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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT FILED PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file number
March 31, 2000 1-12337
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QC OPTICS, INC.
- --------------------------------------------------------------------------------
(Name of Small Business
Issuer As Specified In Its Charter)
Delaware 04-2916548
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
46 Jonspin Road, Wilmington, Massachusetts 01887
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(Address of Principal Executive Offices, Zip Code)
(978) 657-7007
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(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 Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), (2) and
has been subject to such filing requirements for the past 90 days.
Yes X No
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As of April 30, 2000, the Company had outstanding 2,994,888 shares of
Common Stock, $.01 par value per share.
Transitional Small Business Disclosure Format: Yes No X
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<PAGE>
QC OPTICS, INC.
INDEX
PART 1 - FINANCIAL INFORMATION PAGE NUMBER
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Item 1. Financial Statements
Balance Sheets at March 31, 2000 (unaudited) and
December 31, 1999 1
Statements of Operations for the three months ended
March 31, 2000 and 1999 (unaudited) 2
Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 (unaudited) 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Default Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
<PAGE>
PART 1 - Financial Information
Item 1 - Financial Statements
QC OPTICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
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ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $3,777,602 $3,844,168
Accounts receivable, less allowance of $50,000 319,834 1,125,994
Inventory (Note 3) 2,677,807 2,861,571
Refundable income taxes 201,494 201,494
Prepaid expenses 38,155 58,056
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Total current assets 7,014,892 8,091,283
PROPERTY AND EQUIPMENT, NET 114,363 125,314
OTHER ASSETS 3,992 4,591
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Total assets $7,133,247 $8,221,188
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $127,178 $102,710
Accrued payroll and related expenses 239,276 252,289
Accrued commissions 2,150 21,539
Accrued expenses 478,388 478,153
Customer deposits 74,796 89,146
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Total current liabilities 921,788 943,837
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
Authorized -- 1,000,000 shares
Issued and outstanding -- no shares - -
Common stock, $.01 par value -
Authorized -- 10,000,000 shares
Issued -- 3,308,312 shares at March 31, 2000 and
3,242,500 shares at December 31, 1999 33,083 32,425
Additional paid-in capital 10,095,671 9,902,886
Accumulated deficit (3,667,295) (2,657,960)
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6,461,459 7,277,351
Less cost of Common Stock held in treasury (314,754
shares at March 31, 2000) (250,000) -
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Total stockholders' equity 6,211,459 7,277,351
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Total liabilities and stockholders' equity $7,133,247 $8,221,188
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
QC OPTICS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
2000 1999
---------------------------
<S> <C> <C>
NET SALES $465,444 $291,138
COST OF SALES 634,161 491,849
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Gross profit (loss) (168,717) (200,711)
OPERATING EXPENSES:
Selling, general and administrative expenses 652,104 792,845
Engineering expenses 242,749 272,104
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Total operating expenses 894,853 1,064,949
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Operating income (loss) (1,063,570) (1,265,660)
INTEREST INCOME (NET) 54,235 39,332
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Income (loss) before benefit (provision) for income taxes (1,009,335) (1,226,328)
BENEFIT (PROVISION) FOR INCOME TAXES - 429,200
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Net Income (Loss) ($1,009,335) ($797,128)
============ ==========
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ($0.32) ($0.25)
======= =======
DILUTED WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 3,164,985 3,242,500
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
QC OPTICS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
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March 31, March 31,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($1,009,335) ($797,128)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities -
Depreciation and amortization 10,951 22,470
Changes in operating assets and liabilities -
Accounts receivable 806,160 1,668,322
Inventory 183,764 19,547
Refundable income taxes 0 (443,195)
Prepaid expenses and other assets 20,500 49,470
Accounts payable 24,468 112,204
Accrued expenses (32,167) 13,247
Customer deposits (14,350) 895,970
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Total adjustments 999,326 2,338,035
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Net cash provided (used) by operating activities (10,009) 1,540,907
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - -
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Net cash used in investing activities - -
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock 193,443 -
Purchase of treasury stock (250,000) -
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Net cash provided (used) by financing activities (56,557) -
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (66,566) 1,540,907
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,844,168 3,313,889
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CASH AND CASH EQUIVALENTS, END OF PERIOD $3,777,602 $4,854,796
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for -
Interest $2,896 $1,875
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Income taxes - $5,000
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</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
QC Optics, Inc.
