-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LSF3xsvniQaaMwh8R7HhFsHE6MFeh+Gi8lGJMXzCGxpy+oIpc8suuxaEF2AH4xQb xePxYbiyJPvE9T1V3+rakA== 0000950135-98-005838.txt : 19981113 0000950135-98-005838.hdr.sgml : 19981113 ACCESSION NUMBER: 0000950135-98-005838 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRECISION OPTICS CORPORATION INC CENTRAL INDEX KEY: 0000867840 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 042795294 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-10647 FILM NUMBER: 98745344 BUSINESS ADDRESS: STREET 1: 22 EAST BROADWAY CITY: GARDNER STATE: MA ZIP: 01440-3338 BUSINESS PHONE: 5086301800 FORMER COMPANY: FORMER CONFORMED NAME: PRECISION OPTICS CORP INC DATE OF NAME CHANGE: 19600201 10QSB 1 PRECISION OPTICS CORPORATION FORM 10-QSB 1 FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 Commission file number 001-10647 ------------- PRECISION OPTICS CORPORATION, INC. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Massachusetts 04-2795294 - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 22 East Broadway, Gardner, Massachusetts 01440-3338 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (508) 630-1800 - -------------------------------------------------------------------------------- (Issuer's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 issuer's common stock, par value $.01 per share, at September 30, 1998 was 6,677,595 shares. Transitional Small Business Disclosure Format (check one): Yes ( ) No (X) 2 PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES INDEX -----
Page ---- PART I. FINANCIAL INFORMATION: ITEM 1 Consolidated Financial Statements Consolidated Balance Sheets - 1 September 30, 1998 and June 30, 1998 (unaudited) Consolidated Statements of Operations - 2 Three Months Ended September 30, 1998 and September 30, 1997 (unaudited) Consolidated Statements of Cash Flows - 3 Three Months Ended September 30, 1998 and September 30, 1997 (unaudited) Notes to Consolidated Financial Statements 4 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 5-7 PART II. OTHER INFORMATION ITEMS 1-5 Not Applicable ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports on Form 8-K - None
3 PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
September 30, 1998 June 30, 1998 ------------------ ------------- CURRENT ASSETS Cash and Cash Equivalents $ 1,439,570 $ 2,060,146 Accounts Receivable, Net 245,731 486,070 Inventories 1,054,763 949,993 Deferred Tax Asset 145,000 145,000 Prepaid Expenses 103,269 44,870 ----------- ----------- Total Current Assets 2,988,333 3,686,079 ----------- ----------- PROPERTY AND EQUIPMENT 3,635,673 3,471,589 Less: Accumulated Depreciation 2,391,320 2,318,380 ----------- ----------- Net Property and Equipment 1,244,353 1,153,209 ----------- ----------- OTHER ASSETS 282,442 288,190 ----------- ----------- TOTAL ASSETS $ 4,515,128 $ 5,127,478 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 167,266 $ 124,566 Accrued Payroll 93,100 121,262 Accrued Professional Services 61,457 80,140 Accrued Profit Sharing and Bonuses 28,500 27,798 Accrued Income Taxes 4,082 4,924 Accrued Vacation 66,224 88,514 Accrued Warranty Expense 50,000 50,000 Customer Advances -- 116,841 Current Portion of Capital Lease Obligation 98,480 105,349 Other Accrued Liabilities 6,000 91,372 ----------- ----------- Total Current Liabilities 575,109 811,766 ----------- ----------- CAPITAL LEASE OBLIGATION 186,388 208,684 ----------- ----------- STOCKHOLDERS' EQUITY Common Stock, $.01 par value- Authorized -- 10,000,000 shares Issued and Outstanding -- 6,677,595 and 6,618,619 shares at September 30, 1998 June 30, 1998, respectively 66,776 66,186 Additional Paid-in Capital 6,242,446 6,172,349 Accumulated Deficit (2,555,591) (2,131,507) ----------- ----------- Total Stockholders' Equity 3,753,631 4,107,028 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,515,128 $ 5,127,478 =========== ===========
Page 1 of 10 4 PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (UNAUDITED)
1998 1997 ---- ---- REVENUES $ 679,895 $ 983,708 COST OF GOODS SOLD 516,129 749,816 --------- --------- Gross Profit 163,766 233,892 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 600,480 635,791 --------- --------- Operating Loss (436,714) (401,899) INTEREST EXPENSE (6,678) (5,532) INTEREST INCOME 19,308 25,191 --------- --------- Loss Before Provision for Income Taxes (424,084) (382,240) PROVISION FOR INCOME TAXES -- -- --------- --------- Net Loss $(424,084) $(382,240) ========= ========= Basic (Loss) Earnings Per Share $ (0.06) $ (0.06) ========= ========= Diluted (Loss) Earnings Per Share $ (0.06) $ (0.06) ========= ========== Common Shares Outstanding 6,649,179 6,040,252 ========= ========= Common Shares Outstanding Assuming Dilution 6,649,179 6,040,252 ========= =========
Page 2 of 10 5 PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (UNAUDITED)
1998 1997 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (424,084) $ (382,240) Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities - Depreciation and Amortization 83,411 87,956 Changes in Assets and Liabilities- Accounts Receivable 240,339 (3,772) Inventories (104,770) 74,020 Prepaid Expenses (50,899) 27,076 Refundable Income Taxes -- 52,970 Accounts Payable 42,700 (18,250) Customer Advances (116,841) -- Accrued Expenses 155,647) 139,209 ---------- ---------- Net Cash Used In Operating Activities (485,791) (301,449) ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures (164,084) (133,238) Increase in Other Assets (4,724) (27,595) ---------- ---------- Net Cash Used in Investing Activities (168,808) (160,833) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of Capital Lease Obligation (29,164) (21,719) Expenses Associated with Private Placement of Common Stock (13,483) -- Proceeds from Exercise of Warrants 76,670 34,375 Net Cash Provided By (used in) Financing Activities 34,023 12,656 ---------- ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS (620,576) (449,626) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,060,146 2,348,382 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,439,570 $1,898,756 ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid for- Interest $ 6,678 $ 5,532 ========== ========== Income Taxes $ 842 -- ========== ==========
