<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-QSB
____________
(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
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
____________
Commission File Number: 0-26462
____________
PERCON INCORPORATED
(Exact name of small business issuer as specified in its charter)
91-1486560
Washington (IRS Employer
(State of Incorporation) Identification No.)
1720 Willow Creek Circle, Suite 530
Eugene, OR 97402-9171
(Address of principal executive offices)
Registrant's telephone number, including area code (541) 344-1189
Not Applicable
(former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 common stock as of May 8, 1996:
3,947,763
1
<PAGE>
PERCON INCORPORATED AND SUBSIDIARIES
FORM 10-QSB
MARCH 31, 1996
INDEX
Page
PART I - FINANCIAL INFORMATION Reference
- - -------------------------------------------------------------------------------
Item 1 - Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995. 3
Consolidated Statements of Income for the
three months ended March 31, 1996 and 1995. 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995. 5
Notes to Consolidated Financial Statements 6 - 11
Item 2 - Management's Discussion and Analysis or Plan of Operation 12-15
PART II - OTHER INFORMATION
- - ---------------------------
Item 6 16
Signature 17
2
<PAGE>
PERCON INCORPORATED
Consolidated Balance Sheets
(Dollars in thousands)
March 31, December 31,
1996 1995
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,324 $ 4,007
Investments held to maturity 998
Accounts receivable, net 3,360 1,876
Inventories 3,023 1,884
Prepaid expenses and other 398 201
Deferred income tax asset 113 110
--------- ---------
Total current assets 8,218 9,076
Property and equipment, net 2,349 680
Goodwill and intangibles, net 2,215 1,698
--------- ---------
Total assets $ 12,782 $ 11,454
--------- ---------
--------- ---------
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 89
Accounts payable and accrued expenses 2,255 $ 1,039
Income taxes payable 396 28
--------- ---------
Total current liabilities 2,740 1,067
Deferred income taxes 694 595
Long-term debt, less current portion 1,077
Deferred employee benefits 13
--------- ---------
Total liabilities 4,524 1,662
--------- ---------
Commitments and contingencies (Note 9)
Shareholders' equity:
Common stock, 20,000,000 shares authorized,
3,947,363 and 3,921,167 shares issued and
outstanding, respectively 8,760 8,699
Preferred stock, 5,000,000 shares authorized,
none issued
Cumulative translation adjustments 9
Retained earnings (deficit) (511) 1,093
--------- ---------
Total shareholders' equity 8,258 9,792
Total liabilities and shareholders' equity $ 12,782 $ 11,454
--------- ---------
--------- ---------
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PERCON INCORPORATED
Consolidated Statements of Income
(In thousands, except share and per share data)
Three Months Ended
March 31,
1996 1995
--------- --------
Net sales $ 4,326 $ 2,594
Cost of goods sold 2,164 1,348
--------- --------
Gross profit 2,162 1,246
Operating Expenses:
Selling, marketing and customer service 686 500
General and administrative 408 287
Research and product development 339 139
Acquired in-process research and product development 2,091
--------- --------
Operating income (loss) (1,362) 320
Interest income (expense), net 37 (10)
Other income, net 3
--------- --------
Income (loss) before taxes (1,322) $ 310
--------
--------
Provision for income taxes 282
----------
Net income (loss) $ (1,604)
----------
----------
Net income (loss) per share $ (0.39)
----------
----------
Weighted average shares outstanding 4,134
----------
----------
Pro forma data (1):
Income before provision for income taxes $ 310
Pro forma provision for income taxes 112
--------
Pro forma net income $ 198
--------
--------
Pro forma net income per share $ 0.07
--------
--------
Shares used in pro forma per share calculation 2,772
--------
--------
(1) As if the company had been a C corporation for the period.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PERCON INCORPORATED
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ (1,604) $ 310
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 192 70
Loss on sale of equipment 2
In-process research and product development 2,091
Deferred income taxes (39)
Change in operating assets and liabilities, net of effects
from acquistion of business:
Accounts receivable 188 58
Inventories 177 (187)
Prepaid expenses and other (83) 4
Accounts payable and accrued expenses (197) 78
Interest and taxes payable 268
--------- ----------
Net cash provided by operating activities 993 335
Cash flows from investing activities:
Equipment purchases (94) (136)
Purchase of technology (31)
Proceeds from sale of short-term investments 998
Purchase of business and technology (4,604)
--------- ----------
Net cash used in investing activities (3,731) (136)
Cash flows from financing activities:
Principal paid on long-term debt (7) (79)
Proceeds from stock issued 47
Distributions to shareholders (170)
Book overdraft 4
Tax benefit from exercise or early disposition of certain stock options 14
--------- ----------
Net cash provided by (used in) financing activities 54 (245)
Effect of exchange rate changes on cash 1
Net decrease in cash and cash equivalents (2,683) (46)
Cash and cash equivalents at beginning of period 4,007 46
--------- ----------
Cash and cash equivalents at end of period $ 1,324 $ --
--------- ----------
--------- ----------
Supplemental disclosure (See Note 2):
Interest paid $ 9 $ 10
Taxes paid $ 38
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE>
PERCON INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Percon
Incorporated and its wholly-owned subsidiaries ("the Company" - See Note 2).
