FORM 10-QSB
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, 1998, 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 small business issuer as specified in its charter)
NEW JERSEY 22-2494774
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(State of Incorporation) (I.R.S. Employer Identification No.)
1 Deer Park Drive, Suite F, Monmouth Junction, NJ 08852
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (732) 329-0910
Check whether the Issuer (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, 1998 was 1,167,356.
<PAGE>
INDEX
PHOTON TECHNOLOGY INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet as of September 30, 1998...............
Consolidated Statements of Operations for the
three months ended September 30, 1998 and 1997....................
Consolidated Statements of Cash Flows for the
three months ended September 30, 1998 and 1997....................
Notes to Consolidated Financial Statements
September 30, 1998................................................
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 SHEET
September 30
1998
-----------
ASSETS (Unaudited)
<S> <C>
CURRENT ASSETS
Cash and cash equivalents ............................... $ 284,122
Trade accounts receivable, less allowance of $43,164 .... 1,611,475
Inventory
Finished goods ...................................... 602,923
Work in process ..................................... 225,258
Raw materials ....................................... 824,975
-----------
1,653,156
Prepaid expenses and other current assets ............... 292,601
-----------
TOTAL CURRENT ASSETS ..................... 3,841,354
PROPERTY AND EQUIPMENT
Furniture and fixtures .................................. 153,135
Machinery and equipment ................................. 2,396,712
-----------
2,549,847
LESS: Accumulated depreciation .............................. (1,808,454)
-----------
741,393
DEFERRED INCOME TAX ASSET .................................... 140,258
OTHER ASSETS ................................................. 1,558,638
-----------
$ 6,281,643
===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET - Continued
September 30
1998
-----------
(Unaudited)
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness ...................................... $ 989,527
Accounts payable ....................................... 508,828
Deferred income ........................................ 41,768
Deposits ............................................... 148,756
Accrued expenses ....................................... 191,658
Current maturities of long term debt ................... 228,274
-----------
TOTAL CURRENT LIABILITIES .................... 2,108,811
LONG TERM DEBT .............................................. 1,587,146
PREFERRED SHARES - Canadian subsidiary ...................... 1,958,147
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 1,292,477
shares, including 125,121 shares in
treasury stock ..................................... 6,305,315
Accumulated deficit .................................... (5,157,856)
Treasury stock, at cost ................................ (53,915)
Cumulative foreign currency translation adjustment ..... (466,005)
-----------
TOTAL SHAREHOLDERS' EQUITY ................... 627,539
-----------
$ 6,281,643
===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
September 30
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES
Net sales .............................. $ 2,112,795 $ 2,048,785
Other income ........................... 9,448 27,447
----------- -----------
2,122,243 2,076,232
COSTS AND EXPENSES
Cost of products sold .................. 934,817 836,211
Selling, general and administrative .... 723,470 1,004,558
Research and development ............... 149,448 184,494
Interest ............................... 69,259 82,267
Depreciation and amortization .......... 175,091 168,792
Foreign exchange (gain) loss ........... 9,600 (790)
----------- -----------
2,061,685 2,275,532
----------- -----------
Net income (loss) ........................... $ 60,558 ($ 199,300)
=========== ===========
Net income (loss) per common share .......... $ 0.05 ($ 0.17)
=========== ===========
Weighted average number of common
shares outstanding ......................... 1,167,356 1,163,408
=========== ===========
</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
----------------------------
OPERATING ACTIVITIES: 1998 1997
----------- -----------
<S> <C> <C>
Net income (loss) ............................. $ 60,558 ($ 199,300)
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization ............... 43,288 49,464
Goodwill amortization ....................... 36,012 33,292
Amortization-other intangible assets ........ 95,791 86,036
Changes in assets and liabilities:
Decrease in trade accounts receivable ....... 93,565 429,514
(Decrease) increase in inventories .......... 93,877 (235,802)
Decrease (increase) in prepaid expenses and
other current assets ...................... (46,450) 3,957
Decrease in accounts payable, deposits
and accrued expenses ...................... (186,499) (99,250)
Increase in deferred income ................. 12,249 66,718
Increase in other assets .................... (13,215)
----------- -----------
Net cash provided by
operating activities ...................... 202,391 121,414
INVESTING ACTIVITIES:
Purchase of equipment ....................... (5,596)
Capitalized software ........................ (10,663) (31,336)
----------- -----------
Net cash used in investing activities ....... (10,663) (36,932)
FINANCING ACTIVITIES:
Additional costs from issuance of preferred
shares - Canadian Subsidiary ................ (3,990)
Payment of long term debt ..................... (116,962) (33,748)
Payment on notes payable to bank .............. (104,148) (89,882)
----------- -----------
Net cash used in financing activities ......... (221,110) (127,620)
Effect of exchange rate changes on cash ....... 55,497 13,777
----------- -----------
(Decrease) Increase in cash and equivalents ... 26,115 (29,361)
CASH AND CASH EQUIVALENTS-BEGINNING ................ 258,007 1,367,703
----------- -----------
CASH AND CASH EQUIVALENTS-ENDING ................... $ 284,122 $ 1,338,342
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
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 businesses, 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 10-KSB and Regulation S-B. 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, 1998 are not necessarily indicative of
the results that may be expected for the year ended June 30, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report or Form 10-KSB for the year
ended June 30, 1998.
