1
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
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
0-12728
MEDAR, INC.
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(Exact name of registrant as specified in its charter)
Michigan 38-2191935
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
38700 Grand River Ave., Farmington Hills, Michigan 48335
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(Address of principal executive offices) (Zip Code)
(810) 471-2660
------------------------------
Registrant's telephone number, including area code)
(not applicable)
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(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
The number of shares outstanding of the registrant's Common Stock, no
par value, stated value $.20 per share, as of April 30, 1996 was 8,801,401.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
MEDAR, INC. AND SUBSIDIARIES
MARCH 31 DECEMBER 31
1996 1996
------------------------
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS - Note D
Cash $ 486 $ 1,556
Accounts receivable, less allowance of $390,000 at March 31,
1996 and $355,000 at December 31, 1995 9,242 8,618
Inventories - Note B 12,883 13,167
Costs and estimated earnings in excess of billings on incomplete
contracts - Note C 1,731 681
Other current assets 730 849
-----------------------
TOTAL CURRENT ASSETS 25,072 24,871
PROPERTY, PLANT AND EQUIPMENT - Note D
Land and land improvements 329 329
Building and building improvements 6,117 6,109
Production and engineering equipment 2,958 2,733
Furniture and fixtures 960 891
Vehicles 724 660
Computer equipment 4,469 3,907
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15,557 14,629
Less accumulated depreciation 5,367 4,965
-----------------------
10,190 9,664
OTHER ASSETS
Capitalized computer software development costs, net of
amortization 7,050 6,761
Patents 2,427 2,507
Other 925 920
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10,402 10,188
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$ 45,664 $ 44,723
=======================
See notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS - CONTINUED
MEDAR, INC. AND SUBSIDIARIES
MARCH 31 DECEMBER 31
1996 1995
------------------------
(Unaudited)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 10
Accounts payable 3,582 $ 3,202
Employee compensation 902 674
Accrued and other liabilities 1,194 1,567
Current maturities of long term debt - Note D 725 752
-----------------------
TOTAL CURRENT LIABILITIES 6,413 6,195
LONG-TERM DEBT, less current maturities - Note D 15,890 15,685
DEFERRED INCOME TAXES 76
STOCKHOLDERS' EQUITY - Note F
Common stock, without par value, stated value $.20
per share; 10,000,000 shares authorized; 8,801,401
shares issued and outstanding (8,711,589 shares at
December 31, 1995) 1,760 1,742
Additional paid-in capital 29,698 29,438
Retained earnings deficit (7,995) (8,321)
Accumulated translation adjustment (102) (92)
-----------------------
TOTAL STOCKHOLDERS' EQUITY 23,361 22,767
-----------------------
$ 45,664 $44,723
=======================
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
MEDAR, INC. AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31
1996 1995
---------------------------
(Unaudited)
(In thousands, except for per share data)
Net sales $10,222 $11,358
Cost of sales 6,755 7,588
----------------------
GROSS MARGIN 3,467 3,770
Costs and expenses:
Marketing 1,121 1,079
General and administrative 741 812
Research and development 1,022 424
Patent litigation costs 750
Excessive product quality, warranty and other costs 450
----------------------
2,884 3,515
----------------------
EARNINGS FROM OPERATIONS 583 255
Interest:
Expense 325 69
Income (9) (43)
----------------------
316 26
----------------------
EARNINGS BEFORE INCOME TAXES 267 229
Provision (credit) for income taxes - Note E (60) 82
----------------------
NET EARNINGS 327 147
======================
Net earnings per share $ .04 $ .02
======================
Weighted average number of shares of common stock outstanding 8,995 9,008
======================
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
MEDAR, INC. AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31
1996 1995
---------------------------------
(Unaudited)
(In thousands)
OPERATING ACTIVITIES
Net earnings $ 327 $ 147
Adjustments to reconcile net earnings to net cash provided by (used
in) operating activities:
Depreciation and amortization 1,149 706
Provision for deferred income taxes (75) 65
Changes in operating assets and liabilities (1,457) (3,531)
--------------------------
NET CASH USED IN OPERATING ACTIVITIES (56) (2,613)
INVESTING ACTIVITIES
Sale of short-term investments 4,018
Purchase of property and equipment (553) (680)
Investment in capitalized software (948) (831)
--------------------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (1,501) 2,507
FINANCING ACTIVITIES
Net increase (decrease) in borrowings under line of credit 10 (149)
Debt repayments on long-term debt and capital lease obligations (4,953) (128)
Proceeds from long-term borrowings 5,156 398
Proceeds from exercise of stock options 277 128
--------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 490 249
--------------------------
Effect of exchange rate changes on cash (3) 3
--------------------------
INCREASE (DECREASE) IN CASH (1,070) 146
Cash at beginning of period 1,556 586
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CASH AT END OF PERIOD $ 486 $ 732
==========================
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MEDAR, INC. AND SUBSIDIARIES
MARCH 31, 1996
Note A - Basis of Presentation
The accompanying unaudited condensed 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 ended December 31, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Registrant Company and Subsidiaries' annual report on Form 10-K for the year
ended December 31, 1995.
