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 JUNE 30, 2000
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( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File No. 0-5265
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SCAN-OPTICS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 06-0851857
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
169 PROGRESS DRIVE, MANCHESTER, CT 06040
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(Address of principal executive offices) Zip Code
(860) 645-7878
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(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 of common stock, $.02 par value, outstanding as of
August 9, 2000 was 7,439,732.
<TABLE>
<CAPTION>
SCAN-OPTICS, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(thousands, except share data) June 30, December
2000 31, 1999
(UNAUDITED)
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<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents 76 38
Accounts receivable less allowance of $226 at
June 30, 2000 and $308 at December 31, 1999 15,919 18,713
Unbilled receivables - contracts in progress 6,053 5,023
Refundable income taxes 280 1,282
Recoverable income taxes 740
Inventories 10,675 10,033
Deferred costs, net of revenues 555 530
Prepaid expenses and other 1,051 976
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Total current assets 34,609 37,335
Plant and equipment:
Equipment 13,528 13,735
Leasehold improvements 5,146 5,146
Office furniture and fixtures 1,360 1,312
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20,034 20,193
Less allowances for depreciation and 17,648 17,337
amortization ----------------------------
2,386 2,856
Software license, net 1,669 2,040
Goodwill, net 11,645 12,523
Other assets 471 432
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Total Assets 50,780 55,186
============================
</TABLE>
<TABLE>
<CAPTION>
(thousands, except share data) June 30, December
2000 31, 1999
(UNAUDITED)
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<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 8,839 8,079
Notes payable to bank 18,226 17,437
Salaries and wages 1,514 1,800
Taxes other than income taxes 473 1,110
Income taxes 74
Customer deposits 1,696 1,353
Other 2,877 2,829
--------------------------
Total current liabilities 33,699 32,608
Other liabilities 541 497
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, 7,439,732 shares at June 30, 2000
and 7,396,232 shares at December 31, 1999 149 148
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 35,654 35,568
Retained-earnings deficit (15,946) (10,415)
Foreign currency translation adjustments (671) (574)
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19,186 24,727
Less cost of common stock in treasury,
413,500 shares 2,646 2,646
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Total stockholders' equity 16,540 22,081
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Total Liabilities and Stockholders' Equity 50,780 55,186
==========================
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
SCAN-OPTICS, INC., AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF OPERATIONS (UNAUDITED)
Three Six
Months Months
Ended Ended
June 30 June 30
(thousands, except share data) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues
Product sales $ 4,583 $ 6,941 $ 9,896 $ 13,520
Service revenues 5,315 7,770 11,064 14,341
Engineering revenues 26 114 66 187
Other operating revenues 4 13
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Total revenues 9,924 14,829 21,026 28,061
Costs and Expenses
Cost of product sales 3,555 4,327 7,061 8,808
Service expenses 5,292 5,331 10,972 9,869
Sales and marketing expenses 1,591 2,218 3,165 3,577
Research and development expenses 962 1,424 2,074 2,908
General and administrative expenses 1,113 1,198 2,255 2,279
Interest expense 669 293 1,063 515
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Total costs and expenses 13,182 14,791 26,590 27,956
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Operating income (loss) (3,258) 38 (5,564) 105
Other income, net 20 40 64 92
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Income (loss) before income taxes (3,238) 78 (5,500) 197
Income taxes 18 15 31 54
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Net Income (Loss) (3,256) 63 (5,531) 143
=======================================================
Basic earnings (loss) per share $ (.46) $ .01 $ (.79) $ .02
=======================================================
Basic weighted-average shares 7,027,861 6,984,361 7,022,267 6,974,941
Diluted earnings (loss) per share $ (.46) $ .01 $ (.79) $ .02
=======================================================
