<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 JUNE 30, 1998
Commission File Number 0-15864
-------
SCAN-GRAPHICS, INC.
-------------------------------------------------------
(exact name of registrant as specified in its charter)
PENNSYLVANIA 95-4091769
- -------------------------- ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
649 NORTH LEWIS ROAD, LIMERICK, PENNSYLVANIA 19468-1234
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
610-495-3003
--------------------------------------------------------------
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
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- ------
19,238,846 shares of common stock were outstanding as of June 30, 1998
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------- --------------------- -----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -- June 30, 1998 (Unaudited)
and December 31, 1997 3 - 4
Consolidated Statements of Operations -- (Unaudited)
three months ended June 30, 1998 and 1997 5
Consolidated Statements of Operations -- (Unaudited)
six months ended June 30, 1998 and 1997 6
Consolidated Statements of Cash Flow -- (Unaudited)
six months ended June 30, 1998 and 1997 7
Notes to Financial Statements -- June 30, 1998 8 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 13
PART II. OTHER INFORMATION
- ---------------------------
Item 1 through Item 6. 14 - 15
SIGNATURE PAGE 16
- ---------------
2
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share and per share data)
JUNE 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,825 $1,310
Accounts receivable, less
allowance for doubtful accounts of
$37 in 1998 and $91 in 1997 1,544 696
Inventories 1,153 1,690
Prepaid expenses and other current
assets 226 267
------ ------
TOTAL CURRENT ASSETS 5,748 3,963
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization 1,125 1,226
OTHER ASSETS 36 28
------ ------
TOTAL ASSETS $6,909 $5,217
====== ======
See accompanying notes.
3
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share and per share data)
<TABLE>
<CAPTION>
JUNE 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,017 $ 1,013
Dividend payable 110 30
Deferred revenue 86 33
Current maturities, capital lease obligations 44 41
Current maturities of long-term debt 104 411
Current maturities, retirement obligation 103 --
-------- --------
TOTAL CURRENT LIABILITIES 1,464 1,528
-------- --------
LONG-TERM LIABILITIES
Long-term debt, less current maturities 44 98
Capital lease obligation, less current maturities 63 58
Deferred revenue -- 19
Long-term portion of retirement obligation 255 --
-------- --------
TOTAL LONG-TERM LIABILITIES 362 175
-------- --------
STOCKHOLDERS' EQUITY
Class A convertible preferred stock
Authorized 1,000,000 shares
Series A, issued and outstanding
500,000 shares, par value $2.00 1,000 1,000
Series D, par value $1,000
Issued and Outstanding, 250 shares
at June 30, 1998 and 2,990 shares,
at December 31, 1997 250 2,990
Series E, Issued and Outstanding 5,200
shares, par value $1,000 5,200 --
Common stock, par value $0.001 Authorized 50,000,000 shares Outstanding
19,238,846 shares at June 30, 1998 and 18,070,319
shares at December 31, 1997 19 18
Additional paid-in capital 24,505 22,155
Deficit (25,471) (21,322)
Notes Receivable, Related Parties (420) (1,327)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 5,083 3,514
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 6,909 $ 5,217
======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except share and per share data)
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED JUNE 30,
-----------------------------------
1998 1997
---------- ----------
<S> <C> <C>
SALES $ 1,542 $1,321
LICENSE AND ROYALTY FEES - 3
---------- ----------
Total revenues 1,542 1,324
COST OF GOODS SOLD 779 866
---------- ----------
GROSS PROFIT 763 458
EXPENSES:
Research and development 397 324
Sales and marketing 674 648
General and administrative 704 810
---------- ----------
Total operating expenses 1,775 1,782
OPERATING (LOSS) BEFORE
OTHER INCOME (EXPENSE) (1,012) (1,324)
OTHER INCOME 50 55
Other Expense (22) (112)
---------- ----------
Total other income (expense) 28 (57)
(LOSS) BEFORE INCOME TAXES (984) (1,381)
INCOME TAXES - -
NET (LOSS) (984) (1,381)
PREFERRED DIVIDENDS (235) (41)
