SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
Commission File Number 0-15864
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SCAN-GRAPHICS, INC.
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(exact name of registrant as specified in its charter)
PENNSYLVANIA 95-4091769
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(State of Incorporation) (IRS Employer Identification No.)
700 ABBOTT DRIVE, BROOMALL, PENNSYLVANIA 19008-4373
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(Address of principal executive offices) (Zip Code)
610-328-1040
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Registrant's telephone number, including area code
Indicate by the check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 and 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
10,331,750 shares of common stock were outstanding as of March 31, 1996
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SCAN-GRAPHICS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets --
March 31, 1996 and December 31, 1995 3 - 4
Consolidated Statements of Operations --
Three months ended
March 31, 1996 and 1995 5
Consolidated Statements of Cash Flow --
Three months ended
March 31, 1996 and 1995 6
Notes to Financial Statements --
March 31, 1996 7
Item 2. Management's Discussion and Analysis of
Financial Condition and
Results of Operations 8 - 9
PART II. OTHER INFORMATION
Item 1 through Item 6. 10
SIGNATURE PAGE 11
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SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands except share and per share data)
MARCH 31, DECEMBER 31,
1996 1995
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,163 $ 189
Accounts receivable, less
allowance for doubtful accounts of
$46 and $46 1,005 991
Inventories 1,496 1,454
Prepaid expenses and other current
assets 101 66
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TOTAL CURRENT ASSETS $4,765 $2,700
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PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization 700 757
OTHER ASSETS:
Software purchased 521 556
Other Non-Current Assets 63 71
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TOTAL OTHER ASSETS $ 584 $ 627
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TOTAL ASSETS $6,049 $4,084
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See accompanying notes to financial statements.
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SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands except share and per share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,022 $ 959
Loans Payable - related parties 53 59
Notes Payable - officers 259 259
Dividend Payable 188 158
Deferred revenue 385 157
Notes Payable 1,995 -
Current Maturities, capital lease obligation 87 87
Current maturities of long term debt 69 69
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TOTAL CURRENT LIABILITIES $ 4,058 $ 1,748
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LONG-TERM DEBT, less current maturities 182 182
Capital lease obligation, less current maturities 43 43
Deferred Revenue 0 6
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TOTAL LONG TERM DEBT $ 225 $ 231
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STOCKHOLDERS' EQUITY
Class A convertible preferred stock authorized 1,000,000 shares, stock
outstanding 500,000 shares
(Series A), par value $2.00 1,000 1,000
stock outstanding 125,000 shares
(Series C), par value $10.00 1,250 1,250
Common stock, par value $0.001 Authorized 50,000,000 shares Outstanding
10,331,750 shares at March 31, 1996 and 10,188,812
shares at December 31, 1995 10 10
Additional paid-in capital 8,928 8,677
Deficit (9,422) (8,832)
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TOTAL STOCKHOLDERS' EQUITY 1,766 2,105
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$ 6,049 $ 4,084
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</TABLE>
See accompanying notes to financial statements.
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands except share and per share data)
THREE MONTHS ENDED MARCH 31,
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1996 1995
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SALES $ 1,227 $ 863
LICENSE AND ROYALTY FEES 10 34
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Total revenues $ 1,237 $ 897
COST OF GOODS SOLD 653 657
GROSS PROFIT 584 240
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EXPENSES:
Research and development 242 153
Sales and marketing 367 323
General and administrative 514 16
Total operating expenses 1,123 492
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NET OPERATING INCOME (LOSS) BEFORE
OTHER INCOME (EXPENSE) (539) (252)
OTHER INCOME - 3
Other Expense (21) (32)
Total other income (expense) (21) (29)
NET INCOME(LOSS) BEFORE INCOME TAX (560) (281)
INCOME TAX - -
NET INCOME(LOSS) (560) (281)
PREFERRED DIVIDENDS (30) (30)
BALANCE APPLICABLE TO COMMON STOCK (590) (311)
EARNINGS(LOSS) PER SHARE OF COMMON STOCK:
Primary (.06) (.03)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Primary 10,331,750 9,718,812
See accompanying notes to financial statements.
