SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 1995
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 0-6004
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Scanforms, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 23-1704876
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
181 Rittenhouse Circle
Keystone Park, Bristol, Pa. 19007
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(215) 785-0101
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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.
Yes X No _____
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At August 11,1995, 3,546,648 shares of common stock, $0.01 par value, were
outstanding.
Page 1 of 11
PART I FINANCIAL INFORMATION
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Item 1: Financial Statements.
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SCANFORMS, INC.
BALANCE SHEET
July 2 October 2
1995 1994
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Unaudited
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A S S E T S
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Current assets:
Cash $3,272,024 $3,522,546
Current portion of note receivable 7,601 -
Accounts receivable, net of allowance
for doubtful accounts of
$435,006 - July 2, 1995 and
$390,000 - October 2, 1994 3,044,857 3,819,234
Inventories - (Note 2) 1,470,223 834,297
Other current assets 349,361 250,100
Deferred income taxes 269,137 268,138
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Total current assets 8,413,203 8,694,315
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Property, plant and equipment at cost
net of accumulated depreciation of
$11,550,104 - July 2, 1995 and
$10,737,020 - October 2, 1994 7,900,382 7,568,548
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Note receivable, net of current portion 13,899 -
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Other assets 109,381 71,522
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Total assets $16,436,865 $16,334,385
=========== ===========
See accompanying notes to financial statements.
Page 2 of 11
SCANFORMS, INC.
BALANCE SHEET
July 2 October 2
1995 1994
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Unaudited
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Current maturities of long-term debt $ 925,974 $ 1,492,524
Accounts payable 1,351,555 1,476,507
Customer advances 3,349,349 4,109,152
Other current liabilities 574,932 561,143
Income taxes payable 150,533 429,609
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Total current liabilities 6,352,343 8,068,935
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Long-term debt, net of current
maturities shown above 3,959,231 3,152,091
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Deferred income taxes 1,016,402 1,128,807
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Stockholders' equity:
Preferred stock, $1 par value,
500,000 shares authorized;
none issued
Common stock, $0.01 par value,
6,000,000 shares authorized;
3,546,648 shares issued and
outstanding (Note 3) 35,467 36,635
Capital in excess of par value 1,388,462 1,509,471
Retained earnings (Note 3) 4,093,862 2,978,287
Note receivable from stockholder (408,902) (411,663)
Treasury stock (Note 3) - (128,178)
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Stockholders' equity 5,108,889 3,984,552
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Total liabilities and stockholders'
equity $16,436,865 $16,334,385
============ ============
See accompanying notes to financial statements.
Page 3 of 11
Unaudited
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SCANFORMS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Thirty Nine Weeks Ended Thirteen Weeks Ended
July 2 July 3 July 2 July 3
1995 1994 1995 1994
----------- ----------- ---------- ----------
Net sales $18,596,480 $17,277,808 $5,098,425 $5,297,911
Cost of sales 13,385,840 12,573,701 3,715,445 3,884,551
----------- ----------- ---------- ----------
Gross profit 5,210,640 4,704,107 1,382,980 1,413,360
Operating expense 3,005,143 2,766,869 946,216 848,208
----------- ----------- ---------- ----------
Income from
operations 2,205,497 1,937,238 436,764 565,152
Other expenses:
Interest cost 313,515 345,724 115,186 117,896
----------- ----------- ---------- ----------
Income before income
taxes and cumulative
effect adjustment 1,891,982 1,591,514 321,578 447,256
Income taxes 776,407 485,156 136,212 85,815
----------- ----------- ---------- ----------
Income before effect
of a change in tax
accounting method 1,115,575 1,106,358 185,366 361,441
Cumulative effect
of a change in
the tax accounting
method - 260,686 - -
----------- ----------- ---------- ----------
Net income 1,115,575 845,672 185,366 361,441
Retained earnings-
beginning 2,978,287 1,814,766 3,908,496 2,298,997
----------- ----------- ---------- ----------
Retained earnings-
ending $ 4,093,862 $ 2,660,438 $4,093,862 $2,660,438
=========== =========== ========== ==========
Weighted average number
of common shares
outstanding 3,652,866 3,615,390 3,652,866 3,615,390
=========== =========== ========== ==========
Earnings per common
share before cumulative
effect $ 0.30 $ 0.30 $ 0.05 $ 0.10
Cumulative accounting
change - (0.07) - -
--------- --------- --------- ---------
Net earnings per
common share $ 0.30 $ 0.23 $ 0.05 $ 0.10
========= ========= ========= =========
See accompanying notes to financial statements.
