File No. 1-8533
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13, or 15(d) of
the Securities Exchange Act of 1934
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
----------------------------------
(Exact name of registrant as specified in charter)
AMENDMENT NO. 2
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report, dated July 5,
1995, on Form 8-K as set forth in the pages attached hereto:
(List all such items, financial statements, exhibits or other portions
amended)
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
(a) Financial Statements
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
---------------------------------
(Registrant)
By /s/ NANCY R. PITEK
------------------------------
Nancy R. Pitek
Controller, Treasurer and Secretary
Date: February 6, 1996
<PAGE>
The Current Report on Form 8-K, dated July 5, 1995, of Diagnostic/Retrieval
Systems, Inc. (Commission File No. 1-8533) is hereby amended as follows:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
(a) Financial Statements:
---------------------
1. Consolidated balance sheets of Opto Mechanik, Inc. and
subsidiary as of June 30, 1994 and 1993 and consolidated
statements of operations, shareholders' equity and cash flows
for the fiscal years ended June 30, 1994, 1993 and 1992.
A legend has been added to the Independent Auditors' Report
dated September 30, 1994, which appears on page 1 of the
aforementioned financial statements.
<PAGE>
Item 7(a) Financial Statements
OPTO MECHANIK, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED
JUNE 30, 1994, 1993 AND 1992
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT .............................................. 1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets,
June 30, 1994 and 1993 ............................................. 2
Consolidated Statements of Operations, Years Ended
June 30, 1994, 1993 and 1992 ....................................... 4
Consolidated Statements of Shareholders' Equity, Years Ended
June 30, 1994, 1993 and 1992 ....................................... 5
Consolidated Statements of Cash Flows, Years Ended
June 30, 1994, 1993 and 1992 ....................................... 6
Notes to Consolidated Financial Statements ........................... 8
<PAGE>
LEGEND TO INDEPENDENT AUDITORS' REPORT DATED SEPTEMBER 30, 1994
This is a reproduction of the Independent Auditors' Report that appeared
in the previously filed Form 10-K of Opto Mechanik, Inc. dated October 11, 1994.
The independent auditors' report has not been manually signed in connection
with the inclusion of such report in this Form 8-K. As such, the financial
statements covered by the audit report should be deemed to be unaudited.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Opto Mechanik, Inc.:
We have audited the accompanying consolidated balance sheets of Opto
Mechanik, Inc. and subsidiary (the "Company") as of June 30, 1994 and 1993 and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended June 30, 1994. Our audits
also included the financial statement schedules listed in the index at item
14(A)(2). These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at June 30, 1994
and 1993 and the results of its operations and its cash flows for each of the
three years in the period ended June 30, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
The accompanying consolidated financial statements for the year ended June
30, 1994 have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial statements, the
Company was not in compliance with certain covenants of its long-term loan
agreements. The Company is attempting to renegotiate the terms and covenants of
its loan agreements and is also seeking other sources of long-term financing.
The Company's loan agreement covenant noncompliance, its substantial loss from
operations and its working capital deficiency discussed in Note 2, raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Orlando, Florida
September 30, 1994
1
<PAGE>
OPTO MECHANIK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND 1993
ASSETS
1994 1993
----------- -----------
Current Assets:
Cash ............................................ $ 132,508 $ 150,516
Contract receivables (Notes 8 and 9) ............ 3,877,226 2,394,172
Costs and estimated earnings in excess
of billings on uncompleted contracts
(Notes 1 and 5) .............................. 9,930,322 13,396,777
Inventories (Notes 1, 3, 8 and 9) ............... 1,875,171 1,797,584
Other current assets ............................ 43,222
----------- -----------
Total current assets ........................ 15,815,227 17,782,271
----------- -----------
Property, plant and equipment (Notes 1, 6,
8 and 9) ........................................ 18,770,340 16,411,130
Less accumulated depreciation ..................... (9,149,488) (7,834,859)
----------- -----------
Property, plant and equipment--net .......... 9,620,852 8,576,271
----------- -----------
Other assets ...................................... 555,292 286,379
----------- -----------
Total assets ...................................... $25,991,371 $26,644,921
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
OPTO MECHANIK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND 1993
LIABILITIES AND SHAREHOLDERS' EQUITY
