-----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, OApfD4arC/8OPogrQ9dMs6tNoSB5adU/qNJc4vllKl/w/Qs0N4GZDMjevv3iQ9yQ +JZdl+0GnWEGDozKOrcHdw== 0000906602-96-000147.txt : 19961118 0000906602-96-000147.hdr.sgml : 19961118 ACCESSION NUMBER: 0000906602-96-000147 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96666521 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 September 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) 169 Progress Drive, Manchester, CT 06040 (Address of principal executive offices) Zip Code (860) 645-7878 (Registrant's telephone number, including area code) 22 Prestige Park Circle, East Hartford, CT 06108 (Former address of principal executive offices) Zip 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 November 13, 1996. Common Stock, $.02 par value 6,946,730 SCAN-OPTICS, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(thousands, except share data) September 30, 1996 December 31, 1995 (UNAUDITED) Assets Current Assets: Cash and cash equivalents $ 451 $ 281 Accounts receivable less allowance of $531 at September 30, 1996 and $413 at December 31, 1995 10,527 10,297 Inventories 13,159 13,746 Prepaid expenses and other 1,128 1,261 Total current assets 25,265 25,585 Plant and equipment: Equipment 13,990 14,097 Leasehold improvements 3,433 2,837 Office furniture and fixtures 1,200 1,215 18,623 18,149 Less allowances for depreciation and amortization 14,672 14,340 3,951 3,809 Other assets 121 120 Total Assets $ 29,337 $ 29,514
September 30, 1996 December 31, 1995 (UNAUDITED) Liabilities and Stockholders' Equity Current liabilities: Notes payable to bank $ 1,196 $ 305 Accounts payable 2,553 2,862 Salaries and wages 937 909 Taxes other than income taxes 394 338 Income taxes 221 185 Customer deposits 2,166 5,900 Deferred revenues, net of costs 1,406 Other 992 847 Total current liabilities 9,865 11,346 Other liabilities 409 417 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, 6,947,901 shares at September 30, 1996 and 6,935,184 shares at December 31, 1995 139 139 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 34,295 34,271 Retained-earnings deficit (12,243) (13,433) Foreign currency translation adjustments (316) (315) Unearned ESOP compensation (166) (265) 21,709 20,397 Less cost of common stock in treasury, 413,500 shares 2,646 2,646 Total stockholders' equity 19,063 17,751 Total Liabilities and Stockholders' Equity $ 29,337 $ 29,514 See accompanying notes.
SCAN-OPTICS, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended September 30 September 30 (thousands, except share data) 1996 1995 1996 1995 ________________________________________________________________________________ Revenues Net sales $ 6,160 $ 6,275 $ 20,392 $ 20,286 Service revenues 3,995 3,532 11,219 10,421 Lease revenues 68 8 80 117 -------- ------- ------- ------- Total revenues 10,223 9,815 31,691 30,824 Costs and Expenses Cost of sales 4,315 4,817 14,362 14,506 Marketing and service expenses 3,571 3,738 10,616 11,328 Research and development expenses 859 1,149 2,889 3,735 General and administrative expenses 830 845 2,578 2,348 Interest expense 36 134 75 367 -------- ------- ------- ------- Total costs and expenses 9,611 10,683 30,520 32,284 -------- ------- ------- ------- Operating income (loss) 612 (868) 1,171 (1,460) Other income, net 20 5 61 37 -------- ------- ------- ------- Income (loss) before income taxes 632 (863) 1,232 (1,423) Income taxes (benefit) 12 (12) 42 (32) -------- ------- ------- ------- Net Income (Loss) $ 620 $ (851) $ 1,190 $ (1,391) ======== ======= ======= ======= Earnings (loss) per share $ 0.09 $ (0.13) $ 0.18 $ (0.21) ======== ======= ======= ======= Average common and common equivalent shares 6,744,113 6,517,964 6,730,293 6,617,964 See accompanying notes. SCAN-OPTICS, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30 September 30 (thousands) 1996 1995 Operating Activities Net income (loss) $ 1,190 $ (1,391) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 918 1,024 Amortization 682 495 Changes in operating assets and liabilities: Accounts receivable (230) (1,043) Inventories, prepaid expenses and other 38 (1,682) Accounts payable (309) 535 Accrued expenses 229 228 Royalties payable 0 (814) Income taxes 36 17 Deferred revenues, net of costs 1,406 330 Customer deposits (3,734) (951) Other 89 319 Net cash provided (used) by operating activities 315 (2,933) Investing Activities Purchases of plant and equipment (1,060) (451) Net cash used by investing activities (1,060) (451) Financing Activities Proceeds from issuance of common stock 24 65 Proceeds from borrowings 14,197 21,303 Principal payments on borrowings (13,306) (17,940) Net cash provided by financing activities 915 3,428 Increase in cash and cash equivalents 170 44 Cash and cash equivalents at beginning of year 281 178 Cash and Cash Equivalents at End of Period $ 451 $ 222 See accompanying notes.
