-----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, RblIqjeHeUqV8nt2wZZkmhA/+mrFvfjS1TGygxItsGg5lylAQtXsXt+1hP1n2xx9 ljfAb6HV81l8iLHU81gMHA== 0000906602-96-000064.txt : 19960828 0000906602-96-000064.hdr.sgml : 19960828 ACCESSION NUMBER: 0000906602-96-000064 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCAN OPTICS INC CENTRAL INDEX KEY: 0000087086 STANDARD INDUSTRIAL CLASSIFICATION: 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: 96565180 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, 1996 ( )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 incorporation or organization) Identification Number) 22 Prestige Park Circle, East Hartford, CT 06108 (Address of principal executive offices) Zip Code (860) 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, 1996. Common Stock, $.02 par value: 6,939,451
SCAN-OPTICS, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (thousands, except share data) March 31, 1996 December 31, 1995 (UNAUDITED) Assets Current Assets: Cash and cash equivalents $ 1,013 $ 281 Accounts receivable less allowance of $292 at March 31, 1996 and $413 at December 31, 1995 9,398 10,297 Inventories 13,952 13,746 Prepaid expenses and other 1,395 1,261 Total current assets 25,758 25,585 Plant and equipment: Equipment 13,669 14,097 Leasehold improvements 2,837 2,837 Office furniture and fixtures 1,190 1,215 17,696 18,149 Less allowances for depreciation and amortization 13,838 14,340 3,858 3,809 Other assets 121 120 Total Assets $ 29,737 $ 29,514
March 31, 1996 December 31, 1995 (UNAUDITED) Liabilities and Stockholders' Equity Current liabilities: Notes payable to bank $ 1,812 $ 305 Accounts payable 2,383 2,862 Salaries and wages 1,088 909 Taxes other than income taxes 355 338 Income taxes 194 185 Customer deposits 4,718 5,900 Royalties payable 52 18 Other 810 829 Total current liabilities 11,412 11,346 Other liabilities 419 417 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, 6,942,351 shares at March 31, 1996 and 6,935,184 shares at December 31, 1995 141 139 Common stock Class A Convertible, par value $.02 per share, authorized 3,000,000 shares; available for issuance 2,145,536 shares; none issued or outstanding Capital in excess of par value 34,281 34,271 Retained-earnings deficit (13,313) (13,433) Foreign currency translation adjustments (325) (315) Unearned ESOP compensation (232) (265) 20,552 20,397 Less cost of common stock in treasury, 413,500 shares 2,646 2,646 Total stockholders' equity 17,906 17,751 Total Liabilities and Stockholders' Equity $ 29,737 $ 29,514 See accompanying notes.
SCAN-OPTICS, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended March 31 (thousands, except share data) 1996 1995 Revenues Net sales $ 6,487 $ 7,888 Service revenues 3,823 3,489 Lease revenues 8 110 Total revenues 10,318 11,487 Costs and Expenses Cost of sales 4,701 5,416 Marketing and service expenses 3,527 3,640 Research and development expenses 1,106 1,500 General and administrative expenses 837 740 Interest expense 15 111 Total costs and expenses 10,186 11,407 Operating income 132 80 Other income, net 5 15 Income before income taxes 137 95 Income taxes (benefit) 17 (12) Net Income $ 120 $ 107 Earnings per share $ 0.02 $ 0.02 Average common and common equivalent shares 6,687,234 6,820,670 See accompanying notes.
