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, 1997, 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 Common Stock without par value outstanding as of
September 30, 1997 was 1,159,810.
<PAGE>
INDEX
PHOTON TECHNOLOGY INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
and June 30, 1997
Consolidated Statements of Operations for the
three months ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows for the
three months ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements
September 30, 1997
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
1997 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................... $ 1,338,342 $ 1,367,703
Trade accounts receivable ................... 1,648,736 2,078,250
Inventory
Finished goods .......................... 1,146,795 970,184
Work in process ......................... 438,417 472,109
Raw materials ........................... 712,464 619,581
----------- -----------
2,297,676 2,061,874
Prepaid expenses and other current assets ... 321,986 325,943
----------- -----------
TOTAL CURRENT ASSETS ......... 5,606,740 5,833,770
PROPERTY AND EQUIPMENT
Furniture and fixtures ...................... 153,135 153,135
Machinery and equipment ..................... 1,960,631 1,955,035
----------- -----------
2,113,766 2,108,170
LESS: Accumulated depreciation .................. (1,612,360) (1,569,689)
----------- -----------
501,406 538,481
DEFERRED INCOME TAX ASSET ........................ 143,758 143,758
OTHER ASSETS ..................................... 1,834,132 1,915,702
----------- -----------
$ 8,086,036 $ 8,431,711
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
Note: The balance sheet at June 30, 1997 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
1997 1997
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness ................................ $ 1,288,081 $ 1,321,829
Accounts payable ................................. 1,018,490 1,061,135
Deferred income .................................. 78,642 11,924
Accrued expenses ................................. 113,843 170,448
Current maturities of long term debt ............. 862,047 866,046
----------- -----------
TOTAL CURRENT LIABILITIES .............. 3,361,103 3,431,382
LONG TERM DEBT ........................................ 1,237,601 1,323,484
PREFERRED SHARES - Canadian subsidiary ................ 1,958,147 1,962,137
COMMITMENTS
SHAREHOLDERS' EQUITY
Preferred stock, $1,000 par value: authorized 500
shares; no shares issued or outstanding
Common stock, no par value: authorized
3,333,333 shares; issued 1,215,101
shares, including 55,291 shares in
treasury stock ............................... 6,297,386 6,297,386
Accumulated deficit .............................. (4,183,773) (3,984,473)
Treasury stock, at cost .......................... (56,433) (56,433)
Cumulative foreign currency translation adjustment (527,995) (541,772)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ............. 1,529,185 1,714,708
----------- -----------
$ 8,086,036 $ 8,431,711
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
September 30
1997 1996
----------- -----------
<S> <C> <C>
REVENUES
Net sales ............................... $ 2,048,785 $ 1,901,692
Other income ............................ 27,447 11,045
----------- -----------
2,076,232 1,912,737
COSTS AND EXPENSES
Cost of products sold ................... 836,211 723,654
Selling, general and administrative ..... 1,004,558 726,235
Research and development ................ 184,994 249,360
Interest ................................ 82,267 81,450
Depreciation and amortization ........... 168,792 133,875
Foreign exchange (gain) loss ............ (790) 1,394
----------- -----------
2,275,532 1,915,968
Loss before income taxes ..................... (199,300) (3,231)
Deferred income tax credit ................... -- (4,182)
----------- -----------
Net income (loss) ............................ ($ 199,300) $ 951
----------- ===========
Net income (loss) per common share ........... ($ 0.17) $ .00
=========== ===========
Weighted average number of common
shares outstanding .......................... 1,159,810 1,153,776
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
September 30
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ............................ ($ 199,300) $ 951
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization .............. 168,792 133,875
Deferred income tax benefit ................ (4,182)
Changes in assets and liabilities:
Decrease in trade accounts receivable ...... 429,514 712,883
Increase in inventories .................... (235,802) (5,256)
Decrease (increase) in prepaid expenses and
other current assets ..................... 3,957 (172,428)
Decrease in accounts payable
and accrued expenses ..................... (99,250) (140,750)
Increase(decrease) in deferred income ...... 66,718 (41,112)
Increase in other assets ................... (13,215) (64,757)
----------- -----------
Net cash provided by
operating activities ..................... 121,414 419,224
INVESTING ACTIVITIES:
Purchase of equipment ...................... (5,596) (6,921)
Capitalized software ....................... (31,336) (64,500)
----------- -----------
Net cash used in investing activities ...... (36,932) (71,421)
FINANCING ACTIVITIES:
Additional costs from issuance of preferred
shares - Canadian Subsidiary ............... (3,990)
Payment on current portion of long term debt . (89,882) (27,522)
Payment on notes payable to bank ............. (33,748) (22,316)
----------- -----------
Net cash used in financing activities ........ (127,620) (49,838)
Effect of exchange rate changes on cash ...... 13,777 (80,280)
----------- -----------
(Decrease) Increase in cash and equivalents .. (29,361) 217,685
CASH AND CASH EQUIVALENTS-BEGINNING ............... 1,367,703 279,041
----------- -----------
CASH AND CASH EQUIVALENTS-ENDING .................. $ 1,338,342 $ 496,726
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
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, 1997 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, 1997.
