-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, UkBuUfp49cxljHufwp6KPBZ3Q0eRfK2RzCOt2pUNaVGPkTR23sg++zsonX2ULRZT RMR0Se/Qa2Fs9wkgRHFNUw== 0000906602-95-000038.txt : 19950516 0000906602-95-000038.hdr.sgml : 19950516 ACCESSION NUMBER: 0000906602-95-000038 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCAN OPTICS INC CENTRAL INDEX KEY: 0000087086 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 060851857 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05265 FILM NUMBER: 95539538 BUSINESS ADDRESS: STREET 1: 22 PRESTIGE PARK CIR CITY: EAST HARTFORD STATE: CT ZIP: 06108 BUSINESS PHONE: 2032896001 MAIL ADDRESS: STREET 1: 22 PRESTIGE PARK CIR CITY: EAST HARTFORD STATE: CT ZIP: 06108 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ( X ) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1995 -------------------------------------------- ( )Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File No. 0-5265 ------------------------------------------------------ SCAN-OPTICS, INC. -------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 06-0851857 -------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 22 Prestige Park Circle, East Hartford, CT 06108 -------------------------------------------------------------------------- (Address of principal executive offices) Zip Code (203) 289-6001 -------------------------------------------------------------------------- (Registrant's telephone number, including area code) 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. ( X ) YES ( ) NO The number of shares outstanding of each of the issuer's classes of common stock, as of May 10, 1995. Common Stock, $.02 par value 6,926,197 SCAN-OPTICS, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (thousands, except share data)
March 31, 1995 December 31, 1994 ------------- ----------------- (UNAUDITED) Assets Current Assets: Cash and cash equivalents $ 124 $ 178 Accounts receivable less allowance of $279 at March 31, 1995 and December 31, 1994 10,417 9,124 Inventories 15,388 14,223 Prepaid expenses and other 1,133 1,083 ---------- ---------- Total current assets 27,062 24,608 Plant and equipment: Equipment 14,384 13,928 Leasehold improvements 2,808 2,808 Office furniture and fixtures 1,163 1,158 ---------- ---------- 18,355 17,894 Less allowances for depreciation and amortization 13,662 13,272 ---------- ---------- 4,693 4,622 Other assets 369 389 ---------- ---------- Total Assets $ 32,124 $ 29,619 ---------- ----------
March 31, 1995 December 31, 1994 ------------- ----------------- (UNAUDITED) Liabilities and Stockholders' Equity Current liabilities: Notes payable to bank $ 5,052 $ 2,265 Accounts payable 3,843 2,774 Salaries and wages 1,025 1,119 Taxes other than income taxes 349 348 Income taxes 182 175 Customer deposits 1,489 2,165 Deferred revenues, net of costs 0 30 Royalties payable 22 814 Other 910 903 ---------- ---------- Total current liabilities 12,872 10,593 Other liabilities 328 295 Stockholders' Equity Preferred stock, par value $.02 per share, authorized 5,000,000 shares; none issued or outstanding Common stock, par value $.02 per share, authorized 15,000,000 shares; issued, 6,914,013 shares at March 31, 1995 and 6,906,080 shares at December 31, 1994 138 138 Common stock Class A Convertible, par value $.02 per share, authorized 3,000,000 shares; none issued or outstanding Capital in excess of par value 34,225 34,202 Retained-earnings deficit (12,071) (12,178) Foreign currency translation adjustments (358) (388) Unearned ESOP compensation (364) (397) ---------- ---------- 21,570 21,377 Less cost of common stock in treasury, 413,500 shares 2,646 2,646 ---------- ---------- Total stockholders' equity 18,924 18,731 ---------- ---------- Total Liabilities and Stockholders' Equity $ 32,124 $ 29,619 ---------- ----------
See accompanying notes. SCAN-OPTICS, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (thousands, except share data)
Three Months Ended --------------------- March 31 1995 1994 ---------- ---------- Revenues Net sales $ 7,888 $ 6,630 Service revenues 3,489 4,167 Lease revenues 110 18 ---------- ---------- Total revenues 11,487 10,815 Costs and Expenses Cost of sales 5,416 4,008 Marketing and service expenses 3,640 4,040 Research and development expenses 1,500 1,588 General and administrative expenses 740 711 Interest expense 111 69 ---------- ---------- Total costs and expenses 11,407 10,416 ---------- ---------- Operating income 80 399 Other income, net 15 4 ---------- ---------- Income before income taxes 95 403 Income taxes (benefit) (12) 15 ---------- ---------- Net Income $ 107 $ 388 ---------- ---------- Earnings per share $ 0.02 $ 0.06 ---------- ---------- Average common and common equivalent shares 6,820,760 6,831,028
See accompanying notes. SCAN-OPTICS, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (thousands)
