frequency data collection and transmission. The Company competes primarily on the basis of the quality, price and performance of its products and services and continuing product innovation in a rapidly changing environment. Patents and Licenses The Company holds domestic and foreign patents which it considers of limited value and relies for its success primarily on the quality of its products and services and continuing product innovations. Backlog; Working Capital As of December 31, 1995, the Company had a backlog of firm orders of approximately $3.5 million. This backlog is scheduled to be shipped in the Company's 1996 fiscal year. At December 31, 1994, backlog was approximately $3.1 million, and was shipped in the 1995 fiscal year. The Company's business is influenced by capital spending patterns of its customers which have in some years a greater impact on sales in the fourth quarter. The Company has significant working capital requirements in order to stock an adequate number of standard products to fill orders on short notice and to produce and complete systems. Domestic sales of standard products are generally on 30 day open account terms and credit terms for foreign sales are 30 days, subject to a letter of credit where credit risk considerations warrant. For further information regarding the Company's working capital position, see "Liquidity and Capital Resources" under "Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Product Development The Company expended approximately $2.5, $2.2 and $1.9 million for Company sponsored research and development, both hardware and software, during fiscal years 1995, 1994 and 1993, respectively. Software is becoming a greater portion of the total development effort as the complexity of the product increases with the use of integrated circuits and microprocessors. The Company's current efforts are directed at improving and enhancing its product line through the introduction of successor models with higher performance levels, greater capacity and more attractive packaging and lower costs through miniaturization and the increased use of integrated circuitry. 4 6 For 1996, the Company has introduced three new product offerings. These are the OMNI-CIX-M(TM), a mini omni directional scanner, the CiMAX 7800, a high performance fixed position laser scanner with auto focus capabilities, and the CiMAX 6100 Controller, an open systems terminal which provides both decoding and code reconstruction functions. Two significant product introductions for 1995 were the CiMAX 7500, an intelligent, fixed position laser scanner, and the CiMAX 6000, an open systems based data collection terminal. Government Regulation The Office of Radiological Health (ORH) of the Food and Drug Administration has promulgated regulations applicable to manufacturers of laser products. Such regulations classify laser products by assessable radiation levels and establish standards for protective housing, safety interlocks and the affixing of labels alerting users not to stare into the laser beam. ORH also requires manufacturers to file annual laser product reports. The Company believes that it has complied with these regulations. While the nature and scope of these regulations could change in the future, the Company would not expect the same to have a material affect on capital expenditures, earnings or competitive position. Employees As of December 31, 1995, the Company had 138 full-time employees and 6 part-time employees. There are no collective bargaining agreements with the Company. The Company considers its relations with its employees to be excellent. Executive Officers of the Registrant The following persons hold, as of the date of this filing, the executive offices indicated opposite their name.
Name Age Title - ---- --- ----- Richard C. Close 53 President, Chief Executive Officer Jeffrey A. Weber 49 Senior Vice President - Operations and Finance, Treasurer Thomas J. Chisholm 46 Vice President - Research and Development Stephen L. Abbey 43 Vice President - Sales and Marketing, North America
Executive officers are chosen by and serve at the discretion of the Board of Directors of the Company. 5 7 Mr. Close joined the Company in May, 1993 as President. For more than five years prior to that, Mr. Close had been President of Kodak Electronic Printing Systems, Inc., a manufacturer of digital pre-press equipment for the printing and publishing industries. Mr. Close has been a Director of the Company since May, 1992. Mr. Weber joined the Company in June 1994 as Senior Vice President - Operations and Finance, and Treasurer. From 1991 to 1994, Mr. Weber was first Vice President - Finance and Chief Operating Officer, and then President and Chief Executive Officer of Geo. E. Keith Company, a shoe manufacturer. Mr. Chisholm joined the Company in 1983 as Manager of Engineering, and served as Vice President of Engineering from 1986 to 1991, and Vice President - Material Handling from 1991 to 1993. Mr. Chisholm became Vice President - Research and Development in 1993. Mr. Abbey joined the Company in February 1995 as Vice President - Sales and Marketing, North America. From 1993 to 1995, Mr. Abbey was Vice President - Sales and Marketing for Howtek, Inc., an electronic imaging company for the graphic arts industry. From 1989 to 1993, Mr. Abbey was Vice President and General Manager of Professional Color Systems for Kodak Electronic Printing Systems, Inc., a manufacturer of digital pre-press equipment for the printing and publishing industries. ITEM 2. PROPERTIES The Company's principal executive office and manufacturing facilities occupy 60,000 square feet leased in a building in Canton, Massachusetts near the junction of Massachusetts Route 128 and Interstate 95. The Company occupies the premises under a lease expiring in July, 1998. The European subsidiaries occupy sales office facilities under leases that continue through 1996. The Company considers its present facilities to be adequate for its present business and any expansion in its business which may occur in the foreseeable future. ITEM 3. LEGAL PROCEEDINGS None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 6 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS (a) Shares of the Company's Common Stock are traded on the over-the-counter market and prices are quoted in the National Market listings of the National Association of Securities Dealers Automated Quotation System. The following table sets forth, for the quarters indicated, the high and low bid prices of the Common Stock:
1995 High Low ---- ---- --- First Quarter 2 7/16 1 5/8 Second Quarter 3 3/4 1 3/4 Third Quarter 4 2 5/8 Fourth Quarter 3 1/16 2 5/8 1994 High Low ---- ---- --- First Quarter 1 5/16 1 1/8 Second Quarter 1 9/16 1 1/16 Third Quarter 1 19/32 1 1/16 Fourth Quarter 2 1 1/8
Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. (b) As of February 15, 1996 there were approximately 463 holders of record of shares of the Company's Common Stock. This number does not reflect those individuals and institutions who hold shares of the Company's Common Stock through accounts with stockbrokers. (c) The Company has never paid cash dividends on shares of its Common Stock and does not expect to do so in the foreseeable future. 7 9 ITEM 6. SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS DATA:
(In Thousands, Except Per Share Amounts) 1995 1994 1993 1992 1991 -------------------------------------------------------- Revenue $ 27,745 $ 26,026 $ 21,890 $ 21,973 $ 20,641 Cost of Revenue 14,065 13,485 11,713 10,827 10,619 Selling, General and Administrative Expense 10,433 10,295 8,775 8,642 8,047 Research and Development Expenses 2,545 2,242 1,861 1,470 994 Separation Costs - 469 541 - - Provision for Income Taxes 14 64 63 177 234 Net Income (Loss) 683 (510) (1,026) 875 760 Net Income (Loss) per Share 0.06 (0.05) (0.10) 0.09 0.08 BALANCE SHEET DATA: Working Capital $ 6,335 $ 5,299 $ 5,143 $ 5,831 $ 4,721 Total Assets 12,748 10,986 10,203 9,930 9,163 Long-Term Debt 57 72 20 51 79 Accumulated Deficit (17,889) (18,572) (18,062) (17,036) (17,911) Stockholders' Equity 7,207 5,986 5,921 6,806 5,671
The Company has never paid cash dividends on shares of its Common Stock. 8 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income for 1995 was $683,000 and represents the Company's first profitable year since 1992. The last two years, 1994 and 1993, reflected significant changes within the Company. A new President and Chief Executive Officer was appointed in 1993 and a cost savings and reduction in work force program was accomplished in 1994. These efforts resulted in one-time separation charges of $469,000 and $541,000 for 1994 and 1993, respectively. The net loss was $510,000 and $1,026,000 for 1994 and 1993, respectively. Revenues for 1995 were 7% above 1994 results. European and Rest of World revenues in 1995 increased by 24% and 22%, respectively. North America revenue declined by 11% in 1995 as compared to 1994. Revenues for 1994 were 19% above 1993 results and excluding the substantial 1993 Canada Post contract, revenue would have increased 30% on a year-to-year comparative basis. The 1994 revenue gains were reflected in all three geographic areas of the Company. Bookings increased 10% for 1995 and 1994 compared to the prior year. Backlog at December 31 was $3.5, $3.1 and $3.7 million for 1995, 1994 and 1993, respectively. Revenue growth is primarily attributable to: a broader product line; recovery of the European economy; increased penetration in the Far East/Asia market; and improved sales productivity in North America in 1994. Service revenue increased 5% in 1995 as compared to 1994. Service revenue in 1994 was 25% below 1993 levels primarily due to two factors: first, a 20% one-time increase in service revenues in 1993 due to the Canada Post contract and second, the elimination from the service base of those older products that have been removed from the Company's product line. Sales by the Company's four European subsidiaries, the Canadian subsidiary, and exports to the Rest of the World were 60%, 52% and 57% of total revenue for the years ended December 31, 1995, 1994, and 1993, respectively. The high 1993 level is due to the Canada Post contract, which accounted for almost 10% of the total worldwide revenue. The significantly high 1995 level is due to the 20% plus revenue growth in Europe and Rest of World coupled with a softening in the North American market. Since more than half of the Company's revenue is derived from foreign sources, its operating results can be sensitive to foreign currency fluctuations. In 1995, these foreign currency fluctuations worked in the Company's favor. The Company has available through a domestic commercial bank a program available to hedge its foreign denominated accounts receivable in an effort to minimize foreign currency exposure. These hedging activities are basic, straightforward arrangements and do not involve the use of any other unusual forms of derivatives. At December 31, 1995, the Company did not have any hedging contracts outstanding. Gross margin from product and services was 49%, 48% and 46% for 1995, 1994 and 1993, respectively. Product gross margin was 50%, 48% and 47% for 1995, 1994, and 1993, respectively. The increase in 1995 product gross margin to 50% reflects manufacturing efficiencies, primarily due to subcontracting components such as circuit boards on a complete turnkey basis. Service gross margin in 1995 and 1994 was 45% and 46%, respectively. These two years were both higher than the 44% level in 1993 and reflect two factors: first, the elimination from the service base of those older products that have been removed from the Company's product line, and second, cost reductions from the 1994 restructuring program. The Company has implemented a change in distribution strategy in the North American business from direct to lower margin indirect channels. To achieve the Company's goals of a continued 9 11 positive gross margin trend will require further material and labor cost reductions in manufacturing which must more than offset the effect of the larger mix of international revenues with lower margins and the change in distribution strategy in North America. Selling, General and Administrative expenses as a percentage of revenue were 38%, 40% and 40% in 1995, 1994 and 1993, respectively. Gross spending for these expenses in 1995 were held constant while revenue increased by 7%. Research and development expenses were 9% of revenue in 1995, 1994 and 1993, respectively as the Company continued its planned program of spending on new product development. The Company's provisions for income taxes were $13,000, $64,000, and $63,000 in 1995, 1994 and 1993, respectively. Due to the Company's ability to use its U.S. net operating loss carryforwards, the provision for income taxes is comprised primarily of state and foreign income taxes for which net operating loss carryforwards are not available. The Company's revenue reflects no significant inflationary impact during the period since prices have either been constant or slightly reduced. While the exact impact is not quantifiable, inflation has increased labor costs as a component of sales and selling costs and general and administrative expenses. Liquidity and Capital Resources Management believes that continued profitable operations and the current level of working capital are sufficient to finance its needs through 1996. From a capital expenditures viewpoint, the only material capital expenditure planned for 1996 is a new management information system which has been purchased for approximately $200,000. The liquidity results over the periods under discussion are:
