SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1997 Commission File No. 0-8828
Optelecom, Inc.
(Exact Name of Registrant as
Specified in its Charter)
Delaware 52-1010850
(State of Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
9300 Gaither Road Gaithersburg, MD 20877
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, (301) 840-2121
Including Area Code (Phone Number)
NONE
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Indicate by checkmark 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 twelve (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
ninety (90) days.
Yes X No
Common Stock Outstanding
as of June 30, 1997 1,220,774
<PAGE>
OPTELECOM, INC.
FORM 10-Q
CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Condensed Balance Sheets as of June 30, 1997
(Unaudited) and December 31, 1996 (Audited)
Condensed Statements of Operations for the Three
Months Ended June 30, 1997 and 1996 (Unaudited)
Condensed Statements of Operations for the Six
Months Ended June 30, 1997 and 1996 (Unaudited)
Statements of Cash Flows for the Six months
Ended June 30, 1997 and 1996 (Unaudited)
Notes to Condensed Financial Statements (Unaudited)
ITEM 2. MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
2
<PAGE>
OPTELECOM, INC.
Condensed Balance Sheets
as of June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ----------- ---------
(Unaudited) (Audited)
<S> <C>
Current Assets:
Cash and cash equivalents $ 90,760 $ 266,575
Accounts receivable 2,734,312 1,463,426
Inventory 1,735,473 1,504,968
Prepaid expenses and other assets 390,623 306,620
Deferred tax asset 66,145 66,145
---------- -----------
Total current assets 5,017,313 3,607,734
Property and Equipment, at cost less accumulated
depreciated and amortization 877,835 779,053
Deferred Tax Asset 79,676 79,676
---------- -----------
TOTAL ASSETS 5,974,824 4,466,463
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 1,256,576 591,682
Accrued payroll 144,608 127,172
Accrued annual leave 142,266 104,788
Other current liabilities 591,757 362,808
Demand note payable 100,000 ---
Current portion of notes payable --- 34,819
---------- -----------
Total current liabilities 2,235,207 1,221,269
---------- -----------
Long Term Liabilities:
Note payable --- 11,607
Deferred rent liability 184,313 191,956
---------- -----------
Total long-term liabilities 184,313 203,563
---------- -----------
TOTAL LIABILITIES 2,419,520 1,424,832
---------- -----------
Stockholders' Equity
Common Stock - par value $.03 per share,
Authorized 5,000,000 shares, issued and
outstanding 1,220,774 and 1,207,574 36,624 36,227
Discount on common stock (11,161) (11,161)
Additional paid-in capital 2,077,427 2,027,916
Retained earnings 1,452,414 988,649
---------- -----------
Total stockholders' equity 3,555,304 3,041,631
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,974,824 $4,466,463
========== ==========
</TABLE>
3
<PAGE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
OPTELECOM, INC.
Condensed Statements of Operations
for the Three Months Ended June 30, 1997 and 1996
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, 1997 June 30, 1996
-------------- -------------
Revenue $3,523,962 $2,306,225
Direct Costs, Overhead and G&A 3,063,961 1,948,657
---------- ----------
Operating Income 460,001 357,568
Other (Income) Expenses (144) 13,257
---------- ----------
Income Before Income Taxes 460,145 344,311
Provision for Income Taxes 164,239 110,000
---------- ----------
Net Income 295,906 234,311
========== =========
Net Earnings Per Share $ 0.23 $ 0.20
Weighted Average Number of Common Shares and
Common Share Equivalents Outstanding 1,291,409 1,192,828
The accompanying notes are an integral part of this statement.
5
<PAGE>
OPTELECOM, INC.
Condensed Statements of Operations
for the Six Months Ended June 30, 1997 and 1996
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
Revenue $6,202,173 $4,050,647
Direct Costs, Overhead and G&A 5,448,871 3,701,979
---------- ----------
Operating Income 753,302 348,668
Other Expenses 2,098 36,626
---------- ----------
Income Before Income Taxes 751,204 312,042
Provision for Income Taxes 287,439 110,000
---------- ----------
Net Income 463,765 202,042
========== ==========
Net Earnings Per Share $ 0.36 $ 0.17
Weighted Average Number of Common Shares and
Common Share Equivalents Outstanding 1,296,930 1,187,015
The accompanying notes are an integral part of this statement.
6
<PAGE>
OPTELECOM, INC.
Statements of Cash Flows
as of June 30, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30
1997 1996
----------- ----------
<S> <C>
Operating Activities
Net Income $463,765 $202,042
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 134,111 115,001
Gain on sale of equipment (15,357) ---
Deferred rent (7,643) (5,782)
Deferred income taxes --- 40,693
Common stock for services 8,000 ---
Increase in assets:
Accounts receivable (1,270,886) (477,323)
Inventories (230,505) (97,323)
Prepaid expenses and other assets (84,003) (39,231)
Increase in liabilities:
Accounts payable 664,894 13,469
Accrued payroll 17,436 10,809
Accrued annual leave 37,478 13,075
Other current liabilities 228,949 58,164
Accrued commission --- 7,613
Accrued income tax --- 110,000
------------ ----------
Net cash used in operating activities (53,762) (48,793)
Investing Activities
Proceeds from sale of equipment 22,000 ---
Capital expenditures (239,535) (65,274)
------------ ----------
Net cash used in investing activities (217,535) (65,274)
Financing Activities
Borrowings on note payable to bank 100,000 250,000
Payments on long term debt (46,426) (17,413)
Proceeds from stock options 41,908 7,818
------------ ----------
Net cash provided by financing activities 95,482 240,405
Net (decrease) increase in cash and cash equivalents (175,815) 126,338
Cash and cash equivalents - beginning of period 266,575 62,436
------------ ----------
Cash and cash equivalents - end of period $ 90,760 $ 188,774
============ ==========
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for Interest 902 15,860
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE>
OPTELECOM, Inc.