Diluted weighted-average shares 7,027,861 7,174,591 7,022,267 7,121,768
</TABLE>
<TABLE>
<CAPTION>
SCAN-OPTICS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six
Months
Ended
June 30
(thousands) 2000 1999
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<S> <C> <C>
Operating Activities
Net (loss) income $ (5,531) $ 143
Adjustments to reconcile net (loss) income
to net cash used by operating activities:
Depreciation 454 529
Amortization 1,099 844
Amortization of goodwill 642 579
Provision for losses on accounts receivable 100 30
Deferred taxes (309)
Changes in operating assets and liabilities:
Accounts receivable 1,664 (5,198)
Refundable income taxes 1,002
Recoverable income taxes 740
Inventories (1,370) 1,342
Prepaid expenses and other (75) (276)
Accounts payable 760 (1,639)
Accrued salaries and wages (286) (711)
Taxes other than income taxes (637) 376
Income taxes 74 (35)
Deferred costs, net of revenues (25) 3
Customer deposits 343 159
Other 75 (1,507)
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Net cash used by operating activities (971) (5,670)
Investing Activities
Business acquisitions (2,100)
Proceeds from the sale of plant and equipment 215
Purchases of plant and equipment (82) (333)
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Net cash provided (used) by investing activities 133 (2,433)
Financing Activities
Proceeds from issuance of common stock 87 68
Proceeds from borrowings 13,772 24,437
Principal payments on borrowings (12,983) (16,367)
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Net cash provided by financing activities 876 8,138
Increase in cash and cash equivalents 38 35
Cash and Cash Equivalents at Beginning of Year 38 216
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Cash and Cash Equivalents at End of Period $ 76 $ 251
========================
See accompanying notes.
</TABLE>
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 six month period ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December
31, 2000. 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, 1999.
Certain 1999 amounts have been reclassified to conform to current year
presentation.
NOTE 2 - Inventories
The components of inventories were as follows:
(THOUSANDS) June 30 2000 December 31 1999
Finished goods $ 311 $ 363
Work-in-process 1,609 1,927
Service parts 4,542 4,429
Materials and component parts 4,213 3,314
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$ 10,675 $ 10,033
NOTE 3 - Credit Arrangements
On May 10, 1999, the Company amended its credit agreement (the "Agreement")
with a bank to extend the maturity date to May 10, 2002 and to reduce the
line from $13 million to $10 million. The unused portion of the line is
subject to a commitment fee of 3/8% per annum. The available balance on
the line of credit was $.8 million and $2.1 million at June 30, 2000 and
December 31, 1999, respectively. The weighted average interest rate on
borrowings during the first six months of 2000 and 1999 was 11.6% and 8.4%,
respectively.
Additionally, on May 10, 1999, a five-year term loan in the amount of $10
million was established to better match the cash expenditures for
acquisitions with the cash flow that results from the acquired businesses.
The outstanding balance on the term loan at June 30, 2000 and December 31,
1999 was $9 million and $9.5 million, respectively, all of which is
classified as a current liability on the consolidated balance sheet due to
the covenant defaults noted below. Both the line of credit and the term
loan bear interest at prime plus 5%.
The circumstances surrounding this Agreement have changed significantly as
BankBoston, the prior lender, merged with Fleet National Bank on October 1,
1999. The Agreement contains covenants which, among other things, require
the maintenance of specified working capital, debt to equity ratios, net
income levels, tangible net worth levels and backlog levels. The Company
has been in default of these covenants since September 1999. The Company
has held discussions with Fleet National Bank and is currently negotiating
with the bank to restructure the borrowing arrangements and agree to new
terms and conditions as well as to obtain waivers for the covenant
defaults. At this time, no agreement has been reached. The Company
believes that the projected operating cash flow for 2000 will be adequate
to fund operations provided that there is the availability of a line of
credit or other financing arrangement of a similar size as currently
exists. If negotiations on the revision of the Agreement with Fleet
National Bank are not complete by the end of the third quarter, the Company
will continue to negotiate with other bank and finance companies, as well
as review other business and financing options.