Notes to Financial Statements
1. BASIS OF PRESENTATION
The financial statements of QC Optics, Inc. (the "Company") included
herein have been prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly reports on Form 10-QSB and do not include all of the
information and footnote disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1999 included in
the Company's Form 10-KSB filed with the Securities and Exchange Commission.
The financial statements and notes herein are unaudited, except for
the balance sheet as of December 31, 1999, but in the opinion of management,
include all the adjustments (consisting only of normal, recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows of the Company.
The results of operations for the reported 2000 period are not
necessarily indicative of the results to be achieved for any future period or
for the entire year ended December 31, 2000.
The Securities and Exchange Commission released Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), in
December 1999. This SAB provides additional guidance on the accounting for
revenue recognition including both broad conceptual discussion as well as
certain industry-specific guidance. We are in the process of accumulating the
information necessary to quantify the potential impact of this new guidance (if
any) and, accordingly, have made no revenue recognition accounting change.
2. NET INCOME (LOSS) PER COMMON SHARE
Basic earnings per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding for
the period. Diluted earnings per common share is calculated the same as basic
except, if not antidilutive, stock options are included using the treasury stock
method to the extent that the average share trading price exceeds the exercise
price. Basic and diluted earnings per common share for the periods ended March
31, 1999 and 2000 were equal; therefore, no reconciliation between basic and
diluted earnings per common share is required.
4
<PAGE>
3. INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or
market and consists of the following:
March 31, December 31,
2000 1999
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Raw materials and finished parts $ 996,774 $1,270,450
Work-in-process 1,268,613 1,002,563
Finished goods 412,420 588,558
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$ 2,677,807 $2,861,571
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5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
QC Optics, Inc. designs, manufactures and markets laser-based defect
detection systems primarily for the computer hard disk and semiconductor
markets. We use our patented and other proprietary technology in lasers and
optical systems that scan a computer hard disk or photomask for defects or
contamination. Our systems combine automatic handling, clean room capability and
computer control with reliable laser-based technology.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
Net sales increased to $465,444 for the three months ended March 31,
2000 ("Interim 2000") from $291,138 for the three months ended March 31, 1999
("Interim 1999"). Historically, we have experienced significant quarterly
fluctuations in operating results due to the relatively small number of high
dollar volume system sales in any quarter. We expect these fluctuations to
continue. As a result of the steep declines in capital expenditures in the
computer hard disk industry, we expect that we will not achieve break-even
results for the second quarter of 2000.
The Securities and Exchange Commission released Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), in
December 1999. This SAB provides additional guidance on the accounting for
revenue recognition including both broad conceptual discussion as well as
certain industry-specific guidance. We are in the process of accumulating the
information necessary to quantify the potential impact of this new guidance (if
any) and, accordingly, have made no revenue recognition accounting change.
We have focused our attention on rigorous cost controls during recent
quarters as evidenced by the $31,994 decrease in the gross loss on sales in
Interim 2000 as compared to Interim 1999 and as evidenced by the $202,090
decrease in operating losses from Interim 1999 to Interim 2000.
Selling, general and administrative expenses decreased to $652,104 for
Interim 2000 from $792,845 for Interim 1999. The decrease of $140,741 (17.8%)
was due primarily to a managed decrease in staffing costs.
Engineering expenses for Interim 2000 of $242,749 decreased from
$272,104 for Interim 1999. The decrease of $29,355 (10.8%) was due primarily to
a decrease in engineering materials costs.
Interest income (net) was $54,235 for Interim 2000 compared to $39,332
for Interim 1999. The increase was due to the increase in average investable
funds during Interim 2000 as compared to Interim 1999.
6
<PAGE>
In Interim 1999, the benefit for income taxes amounted to $429,200, an
effective tax rate of approximately 35%. In Interim 2000, no benefit for income
taxes was made because we may not be able to utilize our net operating losses in
the future.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, we had cash and cash equivalents of $3,777,602, a
decrease of $66,566 from $3,844,168 at December 31, 1999. Working capital was
$6,093,104 at March 31, 2000 as compared to $7,147,446 at December 31, 1999, a
decrease of $1,054,342. Cash used by operating activities was $10,009 in the
first quarter of 2000 compared to cash provided by operating activities of
$1,540,907 for the same period in 1999.
