-----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, NrAT0yiXq/9ef1C3rL3v1azPgTk1agVDz9Xf1OvlSe+jmBrAmaQjY0EdcxT8Stw+ xYx5cFqHOA/EklQbJR+QGg== 0000906602-96-000096.txt : 19960816 0000906602-96-000096.hdr.sgml : 19960816 ACCESSION NUMBER: 0000906602-96-000096 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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: 96612112 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 June 30, 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 Identification Number) incorporation or organization) 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 August 13, 1996. Common Stock, $.02 par value 6,531,601
SCAN-OPTICS, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (thousands, except share data) June 30, 1996 December 31, 1995 (UNAUDITED) Assets Current Assets: Cash and cash equivalents $ 93 $ 281 Accounts receivable less allowance of $447 at June 30, 1996 and $413 at December 31, 1995 9,838 10,297 Inventories 13,211 13,746 Prepaid expenses and other 1,187 1,261 Total current assets 24,329 25,585 Plant and equipment: Equipment 13,998 14,097 Leasehold improvements 2,638 2,837 Office furniture and fixtures 1,191 1,215 17,827 18,149 Less allowances for depreciation and amortization 14,333 14,340 3,494 3,809 Other assets 121 120 Total Assets $ 27,944 $ 29,514
June 30, 1996 December 31, 1995 (UNAUDITED) Liabilities and Stockholders' Equity Current liabilities: Notes payable to bank $ 1,469 $ 305 Accounts payable 2,187 2,862 Salaries and wages 992 909 Taxes other than income taxes 312 338 Income taxes 202 185 Customer deposits 3,043 5,900 Deferred revenues, net of costs 85 Other 846 847 Total current liabilities 9,136 11,346 Other liabilities 416 417 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, 6,942,501 shares at June 30, 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 34,288 34,271 Retained-earnings deficit (12,862) (13,433) Foreign currency translation adjustments (330) (315) Unearned ESOP compensation (199) (265) 21,038 20,397 Less cost of common stock in treasury, 413,500 shares 2,646 2,646 Total stockholders' equity 18,392 17,751 Total Liabilities and Stockholders' Equity $ 27,944 $ 29,514 See accompanying notes.
SCAN-OPTICS, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended June 30 June 30 (thousands, except share data) 1996 1995 1996 1995 Revenues Net sales $ 7,747 $ 6,052 $ 14,232 $ 13,940 Service revenues 3,401 3,400 7,224 6,889 Lease revenues 4 70 12 180 Total revenues 11,152 9,522 21,468 21,009 Costs and Expenses Cost of sales 5,348 4,273 10,047 9,689 Marketing and service expenses 3,518 3,950 7,045 7,590 Research and development expenses 924 1,086 2,030 2,586 General and administrative expenses 911 763 1,748 1,503 Interest expense 24 122 39 233 Total costs and expenses 10,725 10,194 20,909 21,601 Operating income (loss) 427 (672) 559 (592) Other income, net 36 17 41 32 Income (loss) before income taxes 463 (655) 600 (560) Income taxes (benefit) 13 (8) 30 (20) Net Income (Loss) $ 450 $ (647) $ 570 $ (540) Earnings (loss) per share $ 0.07 $ (0.10) $ 0.08 $ (0.08) Average common and common equivalent shares 6,759,533 6,513,696 6,723,384 6,667,228 See accompanying notes.
SCAN-OPTICS, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June June 30 30 (thousands) 1996 1995 Operating Activities Net income(loss) $ 570 $ (540) Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation 612 698 Amortization 469 330 Changes in operating assets and liabilities: Accounts receivable 459 (506) Inventories, prepaid expenses and other 140 (3,179) Accounts payable (675) 1,858 Accrued expenses 56 (36) Royalties payable (791) Income taxes 17 5 Deferred revenues, net of costs 85 (30) Customer deposits (2,857) (1,938) Other 49 220 Net cash used by operating activities (1,075) (3,909) Investing Activities Purchases of plant and equipment (297) (325) Net cash used by investing activities (297) (325) Financing Activities Proceeds from issuance of common stock 20 56 Proceeds from borrowings 8,620 14,572 Principal payments on borrowings (7,456) (10,385) Net cash provided by financing activities 1,184 4,243 Increase (decrease) in cash and cash equivalents (188) 9 Cash and cash equivalents at beginning of year 281 178 Cash and Cash Equivalents at End of Period $ 93 $ 187 See accompanying notes.
