FORM 10-Q
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 MARCH 31, 1996, or
[ ] 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: 33-10943-NY
PHOTON TECHNOLOGY INTERNATIONAL, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2494774
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(State of Incorporation) (I.R.S. Employer Identification No.)
1 Deerpark Drive, Suite F, South Brunswick, NJ 08852
- - --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (908) 329-0910
--------------
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 [ ]
The number of shares of the registrants Common Stock, without par value,
outstanding as of March 31, 1996 was 3,461,328.
<PAGE>
INDEX
PHOTON TECHNOLOGY INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: (Unaudited):
Consolidated Balance Sheets as of March 31, 1996
and June 30, 1995
Consolidated Statements of Operations for the
nine months ended March 31, 1996 and 1995
Consolidated Statement of Operations for the
quarters ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows for the
nine months ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations for the second quarter
and nine months ended March 31, 1996
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 June 30
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ....................... $ 471,584 $ 46,364
Trade accounts receivable, less allowances
of $3,419 in March 1996 ($3,568 in June 1995) .. 1,928,771 1,413,779
Inventory
Finished goods ................................ 516,468 775,609
Work in process ............................... 785,109 401,738
Raw materials ................................. 808,167 462,863
----------- -----------
2,109,744 1,640,210
Receivable from employees ....................... 21,627 28,834
Prepaid expenses and other current assets ....... 673,779 281,598
----------- -----------
TOTAL CURRENT ASSETS ......... 5,205,505 3,410,785
PROPERTY, PLANT AND EQUIPMENT
Furniture and fixtures .......................... 139,386 160,151
Machinery and equipment ......................... 1,704,937 1,546,227
----------- -----------
1,844,323 1,706,378
Accumulated depreciation ........................ (1,394,909) (1,278,313)
----------- -----------
449,414 428,065
OTHER ASSETS ..................................... 1,775,707 983,498
----------- -----------
$ 7,430,626 $ 4,822,348
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements
Note: The balance sheet at June 30, 1995 has been derived from audited financial
statements at that date.
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
March 31 June 30
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness ...................................... $ 1,681,242 $ 1,022,689
Accounts payable ....................................... 863,406 774,923
Deferred income ........................................ 364 42,024
Accrued expenses ....................................... 94,072 247,948
Captial lease obligation ............................... 13,625 21,715
Current portion of long term debt ...................... 234,633 275,407
----------- -----------
TOTAL CURRENT LIABILITIES ................. 2,887,342 2,384,706
DEFERRED INCOME TAXES .................................... 42,458 86,000
LONG TERM DEBT-SUBORDINATED .............................. 1,594,266 590,761
LONG TERM DEBT-OTHER ..................................... 546,601 541,199
MINORITY INTEREST - PHOTOMED GMBH ........................ -- 59,926
SHAREHOLDERS' EQUITY Preferred stock, $1,000 par value:
Authorized 500 shares; no shares
issued or outstanding
Common stock, $.01 par value:
Authorized 10,000,000 shares; issued 2,627,200
shares including 165,872 shares in treasury
(March 1996) and 315,872 shares in treasury (June 1995) 26,272 26,272
Additional paid-in capital ............................. 6,242,457 5,278,879
Accumulated deficit .................................... (3,580,798) (3,855,815)
Treasury stock, at cost ................................ (56,433) (107,466)
Cumulative foreign currency
translation adjustment ............................... (271,539) (182,114)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ................ 2,359,959 1,159,756
----------- -----------
$ 7,430,626 $ 4,822,348
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements.
Note: The balance sheet at June 30, 1995 has been derived from the audited
financial statements at that date.
