<PAGE>
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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, 2000 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 August 4, 2000 2,354,200
================================================================================
1
<PAGE>
OPTELECOM, INC.
FORM 10-Q
CONTENTS
--------
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2000 (Unaudited)
and December 31, 1999 (Audited) ..................................3
Consolidated Statements of Operations for the Three Months
Ended June 30, 2000 and 1999 (Unaudited) .........................4
Consolidated Statements of Operations for the Six Months
Ended June 30, 2000 and 1999 (Unaudited) .........................5
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 (Unaudited) ...............................6
Notes to Consolidated Financial Statements (Unaudited) ...........7
ITEM 2. MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................9
PART II. OTHER INFORMATION................................................12
2
<PAGE>
OPTELECOM, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
------ ----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 327,925 $ 51,314
Accounts and contracts receivable 1,895,170 2,228,726
Inventories, net 2,119,203 1,894,155
Prepaid expenses and other assets 414,698 486,302
Deferred tax asset 454,517 303,363
----------- -----------
Total current assets 5,211,513 4,963,860
Intangible assets, net 1,825,100 2,000,589
Goodwill, net 195,348 209,728
Property and equipment, at cost less accumulated depreciated 1,123,118 1,206,635
Deferred tax assets 133,543 116,410
Other assets 221,412 118,392
----------- -----------
$ 8,710,034 $ 8,615,614
TOTAL ASSETS =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Bank line-of-credit payable $ 1,627,385 $ 1,700,000
Accounts payable 1,231,424 1,280,248
Accrued payroll 216,081 180,934
Other current liabilities 310,565 390,249
Current portion of leases payable 46,330 46,330
Current portion of notes payable 750,000 625,000
----------- -----------
Total current liabilities 4,181,785 4,222,761
----------- -----------
LONG-TERM LIABILITIES:
Notes payable 935,003 1,310,004
Capital lease 48,156 70,571
Deferred rent liability 97,756 115,658
----------- -----------
TOTAL LIABILITIES 5,262,700 5,718,994
----------- -----------
Commitments and Contingencies - -
STOCKHOLDERS' EQUITY:
Common stock, $.03 par value-shares authorized, 15,000,000;
issued and outstanding, 2,214,200 and 1,993,885 shares as
of June 30, 2000 and December 31, 1999 respectively 66,426 59,817
Additional paid-in capital 5,380,582 4,093,868
Additional paid-in-capital - Stock options 116,069 97,515
Less: Deferred Compensation expense (51,245) (38,031)
Treasury stock, 162,672 shares, at cost (1,265,047) (1,265,047)
Foreign currency translation adjustment 114,766 7,904
Accumulated (deficit) (914,217) (59,406)
----------- -----------
TOTAL STOCKHOLDERS EQUITY 3,447,334 2,896,620
----------- -----------
$ 8,710,034 $ 8,615,614
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
OPTELECOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Revenues $2,380,019 $2,528,499
Cost of goods sold 1,624,380 1,724,205
---------- ----------
Gross profit 755,639 804,294
Operating expenses:
Engineering 273,503 238,103
Selling and marketing 450,230 339,922
General and administrative 691,624 604,707
---------- ----------
Total operating expenses 1,415,357 1,182,732
Operating loss (659,718) (378,438)
Other expenses:
Interest expense 84,654 69,466
---------- ----------
Total other expenses 84,654 69,466
Loss before income tax benefit (744,372) (447,904)
Benefit for income taxes (140,000) (162,580)
---------- ----------
Net loss $ (604,372) $ (285,324)
========== ==========
Basic loss per share $ (0.28) $ (0.13)
========== ==========
Diluted loss per share $ $(0.28) $ (0.13)
========== ==========
Weighted Average Shares Outstanding 2,168,661 2,156,557
========== ==========
</TABLE>
The accompanying notes are in integral part of this statement.
