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 SEPTEMBER 30 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, Monmouth Junction, NJ 08852
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(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 September 30, 1996 was 1,157,786.
<PAGE>
INDEX
PHOTON TECHNOLOGY INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1996
and June 30, 1996
Consolidated Statements of Operations for the
three months ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows for the
three months ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements
September 30, 1996
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
September 30 June 30
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ....................... $ 496,726 $ 279,041
Trade accounts receivable, less allowances
of $3,280 in Sept. 1996 ($3,280 in June 1996) .. 1,511,472 2,224,355
Inventory
Finished goods ................................ 578,859 788,139
Work in process ............................... 638,488 534,750
Raw materials ................................. 681,248 570,450
----------- -----------
1,898,595 1,893,339
Receivables from employees ...................... 38,868 20,005
Prepaid expenses and other current assets ....... 397,522 243,957
----------- -----------
TOTAL CURRENT ASSETS ......... 4,343,183 4,660,697
PROPERTY AND EQUIPMENT
Furniture and fixtures .......................... 143,755 143,663
Machinery and equipment ......................... 1,817,507 1,810,678
----------- -----------
1,961,262 1,954,341
Accumulated depreciation ........................ (1,452,773) (1,415,221)
----------- -----------
508,489 539,120
DEFERRED INCOME TAX ASSET ........................ 153,452 153,452
OTHER ASSETS ..................................... 2,025,684 2,057,240
----------- -----------
$ 7,030,808 $ 7,410,509
=========== ===========
See Notes to Consolidated Financial Statements
</TABLE>
Note: The balance sheet at June 30, 1996 has been derived from audited financial
statements at that date, and does not include all the information and notes
required under generally accepted accounting principles for complete financial
statements.
<PAGE>
<TABLE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS - Continued
September 30 June 30
1996 1996
---- ----
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Bank indebtedness .......................... $ 1,500,081 $ 1,522,397
Accounts payable ........................... 921,140 984,159
Deferred income ............................ 8,643 49,755
Accrued expenses ........................... 93,624 171,355
Captial lease obligation ................... 9,636 9,624
Current portion of long term debt .......... 361,011 380,781
----------- -----------
TOTAL CURRENT LIABILITIES ..... 2,894,135 3,118,071
DEFERRED INCOME TAX LIABILITY ................ 172,270 176,452
LONG TERM DEBT ............................... 1,930,618 1,938,370
SHAREHOLDERS' EQUITY
Paid in capital .............................. 6,279,118 6,279,118
Accumulated deficit ........................ (3,709,363) (3,710,312)
Treasury stock, at cost .................... (56,433) (56,433)
Cumulative foreign currency
translation adjustment ................... (479,537) (334,757)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY .... 2,033,785 2,177,616
----------- -----------
$ 7,030,808 $ 7,410,509
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
Note: The balance sheet at June 30, 1996 has been derived from the audited
financial statements at that date, and does not include all the information and
notes required under generally accepted accounting principles for complete
financial statements.
<PAGE>
<TABLE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
September 30
----------------------------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
REVENUES
Net sales .................................. $ 1,901,692 $ 1,948,693
Other income ............................... 11,045 26,891
----------- -----------
1,912,737 1,975,584
COSTS AND EXPENSES
Cost of products sold ...................... 774,012 807,100
Selling, general and administrative ........ 726,235 761,063
Research and development ................... 249,360 216,718
Interest ................................... 81,450 40,000
Depreciation and amortization .............. 37,140 43,925
Goodwill amortization ...................... 46,377 40,462
Foreign exchange (gain) loss ............... 1,394 (5,313)
----------- -----------
1,915,968 1,903,955
Income before income taxes ................... (3,231) 71,629
Deferred income tax credit ................... (4,182) (12,139)
----------- -----------
Net income ................................... $ 951 $ 83,768
=========== ===========
Net income per common share .................. $ .00 $ .10
=========== ===========
Weighted average number of common
shares outstanding .......................... 1,153,776 820,443
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
September 30
OPERATING ACTIVITIES: 1996 1995
---- ----
<S> <C> <C>
Net income .............................................. $ 951 $ 83,768
Adjustments to reconcile net loss
to net cash (used in) provided
by operating activities:
Depreciation and amortization ....................... 37,140 43,925
Provision for doubtful accounts ..................... -- (25)
Other amortization .................................. 46,377 55,252
Deferred income tax benefit ......................... (4,182) (12,139)
Changes in assets and liabilities:
Decrease (increase) in trade accounts receivable .... 712,883 (89,051)
Increase in inventories ............................. (5,256) (28,946)
Increase in prepaid expenses and other current assets (172,428) (77,513)
Decrease in accounts payable
and accrued expenses ............................... (140,750) (122,791)
(Decrease) increase in deferred income .............. (41,112) 5,120
Increase in other assets ............................ (14,399) (59,825)
--------- ---------
Net cash provided by (used in)
operating activities ................................ 419,224 (202,225)
INVESTING ACTIVITIES:
Minority interest .................................... -- (59,926)
Purchase of equipment ................................ (6,921) (16,523)
Capitalized software ................................. (64,500) --
--------- ---------
Net cash used in investing activities ................ (71,421) (76,449)
FINANCING ACTIVITIES:
Net proceeds from issuance of stock to purchase
49% of PhotoMed GmbH ................................. -- 132,272
Increased borrowings on short term
notes payable ........................................ -- 149,457
Payment on current portion of long term debt .......... (27,522) (17,989)
Payment on notes payable to bank ...................... (22,316) --
--------- ---------
Net cash provided by financing activities ............. (49,838) 263,740
Effect of exchange rate changes on cash ............... (80,280) (31,298)
--------- ---------
(Decrease) Increase in cash and equivalents ............. 217,685 (46,232)
CASH AND CASH EQUIVALENTS-BEGINNING ..................... 279,041 46,364
--------- ---------
CASH AND CASH EQUIVALENTS-ENDING ........................ $ 496,726 $ 132
========= =========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Photon Technology International Inc. (the "Company") is engaged in research,
development, manufacturing, sales and marketing of proprietary electro-optical
systems which enable customers in health care, environmental science and
industrial process control to perform advance analysis utilizing light. The
Company's major products are electro-optical and light-based instrumentation
which utilizes fluorescence technology. The primary markets are medical life
sciences, physical sciences, environmental and industrial.
The Company operates in one principal industry segment, the photonics industry.
The Company's products are sold on a worldwide basis to universities, research
hospitals, pharmaceutical companies, bio-tech companies, federal and state
government institutions, environmental companies and commercial business, all of
which are primarily engaged in research activities.
The accompanying 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 three month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended June 30, 1997.
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, 1996.
NOTE B -- PREFERRED AND COMMON STOCK
On June 21, 1996, prior to the Company's fiscal year end, the Company amended
its Restated and Amended Certificate of Incorporation to reflect a reverse stock
split whereby one (1) share of common stock was exchanged for every three (3)
shares of common stock. This Reverse Split impacted all authorized common stock
and stock options, including treasury shares, employee and non-employee stock
options. The weighted average shares outstanding are computed on a Reverse Split
basis on both a current and historical basis. As a result, the earnings per
share calculations reflect the impact of the Reverse Split.
Preferred stock, with $3,000 par value, has authorized 167 shares and no shares
were issued or are outstanding. Common stock, with no par value, has authorized
3,333,333 shares and issued 1,213,077 shares including 55,291 shares in treasury
(Sept. 1996) and 55,291 shares in treasury (June 1996)
NOTE C -- COMPARATIVE AMOUNTS
Certain comparative amounts in the prior years have been reclassified to conform
with the presentation adopted in the current fiscal year.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales of $1,902,000 for the first quarter of fiscal 1997 compares to
$1,949,000 for the same period of fiscal 1996; a decrease of $47,000 or 2.4%.
This nominal decrease reflected the impact of product orders which were received
late in the quarter and have a 45-60 day lead time to produce and ship to
customers.
Total revenues of $1,913,000 for this period, which includes net sales and other
income, decreased $63,000 or 3.2% over the comparable prior year period. This
performance reflects both the sales impact and lower other income. Other income
decreased by $16,000 primarily due to a non-recurring insurance rebate for
workers' compensation.
Cost of products sold for the first quarter of fiscal 1997 was $774,000 or 40.7%
of net sales, which compares to $807,000 or 41.4% of net sales for the same
period of fiscal 1996. This decrease of $33,000 or 4.1%, was due both to lower
sales and cost reductions in the plant production operations. The lower cost of
products sold was reflected in the percentage of net sales which decreased from
41.4% to 40.7% as a result of cost reductions and maintaining production
efficiency.
Selling (including marketing expenses), general and administrative expenses of
$726,000 or 38.2% of net sales compares to $761,000 or 39.1% of net sales in the
prior year's first quarter. This decrease of $35,000 or 4.6% primarily related
to volume-sensitive selling expenses and holding discretionary spending on
marketing support programs.