Page 4 of 11
Unaudited
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SCANFORMS, INC.
STATEMENT OF CASH FLOWS
Thirty Nine Weeks Ended
July 2 July 3
1995 1994
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Cash flows from operating activities:
Cash received from customers $ 18,971,990 $ 17,408,653
Cash paid to suppliers and employees (16,850,160) (14,559,643)
Interest received 132,557 35,931
Interest paid (438,204) (465,251)
Income taxes paid (1,168,887) (363,499)
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Net cash (used in) operating
activities 647,296 2,056,191
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Cash flows from investing activities:
Proceeds from sale of equipment - 30
Purchases of plant and equipment (1,147,168) (465,643)
Payment of note from stockholder 2,761 1,866
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Net cash (used in) investing
activities (1,144,407) (463,747)
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Cash flows from financing activities:
Issuance of common shares
of capital stock 200 5,000
Paid in surplus on issuance of
common shares of capital stock 5,800 120,000
Proceeds from long-term debt 3,850,737 734,983
Repayment of subordinated debt - (793,500)
Repayment of long-term debt (3,592,896) (976,744)
Principle payments under capital
lease obligations (17,252) (53,899)
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Net cash from (used in) financing
activities 246,589 (964,160)
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Net (decrease) in cash ( 250,522) 628,284
Cash:
Beginning 3,522,546 830,246
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Ending $ 3,272,024 $1,458,530
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See accompanying notes to financial statements.
Page 5 of 11
Unaudited
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SCANFORMS, INC.
STATEMENT OF CASH FLOWS
Reconciliation of Net Income to Net Cash Flows From
Operating Activities
Thirty Nine Weeks Ended
July 2 July 3
1995 1994
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Net Income $1,115,575 $ 845,672
Adjustments to reconcile net income
to net cash (used in) operating
activities:
Depreciation and amortization 814,209 710,677
(Gain)loss on disposal of
fixed assets (20,375) 8,381
Deferred finance charges 50,867 17,897
Interest income stockholder (4,951)
Increase in allowance for doubtful
accounts 45,006 45,006
Decrease(increase) in assets:
Accounts receivable 729,371 84,366
Inventories (635,926) 267,507
Other current assets (99,261) (116,478)
Deferred income taxes (999) -
Other assets (88,726) (84,219)
Increase(decrease) in liabilities:
Accounts payable (124,950) 127,526
Customer advances (759,803) (75,080)
Other current liabilities 13,789 (152,457)
Income taxes payable (279,076) 153,631
Deferred income taxes (112,405) 228,713
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Net cash from(used in) operating
activities $ 647,296 $2,056,191
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Schedule of Noncash Investing and Financial Activities
Sale of fixed assets $ (21,500) $
-
Retirement of treasury stock 128,178 -
Common Stock (1,368) -
Paid-in-surplus (126,810) -
Notes receivable from stockholders - 3,085
See accompanying notes to financial statements.
Page 6 of 11
Unaudited
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SCANFORMS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Basis of Presentation:
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Accounting Period:
The registrant employs a fifty-two, fifty-three week year for financial
accounting purposes. Accordingly, these quarterly financial statements are for
the thirteen week and thirty nine week period ended July 2, 1995 and July 3,
1994. The fiscal year ending October 1, 1995 will consist of fifty-two weeks.
The accompanying unaudited 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 Rule 10-01 of the
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 thirteen weeks and thirty nine weeks
ended July 2, 1995 are not necessarily indicative of the results that may be
expected for the fiscal year ending October 1, 1995. For further information,
refer to the financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended October 2, 1994.