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
----------------------------
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
REVENUES
Net sales .................................. $ 6,833,082 $ 5,685,490
Other income ............................... 50,369 84,096
----------- -----------
6,883,451 5,769,586
COSTS AND EXPENSES
Cost of products sold ...................... 2,762,868 2,284,756
Selling, general and administrative ........ 2,743,298 2,254,813
Research and development ................... 691,652 362,122
Interest ................................... 201,487 64,667
Depreciation and amortization .............. 131,003 155,324
Goodwill amortization ...................... 117,658 --
Start up expenses - subsidiary ............. -- 443,657
Foreign exchange (gain) loss ............... 1,835 (17,543)
----------- -----------
6,649,801 5,547,796
Income before minority interest and
income tax provision ......................... 233,650 221,790
Minority interest - subsidiary loss .......... -- 17,840
----------- -----------
Income before income taxes ................... 233,650 239,630
Deferred income tax credit ................... (41,368) --
----------- -----------
Net income ................................... 275,018 239,630
=========== ===========
Net income per common share .................. $ .10 $ .10
=========== ===========
Weighted average number of common
shares outstanding .......................... 2,881,233 2,304,202
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Third Quarter
Ended March 31
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
REVENUES
Net sales .................................. $ 2,366,341 $ 2,041,113
Other income ............................... 18,167 15,067
----------- -----------
2,384,508 2,056,180
COSTS AND EXPENSES
Cost of products sold ...................... 987,049 760,451
Selling, general and administrative ........ 965,947 903,421
Research and development ................... 210,912 146,016
Interest ................................... 80,574 21,345
Depreciation and amortization .............. 43,160 62,443
Goodwill amortization ...................... 42,526 --
Start-up expenses-subsidiary ............... -- 116,673
Foreign exchange (gain) loss ............... 7,146 (20,975)
----------- -----------
2,337,314 1,989,374
Income before minority interest and
income tax provision ......................... 47,194 66,806
Minortiy interest - subsidiary loss .......... -- 17,840
----------- -----------
Income before income taxes ................... 47,194 84,646
Deferred income tax credit ................... (14,714) --
----------- -----------
Net income ................................... 61,908 84,646
=========== ===========
Net income per common share .................. $ .02 $ .04
=========== ===========
Weighted average number of common
shares outstanding ........................... 3,461,328 2,305,785
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................ $ 275,018 $ 239,630
Adjustments to reconcile net income
to net cash (used in) provided
by operating activities:
Depreciation and amortization ................. 131,003 155,325
Provision for doubtful accounts ............... (12,957) 8,022
Other amortization - intangible assets ........ 173,936 27,571
Deferred income taxes (credit) ................ (41,368) --
Changes in assets and liabilities:
(Increase) in trade accounts receivable ....... (502,035) (188,725)
(Increase) in inventories ..................... (469,534) (452,665)
(Increase) in other current assets ............ (384,974) (219,315)
(Decrease) increase in accounts payable
and accrued expenses ......................... (65,393) 118,133
(Increase) in deferred income ................. (41,660) (30,606)
(Increase) in other assets .................... (91,145) (314,565)
----------- -----------
Net cash provided by (used in) operating activities (1,029,109) (657,195)
INVESTING ACTIVITIES:
Purchase of technology ......................... (875,000) --
Minority interest .............................. (59,926) --
Proceeds from maturity of certificate of deposit -- 25,120
Purchase of plant, property,and equipment ...... (137,945) (132,225)
----------- -----------
Net cash used in investing activities .......... (1,072,871) (107,105)
(Continued)
<PAGE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- Continued
Nine Months Ended
March 31
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
FINANCING ACTIVITIES:
Net proceeds from issuance of stock to purchase
49% of PhotoMed GmbH ........................... 132,272 --
Net proceeds from issuance of stock to purchase
technology from MLTV ........................... 875,000 --
Increase borrowings on ODC loan facility ........ -- 318,823
Increase borrowings on notes payable to bank .... 658,553 269,380
Payment on current portion of long term debt .... (196,720) (34,229)
Increase long term debt - subordinated debt ..... 1,103,505 --
Principal payment on capital lease obligation ... (18,219) (10,877)
Issue treasury stock in lieu of cash compensation -- 72,808
Increase long term debt to purchase equipment ... 66,211 --
Increase long term debt - loan by individual .... -- 291,292
----------- -----------
Net cash provided by financing activities ......... 2,620,602 907,197
Effect of exchange rate changes on cash ......... (93,402) (22,189)
----------- -----------
(Decrease) Increase in cash ....................... 425,220 120,708
CASH BALANCE AT THE BEGINNING OF PERIOD ........... 46,364 35,967
----------- -----------
CASH BALANCE AT THE ENDING OF PERIOD .............. $ 471,584 $ 156,675
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
The Company is engaged in the research, development, manufacturing and marketing
of proprietary electro-optical systems which enable customers in health care,
environmental science and industrial process control fields to perform advanced
analysis utilizing light.