4
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OPTELECOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Revenues $ 4,780,915 $6,057,353
Cost of goods sold 3,159,328 3,758,182
----------- ----------
Gross profit 1,621,587 2,299,171
Operating expenses:
Engineering 468,900 591,303
Selling and marketing 841,121 724,426
General and administrative 1,199,853 1,250,638
----------- ----------
Total operating expenses 2,509,874 2,566,367
Operating loss (888,287) (267,196)
Other expenses:
Interest expense 166,524 123,560
----------- ----------
Total other expenses 166,524 123,560
Loss before income tax benefit (1,054,811) (390,756)
Benefit for income taxes (200,000) (144,580)
----------- ----------
Net loss $ (854,811) $ (246,176)
=========== ==========
Basic loss per share $ (0.40) $ (0.11)
=========== ==========
Diluted loss per share $ (0.40) $ (0.11)
=========== ==========
Weighted Average Shares Outstanding 2,113,412 2,156,557
=========== ==========
</TABLE>
The accompanying notes are in integral part of this statement.
5
<PAGE>
OPTELECOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
[CAPTION]
<TABLE>
2000 1999
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (854,811) $(246,176)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 393,373 384,522
Deferred compensation expense (13,214) -
Deferred taxes (228,288) (144580)
Deferred rent (17,902) (14,736)
Loss/Gain on sale/disposal of fixed assets 8,604 82,766
Effect of currency translations 106,040 41,192
Change in assets and liabilities:
Accounts and contracts receivable 333,556 (454,208)
Inventories (225,048) (340,193)
Prepaid expenses and other assets 71,604 (12,609)
Other assets (103,020) -
Accounts payable (48,824) 691,256
Accrued payroll 35,147 108,976
Other current liabilities (19,685) (459,456)
----------- ---------
Net cash used in operating activities (562,468) (363,246)
----------- ---------
Cash Flows From Investing Activities
Proceeds from sale of equipment 7,375 -
Purchases under capital lease - (132,760)
Capital expenditures (135,142) (141,397)
----------- ---------
Net cash used in investing activities (127,767) (274,157)
----------- ---------
Cash Flows From Financing Activities
Borrowings on bank line-of-credit payable 3,049,266 800,000
Payments on bank line-of-credit payable (3,121,881) (150,000)
Payments on long term debt (250,000) (312,498)
Borrowings on capital lease - 132,760
Payments on capital lease (22,415) (1,258)
Proceeds from issuance of common stock 272,410 -
Proceeds from exercise of stock options 1,039,466 -
----------- ---------
Net cash provided by financing activities 966,846 469,004
----------- ---------
Net increase (decrease) in cash and cash equivalents 276,611 (168,399)
Cash and cash equivalents - beginning of period $ 51,314 $ 394,096
----------- ---------
Cash and cash equivalents - end of period $ 327,925 $ 225,697
=========== =========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for interest $ 156,063 $ 132,760
=========== =========
Cash paid during the year for income taxes $ 0 $ 3,000
=========== =========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
OPTELECOM, INC.
Notes to Condensed Consolidated 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, 1999.
2. Line of Credit
--------------
On May 25, 2000 the Company renewed its existing credit agreement with a
bank through May 31, 2001. The Company may borrow up to $1,700,000 with interest
at the bank's prime rate plus 1 1/2%. The total amount of the borrowing that may
be outstanding at any given time is based on the sum of a percentage of certain
eligible accounts receivable plus a percentage of qualifying inventory, with a
maximum borrowing against inventory of $600,000. Also, the Company is to adhere
to certain covenants, quarterly and at year-end.
The Company is currently not in compliance with certain of its covenants but
has received a waiver from its bank. When the Company returns to compliance with
the debt service coverage ratio, the bank will lower the interest rate to its
prime rate plus 1%.
The Company had $500,000 available under the credit agreement as of August
2, 2000.
3. Bank Term Note
--------------
On September 12, 1999 the Company modified its existing bank term note
whereby principal payments were deferred for the period from September 1999
through February 2000. The remaining principal, $1,875,000 is to be paid from
March 2000 through August 2002 at a monthly rate of $62,500. The Company resumed
payments on this term note in March 2000.
