<PAGE> 1
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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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- ------------------- ------------------------
<S> <C>
None None
</TABLE>
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
<TABLE>
<CAPTION>
DOCUMENT PART INTO WHICH INCORPORATED
-------- ----------------------------
<S> <C>
Proxy Statement for Annual Meeting of Part III
Stockholders to be held May 14, 1996
</TABLE>
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<PAGE> 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
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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.
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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
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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.
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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.
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
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
</TABLE>
Executive officers are chosen by and serve at the discretion of the
Board of Directors of the Company.
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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
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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:
<TABLE>
<CAPTION>
1995 High Low
---- ---- ---
<S> <C> <C>
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
<CAPTION>
1994 High Low
---- ---- ---
<S> <C> <C>
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
</TABLE>
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.
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ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts)
1995 1994 1993 1992 1991
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
The Company has never paid cash dividends on shares of its Common Stock.
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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
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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:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1995 1994 1993
---------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
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
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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
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements: Page
----
<S> <C>
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
</TABLE>
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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.
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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.
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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).
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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
<PAGE> 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
<PAGE> 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
<PAGE> 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)
<PAGE> 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
<PAGE> 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
<PAGE> 22
CONSOLIDATED BALANCE SHEETS
COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES
(All amounts in thousands, except share amounts)
December 31,
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
===============================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 23
CONSOLIDATED STATEMENTS OF OPERATIONS
COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES
(All amounts in thousands, except per share amounts)
Year Ended December 31,
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
==================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 24
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES
(All amounts in thousands)
<TABLE>
<CAPTION>
Nonvoting
Common Stock Common Stock Additional Cumulative
------------------------------ Paid-in Deferred Accumulated Translation
Shares Amount Shares Amount Capital Compensation Deficit Adjustments Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
==================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES
(All amounts in thousands)
Years Ended December 31,
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 $ --
==========================================================================================
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
December 31
-------------------
1995 1994
-------------------
<S> <C> <C>
Raw materials $1,821 $1,422
Work in process 336 230
Finished goods 1,468 1,452
===================
$3,625 $3,104
===================
</TABLE>
F-8
<PAGE> 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:
<TABLE>
<CAPTION>
Year Ending December 31
----------------------------------------------
<S> <C>
1996 $ 24
1997 24
1998 24
1999 22
2000 -
----------------------------------------------
Total $ 94
Less portion representing interest (22)
----------------------------------------------
Total obligation under capital lease $ 72
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
Exercise Price
Shares Per Share
---------------------------------------------------------------
<S> <C> <C>
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
---------------------------------------------------------------
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Domestic $ 896 $(114) $(497)
Foreign (199) (332) (466)
----- ----- -----
Total $ 697 $(446) $(963)
===== ===== =====
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------
<S> <C> <C> <C>
Federal $ 17 -- --
State (45) $26 $ 7
Foreign 42 38 56
--------------------
Total $ 14 $64 $63
====================
</TABLE>
F-11
<PAGE> 31
Income taxes (benefit) computed at the federal statutory rate differ
from amounts provided as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------
<S> <C> <C> <C>
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%
------------------------
</TABLE>
Deferred taxes are attributable to the following temporary differences
at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
----------------------
<S> <C> <C>
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 $ - $ -
======================
</TABLE>
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
<PAGE> 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)
<TABLE>
<CAPTION>
North America Europe Eliminations Consolidated
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- --------------------------------------------------------------------------------------------------
</TABLE>
During 1993, one customer accounted for 10% of the Company's revenue.
F-13
<PAGE> 33
COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years Ended December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
(All amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged to at
Begining Cost and End of
of Period Expenses Deductions Period
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
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
==== ==== ==== ====
</TABLE>
F-14
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
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
</TABLE>
<PAGE> 1
Exhibit 21.1
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Name Jurisdiction of
- ---- Organization
------------
<S> <C>
Computer Identics N.V. /S.A. Belgium
Computer Identics Ltd. England
Computer Identics S.A. France
Computer Identics GmbH Germany
Computer Identics, Inc. Canada
</TABLE>
<PAGE> 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
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,752,000
<SECURITIES> 0
<RECEIVABLES> 6,287,000
<ALLOWANCES> 225,000
<INVENTORY> 3,625,000
<CURRENT-ASSETS> 11,819,000
<PP&E> 4,062,000
<DEPRECIATION> 3,133,000
<TOTAL-ASSETS> 12,748,000
<CURRENT-LIABILITIES> 5,484,000
<BONDS> 0
0
0
<COMMON> 1,086,000
<OTHER-SE> 6,121,000
<TOTAL-LIABILITY-AND-EQUITY> 12,748,000
<SALES> 24,390,000
<TOTAL-REVENUES> 27,745,000
<CGS> 12,217,000
<TOTAL-COSTS> 27,043,000
<OTHER-EXPENSES> (38,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,000
<INCOME-PRETAX> 697,000
<INCOME-TAX> 14,000
<INCOME-CONTINUING> 683,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 683,000
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