NOTE 4 - Income Taxes
At June 30, 2000, the Company has U.S. federal and state operating loss
carryforwards of approximately $13,400,000 and $16,000,000, respectively.
The U.S. federal and state net operating loss carryforwards expire in 2014
and 2005, respectively. At June 30, 2000, the Company has approximately
$490,000, $3,300,000 and $800,000 of net operating loss carryforwards for
Canada, the United Kingdom and Germany, respectively, which are scheduled
to expire periodically between 2000 and 2006. At June 30, 1999, the
Company had approximately $340,000, $2,700,000 and $800,000 of net
operating loss carryforwards for Canada, the United Kingdom and Germany,
respectively. For financial reporting purposes, a valuation allowance has
been recorded to fully offset deferred tax assets relating to U.S. federal,
state, and foreign net operating loss carryforwards and other temporary
differences.
Significant components of the Company's deferred tax liabilities and assets
were as follows:
<TABLE>
<CAPTION>
June 30 December 31
(THOUSANDS) 2000 1999
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<S> <C> <C>
Deferred tax assets:
Net operating losses $ 5,899 $ 5,671
Alternative minimum tax credit carryforward 168 168
Depreciation 92 92
Inventory valuation 162 163
Inventory 73 101
Deferred maintenance revenue 6
Accounts receivable reserves 136 113
Goodwill 95 71
Revenue recognition - systems undergoing acceptance testing 8
Vacation accrual 251 237
Other 12 13
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Total gross deferred tax assets 6,888 6,643
Deferred tax liabilities:
Revenue recognition - milestone and retainer contracts (623) (989)
Depreciation and other (285) (263)
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Total gross deferred tax liabilities (908) (1,252)
Valuation allowance (5,980) (5,391)
-----------------------
Net deferred tax asset $ - $ -
=======================
</TABLE>
NOTE 5 - Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (3,256) $ 63 $ (5,531) $ 143
=========================================================
Denominator:
Denominator for basic earnings (loss)
per share (weighted-average shares) 7,027,861 6,984,361 7,022,267 6,974,941
Effect of dilutive securities:
Employee stock options 190,230 146,827
Denominator for diluted earnings (loss)
per share (adjusted weighted-average ---------------------------------------------------------
shares and assumed conversions) 7,027,861 7,174,591 7,022,267 7,121,768
=========================================================
Basic earnings (loss) per share $ (.46) $ .01 $ (.79) $ .02
=========================================================
Diluted earnings (loss) per share $ (.46) $ .01 $ (.79) $ .02
=========================================================
</TABLE>
NOTE 6 - Year 2000 Compliance
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 compliant. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions
in mission critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000
date change. The Company expensed approximately $150,000 during 1999 in
connection with remediating its systems. The Company is not aware of any
material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third
parties. The Company will continue to monitor its mission critical
computer applications and those of its suppliers and vendors throughout the
year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
NOTE 7 - Comprehensive Income
The components of comprehensive income (loss), net of related tax, for the
three and six months ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net income (loss) $ (3,256) $ 63 $ (5,531) $ 143
Foreign currency translation adjustments (69) (48) (97) (88)
------------------------------------------------
Comprehensive income (loss) $ (3,325) $ 15 $ (5,628) $ 55
================================================
</TABLE>
The components of accumulated comprehensive loss, net of related
tax, at June 30, 2000 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
June 30 December 31
(THOUSANDS) 2000 1999
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<S> <C> <C>
Foreign currency translation adjustments $ (630) $ (533)
-----------------------------------
Accumulated comprehensive loss $ (630) $ (533)
===================================
</TABLE>
NOTE 8 - Segment Information
The Company views its business in three distinct revenue categories:
Product and solution sales, Access services, and Contract manufacturing
services. Revenues are used by management as a guide to determine the
effectiveness of the individual segment. The Company manages its operating
expenses through a traditional functional perspective and accordingly does
not report operating expenses on a segment basis.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues
Solutions and products $ 5,470 $ 10,898 $ 12,528 $ 19,979
Access services 4,037 3,753 7,511 7,484
Contract manufacturing services 417 178 987 598