NOTE B -- 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 $2,049,000 for the first quarter of fiscal 1998 compares to
$1,902,000 for the same period of fiscal 1997; an increase of $147,000 or 7.7%.
This increase 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 $2,076,000 for this period, which includes net sales and other
income, increased $163,000 or 8.5% over the comparable prior year period. This
performance reflects both the impact of increased sales and other income. Other
income increased by $16,000 primarily due to increased interest earned on cash
equivalents.
Cost of products sold for the first quarter of fiscal 1998 was 836,000 or 40.8%
of net sales, which compares to $724,000 or 38.1% of net sales for the same
period of fiscal 1997. This increase of $112,000 or 15.5%, was due both to
higher sales and cost increases in the plant production operations
Selling (including marketing expenses), general and administrative expenses of
$1,004,000 or 49.0% of net sales compares to $726,000 or 38.2% of net sales in
the prior year's first quarter. This increase of $278,000 or 38.3% primarily
related to increased marketing and selling expenses to handle anticipated sales
increases. These costs increases are expected to continue through the second
quarter when such costs will level off to a normal level.
Research and development expenses of $185,000 or 9.0% of net sales decreased by
$65,000 or 26% in comparison to $249,000 or 13.1% of net sales in the prior
year. An additional $31,000 of software development expenses, which represents
1.5% of net sales, was capitalized in comparison to $65,000 for the same prior
year period. These expenses are due to the level of project activity for new
products.
Depreciation and amortization of $169,000 compares to $134,000 in the prior
year, an increase of $35,000 or 25.9%. This increase was primarily due to the
impact of higher amortization of software development costs.
Interest expense of $82,000 increased $1,000 or 1.2% in comparison to the prior
year. This primarily relates to interest on short term credit facilities and
long term debt related to financing activities in prior years.
Foreign exchange income of $1,000 compares to a loss of $1,000 due to the mix of
transactional activity.
No tax provision has been provided as a result of the net loss in the current
period compared to a deferred tax credit of $4,000 for the same prior year
period.
As a result of the foregoing, the Company reported a net loss of $199,000
compared to net income of $1,000 in the first quarter of the prior year. The
required increased level of selling, general and administrative expenses
discussed above, the sustained level of investment expense in research and
development, the amortization of capitalized software and technology rights
acquired were the major impacts on income.
<PAGE>
The resulting earnings per share performance based on the weighted average
number of common shares each year was a net loss of $.17 per share this period
in comparison to no earnings per share for the same prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The working capital of the Company at September 30, 1997 was $2,246,000 compared
to $2,402,000 at June 30, 1997; a decrease of $156,000 or 6.5%.
Current assets of $5,607,000 decreased $227,000 or 4.0% from June 30, 1997. This
change primarily reflected a decrease of $429,000 or 20.6% in trade receivables
which brings the trade receivables in line with the balance as of September 30
of the prior year. The inventory balance has increased by $236,000 or 11.4% to
$2,229,800. This inventory balance represented 8.3 months of sales in inventory
compared to 7.3 months of sales at the end of the preceding year. The trade
accounts receivable balance of $1.6 million represents 2.2 months of sales in
comparison to 3.0 months of sales at June 30, 1997.