The accompanying and audited consolidated financial statements of Photon
Technology International, Inc. have been prepared in accordance with generally
accepted accounting principles in the United States for interim financial
information and with the instructions to Form 10K and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report or Form 10K for the year ended June 30, 1995.
NOTE B -- PHOTOMED GMBH
On July 5, 1995, the Company acquired the remaining 49% ownership of PhotoMed
GmbH from its minority shareholders. The Company issued 150,000 common shares
from treasury stock, at a fair market value of $1 per share. As a result of this
transaction, PhotoMed GmbH became a wholly-owned subsidiary of the Company. The
transaction is accounted for as a business combination (step-by-step
acquisition) using the purchase method of accounting.
The purchase price, which comprised of the issuance of shares, was allocated as
follows:
Goodwill on acquisition $ 72,000
Net assets acquired 78,000
---------
$150,000
========
NOTE C -- TREASURY STOCK
As a result of acquiring the remaining 49% ownership of PhotoMed GmbH (see Note
B above) for treasury stock, the number of shares in treasury stock decreased
from 315,872 shares to 165,872 as of July 5, 1995.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D -- LONG TERM DEBT
On October 31, 1995, the Company completed a $1,500,000 Canadian dollar ($ 1.1
million US$) financing in the form of subordinated debt with C.I.-C.P.A.
Business Ventures Fund, Inc. of Toronto Ontario Canada. This subordinated debt
has a term of five (5) years and an interest rate of 12% per year, with payments
of interest only in the first twelve (12) months. Principal payments of $6,250
Canadian dollars will begin November 1996 through September 2000, with the
balance due October 31, 2000. This agreement includes a first option for 250,000
shares of common stock at $1.25 per share for a term of five (5) years, and a
second option of 400,000 shares of common stock at $2.50 per share until October
1996, and then $3.25 per share until October 1997. The full amount of this
sub-debt is classified as long term debt.
On December 8, 1995, the Company entered an agreement with M.L. Technology
Ventures, L.P. ("MLTV") to repay the outstanding subordinated debt in the full
amount of $771,000. The term of the agreement requires a $20,000 principal
payment per month for a term of twenty-four (24) months and the balance of
$291,000 to be paid at the end of this term. Under this agreement, there will be
no interest charged or accrued on the principal amount of debt provided that the
Company meets the monthly payment schedule. The balance outstanding as of March
31, 1996 was $671,000.
NOTE E -- PAID IN CAPITAL
On December 8, 1995, the Company entered into an agreement with MLTV whereby the
Company issued 1,000,000 shares of common stock for payment of the technology
developed under the joint venture between the Company and MLTV, and MLTV's joint
venture interest. The 1,000,000 shares of common stock is in full settlement of
the $627,000 base purchase price option for the technology in addition to
royalties for a five year period. The common shares were recorded at market
value (bid price) of .875 per share or $875,000, and this value is recorded in
"Paid-in-Capital" The purchase of the technology represents an intangible asset
of $875,000 which was recorded as an "Other Asset" and will be amortized on a
straight-line basis over a five (5) year period. As of March 31, 1996, $44,000
has been amortized and the balance represents $831,000.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter and nine-months ended March 31, 1996 of $2.4 million
and $6.8 million, respectively, increased $325,000 or 15.9% and $1.2 million or
20.3%. These increases in net sales represent the continued strength of ratio
fluorescence systems sales on a world wide basis for existing products.