BALANCE, (LOSS) APPLICABLE TO COMMON STOCK $(1,219) $ (1,422)
========== ==========
BASIC AND DILUTED NET(LOSS)PER SHARE OF
COMMON STOCK $ (.06) $ (.09)
========== ==========
BASIC WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 18,838,003 15,728,740
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except share and per share data)
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS ENDED JUNE 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
SALES $ 2,744 $ 2,255
LICENSE AND ROYALTY FEES 9 27
------------ ------------
Total revenues 2,753 2,282
COST OF GOODS SOLD 2,322 1,746
------------ ------------
GROSS PROFIT 431 536
EXPENSES:
Research and development 828 526
Sales and marketing 1,469 1,125
General and administrative 1,903 1,424
------------ ------------
Total operating expenses 4,200 3,075
OPERATING (LOSS) BEFORE
OTHER INCOME (EXPENSE) (3,769) (2,539)
OTHER INCOME 85 108
Other Expense (41) (229)
------------ ------------
Total other income (expense) 44 (121)
(LOSS) BEFORE INCOME TAXES (3,725) (2,660)
INCOME TAXES -- --
NET (LOSS) (3,725) (2,660)
PREFERRED DIVIDENDS (427) (96)
BALANCE, (LOSS) APPLICABLE TO COMMON STOCK $ (4,152) $ (2,756)
============ ============
BASIC AND DILUTED NET(LOSS) PER SHARE OF
COMMON STOCK $ (.22) $ (.18)
============ ============
BASIC WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 18,668,398 15,612,644
============ ============
</TABLE>
See accompanying notes.
6
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands, except share and per share data)
UNAUDITED
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
------- -------
CASH FLOW FROM OPERATING ACTIVITIES:
Net (Loss) $(3,725) $(2,660)
Adjustments to reconcile net (loss)
to net cash (used) in operating activities:
Depreciation and amortization 169 196
Increase in inventory write-downs 737 --
(Increase) in notes and accounts receivable (848) (131)
Fixed asset write-down 28 --
(Increase) in inventories (200) (275)
Increase in retirement obligation 358 --
(Increase) decrease in other assets 41 (129)
(Increase) in other non-current assets (8) (45)
Increase in accounts payable
and accrued expenses 4 189
Increase(decrease)in deferred revenue 34 (7)
------- -------
Total adjustments 315 (202)
------- -------
Net cash (used) in operating
Activities (3,410) (2,862)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (97) (321)
Capitalized trademarks & patents 0 (8)
------- -------
Net Cash (used) in investing activities (97) (329)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (50) (30)
Net payments/conversions of preferred
dividends to Common Stock 14 (201)
Increase in capital lease obligations 8 (87)
Proceeds from issuance of Preferred Stock,
Series E 5,200 --
Proceeds from issuance of notes payable -- 5,200
Proceeds from exercise of Common stock
warrants/options 50 1,161
Proceeds from subscription receivables -- 347
Payment of Expenses, Stock Issuance (200) (71)
Repurchase of subsidiary stock -- (12)
------- -------
Net cash provided by financing activities 5,022 6,307
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS $ 1,515 $ 3,116
CASH AND CASH EQUIVALENTS,
at beginning of year $ 1,310 $ 1,081
------- -------
CASH AND CASH EQUIVALENTS,
at end of period $ 2,825 $ 4,197
======= =======
See accompanying notes.
7
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In Thousands, except share and per share data)
Note #1
The accompanying consolidated financial statements are unaudited and include the
accounts of Scan-Graphics', Inc. and subsidiaries (the "Company"). All
significant intercompany transactions and balances have been eliminated.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) have been made which are necessary to present fairly the financial
position of the Company as of June 30, 1998 and the results of its operations
for the six month periods ended June 30, 1998 and 1997. The results of
operations experienced for the six month period ended June 30, 1998 are not
necessarily indicative of the results to be experienced for the fiscal year
ended December 31, 1998.
The statement and related notes have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying notes should
therefore be read in conjunction with the Company's December 31, 1997 annual
financial statements on Form 10-K and Form 10-Q for the Company's quarter ended
March 31, 1998.