The activity of STI S.A. ("STI"), a wholly-owned subsidiary, is included from
March 7, 1996, the date of acquisition. All significant intercompany
transactions and balances have been eliminated in consolidation.
BASIS OF REPORTING
The accompanying consolidated financial statements have been prepared by the
Company and in the opinion of management contain all adjustments necessary to
present fairly the Company's financial position as of March 31, 1996 and
December 31, 1995, and the results of operations and cash flows for the three
months ended March 31, 1996 and 1995. It should be understood that accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operations for the three months ended March
31, 1996 are not necessarily indicative of the results to be expected for the
full year.
The accompanying financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1995.
GOODWILL AND INTANGIBLES
Goodwill resulting from business acquisitions (the excess cost of acquired
subsidiaries over the fair value of net assets acquired) is amortized using the
straight-line method over seven years, the current estimated useful life.
Intangibles include the cost of software, technologies acquired in connection
with business combinations, and certain non-compete agreements. Amortization of
capitalized software cost, which is included in cost of goods sold, is provided
on a product-by-product basis at the greater of (a) the ratio the current gross
revenues for a product bears to the total of current and anticipated future
gross revenues for that product or (b) the straight-line method over the
remaining estimated economic life of the product, including the period being
reported on, which approximates five years. It is reasonably possible that
those estimates of anticipated future gross revenues, the remaining estimated
economic life of the products, or both may be reduced significantly due to
competitive pressures or other factors.
Amortization of capitalized technologies cost, which is included in cost of
goods sold, is provided on the straight-line method over the estimated economic
life of the technologies (one to two years).
Non-compete agreements are stated at cost. These agreements are amortized on a
straight-line basis over the terms of the agreements (three to five years).
6
<PAGE>
PERCON INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACQUIRED IN-PROCESS RESEARCH AND PRODUCT DEVELOPMENT
Acquired in-process research and product development for which technological
feasibility has not been achieved is expensed at the date of purchase.
INCOME TAXES
Prior to July 31, 1995, Percon Incorporated was treated for federal income tax
purposes as an S corporation under Subchapter S of the Internal Revenue Code of
1986, as amended, and has been treated as an S corporation for state income tax
purposes under comparable state tax laws. As a result, Percon's earnings
through the day preceding the termination of the Percon's S corporation status
(the Termination Date) had been, for federal and state income tax purposes,
taxed directly to Percon's shareholders, at their individual federal and state
income tax rates, rather than to Percon. Subsequent to the Termination Date,
Percon is no longer treated as an S corporation and, accordingly, is subject to
federal and state income taxes on its earnings.
Pro forma provision for income taxes included in the statement of income for the
three months ended March 31, 1995 reflects the expected federal and state income
tax expense as if the Company had been subject to income tax as a C corporation
for the period presented, at the prevailing tax rates.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is based on the weighted
average number of common and common equivalent shares (stock options and
warrants determined under the treasury stock method) outstanding during the
period.
FOREIGN CURRENCY TRANSLATION
The financial statements of foreign operations are translated into U.S. dollars
in accordance with Financial Accounting Standards Board Statement No. 52.