1994 1993
----------- -----------
Current liabilities:
Accounts payable ................................. $ 3,676,194 $ 2,379,951
Billings in excess of costs and estimated earnings
on uncompleted contracts (Notes 1 and 5) ....... 199,737
Notes payable--current (Note ..................... 13,785,549 146,058
Revolving line of credit (Note 8) ................ 1,487,495 1,226,804
Accrued liabilities (Note 7) ..................... 2,629,461 877,616
Estimated losses on uncompleted contracts
(Notes 1 and 5) ................................ 356,569 9,066
Deferred compensation (Note 13) .................. 19,812 106,343
Income taxes payable (Note 11) ................... 188,000
----------- -----------
Total current liabilities .................... 22,154,817 4,933,838
----------- -----------
Long-term liabilities:
Deferred income taxes (Notes 1 and 11) ........... 898,767
Deferred compensation (Note 13) .................. 56,166 156,074
Notes payable--noncurrent (Note 9) ............... 229,832 9,177,940
----------- -----------
Total long-term liabilities .................. 285,998 10,232,781
----------- -----------
Commitments and Contingency (Notes 13 and 14)
Shareholders' equity (Note 10):
Common Stock--$.10 par value; 5,000,000
shares authorized; 2,189,102 shares
issued and outstanding ......................... 218,910 218,910
Additional paid-in capital ....................... 5,670,362 5,670,362
Retained earnings (deficit) ...................... (2,338,716) 5,589,030
----------- -----------
Total shareholders' equity ................... 3,550,556 11,478,302
----------- -----------
Total liabilities and shareholders' equity ......... $25,991,371 $26,644,921
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
OPTO MECHANIK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
1994 1993 1992
----------- ----------- -----------
Operating revenues (Note 1) .......... $18,923,323 $37,198,808 $32,621,687
----------- ----------- -----------
Cost of sales (Note 1) ............. 21,252,962 30,858,826 27,836,735
General and administrative
expenses ......................... 6,064,743 3,922,264 3,143,707
----------- ----------- -----------
Total costs and expenses ....... 27,317,705 34,781,090 30,980,442
----------- ----------- -----------
Income (loss) from operations ...... (8,394,382) 2,417,718 1,641,245
----------- ----------- -----------
Other income (expense):
Miscellaneous income ............. 539,276 12,150 14,968
Other income (expense), net
(Note 9) ........................ (971,407) (856,550) (642,768)
----------- ----------- -----------
Other expense, net ............. (432,131) (844,400) (627,800)
----------- ----------- -----------
Income (loss) before income taxes .. (8,826,513) 1,573,318 1,013,445
Provision (benefit) for income
taxes (Notes 1 and 11) ........... (898,767) 535,497 293,899
----------- ----------- -----------
Net income (loss) .................. $(7,927,746) $ 1,037,821 $ 719,546
=========== =========== ===========
Earnings (loss) per Common Share
(Note 1) ........................... $ (3.62) $ .47 $ .33
=========== =========== ===========
Weighted average shares outstanding
(Note 1) ........................... 2,189,102 2,189,102 2,189,102
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
OPTO MECHANIK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
Number Common Additional Retained
of Stock Paid-in Earnings
Shares At Par Capital (Deficit)
--------- -------- ---------- -----------
Balance, June 30, 1991 ......... 2,189,102 $218,910 $5,670,362 $ 3,831,663
Net income ................... 719,546
--------- -------- ---------- -----------
Balance, June 30, 1992 ......... 2,189,102 218,910 5,670,362 4,551,209
Net income ................... 1,037,821
--------- -------- ---------- -----------
Balance, June 30, 1993 ......... 2,189,102 218,910 5,670,362 5,589,030
Net loss ..................... (7,927,746)
--------- -------- ---------- -----------
Balance, June 30, 1994 ......... 2,189,102 $218,910 $5,670,362 $(2,338,716)
========= ======== ========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
OPTO MECHANIK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................... $ (7,927,746) $ 1,037,821 $ 719,546
Adjustments to reconcile net income (loss)
to net cash provided from (used by)
operating activities:
Depreciation .......................................... 1,314,629 1,162,505 895,391
(Gain) loss on sale of assets ......................... 450
(Decrease) increase in deferred income taxes .......... (898,767) 347,497 274,398
(Decrease) increase in deferred compensation .......... (186,439) 164,784 97,633
Changes in assets and liabilities--net of
effect of business acquired:
Decrease (increase):
Contracts receivable .............................. (1,483,054) 1,971,875 (990,860)
Costs and estimated earnings in excess of
billings on uncompleted contracts ............... 3,466,455 (2,531,546) (2,646,544)
Inventories ....................................... (77,587) (169,522) 653,197
Other current assets .............................. 43,222 2,562 45,352
Other assets ...................................... (68,913) (259,855) 30,000
Increase (decrease):
Accounts payable .................................. 1,296,243 (1,010,770) (473,264)
