<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ -------
Commission File Number 0-16343
---------
OIS OPTICAL IMAGING SYSTEMS, INC.
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-2544320
------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
47050 Five Mile Road Northville, Michigan 48167
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (313) 454-5560
----------------------------
Indicate by check mark 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 12 months (or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 10, 1997:
Common Stock, $0.01 par value 97,467,920
------------------------------- -----------------------
Class Number of Shares
<PAGE> 2
PART I - FINANCIAL INFORMATION
Financial Statements
OIS OPTICAL IMAGING SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
------------------------------
1997 1996
------------ -----------
<S> <C> <C>
REVENUES
Display revenue $ 5,471,532 $ 1,022,416
Engineering revenue 384,179 1,271,195
Sensor and other revenue 623,017 51,072
------------ -----------
TOTAL REVENUES 6,478,728 2,344,683
COST OF SALES
Display 10,170,131 3,163,618
Engineering 858,467 3,540,662
Sensor and other 659,743 157,300
------------ -----------
TOTAL COST OF SALES 11,688,341 6,861,580
GROSS LOSS (5,209,613) (4,516,897)
OPERATING EXPENSES
Internal research and development 365,067 669,350
Selling, general and administrative 1,472,228 1,498,375
------------ -----------
TOTAL OPERATING EXPENSES 1,837,295 2,167,725
OPERATING LOSS (7,046,908) (6,684,622)
OTHER INCOME (EXPENSE)
Interest expense (1,098,926) (1,112,797)
Interest income 9,279 257
Licensing and royalties 77,204 1,135
Other 60,700 224,744
------------ -----------
TOTAL OTHER INCOME (EXPENSE) (951,743) (886,661)
------------ -----------
Loss before Income Tax benefit $ (7,998,651) $(7,571,283)
Income Tax benefit 2,801,000 --
------------ -----------
NET LOSS $ (5,197,651) $(7,571,283)
------------ -----------
Preferred stock dividends 1,484,845 705,753
------------ -----------
NET LOSS AVAILABLE TO COMMON
SHAREHOLDERS $ (6,682,496) $(8,277,036)
============ ===========
NET LOSS PER COMMON SHARE (Note B) $ (.07) $ (.09)
============ ===========
</TABLE>
See notes to financial statements
-2-
<PAGE> 3
OIS OPTICAL IMAGING SYSTEMS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,145,934 $ 960,042
Accounts receivable
(Net of reserve for doubtful accounts of
$60,000 at September 30, 1997 and June 30,
1997) 4,556,308 4,222,508
Inventories 10,250,458 9,525,136
Income tax receivable from affiliate 4,442,756 4,755,490
Prepaid expenses and other current assets 866,500 746,199
------------ ------------
TOTAL CURRENT ASSETS 22,261,956 20,209,375
PROPERTY AND EQUIPMENT
Land 3,000,000 3,000,000
Building and improvements 32,909,030 32,891,009
Machinery and other equipment 31,619,574 31,371,764
Construction in process 147,224 60,192
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 67,675,828 67,322,965
Less accumulated depreciation (11,934,551) (10,359,551)
------------ ------------
NET TOTAL PROPERTY AND EQUIPMENT 55,741,277 56,963,414
------------ ------------
TOTAL ASSETS $ 78,003,233 $ 77,172,789
============ ============
</TABLE>
See notes to financial statements.
-3-
<PAGE> 4
OIS OPTICAL IMAGING SYSTEMS, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES
Subordinated note payable to affiliate $ 9,000,000 $ 3,000,000
Current installment on long-term debt 13,250,000 10,500,000
Accounts payable 2,773,896 2,817,068
Accrued interest 367,461 578,166
Deferred revenue -- 112,204
Other accrued liabilities 470,361 297,852
------------- -------------
TOTAL CURRENT LIABILITIES 25,861,718 17,305,290
LONG-TERM DEBT 39,250,000 42,000,000
LOCAL GOVERNMENT SUBSIDY 2,875,000 2,900,000
------------- -------------
TOTAL LIABILITIES 67,986,718 62,205,290
STOCKHOLDERS' EQUITY
Preferred Stock, par value $0.01 per share:
Series B, 8% cumulative, non-convertible and voting
Authorized -- 100,000 shares
Issued and outstanding -- 73,637 shares at September 30, 1997
and June 30, 1997 736 736
Common Stock, par value $0.01 per share:
Authorized - 125,000,000 shares
Issued and outstanding -- 97,467,920 shares at September 30,
1997 and June 30, 1997 974,679 974,679
Additional paid-in capital 141,521,997 141,375,527
Accumulated deficit (131,762,969) (126,565,319)
Deferred compensation (717,928) (818,124)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 10,016,515 14,967,499
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 78,003,233 $ 77,172,789
============= =============
</TABLE>
See notes to financial statements.