Accordingly, all assets and liabilities are translated at end of the period
exchange rates. The gains and losses that result from this process are shown in
the cumulative translation adjustment account in the shareholders' equity
section of the balance sheet. Operating transactions are translated at
weighted average rates during the period. Transaction gains and losses are
reflected in net income.
7
<PAGE>
PERCON INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS
On March 7, 1996, the Company purchased all of the outstanding stock of STI for
approximately $4.6 million in cash. STI, located near Paris, France, is a
leading manufacturer of fixed-station and integrated decoders.
The purchase price was allocated to the assets and in-process research and
product development acquired and the liabilities assumed on the basis of fair
values at March 7, 1996 as follows (In thousands):
Accounts receivable, net $1,665
Inventories 1,310
Prepaid expenses and other 85
Deposits 28
Property and equipment, net 1,638
Intangible assets, net 83
Goodwill 525
In-process research and product development 2,091
------
Total assets acquired $7,425
------
------
Cash paid for STI:
Capital stock $4,500
Acquisition costs 104
Deferred tax liability resulting from acquisition 28
Current liabilities assumed 1,594
Long-term liabilities assumed 1,199
------
Total cash paid and liabilities assumed $7,425
------
------
Additionally, in consideration for continuing employment, the Company issued
options to purchase 60,000 shares of the Company's common stock at an exercise
price of $13.125 per share, the market price of the Company's stock on the date
of grant, to STI's founder who remains president and managing director of STI.
The options are exercisable if the founder remains with STI for one full year.
8
<PAGE>
PERCON INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated results of operations
presents information as if the acquisition had occurred as of the beginning of
each period presented and, with respect to the three months ended March 31,
1995, as if the Company had been subject to tax. The pro forma information is
presented after giving effect to certain adjustments for amortization and
interest expense. STI's expenses for the interim periods presented were
estimated based on annual amounts incurred. Management believes the estimates
provide a reasonable approximation of actual results. The pro forma information
is provided for informational purposes only. It is based on historical
information and does not necessarily reflect the actual results of operations
that would have occurred nor is it necessarily indicative of future results of
operations.
Pro forma for the three months ended:
(In thousands, except per share data) March 31, 1996 March 31, 1995
-------------- --------------
Net sales $5,478 $4,142
Net income (loss) (1,584) a 355 b
Net income (loss) per share ($.38) a $.13 b
------- -------
------- -------
Weighted average shares used in calculation 4,134 2,772
------- -------
------- -------
a-Includes a one time charge of $2,091,000 associated with expensing of
acquired in-process research and product development. Without this charge, pro
forma net income and pro forma net income per share at March 31, 1996 would have
been $507,000 and $.12 respectively. The charge for acquired in-process
research and product development expense did not have a tax benefit and reduced
earnings per share by $.51.
b-Excludes a one time charge of $2,091,000 associated with expensing of
acquired in-process research and product development. With this charge, pro
forma net loss and pro forma net loss per share at March 31, 1995 would have
been $1,736,000 and $.63 respectively.
3. INVENTORIES
Inventories are stated at the lower of cost (methods which approximate the
first-in, first-out method) or market. Elements of cost include materials,
labor, and overhead and consist of the following:
(In thousands) March 31, 1996 December 31, 1995
-------------- -----------------
Materials $1,849 $1,225
Finished goods 1,174 659
------ ------
$3,023 $1,884
------ ------
------ ------
9
<PAGE>
PERCON INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
(In thousands) March 31, 1996 December 31, 1995
-------------- -----------------
Building on land owned by others $1,490
Equipment 1,473 $816
Tooling 263 260
Leasehold improvements 75 19
------ -----
3,301 1,095
Less accumulated depreciation and
amortization (952) (415)
------ -----
$2,349 $680
------ -----
------ -----
The building on land owned by others was purchased by STI in December 1994.
Under terms of the lease agreement for the underlying land, the Company pays
lease payments of approximately $20,000 per year. The Company does not have an
option to purchase the land or extend the lease, and ownership of the building
will pass to the land owner at the end of the lease term on December 31, 2010.
Accordingly, the cost of the building is being amortized over the 16-year term
of the lease.