Billings in excess of costs and estimated
earnings on uncompleted contracts ............... 199,737 (1,973)
Accrued liabilities ............................... 1,751,845 96,318 (113,422)
Income taxes payable .............................. (188,000) 188,000 19,501
Estimated losses on uncompleted
contracts ....................................... 347,503 9,066 (2,599)
------------ ----------- -----------
Net cash provided from (used by)
operating activities ............................. (2,410,872) 1,008,735 (1,493,194)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for business acquired--net of cash acquired .... (196,625)
Capital expenditures ................................... (2,359,210) (2,213,213) (357,713)
Proceeds from sale of machinery ........................ 470
------------ ----------- -----------
Net cash used by investing activities ............ (2,359,210) (2,409,368) (357,713)
------------ ----------- -----------
</TABLE>
6
<PAGE>
OPTO MECHANIK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in revolving line of credit ....... $ 260,691 $ 1,226,804
Proceeds from borrowings on notes payable ...... 18,782,451 18,397,140 $20,663,110
Repayments of borrowings on notes payable ...... (14,291,068) (18,095,961) (18,718,743)
Payment of long-term debt assumed in
acquisition .................................. (256,904)
----------- ----------- -----------
Net cash provided from financing activities 4,752,074 1,271,079 1,944,367
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH .................. (l8,008) (129,554) 93,460
CASH AT BEGINNING OF YEAR ........................ 150,516 280,070 186,610
----------- ----------- -----------
CASH AT END OF YEAR .............................. $ 132,508 $ 150,516 $ 280,070
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ................................... $ 923,000 $ 777,000 $ 741,000
=========== =========== ===========
Income taxes ............................... $ 104,000 $ -- $ --
=========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In connection with the Company's acquisition of Universal Vision Systems,
Inc. on July 1, 1992 (see Note 1), the Company entered into a note payable with
the former owners for $250,000.
In connection with the Company's purchase of a competing product line from
another company in fiscal 1994, the Company entered into a note payable with
this company for $200,000 and recorded other assets of $200,000.
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
OPTO MECHANIK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
1. Summary of Business and Significant Accounting Policies
Business:
Opto Mechanik, Inc. ("OMI") is primarily engaged in the development,
manufacture and sale of sophisticated sighting systems designed for military
application as part of the fire control system on tanks and howitzers, and
through its subsidiary, Defense Marketing and Trading, Inc. ("DMT"), was a
consultant and sales representative to companies selling to foreign governments.
The Company began phasing out the operations of DMT during the fiscal year ended
June 30, 1993 and dissolved DMT on July 1, 1993.
On July 1, 1992, the Company purchased all of the outstanding stock of
Universal Vision Systems, Inc. ("UVS"), of Alliance, Ohio for $450,000
(consisting of cash of $200,000 and a note payable of $250,000 [see Note 9]) and
the assumption of UVS' outstanding debt of approximately $225,000. UVS is
engaged in the manufacture and sale of day vision periscopes used in multiples
on tracked and wheeled vehicles by the military. The Company's consolidated
financial statements for the fiscal years ended June 30, 1994 and 1993 include
the results of operations of UVS. Pro forma results of operations for the fiscal
year ended June 30, 1992 are not included because prior to the Company's
acquisition, UVS was a start-up company and had not commenced full production
under its contracts.
The Company's primary customers are the United States military and the
armed forces of several foreign governments. During the fiscal years ended June
30, 1994, 1993 and 1992, approximately 86%, 93% and 78%, respectively, of the
Company's revenues were derived directly or indirectly from contracts with
United States Government agencies.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Revenues, uncompleted contracts:
Revenues on contracts are recognized using the percentage of completion
method based on the ratio of costs incurred and work performed to date on the
contracts to total estimated contract costs. Estimates of the effects of changes
in total estimated contract costs are recognized in the period determined.
Losses, if any, are recognized fully when identified. Revenues recognized in
excess of amounts billed are classified under current assets as costs and
estimated earnings in excess of billings on uncompleted contracts. Amounts
billed in excess of revenues recognized to date are classified under current
liabilities as billings in excess of costs and estimated earnings on uncompleted
contracts.
8
<PAGE>
1. Summary of Business and Significant Accounting Policies (continued)
Inventories:
Inventories are valued at the lower of cost or market. Cost is determined
generally on a first-in, first-out (FIFO) basis.