-4-
<PAGE> 5
OIS OPTICAL IMAGING SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,197,651) $ (7,571,283)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,550,000 1,397,000
Deferred compensation expense 246,666 171,166
Impact on cash flows from changes in assets and liabilities:
Receivables (21,066) 684,118
Prepaid expenses and other assets (120,301) (297,089)
Inventory (725,322) (3,605,672)
Accounts payable and accrued liabilities (81,367) (985,775)
Deferred revenues (112,204) (118,027)
----------- ------------
NET CASH USED IN OPERATING ACTIVITIES (4,461,245) (10,325,562)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (352,863) (4,247,451)
----------- ------------
NET CASH USED IN INVESTING ACTIVITIES (352,863) (4,247,451)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long term debt -- (31,003)
Net proceeds from issuance of debt and notes 6,000,000 14,500,000
Net proceeds from issuance of common stock -- 103,500
----------- ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 6,000,000 14,572,497
----------- ------------
DECREASE IN CASH AND CASH EQUIVALENTS 1,185,892 (516)
NET CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 960,042 516
----------- ------------
NET CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,145,934 $ -0-
=========== ============
</TABLE>
See notes to financial statements.
-5-
<PAGE> 6
OIS OPTICAL IMAGING SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED
-------------------------------
SEPTEMBER 30,
1997 1996
------------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,309,631 $ 621,407
Cash equivalents:
Cash equivalents consist of investments in short-term, highly-liquid
securities having maturity of three months or less, made as a part of OIS'
cash management activity.
SUPPLEMENTAL SCHEDULE OF NONCASH
TRANSACTIONS:
THREE MONTHS ENDED
------------------------------
SEPTEMBER 30,
1997 1996
------------ ---------
Adjust deferred compensation $ 146,470
Common stock issued in exchange for
Deferred compensation, net of terminations $ 346,191
See statements of cash flows.
-6-
<PAGE> 7
OIS OPTICAL IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - Financial Statement Presentation
The condensed financial statements included herein have been prepared by OIS
Optical Imaging Systems, Inc. ("the Company") without audit pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statement be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's latest annual report on Form 10-K. There
have been no significant changes in such information since the date of such
financial statements except as noted below.
In the opinion of the Company, the accompanying unaudited condensed financial
statements include all adjustments consisting only of normal recurring items,
required to present fairly its financial position as of September 30, 1997, the
results of operations for the three months ended September 30, 1997 and 1996 and
cash flows for the three months ended September 30, 1997 and 1996.
NOTE B - Net Loss Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement On Financial Accounting (SFAS) No. 128, Earnings Per Share. SFAS No.
128 replaces Accounting Principles Board Opinion No. 15 and modifies the
required calculations for earnings per share. The Company must adopt this
statement in fiscal 1998 and early adoption is not permitted. If SFAS No. 128
had been adopted for the periods presented, the net loss per common share would
not have been materially different from the amounts presented currently. The
weighted average number of shares used in the computation for the three months
ended September 30, 1997 and 1996 was 97,467,920 and 97,137,140, respectively.
-7-
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATION
Summary
The operating results for the first quarter of fiscal 1998 continue to reflect
substantial operating losses. As a result of increased production volumes,
revenues increased dramatically during the first quarter of fiscal 1998 when
compared to the same period during fiscal 1997. However, the Company's cost of
sales continued to exceed revenue due to the relatively high costs of the
Company's overhead, scrap rates and depreciation expense for the period.