Certain items in the 1995 financial statements have been reclassified to
conform with the corresponding 1996 presentation.
Note B - Inventories
Inventories are stated at the lower of first-in, first-out cost or market, and
the major classes of inventories at the dates indicated were as follows:
MARCH 31 MARCH 31
1996 1995
------------------------------
(In thousands)
Raw materials $ 6,426 $ 7,095
Work-in-process 4,309 3,305
Finished goods 2,148 2,767
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$ 12,883 $ 13,167
==============================
Note C - Costs and Estimated Earnings in Excess of Billings on Incomplete
Contracts
Revenues on long-term contracts are recognized using the
percentage of completion method. The effects of changes to estimated total
contract costs are recognized in the period determined and losses, if any, are
recognized fully when identified. Costs incurred and earnings recognized in
excess of amounts billed are classified under current assets as costs and
estimated earnings in excess of billings on incomplete contracts. Long-term
contracts include a relatively high percentage of engineering costs and are
generally less than one year in duration.
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Note C - Costs and Estimated Earnings in Excess of Billings on Incomplete
Contracts (cont)
Activity on long-term contracts is summarized as follows:
MARCH 31 DECEMBER 31
1996 1995
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(In thousands)
Contract costs to date $ 4,784 $ 4,278
Estimated contract earnings 2,682 1,985
--------------------------
7,466 6,263
Less billings to date (5,735) (5,582)
Costs and estimated earnings in --------------------------
excess of billings on
incomplete contracts $ 1,731 $ 681
==========================
Note D - Long Term Debt and Other Financing Arrangements
Long-term debt at March 31, 1996 and December 31, 1995 consisted of the
following:
MARCH 31 DECEMBER 31
1996 1995
(In thousands)
---------------------------
Revolving note payable to bank $ 10,078 $ 9,818
Term notes payable to bank 4,358 4,463
Patent license payable 2,000 2,000
Other 179 156
--------------------------
16,615 16,437
Less current maturities 725 752
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$ 15,890 $ 15,685
==========================
The revolving notes payable to bank has a maximum balance of $16,000,000
($548,000 available at March 31, 1996) based on eligible accounts receivable and
inventory as defined. This note expires August 31, 1998 and has advances which
bear interest at the bank's prime rate (8.25% at March 31, 1996 and 8.5% at
December 31, 1995). In connection with this note, as amended, the Company has
agreed, among other covenants, to maintain net worth and debt to equity, as
defined, at specified levels.
The Company has two term notes payable to bank. One is payable in quarterly
installments of $62,500 plus interest at the bank's prime rate, with the balance
becoming due June 29, 1998. The second note is payable in monthly installments
of $14,111 plus interest at the bank's prime rate or other rates made available
under the terms of the agreement, with the balance becoming due September 30,
2000. The notes are collateralized by the Medar office and production
facilities in Farmington Hills, Michigan, and machinery and equipment, inventory
and accounts receivable at all North American locations.
The patent license payable relates to future payments to be made to Square D
Company related to the settlement of patent litigation. The payments are due in
ten equal installments and have been discounted at 8%.
The fair values of these financial instruments approximates their carrying
amounts at March 31, 1996.