December 31, December 31, December 31, 1995 1994 1993 --------------------------------------------------- Working Capital $6,335,000 $5,299,000 $5,143,000 Current Ratio 2.2 to 1 2.1 to 1 2.2 to 1 Total Liability to Net Worth Ratio .8 to 1 .8 to 1 .7 to 1
Each of the liquidity factors listed have remained relatively stable as of the dates listed. Working capital has increased by $1 million in 1995 compared to 1994, primarily resulting from an increase in inventory of $521,000 and a decrease in other current liabilities of $495,000. The Company currently has two bank lines of credit available. A small line of credit is held with a Belgium bank for 5 million Belgium Francs (approximately $170,000). The principal line of credit, in the amount of $1 million, is held with a commercial bank. Computer Identics GmbH, a wholly owned German subsidiary, borrowed in DM the entire $1 million line of credit from this commercial bank. The loan is a demand note at an interest rate of 7%. These funds were used to pay down their intercompany accounts payable balance due to the Company. The Company's cash balance at 10 12 December 31, 1995 reflects the proceeds from the draw down of the $1 million line of credit. The Company also has available a program to hedge its foreign denominated accounts receivable in an effort to minimize foreign currency exposure. At December 31, 1995, the Company did not have any hedging contracts outstanding, but may utilize limited hedging in the future should the Company foresee the need. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements: Page ---- Independent Auditors Reports............................................. F-1 and F-2 Consolidated Financial Statements: Consolidated Balance Sheets, December 31, 1995 and 1994.................. F-3 Consolidated Statements of Operations For The Years Ended December 31, 1995, 1994 and 1993..................... F-4 Consolidated Statements of Stockholders' Equity For The Years Ended December 31, 1995, 1994 and 1993..................... F-5 Consolidated Statements of Cash Flows For the Years Ended December 31, l995, 1994 and 1993..................... F-6 Notes to Consolidated Financial Statements............................... F-7 Schedule II - Valuation and Qualifying Accounts.......................... F-14
11 13 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Board of Directors has appointed Ernst & Young LLP as the independent auditors to audit the Company's consolidated financial statements for the fiscal year ending December 31, 1996. Ernst & Young LLP was engaged as the Company's principal accountants to audit its financial statements on October 27, 1994. On October 21, 1994, the Company dismissed its prior independent certified public accountants, Deloitte & Touche LLP. The decision to change accountants was approved by the Audit Committee of the Board of Directors and by the Board of Directors. During (i) the fiscal years ended December 31, 1993 and 1992, and (ii) the subsequent quarterly periods ending March 31, 1994, June 30, 1994 and September 30, 1994, the Company did not have any disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Deloitte & Touche LLP would have caused them to make reference to the subject matter of the disagreements in connection with their report. The report of Deloitte & Touche LLP on the Company's financial statements for the fiscal years ended December 31, 1993 and 1992 (i) did not contain any adverse opinion or a disclaimer of opinion, and (ii) was not qualified or modified as to certainty, audit scope or accounting principles. 12 14 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is hereby incorporated by reference to the text appearing under PART I, Item 1 - Business, under the caption "Executive Officers of the Registrant" on page 5 of this report, and by reference to the information under the caption "ELECTION OF DIRECTORS" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 14, 1996 (the "1996 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The information under the captions "Compensation of Directors," "Executive Compensation," "Bonus Plan," "Stock Option Plans," and "Employment Agreements" in the Company's 1996 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the caption "Security Ownership of Directors, Officers and Certain Other Persons" in the Company's 1996 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 13 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements: The following Consolidated Financial Statements are included in Part II of this Report: (i) Independent Auditors Reports; (ii) Consolidated Balance Sheets as of December 31, 1995 and 1994; (iii) Consolidated Statements of Operations For the Years Ended December 31, 1995, 1994 and 1993; (iv) Consolidated Statements of Stockholders' Equity For the Years Ended December 31, 1995,1994 and 1993; (v) Consolidated Statements of Cash Flows For the Years Ended December 31, 1995, 1994 and 1993; (vi) Notes to Consolidated Financial Statements. 2. Financial Statement Schedule: The following Financial Statement Schedule for the years 1995, 1994 and 1993 is included in Part II of this Report: (i) Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto. 3. The following exhibits are included in Part IV of this Report: 3.1 Restated Articles of Organization effective December 21, 1984 and Amendment thereto effective June 1, 1987 (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated herein by reference). 14 16 3.2 By-laws of the Company (filed as Exhibit 3.4 to Registration Statement No. 2-85807, and incorporated herein by reference). 4.1 Copy of Common Stock certificate (filed as Exhibit 4.1 to Registration Statement No. 2-85807, and incorporated herein by reference). 10.1 Lease dated August 9, 1991 by and between the Company and AEW #1 Corporation. 10.2 Exchange Agreement dated September 25, 1980 by and between the Company and The First National Bank of Boston (filed as Exhibit 10.7 to Registration Statement No. 2-85807, and incorporated herein by reference). 10.3 Agreement dated November 30, 1990 with Hutton/PRC Technology Partners 1 (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated herein by reference). 10.4 Shareholder Agreement dated December 5, 1984, with N.V. Bekaert, S.A (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated herein by reference). 10.5 Stock Option Agreement dated December 23, 1986 by and between the Company and N.V. Bekaert S.A. (filed as Exhibit 2.2 to the Company's Current Report on Form 8-K dated December 24, 1986, and incorporated herein by reference). 10.6 Amendment and Stock Purchase Agreement dated May 30, 1986 between the Company and N.V. Bekaert S.A. (filed as Exhibit 2.3 to the Company's Current Report on Form 8-K dated December 24, 1986, and incorporated herein by reference). 10.7 Amendment No. 2 to Shareholder Agreement dated December 23, 1986 by and between the Company and N.V. Bekaert S.A. (filed as Exhibit 2.4 to the Company's Current Report on Form 8-K dated December 24, 1986, and incorporated herein by reference). 