Note #2 Inventories:
Inventories at June 30, 1998 and December 31, 1997 consist of
the following:
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
Raw materials $ 724 $ 904
Work-in-process 119 414
Finished products 310 372
------ ------
$1,153 $1,690
====== ======
</TABLE>
Note #3 Property and Equipment:
Property and equipment consists of:
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
Equipment under capital lease $ 449 $ 387
Machinery & Equipment 2,834 3,139
Furniture & Fixtures 492 158
Autos & Trucks 12 12
Leasehold Improvements 116 116
Software 288 282
------ ------
4,191 4,094
Less accumulated
depreciation and amortization 3,066 2,868
------ ------
Net Property and Equipment $1,125 $1,226
====== ======
</TABLE>
8
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In Thousands, except share and per share data)
Note #4 Long-Term Debt:
<TABLE>
<CAPTION>
Long-term debt consists of the following:
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
7% Convertible debentures payable,
originally maturing between May
and June 1999. Balance was converted
into preferred stock during
January 1998 $ - $311
Note Payable, payable in monthly
installments of $6, including
interest at 8.75% through July 1999.
The note payable is collateralized
by equipment. 74 107
Other 74 91
---- ----
TOTAL LONG-TERM DEBT $148 $509
Less current maturities 104 411
---- ----
Long-term debt $ 44 $ 98
==== ====
</TABLE>
Note #5 Stockholders' Equity
During the second quarter of 1998, holders of $1,185 principal
value of the Series "D" Preferred Stock exercised their right
to convert into common stock and 756,937 shares were issued.
See discussion below under "Liquidity and Capital Resources"
for a description of Series "E" Preferred Stock issue
completed in the second quarter of 1998.
During the second quarter of 1998, 120,000 common stock
options with exercise prices approximating fair value at time
of grant (range: $1.56 to $2.16)and 957,228 common stock
warrants were issued to employees and non-employees of the
Company. Of the warrants, 30,000 were issued at an exercise
price of $1.75 and the remaining 927,228 were related to the
issuance of Series E Convertible Preferred Shares and had an
exercise price of $3.00 (see further discussion under
"Liquidity and Capital Resources").
9
<PAGE>
SCAN-GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In Thousands, except share and per share data)
Note #6 Supplemental Disclosures of Cash Flow Information:
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Cash paid during year for interest $ 29 $ 19
====== ====
Non-cash financing activities are as follows:
Declaration of Preferred
Stock Cash Dividend $ 196 $109
====== ====
Preferred Subscriptions Receivable $ -- $ 8
====== ====
Conversion of 7% debentures to
Preferred Stock $ 311 $--
====== ====
Conversion of Series C Preferred
Stock to Common Stock $ -- $230
====== ====
Conversion of Series D Preferred
Stock to Common Stock $2,740 $--
====== ====
Expenses incurred related to
Issuance of Class A Convertible
Preferred Stock, Series E $ 230 $--
====== ====
Notes Receivable, Related Parties
reduction for surrender of
500,000 shares of Common Stock $ 906 $346
====== ====
</TABLE>
10
<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)
Results of Operations
Net Revenue for the three months ended June 30, 1998 increased to $1,542, a 16%
increase compared to the three months ended June 30, 1997, amount of $1,324.
Revenue to two customers accounted for approximately 25% of net revenue for the
three months ended June 30, 1998, compared to revenue to three customers which
accounted for approximately 45% of net revenue for the three months ended June
30, 1997.
Net Revenue for the six months ended June 30, 1998 increased to $2,753, a 21%
increase compared to the six months ended June 30, 1997, amount of $2,282.
Revenue to one customer accounted for approximately 22% of net revenue for the
six months ended June 30, 1998, and revenue to two customers accounted for
approximately 33% of net revenue for the six months ended June 30, 1997.
Gross Margin percentages for the three months ended June 30, 1998 and 1997 were
49.5% and 34.6% of revenue, respectively. The increase in gross profit is due to
increased volume and lower costs.
Gross Margin percentages for the six months ended June 30, 1998 and 1997 were
15.7% and 23.5% of revenue, respectively. The decrease in gross profit (loss) is
accounted for principally by the inventory reserves noted in the "Liquidity and
Capital Resources" section below. Excluding the reserves, gross margin would
have been 42.4% for the first half ended June 30,1998, an increase due to
increased volume and lower costs.
Research and development expense as a percentage of revenue increased to 25.7%
of revenue for the three months ended June 30, 1998 compared to 24.5% of revenue
for the three months ended June 30, 1997. The Company continues to invest its
resources in the development of geospatial and imaging software and
state-of-the-art, cost competitive scanners.