For the Three Months Ended ------------------------ March 31 March 31 1995 1994 ---------- ---------- Operating Activities Net income $ 107 $ 388 Adjustments to reconcile net income to net cash used by operating activities Depreciation 390 213 Amortization 165 238 Changes in operating assets and liabilities: Accounts receivable (1,293) (1,894) Receivables from sales-type leases 0 21 Inventories, prepaid expenses and other (1,388) (787) Accounts payable 1,069 1,245 Accrued expenses (86) (129) Royalties payable (792) 190 Income taxes 7 (12) Deferred revenues, net of costs (30) (492) Customer deposits (676) (1,578) Other 116 (44) ---------- ---------- Net cash used by operating activities (2,411) (2,641) Investing Activities Purchases of plant and equipment (453) (410) ---------- ---------- Net cash used by investing activities (453) (410) Financing Activities Proceeds from issuance of common stock 23 82 Proceeds from borrowings 7,410 6,583 Principal payments on borrowings (4,623) (3,791) ---------- ---------- Net cash provided by financing activities 2,810 2,874 Decrease in cash and cash equivalents (54) (177) Cash and cash equivalents at beginning of year 178 283 ---------- ---------- Cash and Cash Equivalents at End of Period $ 124 $ 106 ========== ==========
See accompanying notes. SCAN-OPTICS, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) For Quarter Ended March 31, 1995 NOTE 1 - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1995 are not necessarily indicative of the results that may be expected for the year ending December 31, 1995. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1994. NOTE 2 - Inventories The components of inventories were as follows (thousands):
March 31 December 31 1995 1994 -------- -------- Finished goods $ 2,092 $ 2,533 Work-in-process 3,567 2,506 Service parts 2,320 2,409 Materials and component parts 7,409 6,775 -------- -------- $ 15,388 $ 14,223 ======= =======
NOTE 3 - Credit Arrangements The Company has a line of credit agreement (Agreement) with a bank which expires on May 31, 1995. The Agreement has two components, a $4 million line (international) guaranteed by a third party bank which is collateralized by international accounts receivable and inventory, and which bears interest at prime (9% at March 31, 1995); and a $4 million line (domestic) which is collateralized by domestic accounts receivable and inventory, and which bears interest at prime plus 1/4% (9-1/4% at March 31, 1995). As of March 10, 1995, the company converted $2.5 million of the international line of credit to a 60 day rate of 8% (LIBOR of 6-1/4% plus 1-3/4%). The weighted average interest rates on borrowings during the first quarters of 1995 and 1994 were 8.6% and 7.5% respectively. The unused portion of the $4 million domestic line is subject to a commitment fee of 1/4% per annum. Borrowings under the Agreement are subject to various limitations based upon percentages of eligible receivables and inventories of the Company. The available balance on the total line of credit was $2,507,000 at March 31, 1995. In addition, the Agreement contains covenants SCAN-OPTICS, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) For Quarter Ended March 31, 1995 which, among other things, require the maintenance of specified working capital, debt to equity ratios, net income levels and tangible net worth levels. On March 7, 1995, the Company received a commitment letter from the bank extending the maturity date of the outstanding line of credit to May 31, 1996, subject to the extension of the guarantee by the third party bank on the $4 million international line. The Company expects that the guarantee will be extended. NOTE 4 - Income Taxes The Company has approximately $6,600,000 and $12,200,000 of net operating loss carryforwards for federal and state income tax purposes, respectively, which are scheduled to expire periodically between 1995 and 2009. For financial reporting purposes a valuation allowance has been recognized to offset the deferred tax assets related to those carryforwards and other temporary differences. Significant components of the Company's deferred tax liabilities and assets were as follows :
March 31 December 31 (thousands) 1995 1994 Deferred tax assets: Net operating losses $ 3,496 $ 3,541 Depreciation 97 97 Inventory valuation 891 964 Accounts receivable reserves 32 32 Revenue recognition 99 86 Vacation accrual 266 265 Other 252 253 ---------------------- Total deferred tax assets 5,133 5,238 Deferred tax liabilities: Depreciation and other (90) (100) Valuation allowance (5,043) (5,138) ----------------------- Net deferred taxes $ 0 $ 0 ------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources - ------------------------------- Cash and cash equivalents decreased $.1 million from December 31, 1994. Total Company borrowings increased $2.8 million from the end of 1994 to $5.1 million. The increase in borrowings is due to the timing of sales transactions and related receipts within the quarter. On March 7, 1995 the Company received a commitment letter extending the maturity date of the existing line of credit to May 31, 1996. (See Note 3 for further details). Operating activities used $2.4 million of cash in the first quarter of 1995. Accounts receivable increased $1.3 million during the first quarter of the year due to timing of first quarter sales whose collections will occur subsequent to March 31, 1995 and payment terms extended to a customer with a balance of approximately $1.8 million. Inventories increased $1.2 million in the first quarter of 1995. Total manufacturing inventories increased $1.3 million during the quarter which consisted of a $.8 million