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands except share and per share data)
THREE MONTHS THREE MONTHS
1996 1995
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CASH FLOW FROM OPERATING ACTIVITIES:
Net Income(Loss) $ (560) $ (281)
Adjustments to reconcile net income (loss)
to net cash (used) in operating activities:
Depreciation and amortization 177 133
(Increase) decrease in notes and
accounts receivable (14) 1
(Increase) decrease in inventories (42) 15
(Increase) decrease in other current assets (35) (56)
(Increase) decrease in other assets 8 78
Increase (decrease) in accrued bonuses - (400)
Increase(decrease) in accounts payable
and accrued expenses 63 148
Increase(decrease)in deferred revenue 222 44
Total adjustments 379 (37)
Net cash provided(used) by operating
activities (181) (318)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (76) (15)
Capitalized trademarks & patents (10) -
Net Cash (used) in investing activities (86) (15)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt - -
Payment of preferred dividends - -
Proceeds from notes payable - officers - 332
Payment of loans payable - officers (6) (40)
Payment of capital lease obligations - (18)
Proceeds from issuance of notes payable 1,995 -
Proceeds from exercise of common stock
warrants/options 252 -
Net cash provided(used) by financing activities 2,241 274
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 1,974 (59)
CASH AND CASH EQUIVALENTS,
at beginning of year 189 226
CASH AND CASH EQUIVALENTS,
at March 31 2,163 167
See accompanying notes to financial statements.
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996
(In Thousands except share and per share data)
Note #1
In the opinion of management all adjustments are of a normal recurring nature
and have been made to present fairly its financial position at March 31, 1996
and the results of operations for the periods indicated. The operating results
of operations for the periods are not necessarily indicative of results to be
expected.
Note #2 Inventories:
Inventories at March 31, 1996 and December 31, 1995 consists
of the following:
March 31, December 31,
1996 1995
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Raw materials $ 498 $ 625
Work-in-process 553 353
Finished products 445 476
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$1,496 $1,454
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Note #3 Property and Equipment:
Property and equipment consists of:
March 31, December 31,
1996 1995
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Equipment under capital lease $ 269 $ 269
Machinery & Equipment 2,317 2,267
Furniture & Fixtures 103 97
Autos & Trucks 46 46
Leasehold Improvements 76 76
Software 218 198
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$3,029 $2,953
Less accumulated
depreciation and amortization 2,329 2,196
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Net Fixed Assets $ 700 $ 757
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Note #4 Other Assets:
Software Purchased $ 695 $ 695
Less accumulated amortization 174 139
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$ 521 $ 556
Note #5 Commitments and Contingencies
The Company will be obligated to pay one to two years of
annual salary to certain officers of the Company if the
Company is acquired or merged and the acquirer chooses to
terminate their services. In this event the aggregate
potential severance pay at March 31, 1996 is $390.
Note #6 Supplemental Disclosures of Cash Flow Information
March 31, March 31,
1996 1995
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Cash paid during year for
interest $ 13 $ 2
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Declaration of preferred
stock cash dividend $ 30 $ 30
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<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (In Thousands except share and per share data)
At March 31, 1996, cash and cash equivalents increased to $2,163, a $1,974
increase compared to the December 31, 1995 amount of $189. The above change in
cash and cash equivalents are explained as follows in the cash flow from
operating, investing and financing activities.
As of March 31, 1996, the cash flows from operating activities resulted in a net
use of cash of $181. This use of cash was primarily due to the Company's added
significant increases in expenditures for research and development and general
and administrative expenses relating to the Company's Sedona GeoServices, Inc.
and Tangent Engineering, Inc. divisions.
As of March 31, 1996, the cash flows from investing activities resulted in a net
use of cash of $86. The use of cash was due to purchases of equipment.
As of March 31, 1996, the cash flows from financing activities resulted in net
cash provided by financing activities of $2,241. The increase in cash provided
was due to the exercise of common stock options and warrants and a private
placement of securities.
In connection with a $3,100 private placement of its securities in March 1996,
the Company offered for sale 62 units, each of which consisted of a $50, 8%
convertible note due March 28, 1997, 19,355 "A" warrants and 19,355 "B"
warrants. The notes and any accrued interest are convertible within one (1) year
at a price per share equal to the lesser of $3.00 or 65% of the average closing
bid price for the five days preceding conversion.