SCAN-OPTICS, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31 March 31 (thousands) 1996 1995 Operating Activities Net income $ 120 $ 107 Adjustments to reconcile net income to net cash used by operating activities: Depreciation 306 390 Amortization 267 165 Changes in operating assets and liabilities: Accounts receivable 899 (1,293) Inventories, prepaid expenses and other (607) (1,388) Accounts payable (479) 1,069 Accrued expenses 177 (86) Royalties payable 34 (792) Income taxes 9 7 Deferred revenues, net of costs (30) Customer deposits (1,182) (676) Other 24 116 Net cash used by operating activities (432) (2,411) Investing Activities Purchases of plant and equipment (355) (453) Net cash used by investing activities (355) (453) Financing Activities Proceeds from issuance of common stock 12 23 Proceeds from borrowings 3,255 7,410 Principal payments on borrowings (1,748) (4,623) Net cash provided by financing activities 1,519 2,810 Increase (decrease) in cash and cash equivalents 732 (54) Cash and Cash Equivalents at Beginning of Year 281 178 Cash and Cash Equivalents at End of Period $ 1,013 $ 124 See accompanying notes.
SCAN-OPTICS, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) For Quarter Ended March 31, 1996 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, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. 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, 1995. NOTE 2 - INVENTORIES The components of inventories were as follows (thousands):
March 31 December 31 1996 1995 Finished goods $ 2,557 $ 2,823 Work-in-process 3,307 2,820 Service parts 4,649 5,043 Materials and component parts 3,439 3,060 $ 13,952 $ 13,746 ******* *******
NOTE 3 - CREDIT ARRANGEMENTS The Company has a line of credit agreement (Agreement) with a bank which expires on May 29, 1996. 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 (8 1/4 % at March 31, 1996); and a $4 million line (domestic) which is collateralized by domestic accounts receivable and inventory, and which bears interest at prime plus 1/2 % (8 3/4 % at March 31, 1996). The weighted average interest rates on borrowings during the first quarters of 1996 and 1995 were 8.1% and 8.6% respectively. The unused portion of the $4 million domestic line is subject to a commitment fee of 3/4 % 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 $2,990,000 at March 31, 1996. In addition, the Agreement contains covenants which, among other things, require the maintenance of specified working capital, debt to equity ratios, net income levels and tangible net worth levels. SCAN-OPTICS, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) For Quarter Ended March 31, 1996 On March 11, 1996, the Company received a commitment letter from the bank extending the maturity date of the outstanding line of credit to May 29, 1997. The line of credit was reduced from $8 million to $6 million ($3 million each for international and domestic lines), which is reflective of the Company's current cash availability and projected cash flow requirements for the next twelve months. The commitment letter is subject to the extension of the guarantee by the third party bank on the $3 million international line. The Company expects that the guarantee will be extended. NOTE 4 - INCOME TAXES The Company has approximately $7,000,000 and $5,100,000 of net operating loss carryforwards for federal and state income tax purposes, respectively, which are scheduled to expire periodically between 1996 and 2010. 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 1996 1995 (thousands) Deferred tax assets: Net operating losses $ 3,374 $ 3,422 Depreciation 99 99 Inventory valuation 656 831 Accounts receivable reserves 116 167 Revenue recognition 13 Vacation accrual 296 258 Other 279 279 Total deferred tax assets 4,820 5,069 Deferred tax liabilities: Depreciation and other (72) (82) Valuation allowance (4,748) (4,987) 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 increased $.7 million from December 31, 1995. Total Company borrowings increased $1.5 million from the end of 1995 to $1.8 million. The increase in borrowings is due to the timing of sales transactions and related receipts within the quarter. On March 11, 1996 the Company received a commitment letter extending the maturity date of the existing line of credit to May 29, 1997. (See Note 3 for further details). Operating activities used $.4 million of cash in the first quarter of 1996. Accounts receivable decreased $.9 million during the first quarter of the year due to collections made on the 1995 sales combined with a decrease in the number of systems shipped and currently undergoing acceptance testing. Inventories increased $.2 million in the first quarter of 1996. Total manufacturing inventories increased $.6 million during the quarter which consisted of three components. The work in process inventory increased $.5 million and the stockroom