SCAN-OPTICS, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) For Quarter Ended June 30, 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 six month period ended June 30, 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):
June 30 December 31 1996 1995 Finished goods $ 2,173 $ 2,823 Work-in-process 3,003 2,820 Service parts 4,098 5,043 Materials and component parts 3,937 3,060 $ 13,211 $ 13,746 ******* *******
NOTE 3 - CREDIT ARRANGEMENTS On May 28, 1996, the Company amended its credit agreement (Agreement) with a bank to extend the maturity date to May 29, 1997. The Agreement has two components, a $3 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 June 30, 1996); and a $3 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 June 30, 1996). The weighted average interest rates on borrowings during the first half of 1996 and 1995 were 7.5% and 8.6% respectively. The unused portion of the $3 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 $4,278,000 as of June 30, 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 June 30, 1996 NOTE 4 - INCOME TAXES The Company has approximately $6,600,000 and $4,700,000 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 :
June 30 December 31 (thousands) 1996 1995 Deferred tax assets: Net operating losses $ 3,193 $ 3,422 Depreciation 99 99 Inventory valuation 273 831 Accounts receivable reserves 179 167 Revenue recognition 13 Vacation accrual 308 258 Other 279 279 Total deferred tax assets 4,331 5,069 Deferred tax liabilities: Depreciation and other (51) (82) Valuation allowance (4,280) (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 decreased $.2 million from December 31, 1995. Total Company borrowings increased $1.2 million from the end of 1995 to $1.5 million at June 30, 1996. The increase in borrowings is due to the timing of sales transactions and related receipts. On May 28, 1996 the Company amended the original loan agreement extending the maturity date of the existing line of credit to May 29, 1997. (See Note 3 for further details). The available balance on the total line of credit was $3,321,000 as of August 12, 1996. Operating activities used $1.1 million of cash in the first half of 1996. Accounts receivable decreased $.5 million during the first half of the year due to a decrease in the number of systems shipped and currently undergoing acceptance testing. Inventories decreased $.5 million in the first half of 1996. Total manufacturing inventories increased $.4 million from the beginning of the year mainly due to increases required for the third quarter build schedule including six enhanced Series 9000 systems for the Japanese health ministry. Customer service inventories increased by $.9 million in the first half of the year mainly due to depreciation expense and parts usage. Prepaid expenses and other assets decreased $.1 million due to the amortization of prepaid engineering costs. Accounts payable decreased $.7 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. Customer deposits decreased $2.9 million reflective of certain large international contracts recognized in revenue during the first half of 1996 which included substantial deposits. RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 VS. 1995 Net sales increased $.3 million from the first six months of 1995 and increased 1.7 million from the second quarter of 1995 to 1996. Compared to the first six months last year, North American sales increased $.5 million but were offset by a decrease in international sales of $.2 million. Despite a $2 million decline in international sales in the first quarter of 1996, the second quarter sales in this market rebounded, increasing $1.8 million compared to 1995. This is mainly due to the sale of seven enhanced Series 9000's to the Japanese health ministry versus six in 1995 which were discounted under the terms of a research and development agreement. Service revenues increased $.3 million from the first six months of 1995 to 1996 and remained consistent for the second quarter of 1995 to 1996. Year to date, software revenue increased $.3 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 $.2 million mostly due to the continued replacement of older ReliaReader equipment with the Company's Series 9000 system. Monthly maintenance on the ReliaReader equipment, predecessor of the Series 9000, contains surcharges ranging from 10% to 65% based on the age of the equipment. Cost of sales increased $.4 million over the first six months of 1996 vs. 1995 and increased $1.1 million from the second quarter of 1995. The year to date and second quarter increases are a reflection of the increase in sales in 1996. The gross margin percentage realized for the first six months of 1996 was 29% versus 30% for the same period in 1995. The gross margin percentage realized for the second quarter of 1996 was 31% compared to 29% for the same period last year. The increase in percentage is mainly due to a decrease in the required sales discounts agreed to under research and development contracts, one of which was completed in the second quarter of 1995. Marketing and service expenses decreased $.5 million from the first half of 1995 and decreased $.4 million for the second quarter. Year to date, customer service expenses decreased $.6 million mainly due to staffing decreases, coupled with a decrease in depreciation expense related to customer service inventory. Sales and marketing expenses increased $.1 million due to increases in commission expense reflective of the increase in net sales. Research and development expenses decreased $.6 million from the first half of 1995 and decreased $.2 million compared to the second quarter of 1995 mainly due to a decrease in salary expense and fringe benefits resulting from the corporate downsizing in 1995. General and administrative expenses increased $.2 million year to date due to the hiring of the new Chief Operating Officer as well as increases in outside services. Interest expense decreased $.2 million year to date due to the significant decrease in the average outstanding balance for the first half of 1996 which was $.8 million versus $5.4 million for the same period in 1995.
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 Six Months Ended June 30 June 30 1996 1995 1996 1995 PRIMARY AND FULLY DILUTED Average common shares outstanding 6,529,545 6,513,696 6,527,692 6,505,404 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 229,988 195,692 161,825 Total 6,759,533 6,513,696 6,723,384 6,667,229 Net Income (Loss) $ 450 $ (647) $ 570 $ (540) Earnings (Loss) Per Share $ 0.07 $ (0.10) $ 0.08 $ (0.08)
SCAN-OPTICS, INC., AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6 (B) - REPORTS ON FORM 8-K For the Three Months Ended June 30, 1996 No reports on Form 8-K were filed during the First Six 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 August 13, 1996 /ss/ Richard I. Tanaka Chairman, Chief Executive Officer and Director Date August 13, 1996 /ss/ Michael J. Villano Vice President and Chief Financial Officer EX-27 2 ART. 5 FDS FOR SCAN-OPTICS
5 EXHIBIT 27. SCAN-OPTICS, INC. FINANCIAL DATA SCHEDULE 6-MOS DEC-31-1996 JUN-30-1996 93,000 0 9,838,000 447,000 13,211,000 24,329,000 17,827,000 14,333,000 27,944,000 9,136,000 0 141,000 0 0 18,251,000 27,944,000 14,232,000 21,468,000 10,047,000 20,909,000 0 0 39,000 600,000 30,000 570,000 0 0 0 570,000 .08 .08
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