10.8 Stock Option Agreement dated December 23, 1986 by and between the Company and The Profit Sharing Plan of Eberstadt Fleming, Inc., Equity-Venture Associates and Eagle Management Company (filed as Exhibit 2.6 to the Company's Current Report on Form 8-K dated December 24, 1986, and incorporated herein by reference). 10.9 Amendment No. 1 to Stock Option Agreement dated March 13, 1987 by and between the Company and The Profit Sharing Plan of Eberstadt Fleming, Inc., Equity-Venture Associates and Eagle Management Company (filed as Exhibit D to Form 13(d)(1) filed by Eberstadt Fleming, Inc. on March 20, 1987, and incorporated herein by reference). 15 17 10.10 Amendment No. 3 to Shareholder Agreement dated January 9, 1987 by and between the Company and N.V. Bekaert S.A. (filed as Exhibit Y to Form 13(d)(1) filed by N.V. Bekaert S.A. on January 14, 1987 (SEC File No. 5-34608), and incorporated herein by reference). 10.11 Amendment No. 4 to Shareholder Agreement dated March 13, 1987 by and between the Company and N.V. Bekaert S.A. (filed as Exhibit Z to Form 13(d)(1) filed by N.V. Bekaert S.A. on March 13, 1987, and incorporated herein by reference). 10.12 Amendment No. 1 to Stock Option Agreement dated March 13, 1987 by and between the Company and N.V. Bekaert S.A. (filed as Exhibit AA to Form 13(d)(1) filed by N.V. Bekaert S.A. on March 13, 1987, and incorporated herein by reference). 10.13 Loan Agreement and Stock Option Agreement dated March 13, 1987 by and between the Company and K.J. Hirshman, H.P. Hirshman and Fairfield Lease Corporation Profit Sharing Trust (filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year ended December 31, 1986, and incorporated herein by reference). 10.14 Loan Agreement and Stock Option Agreement dated November 19, 1987, by and between the Company and C.O. Henriksson, T. Kohn, C.W. Wilcox (filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987, and incorporated herein by reference). 10.15 Offer to Convert Notes dated December 1, 1987, by the Company to the holders of Subordinated Notes (filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987, and incorporated herein by reference). 10.16 Employment Agreement dated December 30, 1988, between the Company and Frank J. Wezniak (filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated herein by reference).* 10.17 The Company's 1987 Incentive Stock Option Plan, as amended (filed as Exhibit 1 to the Company's Proxy Statement for the Annual Meeting of Stockholders held on May 16, 1989, and incorporated herein by reference). 10.18 Second Stock Purchase Agreement and Amendment No. 5 to Shareholder Agreement dated November 16, 1987, by and between the Company and N.V. Bekaert S.A. (filed as Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987, and incorporated herein by reference). 10.19 Restricted Stock Plan for Non-Employee Directors (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated herein by reference).* 16 18 10.20 Separation and Transition Agreement dated as of April 2, 1993 between and Company and Frank J. Wezniak (filed as Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).* 10.21 Employment Agreement dated as of April 6, 1993 between the Company and Richard C. Close (filed as Exhibit 19.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).* 10.22 Employment Agreement dated as of May 26, 1993 between the Company and John C. Shoemaker (filed as exhibit 19.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).* 10.23 The Company's 1993 Stock Incentive Plan (filed as Exhibit 1 to the Company's Proxy Statement for the Annual Meeting of Stockholders held on May 18, 1993, and incorporated herein by reference).* 10.24 Employment Agreement dated as of May 10, 1994, between the Company and Jeffrey A. Weber (filed as Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 and incorporated herein by reference).* 10.25 The Company's 1994 Restricted Stock Plan for Nonemployee Directors (filed as Exhibit I to the Company's Proxy Statement for Special Meeting in lieu of Annual Meeting for Stockholders held on May 10, 1994 and incorporated herein by reference).* 11 Statement regarding computation of per share earnings. (See footnote 1 to Notes to Consolidated Financial Statements). 21.1 Subsidiaries of Computer Identics Corporation. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Deloitte & Touche LLP. 27 Financial Data Schedule (b) Reports on Form 8-K: None * Management Contract. 17 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. COMPUTER IDENTICS CORPORATION By: /s/ Richard C. Close -------------------------------- Richard C. Close (President and Principal Executive Officer) Date: March 15, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 15, 1996 /s/ Richard C. Close ----------------------------- Richard C. Close (President; Principal Executive Officer and Director) March 15, 1996 /s/ Jeffrey A. Weber ----------------------------- Jeffrey A. Weber (Senior Vice President, Operations and Finance; Principal Financial and Accounting Officer) March 15, 1996 /s/ Tomas Kohn ----------------------------- Tomas Kohn (Director and Chairman of the Board of Directors) March 15, 1996 /s/ John M. Hill ----------------------------- John M. Hill (Director) March 15, 1996 /s/ Jan A. Smolders ----------------------------- Jan A. Smolders (Director) March 15, 1996 /s/ Edward J. Stewart, III ----------------------------- Edward J. Stewart, III (Director) March 15, 1996 /s/ Richard S. Wilcox ----------------------------- Richard S. Wilcox (Director) 20 [ERNST & YOUNG LLP LETTERHEAD] REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Computer Identics Corporation: We have audited the accompanying consolidated balance sheets of Computer Identics Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a) for the years ended December 31, 1995 and 1994. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Computer Identics Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations, and their cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the years ended December 31, 1995 and 1994, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ERNST & YOUNG LLP -------------------- February 8, 1996 Ernst & Young LLP F-1 21 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Computer Identics Corporation: We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of Computer Identics Corporation and its subsidiaries for the year ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our audits also included the financial statement schedule listed in the Index at Item 14(a). Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Computer Identics Corporation and subsidiaries for the year ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP Boston, Massachusetts January 28, 1994 F-2 22 CONSOLIDATED BALANCE SHEETS COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES (All amounts in thousands, except share amounts) December 31,