The warrants are exercisable immediately and expire in March 1999. The "A"
warrants are exercisable at $3.00 per share or, if less, the lowest price per
share at which any conversion shall have occurred under any of the convertible
notes. The "B" warrants are exercisable at $4.00 per share as of March 31, 1996,
the Company has received proceeds amounting to $1,995. The proceeds will be used
for working capital purposes and for the most part to fund the requirements of
its subsidiary, Sedona GeoServices, Inc.
The Company believes that proceeds from the private placement and funds
generated from operations will be sufficient to meet the Company's working
capital requirements for 1996.
Results of Operation (In Thousands except share and per share data)
Net Revenue for the three months ended March 31, 1996 increased to $1,237 a
37.9% increase compared to the three months ended March 31, 1995, amount of
$897. Revenue in excess of 10% of revenue to one customer accounted for
approximately 18.2% of net revenue for the three months ended March 31, 1996,
compared to revenue in excess of 10% of revenue to one customer which accounted
for approximately 16.1% of net revenue for the three months ended March 31,
1995.
Gross Margin percentages at March 31, 1996 and 1995 were 47.5% and 27% of
revenue, respectively.
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands except share and per share data)
Research and development expense as a percentage of revenue increased to 19.6%
of revenue at March 31, 1996 compared to 17.1% of revenue at March 31, 1995. The
Company continues to invest its resources in the development of software imaging
products and the continuing development of new hardware products. On an actual
expense comparison research and development expenses increased at March 31,
1996, compared to March 31, 1995 by $89.
Sales and Marketing expense as a percentage of revenue decreased to 29.7% of
sales at March 31, 1996 compared to 36.0% at March 31, 1995. This decrease was
due to higher revenue.
General and Administrative expense for the first quarter 1996 was 41.6% of
revenue compared to 1.8% at March 31, 1995. This was a result of a reversal of
an Accounts Receivable Reserve of $238 in March 1995, setup in 1994 and 1993 for
a potentially un-collectible account. An agreement with the customer was reached
for the full amount in March 1995 to pay the receivables.
Inflation
There can be no assurance that the Company's business will not be affected by
inflation in the future, however, management believes the inflation did not have
a material effect on the results of operations or financial condition of the
Company during the period presented herein.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings -
None
Item 2 - Changes in Securities - None
Item 3 - Default Upon Senior Securities - None
Item 4 - Submission of Matters to a Vote of
Security Holders - None
Item 5 - Other Information - None
Item 6 - Exhibits and Reports on Form 8K
A) None
B) Reports on Form 8K
January 12, 1996
March 11, 1996
Exhibit Document
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(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession.
None
(4) Instruments defining the rights of security holders.
None
(11) Statement re: computation of per share earnings.
Not applicable
(15) Letter re: unaudited financial information.
Not applicable
(18) Letter re: change in accounting principles.
Not applicable
(19) Previously unfiled documents.
None
(20) Report(s) furnished to security holders.
None
(23) Published report regarding matters submitted to
vote of security holders.
None
(24) Consents of experts and counsel.
None
(25) Power of attorney.
None
(28) Additional exhibits.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned,
Thereunto duly authorized.
SCAN-GRAPHICS, INC.
DATE: May 15, 1996 /S/ Andrew E. Trolio
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Andrew E. Trolio
President
DATE: May 15, 1996 /S/ Joseph N. Battista
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Joseph N. Battista
Vice President Finance
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-START> JAN-01-1996
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,163
<SECURITIES> 0
<RECEIVABLES> 1,005
<ALLOWANCES> 0
<INVENTORY> 1,496
<CURRENT-ASSETS> 4,765
<PP&E> 3,029
<DEPRECIATION> 2,329
<TOTAL-ASSETS> 6,049
<CURRENT-LIABILITIES> 4,058
<BONDS> 0
0
2250
<COMMON> 10
<OTHER-SE> (494)
<TOTAL-LIABILITY-AND-EQUITY> 6,049
<SALES> 1,227
<TOTAL-REVENUES> 1,237
<CGS> 653
<TOTAL-COSTS> 1,123
<OTHER-EXPENSES> 21
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (560)
<INCOME-TAX> 0
<INCOME-CONTINUING> (560)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (560)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