Total revenue for the quarter and nine-months ended March 31, 1996 of $2.4
million and $6.9 million, respectively, which include net sales and other
income, increased $328,000 or 16.0% and $1.1 million or 19.3%. This performance
primarily reflects the impact of increased net sales. Other income increased
nominally for the quarter and decreased for nine-months from the comparative
prior year periods as a result of lower funding in fiscal 1996 from the Canadian
government for direct labor training support programs, which were impacted by
budget constraints year to year.
Cost of products sold for the third quarter of fiscal 1996 was $987,000 or 41.7%
of net sales, which compares to $760,000 or 37.3% of net sales in the same
period of fiscal 1995. This increase of $227,000 or 29.8% in cost of products
sold primarily relates to the real volume increase in sales. The increase as a
percentage of sales from 37.3% to 41.7% relates to the mix of products sold and
material cost price increases. Cost of products sold for the nine-months ended
March 31, 1996 was $2.8 million or 40.4% of net sales in comparison to $2.3
million or 40.2% of net sales; an increase of $478,000 or 20.9%. This cost
increase closely follows the increase in sales volume.
Selling, general and administrative expenses of $966,000 for the third quarter
and $2.7 million for the nine-months, increased $63,000 or 6.9% and $488,000 or
21.7%, respectively, for the comparable periods of fiscal 1995. These expenses
as a percentage of sales decreased from 44.3% to 40.8% in the third quarter and
increased from 39.7% to 40.1% for the nine-month period. The dollar increase in
the quarter and nine-month period primarily relates to volume sensitive selling
expenses, the planned investment in marketing support programs, agent
commissions due to mix of sales, and the planned investment in additional sales
personnel to expand sales territory coverage. Additionally, administrative
expenses were flat for ther quarter and higher year-to-date due to financing
related expenses, and increased administrative support expenses related to
international operations.
Research and development expenditures, as reported, for the third quarter of
fiscal 1996 were $194,000 or 8.2% of net sales and for the first nine-months of
fiscal 1996 totaled $675,000 or 9.9% of net sales. In comparison to the prior
year, these expenses increased $48,000 or 32.9% for the quarter and $313,000 or
86.4% for the nine-month period. These increases primarily reflected an
incremental investment in additional staffing for product development support in
both hardware and software. These expenses also included costs required to
certify our products for sales into the European Community ("EC") in accordance
with regulatory guidelines. In addition, the Company has capitalized software
development costs of $90,000 in this quarter in accordance with generally
accpeted accounting principals, as a result of obtaining technical feasibility
for specific add-on modules to ImageMaster and "FeliX" products.
Interest expenses for the quarter and nine-months ended March 31, 1996 of
$81,000 and $201,000, increased $60,000 and $137,000, respectively. These
increases were primarily due to interest on incremental short term borrowing on
the credit facilities with the banks, interest payments on new sub-debt, and
interest payments related to the shareholder loan to PhotoMed GmbH.
<PAGE>
Depreciation and amortization of $43,000 for the third quarter decreased by
$19,000 or 30.9% and of $131,000 for the nine-months decreased by $24,000 or
15.7%. This was primarily due to the impact of lower amortization on equipment
under capital lease pursuant to the amortization schedule.
Goodwill amortization of $43,000 for the third quarter and $118,000 for the
nine-months, represents an incremental expense in comparison to the prior year
and is related to the formation and capitalized start-up expenses of the
PhotoMed GmbH subsidiary in September 1994. The start-up expenses related to the
subsidiary and reported in the third quarter of the prior year was $117,000, and
for nine-months was $444,000, a non-recurring expense in these comparative
periods.