Research and development:
Research and development costs are charged to operations when incurred and
included in operating expenses. Such costs totaled approximately $298,000,
$20,000 and $29,000 for the years ended June 30, 1994, 1993 and 1992,
respectively.
Depreciation:
The Company provides depreciation on the straight-line method over the
following estimated useful lives of the various classes of depreciable assets:
Leasehold improvements ..................................... 20 years
Machinery and equipment .................................... 10 years
Tooling .................................................... 10 years
Office furniture and equipment ............................. 10 years
Automobiles and trucks ..................................... 3 years
Income taxes:
Effective July 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes." Under
FAS 109, the Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
financial statements. The principal differences result from the use of
accelerated depreciation methods for tax purposes and the effect of purchase
accounting adjustments related to the acquisition of UVS. FAS 109 requires the
current recognition of the benefit of future utilization of net operating loss
and minimum tax credit carryforwards. The benefit is subject to the recording of
a valuation allowance to the extent that realization of the carryforwards does
not meet the standard of "more likely than not." The adoption of FAS 109 had no
effect on the fiscal 1993 consolidated financial statements.
Earnings (loss) per common share:
The computation of earnings (loss) per common share is based on the
weighted average number of shares outstanding during the year. Shares which were
issuable upon the exercise of stock options have not been included in the per
share computation at June 30, 1994, 1993 and 1992 because the effect of their
inclusion would be anti-dilutive.
9
<PAGE>
2. Going Concern Considerations
The accompanying consolidated financial statements for the year ended June
30, 1994, have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. As shown in the consolidated financial statements during the year
ended June 30, 1994, the Company incurred a loss from operations of $8,394,382,
a net loss of $7,927,746 and the Company's current liabilities (as a result of
the factors discussed below) exceeded its current assets by $6,339,590. These
factors among others indicate that the Company may be unable to continue as a
going concern.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. As described in Notes 8 and 9,
the Company is not in compliance with various provisions of its loan agreements
and, because the lenders have not waived these provisions, the balance of such
outstanding debt has been classified as a current liability. Further, such
outstanding debt is subject to demand for repayment at anytime. In the event
demand for repayment is made by the lenders, the Company does not currently have
the ability to repay such debt. The Company's continuation as a going concern is
dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to comply with the terms and covenants of its
financing agreements, to obtain additional financing or refinancing as may be
required, and ultimately to attain profitable operations. Management is
continuing its efforts to obtain funds through either additional or refinanced
debt, subordinated debt, equity, or a combination thereof so that the Company
can meet its obligations and sustain its operations.
3. Inventories
Inventories consist of spare parts and supplies and are valued at
$1,875,171 and $1,797,584 at June 30, 1994 and 1993 respectively.
4. Contract Claims
Two contract claims were filed on completed contracts in fiscal 1981 which
were comprised of costs which the Company incurred and expected to recover from
the U.S. Government.
On June 27, 1990, the Company received notice that the claims were denied
by the Armed Forces Board of Contract Appeals. The Company had suspended action
against a supplier, pending the outcome of the suit against the Army.
Immediately upon receipt of the denial of the claims against the Army, the
Company reactivated the suit against the supplier. During the fiscal year ended
June 30, 1993, the Company collected $100,000 from the supplier in full
settlement of the claims.
10
<PAGE>
5. Contracts in Process
Comparative information with respect to uncompleted contracts is as
follows:
1994 1993
----------- -----------
Expenditures on uncompleted contracts ........... $53,953,449 $46,485,628
Estimated earnings thereon ...................... 6,167,679 10,809,059
----------- -----------
Total of costs and estimated earnings ........... 60,121,128 57,294,687
Less applicable billings ........................ 50,390,543 43,897,910
----------- -----------
Total ....................................... $ 9,730,585 $13,396,777
=========== ===========
These amounts are included in the accompanying balance sheet under the
following captions:
1994 1993
---------- -----------
Costs and estimated earnings in excess of
billings on uncompleted contracts .............. $9,930,322 $13,396,777
Billings in excess of costs and estimated
earnings on uncompleted contracts .............. 199,737
---------- -----------
$9,730,585 $13,396,777
========== ===========
The Company has provided for estimated losses on uncompleted contracts in
the following amounts:
1994 1993 1992
----------- -------- --------
Estimated losses ....... $ 356,569 $ 9,066 $ --
Contract value ......... $14,890,961 $348,908 $ --
The balances billed, but not paid by customers are due upon completion of
performance tests or contract milestones. All balances billed are due upon
receipt by the customer, as the Company invoices upon reaching these milestones.