- --------------------------------------------------------------------------------------------------------------- 1995 1994 - --------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 1,752 $ 755 Accounts receivable (less allowance of $225 in 1995 and $321 in 1994 for doubtful accounts) 6,062 6,130 Inventory 3,625 3,104 Other 380 238 - --------------------------------------------------------------------------------------------------------------- Total current assets 11,819 10,227 - --------------------------------------------------------------------------------------------------------------- Property and equipment: Equipment 3,674 3,086 Furniture and fixtures 324 256 Leasehold improvements 64 59 - --------------------------------------------------------------------------------------------------------------- Total property and equipment 4,062 3,401 Less accumulated depreciation and amortization (3,133) (2,646) - --------------------------------------------------------------------------------------------------------------- Net property and equipment 929 755 - --------------------------------------------------------------------------------------------------------------- Other assets 0 4 - --------------------------------------------------------------------------------------------------------------- Total $ 12,748 $ 10,986 =============================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable to bank 1,002 -- Obligation under capital lease 15 30 Accounts payable 2,402 2,334 Accrued compensation and related benefits 1,063 998 Accrued income taxes 29 32 Other current liabilities 684 1,179 Deferred revenue 289 355 - --------------------------------------------------------------------------------------------------------------- Total current liabilities 5,484 4,928 - --------------------------------------------------------------------------------------------------------------- Long-term capital lease obligation 57 72 - --------------------------------------------------------------------------------------------------------------- Stockholders' equity : Nonvoting common stock $.01 par value, authorized 600,000 shares issued and outstanding; 0 shares in 1995, 135,431 shares in 1994 -- 1 Common stock, $.10 par value, authorized 14,000,000 shares, issued and outstanding 10,856,793 in 1995 and 10,390,562 shares in 1994 1,086 1,039 Additional paid-in capital 24,005 23,585 Deferred compensation (60) (54) Accumulated deficit (17,889) (18,572) Cumulative translation adjustments 65 (13) - --------------------------------------------------------------------------------------------------------------- Total stockholders' equity 7,207 5,986 - --------------------------------------------------------------------------------------------------------------- Total $ 12,748 $ 10,986 ===============================================================================================================
See notes to consolidated financial statements. F-3 23 CONSOLIDATED STATEMENTS OF OPERATIONS COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES (All amounts in thousands, except per share amounts) Year Ended December 31,
1995 1994 1993 - -------------------------------------------------------------------------------------------------- Revenues: Net product sales $24,390 $22,918 $17,710 Customer support services 3,355 3,108 4,180 - -------------------------------------------------------------------------------------------------- Total 27,745 26,026 21,890 - -------------------------------------------------------------------------------------------------- Cost and expenses: Cost of products sold 12,217 11,820 9,368 Cost of customer support services 1,848 1,665 2,345 Selling, general and administrative 10,433 10,295 8,775 Research and development 2,545 2,242 1,861 Separation costs -- 469 541 - -------------------------------------------------------------------------------------------------- Total 27,043 26,491 22,890 - -------------------------------------------------------------------------------------------------- Income (loss) from operations 702 (465) (1,000) Interest income 38 26 48 Interest expense (43) (7) (11) - -------------------------------------------------------------------------------------------------- Income (loss) before provision for income taxes 697 (446) (963) Provision for income taxes 14 64 63 - -------------------------------------------------------------------------------------------------- Net income (loss) $ 683 $ (510) $(1,026) ================================================================================================== Net income (loss) per share $ 0.06 $ (0.05) $ (0.10) ================================================================================================== Weighted average number of common and common equivalent shares outstanding 10,977 10,339 9,893 ==================================================================================================
See notes to consolidated financial statements. F-4 24 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES (All amounts in thousands)
Nonvoting Common Stock Common Stock Additional Cumulative ------------------------------ Paid-in Deferred Accumulated Translation Shares Amount Shares Amount Capital Compensation Deficit Adjustments Total ------------------------------------------------------------------------------------------- Balance, January 1, 1993 325 $ 3 9,459 $ 946 $22,909 $ (13) $(17,036) $ (2) $ 6,807 Conversion of stock (100) (1) 100 10 (9) 0 Exercise of stock options 203 20 132 152 Issuance of common stock 96 10 134 (144) 0 Compensation expense recognized 44 44 Net loss (1,026) (1,026) Translation adjustment (56) (56) - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 225 2 9,858 986 23,166 (113) (18,062) (58) 5,921 Conversion of stock (90) (1) 90 9 (8) 0 Exercise of stock options and other employee awards 93 9 92 101 Issuance of common stock and exercise of warrant by former President 350 35 335 370 Compensation expense recognized 59 59 Net loss (510) (510) Translation adjustment 45 45 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 135 1 10,391 1,039 23,585 (54) (18,572) (13) 5,986 Conversion of stock (135) (1) 135 14 (13) 0 Exercise of stock options 183 18 217 235 Issuance of common stock 148 15 216 (83) 148 Compensation expense recognized 77 77 Net income 683 683 Translation adjustment 78 78 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 0 $ - 10,857 $1,086 $24,005 $ (60) $(17,889) $ 65 $ 7,207 ==================================================================================================================================
See notes to consolidated financial statements. F-5 25 CONSOLIDATED STATEMENTS OF CASH FLOWS COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES (All amounts in thousands) Years Ended December 31,
