SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1998. Commission File Number 1-9720
OR
[ ] TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________
Commission File Number __________
PAR TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 16-1434688
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
PAR Technology Park
8383 Seneca Turnpike
New Hartford, NY 13413-4991
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (315) 738-0600
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
The number of shares outstanding of registrant's common stock, as of July
29, 1998 - 8,911,065 shares.
<PAGE>
PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q
PART 1
FINANCIAL INFORMATION
Item Number
-----------
Item 1. Financial Statements
- Consolidated Statement of Income for
the Three and Six Months Ended
June 30, 1998 and 1997
- Consolidated Balance Sheet at
June 30, 1998 and December 31, 1997
- Consolidated Statement of Cash Flows
for the Six Months Ended
June 30, 1998 and 1997
- Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
Item 1.
Financial Statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues:
Product ........................... $ 11,955 $ 9,231 $ 19,916 $ 15,797
Service ........................... 7,250 6,794 14,205 13,175
Contract .......................... 6,772 5,652 13,037 10,768
-------- -------- -------- --------
25,977 21,677 47,158 39,740
-------- -------- -------- --------
Costs of sales:
Product ........................... 9,025 7,058 14,674 12,572
Service ........................... 6,459 5,844 12,851 11,453
Contract .......................... 5,992 5,388 11,974 10,275
-------- -------- -------- --------
21,476 18,290 39,499 34,300
-------- -------- -------- --------
Gross margin ................ 4,501 3,387 7,659 5,440
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative 4,378 5,572 8,947 10,443
Research and development .......... 1,538 1,411 2,876 2,503
Non-recurring charges ............. (550) 4,919 (650) 4,919
-------- -------- -------- --------
5,366 11,902 11,173 17,865
-------- -------- -------- --------
Loss from operations ................... (865) (8,515) (3,514) (12,425)
Other income, net ...................... 166 111 311 253
-------- -------- -------- --------
Loss before provision for
income taxes ......................... (699) (8,404) (3,203) (12,172)
Benefit for income taxes ............... (254) (3,059) (1,131) (4,435)
-------- -------- -------- --------
Net loss ............................... $ (445) $ (5,345) $ (2,072) $ (7,737)
======== ======== ======== ========
Loss per common share .................. $ (.05) $ (.60) $ (.23) $ (.88)
======== ======== ======== ========
Weighted average number of common
shares outstanding ................ 8,897 8,843 8,896 8,841
======== ======== ======== ========
</TABLE>
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss ............................... $ (445) $ (5,345) $ (2,072) $ (7,737)
Other comprehensive income (loss), net of tax:
Foreign currency translation
adjustments........................ (197) (54) 9 (331)
-------- -------- -------- --------
Comprehensive loss ..................... $ (642) $ (5,399) $ (2,063) $ (8,068)
======== ======== ======== ========
</TABLE>
<PAGE>
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
Assets (Unaudited) 1997
- ------ ----------- -----------
<S> <C> <C>
Current Assets:
Cash ................................... $ 3,083 $ 3,977
Accounts receivable-net ................ 26,726 29,938
Inventories ............................ 29,273 31,168
Income tax refund claims ............... 308 214
Deferred income taxes .................. 4,920 5,876
Other current assets ................... 1,029 1,340
-------- --------
Total current assets ............... 65,339 72,513
Property, plant and equipment - net ......... 8,015 7,013
Other assets ................................ 4,389 3,678
-------- --------
$ 77,743 $ 83,204
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable .......................... $ -- $ 195
Accounts payable ....................... 5,350 8,664
Accrued salaries and benefits .......... 4,111 3,804
Accrued expenses ....................... 3,143 3,444
Deferred service revenue ............... 3,001 3,024
-------- --------
Total current liabilities .......... 15,605 19,131
-------- --------
Deferred income taxes ....................... 684 656
-------- --------
Shareholders' Equity:
Common stock, $.02 par value,
12,000,000 shares authorized;
9,499,671 and 9,466,771 shares issued
8,897,165 and 8,864,265 outstanding 190 189
Preferred stock, $.02 par value,
250,000 shares authorized ............ -- --
Capital in excess of par value ......... 27,974 27,875
Retained earnings ...................... 36,888 38,960
Cumulative translation adjustment ...... (673) (682)
Treasury stock, at cost, 602,506 shares (2,925) (2,925)
-------- --------
Total shareholders' equity ......... 61,454 63,417
-------- --------
Contingent liabilities
-------- --------
$ 77,743 $ 83,204
======== ========
</TABLE>
<PAGE>
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
------------------
1998 1997
------- ------
<S> <C> <C>
Cash flows from operating activities: ........................