NOTE B -- COMPARATIVE AMOUNTS
Certain comparative amounts in the prior year have been reclassified to conform
with the presentation adopted in the current fiscal year.
NOTE C - COMPREHENSIVE INCOME
In the first quarter of fiscal 1999, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS 130
requires disclosure of total non-stockholder changes in equity in interim
periods and additional disclosures of the components of non-stockholder changes
in equity on an annual basis. Total non-stockholder changes in equity includes
all changes in equity during a period except those resulting from fiscal
investments by and distributions to stockholders. Total comprehensive income for
the first quarters of 1999 and 1998 was as follows:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
September 30
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
Net income (loss) ............................. $ 60,558 ($199,300)
Foreign currency translation adjustment ....... 73,352 13,777
--------- ---------
Total comprehensive income (loss) ............. $ 133,910 ($185,523)
</TABLE>
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales of $2,113,000 for the first quarter of fiscal 1999 compares to
$2,049,000 for the same period of fiscal 1998; an increase of $64,000 or 3.1%.
This increase reflected the impact of product orders which were received late in
the fourth quarter of fiscal 1998 and have a 45-60 day lead time to produce and
ship to customers.
Total revenues of $2,122,000 for this period, which includes net sales and other
income, increased $46,000 or 2.3% over the comparable prior year period. This
performance reflects the impact of increased sales and a decrease in other
income. Other income decreased by $18,000 primarily due to decreased interest
earned on cash equivalents.
Cost of products sold for the first quarter of fiscal 1999 was $935,000 or 44.2%
of net sales, which compares to $836,000 or 40.8% of net sales for the same
period of fiscal 1998. This increase of $99,000 or 11.8%, was due both to higher
sales and cost increases in the plant production operations.
Selling (including marketing expenses), general and administrative expenses of
$723,000 or 34.2% of net sales compares to $1,004,000 or 49.0% of net sales in
the prior year's first quarter. This decrease of $281,000 or 28.0% primarily
related to decreased marketing and selling expenses related principally to trade
shows, advertising and agents' commissions on foreign sales.
Research and development expenses of $149,000 or 7.1% of net sales decreased by
$36,000 or 19% in comparison to $185,000 or 9.0% of net sales in the prior year.
An additional $11,000 of software development expenses, which represents 0.5% of
net sales, was capitalized in comparison to $31,000 for the same prior year
period. These expenses are due to the level of project activity for new
products.
Depreciation and amortization of $175,000 compares to $169,000 in the prior
year, an increase of $6,000 or 3.5%. This increase was primarily due to the
impact of higher amortization of software development costs.
Interest expense of $69,000 decreased $13,000 or 15.8% 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 loss of $10,000 compares to income of $1,000 due to the mix of
transactional activity.
No tax provision has been provided as a result of the expected applications of
the net losses carrying forward from prior periods.
As a result of the foregoing, the Company reported a net income of $61,000
compared to a net loss of $199,000 in the first quarter of the prior year. The
reduction of selling, general and administrative expenses and research and
development expenses discussed above were the major impacts on income.
The resulting earnings per share performance based on the weighted average
number of common shares each year was a net income of $.05 per share this period
in comparison to ($.17) net loss per share for the same prior year period.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The working capital of the Company at September 30, 1998 was $1,733,000 compared
to $1,536,000 at June 30, 1998; an increase of $197,000 or 12.8%.