Note 2 - Inventories:
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Inventories consisted of the following:
July 2 October 2
1995 1994
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Raw materials $1,307,004 $464,377
Work in process 163,219 369,920
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$1,470,223 $834,297
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Note 3 - Treasury stock:
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On June 29,1995, the Board of Directors by unanimous consent approved and
ratified the retirement of 136,812 shares of capital stock held in treasury with
a cost of $128,178. The retirement of the treasury stock will result in a
reduction of common stock of $1,368 and a reduction of capital in excess of par
value of $126,810.
Page 7 of 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS: THIRTY NINE WEEKS ENDED JULY 2, 1995 VS. THIRTY NINE
WEEKS ENDED JULY 3, 1994
The Company's net sales increased from $17,277,808 during the thirty nine
weeks ended July 3, 1994 to $18,596,480 during the thirty nine weeks ended July
2, 1995, a 7.6% increase, principally reflecting an expansion of the customer
base. Gross profit increased by 9.7% from $4,704,107 to $5,210,640. The
increase in gross profit was primarily the result of increased sales volume and
an improved product mix, net of a retro-active workmen's compensation insurance
premium assessment.
Operating expense was $3,005,143 and $2,766,869 for the thirty nine
weeks of fiscal 1995 and fiscal 1994, respectively. The increase of 8.6% was
due to various factors including increased compensation expense, the payment of
performance bonuses, consulting fees and additional employees.
Interest cost decreased from $345,724 to $313,515 during the thirty nine
weeks of fiscal 1995 as compared to the same period in fiscal 1994. The 9.3%
decrease was due to the retirement of fixed debt offset by a write off of
deferred finance charges associated with the change in primary lending
institutions in the amount of $34,855. The $34,855 was being amortized until
1998; however, the lower interest rate from the new primary lending institution
(as described in "Liquidity and Capital Resources") will have a payback within
the first year of the new five year mortgage note.
The Company adopted FASB Statement 109 in the first 13 weeks of fiscal
1994. The cumulative effect of the change in the method of accounting for
income taxes resulting from the Company's adoption of FASB Statement 109 was to
decrease net income during the first thirteen weeks of fiscal 1994 by $260,686,
or $0.07 per share. The $260,686 decrease constituted a non-cash item and was a
one time charge to equity.
RESULTS OF OPERATIONS: THIRTEEN WEEKS ENDED JULY 2, 1995 VS. THIRTEEN WEEKS
ENDED JULY 3, 1994
The Company's net sales decreased from $5,297,911 during the thirteen weeks
ended July 3, 1994 to $5,098,425 during the thirteen weeks ended July 2, 1995.
The 3.8% decrease principally reflects a temporary reduction in customer demand.
Gross profit decreased by 2.1% from $1,413,360 to $1,382,980. The decrease in
gross profit was the effect of the decrease in net sales.
Operating expense was $946,216 and $848,208 for the thirteen weeks of
fiscal 1995 and fiscal 1994, respectively. The increase in operating expense of
$98,008 or 11.6% was the result of higher wage costs, increased outside
consultant fees, legal fees and directors fees due to the evaluation of two
proposals described in the Form 10-Q for the period ended April 2, 1995.
Page 8 of 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
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RESULTS OF OPERATIONS: THIRTEEN WEEKS ENDED JULY 2, 1995 VS. THIRTEEN WEEKS
ENDED JULY 3, 1994 - (Continued)
Interest cost decreased from $117,896 to $115,186 during the thirteen weeks
of fiscal 1995 as compared to the same period in fiscal 1994. The 2.2% decrease
was due to the retirement of fixed debt offset by a write off of deferred
finance charges associated with the change in primary lending institutions in
the amount of $34,855. The $34,855 was being amortized until 1999; however, the
lower interest rate from the new primary lending institution (as described in
"Liquidity and Capital Resources") will have a payback within the first year of
the new five year mortgage note.