4. Inventory
---------
Inventory consisted of the following:
June 30, 2000 June 30, 1999
------------- -------------
Raw materials $ 835,341 $ 815,078
WIP 361,322 528,584
Finished goods 922,540 843,644
---------- ----------
$2,119,203 $2,187,306
Total ========== ==========
The reserve for inventory obsolescence was $390,215 at June 30, 2000 and
$455,627 at June 30, 1999.
5. Common Stock
------------
In May of 2000, the Company filed a Form S-2 with the Securities and
Exchange Commission whereby the Company registered an additional 500,000 shares
of its common stock, $.03 par value shares to be sold on the open market when
the Company deems it appropriate. In June of 2000, the Company sold 50,000 of
these shares for net proceeds of $272,411. No additional shares had been sold as
of August 7, 2000.
7
<PAGE>
In July of 2000, the Company completed private placement of 140,000 new,
unregistered shares of its common stock, $.03 par value shares for proceeds of
$500,000. As part of this transaction, the Company also issued warrants on
options for the purchase of an additional 40,000 unregistered shares of its
common stock, $.03 par value shares. No additional private placement
transactions had occurred as of August 7, 2000.
6. Comprehensive Income
--------------------
The Company's other comprehensive income consists only of foreign currency
translation adjustments and is shown separately on the Company's Consolidated
Balance Sheet. For the three months ended
June 30, 2000 and 1999, the total comprehensive loss including net loss and
currency translation adjustments were $(509,618) and $(302,367), respectively.
For the six months ended June 30, 2000 and 1999, the total comprehensive loss
was $(747,949) and $(287,368), respectively.
7. Earnings Per Share
------------------
Basic earnings per share is computed using the weighted average number of
common shares outstanding. Diluted earnings per share is computed using the
weighted average number of shares outstanding and the treasury stock computation
method for stock options. The following is a reconciliation of the basic and
diluted earnings per share.
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Loss $ (604,372) $ (285,324) $ (854,811) $ (246,176)
========== ========== ========== ==========
Weighted average shares - basic 2,168,661 2,156,557 2,113,412 2,156,557
---------- ---------- ---------- ----------
Loss per share - basic $ (0.28) $ (0.13) $ (0.40) $ (0.11)
========== ========== ========== ==========
Weighted average shares - basic 2,168,661 2,156,557 2,113,412 2,156,557
Effect of dilution - stock options - - - -
---------- ---------- ---------- ----------
Weighted average shares - diluted 2,168,661 2,156,557 2,113,412 2,156,557
---------- ---------- ---------- ----------
Loss per share - diluted $ (0.28) $ (0.13) $ (0.40) $ (0.11)
========== ========== ========== ==========
</TABLE>
8. Segment Information
-------------------
Optelecom has three reportable segments: the Communication Products Division
(CPD), the Government Products Division (GPD) and the Paragon Division. These
segments reflect management's internal reportable information analysis and
approximates the Company's strategic business units' financial results reported
before income taxes.