We have a revolving line with Citizens Bank. At March 31, 2000, we had
no borrowing outstanding under the revolving credit agreement and availability
of approximately $208,000. The revolving line of credit agreement was amended on
June 29, 1998 and allows for maximum borrowings of $2,000,000 and requires
monthly payment of interest on the outstanding balance to maturity on June 30,
2000. Borrowings under the revolving line of credit agreement are limited to 80%
of qualifying accounts receivable. Borrowings under the agreement bear interest
at the bank's prime rate (8.75% at March 31, 2000). The terms of the loan
agreement provide for the maintenance of certain specified financial ratios
including the quick ratio and debt to equity, minimum earnings tests and other
negative and affirmative covenants and restricts certain transactions without
the bank's prior written consent.
Based on our current cash balances, current bank facilities and
anticipated results of operations, we believe that we have sufficient funds to
meet our working capital requirements for the next twelve months. Thereafter, we
anticipate that we could need additional financing to meet our current plans for
expansion and working capital needs. No assurance can be given of our ability to
obtain financing on favorable terms, if at all. If we are unable to obtain
additional financing, our ability to meet our current plan for expansion and
working capitol needs could be materially adversely affected.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements regarding
anticipated results of operations, the cyclical nature of the semiconductor and
computer hard disk industries, liquidity and other matters. These statements, in
addition to statements made in conjunction with the words "anticipate,"
"expect," "believe," "intend," "seek," "estimate" and similar expressions, are
forward-looking statements that are based on management's current expectations
and are subject to a number of factors and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements. Such risks and uncertainties include, but are not limited to the
following: business conditions and growth in certain market segments and the
general economy; fluctuating operating results; new product development; the
cyclical nature of the semiconductor and computer hard disk industries; an
increase of competition; increased or continued market acceptance of our
products and proposed products; availability of raw materials; the loss of the
services of one or more of our key employees, dependence on few customers; the
availability of additional capital to fund expansion on acceptable terms, if at
7
<PAGE>
all; and other risks and uncertainties indicated from time to time in the
Company's filings with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In February 2000, we settled the previously reported litigation with K.
Andrew Bernal. Mr. Bernal's suit against us has been dismissed with prejudice,
and the 314,754 shares of Common Stock beneficially owned by Mr. Bernal were
repurchased by us and are now classified as treasury shares. The settlement did
not have a material adverse effect on our financial condition or results of
operations.
ITEM 2. CHANGES IN SECURITIES. Not applicable
ITEM 3. DEFAULT UPON SENIOR SECURITIES. None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
ITEM 5. OTHER INFORMATION. None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibit is filed herewith:
Exhibit
No. Title
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were
filed during the quarter for which this report is
filed.
8
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
QC OPTICS, INC.
Date: May 11, 2000 By:/s/ Eric T. Chase
--------------------
Eric T. Chase
Chief Executive Officer and President
Date: May 11, 2000 By:/s/ Richard C. Allard
------------------------
Richard C. Allard
Vice President of Finance
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
Financial Data Schedule
This schedule contains summary financial information extracted from the
financial statements of the issuer as of and for the three month period ended
March 31, 2000 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<CASH> 3,777,602
<SECURITIES> 0
<RECEIVABLES> 369,834
<ALLOWANCES> 50,000
<INVENTORY> 2,677,807
<CURRENT-ASSETS> 7,014,892
<PP&E> 456,916
<DEPRECIATION> 342,553
<TOTAL-ASSETS> 7,133,247
<CURRENT-LIABILITIES> 921,788
<BONDS> 0
0
0
<COMMON> 33,083
<OTHER-SE> 6,178,376
<TOTAL-LIABILITY-AND-EQUITY> 7,133,247
<SALES> 465,444
<TOTAL-REVENUES> 465,444
<CGS> 634,161
<TOTAL-COSTS> 634,161
<OTHER-EXPENSES> 894,853
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (54,235)
<INCOME-PRETAX> (1,009,335)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,009,335)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,009,335)
<EPS-BASIC> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