1995 1994 1993 - ------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 683 $ (510) $(1,026) - ------------------------------------------------------------------------------------------ Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 454 440 498 Other -- -- (19) Non-cash compensation 106 80 44 Non-cash seperation costs -- -- 384 Increase (decrease) in cash from: Accounts receivable 108 (1,531) (643) Inventory (312) (364) (209) Other current assets (171) (6) 73 Accounts payable 49 922 706 Accrued compensation and related benefits 38 216 127 Accrued income taxes (3) (39) (31) Other current liabilities (530) 141 (53) Deferred revenue (73) (153) 70 - ------------------------------------------------------------------------------------------ Total adjustments (334) (294) 947 - ------------------------------------------------------------------------------------------ Net cash provided by (used for) operating activities 349 (804) (79) - ------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment (619) (293) (292) Decrease in other assets 4 -- 11 - ------------------------------------------------------------------------------------------ Net cash used for investing activities (615) (293) (281) - ------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Notes payable to bank 1,002 -- -- Principal payments under capital lease obligations (15) (34) (29) Proceeds from exercise of stock options 235 81 153 Proceeds from exercise of warrant -- 105 -- - ------------------------------------------------------------------------------------------ Net cash provided by financing activities 1,222 152 124 - ------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash and cash equivalents 41 26 (33) - ------------------------------------------------------------------------------------------ Net increase(decrease) in cash and cash equivalents 997 (919) (269) - ------------------------------------------------------------------------------------------ Cash and cash equivalents, beginning of year 755 1,674 1,943 - ------------------------------------------------------------------------------------------ Cash and cash equivalents, end of year $1,752 $ 755 $ 1,674 - ------------------------------------------------------------------------------------------ SUPPLEMENTAL INFORMATION Cash paid for interest $ 44 $ 7 $ 11 - ------------------------------------------------------------------------------------------ Cash paid for income taxes $ 36 $ 44 $ 147 - ------------------------------------------------------------------------------------------ Supplemental disclosure of noncash activity: Acquisition of assets by capital leasing $ -- $ 88 $ -- ==========================================================================================
See notes to consolidated financial statements. F-6 26 COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in thousands, except share and per share amounts) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business - Computer Identics Corporation, designs, manufactures, markets and services standard bar code products and systems for the data collection and material handling/industrial markets. The Company markets its products in the United States through its direct sales organization and through system integrators and value added resellers. As an international organization, the Company and its foreign subsidiaries have sales and service offices located in Belgium, France, Germany and the United Kingdom as well as a network of distributors and systems integrators in locations throughout the world. Credit is extended to customers based on an evaluation of the customer's financial condition, and generally collateral is not required. Credit losses are provided for in the financial statements and consistently have been within management's expectations. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts are eliminated in consolidation. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates that effect the financial statements include the realizability of deferred tax assets, warranty accruals, and allowances for doubtful accounts. Cash equivalents - Cash equivalents are defined as highly liquid investments with maturities of three months or less at date of purchase. Inventory valuation - Inventory is recorded at the lower of cost (first-in, first-out method) or market. Property and equipment and depreciation - Property and equipment are stated at cost. Depreciation is computed principally on the straight-line method over the assets' estimated useful lives. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. Foreign currency translation - Assets and liabilities of the Company's foreign subsidiaries are translated at current exchange rates. Revenues, costs, and expenses are translated at the average exchange rates for the period. Translation adjustments resulting from changes in exchange rates are reported as a separate component of stockholders' equity. Foreign currency transaction gains and (losses) are included in the determination of net income and were $163, ($91) and ($95) in 1995, 1994 and 1993, respectively. F-7 27 Revenue - Revenue from product sales is recognized upon shipment. Revenues from services are recognized ratably over the contract period or as services are performed. Research and Development - Expenditures for research and development are charged to expense as incurred. Income taxes - The Company accounts for income taxes in accordance with FASB Statement No. 109 "Accounting for Income Taxes" ("Statement 109"). Tax provisions and credits are recorded at statutory rates for taxable items included in the consolidated statements of income regardless of the period for which such items are reported for tax purposes. Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities for which income tax benefits will be realized in future years. New Accounting Standards - The Company has not yet adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" which will require adoption in 1996. The adoption of this statement is not expected to have a material impact on the Company's consolidated financial statements. Stock Compensation Arrangements - The Company accounts for its stock compensation arrangements under the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and intends to continue to do so. Net Income per common share - Net income (loss) per common share is computed based on the weighted average number of common and the dilutive effect of common equivalent shares outstanding for the period. Reclassification - Certain amounts in prior years have been reclassified to conform to the 1995 presentation. 2. INVENTORIES Inventories consist of the following:
December 31 ------------------- 1995 1994 ------------------- Raw materials $1,821 $1,422 Work in process 336 230 Finished goods 1,468 1,452 =================== $3,625 $3,104 ===================
