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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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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 0-11704
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COMPUTER IDENTICS CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2443539
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Shawmut Road, Canton, Massachusetts 0202l
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(Address of principal executive offices)
(Zip Code)
(617) 821-0830
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(Registrant's telephone number, including area code)
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 1996
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Common Stock, $.l0 par value 10,872,293
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COMPUTER IDENTICS CORPORATION
TABLE OF CONTENTS
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Page
PART 1. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS.................................... 1
Condensed Consolidated Balance Sheets --
June 30, 1996, and December 31, 1995.................... 1
Condensed Consolidated Statements of Operations --
Three and Six Months ended June 30, 1996, and
June 30, 1995........................................... 2
Condensed Consolidated Statements of Cash Flows --
Six Months ended June 30, 1996, and
June 30, 1995........................................... 3
Notes to Condensed Consolidated Financial Statements ... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......... 5
PART II. OTHER INFORMATION
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..... 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................ 9
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COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
JUNE 30, December 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1996 1995
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ASSETS
Current Assets:
Cash and cash equivalents $ 1,668 $ 1,752
Accounts receivable (less allowance for doubtful accounts of
$270 in 1996 and $225 in 1995) 5,730 6,062
Inventory 4,001 3,625
Other 476 380
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Total current assets 11,875 11,819
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Property and equipment:
Equipment 3,518 3,674
Furniture and fixtures 318 324
Leasehold improvements 46 64
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Total property and equipment 3,882 4,062
Less accumulated depreciation and amortization (2,726) (3,133)
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Net property and equipment 1,156 929
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Total assets $13,031 $12,748
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank 813 1,002
Obligation under capital lease 17 15
Accounts payable 2,775 2,402
Accrued compensation and related benefits 972 1,063
Accrued income taxes 16 29
Other current liabilities 562 684
Deferred revenue 627 289
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Total current liabilities 5,782 5,484
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Long-term capital lease obligation 49 57
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Stockholders' equity :
Common stock, $.10 par value - authorized 25,000,000 shares at
June 30, 1996 and 14,000,000 shares at December 31, 1995,
issued and outstanding 10,872,293 shares at June 30,1996 and
10,856,793 shares at December 31,1995 1,087 1,086
Additional paid-in capital 24,017 24,005
Deferred compensation (47) (60)
Accumulated deficit (17,882) (17,889)
Cumulative translation adjustments 25 65
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Total stockholders' equity 7,200 7,207
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Total liabilities and stockholders' equity $13,031 $12,748
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See notes to consolidated financial statements.
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COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
(IN THOUSANDS. EXCEPT PER SHARE AMOUNTS) JUNE 30, JUNE 30,
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1996 1995 1996 1995
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Revenues:
Net product sales $5,400 $5,945 $11,536 $11,914
Customer support services 1,084 815 2,214 1,626
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Total revenues 6,484 6,760 13,750 13,540
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Cost and expenses:
Cost of products sold 2,948 2,788 6,441 5,789
Cost of customer support services 418 351 867 660
Selling, general and administrative 2,684 2,681 5,262 5,154
Research and development 524 673 1,153 1,388
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Total costs and expenses 6,574 6,493 13,723 12,991
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Income (loss) from operations (90) 267 27 549
Interest income 18 6 34 14
Interest expense 17 6 39 9
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Income (loss) before provision for income taxes (89) 267 22 554
Provision for income taxes 8 23 14 53
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Net income (loss) $ (97) $ 244 $ 8 $ 501
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Net income (loss) per share $(0.01) $ 0.02 $ 0.00 $ 0.05
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Weighted average number of common and
common equivalent shares outstanding 10,870 10,983 10,971 10,845
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COMPUTER IDENTICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
SIX MONTHS ENDED
(IN THOUSANDS) JUNE 30,
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1996 1995
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OPERATING ACTIVITIES:
Net income $ 8 $ 501
Adjustments to reconcile net income
to net cash provided by (used for) operating activities:
Depreciation and amortization 270 205
Non-cash compensation 13 37
Increase (decrease) in cash from:
Accounts receivable 301 658
Inventory (448) (846)
Other current assets (103) (71)
Accounts payable 401 243
Accrued compensation and related benefits (66) (170)
Accrued income taxes (13) 67
Other current liabilities (74) (384)
Deferred revenue 337 134
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Total adjustments 618 (127)
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Cash provided by operating activities 626 374
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INVESTING ACTIVITIES:
Acquisition of property and equipment (503) (361)
Decrease in other assets - 3
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Net cash used for investing activities (503) (358)
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FINANCING ACTIVITIES
Notes payable to bank (134) -
Principal payments under capital lease obligations (7) (23)
Proceeds from exercise of stock options 13 226
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Net cash provided by financing activities (128) 203
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Effect of exchange rate changes on cash and cash equivalents (79) 35
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Net increase in cash and cash equivalents (84) 254
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Cash and cash equivalents, beginning of year 1,752 755
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Cash and cash equivalents, end of period $1,668 $1,009
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SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 39 $ 9
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Cash paid for income taxes $ 27 $ 6
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See notes to consolidated financial statements.