Management is encouraged by the Company's higher production volumes and is
optimistic about the Company's ability to further reduce cost of sales as a
percentage of revenue throughout the fiscal year. However, the Company's ability
to significantly reduce operating losses will also depend on the Company's
ability to expand the markets for its products in order to fill excess plant
capacity and increase revenues.
Three Months ended September 30, 1997 and 1996
Revenues
Total revenue for the first three months of fiscal 1998 of $6,478,728 was 176%
higher than total revenue for the same period in the preceding fiscal year of
$2,344,683. This increase is attributable to a substantial increase in revenue
from the sale of displays and sensors, which was partially offset by a decrease
in revenue from customer funded engineering.
Revenue from the sale of displays and sensors for the first quarter of fiscal
1998 of $6,094,549 was 468% higher than revenues from the sale of displays and
sensors for the first quarter of fiscal 1997 of $1,073,488. This increase, which
continues a trend which began during fiscal 1997, is the result of more displays
and sensors being manufactured and shipped during the current fiscal year.
Management expects that revenues from the sale of displays and sensors will
continue to increase during fiscal 1998 as existing orders for the Company's
products are satisfied. However, the sales volume required to achieve
profitability exceeds the existing markets for the Company's products.
Therefore, the Company is working aggressively to expand the markets for its
displays, x-ray sensors and other products.
Revenue from customer-funded engineering during the first quarter of fiscal 1998
of $384,179 was 70% lower than revenue from customer-funded engineering of
$1,271,195 for the same period in the preceding fiscal year. This decrease is
the result of the Company's strategic decision to reduce customer-funded
engineering activity as the Company continues to concentrate on its
manufacturing operations.
-8-
<PAGE> 9
Cost of Sales
Cost of sales for the first quarter of fiscal 1998 of $11,688,341 was 70% higher
than cost of sales for the first quarter of fiscal 1997 of $6,861,580. However,
cost of sales as a percentage of revenue decreased substantially to 180% for the
first quarter of fiscal 1998 from 293% for the same period in the preceding
fiscal year.
Direct labor and material for the first quarter of fiscal 1998 increased
approximately $3.7 million when compared to the first quarter of fiscal 1997.
This increase is due to the increased plant activity experienced to build and
sell significantly more products during the first quarter of fiscal 1998 than
was experienced during the same period in the preceding fiscal year. However,
direct material and direct labor, on a per unit basis, decreased approximately
17% during the first quarter of fiscal 1998 when compared to the same period
during fiscal 1997. This decrease is mainly attributable to a reduction in scrap
rates during the current fiscal year. Management expects that the Company will
continue to achieve increased yields and lower direct costs, on a per unit
basis, during the remainder of fiscal 1998.
Overhead for the first quarter of fiscal 1998 increased by approximately $1.1
million when compared to the first quarter of fiscal 1997. The increase is
attributable in large part to increases in the areas of indirect supplies and
materials and equipment maintenance resulting from the increase in production
activity. Management does not expect a significant change in overhead costs
during fiscal 1998. However, until the Company is able to sell more products,
overhead costs will continue to be a major component of cost of sales.
Other Costs
The Company's operating expenses, which consist of internal research and
development and general selling and administrative expenses, decreased
approximately $330,000 or 15% during the first quarter of fiscal 1998 when
compared to the first quarter of fiscal 1997. This decrease results principally
from the timing of expenses and not from any known trends. Management does not
expect any significant changes in other operating expenses during fiscal 1998.
Other income and expenses, which consists mainly of interest expense, increased
approximately $65,000 or 7% during the first quarter of fiscal 1998 when
compared to the same period during the preceding fiscal year. The increase in
net other expense is attributable to the sale of operating equipment from the
old Troy facility during the first quarter of fiscal 1997.
-9-
<PAGE> 10
Liquidity and Capital Resources
LIQUIDITY
The Company's cash and cash equivalents at September 30, 1997 were $2,145,934.
The Company is attempting to manage its cash to minimize borrowings under its
various debt instruments.
OPERATING ACTIVITIES
During the first three months of fiscal 1998, the Company incurred a net loss of
$5,197,651. Inventory increased approximately $700,000, mainly in the area of
spare equipment parts to minimize the down time of equipment. Furthermore, the
Company incurred approximately $1.5 million in depreciation costs, which
contributed to net loss but had no effect on cash.
