<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission File Number: 0-12254
SCIENTIFIC TECHNOLOGIES INCORPORATED
------------------------------------
(Issuer)
Oregon 77-0170363
------------------------ ----------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
6550 Dumbarton Circle, Fremont, California 94555
- -------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(510) 608-3400
--------------
(Issuers telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 OR 15(d) of the Securities Exchange Act during the past 12 months (or 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
---- ----
Common stock outstanding as of April 30, 1996 was 9,607,758 shares.
1
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------
SCIENTIFIC TECHNOLOGIES INCORPORATED
--------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
<TABLE>
<CAPTION>
Assets Mar. 31, 1996 Dec. 31, 1995
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,561,000 $ 3,477,000
Short-term investments 2,184,000 3,387,000
Accounts and notes receivable, net 6,308,000 5,253,000
Inventories 4,246,000 3,487,000
Other assets 878,000 595,000
----------- -----------
Total current assets 18,177,000 16,199,000
Property and equipment, net 2,173,000 1,898,000
----------- -----------
Total assets $20,350,000 $18,097,000
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities
Short-term debt $ 50,000 $ 50,000
Trade accounts payable 2,601,000 2,218,000
Payable to Parent 443,000 --
Accrued expenses 1,409,000 1,479,000
----------- -----------
Total current liabilities 4,503,000 3,747,000
Long-term debt 10,000 14,000
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Total liabilities 4,513,000 3,761,000
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Shareholders' equity
Common stock: shares authorized
20,000,000 issued and outstanding;
9,607,000 ($.001 par value) 10,000 10,000
Capital in excess of par value 5,409,000 5,415,000
Retained earnings 10,418,000 8,911,000
----------- -----------
Total shareholders' equity 15,837,000 14,336,000
----------- -----------
Total liabilities and
shareholders' equity $20,350,000 $18,097,000
=========== ===========
</TABLE>
2
<PAGE>
SCIENTIFIC TECHNOLOGIES INCORPORATED
------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
Mar. 31, 1996 Mar. 31, 1995
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<S> <C> <C>
Sales $9,352,000 $8,652,000
Cost of goods sold 4,283,000 3,648,000
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Gross profit 5,069,000 5,004,000
Operating Expenses:
Selling, general and administrative 2,197,000 2,071,000
Research and development 574,000 364,000
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Total operating expenses 2,771,000 2,435,000
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Income from operations 2,298,000 2,569,000
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Interest income, net 214,000 59,000
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Income before income taxes 2,512,000 2,628,000
Provision for taxes on income 1,005,000 1,051,000
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Net income $1,507,000 $1,577,000
========== ==========
Net income per share $.16 $.16
========== ==========
Weighted average common and common
equivalent shares 9,607,000 9,607,000
========== ==========
</TABLE>
3
<PAGE>
SCIENTIFIC TECHNOLOGIES INCORPORATED
------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
Mar. 31, 1996 Mar. 31, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,507,000 $1,577,000
Adjustments to reconcile net income
to cash
provided by operating activities:
Depreciation and amortization 145,000 102,000
Changes in assets and liabilities:
Accounts receivable, net (1,055,000) (612,000)
Inventories (759,000) (552,000)
Payable to Parent 443,000 493,000
Trade accounts payable 383,000 271,000
Accrued expenses (70,000) 339,000
Other (289,000) (203,000)
----------- ----------
Cash flows provided by 305,000 1,415,000
operating activities ----------- ----------
Cash flows from investing activities
Investment in intangibles and fixed (420,000) (152,000)
assets
Purchase of short-term investments 1,203,000 (611,000)
----------- ----------
Cash flows used in investing 783,000 (763,000)
activities ----------- ----------
Cash flows from financing activities
Increase (decrease) in debt (4,000) (7,000)
----------- ----------
Cash flows used in financing (4,000) (7,000)
activities ----------- ----------
Change in cash and cash equivalents 1,084,000 645,000
Cash and cash equivalents at beginning 3,477,000 2,247,000
of period ----------- ----------
Cash and cash equivalents at end of $ 4,561,000 $2,892,000
period =========== ==========
Supplemental disclosure of cash flow
information:
Cash paid to the Parent for income $ 1,005,000 $1,051,000
taxes
</TABLE>
4
<PAGE>
SCIENTIFIC TECHNOLOGIES INCORPORATED
------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
The consolidated financial statements as of March 31, 1996 and the three
months ended March 31, 1996 and 1995 are unaudited. In the opinion of
management, they reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results of these periods but
may not necessarily be indicative of the results to be expected for the full
fiscal year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been consolidated or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested that
these consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in Scientific Technologies
Incorporated's Annual Report to Shareholders on Form 10-KSB for the year ended
December 31, 1995.