---------------------------------------------------
Total revenues 9,924 14,829 21,026 28,061
Cost of solutions and products 5,600 6,566 11,820 12,757
Service expenses 3,247 3,092 6,213 5,920
---------------------------------------------------
Gross profit margin 1,077 5,171 2,993 9,384
Operating expenses
and other income, net 4,315 5,093 8,493 9,187
---------------------------------------------------
Income (loss) before income taxes $(3,238) $ 78 $ (5,500) $ 197
===================================================
Total expenditures for additions
to long-lived assets $ 33 $ 219 $ 81 $ 498
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Outlook
Statements about the Company's future expectations, including future
revenues and earnings, and all other statements other than historical
facts are "forward-looking statements" made under safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 and involve a
number of risks and uncertainties that could materially affect future
results. Among these risk factors are changes in general economic and
business conditions in the United States and foreign markets, which
impact capital investments by customers, the cyclical nature of funding
within federal and state government agencies, further adverse changes in the
Company's banking relationship, insufficient cash resources, increased
competition from similar products, the implementation of other technologies
which may provide alternative solutions, ability to complete projects in a
timely manner, and other risk factors and cautionary statements listed from
time to time in the Company's periodic reports filed with the Securities and
Exchange Commission, including but not limited to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.
The Company incurred a loss in 1999 and in the first and second quarters
of 2000. These losses were mainly attributable to professional service
revenue delays on some projects and expense overruns on others, which
continue to be addressed with a comprehensive plan. The Company also
experienced delays in the procurement of parts and the manufacture of
systems in May and June that were a result of the lack of cash
availability. These delays negatively impacted revenue by $1.5 million.
In the fourth quarter of 1999, a plan to reduce annual expenses by $5
million, restructure the professional service organization, including the
mix of contractors to employees, and add senior management, as well as
additional project management controls and adherence to project
implementation methodology was implemented. During the first and second
quarters of 2000, the Company realized benefits from this plan evidenced
by operating expense reductions in comparison to the fourth quarter 1999 run
rates of $3 million in the first quarter and $3.3 million in the second quarter.
Professional services expenses were reduced from a fourth quarter 1999 level of
$3.8 million to $2.7 million in the first quarter and $2.0 million in the second
quarter. These savings are due to a reduction in the number of contract workers
from an average of 53 in the fourth quarter of 1999 to 29 in the first quarter
and 21 in the second quarter, the hiring of professional services senior
management, and the implementation of improved project methodologies and
controls on professional services projects.
The Company has three major initiatives currently underway to improve
revenue growth and profitability. They are to emphasize the "Business of
Solutions" focus in targeted markets, to decrease market risk through
expansion in the international marketplace, and to capitalize on existing
core competencies of the Company. The inability of the Company to carry
out these initiatives may have a materially adverse effect on revenue
growth and earnings.
The first initiative is to provide cost effective solutions through the
Company's development of target market data capture applications combined
with its high speed transports and archival systems. The Company has
refined its target market approach and chosen to focus primarily on the
government and insurance markets, while continuing to address the
transportation, financial and order entry markets. The Company expects to
continue to emphasize its "Business of Solutions" focus on these targeted
markets for the foreseeable future. As other market opportunities
emerge, the Company will evaluate the potential of using its products and
services to provide solutions in these new markets. The revenue for this
initiative decreased $7.4 million during the first six months of 2000
compared to the first six months of 1999 and decreased $5 million during
the second quarter of 2000 compared to the second quarter of 1999.
The second initiative is further expansion into the international
marketplace. The Company has successfully supplied product to the
Japanese market and has experienced strong sales activity in the past
through relationships with highly qualified and productive distributors.
