-----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, Fldn4BmzMrJFD694DBcxWOf/vuxoHnHuh2k4uaPHc9wg9BYmSfCp5JAtnodbEuLD gJSUNGauakSPqrOnvDG0+w== 0000912057-99-004361.txt : 19991111 0000912057-99-004361.hdr.sgml : 19991111 ACCESSION NUMBER: 0000912057-99-004361 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991110 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: 99745276 BUSINESS ADDRESS: STREET 1: 22 EAST BROADWAY CITY: GARDNER STATE: MA ZIP: 01440-3338 BUSINESS PHONE: 9786301800 FORMER COMPANY: FORMER CONFORMED NAME: PRECISION OPTICS CORP INC DATE OF NAME CHANGE: 19600201 10QSB 1 10QSB 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, 1999 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) (978) 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, 1999 was 7,687,595 shares. Transitional Small Business Disclosure Format (check one): Yes ( ) No (X) PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES INDEX
PAGE ---- PART I. FINANCIAL INFORMATION: ITEM 1 Consolidated Financial Statements Consolidated Balance Sheets - 1 September 30, 1999 and June 30, 1999 (unaudited) Consolidated Statements of Operations - 2 Three Months Ended September 30, 1999 and September 30, 1998 (unaudited) Consolidated Statements of Cash Flows - 3 Three Months Ended September 30, 1999 and September 30, 1998 (unaudited) Notes to Consolidated Financial Statements 4 ITEM 2 Management's Discussion and Analysis of 5-9 Financial Condition and Results of Operations PART II. OTHER INFORMATION 10 ITEM 1 Not Applicable ITEM 2 Changes in Securities and Use of Proceeds. ITEMS 3-5 Not Applicable ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibits - Exhibit 27 (b) Reports on Form 8-K
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
September 30, 1999 June 30, 1999 ------------------ ------------- CURRENT ASSETS Cash and Cash Equivalents $ 962,855 $ 480,732 Accounts Receivable, Net 366,690 210,079 Inventories 942,478 979,284 Prepaid Expenses 87,287 47,996 ----------- ----------- Total Current Assets 2,359,310 1,718,091 ----------- ----------- PROPERTY AND EQUIPMENT 3,926,476 3,750,473 Less: Accumulated Depreciation (2,588,903) (2,496,949) ----------- ----------- Net Property and Equipment 1,337,573 1,253,524 ----------- ----------- OTHER ASSETS 278,245 282,880 ----------- ----------- TOTAL ASSETS $ 3,975,128 $ 3,254,495 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 245,717 $ 194,619 Accrued Payroll 126,373 75,644 Accrued Professional Services 81,874 50,283 Accrued Profit Sharing and Bonuses 31,250 25,000 Accrued Income Taxes -- 912 Accrued Vacation 61,034 78,056 Accrued Warranty Expense 50,000 50,000 Current Portion of Capital Lease Obligation 150,352 105,542 Other Accrued Liabilities 41,800 35,392 ----------- ----------- Total Current Liabilities 788,400 615,448 ----------- ----------- CAPITAL LEASE OBLIGATION 137,624 166,312 ----------- ----------- STOCKHOLDERS' EQUITY Common Stock, $.01 par value- Authorized -- 10,000,000 shares Issued and Outstanding - 7,687,595 and 6,687,595 shares at September 30, 1999 June 30, 1999, respectively 76,876 66,876 Additional Paid-in Capital 7,255,081 6,206,411 Accumulated Deficit (4,252,853) (3,800,552) ----------- ----------- Total Stockholders' Equity 3,049,104 2,472,735 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,975,128 $ 3,254,495 =========== ===========
Page 1 of 12 PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 (UNAUDITED)
1999 1998 ---- ---- REVENUES $ 716,885 $ 679,895 COST OF GOODS SOLD 383,686 516,129 ----------- ----------- Gross Profit 333,199 163,766 RESEARCH and DEVELOPMENT 389,419 235,612 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 396,467 364,868 ----------- ----------- Total Operating Expenses 785,886 600,480 Operating Loss (452,687) (436,714) INTEREST EXPENSE (5,824) (6,678) INTEREST INCOME 6,208 19,308 ----------- ----------- Loss Before Provision for Income Taxes (452,301) (424,084) PROVISION FOR INCOME TAXES -- -- ----------- ----------- Net Loss $ (452,301) $ (424,084) =========== =========== Basic and Diluted Loss Per Share $ (0.06) $ (0.06) =========== =========== Weighted Average Common Shares Outstanding 7,354,262 6,649,179 =========== ===========
Page 2 of 12 PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 (UNAUDITED)
1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (452,301) $ (424,084) Adjustments to Reconcile Net Loss to Net Cash (Used In) Provided by Operating Activities - Depreciation and Amortization 103,644 83,411 Changes in Assets and Liabilities- Accounts Receivable (156,611) 240,339 Inventories 36,806 (104,770) Prepaid Expenses (39,291) (50,899) Accounts Payable 51,098 42,700 Customer Advances -- (116,841) Accrued Expenses 77,044 (155,647) ----------- ----------- Net Cash Used In Operating Activities (379,611) (485,791) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Property and Equipment (133,503) (164,084) Increase in Other Assets (7,055) (4,724) ----------- ----------- Net Cash Used in Investing Activities (140,558) (168,808) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of Capital Lease Obligation (26,378) (29,164) Net Proceeds (Costs) From Private Placement of Common Stock 1,028,670 (13,483) Proceeds from Exercise of Warrants -- 76,670 ----------- ----------- Net Cash Provided By Financing Activities 1,002,292 34,023 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 482,123 (620,576) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 480,732 2,060,146 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 962,855 $ 1,439,570 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash Paid for- Interest $ 5,824 $ 6,678 =========== =========== Income Taxes $ 912 $ 842 =========== =========== SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Capital Lease Obligation $ 42,500 $ -- =========== =========== Common Stock Issued for Payment of Royalties $ -- $ 7,500 =========== ===========