SCAN-OPTICS, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) For Quarter Ended September 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 nine month period ended September 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):
September 30 December 31 1996 1995 Finished goods $ 2,237 $ 3,125 Work-in-process 3,932 3,984 Service parts 4,039 2,177 Materials and component parts 2,951 4,460 $ 13,159 $ 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 September 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 September 30, 1996). The weighted average interest rates on borrowings during the first three quarters of 1996 and 1995 were 8.8% and 7.2% 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 $4,358,000 as of September 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. NOTE 4 - Income Taxes The Company has approximately $6,000,000 and $4,100,000 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 :
September 30 December 31 (thousands) 1996 1995 Deferred tax assets: Net operating losses $ 2,943 $ 3,422 Depreciation 99 99 Inventory valuation 242 831 Accounts receivable reserves 202 167 Revenue recognition 13 Vacation accrual 286 258 Other 279 279 ======== ======== Total deferred tax assets 4,051 5,069 Deferred tax liabilities: Depreciation and other (30) (82) Valuation allowance (4,021) (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 $.2 million from December 31, 1995. Total Company borrowings increased $.9 million from the end of 1995 to $1.2 million at September 30, 1996. The increase in borrowings is due to the timing of sales transactions and related receipts as well as leasehold improvements to the new corporate headquarters facility. 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 $2,700,000 as of November 12, 1996. Operating activities provided $.3 million of cash in the first three quarters of 1996. Accounts receivable increased $.2 million during the first nine months of 1996 due to an increase in the number of systems shipped and currently undergoing acceptance testing. Total inventories decreased $.6 million in the first three quarters of 1996. The decrease reflects a first quarter transfer of inventory between Manufacturing and Customer service of $2.0 million. Total manufacturing inventories after adding back the transfer, decreased $.4 million from December 31, 1995. This decrease reflects positively on the emphasis placed upon inventory management and purchasing controls. Customer service inventories increased by $1.8 million as of the third quarter mainly due to this transfer, net of depreciation expense and parts usage. Prepaid expenses and other assets decreased $.1 million due to the amortization of prepaid engineering costs. Accounts payable decreased $.3 million from December 31, 1995 due to improvements in the just-in-time inventory procurement process, and payment of invoices from prior periods. Customer deposits decreased $3.7 million reflective of a large international contract recognized in revenue during the first three quarters of 1996 which required substantial deposits at time of order in 1995. Results of Operations for the Three and Nine Months Ended September 30, 1996 vs. 1995 Total revenues increased $.9 million from the first nine months of 1995 and increased $.4 million from the third quarter of 1995 vs 1996. Compared to the first nine months of last year, North American sales increased $.4 million, but were offset by a decrease in international sales of $.3 million. Despite a $2 million decline in international sales in the first quarter of 1996, the second and third quarter sales rebounded, bringing international sales within 3% of 1995 levels. This is mainly due to the timing of the sale of seventeen enhanced Series 9000's for health insurance processing in Japan versus sixteen in 1995. Service revenues increased $.8 million from the first nine months of 1995 vs 1996 and increased $.5 million in the third quarter of 1995 vs 1996. Year to date, software revenue increased $.6 million which is directly related to the increase in domestic sales. R&D revenue increased $.4 million for the nine months due to the completion of a specific development project which began in the third quarter of 1995, and the start of another project expected to be completed in the fourth quarter of 1996. 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 a surcharge ranging from 10% to 65% based on the age of the equipment. Cost of sales decreased $.1 million over the first nine months of 1995 vs. 1996 and decreased $.5 million from the third quarter of 1995. The year to date and third quarter decreases are a reflection of improved manufacturing efficiencies due to higher production and purchasing volumes. The gross margin percentage on net sales realized for the first nine months of 1996 was 30% versus 28% for the same period in 1995. The gross margin percentage realized for the third quarter of 1996 was 30% compared to 23% for the same period last year. The increase is mainly due to reduced manufacturing costs combined with 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 $.7 million from the first three quarters of 1995 and decreased $.2 million for the third quarter. Year to date, customer service expenses decreased $1.0 million mainly due to the result of fourth quarter 1995 corporate rightsizing, coupled with a decrease in depreciation expense related to customer service inventory. Sales expenses increased $.3 million due to increases in commission expense reflective of the increase in net sales. Research and development expenses decreased $.8 million from the first nine months of 1995 and $.3 million vs the third quarter of 1995. These decreases are mainly due to a reduction in salary expense and fringe benefits resulting from corporate rightsizing 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 $.3 million year to date due to the significant decrease in the average outstanding loan balance for the first nine months of 1996 which was $1.0 million versus $5.9 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 Nine Months Ended September 30 September 30 1996 1995 1996 1995 PRIMARY AND FULLY DILUTED Average common shares outstanding 6,532,362 6,517,964 6,529,248 6,509,590 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 211,751 201,045 107,883 Total 6,744,113 6,517,964 6,730,293 6,617,473 Net Income (Loss) $ 620 $ (851) $ 1,190 $ (1,391) Earnings (Loss) Per Share $ 0.09 (0.13) 0.18 $ (0.21)
SCAN-OPTICS, INC., AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6 (B) - REPORTS ON FORM 8-K For the Three Months Ended September 30, 1996 No reports on Form 8-K were filed during the First Nine 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 November 13, 1996 /ss/ Richard I. Tanaka Chairman, Chief Executive Officer and Director Date November 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 9-MOS DEC-31-1996 SEP-30-1996 451,000 0 10,527,000 531,000 13,159,000 25,265,000 18,623,000 14,672,000 29,337,000 9,865,000 0 139,000 0 0 19,333,000 29,337,000 20,392,000 31,691,000 14,362,000 30,520,000 0 0 75,000 1,232,000 42,000 1,190,000 0 0 0 1,190,000 .18 .18
-----END PRIVACY-ENHANCED MESSAGE-----