For the six months ended June 30, 1998 and 1997, research and development
expenses as a percentage of revenues increased to 30.1% versus 23.0%,
respectively, reflecting emphasis on development activities.
Sales and Marketing expense as a percentage of revenue decreased to 43.7% of
sales for these months ended June 30, 1998 compared to 48.9% at June 30, 1997.
This decrease was due to increased volume. Sales and marketing expenses as a
percentage of revenue increased to 53.3% of revenue for the six months ended
June 30, 1998, compared to 49.3% at June 30, 1997. The Company has increased
sales and marketing efforts in all three business units to pursue and develop
market opportunities.
General and Administrative expense for the second quarter of 1998 was 45.7% of
revenue compared to 61.2% at June 30, 1997. This decrease was due principally to
a higher level of sales as well as lower total dollar expenditures in this
category. General and Administrative expense for the six months ended June 30,
1998 was 69.1% of revenue compared to 62.4% at June 30, 1997. This increase was
due principally to the refocusing and retirement reserves discussed below.
Absent these reserves, general and administrative expense for this six months
ended June 30, 1998 would have been 47.4%, a decrease due to higher sales and
lower dollar expenditures.
11
<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)
Liquidity and Capital Resources
At June 30, 1998, cash and cash equivalents increased to $2,825, a $1,515
increase compared to the December 31, 1997 amount of $1,310. The above change in
cash and cash equivalents are explained as follows in the cash flow from
operating, investing and financing activities.
As of June 30, 1998, the cash flows from operating activities resulted in a net
use of cash of $3,410. This use of cash was primarily due to the Company's
development costs in all Divisions as well as operating losses sustained by the
Tangent Imaging Systems Division. In May, 1998 management decided to refocus
operations on those which showed the best current performance and future
prospects. Inventory reserves of $737 as well as $179 of other expenses for
severance and facilities consolidation were taken as part of this refocusing, as
of the March 31, 1998 reporting date. Also as of March 31, 1998, management
recorded $418 in costs related to a retirement agreement with the Company's
founder and former chairman. Under this agreement, among other things, cash
payments aggregating approximately $485 will be made through the year 2000 and
250,000 warrants for the purchase of common stock were issued at fair market
value.
Increases in receivables ($848) were due principally to increases in sales as
well as some extended terms to facilitate sales.
As of June 30, 1998, the cash flows from investing activities resulted in a net
use of cash of $97. The use of cash was due primarily to purchases of equipment.
As of June 30, 1998, the cash flows from financing activities resulted in net
cash provided by financing activities of $5,022. The increase in cash provided
was due to the exercise of common stock options as well as proceeds on the sale
of Series "E" Preferred Stock described below.
During March 1998, the Company entered into a $5.2 million private placement
purchase agreement. Under the Agreement, the company completed, in April 1998,
the sale of 52 units of convertible preferred stock. Each unit consists of 100
shares of Series E Convertible Preferred Stock, and a warrant to purchase 28,850
shares of common stock of the Company. The Preferred Stock and any accrued
dividends are convertible within 90 days at a price per share equal to the
lesser of $3.00 per share or at a 15% discount to the average closing bid price
for the five days preceding conversion. The warrants had an estimated, based on
an appraisal, fair value of $230, $92 of which was deemed to have been allocated
to the first quarter with the remainder of $138 allocated to second quarter when
the offering was completed.
If the conversion price is $2 a share or less, the Company may elect to redeem
all or part of the Preferred Stock and accrued dividends at the par value of
principal, plus the conversion discount. Conversions are restricted to 10% per
month on a cumulative monthly basis. As of June 30, 1998, $5,200 had been raised
through these subscriptions and the subscriptions were completed. The underlying
common shares of this issue have been registered with the Securities and
Exchange Commission and at the Company's Annual Meeting held June 24, 1998,
Shareholders ratified issuance of these securities.