Page 3 of 10 6 PRECISION OPTICS CORPORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements include the accounts of Precision Optics Corporation, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. These financial statements have been prepared by the Company, without audit, and reflect normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the results of the first quarter of the Company's fiscal year 1999. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with footnotes contained in the Company's financial statements for the period ended June 30, 1998 together with the auditors' report filed under cover of the Company's 1998 Annual Report on Form 10-KSB. Basic (loss) earnings per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. For the three months ended September 30, 1998 and 1997, the effect of stock options and warrants was antidilutive; therefore, they were not included in the computation of diluted (loss) earnings per share. The Company has adopted SFAS No. 128, Earnings per Share, effective December 15, 1997. As a result, the Company's reported loss per share for the three months ended September 30, 1997 was restated; however, this had no effect on previously reported loss per share data. The number of shares that were excluded from the computation as their effect would be antidilutive were 1,754,500 and 1,045,617, for the three months ended September 30, 1998 and 1997, respectively. 2. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
September 30, 1998 June 30, 1998 ------------------ ------------- Raw Materials $ 678,267 $588,727 Work-In-Process 249,739 246,264 Finished Goods and Components 346,757 118,502 ---------- -------- Total Inventories $1,054,763 $949,993 ========== ========
Page 4 of 10 7 PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS When used in this discussion, the words "believes", "anticipates", "intends to", and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. See "Important Factors Regarding Forward-Looking Statements" filed with the Company's Annual Report on Form 10-KSB for the period ending June 30, 1998 as Exhibit 99 and incorporated herein by reference. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revision to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. LIQUIDITY AND CAPITAL RESOURCES For the three months ended September 30, 1998, the Company's cash and cash equivalents decreased by approximately $620,000 to $1,440,000. The decrease in cash and cash equivalents was due to cash used by operating activities of approximately $486,000, capital expenditures of approximately $164,000, repayment of debt of approximately $29,000, expenses associated with a private placement of common stock of approximately $13,000, and an increase in other assets (primarily patents) of $5,000, partially offset by proceeds received from exercise of warrants of approximately $77,000. The Company intends to continue devoting significant resources to internally-funded research and development spending on both new products and the improvement of existing products. The Company also intends to devote resources to the marketing and product support of its medical and optical thin films product lines, and the development of new methods of distribution. These investments may temporarily result in negative cash flow, but the Company anticipates that the results of these efforts will translate into increased revenues and profits. Furthermore, depending upon the market acceptance of the Company's products, the Company believes that it may need to acquire new facilities, add additional manufacturing or research and development equipment, or acquire a business that has complementary products or manufactures or sells to the Company components, materials, supplies, or services used in the manufacture, marketing, distribution, or servicing of the Company's new products, as well as the Company's existing products. The Company continues to maintain a secured line of credit of $500,000 available with a bank at 1/4% over the prime rate. Under the terms of the line of credit, the Company is required to maintain certain ratios under specified financial covenants (Debt Page 5 of 10 8 Service Coverage, Leverage, Current Ratio), and must maintain a minimum cash liquidity of $1,000,000. The Company was in compliance with all such covenants as of June 30, 1998, except with respect to the Debt Service Coverage ratio. There can be no assurance that the Company will be able to comply with all of such terms. As of September 30, 1998, there were no borrowings outstanding under the line of credit. The Company has no material unused sources of liquidity other than its cash and cash equivalents, accounts receivable and available lines of credit. If these liquidity sources, along with revenues from operations, are not sufficient to fund operations or growth, the Company will require additional financing. The timing and amount of additional financing requirements depend on a number of factors, including the status of development and commercialization efforts, the