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Previous: SAVANNAH FOODS & INDUSTRIES INC, 10-Q, 1996-05-15 |
Next: SCHLUMBERGER LTD /NY/, 10-Q, 1996-05-15 |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
( )Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-5265
SCAN-OPTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0851857
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
22 Prestige Park Circle, East Hartford, CT 06108
(Address of principal executive offices) Zip Code
(860) 289-6001
(Registrant's telephone number, including area code)
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. ( X ) YES ( ) NO
The number of shares outstanding of each of the issuer's classes of common
stock, as of May 10, 1996.
Common Stock, $.02 par value: 6,939,451
<PAGE>
<TABLE>
<CAPTION>
SCAN-OPTICS, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(thousands, except share data) March 31, 1996 December 31, 1995
(UNAUDITED)
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,013 $ 281
Accounts receivable less allowance of $292 at
March 31, 1996 and $413 at December 31, 1995 9,398 10,297
Inventories 13,952 13,746
Prepaid expenses and other 1,395 1,261
Total current assets 25,758 25,585
Plant and equipment:
Equipment 13,669 14,097
Leasehold improvements 2,837 2,837
Office furniture and fixtures 1,190 1,215
17,696 18,149
Less allowances for depreciation and amortization 13,838 14,340
3,858 3,809
Other assets 121 120
Total Assets $ 29,737 $ 29,514
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
(UNAUDITED)
Liabilities and Stockholders' Equity
<S> <C> <C> <C> <C>
Current liabilities:
Notes payable to bank $ 1,812 $ 305
Accounts payable 2,383 2,862
Salaries and wages 1,088 909
Taxes other than income taxes 355 338
Income taxes 194 185
Customer deposits 4,718 5,900
Royalties payable 52 18
Other 810 829
Total current liabilities 11,412 11,346
Other liabilities 419 417
Stockholders' Equity
Preferred stock, par value $.02 per share,
authorized 5,000,000 shares; none
issued or outstanding
Common stock, par value $.02 per share,
authorized 15,000,000 shares;
issued, 6,942,351 shares at March 31, 1996
and 6,935,184 shares at December 31, 1995 141 139
Common stock Class A Convertible, par
value $.02 per share, authorized
3,000,000 shares; available for issuance 2,145,536 shares;
none issued or outstanding
Capital in excess of par value 34,281 34,271
Retained-earnings deficit (13,313) (13,433)
Foreign currency translation adjustments (325) (315)
Unearned ESOP compensation (232) (265)
20,552 20,397
Less cost of common stock in treasury,
413,500 shares 2,646 2,646
Total stockholders' equity 17,906 17,751
Total Liabilities and Stockholders' Equity $ 29,737 $ 29,514
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCAN-OPTICS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
March 31
(thousands, except share data) 1996 1995
<S> <C> <C>
Revenues
Net sales $ 6,487 $ 7,888
Service revenues 3,823 3,489
Lease revenues 8 110
Total revenues 10,318 11,487
Costs and Expenses
Cost of sales 4,701 5,416
Marketing and service expenses 3,527 3,640
Research and development expenses 1,106 1,500
General and administrative expenses 837 740
Interest expense 15 111
Total costs and expenses 10,186 11,407
Operating income 132 80
Other income, net 5 15
Income before income taxes 137 95
Income taxes (benefit) 17 (12)
Net Income $ 120 $ 107
Earnings per share $ 0.02 $ 0.02
Average common and common equivalent shares 6,687,234 6,820,670
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCAN-OPTICS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended
March 31 March 31
(thousands) 1996 1995
<S> <C> <C>
Operating Activities
Net income $ 120 $ 107
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation 306 390
Amortization 267 165
Changes in operating assets and liabilities:
Accounts receivable 899 (1,293)
Inventories, prepaid expenses and other (607) (1,388)
Accounts payable (479) 1,069
Accrued expenses 177 (86)
Royalties payable 34 (792)
Income taxes 9 7
Deferred revenues, net of costs (30)
Customer deposits (1,182) (676)
Other 24 116
Net cash used by operating activities (432) (2,411)
Investing Activities
Purchases of plant and equipment (355) (453)
Net cash used by investing activities (355) (453)
Financing Activities
Proceeds from issuance of common stock 12 23
Proceeds from borrowings 3,255 7,410
Principal payments on borrowings (1,748) (4,623)
Net cash provided by financing activities 1,519 2,810
Increase (decrease) in cash and cash equivalents 732 (54)
Cash and Cash Equivalents at Beginning of Year 281 178
Cash and Cash Equivalents at End of Period $ 1,013 $ 124
See accompanying notes.