Foreign exchange represented a nominal loss of $2,000 for the nine-month period
and a loss of $7,000 in the third quarter. These losses compared to gains in the
prior year was due to the mix of transactional activity between the parent
company and international locations.
Deferred income tax credits of $15,000 for the quarter and $41,000 for
nine-months related to timing differences between book and tax income, which is
a partial reversal of deferred tax expense for fiscal 1995 of $86,000. The
deferred tax expense, and the resulting tax credit in the periods, relate to the
PhotoMed GmbH subsidiary.
The Company reported net income of $62,000 for this third quarter of fiscal
1996, a decrease of $23,000 or 26.9% over the same period in the prior year. For
the nine-month period ended March 31, 1996, net income was $275,000, an increase
of $35,000 or 14.8% over the same comparable prior year period. The decrease in
the third quarter in comparison to the prior year primarily releates to
non-capital investment spending in sales and marketing to support future sales
growth, continued spending in research and development to maintain focus and
schedule on new product development, and some material cost increases related to
material purchases. The improved income performance year-to-date for nine-months
in comparison to the prior year reflected the impact of sales volume and
non-recurring start-up expenses which were related to the PhotoMed GmbH
subsidiary in September 1994.
In September 1994, the Company formed a new subsidiary named "PhotoMed GmbH". At
that time this subsidiary was 51% owned by the Company. This subsidiary operates
primarily as a sales and service office to handle Germany, Austria, Finland and
the Scandinavian countries. In July 1995 of this first quarter, the Company
acquired 49% minority interest for 150,000 shares of common stock, and PhotoMed
GmbH became a wholly owned subsidiary.
Net income per share was two (2) cents for the third quarter of fiscal 1996, a
decrease of two (2) cents per share in comparison to the prior year. This was
primarily the result of lower earnings of one (1) cent per share and the
dilution effect of one cent per share due to the impact on the average common
stock outstanding of the 1,000,000 of common stock shares issued December 8,
1995 to MLTV to purchase the technology and joint venture interest. Net income
per share was ten (10) cents per share for the nine-months ended March 31, 1996,
which was flat year-to year as a result of the impact of a two (2) cents per
share dilution related to the issued 1,000,000 shares of common stock.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The working capital of the Company at March 31, 1996 was $2.3 million compared
to $1.0 million at June 30, 1995, an increase of $1.3 million or 125.9%. Current
assets of $5.2 million increased by $1.8 million or 52.6% with increases in all
current assets categories from the end of fiscal 1995. The cash increased
$425,000 primarily related to the impact of proceeds from the sub-ordinated debt
issue of $1.5 million Canadian dollars ($1.1 million US$) with C.I.-C.P.A.
Business Ventures Fund Inc. (See Note D). The accounts receivable of $1.9
million and 2.3 months of sales, increased $515,000 or 36.4%, which reflects
increased sales volume and a slower accounts receivable turn due to a higher
percentage of international receivables. Months of sales in receivables at June
30, 1995 was 1.9 months of sales. The inventory at $2.1 million increased
$470,000 or 28.7% and was the result of higher production volume to support a
future increased operating level of sales, the build-up of in-transit product
shipments to international locations for completion of orders, (which will be
billed in the subsequent quarter) and incremental new product inventory. The
inventory level at $2.1 million represents 6.0 months of sales in comparison to
4.8 months of sales at the end of fiscal 1995, which followed a strong fourth
quarter of sales. Other current assets of $695,000 increased $385,000 and
primarily relates to financing related expenses of $122,000 (to be amortized
over the term of the specific financing), and other prepaid expenses related to
sales support activities, general insurance costs, reimbursable goods and
service taxes, and employer benefits insurance.