Research and development expenses of $249,000 or 13.1% of net sales increased
$32,000 or 15.1% in comparison to $217,000 or 11.1% of net sales in the prior
year. An additional $65,000 of software development expenses, which represents
3.4% of net sales, was capitalized and represents incremental spending in
comparison to the same prior year period. These increased expenses year-to-year
are due to additional staffing and level of project activity for new products.
Depreciation and amortization of $37,000 compares to $44,000 in the prior year,
a decrease of $7,000 or 15.4%. This decrease was primarily due to the impact of
lower amortization on equipment under capital lease on a year-to-year basis,
pursuant to the amortization schedule.
Interest expenses of $81,000 increased $41,000 or 103.6% in comparison to the
prior year. This primarily relates to interest on short term credit facilities
due to a higher level of short term debt and interest on long term debt related
to financing activities in the prior year.
Goodwill amortization of $46,000 increased $6,000 or 14.6% in comparison to the
same prior year period. This increase represents the full year incremental
effect of capitalized start-up expenses associated with formation of the German
subsidiary in September 1994 of fiscal 1995.
Foreign exchange loss of $1,000 compares to a gain of $5,000 due to the mix of
transactional activity.
<PAGE>
A deferred tax credit of $4,000 compared to $12,000 for the same prior year
period. The deferred tax credit relates to a timing difference between book and
tax income related to the Canadian and German subsidiaries. The credits
represent a partial reversal of the liability that was established at year end
June 30, 1996.
As a result of the foregoing, the Company reported net income of $1,000 compared
to net income of $84,000 in the first quarter of the prior year, on a comparable
level of sales. The required sustained level of investment expense in research
and development, interest expenses related to level of overall debt, continued
expenses related to certification of products in Europe and the recognition of
expenses related to prepaid financing were the major impacts on income.
The resulting earnings per share performance based on the weighted average
number of common shares each year and stated on a "reverse split" basis, was no
earnings per share in comparison to ten cents (.10) per share for the same prior
year period.
LIQUIDITY AND CAPITAL RESOURCES
The working capital of the Company at September 30, 1996 was $1,449,000 compared
to $1,543,000 at June 30, 1996; a decrease of $94,000 or 6.1%.
Current assets of $4,343,000 decreased $318,000 or 6.8% from the prior year.
This change primarily reflected a decrease of $713,000 or 32.0% in trade
receivables which was partially offset by an increase in cash of $218,000 or
78.0% and an increase in other current assets of $172,000 or 65.3% The inventory
level of $1.9 million remained the same in comparison to the fiscal 1996 year
end. This inventory balance represented 5.3 months of sales in inventory based
on anticipated sales volume and remains unchanged in comparison to year end. The
change in trade receivables and increase in cash related to strong collection
activity on the June 1996 sales of $1.2 million. The trade accounts receivable
balance of $1.5 million represents 2.3 months of sales in comparison to 2.8
months of sales at June 30, 1996. The increase in other current assets related
to the timing of (a) prepaid employee benefit insurance (b) prepaid property
insurance premiums (c) prepaid value added taxes (VAT) and general goods and
services taxes (GST) (d) prepaid legal services and (e) prepaid trade show
deposits and related marketing costs.
Current liabilities of $2,894,000 decreased $224,000 or 7.2% in comparison to
the prior year. This decrease was due to (a) reduction in notes payable to banks
of $22,000 of 1.5% based on pay down of the German subsidiary bank line (b)
reduction in trade accounts payable of $63,000 or 6.4% based on payment activity
(c) lower deferred income of $41,000 or 82.6% due to revenue recognition on
customer orders (d) lower accrued expenses of $78,000 or 45.4% due to reversal
of year end accruals in relation to actual expenses incurred and primarily
related to agent and sales representative commissions, and (e) a reduction in
the current portion of long term debt by $20,000 or 5.2% primarily related to
payments on the Ontario Development Corporation term loan pursuant to the
payment schedule.
On July 26, 1996 the Company secured a new working capital line of credit
facility with Silicon Valley Bank of California for $2,000,000 (U.S.) and repaid
the Bank of Montreal credit facility in full. This credit facility has a one (1)
year term (expiring June 30, 1997) and carries interest rate charge of prime
rate plus 1.5% (approximately 8.75%). Interest is due and payable monthly, and
the principal is due at maturity. The collateral for the line represents a
<PAGE>
perfected first security interest in all assets of the Company, its wholly-owned
Canadian subsidiary and United Kingdom branch office. The Company will retain
ownership of intellectual property and is restricted on the pledge of this
property to any other party. The advance rate is based on 75% against eligible
domestic and Canadian receivables within 90 days from invoice date and 90%
against incurred or letter of credit backed foreign receivables. There is no
clean-up period required during the term. The securities related to the
Covington Capital debenture and the MLTV note are subordinated to the bank debt.