Page 3 of 12 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 2000. 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, 1999 together with the auditors' report filed under cover of the Company's 1999 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, 1999 and 1998, the effect of stock options and warrants was antidilutive; therefore, they were not included in the computation of diluted (loss) earnings per share. The number of shares that were excluded from the computation as their effect would be antidilutive were 2,605,500 and 1,754,500, for the three months ended September 30, 1999 and 1998, respectively. 2. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
September 30, 1999 June 30, 1999 ------------------ ------------- Raw Materials $643,494 $589,762 Work-In-Process 174,764 248,085 Finished Goods and Components 124,220 141,437 -------- -------- Total Inventories $942,478 $979,284 ======== ========
Page 4 of 12 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. These risks and uncertainties, many of which are not within the Company's control, include, but are not limited to, the uncertainty and timing of the successful development of the Company's new products, particularly in the optical thin films area; the risks associated with reliance on a few key customers; the Company's ability to attract and retain personnel with the necessary scientific and technical skills; the timing and completion of significant orders; the timing and amount of the Company's research and development expenditures; the timing and level of market acceptance of customers' products for which the Company supplies components; the level of market acceptance of competitors' products; the ability of the Company to control costs associated with performance under fixed price contracts; and the continued availability to the Company of essential supplies, materials and services. 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, 1999, the Company's cash and cash equivalents increased by approximately $482,000 to $963,000. The increase in cash and cash equivalents was due to net proceeds received of approximately $1,028,000 for a private placement of common stock, partially offset by cash used by operating activities of approximately $380,000, capital expenditures of approximately $133,000, repayment of debt of approximately $26,000, and an increase in other assets (primarily patents) of approximately $7,000. During the three months ending September 30, 1999, the Company entered into a capital lease obligation for the acquisition of manufacturing equipment totaling approximately $42,500. Page 5 of 12 The Company's working capital was approximately $3,939,000, $2,874,000 and $1,103,000 at June 30, 1997, 1998 and 1999, respectively, and then increased to approximately $1,571,000 at September 30, 1999. This trend through June 30, 1999 is primarily the result of losses being generated beginning in fiscal 1997, due primarily to a reduction in night vision products revenues occurring over the last three years ending June 1999 and significant investments in internal research and development and capital expenditures in order to transition the Company into more profitable business areas such as medical products and optical thin films. In August 1999, the Company completed a private placement of 1,000,000 shares of common stock with gross proceeds of $1,062,500. In conjunction with this offering, the purchasers were issued warrants to acquire 1,000,000 shares of common stock at an exercise price of $1.125 per share. 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's $500,000 secured bank line of credit was terminated during October 1999. The Company has no material unused sources of liquidity other than its cash and cash equivalents and accounts receivable. 