Total current liabilities of $2.9 million increased $503,000 or 21.1% from the
end of fiscal 1995. This net increase primarily was the result of increased
short term borrowings from the bank of $659,000 or 64.4% to meet working capital
requirements. This increase was partially offset by payments on capital lease
obligations and current portion of long term debt, and a reduction in deferred
income related to customer prepayments on orders, which were shipped and billed,
and lower accrued expenses.
On December 31, 1995, borrowings on the Bank of Montreal credit facility reached
a maximum of $1.5 million Canadian Dollars ($1.1 million U.S.$). In January
1996, the Company was approved for an increase to this credit facility from $1.5
million Canadian dollars to $2.0 million ($1.5 million US$) based on the
Company's performance to date and requirements for incremental short term
working capital. The company is in compliance with all bank covenants. The
balance on the credit facility as of March 31, 1996 was $1.3 million or 87.2% of
total available line of credit.
On March 31, 1996, the borrowings outstanding on the PhotoMed GmbH bank line
with the local Stadtparkasse bank was 500,000 deutche marks ($339,000 US$) which
is at the limit of the 500,000 deutche marks line of credit. In January 1996
this bank line was renewed at 500,000 deutche marks for another twelve (12)
month period on the basis of PhotoMed GmbH performance over the last year.
<PAGE>
In January 1995, the Company negotiated a purchase price of $35,000 as a
residual value for equipment, which was a capital lease under a sale-leaseback
agreement with G.E. Capital. The capital lease had expired and under the terms
of this agreement the Company had an option to purchase the equipment at fair
market value or return the equipment to the leasing company. The Company
exercised its option to purchase the equipment, which is used for the
applications lab and customer demonstration support, for $35,000 over an
eighteen (18) month period and at a fixed interest rate of 10.25%. As of March
31, 1996, the balance under the installment purchase represented $3,000 and was
reported as a current liability under the current portion of long term debt. The
full value of the $35,000 was capitalized an asset with a short term depreciable
life of two (2) years due to age of equipment and plans to replace within a two
(2) year period.
As of March 31, 1996 the Company had a notes payable balance of $5,000 with
Brooks Air Force base, which is a current liability under the current portion of
long term debt. This amount will be paid in full by July 1, 1996. This debt
arose from a duplicate payment and an installment repayment agreement between
Brooks Air Force and the Company for the principal amount of $90,155 in March
1994.
On December 8, 1995, the Company entered into several agreements with MLTV which
covered repayment of the subordinated debt in the amount of $771,000, the
purchase of the technology developed under a joint venture agreement between the
Company and MLTV and the acquisition of the joint venture interest of MLTV,
thereby dissolving the joint venture. As it relates to the subordinated debt,
the Company has agreed to pay the principle amount of $20,000 a month for a
twenty-four (24) month period for a total of $480,000, and the balance of
$291,000 at the end of this term. As of March 31, 1996, the Company paid
$100,000 and reduced the total outstanding to $671,000. The Company is not
required to pay any additional interest on the outstanding balance under this
agreement unless there is a payment not made on time or an event of default.
There have been no late payments or defaults. The purchase of the technology and
the joint venture interest was completed with the issuing of 1,000,000 shares of
common stock, which is unregistered and restricted. The 1,000,000 shares of
common stock is in full settlement of the purchase of technology and joint
venture interest, which had a stated base price of $627,000 plus royalties for a
five-year term under a prior agreement between the Company and MLTV. As of
December 8, 1995, the 1,000,000 shares have been recorded in paid-in-capital at
the fair market value of .875 per share based on the market bid price. This
$875,000 value has been assigned to the technology as an intangible asset under
the "other assets" classification and will be amortized over a five (5) year
period starting in January 1996. Amortization recorded through March 31, 1996
was $44,000 reducing the asset balance to $831,000.