inventory increased $.4 million which are both reflective of the timing of the second quarter build process for the Series 9000, enhanced 9000's sold to Japan, and Series 7800 products. Manufacturing inventory fluctuations also included a $.3 million decrease in finished goods due to the shipment and acceptance of several systems during the month of March. Customer service inventories decreased by $.4 million in the first quarter. Accounts payable decreased $.5 million from December 31, 1995 due to the timing of receipts of purchased parts offset by the payment of invoices for parts received in prior periods. Accrued expenses increased approximately $.2 million from December 31, 1995 mainly due to an increase in the days accrued for salary and wages. Customer deposits decreased $1.2 million reflective of certain large international contracts accepted and recognized in revenue during the first quarter of 1996 which included substantial deposits. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 VS. 1995 Net sales decreased $1.4 million in the first quarter of 1996 compared with the first quarter of 1995. International sales decreased $2 million and North American sales increased $.6 million. International sales, as a percentage of total sales, decreased due to a total of eight enhanced Series 9000's sold to a Japanese health agency for health claim processing in the first quarter of 1995 vs. four in the same period of 1996. International sales, however, continue to be a focus for the Company's future growth as proven by the current order for 19 additional enhanced Series 9000's to be sold to Japan during 1996. Service revenues increased $.3 million mainly due to an increase in software revenue of $.4 million which was directly related to the increase in domestic sales. R&D revenue increased $.2 million due to funding for a specific development project which began in the third quarter of 1995. Customer service revenue decreased $.3 million mostly due to the continued replacement of older ReliaReader equipment with the Company's Series 9000 system. Monthly maintenance on the ReliaReader equipment contains surcharges ranging from 10% to 65% based on the age of the equipment. Cost of sales decreased $.7 million from the first quarter of 1995 which was a reflection of the decrease in net sales. The actual gross margin percentage of 28% decreased from the prior year's gross margin percentage of 31%. The decrease was mainly due to a change in the overall sales mix as compared to the prior year. Marketing and service expenses decreased $.1 million from the first quarter of 1995 to 1996. Customer service expenses decreased $.2 million mainly due to staffing decreases as a result of company downsizing during the last three quarters of 1995. Sales expenses increased $.1 million due to increased commission expense as a result of increased domestic sales. Research and development expenses decreased $.4 million from the first quarter of 1995 to the first quarter of 1996 mainly due to a decrease in salaries expense caused by the corporate downsizing of 1995. General and administrative expenses increased $.1 million due to the addition of the new Chief Operating Officer as well as increases in travel expense. Interest expense decreased $.1 million due to the significant decrease in the line of credit borrowings. The company was not borrowing against the line of credit for the first six weeks of the quarter, therefore, the average outstanding balance for the quarter decreased from $5 million in 1995 to $.6 million in 1996.
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 March 31 1996 1995 PRIMARY AND FULLY DILUTED Average common shares outstanding 6,525,838 6,497,111 Average Class A common shares outstanding Net effect of dilutive stock options and warrants - based on the treasury stock method using average market price during the quarter 161,396 323,649 --------- --------- Total 6,687,234 6,820,760 ========= ========= Net Income $ 120 $ 107 ========= ========= Earnings Per Share $ 0.02 $ 0.02 ========= =========
SCAN-OPTICS, INC., AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6 (B) - REPORTS ON FORM 8-K For the Three Months Ended March 31, 1996 No reports on Form 8-K were filed during the First Three Months of 1996. 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 13, 1996 /ss/ Richard I. Tanaka Chairman, Chief Executive Officer and Director Date May 13, 1996 /ss/ Michael J. Villano Chief Financial Officer and Vice President EX-27 2 ART. 5 FDS FOR SCAN-OPTICS
5 EXHIBIT 27. SCAN-OPTICS, INC. FINANCIAL DATA SCHEDULE 3-MOS DEC-31-1996 MAR-31-1996 1,013,000 0 9,398,000 292,000 13,952,000 25,758,000 17,696,000 13,838,000 29,737,000 11,412,000 0 141,000 0 0 17,906,000 29,737,000 6,487,000 10,318,000 4,701,000 10,186,000 0 0 15,000 137,000 17,000 120,000 0 0 0 120,000 .02 .02
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