Scan-Optics Announces Second Quarter Results.

Business Editors

MANCHESTER, Conn.--(BUSINESS WIRE)--Aug. 9, 2000

Scan-Optics, Inc. (Nasdaq National Market: SOCR), a leader in high volume document processing systems and information management solutions, today announced financial results for the second quarter ended June 30, 2000.

Total revenues were $9.9 million, compared to $14.8 million in the 1999 second quarter. The Company reported a net loss for the quarter of $3.3 million, or $.46 per diluted share, compared to net income of $63,000, or $.01 per diluted share, for the same period in 1999.

In discussing the results, James C. Mavel, Chairman, Chief Executive Officer and President, commented, "As we discussed last quarter, our Company is focused on generating new sales, accounts receivable collection, as well as the professional services deliveries. This has resulted in an improved backlog of $7.6 million at the end of the second quarter, compared to $6.5 million at March 31, 2000. However, as a result of limited cash availability, we have faced manufacturing delays in the quarter which impacted equipment deliveries and revenue recognition. Our profitability has also been impacted by the higher interest rate assessed on our credit line because it is in default."

"In the first half of this year, we have made significant progress in completing projects in our professional services organization. Not only have we been able to complete the majority of our projects that remained open from 1999, but we have also been able to make significant progress in all the larger, more complex implementations. This has resulted in our ability to replace contractors with experienced full-time employees in our efforts to rebuild the professional services organization. The overall impact of this progress is a cost reduction in professional services from the $3.8 million expense level in the fourth quarter of 1999 to $2.0 million in this second quarter. Overall, our plan to reduce expenses by $5 million in 2000 is on schedule, based on the continued progress we are making in this area. The Access Services Division experienced excellent growth during the quarter, while our Contract Manufacturing Division began manufacturing a computer-controlled video pitching system for ProBatter Sports, LLC and received a new contract to manufacture Howtek, Inc.'s HiResolve 8000 drum scanner, for deliveries within this year," Mavel continued.

Mr. Mavel concluded, "With regard to our banking relationship, which has remained with Fleet Bank, we have continued to make all interest and principal payments on schedule. We are working with the Bank on financing alternatives and have recently retained Altman & Co., a management consulting firm, to assist us in this activity."

Scan-Optics, Inc., with headquarters in Manchester, Connecticut, is recognized internationally as an innovator and solution provider in the information management and imaging business. It designs, manufactures and services products and systems for character recognition, image processing and display, data capture, data entry, and multi-user business computers. Scan-Optics systems and software are marketed worldwide to commercial and government customers directly and through distributors. Through its Manufacturing Services Division, Scan-Optics also provides contract manufacturing services to customers, outsourcing the manufacturing of complex, electro-mechanical assemblies. The Company has sales and service offices located throughout the United States and abroad. Additional information is available at www.scanoptics.com.

Statements about the Company's future expectations, including future revenues and earnings, and all other statements in this press release other than historical facts are "forward-looking statements" made under safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties that could materially affect future results. Among these risk factors are changes in general economic and business conditions in the United States and foreign markets, which impact capital investments by customers, the cyclical nature of funding within federal and state government agencies, further adverse changes in the Company's banking relationship, insufficient cash resources, increased competition from similar products, the implementation of other technologies which may provide alternative solutions, ability to complete projects in a timely manner, and other risk factors and cautionary statements listed from time to time in the Company's periodic reports filed with the Securities and Exchange Commission, including but not limited to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.

SCAN-OPTICS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

                     Three Months Ended           Six Months Ended
                          June 30                      June 30
(thousands, except
share data)            2000        1999             2000        1999

Revenues
  Product sales     $  4,583     $  6,941       $   9,896    $ 13,520
  Service revenues     5,315        7,770          11,064      14,341
  Engineering revenues    26          114              66         187
  Other operating
   revenues                             4                          13
   Total revenues      9,924       14,829          21,026      28,061

Costs and Expenses
  Cost of product
   sales               3,555        4,327           7,061       8,808
  Service expenses     5,292        5,331          10,972       9,869
  Sales and marketing
   expenses            1,591        2,218           3,165       3,577
  Research and
   development
   expenses              962        1,424           2,074       2,908
  General and
   administrative
   expenses            1,113        1,198           2,255       2,279
  Interest expense       669          293           1,063         515
    Total costs and
     expenses         13,182       14,791          26,590      27,956

Operating income
 (loss)               (3,258)          38          (5,564)        105

Other income, net         20           40              64          92

Income (loss) before
 income taxes         (3,238)          78          (5,500)        197

  Income taxes            18           15              31          54

Net Income (Loss)   $ (3,256)    $     63       $  (5,531)   $    143

Basic earnings
 (loss) per share   $   (.46)    $    .01       $    (.79)   $    .02

Basic
 weighted-average
 shares            7,027,861    6,984,361       7,022,267   6,974,941

Diluted earnings
 (loss) per share   $   (.46)    $    .01       $    (.79)   $    .02

Diluted
 weighted-average
 shares            7,027,861    7,174,591       7,022,267   7,121,768