5. GOODWILL AND INTANGIBLES, NET
Goodwill and intangibles consist of the following:
(In thousands) March 31, 1996 December 31, 1995
-------------- -----------------
Acquired software and technology $1,739 $1,637
Non-compete agreements 832 832
Goodwill 556 31
Other 29 1
------ ------
3,156 2,501
Less accumulated amortization (941) (803)
------ ------
$2,215 $1,698
------ ------
------ ------
6. SHORT-TERM BORROWINGS
The Company has a revolving line of credit with one bank of up to $1,000,000
collateralized by accounts receivable and inventories. The interest rate is the
bank's prime rate (8.25% at March 31, 1996). No amounts were outstanding as of
March 31, 1996 and December 31, 1995.
The Company has overdraft and line of credit facilities with a foreign bank for
up to $60,000 at the bank's current overdraft interest rate (9.95% at March 31,
1996). No amounts were outstanding at March 31, 1996.
The Company also has a credit facility with a foreign bank to borrow up to
$200,000, collateralized by accounts receivable. Borrowings under the facility
bear interest at the bank's current interest rate (9.54% at March 31, 1996). No
amounts were outstanding as of March 31, 1996.
10
<PAGE>
PERCON INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts Payable and Accrued Expenses consist of the following:
(In thousands) March 31, 1996 December 31, 1995
-------------- -----------------
Accounts payable $1,641 $735
Accrued payroll and payroll liabilities 398 208
Other accruals 216 96
------ ------
$2,255 $1,039
------ ------
------ ------
8. LONG-TERM DEBT
March 31, 1996
--------------
(In thousands)
Bank loan, monthly payments of $17,000 $1,166
including interest at 9.6%, maturing 12/31/04
Less current portion (89)
------
$1,077
------
------
The bank loan is collateralized by a building and matures as follows (in
thousands):
1997 $98
1998 108
1999 119
2000 131
2001-2004 621
------
$1,077
------
------
9. COMMITMENTS AND CONTINGENCIES
The Company has entered into a five year purchase agreement expiring December
31, 1997 with the supplier of a principal component of its products. At March
31, 1996, the Company has committed to make approximately $300,000 of purchases
before the expiration of the agreement. The Company expects this purchase
commitment will be fulfilled in the normal course of operations; therefore, no
material adverse effect on the results of its operations or cash flows is
expected.
The Company is a party to claims and matters of litigation incidental to the
normal course of its business. The ultimate outcome of these matters cannot
presently be determined; however, in the opinion of management of the Company,
the resolution of these matters will not have a material adverse effect on the
Company's results of operations or cash flows.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
GENERAL
Percon develops, manufactures and markets bar code reading products, including
fixed station decoders, portable data terminals and data management application
software, for the automatic identification and data collection ("Auto ID")
market. The Company also markets bar code input devices manufactured by others
for use with the Company's fixed station decoders and portable data terminals.
The Company's products provide a rapid, accurate and efficient means to collect,
process, transmit and record data. The Company's products are used principally
in point-of-sale and point-of-service applications in a wide variety of
industries, including retail, education, manufacturing, health care and package
delivery.
The Company markets its products through a network of Auto ID distributors,
value-added resellers ("VAR's") and systems integrators, which allows the
Company's products to reach efficiently small and mid-size end users. The
Company also distributes its products internationally primarily through
distributors in Europe, Latin America and Asia.
Sales of products manufactured by the Company, which generally have higher gross
margins than the input devices manufactured by others and sold by the Company,
represented approximately 88% and 68% of the Company's net sales for the three
months ended March 31, 1996 and 1995, respectively.
From time to time the Company may issue forward-looking statements that involve
a number of risks and uncertainties. The following factors could cause actual
results to differ materially from the forward-looking statements: business
conditions and growth in the electronics industry and general economies, both
domestic and international; lower than expected customer orders; competitive
factors, including increased competition, new product offerings by competitors
and price pressures; the availability of third party parts and supplies at
reasonable prices; changes in product mix and the mix between products
manufactured by the Company compared to products sold by the Company that are
manufactured by others; receipt of a significant portion of customer orders and
product shipments in the last month of each quarter; technological difficulties
and resource constraints encountered in developing new products; and product
shipment interruptions due to manufacturing difficulties. The forward looking
statements contained in this document regarding purchase commitments, product
development and introduction, interest income and expense, liquidity, and future
business activities should be considered in light of these factors.