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COMPUTER IDENTICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Notes to the Condensed Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995,
contain information pertinent to the accompanying financial statements. There
has been no material change in the information contained in such notes except as
set forth below. The Balance Sheet at June 30, 1996, the Statements of
Operations for the three and six months ended June 30, 1996 and 1995 and the
Statements of Cash Flows for the six months ended June 30, 1996 and 1995, are
unaudited. However, in the opinion of management, all adjustments (consisting
only of normal recurring accrual entries) necessary for a fair presentation of
such financial results have been included.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Computer
Identics Corporation (the Company) and its wholly-owned subsidiaries,
Computer Identics N.V./S.A. (CINV), Computer Identics Ltd., Computer
Identics GmbH, Computer Identics S.A., and Computer Identics, Inc.
2. RECLASSIFICATION
Certain amounts in the prior year have been reclassified to conform to the
1996 presentation.
3. NET INCOME (LOSS) PER SHARE
Net income (loss) per common share is computed based on the weighted
average number of common and the dilutive effect of common equivalent
shares outstanding for the period.
4. INVENTORY
Inventory is recorded at the lower of cost (first in, first out method) or
market.
At June 30, 1996 and December 31, 1995, inventory consisted of the
following:
(In thousands) June 30, 1996 December 31, 1995
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Raw Materials $2,034 $1,821
Work-In-Process 271 336
Finished Goods 1,696 1,468
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Total $4,001 $3,625
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5. INCOME TAXES
The provisions for income taxes for the second quarter were $8 in 1996 versus a
provision of $23 in 1995. The provisions for income taxes for the six months
ended June 30 were $14 in 1996 versus a provision of $53 in 1995. Due to the
Company's ability to use its U.S. net operating loss carryforwards, the
provision for income taxes is comprised primarily of state and foreign income
taxes for which net operating loss carryforwards are not available.
6. SUBSEQUENT EVENTS
RVSI (Robotic Vision Systems, Inc.) and Computer Identics Corporation
jointly announced on July 24, 1996 that they have signed a definitive
merger agreement whereby RVSI would acquire all of Computer Identics'
outstanding stock. The transaction is intended to be completed as a tax
free reorganization and to be accounted for as a pooling of interests. To
effect the merger transaction RVSI would issue 0.1778052 shares of its
common stock for each Computer Identics share or approximately 1,927,000
shares of RVSI common stock in exchange for all Computer Identics'
outstanding shares. In addition, Computer Identics' outstanding stock
options and warrants would be exchanged for options on RVSI's common stock
in the same 0.1778052 to one ratio. The exchange ratio is subject to
limited adjustment based upon certain changes in the market price of RVSI
common stock. Consummation of the merger transaction is subject to
conditions customary for transactions of this nature, including approval
by stockholders of Computer Identics.
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations For the Three Months Ended June 30, 1996 and 1995.
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Revenue for the second quarter of 1996 was 4% below the comparable 1995
period. The 1996 revenue decline was reflected in two geographic areas of the
Company, North America and Europe. North America and Europe declined by 13% and
9%, respectively for the second quarter 1996 compared to the same period in
1995. Sales in these two geographic areas reflected sales results that did not
meet the Company's expectations. Rest of World more than doubled for the same
comparable periods. Product sales for the second quarter 1996 compared to the
comparable period in 1995 declined by 9% while service revenue for the same
period increased by 33%. Product sales declined due to lower sales in North
America and Europe previously noted. The increase in service revenue reflects a
stronger emphasis on the Company's service business, increased pricing and
revenue from service contracts for newer products which are coming off their
warranty period. Second quarter bookings decreased 9% for 1996 compared to the
same quarter in the prior year. Backlog decreased from $3.5 million at December
31, 1995, to $3.0 million at June 30, 1996. The $3.0 million in backlog is lower
than the comparable second quarter 1995 total of $3.7 million.