On October 31, 1995, the Company entered into a new subordinated debt agreement
for $1.5 million Canadian dollars ($1.1 million US) through Covington Capital's
C.I.-C.P.A. Business Ventures Fund Inc. of Toronto, Canada. This sub-ordinated
debt has a term of five (5) years at an interest rate of 12% per annum, with
interest payments only for the first twelve (12) months. As of March 31, 1996,
the company had made five (5) interest payments totaling approximately $45,000
Canadian dollars ($33,000 US). This agreement includes a first option for
250,000 shares of common stock at a $1,25 per share for a term of five (5) years
and a second option of 400,000 shares of common stock at $2.50 per share until
October 1996, and then $3.25 per share until October 1997. The full amount of
this debt is classified as long term debt. There has been no exercise of options
through March 31, 1996.
<PAGE>
Long term debt also includes a 400,000 mark loan ($291,000 US$) by a private
individual (who is also an investor in the subsidiary) to the Company's wholly
owned German subsidiary, PhotoMed GmbH. The loan was made to the subsidiary on
October 1, 1994, and with a repayment of principal and interest to start at the
end of April 1995 with payment of 10,000 German marks per month. Interest
accrues from October 1 through the start date of the payments at a rate of
5.25%, plus the prevailing German bank discount rate (i.e. 4.5%). The loan has
clauses which would allow both slower and/or faster payments contingent upon the
cash flow of the PhotoMed GmbH operations. As of March 31, 1996, the principal
amount of $344,000 German marks ($233,000 US$) was outstanding. A portion of
this outstanding amount ($47,000 US$) has been classified as a current liability
and represents an estimated twelve payments of principal. The balance ($186,000
US$) has been reported as a long term debt. Payments on a monthly basis are
contingent upon cash flow considerations and upon agreement with the individual.
In July 1994 of the prior fiscal year, documents were fully executed between the
"ODC" and the Company for a term loan facility in the amount of $500,000
Canadian dollars. The loan credit facility was established to allow advance
requests for equipment, inventory and training expenditures associated with
moving the production operation from New Jersey plant to the London Ontario,
Canadian plant. This loan was a "carve out" from the original ODC credit
facility of $900,000 Canadian dollars under the Export Support Loan Program. As
a result, the Export loan facility was set at a $400,000 Canadian dollar limit,
prior to the full payment of the outstanding balance from the Bank of Montreal
credit facility in May 1995. The balance outstanding as of March 31, 1996 on the
ODC fixed loan was $415,000 Canadian dollars ($309,000 US$) based on specific
advance requests approved through this date. Payment of principal was scheduled
to start August 15, 1995 (of fiscal 1996) in that full disbursement had not
occurred by June 30, 1995. The Company has been granted an extension by ODC
until June 30, 1996 with principal payments to start on August 15, 1996.
Interest has been charged on a monthly basis since the first disbursement made
in July 1994, and has continued this fiscal year. The Company may not draw
additional funds on the facility for capital equipment up to $500,00 due to
Ontario government budgetary constraints. This term loan is classified as a long
term debt.
In September 1994, the Company acquired at 51% ownership position and formed a
German subsidiary, PhotoMed GmbH. The Company made a nominal cash investment for
51% ownership and on July 5, 1995 acquired the remaining 49% for 150,000 shares
of common stock from treasury stock and at a fair market value of $1 per share.
As a result of this transaction, PhotoMed GmbH became a wholly-owned subsidiary
of the Company. The PhotoMed GmbH operation was self-financing through the
utilization of a 400,000 DM ($290,000 US$) shareholder long-term loan, 500,000
DM ($362,000 US$) bank revolving line of credit, and cash provided by
operations. The cash start-up expenses incurred during the prior fiscal year was
approximately $900,000 which had a major impact on working capital requirements
and are non-recurring expenses going forward.
<PAGE>
During this quarter, the Company continued to spend heavily on non-capital
investment related to direct sales territory expansion and coverage, marketing
support programs, new product development and to certify our products for sales
into the European Community ("EC") in accordance with regulatory guidelines.