Current liabilities of $3,361,000 decreased $70,000 or 2.0% in comparison to the
balance as of June 30, 1997. This decrease was due principally to reductions in
bank indebtedness, accounts payable and accrued expenses. These reductions were
offset by an increase in deferred income of $67,000 to $79,000.
The Company owes the Silicon Valley Bank $1,016,943 on a $2,000,000 working
capital line of credit. The line of credit has been extended to October 15,
1997. The company has paid back the inventory sub-limit advance. The Company
believes that the line of credit will be renewed after the October 15 date and
is currently negotiating with the Bank to renew the line for a one year term.
Bank indebtedness includes the line of credit with the German Stadtparkasse Bank
to support the German Subsidiary operations. The outstanding balance was
$271,138 (477,103 DM) on September 30, 1997, on a line of credit of $284,150
(500,000 DM).
The December 1995 MLTV Agreement provided for repayment of subordinated debt in
the amount of $771,000, the purchase by 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 principle amount of $20,000 a month for a
twenty-four (24) month period for a total of $480,000. The balance of $291,000
was due at the end of the two year term. As of September 30, 1997, 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 occurs under the terms of the agreement. MLTV agreed to defer
payments from June 1996 through July 1997. The deferred amount is subject to
interest in accordance with the agreement.
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 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. Payments of principal commenced 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 which provided for
investment to expand sales territory coverage through addition of personnel,
increase marketing support, and continue research and development efforts in
both hardware and software for new products and product cost reductions.
<PAGE>
In July 1994, 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 the New Jersey plant to the London, Ontario, Canadian plant. The
balance outstanding as of September 30, 1997 on the ODC fixed loan was $270,027
Canadian dollars ($195,526 US) based on specific advance requests approved
through this date. The term of repayment is forty (40) months and includes an
interest rate of 6.75%. This term loan is classified as long term debt with a
current portion equal to twelve months of principal payments.
On March 7, 1997, the Company raised its first significant equity financing
since 1987, for $2,000,000, net $1,958,147 (for detail on specific terms, refer
to Note I to the Financial Statements in Form 10K). The importance of this
financing is that it allows the Company to pursue its growth goals. The Company
will use the financing for new product introduction and to expand its sales and
marketing coverage.
The major risk to the Company is the timing of sales following the Company's
sales promotional campaigns. Generally there is a six month sales cycle, but the
sales cycles can lengthen due to economic conditions. Should the sales cycle
become too long, the Company does not have the financial resources to sustain
the sales and marketing plans and would have to cut back on its marketing and
sales efforts.
If the Company has to repay some of the short term maturing debt, it will loose
a substantial portion of its financial resources to pursue its growth plans.
Whereas there is every reason to believe that the Company can refinance its
maturing debt, there is no guarantee that it will be able to do so.
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 continue to seek additional
financing to fully exploit its sales and marketing potential. 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, 1997 By: /s/Charles G. Marianik
-----------------------------------
Charles G. Marianik
President, Chief Executive Officer
and Director
Principal Executive Officer
Date: November 14, 1997 By: /s/Howard D. Zumbrun
-----------------------------------
Howard D. Zumbrun
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 1,338,342
<SECURITIES> 0
<RECEIVABLES> 1,648,736
<ALLOWANCES> 0
<INVENTORY> 2,297,696
<CURRENT-ASSETS> 5,606,740
<PP&E> 2,113,766
<DEPRECIATION> 1,612,360
<TOTAL-ASSETS> 8,086,036
<CURRENT-LIABILITIES> 3,361,103
<BONDS> 1,237,601
1,958,147
0
<COMMON> 6,297,386
<OTHER-SE> (4,786,201)
<TOTAL-LIABILITY-AND-EQUITY> 8,086,036
<SALES> 2,048,785
<TOTAL-REVENUES> 2,076,232
<CGS> 836,211
<TOTAL-COSTS> 2,194,265
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,267
<INCOME-PRETAX> (199,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (199,300)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> 0
</TABLE>