The new line of credit provided $1.3 million to repay the Bank of Montreal
facility. The balance outstanding at September 30, 1996 was $1.2 million. The
Company is in default on certain bank covenants which are being restructured.
The Company has not borrowed additional amounts on this line at this point.
Bank indebtedness also includes the outstanding balance of $301,000 US (460,000
DM) at September 30, 1996 drawn on a credit facility with the Stadparkasse Bank
of Wedel, Germany. The total line of credit available is 500,000 DM, which was
established in conjunction with the formation of the Germany Subsidiary
(September 1994). Interest is charged on a quarterly basis at the German Federal
Bank's discount rate plus two points.
The Company entered into an agreement with New Court Credit Corporation of
Toronto, Canada in March 1996 to finance the purchase of a CNC milling machine
for the Canadian plant machine shop. The term loan amount was for $90,000
Canadian dollars ($66,000 US). The balance of the debt at June 30, 1996 was
$85,000 Canadian dollars ($62,000 US) with $10,000 classified as the current
portion of the long term debt. The term of the financing is 5.5 years at an
annual interest rate of 10.4%, and a purchase option of $9,000 at the end of the
fifth year. The outstanding balance at September 30, 1996 was $82,000 Canadian
dollars ($60,000 US).
The December 1995 MLTV Agreement provided for repayment of subordinated debt in
the amount of $771,000, the purchase of the Company of the technology developed
under the Joint Venture and the acquisition of MLTV's interest in the Joint
Venture, thereby dissolving the Joint Venture. As it relates to the subordinated
debt the Company agreed to pay the principal amount of $20,000 a month for a
twenty-four (24) month period for a total of $480,000. The balance of $291,000
is due at the end of the two year term. As of June 30, 1996, the Company has
paid $140,000 and reduced the total outstanding balance to $631,000. The Company
is not required to pay any additional interest on the outstanding balance under
this agreement unless the Company makes a late payment or an event of default
under the terms of the agreement occurs. On the June 21, 1996, MLTV agreed to
defer four payments from June 1996 through September 1996. As of September 30,
1996, the outstanding balance remained at $631,000. The deferred amount will be
subject to interest in accordance with the agreement. The Company purchased the
technology and the joint venture interest by issuing to MTLV 1,000,000 shares of
the Company's common stock. The stock is unregistered and restricted. 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 (prior to reverse split) 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. As of June 30, 1996, the asset balance was
$831,000, net of amortization of $44,000 during the fiscal year. As of September
30, 1996, the asset balance was $809,000, net of amortization of $22,000 in the
first quarter. This was a strategic agreement for the Company in that the
Company now owned the technology rights and there was no future liability for
royalties.
<PAGE>
On October 31, 1995, the Company entered into a Debenture agreement for $1.5
million Canadian dollars ($1.1 million US) through C.I.-C.P.A. Business Ventures
Fund, Inc., a venture capital fund of Covington Capital Corporation ("Covington
Capital") (the "Covington Agreement"). This subordinated debt has a term of five
(5) years at an interest rate of 12% per annum. Interest payments are payable
only in the first twelve (12) months. This Covington Agreement includes a first
option to purchase 83,333 shares of the Company's common stock at a purchase
price of $3.75 per share for a term of five (5) years and a second option to
purchase 133,333 shares of the Company's common stock at purchase price of $7.50
per share until October 1996. After October 31, 1996 the purchase price
increased to $9.75 per share and this option expires on October 1, 1997. (The
share amounts and price per share are stated on a "reverse split" basis). This
debt is classified primarily as long term debt with principal payments of
$31,500 due in fiscal 1997 recorded as current debt. The balance outstanding as
of June 30, 1996 was $1,100,000 ($1.5 million Canadian dollars). The balance
outstanding at September 30, 1996 remained at $1.1 million. Payments of
principal will commence on November 30, 1996 in the amount of $6,250 Canadian
dollars ($4,500 US) per month for a period of forty-eight (48) months with the
balance due at the end of the term. This financing was an important source of
funds during fiscal 1996 which provided for investment to expand sales territory
coverage through addition of personnel, increase marketing support, and to
continue research and development efforts in both hardware and software for new
products and product cost reductions. There has been no exercise of options
through September 30, 1996.