Net loss .................................................. $ (2,072) $ (7,737)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................... 1,045 1,222
Provision for obsolete inventory ............................. 1,292 2,635
Translation adjustments ................................. 9 (331)
Increase (decrease) from changes in:
Accounts receivable-net ............................... 3,212 15,110
Inventories ........................................... 603 (7,330)
Income tax refund claims .............................. (94) (2,707)
Other current assets .................................. 311 (271)
Other assets .......................................... (582) 1,687
Accounts payable ...................................... (3,314) (977)
Accrued salaries and benefits ......................... 307 765
Accrued expenses ...................................... (301) 186
Deferred service revenue .............................. (23) 299
Deferred income taxes ................................. 984 (1,623)
------- -------
Net cash provided by operating activities ............ 1,377 928
------- -------
Cash flows from investing activities:
Capital expenditures .................................... (1,729) (869)
Capitalization of software costs ........................ (447) (500)
------- -------
Net cash used in investing activities ................ (2,176) (1,369)
------- -------
Cash flows from financing activities:
Net borrowings (payments) under line-of-credit agreements (195) 10
Proceeds from the exercise of stock options ............. 100 131
Acquisition of treasury stock ........................... -- (163)
------- -------
Net cash used in financing activities ............... (95) (22)
------- -------
Net decrease in cash and cash equivalents ................ (894) (463)
Cash and cash equivalents at beginning of year ........... 3,977 8,391
------- -------
Cash and cash equivalents at end of period ............... $ 3,083 $ 7,928
======== ========
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest ................................................ $ 2 $ 9
Income taxes, net of refunds ............................ (2,057) (188)
</TABLE>
<PAGE>
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The statements for the three and six months ended June 30, 1998 and 1997
are unaudited; in the opinion of the Company such unaudited statements
include all adjustments (which comprise only normal recurring accruals)
necessary for a fair presentation of the results for such periods. The
consolidated financial statements for the year ending December 31, 1998 are
subject to adjustment at the end of the year when they will be audited by
independent accountants. The results of operations for the three and six
months ended June 30, 1998 are not necessarily indicative of the results of
operations to be expected for the year ending December 31, 1998. The
consolidated financial statements and notes thereto should be read in
conjunction with the financial statements and notes for the years ended in
December 31, 1997 and 1996 included in the Company's December 31, 1997
Annual Report to the Securities and Exchange Commission on Form 10-K.
Earnings per share are based on the weighted average number of shares
outstanding plus common stock equivalents under the Company's stock option
plans.
2. Inventories are used in the manufacture of Point-Of-Sale systems and other
commercial products. The components of inventory, net of related reserves,
consist of the following:
(In Thousands)
--------------
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------- -----------
<S> <C> <C>
Finished goods $ 7,892 $ 8,635
Work in process 2,993 4,184
Component parts 8,842 9,883
Service parts 9,546 8,466
------- -------
$29,273 $31,168
======= =======
</TABLE>
At June 30, 1998 and December 31, 1997, the Company had recorded reserves
for obsolete inventory of $3,334,000 and $3,800,000, respectively.
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1998
COMPARED WITH
QUARTER ENDED JUNE 30, 1997
The Company reported a net loss of $445,000 or a loss per share of $.05 for
the second quarter of 1998. Revenues for the quarter were $26 million. These
results compare to a net loss of $5.3 million or a loss per share of $.60 and
revenues of $21.7 million for the second quarter of 1997.
The results for the second quarter of 1998 include a benefit of $550,000
($350,000 after tax or $.04 per share) relating to a partial recovery of
accounts receivable from Phoenix Systems and Technologies, Inc. (Phoenix), which
were previously reserved. The results for the second quarter of 1997 include a
charge of $4 million ($2.6 million after tax or $.29 per share) relating to a
receivable from and loan guarantee for Phoenix. The 1997 results also include a
charge of $900,000 ($580,000 after tax or $0.07 per share) pertaining to the CTS
business. This charge primarily involves obsolete inventory in the Company's CTS
business.
Product revenues were $12 million in the second quarter of 1998, an
increase of 30% from the $9.2 million recorded in the second quarter of 1997.
The increase was primarily due to higher sales to McDonald's as the Company's
POS 4 hardware products have been generally accepted by this major customer and
meet the POS requirements of their "made for you" initiative. Higher sales to
Chick-fil-A and an increase in sales to resellers also contributed to this
increase. The increase was partially offset by lower sales to Burger King as the
Company completed delivery of POS systems in 1997 under its corporate contract
with this customer. The Company is pursuing the Burger King Franchisee market in
1998.
Customer service revenues were $7.3 million in the second quarter of 1998,
an increase of 7% from the $6.8 million in the second quarter of 1997. In 1998,
the Company increased its number of worldwide field service contracts as its
customer base expands. The Company also increased its installation revenue which
is directly related to the higher product sales discussed above.