F-8 28 3. CREDIT ARRANGEMENTS AND CAPITAL LEASE OBLIGATIONS The Company has an unsecured line of credit arrangement with a domestic bank which provide borrowings up to $1,000. In 1995 the entire line of credit was borrowed in DM and transferred to the Company's German subsidiary to reduce intercompany payables. The borrowings at year end amounted to $1,002, accrue interest at a rate of 7.0%, and are payable on demand. The carrying amount approximates its fair market value. The Company's Belgium subsidiary has a 5 million Belgium Franc (approximately $170) line of credit with a Belgium bank. There were no borrowings outstanding on this facility in 1995. Interest is payable quarterly at the bank's base rate less .25%. Borrowings are guaranteed by the Company. Payments under the capital lease obligation are due as follows:
Year Ending December 31 ---------------------------------------------- 1996 $ 24 1997 24 1998 24 1999 22 2000 - ---------------------------------------------- Total $ 94 Less portion representing interest (22) ---------------------------------------------- Total obligation under capital lease $ 72
The carrying amounts of the capital leases were $72 in 1995 and $102 in 1994. 4. LEASING ARRANGEMENTS The Company leases its office facilities under operating lease agreements expiring through September 2001. In addition to the minimum rent, which is subject to certain escalation provisions, the Company is responsible for all taxes, insurance and operating costs. Minimum future lease payments under non-cancelable operating leases total approximately $636 in 1996, $499 in 1997, $261 in 1998, $92 in 1999, $80 in 2000, and $59 after 2000. Total rent expense was approximately $672, $640, and $607, for 1995, 1994 and 1993 respectively. 5. EMPLOYEE BENEFIT PLAN The Company has a 401K plan covering substantially all of its domestic employees. The Company matches 100% of employee's contribution up to the first $1.2 contributed by the employee. Employee contributions vest immediately, while employer contributions vest ratably over a period of five years. The Company may decide to make an additional discretionary profit sharing contribution, the amount of which is to be determined by the Board of Directors, to all eligible employees on the last day of the plan year. To date the Board has not elected to make any profit sharing contribution. The Company contributed approximately $100, $103, and $110, in 1995, 1994 and 1993 respectively. F-9 29 6. STOCKHOLDERS' EQUITY Stock Plans - In 1993, the Company discontinued the granting of stock options under its 1987 Stock Option Plan (1987 Plan) and established the 1993 Stock Incentive Plan (1993 Plan). A total of 600,000 shares of common stock have been reserved for issuance under the 1993 Plan. The 1993 Plan provides for grants of stock options, restricted stock and other incentive stock awards. The following is a summary of all stock option activity under the 1987 and 1993 plans:
Exercise Price Shares Per Share --------------------------------------------------------------- Outstanding January 1, 1993 959,000 $ .70 - 3.00 Granted 531,000 .89 - 1.50 Exercised (202,500) .70 - 1.00 Canceled (385,000) .70 - 1.50 --------------------------------------------------------------- Outstanding December 31, 1993 902,500 .81 - 3.00 Granted 312,500 1.06 - 1.75 Exercised (81,250) .81 - 3.00 Canceled (178,500) .81 - 3.00 --------------------------------------------------------------- Outstanding December 31, 1994 955,250 .81 - 3.00 Granted 240,000 1.82 - 3.06 Exercised (183,400) .81 - 1.75 Canceled (49,250) .81 - 3.00 --------------------------------------------------------------- Outstanding December 31, 1995 962,600 $ .81 - 3.06 =============================================================== Exercisable at December 31, 1995 457,050 $ .81 - 3.06 ---------------------------------------------------------------
In 1993, the Company granted 96,000 shares of restricted stock under the 1993 Plan, which vest over a three year period. Compensation expense, which accrues as the shares vest, was approximately $54 in 1995, $54 in 1994 and $36 in 1993. In March 1994, the Company established a Nonemployee Director Restricted Stock Plan and, pursuant to the plan, have issued 64,800 shares of common stock to nonemployee directors. Compensation expense, which accrues as the shares vest, was $23 in 1995. Warrants - During 1988, in connection with the guarantee of a note payable to a bank, the former President of the Company was issued a warrant to purchase 200,000 shares of common stock at $1.50 per share. The former President was also issued a warrant to purchase 150,000 shares of common stock at $.70 per share. Pursuant to the terms of a separation agreement (Note 7), the expiration dates of the warrants were extended to December 31, 1996 (200,000 shares) and December 31, 1994 (150,000 shares). The December 31, 1994 warrants were exercised in December, 1994. The December 31, 1996 warrants are fully exercisable. F-10 30 7. SEPARATION COSTS The Company implemented a cost savings program, which resulted in a reduction in its work force, in June, 1994. As part of this program, a charge of $469 was recorded in the second quarter. The charge consisted principally of employee severance and related benefit costs. In April 1993, the Company entered into a separation agreement with its former President. The agreement provided for the termination of the former President's employment contract with the Company and for certain transition and consulting services and an extended period of non-competition. As consideration, the former President received a grant of 200,000 shares of common stock, salary continuation for the balance of 1993 and the extension of the expiration dates of two warrants. (See Note 6.) 8. INCOME TAXES The components of income (loss) before provision for income taxes are as follows:
Year Ended December 31 1995 1994 1993 ----- ----- ----- Domestic $ 896 $(114) $(497) Foreign (199) (332) (466) ----- ----- ----- Total $ 697 $(446) $(963) ===== ===== =====
The provision for income taxes consists of the following:
1995 1994 1993 -------------------- Federal $ 17 -- -- State (45) $26 $ 7 Foreign 42 38 56 -------------------- Total $ 14 $64 $63 ====================
F-11 31 Income taxes (benefit) computed at the federal statutory rate differ from amounts provided as follows:
1995 1994 1993 ------------------------ Statutory rate 35.0% (35.0%) (35.0%) State taxes, less federal benefit (2.6) 3.8 0.5 Domestic losses for which no benefit was provided/(benefit) of net operating loss carryforwards utilized (46.4) 11.0 18.3 Net foreign losses for which no benefit was provided 15.9 34.6 22.7 ------------------------ Total 1.9% 14.4% 6.5% ------------------------
Deferred taxes are attributable to the following temporary differences at December 31, 1995 and 1994.