There are no unpaid billed balances under retainage provisions.
Costs and estimated earnings in excess of billings on uncompleted contracts
comprise principally amounts of revenue recognized on contracts for which
billings had not been presented to the contract owners because the amounts were
not billable at the balance sheet date. It is anticipated that such unbilled
amounts receivable at June 30, 1994 will be billed over the next 150 days as
units are delivered or upon completion of contract milestones or performance
tests.
11
<PAGE>
6. Property, Plant and Equipment
Property, plant and equipment are stated at cost and include the following:
1994 1993
----------- -----------
Land .................................... $ 382,000 $ 382,000
Leasehold improvements .................. 2,795,563 2,581,904
Machinery and equipment ................. 8,918,114 7,578,731
Tooling ................................. 5,095,859 4,504,592
Office furniture and equipment .......... 1,512,202 1,297,301
Leased equipment ........................ 15,845 15,845
Automobiles and trucks .................. 50,757 50,757
----------- -----------
Total Cost .......................... $18,770,340 $16,411,130
=========== ===========
Depreciation expense for the years ended June 30, 1994, 1993 and 1992 was
$1,314,629, $1,162,505 and $895,391, respectively.
7. Accrued Liabilities
Accrued liabilities are as follows:
1994 1993
---------- --------
Payroll ................................. $ 325,492 $299,815
Vacation pay ............................ 262,399 254,829
Interest ................................ 107,752 59,842
Payroll taxes ........................... 25,545 63,592
Property taxes .......................... 97,610 113,646
Advance deposits ........................ 1,095,904
Other ................................... 714,759 85,892
---------- --------
$2,629,461 $877,616
========== ========
8. Revolving Line of Credit
The Company's subsidiary, UVS, has a revolving line of credit with a
banking institution. Borrowings under the revolving line of credit are due on
demand, interest is payable monthly at the prime rate (7.25% at June 30, 1994)
plus 2.25%.
The agreement provides for maximum borrowings of $1,500,000. At June 30,
1994, credit available under the line was $12,505.
The line of credit is collateralized by substantially all assets of UVS and
is guaranteed by OMI. As of June 30, 1994, the Company is not in compliance with
various covenants, including required tangible net worth and ratio of debt to
net worth, of the revolving line of credit agreement. See further discussion in
Note 2.
12
<PAGE>
9. Notes Payable
Notes payable are as follows:
1994 1993
----------- -----------
Revolving line of credit/term loan facility with
a bank, interest only payable quarterly at
the prime rate (7.25% at June 30, 1994) plus
2%, maximum borrowings allowed of $10,000,000,
principal due October 1995 ................... $ 8,363,955 $ 8,999,170
Note payable to a finance company, interest
at 6.9%, payable in 84 monthly principal and
interest installments of $45,131 through
November 2000 ................................ 2,801,501
Note payable to a finance company, interest
at 6.96%, payable in 60 monthly principal and
interest installments of $9,037 through
December 1998 ................................ 417,924
Note payable to a bank, interest at the bank's
prime rate (7.25% at June 30, 1994), interest
payable monthly, principal payable over a
term of 33 months as per the agreement,
guaranteed by a director of the Company ...... 1,026,809
Revolving line of credit with a bank, interest
only payable monthly at the prime rate (7.25%
at June 30, 1994) plus 1.75%, maximum
borrowings allowed of $1,000,000, principal
due in October 1995, collateralized by an
irrevocable standby letter of credit from
another bank which was provided by a director
of the Company ............................... 930,000
Note payable to two individuals, interest
at 6.5%, payable in 12 quarterly principal
and interest installments of $18,479
through November 1996 ........................ 169,294
Note payable to former owners of UVS, interest
at 6%, payable in two annual principal
installments of $125,000 plus accrued interest,
matures June 1996 ............................ 125,000 250,000
Other notes payable .......................... 180,898 74,828
----------- -----------
Total ........................................ 14,015,381 9,323,998
Less current portion ......................... 13,785,549 146,058
----------- -----------
Long-term portion ............................ $ 229,832 $ 9,177,940
=========== ===========
13
<PAGE>
9. Notes Payable (continued)
Notes payable mature as follows:
1995 ................ $13,785,549
1996 ................ 193,756
1997 ................ 36,076
-----------
$14,015,381
===========
The revolving line of credit/term loan facility is collateralized by
contract receivables, inventory, substantially all equipment and a first
mortgage on real property. The notes payable to a finance company are
collateralized by specific equipment. Interest expense was $971,407, $733,718
and $642,768 for the three years ended June 30, 1994, 1993, and 1992,
respectively.