Contract revenues were $6.8 million in the second quarter of 1998, an
increase of 20% when compared to the $5.7 million recorded in the same period in
1997. The Company increased its level of integration and software development
activity in 1998, and expanded its engineering service efforts in airfield
management and government site contracts.
Product margins were 25% for the second quarter of 1998 compared to 24% for
the same period in 1997. The slight improvement is due to product mix as the
Company's customers are transitioning to the new POS 4 products. The Company
anticipates an increase in its margin percentage in the second half of 1998.
Customer service margins were 11% in the second quarter of 1998 compared to
14% for the same period in 1997. The decline in margin is primarily due to an
increase in personnel as the Company is upgrading its integration and service
capabilities. This investment will continue throughout the remainder of the
year.
Contract margins were 12% in the second quarter of 1998 compared to 5% for
the same period in 1997. This increase is primarily due to a retroactive fee
adjustment on a contract. Margins on the Company's government contract business
typically run between 5% and 6%. <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1998
COMPARED WITH
QUARTER ENDED JUNE 30, 1997
Selling, general and administrative expenses were $4.4 million in the
second quarter of 1998 versus $5.6 million for the same period in 1997, a
decrease of 21%. The decline is primarily due to several factors. In 1997, the
Company recorded certain bad debt reserves relating to the Company's government
contract business. Additionally, in 1997 the Company decided to reduce its
investment in its Corneal Topography (CTS) business. Finally, the Company has
experienced a reduction in general and administrative headcount.
Research and development expenses were $1.5 million in second quarter of
1998, an increase of 9% from the $1.4 million recorded for the same period in
1997. The Company is actively increasing its investment in its POS business in
1998. Partially offsetting the increase was the reduction in the CTS business
discussed above. Research and development costs attributable to government
contracts are included in cost of contract revenues.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
COMPARED WITH
SIX MONTHS ENDED JUNE 30, 1997
The Company reported a net loss of $2.1 million or a loss per share of $.23
for the first six months of 1998. Revenues for the six months were $47.2
million. These results compare to a net loss of $7.7 million or a loss per share
of $.88 and revenues of $39.7 million for the first six months of 1997.
Product revenues were $19.9 million in the first six months of 1998 an
increase of 26% from the $15.8 million recorded in the first six months of 1997.
The increase was primarily due to higher sales to McDonald's as the Company's
new POS 4 hardware products were recently approved by this major customer. Sales
to Taco Bell and to the Company's reseller's channel also contributed to this
increase. The increase was partially offset by lower sales to Burger King as the
Company completed delivery of POS systems in 1997 under its corporate contract
with this customer.
Customer service revenues were $14.2 million in the first six months of
1998, an increase of 8% from the $13.2 million in the first six months of 1997.
In 1998, the Company increased its number of worldwide field service and
telephone help desk contracts as its customer base expands. Installation revenue
also increased which is directly related to the higher product sales discussed
above.
Contract revenues were $13 million in the first six months of 1998, an
increase of 21% when compared to the $10.8 million recorded for the same period
in 1997. The Company increased its level of integration and software development
activity across several contracts. Additionally, the Company expanded its
engineering service efforts in airfield management.
Product margins were 26% for the first six months of 1998 compared to 20%
for the same period in 1997. The Company experienced improved margins as its
customers are transitioning to the Company's new products.
Customer service margins were 10% in the first six months of 1998 compared
to 13% for the same period in 1997. This decline in margin is primarily due to
an increase in personnel as the Company is upgrading its integration and service
capabilities. This investment will continue throughout the remainder of the
year.
Contract margins were 8% in the first six months of 1998 compared to 5% for
the same period in 1997. This increase is primarily due to a retroactive fee
adjustment on a contract. Margins on the Company's government contract business
typically run between 5% and 6%.
Selling, general and administrative expenses were $8.9 million in the first
six months of 1998 versus $10.4 million for the same period in 1997, a decrease
of 14%. This decline is primarily due to certain reserves for bad debts recorded
in 1997 relating to the Company's government business. The Company's decision in
1997 to reduce its investment in its CTS business also contributed to the
decline.
Research and development expenses were $2.9 million in the first six months
of 1998, an increase of 15% from the $2.5 million recorded for the same period
in 1997. The Company is actively increasing its investment in its POS business
in 1998. Partially offsetting the increase was the reduction in the CTS business
discussed above. <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
COMPARED WITH
SIX MONTHS ENDED JUNE 30, 1997
Liquidity and Capital Resources
The Company's primary source of liquidity has been from operations. Cash
provided by operating activities was $1.4 million in the first six months of
1998, compared to cash provided of $928,000 in 1997. In 1998, the Company's cash
flow benefited from the collection of accounts receivable and a reduction of
inventory. The Company also received a $1.7 million federal tax refund
pertaining to utilization of 1997's net operating loss. Additionally, the
Company's accounts payable disbursements were greater in the first half of 1998
than a year ago, primarily as a result of inventory growth in 1997. In 1997, the
Company experienced significant collections of accounts receivable due to the
volume of sales generated in the fourth quarter of 1996. This was partially
offset by the build up of restaurant and service inventory in anticipation of
future sales orders and service requirements.