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
of the Company's annual report on Form 10-KSB for the year ended December 31,
1995.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION, Continued
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
NET SALES
Net sales for the three months ended March 31, 1996 increased $1.7 million (67%)
to $4.3 million from $2.6 million for the three months ended March 31, 1995.
The increase was primarily due to increased unit sales volume of the Company's
portable data terminals and the inclusion of the operations of STI, acquired on
March 7, 1996. International sales represented approximately 22% of net sales
in the first quarter of 1996 compared to 6% of net sales in the first quarter
of 1995.
GROSS PROFIT
Gross profit for the three months ended March 31, 1996 increased $916,000 (74%)
to $2.2 million from $1.2 million for the three months ended March 31, 1995,
representing 50.0% and 48.0% of net sales, respectively. The dollar increase was
primarily due to increased sales volume. The percentage increase was primarily
due to the Company selling a larger percentage of products it manufactures
rather than products manufactured by others, which carry lower gross margins.
SELLING, MARKETING AND CUSTOMER SERVICE EXPENSES
Selling, marketing and customer service expenses for the three months ended
March 31, 1996 increased $186,000 (37%) to $686,000 from $500,000 for the three
months ended March 31, 1995, representing 15.9% and 19.3% of net sales,
respectively. The dollar increase primarily resulted from activities to support
the growth in net sales. The percentage decrease primarily resulted from
planned increases in marketing activities in the first quarter of 1995 which
were not repeated in the first quarter of 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended March 31, 1996
increased $121,000 (42%) to $408,000 from $287,000 for the three months ended
March 31, 1995, representing 9.4% and 11.1% of net sales, respectively. The
dollar increase was primarily due to the addition of management and support
personnel, increases in business insurance and other costs associated with being
a public company. The percentage decrease primarily resulted from operating
efficiencies achieved by spreading fixed costs over a greater net sales base.
RESEARCH AND PRODUCT DEVELOPMENT EXPENSES
Research and product development expenses for the three months ended March 31,
1996 increased $200,000 (144%) to $339,000 from $139,000 for the three months
ended March 31, 1995, representing 7.8% and 5.4% of net sales, respectively.
The dollar and percentage increases are primarily due to personnel increases for
new product development.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION, Continued
ACQUIRED IN-PROCESS RESEARCH AND PRODUCT DEVELOPMENT
A portion of the purchase price ($2.1 million) of the acquisition of STI was
allocated to acquired in-process research and product development and
accordingly was expensed as of the acquisition date (March 7, 1996). The amount
allocated to in-process research and development represents the estimated fair
values related to these projects. Current valuation procedures and techniques
were utilized by management in determining the fair market value of each
intangible asset. The development technologies were evaluated to determine that
there were no alternative future uses. Such evaluation consisted of a specific
review of the efforts, including the overall objectives of the projects,
progress toward the objectives and uniqueness of developments to these
objectives. To bring these projects to fruition, high risk developmental issues
need to be resolved which will require substantial additional effort and
testing. Therefore, technological feasibility of these new products has not yet
been achieved. As these projects have not reached technological feasibility and
alternative future use of these developmental technologies, apart from the
objectives of the individual projects, do not exist, these costs were expensed
as of the acquisition date. These costs reduced net income and fully diluted
net income per share for the three months ended March 31, 1996 by $2.1 million
and $.51, respectively.
NET INTEREST
Net interest income was $37,000 for the three months ended March 31, 1996
compared to net interest expense of $10,000 for the same period in 1995. The
change resulted primarily from the repayment of Company debt at the time of the
initial public offering (in July 1995) and earnings from investment of the
proceeds therefrom. Because the Company paid $4.6 million in cash for the
acquisition of STI on March 7, 1996, the Company expects interest income to
decrease accordingly.
PROVISION FOR INCOME TAXES
The provision for income taxes for the three months ended March 31, 1996 was
$282,000. No tax benefit was realized from the acquired in-process research and
product development expense.
Prior to August 1995, the Company had operated as an S corporation not subject
to federal and state income taxes. Pro forma provision for income taxes for the
three months ended March 31, 1995 reflects federal and state income taxes as if
the Company had been a C corporation, based on the rates that would have been in
effect during the period reported.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION, Continued
LIQUIDITY AND CAPITAL RESOURCES
The Company primarily financed its operations during the three months ended
March 31, 1996 through net cash provided by operations and proceeds from its
initial public offering.