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Note D - Long Term Debt and Other Financing Arrangements (cont)
Maturities of long-term debt, excluding those payable within twelve months from
March 31, 1996 (which are stated as current maturities of long-term debt), are
$478,000 in 1997; $11,806,000 in 1998; $368,000 in 1999; $2,043,000 in 2000; and
$1,195,000 thereafter.
Note E - Income Taxes
Significant components of the provision for income taxes for the three months
ended March 31 are as follows:
1996 1995
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(In thousands)
Current:
Federal $ 15
Foreign $ 5
State 12
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15 17
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Deferred:
Federal 43
Foreign (credit) (75) 22
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(75) 65
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$ (60) $ 82
==================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
MARCH 31 DECEMBER 31
1996 1995
--------------------------
(In thousands)
Deferred tax liabilities:
Deductible software development costs,
net of amortization $ 2,365 $ 2,224
Tax over book depreciation 340 346
Percentage of completion 184 184
---------------------
Total deferred tax liabilities 2,889 2,754
Deferred tax assets:
Net operating loss carryforwards 4,881 4,840
Credit carryforwards 1,012 987
Reserve for warranty 237 237
Other 526 510
---------------------
Total deferred tax assets 6,656 6,574
Valuation allowance for deferred tax assets 3,767 3,896
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Net deferred tax assets 2,889 2,678
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Net deferred tax liabilities $ 0 $ 76
=====================
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Note E - Income Taxes (cont)
The reconciliation of income taxes computed at the U.S. federal statutory
rates to income tax expense for the three months ended March 31 is as follows:
1996 1995
--------------------
(In thousands)
Tax at U.S. statutory rates $ 91 $ 78
Utilization of net operating loss carryforward (181)
Other 30 (8)
State income taxes 12
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$ (60) $ 82
================
Note F - Stock Options
At March 31, 1996, there were options to purchase 786,900 shares outstanding
ranging in price from $1.50 to $11.50.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales decreased to $10.2 million from $11.4 million (10.0%) in the first
quarter of 1996. The decrease was due to a decrease in volume of resistance
welding sales.
Cost of sales decreased to $6.8 million from $7.6 million and as a percentage
of net sales to 66.1% from 66.8%.
Sales backlog for the Company at March 31, 1996 was $12.5 million, compared to
$7.5 million at March 31, 1995.
Marketing expense remained relatively level from year to year at $1.1 million,
but increased as a percentage of net sales to 11.0% from 9.5%. The increase in
percentage was the result of the decrease in sales volume.
General and administrative expense decreased to $0.7 million from $0.8 million
but increased as a percentage of net sales to 7.2% from 7.1%.
Research and development expense increased to $1.0 million from $0.4 million
and as a percentage of net sales to 10.0% from 3.7%. The increase is due to
the addition of engineering resources as well as the concentration of more
engineering resources on development projects.
Net interest expense increased as a percentage of net sales to 3.1% from 0.2%.
The increase is primarily the result of increased debt in 1996. There was no
balance on the revolving note with the bank at March 31, 1995 and one of the
term notes and the patent license payable were not added until after March 31,
1995.
The credit for income taxes in 1996 is the result of losses experienced at the
Company's UK subsidiary. In addition, the Company has a lower U.S. effective
tax rate in 1996 due to net operating loss carryforwards generated during the
latter portion of 1995.
Liquidity and Capital Resources
The Company has a revolving note payable to its bank with a maximum balance of
$16,000,000 ($548,000 available at March 31, 1996) based on eligible accounts
receivable and inventory as defined. This note expires August 31, 1998 and
has advances which bear interest at the bank's prime rate.
During the three months ended March 31, 1996, the Company utilized cash
generated from operations and cash on hand at December 31, 1995 to fund the
increase in accounts receivable, costs and estimated earnings in excess of
billings on incomplete contracts, the purchase of property and equipment, and
the investment in capitalized software.
The Company believes that current financial resources (working capital and its
ability to obtain additional financing, if needed), together with cash
generated from operations, will be adequate to meet known cash requirements.
No significant commitments for capital expenditures existed as of March 31,
1996. The company expects to capitalize approximately $3,500,000 of software
development costs in 1996 and has no other plans for any significant capital
expenditures.