The Company will continue to focus on developing strong relationships in
Europe, Latin America and other Pacific Rim countries. During the first
six months of 2000, revenue for this initiative remained consistent with
the revenue achieved during the first six months of 1999. During the
second quarter of 2000 revenue for this initiative decreased $1 million
compared to the second quarter of 1999.
The third initiative relates to leveraging the Company's core
competencies in an effort to add revenues and profits. The Company
believes that Access Services and contract manufacturing services have
potential to sell their individual expertise, experience and cost
effectiveness to other entities. Access Services revenue remained consistent for
the first six months of 2000 compared to 1999. Contract manufacturing revenue
increased $.4 million during the first six months of 2000 compared with the
first six months of 1999. Access Services revenue increased $.3 million during
the second quarter of 2000 compared to 1999. Contract manufacturing revenue
also increased $.2 million during the second quarter of 2000 compared to the
second quarter of 1999.
The Company has put on hold its initiative of long term growth through
accretive acquisitions of key strategic products or enterprises. When the
Company resolves the issues relating to the professional services organiztion
and the restructuring of its bank borrowing arrangements (see Note 3 above),
acquisitions will again be considered.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
VS. 1999
Total revenues decreased $7 million or 25% from the first six months of
1999 to the first six months of 2000 and decreased $4.9 million or 33%
from the second quarter of 1999 to the second quarter of 2000.
Product sales decreased $3.6 million or 27% in the first six months of
2000 compared with the first six months of 1999. Product sales decreased
$2.4 million or 34% in the second quarter of 2000 compared with the
second quarter of 1999. Compared to the first six months of 1999, North
American sales decreased $3.6 million and decreased $1.3 million during
the second quarter of 2000 compared to the second quarter of 1999 due to
the internal focus of the sales organization on improving customer
satisfaction and assisting with professional services implementations
that began in the fourth quarter of 1999. International sales during the
first six months of 2000 remained consistent with the first six months of
1999; however international sales for the second quarter of 2000 decreased
$1.1 million on a year to year comparison. The Company also experienced delays
in the procurement of parts and the manufacture of systems in May and June that
were a result of the lack of cash availability. These delays negatively
impacted revenue by $1.5 million.
Service revenues decreased $3.3 million during the first six months of
2000 compared with the first six months of 1999. Access Services revenue
during the first six months of 2000 remained consistent with the first
six months of 1999 and increased $.3 million during the second quarter of
2000 compared to the same period in 1999. Professional service revenue
decreased $3.3 million during the first half of 2000 compared to the same
period in 1999 and decreased $2.7 million in the second quarter due to
the continued effort to complete contracts in progress from the third and
fourth quarter of 1999 while simultaneously implementing improved project
methodologies on all new contracts.
Cost of product sales decreased $1.7 million from the first six months of
1999 and decreased $.8 million from the second quarter of 1999. Cost of
product sales as a percentage of product sales was 71% for the first six
months of 2000 compared to 65% in the prior year. This percentage was
78% for the second quarter of 2000 compared to 62% in the second quarter
of 1999. These increases were mainly due to changes in the overall sales
mix with an increased volume of lower margin commodity items sold as part
of the total customer solution.
Service expenses increased $1.1 million in the first six months of 2000
compared to the first six months of 1999 and remained consistent on a second
quarter 1999 to 2000 comparison. Access Services expenses increased $.3
million from the first six months of 1999 and increased $.2 million from
the second quarter of 1999 due to salary and benefits, bad debt expense
and contracted third party service provider expenses. Professional
service expenses increased $.8 million compared with the first six months
of 1999 due to third party contractor costs. Professional service
expenses decreased $.2 million compared with the second quarter of 1999
due to a reduction in third party contractor costs, partially offset by
an increase in salary and benefits expenses. The Company has reduced the
professional service expenses by $1.8 million from a run rate of $3.8
million in the third and fourth quarters of 1999 to $2 million in the
second quarter of 2000.