Sales by the Company's four European subsidiaries and exports to Rest of
World were 60% of total revenue for the second quarter of 1996 compared to 56%
for 1995. Since over half the Company's revenue was derived from foreign
sources, its operating results can be sensitive to foreign currency
fluctuations. In the second quarter of 1996, these foreign currency fluctuations
had no impact while in the comparable 1995 period the foreign currency
fluctuations worked in the Company's favor. The Company does have available a
program
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to hedge its foreign denominated accounts receivable in an effort to minimize
foreign currency exposure. At June 30, 1996, the Company did not have any
hedging contracts outstanding. The Company may utilize limited hedging in the
future should the Company foresee the need.
Gross Margin from product and services was 48% compared to 54% for the
second quarters of 1996 and 1995, respectively. Product gross margin decreased
from 53% in 1995 to 45% in 1996 primarily reflecting higher manufacturing costs
from the implementation of a new cell manufacturing strategy and a new MIS/MRP
system, a higher percentage of lower margin sales from ROW, a change in
distribution strategy in North America from direct to lower margin indirect
channels, and the lack of a favorable foreign currency impact due to a stronger
dollar. This product gross margin percent will not improve unless the Company
can achieve material and labor cost reductions in manufacturing which more than
offset the effect of the larger mix of international revenues and the change in
distribution strategy in North America, both of which have lower margins.
Service gross margin increased in 1996 to 61% from 57% in 1995, reflecting two
factors: elimination from our service base of those older products we have
removed from our current product offerings, coupled with continued cost
reductions. Selling, General and Administrative expenses as a percentage of
revenue were 41% in the second quarter of 1996 versus 40% in the comparable 1995
period, reflecting a continued emphasis on controlling gross spending.
Research and Development expenses were 8% and 10% of revenues in the second
quarter of 1996 and 1995, respectively as the Company continued its planned
program to invest in its future by improving performance of existing products,
expanding its overall product line, and exploring new technology.
As a result of the foregoing, net income (loss) for the second quarter of
1996 and 1995 was ($97,000) and $244,000, respectively.
For the Six Months Ended June 30, 1996 and 1995
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Revenue for the first six months of 1996 was 2% above the comparable 1995
period for the reasons noted above. Revenue for North America and Europe
declined by 3% while Rest of World increased by over 50% for the first six
months of 1996 compared to the same period in 1995. Product sales for the first
six months of 1996 compared to the same period in 1995 declined by 3% while
service revenue for the same period increased by 36% for the reasons noted
above. First half bookings decreased 6% for 1996 compared to the prior year.
Sales by the Company's four European subsidiaries and exports to Rest of
World were 62% and 60% of the total revenue for the first six months of 1996 and
1995, respectively. Since over half the Company's revenue was derived from
foreign sources, its operating results can be sensitive to foreign currency
fluctuations. In the first half of 1996, these foreign currency fluctuations did
not work in the Company's favor, while the comparable period of 1995 reflected
favorable currency fluctuations.
Gross Margin from product and services was 47% compared to 52% for the
first six months of 1996 and 1995, respectively. Product gross margin decreased
to 44% in 1996 from 51% in 1995, primarily reflecting higher manufacturing costs
from the implementation of a new cell manufacturing strategy and a new MIS/MRP
system, a change in distribution strategy in North America from direct to lower
margin indirect channels, and the lack of a favorable foreign currency impact
due to a stronger dollar. Service gross margin increased in 1996 to 61% from 53%
in 1995 for the reasons noted above. Selling, General and Administrative
expenses as a percent of revenue were 38% in the first half of 1996 and 1995.
Overall, the Company has, through it ongoing cost containment program, minimized
increases in Selling, General and Administrative spending.
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Research and Development expenses were 8% and 10% of revenues in the first
half of 1996 and 1995, respectively as the Company continued its planned program
to invest in its future by improving performance of existing products, expanding
its overall product line, and exploring new technology.