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000 and 1999
(000's)
Income (Loss) Gross Additions
Revenues Before Income Taxes to Equipment
-------- ------------------- ------------
2000 1999 2000 1999 2000 1999
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CPD - gross $1,743 $1,606
Intercompany 0 (10)
------ ------
CPD - net 1,743 1,596 $(304) $(225) $ 36 $ 183
GPD 118 170 30 (51) 0 0
Paragon 519 762 (470) (172) 0 3
------ ------ ----- ----- ----- -----
Total $2,380 $2,528 $(744) $(448) $ 36 $ 186
====== ====== ===== ===== ===== =====
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 and 1999
(000's)
Income (Loss) Gross Additions
Revenues Before Income Taxes to Equipment
-------- ------------------- ------------
2000 1999 2000 1999 2000 1999
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CPD - gross $3,526 $3,789
Intercompany 0 (38)
------ ------
CPD - net 3,526 3,751 $ (346) $ (20) $ 135 $ 271
GPD 211 566 39 35 0 0
Paragon 1,044 1,740 (748) (406) 0 3
------ ------ ------- ----- ----- -----
Total $4,781 $6,057 $(1,055) $(391) $ 135 $ 274
====== ====== ======= ===== ===== =====
</TABLE>
9. New Accounting Pronouncements
-----------------------------
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101). SAB 101 provides guidance on the
recognition, presentation and disclosure of revenue in financial statements and
it will be effective during the fourth quarter of the Company's current fiscal
year. The Company continues to evaluate SAB 101 and it has not determined what
impact, if any, will result from its adoption.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to
record derivatives on their balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS No. 133 will be effective for
the Company's fiscal year ending December 31, 2001. The Company had no
derivative or hedging activity in any of the periods presented.
10. Legal Proceedings
-----------------
See Part II - Other Information, Item 1 - Legal Proceedings, on page 12 for
a discussion of the Company's litigation activities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical financial information contained herein, the
following discussion and analysis may contain "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
include declarations regarding the intent, belief or current expectations of the
Company and its management. Prospective investors are cautioned that any such
forward looking statements are not guarantees of future performance and involve
a number of risks and uncertainties; actual results could differ materially from
those indicated by such forward looking statements.
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto.
OVERVIEW
Optelecom, Inc. designs, manufactures and markets video communication
products, specializing in transmission and distribution equipment for the
delivery of real time video. The Company's integrated video solutions include
fiber optic transmission, UTP copper distriXbution, and digital video conversion
and access products. From simple baseband transmitters and baluns to complex
broadband systems and video distribution switches, Optelecom offers innovative
technologies that meet its customers' needs.
9
<PAGE>
The Company is organized into three operating divisions: the Communications
Products Division (CPD), which develops, manufactures, and sells optical fiber-
based data communication equipment to the commercial marketplace, the Government
Products Division (GPD) which is primarily focused on electro-optic technology
development for government related defense business, and Paragon Audio Visual
Ltd., (Paragon), located in the United Kingdom. Paragon, which was acquired at
the end of 1997, is a wholly owned subsidiary of Optelecom, Inc. Paragon
designs and markets electronic communication products and systems utilizing
copper cabling as the transmission media.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1999
REVENUE
The revenue for the three months ended June 30, 2000 was $2,380,019 compared
to revenue of $2,528,499 for the same period of 1999
Revenue for CPD was $1,743,789, an increase of $147,715 over 1999. This
increase is related to follow on orders to a larger order shipped in the fourth
quarter of 1999.
Paragon had revenue of $518,854, a reduction of $243,508 from 1999. The
decrease is related to lack of backlog at the beginning of the quarter as a
result of market softness due to the Year 2000 issue as well as delays to
projects originally anticipated for new products introduced in 2000 resulted in
lower shipments.
GPD revenue was $117,375 compared to $170,043 in 1999 and the decrease is
due to no sales in 2000 for the Glint contract, which was completed at December
31, 1999.
GROSS PROFIT
Gross margin was $755,639 for the three months ended June 30, 2000 compared
to $804,294 for the same period of 1999. Lower revenue was the main factor in
this decrease as well as the lower margin percentage at GPD. This reflects the
loss of the high margin Glint contract at December 31, 1999. Margin percentage
was also lower at Paragon and CPD.
ENGINEERING
The engineering costs for the second quarter of 2000 were $273,503 compared
to $238,103 in the second quarter of 1999. This increase is primarily from CPD
and is due to increased costs of prototype development and costs for
demonstration units.
SELLING AND MARKETING
Selling and marketing costs increased to $450,230 for the second quarter of
2000 from $339,922 incurred in the second quarter of 1999 and reflects the
Company's continuing intent to provide the resources needed to generate
increased revenue. This increase results from additional personnel in 2000 and
also increased spending for literature, trade shows and advertising.