<TABLE>
<CAPTION>
1. INVENTORIES
Inventories consist of the
following:
Mar. 31, 1996 Dec. 31, 1995
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<S> <C> <C>
Raw Materials $1,490,000 $1,408,000
Subassemblies 672,000 426,000
Work in Process 1,090,000 767,000
Finished Goods 994,000 886,000
---------- ----------
$4,246,000 $3,487,000
========== ==========
</TABLE>
2. NET INCOME PER SHARE
Net income per common share is computed based on the weighted average
number of shares outstanding during the period. There were no options or
warrants outstanding during the periods presented.
3. DIVIDEND PAID
On March 6, 1996, the Company declared a cash dividend of $.04 per share
on all its common shares. This dividend was paid on April 1, 1996 to
shareholders of record on March 22, 1996. Approximately 87% of the outstanding
common stock of the Company is beneficially owned by Scientific Technology
Incorporated, a California corporation under common control with the Company.
Dividends paid to Scientific Technology Incorporated were applied to the Payable
to Parent account.
5
<PAGE>
ITEM 2 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
The following section contains certain forward looking statements based on
current expectations. Actual results may differ materially. Among the factors
which could effect actual results are those listed under "Business Factors"
below and those listed under "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" in the Company's Annual Report on Form
10KSB for the year ended December 31, 1995.
Results of Operations
---------------------
Sales for the three months ended March 31, 1996 increased 8% to $9,352,000
from $8,652,000 in the first quarter of 1995. This was primarily the result of
continued acceptance of the Company' products, partially offset by a higher
overall discount rate.
Gross margin as a percent of sales declined to 54% during the first quarter of
1996 compared to 58% in the comparable 1995 quarter. This was primarily the
result of the higher overall discount rates and increased costs associated with
the new and larger facilities. In addition, the first quarter of 1995 was
positively impacted by a non-recurring favorable inventory adjustment. The first
quarter gross margin compares more favorably with the 54% recorded in the fourth
quarter of 1995 and the overall 55% reported for the entire 1995 fiscal year.
Selling, general and administrative costs increased 6% to $2,197,000 in the
first quarter of 1996 from $2,071,000 in 1995. This was primarily the result of
increased selling expenses associated with the higher levels of revenue and the
above mentioned facilities expenses. Selling, general and administrative
expenses as a percent of sales remained constant at 24% in 1996 and 1995.
Research and development expenses rose 58% to $574,000 in 1996 from $364,000
in 1995. Research and development expenses were 6% of sales for the three months
ended March 31, 1996 compared to 4% for the comparable 1995 period. The Company
anticipates that it will continue to make substantial investments in research
and development in subsequent quarters.
Interest income, net increased to $214,000 for the three months ended March
31, 1996 compared to $59,000 for the same period in the prior year. This was
primarily the result of increased income from short-term investments and the
gain resulting from the sale of a short-term investment.
The Company's provision for income taxes was $1,005,000 for the three months
ended March 31, 1996 compared to $1,051,000 for the comparable 1995 period.
In light of the significant growth of the Company's operations in past years,
the Company believes that period to period comparisons of its financial results
should not be relied upon as an indication of future performance.
Liquidity and Capital Resources
-------------------------------
At March 31, 1996 the Company's working capital was $13,674,000, a 10%
increase from the $12,452,000 reported at December 31, 1995. This was due to
increases in cash equivalents, accounts receivable and inventory, which offset
reduced short-term investments, increased trade accounts payable, accrued
expenses and Payable to Parent.
The Company reduced its bank borrowings by $4,000 during the first quarter of
1996 to $60,000. Available bank borrowings were $2,500,000 at March 31, 1996.
The Company believes that cash from operations, together with its cash resources
and available bank borrowings, should be adequate to fund its working capital
requirements through at least the remainder of 1996.
6
<PAGE>
Business Factors
----------------
Because of the variety of factors and uncertainties affecting the Company's
operating results, past financial performance and historic trends may not be a
reliable indicator of future performance. These factors, as well as other
factors affecting the Company's operating performance may result in significant
volatility in the Company's common stock price. Among the factors which could
affect future results:
Variability of operating results
- --------------------------------
The Company has experienced fluctuations in annual and quarterly operating
results and anticipates that these fluctuations will continue. These
fluctuations are caused by a number of factors, including the level and timing
of customer orders, fluctuations in complementary third party products with
which STI products are sold, the mix of products sold and the timing of
operating expenditures.
Seasonality
- -----------
The industrial manufacturing equipment industry can be subject to seasonality.