Notes to Condensed Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in the annual
financial statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading.
In the opinion of management, the unaudited accompanying financial
statements reflect all necessary adjustments and reclassifications (all of which
are of a normal, recurring nature) that are necessary for fair presentation for
the periods presented. It is suggested that these financial statements be read
in conjunction with the financial statements and the notes thereto included in
the Company's latest annual report to the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 1996.
2. Line of Credit
The Company has a credit agreement with a bank, whereby it may borrow
up to $1,250,000 with interest at the bank's prime rate plus 1/4%. The total
amount of borrowings which may be outstanding at any given time is based upon a
percentage of certain eligible receivables. The amount available under the
credit agreement as of June 30, 1997 is $1,150,000.
3. Inventory
Inventory consisted of the following:
June 30, 1997 June 30, 1996
------------- -------------
Raw materials 708,005 $ 486,153
WIP 500,800 405,379
Finished goods 526,668 286,132
---------- ----------
Total $1,735,473 $1,177,664
========== ==========
4. New Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings
Per Share," was recently issued by the Financial Accounting Standards
Board. SFAS No. 128 is effective for periods ending after December
15, 1997 and early adoption is not permitted.
SFAS No. 128 requires the company to compute and present a basic and
diluted earnings per share. Had the company computed earnings per
share in accordance with SFAS No. 128 the results would have been as
follows:
Three Months Ending Three Months Ending
June 30, 1997 June 30, 1996
------------- -------------
Basic earnings per share $0.24 $0.20
Diluted earnings per share $0.23 $0.20
8
<PAGE>
Six Months Ending Six Months Ending
June 30, 1997 June 30, 1996
------------- -------------
Basic earnings per share $0.38 $0.17
Diluted earnings per share $0.36 $0.17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Set forth below is management's discussion and analysis of the
Company's financial condition and results of operations.
Results of Operations
In 1997, year-to-date revenues were $6,202,173 with a net income of
$463,765 compared to same-period revenues of $4,050,647 and net income of
$202,042 in 1996.
Quarter-to-date revenues were $3,523,962 with a net income of
$295,906 as compared to 2,306,225 in 1996 with $234,311 profits.
Communication Products Division (CPD) second quarter 1997 revenues were
$2,809,379 compared to $1,716,515 for the same period in 1996. The group had an
operating income of $172,704 compared to an operating income of $155,012 for the
second quarter of 1996. The increase in revenues is due to a generally higher
level of business in all market segments.
Government Products Division
Revenues for the Electro-Optics Technology Group were $206,063 for the
second quarter of 1997 compared to $165,193 for the second quarter of 1996. The
group realized an operating income of $29,576 for the second quarter, which was
an improvement over the loss of ($4,709) incurred in the same quarter of 1996.
The higher revenue reflects the impact of a higher level of contract work for
winding fiber optic gyro coils booked in the first half of 1997. We anticipate
improved revenue for the balance of the year from new contracts in this area.
Laser Illuminator Division revenues were $508,520 for the quarter
compared to $424,516 for the equivalent period of 1996; operating profit was
$320,581 compared to a profit of $207,265 for the same quarter in 1996. We
anticipate continued significant revenue levels for this segment through the
remainder of the year, with a stable work load on our current contracts, and a
backlog of approximately $1,125,178.
Costs associated with a new business activity were expensed in the
Government Products Division; this activity had no revenue and costs of
($62,860).
Company backlog at the end of the June 30, 1997 was $3,011,497.
9
<PAGE>
Liquidity and Capital Resources
There were moderate changes in the Company's financial condition in the
second quarter of 1997. At the end of this quarter the current ratio was 2.35
compared to 2.95 at the end of 1996 and 2.1 at the end of the second quarter of
1996. The overall cash used by operating activities for the first six months of
1997 was ($53,762) compared to $(48,793) the first six months of 1996.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS 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
The Company did not file any reports on Form 8-K during the
six months ending June 30, 1997.
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER
SHARE
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
------------ -------------
Average common shares and common 1,302,392 1,187,015
share equivalents outstanding
Net income (loss) $463,765 $202,042
Fully diluted earnings per share $ 0.36 $ 0.17
10
<PAGE>
SIGNATURES
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.
OPTELECOM, INC.
Date: July 24, 1997
_________________________________________
Edmund D. Ludwig, President and CEO
_________________________________________
Robert S. Lalley, Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Article 5 Financial Data Schedule for second quarter 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 90,760
<SECURITIES> 0
<RECEIVABLES> 2,734,312
<ALLOWANCES> 0
<INVENTORY> 1,735,473
<CURRENT-ASSETS> 5,017,313
<PP&E> 877,835
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,974,824
<CURRENT-LIABILITIES> 2,235,207
<BONDS> 0
0
0
<COMMON> 36,624
<OTHER-SE> 3,555,304
<TOTAL-LIABILITY-AND-EQUITY> 5,974,824
<SALES> 6,202,173
<TOTAL-REVENUES> 6,202,173
<CGS> 5,448,871
<TOTAL-COSTS> 5,448,871
<OTHER-EXPENSES> 2,098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 751,204
<INCOME-TAX> 287,439
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 463,765
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