The Company's line of credit permits it to borrow up to 80% of eligible accounts
receivable and 25% of eligible inventory (as defined by the banking agreement)
to a maximum of $1.0 million. Outstanding principal amounts thereunder bear
interest at the Bank's prime rate, which was 8.25% at March 31, 1996. No amounts
were outstanding under the line of credit at March 31, 1996. With the
acquisition of STI on March 7, 1996, the Company also has line of credit and
short-term borrowing arrangements with two other banks which allow for
additional borrowing up to an aggregate of approximately $260,000. These
facilities bear interest at the bank's current rates, ranging from 9.54% to
9.95% at March 31, 1996. No amounts were outstanding under either of these
facilities at March 31, 1996.
Net cash provided by operations was $993,000 for the three months ended March
31, 1996 as compared to $335,000 for the three months ended March 31, 1995.
Significant changes for the three months ended March 31, 1996 included decreases
in accounts receivable and inventory as well as increases in income taxes
payable, offset in part by decreases in accounts payable and accrued expenses.
For the three months ended March 31, 1996, net cash used in investing activities
totaled $3.73 million as compared to $136,000 for the three months ended March
31, 1995. In March 1996 the Company increased its in-process research and
product development and expanded its product line and distribution channels by
purchasing all of the outstanding common stock of STI, in a transaction
accounted for as a purchase for financial reporting purposes. Percon paid
approximately $4.6 million in cash for STI. Cash provided by investing
activities of $998,000 for the three months ended March 31, 1996 was the result
of the sale of short-term commercial paper which matured during the quarter.
The Company made capital expenditures of $94,000 for the three months ended
March 31, 1996 as compared to $136,000 for the three months ended March 31,
1995.
During the three months ended March 31, 1996, net cash provided by financing
activities totaled $54,000 compared to net cash used of $245,000 for the three
months ended March 31, 1995. Cash from financing activities for the three
months ended March 31, 1996 was primarily provided through proceeds from stock
issued upon exercise of stock options. Cash used for the three months ended
March 31, 1995 was primarily the result of distributions to shareholders for the
payment of taxes incurred by the shareholders directly as S corporation
shareholders of $170,000 and principal payments on long term debt of $79,000.
The Company's cash on hand, together with the Company's lines of credit and cash
generated from operations, are expected to be sufficient to meet the Company's
working capital requirements for at least the next 12 months.
15
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
1) A Form 8-K dated March 7, 1996 was filed on March 22, 1996 and
reported Item 2.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF PERCON, INC. AND SUBSIDIARIES AS OF MARCH 31,
1996 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE
THREE MONTHS IN THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,324
<SECURITIES> 0
<RECEIVABLES> 3,506
<ALLOWANCES> 146
<INVENTORY> 3,023
<CURRENT-ASSETS> 8,218
<PP&E> 3,301
<DEPRECIATION> 952
<TOTAL-ASSETS> 12,782
<CURRENT-LIABILITIES> 2,740
<BONDS> 1,077
0
0
<COMMON> 8,760
<OTHER-SE> (502)<F2>
<TOTAL-LIABILITY-AND-EQUITY> 12,782
<SALES> 4,326
<TOTAL-REVENUES> 4,326
<CGS> 2,164
<TOTAL-COSTS> 2,164
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> (37)
<INCOME-PRETAX> (1,322)
<INCOME-TAX> 282
<INCOME-CONTINUING> (1,604)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,604)<F1>
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
<FN>
<F1>REPRESENTS THE ONE TIME CHARGE TO EARNINGS OF $2,091 ($.51 PER SHARE) FOR THE
PORTION OF THE PURCHASE PRICE ALLOCATED TO STI IN-PROCESS RESEARCH AND PRODUCT
DEVELOPMENT EXPENSE. EXCLUDING THIS CHARGE, NET INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 1996 WOULD HAVE BEEN $487 ($.12 PER SHARE).
<F2>REPRESENTS ACCUMULATED DEFECIT OF $511 AND CUMULATIVE TRANSLATION
ADJUSTMENTS OF $9.
</FN>
</TABLE>