Competition
- -----------
The market for industrial sensors is highly competitive. Competitive pressures
have in the past and could in the future result in increased distributor, OEM
and system integrator discounts, price reductions, increased expenses and
reduced market acceptance of the Company's products.
Rapid technological change and new product development
- ------------------------------------------------------
The Company's future success will depend on its ability to enhance its current
products, develop new products and respond to emerging industry standards, all
on a timely and cost-effective basis. The introduction of new products also
requires the Company to manage the transition from older products in order to
minimize disruption of customer orders, avoid excessive levels of older product
inventories and ensure that adequate supplies of new products can be delivered
to meet customer demands.
Dependence on indirect distribution channel
- -------------------------------------------
A majority of the Company's sales are sold through third party distributors,
system integrators and original equipment manufacturers. These resellers are not
required to offer the Company's products exclusively and there can be no
assurance that a reseller will continue to offer the Company's products.
International sales
- -------------------
The Company's international sales may be disrupted by currency fluctuations or
other events beyond the Company's control, including political or regulatory
changes.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
- -------------------------
Not Applicable
Item 5. OTHER INFORMATION
- -------------------------
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------------------------------------
(a) The following documents are filed as a part of this Report:
Exhibit 3.1 - Articles of Incorporation, as amended, are incorporated by
reference to the Registrant's Form 10-K for the year ended December 31,
1988, Exhibit 3.1.
Exhibit 3.3 - By-Laws are incorporated by reference to the Registrant's
Form 10-K for the year ended December 31, 1985, Exhibit 3.
Exhibit 4.1 - 1987 Employee Stock Purchase Plan is incorporated by
reference to the Registrant's Registration Statement on Form S-8
dated May 13, 1988.
Exhibit 4.2 - 1987 Stock Option Plan is incorporated by reference to the
Registrant's Registration Statement on Form S-8 dated May 13,1988.
Exhibit 10.1 - Lease agreement dated February 21, 1995 for 6550 Dumbarton
Circle, Fremont, California 94555, is incorporated by reference to the
Registrant's Form 10-KSB for the year ended December 31, 1994, Exhibit
10.4.
Exhibit 10.2 - Bank agreement dated November 29, 1994 with Bank of The West
is incorporated by reference to the Registrant's Form 10-KSB for the year
ended December 31, 1994, Exhibit 10.3.
Exhibit 10.3 - Amendment dated May 31, 1995 to Bank Agreement dated
November 29, 1994 is incorporated by reference to the Registrant's Form 10-
KSB for the year ended December 31, 1995, Exhibit 10.3.
Exhibit 10.4 - Lease agreement dated November 21, 1995 is incorporated by
reference to the Registrant's Form 10-KSB for the year ended December 31,
1995, Exhibit 10.4.
Exhibit 21.1 - Subsidiaries of the Registrant is incorporated by reference
to the Registrant's Form 10-KSB for the year ended December 31, 1995,
Exhibit 21.1.
Exhibit 23.1 - Consent of Independent Accountants is incorporated by
reference to the Registrant's Form 10-KSB for the year ended December 31,
1995, Exhibit 23.1.
Exhibit 24.1 - Power of Attorney is incorporated by reference to the
Registrant's Form 10-KSB for the year ended December 31, 1995, Exhibit
24.1.
Exhibit 27.0 - Financial Data Schedule.
(b) No Reports on Form 8-K were filed during the first quarter of 1996.
8
<PAGE>
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.
SCIENTIFIC TECHNOLOGIES INCORPORATED
----------------------------------------
Registrant
Date: May 14, 1996 /s/Joseph J. Lazzara
----------------------------------------
Joseph J. Lazzara
President and Chief Executive
Officer
(Principal Executive and
Financial officer)
Date: May 14, 1996 /s/ Richard O. Faria
---------------------------------------
Richard O. Faria
Vice-President, Finance &
Administration
(Principal Accounting Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,561,000
<SECURITIES> 2,184,000
<RECEIVABLES> 6,422,000
<ALLOWANCES> 114,000
<INVENTORY> 4,246,000
<CURRENT-ASSETS> 18,177,000
<PP&E> 4,571,000
<DEPRECIATION> 2,398,000
<TOTAL-ASSETS> 20,350,000
<CURRENT-LIABILITIES> 4,503,000
<BONDS> 0
0
0
<COMMON> 10,000
<OTHER-SE> 15,827,000
<TOTAL-LIABILITY-AND-EQUITY> 20,350,000
<SALES> 9,352,000
<TOTAL-REVENUES> 9,352,000
<CGS> 4,283,000
<TOTAL-COSTS> 7,054,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,512,000
<INCOME-TAX> 1,005,000
<INCOME-CONTINUING> 1,507,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,507,000
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