The revolving line of credit/term loan facility and the revolving line of
credit with a bank require compliance with certain covenants. The Company was
not in compliance with various of these covenants, including required tangible
net worth and ratio of debt to net worth, as of June 30, 1994. The notes payable
to a finance company and the note payable to a bank are cross-defaulted with the
Company's other loan agreements. The lenders have not waived the events of
default and, accordingly, all such notes payable have been classified as current
liabilities as of June 30, 1994. See further discussion in Note 2.
10. Stock Options
The Company has various stock option plans which provide for grants of
options for up to ten years, exercisable one year from the date of grant, for
key officers and employees upon approval by the shareholders. Exercise prices
range from $2.75 to $4.50 per share, the fair market value of the stock
at the date of grant.
A summary of the option transactions for the years ended June 30, 1994,
1993 and 1992 is as follows:
1994 1993 1992
------- ------- -------
Options outstanding, beginning of year ..... 355,800 436,000 443,000
Options issued ............................. 25,000
Options cancelled .......................... (143,800) (39,200) (3,000)
Options forfeited, subject to reissuance ... (79,157) (41,000) (4,000)
------- ------- -------
Options outstanding at end of year,
132,843 of which were exercisable
at June 30, 1994 ......................... 157,843 355,800 436,000
======= ======= =======
l1. Income Taxes
The components of the provision (benefit) for income taxes are as follows:
1994 1993 1992
--------- -------- --------
Currently payable:
State .............................. $ 38,000 $ 19,501
Federal ............................ 150,000
Deferred ............................. $(898,767) 347,497 274,398
--------- -------- --------
$(898,767) $535,497 $293,899
========= ======== ========
14
<PAGE>
11. Income Taxes (continued)
The Company's effective tax rate differs from the statutory federal income
tax rate for the following reasons:
1994 1993 1992
---------- --------- --------
Computed statutory amount ............. $(3,001,014) $ 542,691 $344,571
Increase (decreases):
State income tax, net of federal
income tax benefit ................ (369,546) 25,799 18,708
Valuation allowances ................ 2,365,330
Nondeductible expenses .............. 8,206 4,301 5,011
Utilization of net operating loss
carryforward ...................... 999 35,687
Benefit of graduated income tax rate
structure (101,018)
Other, net .......................... 98,257 (38,293) (9,060)
---------- --------- --------
$ (898,767) $ 535,497 $293,899
========== ========= ========
Effective rate ........................ (10)% 34% 29%
========== ========= ========
The principal items in deferred tax expenses (benefits) are as follows:
1994 1993 1992
---------- --------- --------
Excess of tax over book depreciation .. $ 3,235 $(232,755) $ 10,150
Effect of purchase accounting
adjustment .......................... (22,372) 223,720
Effect of tax losses used (carried
forward) ............................ (930,669) 428,250 345,100
Estimated losses on uncompleted
contracts ........................... (121,233)
Deferred compensation ................. 63,389 (56,027) (28,314)
Other, net ............................ 108,883 (15,691) (52,538)
---------- --------- --------
$ (898,767) $ 347,497 $274,398
========== ========= ========
Net deferred tax liabilities are comprised of the following:
1994 1993
---------- --------
Noncurrent assets:
Net operating loss carryforwards
and alternative minimum
tax credits ................................. $3,555,518 $259,519
Estimated losses on uncompleted
contracts ................................... 121,233
Deferred compensation ......................... 25,833 89,222
Other ......................................... 74,093 183,044
---------- --------
Total noncurrent assets ......................... $3,776,677 $531,785
---------- --------
15
<PAGE>
11. Income Taxes (continued)
1994 1993
----------- -----------
Noncurrent liabilities:
Depreciation ................................ $(1,210,067) $(1,206,832)
Purchase accounting adjustments ............. (201,280) (223,720)
----------- -----------
Total noncurrent liabilities .................. (1,411,347) (1,430,552)
----------- -----------
Noncurrent deferred tax assets
(liabilities), net .......................... 2,365,330 (898,767)
----------- -----------
Valuation allowance ........................... (2,365,330)
----------- -----------
Total ......................................... $ 0 $ (898,767)
=========== ===========
The Company has approximately $8,626,000 of federal and $5,743,000 of state
net operating loss carryforwards and approximately $253,000 of alternative
minimum tax credits remaining at June 30, 1994, which give rise to a deferred
tax asset. Utilization of the net operating loss carryforwards and alternative
minimum tax credits to offset future taxable income within the carryforward
period under existing tax laws and regulations is not considered likely.