Cash used in investing activities was $2.2 million for 1998 compared to
$1.4 million in 1997. In 1998, capital expenditures were primarily for upgrades
to the Company's customer service center and for manufacturing equipment. In
1997, capital expenditures were primarily for upgrades to the manufacturing
facility.
Cash used in financing activities was $95,000 for 1998 compared to cash
used of $22,000 in 1997. In 1998, the Company repaid its line-of-credit
indebtedness of $195,000 and received $100,000 from the exercise of employee
stock options. In 1997, the Company paid $163,000 to repurchase some of its
stock and received $131,000 from the exercise of employee stock options.
The Company has line-of-credit agreements, which aggregate $30 million with
certain banks, which were unused at June 30, 1998. The Company believes that it
has adequate financial resources to meet its future liquidity and capital
requirements.
Year 2000--As part of the Company's continuing process to update its
products and internal systems, the Company is evaluating the costs associated
with testing and, as necessary, modifying its products and internal systems for
the Year 2000. The Company expects to incur internal staff costs and outside
consulting costs associated with the Year 2000 conversion effort. The total
incremental cost of this effort, at this time, cannot be estimated. As the
process of analyzing the Company's products and internal systems continues,
however, the Company will expense such costs as they are incurred. Although the
Company at present does not believe the cost of implementing any changes to
address Year 2000 issues will have a material effect on the Company's results of
operations or financial condition, there can be no assurance that there will not
be a delay in or significantly increased costs associated with the
implementation of any necessary changes and the Company's inability to implement
such changes could have an adverse effect on future results of operations.
Important Factors Regarding Future Results
Information provided by the Company, including information contained in
this Report, or by its spokespersons from time to time may contain
forward-looking statements. Forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, including without limitation, further delays in new product
introduction, risks in technology development and commercialization, risks in
product development and market acceptance of and demand for the Company's
products, risks of downturns in economic conditions generally, and in the quick
service sector of the restaurant market specifically, risks of intellectual
property rights associated with competition and competitive pricing pressures,
risks associated with foreign sales and high customer concentration and other
risks detailed in the Company's filings with the Securities and Exchange
Commission.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
Exhibit No. Description of Instrument
----------- -------------------------
11 Statement re computation of per-share earnings
Reports on Form 8-K
None during the second quarter of 1998.
<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.
PAR TECHNOLOGY CORPORATION
--------------------------
(Registrant)
Date: July 29, 1998
RONALD J. CASCIANO
------------------
Ronald J. Casciano
Vice President, Chief Financial Officer
and Treasurer
Exhibit Index
Exhibit
-------
11 - Statement re computation
of per-share earnings
<PAGE>
Exhibit 11
COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
(In Thousands)
<TABLE>
<CAPTION>
For the three months
ended June 30,
--------------------
1998 1997
------- ------
<S> <C> <C>
Primary and Fully Diluted Earnings Per Share:
Weighted average shares of common stock outstanding:
Balance - beginning of period 8,897 8,837
Weighted average shares issued -- 6
--------- ---------
Weighted shares - end of period 8,897 8,843
========= =========
</TABLE>
<PAGE>
Exhibit 11
COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
(In Thousands)
<TABLE>
<CAPTION>
For the three months
ended June 30,
--------------------
1998 1997
------- ------
<S> <C> <C>
Primary and Fully Diluted Earnings Per Share:
Weighted average shares of common stock outstanding:
Balance - beginning of period 8,864 8,826
Weighted average shares issued 32 21
Acquisition of treasury stock -- (6)
--------- ---------
Weighted shares - end of period 8,896 8,841
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,083
<SECURITIES> 0
<RECEIVABLES> 26,726
<ALLOWANCES> 0
<INVENTORY> 29,273
<CURRENT-ASSETS> 65,339
<PP&E> 8,015
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,743
<CURRENT-LIABILITIES> 15,605
<BONDS> 0
0
0
<COMMON> 190
<OTHER-SE> 61,264
<TOTAL-LIABILITY-AND-EQUITY> 77,743
<SALES> 19,916
<TOTAL-REVENUES> 47,158
<CGS> 14,674
<TOTAL-COSTS> 39,499
<OTHER-EXPENSES> 2,226
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,203)
<INCOME-TAX> (1,131)
<INCOME-CONTINUING> (2,072)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,072)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