1995 1994 ---------------------- Deferred tax assets: Net operating loss carryforwards $ 3,359 $ 3,500 Tax credit carryforwards 943 600 Other deductible amounts 657 650 ---------------------- Total deferred tax assets $ 4,959 $ 4,750 Valuation allowance (4,959) (4,750) ---------------------- Deferred tax assets - net $ - $ - ======================
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $450 at December 31, 1995. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of U.S. income tax liability that would be incurred is not practicable because of the complexities associated with its hypothetical calculation. The Company has at December 31, 1995 net operating loss carryforwards available for federal income tax purposes of approximately $4,900 expiring through 2009 and investment and other tax credit carryforwards of approximately $943, which may be used to offset future federal and state income taxes, if any, expiring through 2009. The Company also has net operating loss carryforwards of $4,900 attributable to its non-U.S. operations which can be carryforwarded indefinitely. The difference between the Company's net operating loss carryforwards and its accumulated deficit at December 31, 1995 is the F-12 32 result of both the expiration of certain loss carryforwards and the utilization of certain previous years' losses in the consolidated tax return of the Company's former parent. Effective January 1, 1993, the Company adopted Statement 109. Under Statement 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. As permitted by Statement 109, the Company has elected not to restate the financial statements of any prior years. The effect of the change on net income for 1993 was not material. Prior to adoption of Statement 109, income tax expense was determined using the liability method prescribed by Statement 96, which was superseded by Statement 109. Statement 109 changes the recognition and measurement criteria included in Statement 96 for deferred tax assets. 9. FINANCIAL INFORMATION BY GEOGRAPHIC AREA Geographic area information is as follows: (All amounts in thousands of dollars)
North America Europe Eliminations Consolidated - -------------------------------------------------------------------------------------------------- 1995: Sales to unaffilitated customers $12,903 $14,842 - $27,745 Intercompany transfers 4,656 110 (4,766) - - -------------------------------------------------------------------------------------------------- Total Sales $17,559 $14,952 $(4,766) $27,745 - -------------------------------------------------------------------------------------------------- Operating income (loss) $ 901 $ (54) $ (145) $ 702 - -------------------------------------------------------------------------------------------------- Identifiable assets at December 31, 1995 $12,845 $ 6,885 $(6,982) $12,748 - -------------------------------------------------------------------------------------------------- 1994: Sales to unaffiliated customers $14,025 $12,001 - $26,026 Intercompany transfers 3,039 97 (3,136) - - -------------------------------------------------------------------------------------------------- Total Sales $17,064 $12,098 $(3,136) $26,026 - -------------------------------------------------------------------------------------------------- Operating income (loss) $ (154) $ (82) $ (229) $ (465) - -------------------------------------------------------------------------------------------------- Identifiable assets as December 31, 1994 $11,869 $ 5,993 $(6,876) $10,986 - -------------------------------------------------------------------------------------------------- 1993: Sales to unaffiliated customers $12,614 $ 9,276 - $21,890 Intercompany transfers 2,737 71 (2,808) - - -------------------------------------------------------------------------------------------------- Total Sales $15,351 $ 9,347 $(2,808) $21,890 - -------------------------------------------------------------------------------------------------- Operating income (loss) $ (668) $ (382) $ 50 $(1,000) - -------------------------------------------------------------------------------------------------- Identifiable assets at December 31, 1993 $10,710 $ 4,862 $(5,369) $10,203 - --------------------------------------------------------------------------------------------------
During 1993, one customer accounted for 10% of the Company's revenue. F-13 33 COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts Years Ended December 31, 1995, 1994 and 1993 - -------------------------------------------------------------------------------- (All amounts in thousands)
Balance at Charged to at Begining Cost and End of of Period Expenses Deductions Period ---------- ---------- ---------- ------ ALLOWANCE FOR DOUBTFUL ACCOUNTS: Year Ended December 31: 1993 $259 $ 74 $ 16 $317 ==== ==== ==== ==== 1994 $317 $ 77 $ 73 $321 ==== ==== ==== ==== 1995 $321 $ 5 $101 $225 ==== ==== ==== ==== RESERVE FOR WARRANTY EXPENSE Year Ended December 31: 1993 $172 $ 51 $ 79 $144 ==== ==== ==== ==== 1994 $144 $102 $100 $146 ==== ==== ==== ==== 1995 $146 $119 $152 $113 ==== ==== ==== ====
F-14 34 INDEX TO EXHIBITS
Exhibit Number Description - -------------- ----------- 21.1 Subsidiaries of Computer Identics Corporation 23.1 Consent of Ernst & Young LLP 23.2 Consent of Deloitte & Touche LLP 27 Financial Data Schedule
EX-21.1 2 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21.1 Subsidiaries of the Registrant
Name Jurisdiction of - ---- Organization ------------ Computer Identics N.V. /S.A. Belgium Computer Identics Ltd. England Computer Identics S.A. France Computer Identics GmbH Germany Computer Identics, Inc. Canada
EX-23.1 3 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 33-81930 and 33-32374, and Form S-3 No. 33-85508) of our report dated February 8, 1996 with respect to the 1994 and 1995 consolidated financial statements and schedule of Computer Identics Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 1995. /s/ Ernst & Young LLP Ernst & Young LLP Boston, Massachusetts March 25, 1996 EX-23.2 4 CONSENT OF DELOITTE AND TOUCHE LLP 1 Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT Computer Identics Corporation: We consent to the incorporation by reference in Registration Statement Nos. 33-32374, 33-85508 and 33-81930 of our report dated January 28, 1994, appearing, in this Annual Report on Form 10-K of Computer Identics Corporation for the year ended December 31, 1995. /s/ Deloitte & Touche LLP Boston, Massachusetts March 25, 1996 EX-27 5 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1995 DEC-31-1995 1,752,000 0 6,287,000 225,000 3,625,000 11,819,000 4,062,000 3,133,000 12,748,000 5,484,000 0 0 0 1,086,000 6,121,000 12,748,000 24,390,000 27,745,000 12,217,000 27,043,000 (38,000) 0 43,000 697,000 14,000 683,000 0 0 0 683,000 .06 .06
-----END PRIVACY-ENHANCED MESSAGE-----