</TABLE>
<PAGE>
SCAN-OPTICS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For Quarter Ended March 31, 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1996 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended December 31,
1995.
NOTE 2 - INVENTORIES
The components of inventories were as follows (thousands):
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
<S> <C> <C>
Finished goods $ 2,557 $ 2,823
Work-in-process 3,307 2,820
Service parts 4,649 5,043
Materials and component parts 3,439 3,060
$ 13,952 $ 13,746
******* *******
</TABLE>
NOTE 3 - CREDIT ARRANGEMENTS
The Company has a line of credit agreement (Agreement) with a bank which
expires on May 29, 1996. The Agreement has two components, a $4 million line
(international) guaranteed by a third party bank which is collateralized by
international accounts receivable and inventory, and which bears interest at
prime (8 1/4 % at March 31, 1996); and a $4 million line (domestic) which is
collateralized by domestic accounts receivable and inventory, and which bears
interest at prime plus 1/2 % (8 3/4 % at March 31, 1996). The weighted
average interest rates on borrowings during the first quarters of 1996 and 1995
were 8.1% and 8.6% respectively. The unused portion of the $4 million domestic
line is subject to a commitment fee of 3/4 % per annum. Borrowings under the
Agreement are subject to various limitations based upon percentages of eligible
receivables and inventories of the Company. The available balance on the total
line of credit was $2,990,000 at March 31, 1996. In addition, the Agreement
contains covenants which, among other things, require the maintenance of
specified working capital, debt to equity ratios, net income levels and
tangible net worth levels.
<PAGE>
SCAN-OPTICS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For Quarter Ended March 31, 1996
On March 11, 1996, the Company received a commitment letter from the bank
extending the maturity date of the outstanding line of credit to May 29, 1997.
The line of credit was reduced from $8 million to $6 million ($3 million each
for international and domestic lines), which is reflective of the Company's
current cash availability and projected cash flow requirements for the next
twelve months. The commitment letter is subject to the extension of the
guarantee by the third party bank on the $3 million international line. The
Company expects that the guarantee will be extended.
NOTE 4 - INCOME TAXES
The Company has approximately $7,000,000 and $5,100,000 of net operating loss
carryforwards for federal and state income tax purposes, respectively, which
are scheduled to expire periodically between 1996 and 2010. For financial
reporting purposes a valuation allowance has been recognized to offset the
deferred tax assets related to those carryforwards and other temporary
differences.
Significant components of the Company's deferred tax liabilities and assets
were as follows :
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
(thousands)
<S> <C> <C>
Deferred tax assets:
Net operating losses $ 3,374 $ 3,422
Depreciation 99 99
Inventory valuation 656 831
Accounts receivable reserves 116 167
Revenue recognition 13
Vacation accrual 296 258
Other 279 279
Total deferred tax assets 4,820 5,069
Deferred tax liabilities:
Depreciation and other (72) (82)
Valuation allowance (4,748) (4,987)
Net deferred taxes $ 0 $ 0
******** **********
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
CONSOLIDATED FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $.7 million from December 31, 1995.
Total Company borrowings increased $1.5 million from the end of 1995 to $1.8
million. The increase in borrowings is due to the timing of sales transactions
and related receipts within the quarter. On March 11, 1996 the Company
received a commitment letter extending the maturity date of the existing line
of credit to May 29, 1997. (See Note 3 for further details).
Operating activities used $.4 million of cash in the first quarter of 1996.
Accounts receivable decreased $.9 million during the first quarter of the year
due to collections made on the 1995 sales combined with a decrease in the
number of systems shipped and currently undergoing acceptance testing.
Inventories increased $.2 million in the first quarter of 1996. Total
manufacturing inventories increased $.6 million during the quarter which
consisted of three components. The work in process inventory increased $.5
million and the stockroom inventory increased $.4 million which are both
reflective of the timing of the second quarter build process for the Series
9000, enhanced 9000's sold to Japan, and Series 7800 products. Manufacturing
inventory fluctuations also included a $.3 million decrease in finished goods
due to the shipment and acceptance of several systems during the month of
March. Customer service inventories decreased by $.4 million in the first
quarter.
Accounts payable decreased $.5 million from December 31, 1995 due to the timing
of receipts of purchased parts offset by the payment of invoices for parts
received in prior periods.
Accrued expenses increased approximately $.2 million from December 31, 1995
mainly due to an increase in the days accrued for salary and wages.