increase in work in process inventory and a $.5 million increase in the stockroom inventory which is reflective of the timing of the second quarter build process for the Series 9000 product. Manufacturing inventory fluctuations also included a $.4 million decrease in finished goods and a $.4 million increase in engineering inventory related to the development of the Series 7800 and other projects. Customer service inventories decreased by $.1 million in the first quarter. Accounts payable increased $1.1 million from December 31, 1994 due to the increasing purchasing requirements to meet the expanding build schedule of the Series 9000. Accrued expenses decreased approximately $.1 million from December 31, 1994 mainly due to a decrease in accrued salaries and wages as a result of staffing reductions. Customer deposits decreased $.7 million reflective of certain large international contracts recognized in revenue during the first quarter of 1995 which included substantial deposits. Royalties payable decreased $.8 million due to the disbursement in January of royalties on sales recognized in the third and fourth quarter of 1994. Results of Operations for the Three Months Ended March 31, 1995 vs. 1994 - ------------------------------------------------------------------------- Net sales increased $1.3 million in the first quarter of 1995 compared with the first quarter of 1994. International sales increased $1.8 million and North American sales decreased $.5 million. International sales, as a percentage of total sales, increased due to the first quarter sales of several enhanced Series 9000's to a Japanese health agency for health claim processing. International sales continue to be a focus for the Company's future growth. Service revenues decreased $.7 million mainly due to a decrease in software revenue of $.3 million which was directly related to the decline in domestic sales. R&D revenue decreased $.2 million due to the completion of a significant development project which began in the third quarter of 1993. Customer service revenue decreased $.2 million mostly due to the continued replacement of older ReliaReader equipment with the Company's Series 9000 system which is less expensive to maintain. Cost of sales increased $1.4 million from the first quarter of 1994 which was a reflection of the increase in net sales combined with a decrease in the gross margin percentage. The increase in net sales accounted for approximately $.4 million of the cost of sales increase. The actual gross margin percentage decreased from 40% in the first quarter of 1994 to 31% for the same period in 1995. The decline in the gross margin percentage was mainly due to the sales discounts recorded under the terms of a research and development agreement, which accounted for $.6 million in the first quarter of 1995. The gross margin percentage without the required discount was 36% for the quarter. The remaining $.4 million increase was due to changes in the overall sales mix compared to the prior year. Marketing and service expenses decreased $.4 million from the first quarter of 1994 to 1995. Customer service expenses decreased $.2 million due to staffing decreases, a reduction in travel expenses and a decrease in depreciation expense related to customer service inventory. Sales expenses decreased $.2 million due to reductions in salaries, commissions and travel expenses. Research and development expenses decreased $.1 million from the first quarter of 1994 to the first quarter of 1995 mainly due to a decrease in outside consulting services which were utilized in 1994 for development projects related to the pilot system for health claim processing in Japan. SCAN-OPTICS, INC., AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6 (A) - EXHIBIT COMPUTATION OF EARNINGS PER SHARE (thousands, except share data)
Three Months Ended -------------------------- March 31 1995 1994 ------------ ------------ PRIMARY AND FULLY DILUTED Average common shares outstanding 6,497,111 5,550,438 Average Class A common shares outstanding 854,464 Net effect of dilutive stock options and warrants - based on the treasury stock method using average market price during the quarter 323,649 426,126 ------------ ------------ Total 6,820,760 6,831,028 ------------ ------------ Net Income $ 107 $ 388 ------------ ------------ Earnings Per Share $ 0.02 $ 0.06 ------------ ------------
SCAN-OPTICS, INC., AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6 (B) - REPORTS ON FORM 8-K For the Three Months Ended March 31, 1995 No reports on Form 8-K were filed during the First Three Months of 1995. SIGNATURES -------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SCAN-OPTICS, INC. ----------------- (Registrant) Date May 12, 1995 /ss/ -------------------- ----------------------------- Richard I. Tanaka Chairman, Chief Executive Officer and President Date May 12, 1995 /ss/ -------------------- ----------------------------- Michael J. Villano Vice President and Chief Financial Officer EX-27 2 ART. 5 FDS FOR SCAN-OPTICS
5 1000 3-MOS DEC-31-1995 MAR-31-1995 124 0 10,417 279 15,388 27,062 18,355 13,662 32,124 12,872 0 138 0 0 18,786 32,124 7,888 11,487 5,416 11,407 0 0 0 95 (12) 107 0 0 0 107 .02 .02
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