cost of equipment and personnel to support manufacturing of new and existing products, and the amount of working capital necessary to start up and maintain operations supporting new products. The Company may seek additional funds through public or private equity or debt financing. There can be no assurance that such funds will be available on satisfactory terms, if at all. Lack of necessary funds may require the Company to delay, scale back, or eliminate some or all of its development efforts. RESULTS OF OPERATIONS Total revenues for the three months ending September 30, 1998 decreased by $303,813, or 30.9% from the same period in the prior year, due primarily to lower sales of night-vision products due to successful completion during the prior fiscal year of two government production subcontracts. Revenues from the Company's three largest customers were approximately 27%, 18% and 11% of total revenues for the quarter ended September 30, 1998, and revenues from the Company's two largest customers were approximately 25% and 13% of total revenues for the quarter ended September 30, 1997. No other customers accounted for more than 10% of the Company's revenues during those periods. For the quarter ended September 30, 1998, approximately 6% of the Company's total revenues were derived from production and development contracts and subcontracts involving the Government and its agencies compared to approximately 28% for the corresponding period of the prior year. The Company's current Government business is substantially complete, and there can be no assurance that the Government will award future contracts or subcontracts to the Company. Gross profit for the three months ending September 30, 1998 decreased from the same period in the prior year by $70,126, but increased as a percentage of revenues from 23.8% in fiscal year 1998 to 24.1% in the current period. The decrease in gross profit was due mainly to lower sales volume in the current quarter. Selling, general and administrative expenses decreased by $35,311, or 5.6% from the same period in the prior year due primarily to lower sales and marketing expenses. Interest expense relates primarily to capital lease obligations incurred in fiscal years 1994, 1996 and 1998. Page 6 of 10 9 Interest income decreased by $5,883 from the previous year due to the lower investment base of cash. No income tax provision was recorded in the first quarter of fiscal year 1998 or 1997 because of the losses. OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS The Company continues to aggressively pursue sales, marketing, and technology development efforts for new optical thin films in the rapidly growing telecommunications and semi-conductor industries. Significant progress has been achieved in the Company's development efforts for Wavelength Division Multiplexer (WDM) optical filters, which are used in telecommunication systems. These successful development efforts have resulted in prototypes of a 10-nanometer bandwidth WDM filter and several narrow (under 1-nanometer) bandwidth filters. The Company is currently supporting product evaluation tests with several potential optical thin film filter and coating customers for applications in the telecommunications and semi-conductor industries. The Company believes that these efforts should lead to significant future thin film sales. Based on a recent preliminary assessment, the Company has determined that it is required to modify portions of its hardware and software so that its computer systems and other date-sensitive equipment will properly utilize data beyond December 31, 1999. The Company believes that with upgrades or modifications to existing software and hardware, the impact of Year 2000 issues can be mitigated. However, if such upgrades or modifications are not made, or are not made in a timely manner, Year 2000 issues could have a material adverse impact on the Company's operations and financial condition. The Company will utilize primarily external resources to test and/or replace hardware and software for Year 2000 compliance. The Company plans to complete the Year 2000 project not later than December 31, 1998, and believes the costs of the project will not be material to the Company's operating results or financial condition. As the Company's ongoing assessment of its Year 2000 compliance status progresses, the Company will establish such contingency plans as it deems necessary to address any residual Year 2000 risks. The Company currently is not aware of any material risks to its business and operations presented by the Year 2000 compliance status of its customers, suppliers and service providers. Page 7 of 10 10 PART II. OTHER INFORMATION ITEMS 1-5 Not Applicable. ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibits - Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K - There were no reports on Form 8-K filed during the period covered by this report. 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. PRECISION OPTICS CORPORATION, INC. DATE: November 6, 1998 BY: /s/ Jack P. Dreimiller ------------------------------------- Jack P. Dreimiller Senior Vice President, Finance, Chief Financial Officer and Clerk Page 8 of 10 11 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 27 Financial Data Schedule Page 9 of 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 3-MOS JUN-30-1999 JUL-01-1998 SEP-30-1998 1,439,570 0 245,731 0 1,054,763 2,988,333 3,635,673 2,391,320 4,515,128 575,109 186,389 0 0 66,776 3,686,855 4,515,128 679,895 679,895 516,129 516,129 600,480 0 6,678 (424,084) 0 (424,084) 0 0 0 (424,084) (.06) (.06)
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