Therefore, a valuation allowance against the deferred tax asset is necessary at
June 30, 1994. The net operating loss carryforwards expire in 2007. The
alternative minimum tax credits do not expire.
12. Supplemental Profit and Loss Information
Included in costs and expenses are the following:
1994 1993 1992
-------- -------- --------
Taxes, other than payroll taxes
(principally property taxes) .......... $508,992 $358,191 $344,220
Research and development ................ $297,507 $ 20,317 $ 28,700
Advertising and maintenance and repairs are less than 1% of revenues for
all periods presented.
13. Retirement Plan
The Company has a defined contribution 401(k) retirement plan for
all employees who have been employed for a minimum of six months. Under the
terms of the plan, the Company, at the discretion of the Board of Directors,
contributes up to 50% of the employees' voluntary contributions which are
limited to 6% of gross salaries. The Company's matching contributions to the
plan for the years ended June 30, 1994, 1993 and 1992 were $147,000, $143,000
and $94,000, respectively.
During 1992, the Company entered into employment and consulting agreements
with its four senior officers, which provide for post-employment deferred
compensation benefits and consulting fees upon expiration of the employment term
for periods ranging from 4 to 7-1/2 years. The Company is accruing the deferred
compensation element of the contracts over the employment periods. Costs charged
to operations for the years ended June 30, 1994, 1993 and 1992 were $19,458,
$164,784 and $97,633, respectively. The Company is not presently funding this
liability.
16
<PAGE>
13. Retirement Plan (continued)
As of June 30, 1994, three of the officers have retired. Two of the
officers are presently receiving payments under the employment and consulting
agreements totaling approximately $18,000 per month. The third officer received
a lump sum settlement of his employment and consulting agreement of $125,000 in
May 1994.
If the employment periods are not extended at the end of their terms, the
aggregate commitments under the agreements are as follows for subsequent years
ended June 30:
1995 .................. $ 238,914
1996 .................. 282,816
1997 .................. 251,196
1998 .................. 153,690
1999 .................. 87,804
Thereafter ............ 263,412
----------
Total ................. $1,277,832
==========
14. Commitments and Contingency
Leases:
- -------
The Company leases its current office and manufacturing facility in
Melbourne, Florida under a 20-year operating lease agreement at an annual rent
of approximately $982,000 at June 30, 1994. The agreement contains renewal
options and a provision for annual rental increases contingent on increases in
the Consumer Price Index. The Alliance, Ohio facility is under a 5-year
operating lease agreement at an annual rent of approximately $150,000 at June
30, 1994. The agreement also contains renewal options.
Rent expense for the years ended June 30, 1994, 1993 and 1992 was
approximately $1,171,000, 1,066,000 and $951,000, respectively.
Contingency:
- ------------
UVS is the subject of a U.S. Government investigation of certain business
and reporting practices from which civil, criminal or administrative proceedings
could result. Those proceedings, if pursued, could involve claims by the
Government for damages as well as fines and penalties. Based upon Government
procurement regulations, a contractor can be suspended or debarred from
Government contracts if proceedings result from such investigation.
The Company is not able to determine, at this early stage of the
investigation, whether the outcome of the Govemment's investigation will have a
materially adverse effect on its consolidated financial statements.
17
<PAGE>
I5. Business Segments and Geographic Region Information
Opto Mechanik, Inc. and Universal Vision Systems, Inc. are engaged in the
development, manufacture and sale of sophisticated sighting systems and day
vision periscopes designed for military application and use. Defense Marketing
and Trading, Inc. was a consulting and sales representative to companies
desirous of making sales of products and services to foreign governments. All
significant intercompany accounts and transactions have been eliminated.
Identifiable assets include primarily accounts receivable, inventories, and
property and equipment. Amounts shown as operating income of the various
industry segments reflect allocations of corporate general and administrative
expenses.