Sales and marketing expenses decreased $.4 million from the first six
months of 1999 and decreased $.6 million from the second quarter of 1999
mainly due to a reduction of commission expense related to the decrease
in sales revenue and a reduction in outside service expenses.
Research and development expenses decreased $.8 million from the first
six months of 1999 and decreased $.5 million from the second quarter of
1999 mainly due to the cost reduction efforts initiated in October of
1999.
Interest expense increased $.5 million from the first six months of 1999 to 2000
and $.4 million from the second qaurter of 1999 due to an increase in borrowing
rates on the outstanding line of credit from prime to prime plus five percent.
The increase in the rate is a result of the default on certain financial
covenants.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 30, 2000 remained consistent with
December 31, 1999 levels.
Total borrowings increased to $18.2 million at June 30, 2000 from $17.4
million at the end of 1999. The available balance on the line of credit
was $.8 million and $2.1 million at June 30, 2000 and December 31, 1999,
respectively. As of June 30, 2000, the Company is in default of certain
financial covenants on its bank debt and is currently negotiating with
its bank to restructure the borrowing arrangements and agree to new terms
and conditions. Accordingly, all bank debt has been classified as a
current liability on the consolidated balance sheet. The Company has made
all principal and interest payments required under the line of credit.
The Company believes that the projected operating cash flow for 2000 will
be adequate to fund operations provided that there is the availability of
a line of credit or other financing arrangement of a similar size as
currently exists. (See Note 3 for further details.)
Accounts payable increased $.8 million from December 31, 1999 due to the
lack of cash availability as described above.
Operating activities used $1 million of cash in the first six months of
2000.
Non-cash expenses recorded during the first six months of 2000 were $2.3
million vs. $1.7 million for the same period in 1999. These expenses
relate to depreciation of fixed assets (discussed in net plant and
equipment below), amortization of customer service spare parts inventory,
amortization of software license, amortization of goodwill, provision for
losses on accounts receivable and deferred taxes.
Net accounts receivable decreased $2.8 million from December 31, 1999 due
to increased collections on outstanding accounts offset by sales during
the first six months of 2000.
Unbilled receivables - contracts in progress increased $1 million from
December 31, 1999 due to additional revenue recorded of $2.5 million in
the first six months of 2000 offset by billings of $1.5 million.
Total inventories increased $.6 million from December 31, 1999. Total
manufacturing inventories increased $.5 million from the beginning of the
year mainly due to an increase in stockroom inventory of $.9 million due
to additional parts requirements related to the increase in the build
plan for the series 8000 scanners (the former Photomatrix (PHRX) products) and
the cash flow effect on the ability to procure parts, causing system shipment
delays. This increase was offset by a decrease in work in process inventory of
$.4 million due to the timing of the 2000 build schedule. Customer service
inventories increased $.1 million due to additional series 8000 parts.
Net plant and equipment decreased $.5 million from December 31, 1999
mainly due to the sale of a United Kingdom demonstration system and
depreciation expense recorded during the first six months of the year.
Software license decreased by $.4 million from December 31, 1999 due to
the amortization of the source code licensing agreement signed in 1999
with Bluebird Systems for their DocWise product.
Goodwill decreased by $.9 million from December 31, 1999 mainly due to
amortization recorded for the first six months and adjustments to the
purchase price allocation for the acquisition of the assets of PHRX.
Accrued salaries and wages decreased $.3 million from December 31, 1999
due to the timing of commission payments.
Taxes other than income taxes decreased $.6 million from December 31,
1999 due to the timing of sales and use tax payments.
Customer deposits increased by $.3 million due to the receipt of deposits
for customer orders of $1.1 million, offset by solutions billings of $.8
million.
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 August 11, 2000 /ss/
--------------- ----------------------------------
James C. Mavel
Chairman, Chief Executive Officer,
President and Director
Date August 11, 2000 /ss/
--------------- ----------------------------------
Michael J. Villano
Chief Financial Officer,
Vice President and Treasurer