For the first half of 1996, the Company reported net income of $8,000 as
compared with a 1995 six month income of $501,000. This decline is directly
related to a reduction in gross margin as a percent of revenue.
Liquidity and Capital Resources
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Management believes that cash generated from operations and the current
level of working capital are sufficient to finance its needs through 1997. From
a capital expenditures viewpoint, in the first half of 1996 the Company
completed the acquisition of a new management information system which cost
approximately $200,000.
June 30, December 31,
1996 1995
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Working Capital $6,093,000 $6,335,000
Current Ratio 2.1 to 1 2.2 to 1
Total Liability to Net Worth Ratio .8 to 1 .8 to 1
Each of the liquidity factors listed have remained relatively stable over
the two periods listed. Working capital has decreased by $242,000 during the
first six months of 1996 compared to December 31, 1995, primarily resulting from
increases in inventory of $376,000, accounts payable of $373,000, and a decrease
in accounts receivable of $332,000.
The Company currently has two bank lines of credit available. A small line
of credit is held with a Belgium bank for 5 million Belgium Francs
(approximately $170,000). The principal line of credit of $2 million is held
with a commercial bank. Computer Identics GmbH, a wholly owned German
subsidiary, has $800,000 in DM of this line of credit outstanding. Therefore the
Company still has available $1.2 million of this credit line.
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PART II
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OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders
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The Annual Meeting of Stockholders was held on May 14, 1996. The following
are the results of the voting conducted at that meeting. As of the record date
for the Annual Meeting, 10,866,793 shares were outstanding and eligible to vote.
The following table details the results of the shareholder voting:
PROPOSAL # 1 - ELECTION OF DIRECTORS
All six directors were re-elected, namely, Richard Close, John Hill, Tomas
Kohn, Jan Smolders, Edward J. Stewart, III, and Richard Wilcox.
NOMINEE FOR AGAINST
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1. Close, Richard 9,125,461 551,500
2. Hill, John 9,125,561 551,400
3. Kohn, Tomas 9,125,561 551,400
4. Smolders, Jan 9,648,986 27,975
5. Stewart, Edward J, III 9,648,986 27,975
6. Wilcox, Richard 9,648,786 28,175
PROPOSAL # 2 - APPROVAL OF COMPUTER IDENTICS CORPORATION RESTATED ARTICLES OF
ORGANIZATION, AS AMENDED, TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF VOTING
COMMON STOCK FROM 14,000,000 TO 25,000,000
At the Annual Meeting of Stockholders, Proposal No. 2, to amend the
Company's Restated Articles of Organization, as amended, (the "Articles of
Organization") to increase the number of authorized shares of Voting Common
Stock, $.10 par value (the "Common Stock") from 14,000,000 to 25,000,000 was
approved by stockholders as follows:
SHARES
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FOR 8,791,770
AGAINST 693,200
ABSTAIN 10,491
BROKER NON-VOTE 181,500
PROPOSAL # 3 - APPROVAL OF 1996 STOCK INCENTIVE PLAN:
At the Annual Meeting of Stockholders, Proposal No. 3 to approve the
Company's 1996 Stock Incentive Plan was approved by stockholders as follows:
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SHARES
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FOR 9,239,692
AGAINST 240,669
ABSTAIN 13,600
BROKER NON-VOTE 183,000
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
3.1 Restated Articles of Organization effective December 21, 1984, and
Amendment thereto effective June 1, 1987, as further amended by Amendment
thereto effective June 12, 1996.
3.2 By-laws of the Company (filed as Exhibit 3.4 to Registration
Statement No. 2-85807, and incorporated herein by reference).
4.1 Copy of Common Stock Certificate (filed a Exhibit 4.1 to
Registration Statement No. 2-85807, and incorporated herein by reference).
11. Statement regarding computation of per share earnings. (See footnote
3 to Notes to Consolidated Financial Statements).
27. Financial Data Schedule.
(b) Reports on Form 8-K
None
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SIGNATURES
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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.
COMPUTER IDENTICS CORPORATION
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Registrant
DATE: August 14, 1996
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/s/ Jeffrey A. Weber
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Jeffrey A. Weber
Duly Authorized Officer and Chief Financial Officer
(Senior Vice President, Operations and Finance and
Chief Financial Officer)
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