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PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Document
- ------- -----------------------
2.1 Stock Purchase Agreement of Integral Vision effective January 1, 1995 (filed as Exhibit 2.1 to the registrant's
Form 8-K dated March 2, 1995, SEC file 0-12728, and incorporated herein by reference).
2.2 Stock Purchase Agreement for Preference Shares of Integral Vision effective January 1, 1995 (filed as Exhibit 2.2
to the registrant's Form 8-K dated March 2, 1995, SEC file 0-12728, and incorporated herein by reference).
3.1 Articles of Incorporation, as amended (filed as Exhibit 3.1 to the registrant's Form 10-K for the year ended
December 31, 1995, SEC file 0-12728, and incorporated herein by reference).
3.2 Bylaws of the Registrant, as amended (filed as Exhibit 3.1 to the registrant's Form 10-K for the year ended
December 31, 1994, SEC file 0-12728, and incorporated herein by reference).
10.1 Incentive Stock Option Plan of the Registrant as amended (filed as Exhibit 10.4 to the registrant's Form S-1
Registration Statement effective July 2, 1985, SEC File 2-98085, and incorporated herein by reference).
10.2 Second Incentive Stock Option Plan (filed as Exhibit 10.2 to the registrant's Form 10-K for the year ended
December 31, 1992, SEC File 0-12728, and incorporated herein by reference).
10.3 Amendment to Medar, Inc. Incentive Stock Option Plan dated May 10, 1993 (filed as Exhibit 10.3 to the registrant's
Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and incorporated herein by reference).
10.4 Non-qualified Stock Option Plan (filed as Exhibit 10.3 to the registrant's Form 10-K for the year ended December
31, 1992, SEC File 0-12728, and incorporated herein by reference).
10.5 Medar, Inc. Employee Stock Option Plan (filed as Exhibit 10.5 to the registrant's Form 10-Q for the quarter ended
September 30, 1995, SEC file 0-12728, and incorporated herein by reference).
10.6 Form of Confidentiality and Non-Compete Agreement Between the Registrant and its Employees (filed as Exhibit 10.4
to the registrant's Form 10-K for the year ended December 31, 1992, SEC File 0-12728, and incorporated herein by
reference).
10.7 Contract between Shanghai Electric Welding Machine Works, Medar, Inc. and Lida U.S.A. dated August 30, 1993,
related to joint venture agreement (both the original Chinese version and the English translation) (filed as
Exhibit 10.7 to the registrant's Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and incorporated
herein by reference).
10.8 Asset Purchase Agreement between Medar, Inc. and Air Gage Company dated February 28, 1994 (filed as Exhibit 10.8
to the registrant's Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and incorporated herein by
reference).
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10.9* License Agreement number 9303-004 between Medar, Inc. and Allen-Bradley Company, Inc. dated April 12, 1993 (filed
as Exhibit 10.9 to the registrant's Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and
incorporated herein by reference).
10.10* License Agreement number 9304-009 between Medar, Inc. and Allen-Bradley Company, Inc. dated May 10, 1993 (filed as
Exhibit 10.10 to the registrant's Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and
incorporated herein by reference).
10.11 Agreement by and between Medar, Inc. and ABB Robotics, Inc. dated December 1992 regarding joint development to
integrate a weld controller into the S3 robot control (filed as Exhibit 10.11 to the registrant's Form 10-K for
the year ended December 31, 1993, SEC File 0-12728, and incorporated herein by reference).
10.12 1993 Incentive Program (filed as Exhibit 10.14 to the registrant's Form 10-K for the year ended December 31, 1993,
SEC File 0-12728, and incorporated herein by reference).
10.13 1994 Incentive Program (filed as Exhibit 10.12 to the registrant's Form 10-K for the year ended December 31, 1994,
SEC file 0-12728, and incorporated herein by reference).
10.14 Term Note dated June 29, 1993 by and between Medar, Inc. and NBD Bank, N.A. (filed as Exhibit 4.2 to the
Registrant's Form 10-Q for the quarter ended June 30, 1993, SEC File 0-12728, and incorporated herein by reference).