Customer deposits decreased $1.2 million reflective of certain large
international contracts accepted and recognized in revenue during the first
quarter of 1996 which included substantial deposits.
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 VS. 1995
Net sales decreased $1.4 million in the first quarter of 1996 compared with the
first quarter of 1995. International sales decreased $2 million and North
American sales increased $.6 million. International sales, as a percentage of
total sales, decreased due to a total of eight enhanced Series 9000's sold to a
Japanese health agency for health claim processing in the first quarter of
1995 vs. four in the same period of 1996. International sales, however,
continue to be a focus for the Company's future growth as proven by the current
order for 19 additional enhanced Series 9000's to be sold to Japan during 1996.
Service revenues increased $.3 million mainly due to an increase in software
revenue of $.4 million which was directly related to the increase in domestic
sales. R&D revenue increased $.2 million due to funding for a specific
development project which began in the third quarter of 1995. Customer service
revenue decreased $.3 million mostly due to the continued replacement of older
ReliaReader equipment with the Company's Series 9000 system. Monthly
maintenance on the ReliaReader equipment contains surcharges ranging from 10%
to 65% based on the age of the equipment.
Cost of sales decreased $.7 million from the first quarter of 1995 which was a
reflection of the decrease in net sales. The actual gross margin percentage of
28% decreased from the prior year's gross margin percentage of 31%. The
decrease was mainly due to a change in the overall sales mix as compared to the
prior year.
Marketing and service expenses decreased $.1 million from the first quarter of
1995 to 1996. Customer service expenses decreased $.2 million mainly due to
staffing decreases as a result of company downsizing during the last three
quarters of 1995. Sales expenses increased $.1 million due to increased
commission expense as a result of increased domestic sales.
Research and development expenses decreased $.4 million from the first quarter
of 1995 to the first quarter of 1996 mainly due to a decrease in salaries
expense caused by the corporate downsizing of 1995.
General and administrative expenses increased $.1 million due to the addition
of the new Chief Operating Officer as well as increases in travel expense.
Interest expense decreased $.1 million due to the significant decrease in the
line of credit borrowings. The company was not borrowing against the line of
credit for the first six weeks of the quarter, therefore, the average
outstanding balance for the quarter decreased from $5 million in 1995 to $.6
million in 1996.
<PAGE>
<TABLE>
<CAPTION>
SCAN-OPTICS, INC., AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6 (A) - EXHIBIT COMPUTATION OF EARNINGS PER SHARE
(thousands, except share data)
Three Months Ended
March 31 March 31
1996 1995
<S> <C> <C> <C> <C>
PRIMARY AND FULLY DILUTED
Average common shares outstanding 6,525,838 6,497,111
Average Class A common shares outstanding
Net effect of dilutive stock options and
warrants - based on the treasury stock
method using average market price during
the quarter 161,396 323,649
--------- ---------
Total 6,687,234 6,820,760
========= =========
Net Income $ 120 $ 107
========= =========
Earnings Per Share $ 0.02 $ 0.02
========= =========
</TABLE>
<PAGE>
SCAN-OPTICS, INC., AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6 (B) - REPORTS ON FORM 8-K
For the Three Months Ended March 31, 1996
No reports on Form 8-K were filed during the First Three Months of 1996.
<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.
SCAN-OPTICS, INC.
(Registrant)
Date May 13, 1996 /ss/
Richard I. Tanaka
Chairman, Chief Executive
Officer and Director
Date May 13, 1996 /ss/
Michael J. Villano
Chief Financial Officer and
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.
SCAN-OPTICS, INC.
FINANCIAL DATA SCHEDULE
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,013,000
<SECURITIES> 0
<RECEIVABLES> 9,398,000
<ALLOWANCES> 292,000
<INVENTORY> 13,952,000
<CURRENT-ASSETS> 25,758,000
<PP&E> 17,696,000
<DEPRECIATION> 13,838,000
<TOTAL-ASSETS> 29,737,000
<CURRENT-LIABILITIES> 11,412,000
<BONDS> 0
<COMMON> 141,000
0
0
<OTHER-SE> 17,906,000
<TOTAL-LIABILITY-AND-EQUITY> 29,737,000
<SALES> 6,487,000
<TOTAL-REVENUES> 10,318,000
<CGS> 4,701,000
<TOTAL-COSTS> 10,186,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,000
<INCOME-PRETAX> 137,000
<INCOME-TAX> 17,000
<INCOME-CONTINUING> 120,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120,000
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
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