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 and undertake other cost reduction measures. Page 6 of 12 RESULTS OF OPERATIONS Total revenues for the three months ending September 30, 1999 (the first quarter of fiscal year 2000) increased by $36,990, or 5.4%, from the same period in the prior year. The increase was due primarily to higher sales of medical products (up by approximately $122,000), partially offset by lower sales of non-medical products (down by approximately $85,000). The higher sales of medical products were due to shipments of stereo endoscopes and cameras to one customer against an order of approximately $900,000 received in the fourth quarter of fiscal year 1999. Future deliveries of approximately $420,000 on this order are scheduled for the second and third quarter of fiscal year 2000. The reduction in non-medical sales was due to lower sales of night vision products due to completion last year of several government contracts. Included in total revenues are sales for customer-funded research and development projects totaling approximately $0 and $185,000 for the quarter ending September 30, 1999 and 1998, respectively. Levels of customer-funded research and development can fluctuate greatly in any given period depending upon the level of customer demand during such period. All other product sales totaled approximately $717,000 and $495,000 for the quarter ending September 30, 1999 and 1998, respectively. Revenues from the Company's largest customer were approximately 69% of total revenues for the quarter ending September 30, 1999. Revenues from the Company's three largest customers were approximately 27%, 18% and 11% of total revenues for the quarter ending September 30, 1998. No other customers accounted for more than 10% of the Company's revenues during those periods. Gross profit increased by approximately $169,000 for the quarter ending September 30, 1999 compared to the same period last year, and increased as a percentage of revenues from 24.1% in fiscal year 1999 to 46.5% in the current period. The increase in the gross profit percentage was due primarily to sales with significantly higher gross margins in the current period. Research and development expenses increased by approximately $154,000, or 65.3%, for the quarter ending September 30, 1999 compared to the same period last year. During both years, internal research and development expenses consisted primarily of development efforts related to Dense Wavelength Division Multiplexing (DWDM) filters used in telecommunications systems. The increase was due to a higher level of technical staff resources being devoted to the DWDM filter project in the current year. Selling, general and administrative expenses increased by approximately $32,000, or 8.7%, for the quarter ending September 30, 1999 compared to the same period last year. The increase was due primarily to higher professional services and sales and marketing expenses. Interest expense relates primarily to capital lease obligations. Page 7 of 12 Interest income decreased by approximately $13,000 during the quarter ending September 30, 1999 compared to last year due to the lower base of cash equivalents. No income tax provision was recorded in the first quarter of fiscal year 2000 or 1999 because of the losses generated in those periods. YEAR 2000 READINESS The Company was required to modify portions of its hardware and software so that its computer systems and other date-sensitive equipment would properly utilize data beyond December 31, 1999. The Company believes that with upgrades and replacements of existing software and hardware, the impact of Year 2000 issues has been mitigated. While the Company believes that it has taken the necessary measures to address Year 2000 issues, if such upgrades or modifications have not been properly made, they could have a material adverse impact on the Company's operations and financial condition. The Company utilized primarily external resources to test and/or replace hardware and software for Year 2000 compliance. The completion date for implementation of the hardware and software replacements necessitated by the Year 2000 project was September 30, 1999, with ongoing testing to continue through December 31, 1999. The Company believes the costs of becoming Year 2000 compliant will not exceed $40,000 (which includes approximately $26,000 for capital equipment upgrades). These costs do not include time spent by internal personnel, which is not material. As of September 30, 1999, approximately $28,000 of such costs have been incurred and recorded in the accounts. 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 or service providers. TRENDS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS The Company continues to aggressively pursue sales, marketing, and technology development efforts for optical thin films in the rapidly growing telecommunications industry. The success of these products depends upon a number of factors, including the Company's timely completion of development efforts, ability to meet a set of rigorous customer specifications, and ability to reliably manufacture such products in sufficient quantity at acceptable yields to meet anticipated demand. The Company is currently supporting product evaluation tests with several potential customers. While the Company believes that these efforts should lead to significant future thin film sales, it remains uncertain exactly when the Company's manufacturing processes for such products will satisfy all customer requirements. The emphasis of the Company's development efforts during the last several quarters has been on addressing specific product requirements for various environmental properties (such as the ability to withstand temperature and humidity changes), certain production specifics (including cutting and packaging), and the quality control procedures and measurement processes necessary