Opto Mechanik, Inc. and
Universal Vision Systems, Inc. [in 1994 and 1993}
- -------------------------------------------------
1994 1993 1992
----------- ----------- -----------
Revenues .............................. $18,923,323 $35,315,784 $25,647,049
Operating income (loss) ............... $(8,394,382) $ 2,486,614 $ 1,404,263
Depreciation .......................... $ 1,314,629 $ 1,162,505 $ 895,391
Capital expenditures .................. $ 2,359,210 $ 2,213,213 $ 357,713
Identifiable assets (excluding
intercompany payable/receivable) .... $25,991,371 $26,631,532 $21,347,741
Defense Marketing and
Trading, Inc. (dissolved in 1994}
- ---------------------------------
Revenues ........................................... $ 1,883,024 $ 6,974,638
Operating income (loss) ............................ $ (68,896) $ 236,982
Depreciation ....................................... $ -- $ --
Capital expenditures ............................... $ -- $ --
Identifiable assets (excluding
intercompany payable/receivable) ................. $ 13,389 $ 2,293,053
The risks of doing business outside the United States, which management
believes are minimal, included expropriation and restrictive action by local
governments.
18
<PAGE>
15. Business Segments and Geographic Region Information (continued)
Revenues and gross profit by geographic region for the years ended June 30,
are as follows:
1994 1993 1992
----------- ----------- -----------
Sales:
United States ................... $13,987,593 $34,766,549 $25,557,567
Middle East ..................... 3,614,388 2,295,528 7,003,671
Canada .......................... 32,269 47,374 8,869
Europe .......................... 876,972 89,357 51,580
Asia ............................ 412,101
----------- ----------- -----------
TOTAL ......................... $18,923,323 $37,198,808 $32,621,687
=========== =========== ===========
Gross profit (loss):
United States ................... $(3,437,445) $ 6,371,225 $ 4,339,233
Middle East ..................... 784,945 (90,415) 435,655
Canada .......................... 14,669 19,442 5,897
Europe .......................... 166,081 39,730 4,167
Asia ............................ 142,111
----------- ----------- -----------
TOTAL ......................... $(2,329,639) $ 6,339,982 $ 4,784,952
=========== =========== ===========
19
<PAGE>
16. Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
1994 1994 1993 1993 1993 1993 1992 1992
(3) (2) (1)
---------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $6,171,146 $4,078,160 $3,784,709 $4,889,308 $10,122,365 $9,902,894 $9,219,347 $7,954,202
Cost and Expenses 6,861,792 5,107,825 8,126,476 7,221,612 9,160,658 9,347,675 8,732,763 7,539,994
---------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Income (loss) from
operations ............. (690,646) (1,029,665) (4,341,767) (2,332,304) 961,707 555,219 486,584 414,208
---------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Other income (expense) .... 537,958 1,318 (120,102) 1,000 7,510 910
Interest expense ......... (241,528) (173,880) (316,759) (239,240) (191,454) (184,469) (180,140) (177,655)
---------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Other income (expense)--
net .................... 296,430 (173,880) (315,441) (239,240) (311,556) (183,469) (172,630) (176,745)
---------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Income (loss) before
income taxes ........... (394,216) (1,203,545) (4,657,208) (2,571,544) 650,151 371,750 313,954 237,463
Provision for income
taxes (tax benefit) .... (178,767) (720,000) 241,434 106,581 109,119 78,363
---------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Net income (loss) ........ $ (394,216) $(1,203,545) $(4,478,441) $(1,851,544) $ 408,717 $ 265,169 $ 204,835 $ 159,100
========== =========== =========== =========== =========== ========== ========== ==========
Earnings (loss) per
common share ........... $ (.18) $ (.55) $ (2.04) $ (.85) $ .19 $ .12 $ .09 $ .07
========== =========== =========== =========== =========== ========== ========== ==========
Average weighted shares
outstanding ............ 2,189,102 2,189,102 2,189,102 2,189,102 2,189,102 2,189,102 2,189,102 2,189,102
========== =========== =========== =========== =========== ========== ========== ==========
- -----------
<FN>
(1) Operating revenues for the September 30, 1993 quarter have been reduced by
approximately $516,000 from the amount previously reported on Form 10-Q to
correct errors in revenue recognition. The September 30, 1993 Form 10-Q
will be amended to correct these errors.
(2) Operating revenues for the December 31, 1993 quarter have been reduced by
approximately $1,412,000 from the amount previously reported on Form 10-Q
to correct errors in revenue recognition. Tax benefit for this quarter has
been increased by approximately $151,000 from the amount previously
reported on Form 10-Q to correct errors in the computation of the tax
benefit. The December 31, 1993 Form 10-Q will be amended to correct these
errors.
(3) Operating revenues for the March 31, 1994 quarter have been reduced by
approximately $1,293,000 from the amount previously reported on Form 10-Q
to correct errors in revenue recognition. The March 31, 1994 Form 10-Q will
be amended to correct these errors.
</FN>
</TABLE>
20