This spending was in-line with the Company's strategy to use available working
capital for these investments for future sales growth. As a result, cash was
used primarily for operating activities and financed through operating bank
lines of credit, and net proceeds from the C.I.-C.P.A. Business Venture Fund.
Cash flow from operations was adversely impacted by increases in accounts
receivable and inventory during the period (as explained above). As a result,
the Company moved close to maximum levels on all bank credit facilities. During
the next fiscal quarter of fiscal 1996, the Company must turn its accounts
receivable and inventory to improve its operating cash flow while maintaining or
moderately lowering its short term debt related to bank credit facilities. The
fourth quarter has been historically the Company's strongest sales performance
quarter. The Company will strive to meet its current sales objectives, while
continuing planned investment in sales coverage, in marketing support programs
and in research and development on new products to support future sales growth.
The Company will continue to certify its products to satisfy "EC" guidelines in
order to sell into these markets which represent 30% of our total sales. This
will require managing within available financial resources and attempting to
balance working capital needs with sources of cash flow. The Company will
continue to pursue business opportunities that provide a good return on
investment and that will strengthen the overall Company.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company nor any of its subsidiaries is currently a party to
nor is any of their property the subject of any legal proceedings which would be
material to the business or financial condition of the Company on a consolidated
basis.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders on Friday, December
8, 1995. The only matters considered and voted upon at the meeting were the
election of three directors for a three-year term, and approval to adopt the
Company's Employee Stock Purchase Plan.
The voting for three directors: Charles G. Marianik, Ronald J. Kovach,
and Louis Balogh was 1,654,538 for and 5,900 withheld.
The voting for the Employee Stock Purchase Plan was 1,383,337 for,
37,952 against and 5,000 withheld.
Item 5. Other Information.
On December 8, 1995, the Company issued 1,000,000 shares of Common
Stock to MLTV pursuant to a Purchase Agreement between the Company and MLTV
dated as of December 8, 1995 (the "Purchase Agreement"), in consideration for
the transfer of the rights to certain technology and MLTV's interest in the
joint venture formed by MLTV and the Company pursuant to a Joint Venture and
Purchase Option Agreement dated April 6, 1987. In connection with the Purchase
Agreement, the Company will pay $771,000 to MLTV as evidence by a Second
Subordinated Promissory Note dated December 8, 1995 payable $20,000 per month
for a two year period, the balance to be paid at the end of such period and
secured by a security agreement.
On October 31, 1995, the Company secured additional financing of $1.5
million Canadian dollars ($1.1 million US$) in the form on a deberture with
C.I.-C.P.A. Business Venture Fund, Inc. of Toronto, Canada. This sub-ordinated
debt has a five year term with principal payment based on a twenty (20) year
amortization and at an annual interest rate of 12%. In the first year, there
will be only interest payments which will amount to an estimated $180,000
Canadian dollars ($134,000 US$). Starting in November 1996, the Company will owe
a principal amount of $6,250 Canadian Dollars ($4,650 US$) on a monthly basis
through the five year term. As a consideration for this financing, C.I.-C.P.A.
also has a stock option agreement which includes a first option equal to 250,000
shares of common stock at $1.25 per share with an expiration date of the
deberture, and a second option equal to 400,000 shares of common stock over a
two year period at $2,50 a share until September 1996, and $3,25 until September
1997.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included herewith:
None
(b) The Company filed the following reports on Form 8-K during the
quarter for which this report is filed:
None
<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.
PHOTON TECHNOLOGY INTERNATIONAL, INC.
Date: May 13, 1996 By: /s/Charles G. Marianik
----------------------------------------
Charles G. Marianik
President, Chief Executive Officer
and Director
Principal Executive Officer
Date: May 13, 1996 By: /s/William D. Looney
----------------------------------------
William D. Looney
Vice President/Controller
Principal Financial and Accounting
Officer
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<PERIOD-END> MAR-31-1996
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