INVESTING ACTIVITIES
During the first quarter of fiscal 1998 the Company spent approximately $353,000
for machinery and equipment to improve production efficiency.
FINANCING ACTIVITIES
During the first quarter of fiscal 1998 the Company borrowed an additional $6
million under its $20 million Promissory Note with GD Investments Corp. (GDIC).
The note accrues interest at a rate of 6% per annum, and all principal and
interest is payable on demand of GDIC. As of September 30, 1997, the Company has
borrowed $9 million under the Promissory Note.
The Company's cash is decreasing, and Management anticipates a need for
additional cash during fiscal 1998 (see Capital Resources).
Capital Resources
During fiscal 1997, the Company's Board of Directors created and authorized for
issuance 100,000 shares of Series B Preferred Stock, par value $.01, with an
original issuance price of $1,000 per share. The Series B Preferred Stock bears
a dividend rate of 8% for the first three years and a floating rate, subject to
a 16.5% cap, thereafter. Each share of Series B Preferred Stock entitles the
holder to 350 votes per share on each and every matter submitted to a vote of
the Company's shareholders. The Series B Preferred Stock is non-convertible. As
of September 30, 1997, 73,637 shares have been issued.
As a result of certain transactions during fiscal 1997, the Company is eligible
to be a member of Guardian Industries Corp.'s (Guardian) affiliated tax group
(Affiliated Group). This allows the Company's tax losses, credits and/or income
to be included in the single consolidated federal tax return by the Affiliated
Group.
-10-
<PAGE> 11
Guardian and the Company entered into a Tax Sharing Agreement during fiscal 1997
pursuant to which the Company will receive or make tax sharing payments based on
the amount by which the federal income tax liability of the Affiliated Group is
reduced or increased by inclusion of the Company in the Affiliated Group. During
the first quarter of fiscal 1998 the Company received $3,113,734 under the Tax
Sharing Agreement. As of September 30, 1997 the Company has recorded an
estimated receivable from Guardian of $4,442,756 in accordance with the Tax
Sharing Agreement.
Due to the level of current and anticipated losses, Management expects
additional capital resources will be needed to support the Company's operations.
Management expects that Guardian, directly or through an affiliate, will provide
funding to support the Company's operations through fiscal 1998. At this time,
Guardian has not indicated any intention to discontinue funding the Company. If
Guardian were to discontinue funding the Company or offer funding to the Company
on terms that were not satisfactory to the Company's disinterested directors,
then the Company would have to seek alternative sources of funding. There is no
assurance that such alternative sources of funding would be available. In such
case, the Company would be unable to meet its obligations and would be
materially adversely affected.
PART II - OTHER INFORMATION
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
Exhibit 27 -- Financial Data Schedule (Edgar Version Only)
B. REPORTS ON FORM 8-K
None.
-11-
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OIS Optical Imaging Systems, Inc.
(Registrant)
Date: November 12, 1997 By: /s/Rex Tapp
--------------------------------------
Rex Tapp
President and Chief Executive
Officer
Date: November 12, 1997 By: /s/Charles C. Wilson
--------------------------------------
Charles C. Wilson
Executive Vice President
(Principal Financial and
Accounting Officer
-12-
<PAGE> 13
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
Ex-27 Financial Data
Schedule
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,145,934
<SECURITIES> 0
<RECEIVABLES> 4,616,308
<ALLOWANCES> 60,000
<INVENTORY> 10,250,458
<CURRENT-ASSETS> 22,261,956
<PP&E> 67,675,828
<DEPRECIATION> (11,934,551)
<TOTAL-ASSETS> 78,003,233
<CURRENT-LIABILITIES> 25,861,718
<BONDS> 0
0
736
<COMMON> 974,679
<OTHER-SE> 9,041,100
<TOTAL-LIABILITY-AND-EQUITY> 78,003,233
<SALES> 6,094,549
<TOTAL-REVENUES> 6,478,728
<CGS> 10,829,874
<TOTAL-COSTS> 2,695,762
<OTHER-EXPENSES> 951,743
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 1,098,926
<INCOME-PRETAX> (7,998,651)
<INCOME-TAX> (2,801,000)
<INCOME-CONTINUING> (5,197,651)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,197,651)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