10.15 Amended and Restated Mortgage and Security Agreement dated June 29, 1993 by and between Medar, Inc. and NBD Bank,
N.A. (filed as Exhibit 4.5 to the registrant's Form 10-K for the year ended December 31, 1993, SEC File 0-12728,
and incorporated herein by reference).
10.16 Revolving Credit and Loan Agreement dated August 10, 1995 by and between Medar, Inc., Automatic Inspection Devices,
Inc. and Integral Vision, Ltd. and NBD Bank (filed as Exhibit 10.1 to the registrant's Form 10-Q for the quarter
ended June 30, 1995, SEC File 0-12728, and incorporated herein by reference).
10.17 Amendment No. 2 to Loan and Credit Agreement and Term Note dated August 10, 1995 by and between Medar, Inc.,
Automatic Inspection Devices, Inc. and NBD Bank (filed as Exhibit 10.2 to the registrant's Form 10-Q for the
quarter ended June 30, 1995, SEC File 0-12728, and incorporated herein by reference).
10.18 First Amendment to Revolving Credit and Loan Agreement dated October 12, 1995, by and between Medar, Inc.,
Automatic Inspection Devices, Inc. and Integral Vision, Ltd. and NBD Bank (filed as Exhibit 10.18 to the
registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by
reference).
10.19 Second Amendment to Revolving Credit and Loan Agreement dated October 31, 1995, by and between Medar, Inc.,
Automatic Inspection Devices, Inc. and Integral Vision, Ltd. and NBD Bank (filed as Exhibit 10.20 to the
registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by
reference).
10.20 Mortgage dated October 31, 1995 by and between Medar, Inc. and NBD Bank (filed as Exhibit 10.21 to the registrant's
Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by reference).
10.21 Installment Business Loan Note dated October 31, 1995, by and between Medar, Inc. and NBD Bank (filed as Exhibit
10.22 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated
herein by reference).
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10.22 Guarantee and Postponement of Claim dated August 10, 1995 between Medar Canada, Ltd. and NBD Bank (filed as
Exhibit 10.23 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and
incorporated herein by reference).
10.23* Patent License Agreement dated October 4, 1995 by and between Medar, Inc. and Square D Company (filed as Exhibit
10.24 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated
herein by reference).
10.24 Third Amendment to Revolving Credit and Loan Agreement dated March 29, 1996 by and between Medar, Inc., Integral
Vision-AID, Inc., Integral Vision Ltd. and NBD Bank.
10.25 Third Amended and Restated Revolving Note dated March 29, 1996 by and between Medar, Inc., Integral Vision-AID,
Inc., Integral Vision Ltd. and NBD Bank.
10.26 General Security Agreement dated March 29, 1996 by and between Medar, Inc. and NBD Bank.
10.27 General Security Agreement dated March 29, 1996 by and between Integral Vision-AID, Inc. and NBD Bank.
11 Calculation of Earnings per Share.
(b) There were no reports on Form 8-K filed in the quarter ended March 31, 1996.
* The Company has been granted confidential treatment with respect to certain portions of this exhibit pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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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.
//CHARLES J. DRAKE// 5/10/96
- -----------------------------------
Charles J. Drake
President & Chairman of the Board
Medar, Inc.
(Principal Executive Officer)
//RICHARD R. CURRENT// 5/10/96
- -----------------------------------
Richard R. Current
Executive Vice President, Finance & Operations
Medar, Inc.
(Principal Financial & Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.24 Third Amendment to Revolving Credit and Loan Agreement
dated March 29, 1996 by and between Medar, Inc., Integral
Vision-AID, Inc., Integral Vision Ltd. and NBD Bank.
10.25 Third Amended and Restated Revolving Note dated March 29,
1996 by and between Medar, Inc., Integral Vision-AID, Inc.,
Integral Vision Ltd. and NBD Bank.
10.26 General Security Agreement dated March 29, 1996 by and
between Medar, Inc. and NBD Bank.
10.27 General Security Agreement dated March 29, 1996 by and
between Integral Vision-AID, Inc. and NBD Bank.
11 Calculation of Earnings per Share.
27 Financial Data Schedule