Long term debt also includes a 400,000 DM loan ($ 291,000 US) by a private
individual (who is also an investor in the subsidiary) to the Company's wholly
owned Germany subsidiary. The loan was made to the subsidiary on October 1,
1994. The Company began making payments of principal and interest of 10,000
German marks per month at the end of April 1995. Interest accrues from October 1
through the start date of the payments at an interest rate of 5.25% plus the
prevailing German bank discount rate. The loan has clauses which would allow
both slower and/or faster payments contingent upon the cash flow of the German
Subsidiary operations. As of June 30, 1996, the principal amount of 353,000
German marks ($231,000 US) was outstanding. As of September 30, 1996, the
principal amount outstanding was 343,000 DM ($225,000 US). 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 ($178,000 US)
has been reported as long term debt. Payments on a monthly basis are contingent
upon cash flow considerations and upon agreement with the individual.
In July 1994, documents were fully executed between the Ontario Development
Corporation ("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 the 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 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 June 30, 1996 on the ODC fixed loan was $415,000
Canadian dollars ($304,000 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 had been granted an extension by ODC until June 30, 1996 with
principal payments in the amount of $11,597 Canadian dollars ($8,500 US) having
started on July 15, 1996. The outstanding balance at September 30, 1996 was
$387,000 Canadian dollars ($284,000 US). The term of repayment is forty (40)
<PAGE>
months and includes an interest rate of 6.75%. Interest has been charged on a
monthly basis since the first disbursements made on July 1994. The Company may
not draw additional funds on the facility for capital equipment up to $500,000,
the original facility amount, due to Ontario government budgetary constraints.
This term loan is classified as a long term debt with a current portion equal to
twelve months of principal payments.
Overall, the amount of cash provided by operating activities allowed the Company
to meet working capital requirements during this quarter, which included support
of all financing and investing activities, and payments on debt obligations.
In the area of operating activities, the Company's collections on trade
receivables and continued reduction in cost of sales (on a percentage of sales
basis) during this period provided a strong cash contribution to working
capital. This contribution supported continued: (a) investments in sales,
marketing, research and development (b) meeting regulatory obligations to sell
into the EC and (c) payment of fees, interest and principal, where applicable,
related to financing agreements.
The investments in the operating areas of sales, marketing and research and
development are strategic to future growth and have an impact on income results
due to the time that is required for these investments to be leveraged or
provide a contribution.
The expenses associated with meeting regulatory requirements for our products
are necessary to be able to sell into the EC, and the Company will incur
additional expenses going forward to complete certification of its current
product line and to certify our new products at time of introduction to the
marketplace. This could provide a competitive advantage if our competitors have
not or cannot comply. If the Company does not comply, there could be risks to
the Company's ability to sell in the EC and a potential competitive
disadvantage.
The payment of interest, principal and fees have been increasing as the Company
completes new financing agreements and maximizes the use of the available short
term credit lines to support working capital requirements. The Company's
financing to date has been primarily debt through operating short term lines of
credit, term loans, and subordinated debt. The Company's bank lines of credit,
which are supported by sales generated trade accounts receivable, have limited
borrowing capacity at this time because these lines of credit are close to the
maximum qualified borrowing levels. The term loans, which had deferred principal
payments are now under a scheduled payment agreement. The subordinated debt --
MLTV ($600,000) and Covington Capital ($1.1 million) -- totals $1.7 million, and
will require payments of $400,000 on an annual basis (with interest and
principal as applicable) until the end of the respective term and a balloon
payment comes due -- MLTV in December 1997 (fiscal year 1998) and Covington
Capital in October 2000 (fiscal year 2001).
These investments and expenses have continued to put downward pressure on the
bottom line/income, and operating cash flow in that our investment exceeded the
sales growth contribution to date. These investments and expenses are necessary
and important to the future performance of the Company and must continue at a
level which our financial resources can support.
<PAGE>
The Company will continue to manage within its financial resources and attempt
to balance its working capital needs with cash flow generated from operations
and available current financing. The Company will not consider any incremental
long term debt and will work with current operating lines of credit. The Company
will consider additional financing through the form of equity to accelerate and
support growth in sales, and to increase the investment levels in research and
development for new products and for continued cost reductions to improve sales
margin contribution. The Company cannot be certain that it will be successful in
efforts to raise additional funds.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
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: November 14, 1996 By: s/sCharles G. Marianik
-------------------
Charles G. Marianik
President, Chief Executive Officer
and Director
Principal Executive Officer
Date: November 14, 1996 By: s/sWilliam D. Looney
-----------------
William D. Looney
Vice President/Controller
Principal Financial and Accounting
Officer
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