12
<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)
Liquidity and Capital Resources (Continued)
On August 7, 1998, the Series E investors agreed to new terms under which there
will be no conversions of Series E Preferred from August 1, 1998 through January
31, 1999. Thereafter, up to 25% of the remaining Series E Preferred may be
converted per month on a cumulative basis per holder. Prior to restructure of
the agreement, the investors were allowed, starting in July 1998, to convert up
to 10% of their Series E Preferred to common stock per month and to sell the
common stock into the market. Also, as a part of the restructured agreement, the
Company has agreed to adjust the exercise price of 1,500,200 warrants issued to
the investors (28,850 warrants per $100,000 invested) from $3.00 per share to
$2.25 per share, under the condition that prior to February 1, 1999, these
warrants cannot be exercised if the common stock is below $4.00 per share. In
addition, the Company has agreed to issue up to 1,500,200 new warrants to the
investors (28,850 warrants per $100,000 invested) to purchase stock at an
exercise price of $4.00 per share. These new warrants will not vest (become
exerciseable) until February 1, 1999. An investor will receive 28,850 warrants
for each $100,000, or pro rata portion thereof, of Series E Preferred held on
February 1, 1999.
The Company believes that proceeds from the private placement of convertible
preferred stock noted above and funds generated from operations will be
sufficient to meet the Company's working capital requirements for 1998.
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.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On March 11, 1998, an action was commenced in the Court of
Common Pleas of Montgomery County, PA, against the Company by
a former employee, seeking damages of $361 for termination of
contract, by change of control and for convenience. This
plaintiff asserts this sum represents the excess of market
value over the exercise price of unvested warrants held by the
plaintiff which the plaintiff asserts should have been vested
and thereby available for exercise and sale. The Company has
categorically denied the plaintiff's claims and will defend
its actions if required.
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
On July 7, 1998, the Company filed Form 8K advising that Ernst
& Young, LLP had been retained to serve as the Company's
certifying independent accountants.
Exhibit Document
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession. - None
(4) Instruments defining the rights of security holders. Documents
related to Class A Convertible Preferred Stock, Series E.
(Exhibit 4.0)
(10) Material Contracts
Retirement Settlement Agreement - Andrew E. Trolio
(Exhibit 10.0)
(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
14
<PAGE>
PART II - OTHER INFORMATION (Continued)
(23) Published report regarding matters submitted to vote of
security holders.
Proposal No. 1
--------------
In Election of Directors to terms expiring in 1998:
<TABLE>
<CAPTION>
WITHHELD/
FOR AGAINST TOTAL
--- ------- -----
<S> <C> <C> <C>
R. Barry Borden 16,828,934 214,973 17,043,907
David S. Hirsch 16,805,984 237,923 17,043,907
Michael A. Mulshine 16,808,934 234,973 17,043,907
Laurence L. Osterwise 14,709,347 2,334,560 17,043,907
Jack A. Pellicci 16,806,934 236,973 17,043,907
James C. Sargent 16,806,934 236,973 17,043,907
Andrew E. Trolio 16,828,914 214,993 17,043,907
</TABLE>
Proposal No. 2
--------------
Ratification of Issuance of Company's
Class A Preferred Stock, Series E
FOR AGAINST ABSTAIN
--- ------- -------
16,253,430 624,707 165,770
(24) Consents of experts and counsel. - None
(25) Power of attorney. None
(28) Additional exhibits. - None
15
<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: August 14, 1998 /S/ Laurence L. Osterwise
---------------------- --------------------------
Laurence L. Osterwise
President & Chief Executive Officer
DATE: August 14, 1998 /S/ William K. Williams
---------------------- ------------------------
William K. Williams
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000764843
<NAME> SCAN-GRAPHICS
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,825
<SECURITIES> 0
<RECEIVABLES> 1,581
<ALLOWANCES> 37
<INVENTORY> 1,153
<CURRENT-ASSETS> 5,748
<PP&E> 4,191
<DEPRECIATION> 3,066
<TOTAL-ASSETS> 6,909
<CURRENT-LIABILITIES> 1,464
<BONDS> 0
0
6,450
<COMMON> (1,367)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,909
<SALES> 1,542
<TOTAL-REVENUES> 1,542
<CGS> 779
<TOTAL-COSTS> 779
<OTHER-EXPENSES> 1,725
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22
<INCOME-PRETAX> (984)
<INCOME-TAX> 0
<INCOME-CONTINUING> (984)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (235)
<NET-INCOME> (1,219)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