to meet customer requirements in large scale production. Close customer interaction is continuing regarding all of these issues. Page 8 of 12 In March 1999, the Company announced that it had received orders totaling over $1.9 million from several customers for 100GHz and 200GHz channel separation DWDM filters used in telecommunications systems. Revenues on these contracts were approximately $300,000 for the year ending June 30, 1999. No revenues were recorded on these contracts during the quarter ending September 30, 1999 due to production and shipment delays resulting primarily from a major customer's new requirements for the Company to meet more rigorous specifications for its DWDM filters. The Company has made substantial progress in addressing these new requirements and continues working closely with this customer to resolve any remaining issues. Future deliveries on the remainder of these orders depend upon the Company satisfying all customer requirements. The Company is working closely with a number of other potential customers to evaluate continuously evolving requirements and to refine prototype filters. During fiscal year 1999, the Company commenced deliveries of stereo endoscopes and cameras to a customer who has developed a computer-enhanced surgery system. Revenues from this customer were approximately 37% of total revenues for the year ended June 30, 1999. In the fourth quarter of fiscal year 1999, the Company received a follow-on order from this customer of approximately $900,000, with deliveries beginning in July 1999. Revenues from this customer were approximately 69% of total revenues for the quarter ended September 30, 1999. In October 1999, the Company received an additional follow-on order of $184,000, with deliveries scheduled from January 2000 to December 2000. The Company anticipates additional follow-on orders from this customer, but the magnitude of such future business depends upon a number of factors, such as the customer's own success in marketing its computer-enhanced surgery system and the customer's continued acceptance of the Company's pricing, performance and product reliability. Page 9 of 12 PART II. OTHER INFORMATION ITEM 1 Not Applicable. ITEM 2 Changes in Securities and Use of Proceeds. On August 5, 1999, the Company issued pursuant to Section 4(2) of the Securities Act of 1933 an aggregate of 1,000,000 shares of its common stock and warrants exercisable for an additional aggregate of 1,000,000 shares of its common stock to Special Situations Cayman Fund, L.P., Special Situations Fund III, L.P., Special Situations Private Equity Fund, L.P. and Special Situations Technology Fund, L.P., four affiliated private investment funds based in New York City (the "Special Situations Funds") in exchange for aggregate cash consideration of $1,062,500. The terms of the warrants issued to the Special Situations Funds provide that the warrants may be exercised at any time prior to 5:00pm on August 5, 2004 at a price per share of $1.125, subject to adjustment pursuant to customary anti-dilution provisions triggered by any future issuances of the Company's common stock for a consideration per share less than the greater of the then current market price or $1.125. The warrants provide that they will terminate if not exercised within 10 days of the Special Situations Funds' receipt of a notice from the Company which may be delivered at the Company's option in the event that the last sale price of the Company's common stock on the NASDAQ SmallCap Market equals or exceeds $2.25 on each of any 20 consecutive trading days. In connection with the issuance of common stock and warrants to the Special Situations Funds, the Company has filed with the Securities and Exchange Commission a registration statement covering the resale of shares of common stock issued to, or issuable upon the exercise of warrants issued to, the Special Situations Funds. Pursuant to a Registration Rights Agreement dated August 5, 1999, the Company would be obligated to issue additional shares and additional warrants to the Special Situations Funds for no additional consideration in the event such registration statement is not declared effective on or prior to December 31, 1999. ITEMS 3-5 Not Applicable. ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibits - Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K - The Company filed a Current Report on Form 8-K on August 16, 1999 in connection with a press release announcing the private placement of shares and warrants described in Item 2 above. In accordance with 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 5, 1999 BY: /s/ Jack P. Dreimiller ----------------------------------- Jack P. Dreimiller Senior Vice President, Finance, Chief Financial Officer and Clerk Page 10 of 12 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 27 Financial Data Schedule Page 11 of 12 EX-27 2 EXHIBIT 27
5 1 3-MOS JUN-30-2000 SEP-30-1999 962,855 0 366,690 0 942,478 2,359,310 3,926,476 2,588,903 3,975,128 788,400 137,624 0 0 76,876 3,002,228 3,049,104 716,885 716,885 383,868 383,686 785,886 0 5,842 (452,301) 0 (452,301) 0 0 0 (452,301) (.06) (.06)
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