Additionally, Paragon increased their spending slightly to provide literature
for their new products.
GENERAL AND ADMINISTRATIVE
General and administrative costs were $691,624 for the second quarter of
2000 compared to $604,707 for the same period in 1999. This increase of
approximately $87,000 reflects additional personnel in the quarter as well
10
<PAGE>
as the costs for the 2000 Annual Meeting held in April 2000. The 1999 Annual
Meeting was held in the fourth quarter of 1999. In addition, the Company
incurred slightly higher legal fees in the second quarter of 2000 as a result of
litigation against a former employee.
OTHER EXPENSES
The increase of $15,188 to $84,654 reflects an increase in the line-of-
credit interest rate as well as increased borrowings on the line compared to the
same period in 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
REVENUE
The Company recorded revenue of $4,780,915 for the six months ended June 30,
2000, a decrease of approximately $1,276,000 from the $6,057,353 recorded in the
same period of 1999.
Revenue was down in all segments. CPD's revenue was down approximately
$225,000 and is primarily due to the lower backlog entering 2000, offset by
additional follow-on sales to a contract shipped in 1999. Paragon's revenue for
the same six-month periods was $1,043,817 and $1,740,088, respectively. Lower
shippable backlog entering the year and slowness of customers to accept the new
products contributed to this decrease. GPD's decrease of $145,000 is mostly due
to the discontinuance of the Glint contract at December 31, 1999.
GROSS PROFIT
The Gross Profit for the period ended June 30, 2000 was $1,621,587 compared
to the $2,299,171 recorded for the same period of 1999 and reflects lower
margins in all segments. Lower revenue was the primary reason for the decrease
as well as a lower margin percentage at CPD and Paragon. Also, GPD's margin was
reduced as a result of the loss of the Glint contract as of December 31, 1999.
ENGINEERING
Costs recorded for Engineering for the six months ended June 30, 2000 were
$468,900, which is $122,403 less than the six months ended June 30, 1999. This
decrease is primarily due to the discontinuance of work on the high speed
optical component project in the late second quarter of 1999 offset by slightly
higher costs incurred in 2000 for prototypes and demonstration units.
SELLING AND MARKETING
For the six months ended June 30, 2000, Selling and Marketing costs were
$841,121, approximately $117,000 more than the same period of 1999 and reflects
increases at CPD and Paragon. CPD has additional personnel costs as well as
additional costs for literature, trade shows and advertising while Paragon had
higher costs for marketing.
GENERAL AND ADMINISTRATIVE
These costs decreased to $1,199,853 for the six months ended June 30, 2000
from $1,250,638 in the same period of 1999. This decrease is a result of the
Company's continued efforts at reducing costs, the elimination of personnel and
other costs associated with the employment of the previous mangers of Paragon in
1999 offset by additional personnel costs and legal costs in the second quarter
of 2000.
OTHER EXPENSES
The increase of $42,964 to $166,524 in the six months ended June 30, 2000
from the same period of
11
<PAGE>
1999 is due to increased levels of borrowing of the Company's bank line-of-
credit as well as an increase in the interest rate on this line-of-credit.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $327,925 at June 30, 2000
compared to $51,314 at December 31, 1999 and reflects the cash generated by the
sale of common stock by the Company at the end of June 2000.
During the first six months of 2000, the Company used $562,468 in operating
activities compared to the $363,246 used in operating activities in 1999. For
2000, the Company's net loss of $854,811 was offset by non-cash items of
depreciation and amortization of $393,373, collections on accounts receivable of
$333,556, a $225,047 increase in inventories, an increase in other assets of
$103,019 and an increase in deferred taxes of $228,288.
The Company invested $135,142 in 2000 in capital equipment to support its
employees and its manufacturing and research and development activities compared
to the $141,397 invested in these items in 1999.
In the first quarter of 2000, stock options on approximately 170,000 shares
were exercised and provided funds to the Company, based on the exercise price of
the stock options, in the amount of $1,037,828. These funds were used for
operating and investing activities.