GENERAL:
Competition in the direct mail industry continues to be strong, and some
pricing remains depressed. More pressure has been put on the margins due to
increases in paper prices. As disclosed under "Liquidity and Capital
Resources," the Company has purchased additional production equipment in order
to service its expanded customer base and resulting increased volume.
LIQUIDITY AND CAPITAL RESOURCES:
On June 21, 1995, the Company received a revolving line of credit with a
new lending institution in the amount of $2.5 million which is limited to 80% of
eligible accounts receivable less 80% of customer advances plus 50% of raw
material inventories up to $500,000. Borrowings under this line are
collateralized by all accounts receivable, inventories and other personal
property and bear interest at the bank's prime lending rate plus an annual
commitment fee of 1/8% on the unused portion. The agreement with the lender
also provides for mortgage note financing in the amount of $2.5 million with a
principal payment of $13,889 per month plus interest at 1/4% above the bank's
prime lending rate and a final payment of the unpaid principal then due, payable
at the maturity of the note. The proceeds of the mortgage note were used to
retire the existing mortgage note of the former lending institution in the
amount of $2,375,000 and the remainder was used for working capital and deferred
finance fees. The revolving line of credit and the mortgage note are due on
June 21, 2000 and July 1, 2000 respectively.
Under the terms of the revolving line of credit and mortgage note agreement
with the bank, the Company is limited on payment of dividends to 50% of the
Company's net income during the year. The Company is also subject to certain
covenants and restrictions related to increased debt, granting liens, tangible
net worth, earnings before interest and taxes and the ratio of liabilities to
tangible net worth and other items. The agreement prohibits the Company in
making capital expenditures in excess of $500,000 in the aggregate in any one
fiscal year which are not financed with permitted indebtedness.
Page 9 of 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
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LIQUIDITY AND CAPITAL RESOURCES - (Continued):
The Company's working capital increased to $2,060,860 as of July 2, 1995,
an increase of $1,435,480 or 229.5% from $625,380 on October 2, 1994. The
increase was the result of net income for the thirty nine weeks, the refinancing
of the mortgage note with the new primary lending institution and the
refinancing of the balloon payment of a press as described below.
Equipment purchased during October 1994, in the amount of $795,114, was
financed with five year term loans in the amount of $794,310. A new water
system for one of the presses has been purchased in the amount of $209,999.
This system is being financed over three years along with the remainder of a
note which was currently due on the press in the amount of $346,428. The new
note is in the amount of $556,427.
Certain other significant balance sheet changes during the thirty nine
weeks ended July 2, 1995 included decreases in customer advances of $759,803,
accounts payable of $124,950 and income taxes payable of $279,076 and increases
in inventories of $635,926. The reduction in customer advances resulted from
the utilization of customer deposits to cover postage costs as the Company
delivered direct mail materials to the post office for shipment. The decrease
in accounts payable reflects the timing of vendors invoices as a result of
purchases relating to the third quarter production. The increase in inventories
is the result of the build up of paper inventory in anticipation of paper price
increases and spot shortages.
During the thirteen weeks ended April 2, 1995, the Company placed $323,789
in orders for production equipment. Currently some of the equipment has not
been delivered; however, the Company intends to obtain term financing for the
equipment.
During the first thirty nine weeks of 1995, the Company did not utilize its
working capital line of credit with its principal lending banks. The Company
believes that the cash flow generated from operations and the amount available
under its working capital line of credit ($500,000 as of July 2, 1995) will
enable the Company to meet its currently anticipated operating requirements at
the levels resulting from the acquisition of equipment described above.
Page 10 of 11
PART II OTHER INFORMATION
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Item 6: EXHIBITS AND REPORTS ON FORM 8-K
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a. Exhibits required by Item 601 of Regulation S-K
10.1 Loan Agreement dated as of June 21, 1995, by and
between the Company and Mellon Bank, N.A.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter for which this report is filed.
SIGNATURE
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.
SCANFORMS, INC.
DATE: August 11, 1995
/s/ Robert A. Samans
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Robert A. Samans, President
/s/ William P. Carey
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William P. Carey, Treasurer
(Principle Financial and
Accounting Officer)
Page 11 of 11