In the second quarter of 2000, the company received $272,411 from the sale
of 50,000 shares of common stock that had been registered by the Company through
the filing of a Form S-2 in May of 2000. These funds will be used to reduce the
line-of-credit.
In July 2000 the company completed the private placement of 140,000 shares
of its common stock for $500,000. In addition, there were warrants issued on
options to purchase an additional 40,000 shares of the Company's common stock in
the future.
The Company has a working capital line-of-credit with a bank for an amount
up to $1,700,000 with interest at the bank's prime rate plus one and one-half
percent. The amount available is based on a percentage of eligible receivables
and inventories. On May 25, 2000 the Company renewed its working capital line-
of-credit until May 31, 2001 under substantially the same terms except that the
interest rate increased 50 basis points to one and one half percent above the
bank's prime rate. This rate will return to one percentage point above the
bank's prime rate when the Company is in compliance with the bank's debt
coverage covenant. As of August 7, 2000 the Company had approximately $400,000
available under the line-of-credit.
The Company has a promissory note agreement with a bank that is
collateralized by substantially all the assets and contracts of the Company. On
September 12, 1999 the bank modified the term note whereby principal payments
were suspended from September 1999 through February 2000, with interest only
paid during that time. In March 2000, the Company resumed principal payments on
this note agreement.
The Company believes that its current cash from operations and borrowings
under its bank line-of-credit are adequate to fund its operations for the next
twelve months. However, the Company may pursue additional funding, either
public or private debt or equity financing.
Company backlog at the end of June 30, 2000 was $1,451,000.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
12
<PAGE>
On June 2, 2000, Optelecom was granted a preliminary injunction against
Anthony DeVito, former Optelecom Vice President of Sales and Marketing and
Meridian, Inc. Specifically, DeVito is enjoined from using Optelecom trade
secrets and confidential information during the pendency of any litigation, and
Meridian is enjoined from employing DeVito in any capacity until September 28,
2000. The Company intends to pursue this issue until a final satisfactory
resolution is achieved.
From time to time, the Company is involved in legal proceedings and
litigation arising in the ordinary course of business. As of the date of this
report, except as described above, the Company is not a party to any litigation
or other legal proceeding that, in the opinion of management, could have a
material adverse effect on the Company's business, financial condition or
results of operations.
ITEM 2 - CHANGES IN SECURITIES
In May of 2000, the Company filed a Form S-2 with the Securities and
Exchange Commission whereby the Company registered an additional 500,000 shares
of its common stock, $.03 par value shares to be sold on the open market when
the Company deems it appropriate. In June of 2000, the Company sold 50,000 of
these shares for net proceeds of $272,411. No additional shares had been sold as
of August 7, 2000.
In July of 2000, the Company completed private placement of 140,000 new,
unregistered shares of its common stock, $.03 par value shares for proceeds of
$500,000. As part of this transaction, the Company also issued warrants on
options for the purchase of an additional 40,000 unregistered shares of its
common stock, $.03 par value shares. No additional private placement
transactions had occurred as of August 7, 2000.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting held in May of 2000, the shareholders of
the Company voted on and approved the following (as described in the
Company's Proxy Statement):
- The election of Clyde A. Heintzelman and Pradeep Wahi as directors of
the Company for a three year term ending in 2003
- The election of David R. Lipinski as a director of the Company for a
one year term ending in 2001
- The Optelecom, Inc. Stock Purchase Plan
- The Optelecom, Inc. Non-Qualified Stock Option Plan
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None
ITEM 11 - STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
See Note 7 to the financial statements.
13
<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: August 11, 2000 ------------------------
Edmund D. Ludwig, CEO
Date: August 11, 2000 -------------------------
Irving Zaks, President
Date: August 11, 2000 ---------------------------------------------
Thomas F. Driscoll, Vice President of Finance
and Administration and Treasurer
14