Current assets of $3,841,000 decreased $108,000 or 2.7% from June 30, 1998. This
change primarily reflected decreases of $94,000 and $87,000 in accounts
receivable and inventory, respectively. These decreases were 5.5% and 5.0% of
the respective balances at June 30, 1998. The inventory balance represented 5.3
months of sales in inventory which is comparable to the 8.3 months of sales in
inventory at the end of the preceding year. The trade accounts receivable
balance of $1.6 million represents 2.28 months of sales in comparison to 2.53
months of sales at June 30, 1998.
Current liabilities of $2,109,000 decreased $304,000 or 12.6% in comparison to
the balance as of June 30, 1998. This decrease was due principally to reductions
in bank indebtedness, current portion of long-term debt and accounts payable.
As of December 15, 1997 the Company renewed its working capital line of credit
facility with Silicon Valley Bank of California for $2,000,000. This credit
facility has a one (1) year term (expiring December 14, 1998) and carries an
interest rate charge at the prime rate plus 1.5% (approximately 10.0% at
September 30, 1998). Interest is due and payable monthly, and the principal is
due at maturity. The collateral for the line represents a 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 insured or
letter of credit backed foreign receivables. No clean-up period is required
during the term of the loan. The securities related to the Covington Capital
debenture and the MLTV note are subordinated to the bank debt. The balance
outstanding at September 30, 1998 was $960,696.
Bank indebtedness also includes the outstanding balance of $28,831 US (48,140
DM) at September 30, 1998 drawn on a credit facility with the Stadparkasse Bank
of Wedel, Germany. The total line of credit available is 400,000 DM. Interest is
charged on a quarterly basis at the German Federal Bank's discount rate plus two
points.
During March 1998, the Company reached an understanding with MLTV that interest
would not accrue on the $630,000 principal amount of debt due by the Company and
that such balance would only become due upon the sale of the Company or at such
time as MLTV were to dispose of its interest in the Company.
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. 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>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
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 New Jersey plant to the London, Ontario, Canadian plant. The
balance outstanding as of September 30, 1998 on the ODC fixed loan was $145,067
Canadian dollars ($94,700 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,
referred to Note H to the Financial Statements in Form 10-KSB). 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.
If the Company has to repay some of the short term maturing debt, it will lose a
substantial portion of its financial resources to pursue its current 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.
YEAR 2000 ISSUE
Like other companies, financial and business organizations and individuals
around the world, the Company could be adversely affected if the computer
systems it uses and those used by other third parties on which it relies do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 issue". Management is
assessing its computer systems and the systems compliance issues of other third
parties on which it relies.
Based on the Company's assessment to date, the Company believes that
substantially all of its products are Year 2000 compliant. However, the Company
faces risks to the extent that suppliers of products, services and systems
purchased by the Company and others with whom the Company transacts business on
a worldwide basis do not have business systems or products that comply with Year
2000 requirements. To the extent that the Company is not able to test the
technology provided by third party hardware or software vendors, the Company is
in the process of obtaining assurances that their systems are Year 2000
compliant. In the event any such third parties cannot, in a timely manner,
provide the Company with products, services or systems that meet the Year 2000
requirements, the Company's operating results could be materially affected.
Although the Company believes that the cost of Year 2000 modifications for both
internal use software and systems or the Company's products are not material,
there can be no assurance that various factors relating to the Year 2000
compliance issues will not have a material adverse effect on the Company's
business, operating results or financial position.
<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.
Not Applicable
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(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 10, 1998 By: /s/ Charles G. Marianik
-----------------------
Charles G. Marianik
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: November 10, 1998 By: /s/ Howard D. Zumbrun
---------------------
Howard D. Zumbrun
Vice President,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 284,122
<SECURITIES> 0
<RECEIVABLES> 1,654,639
<ALLOWANCES> (43,164)
<INVENTORY> 1,653,156
<CURRENT-ASSETS> 3,841,354
<PP&E> 2,549,847
<DEPRECIATION> 1,808,454
<TOTAL-ASSETS> 6,281,643
<CURRENT-LIABILITIES> 2,108,811
<BONDS> 1,587,146
1,958,147
0
<COMMON> 6,305,315
<OTHER-SE> (5,677,776)
<TOTAL-LIABILITY-AND-EQUITY> 6,281,643
<SALES> 2,112,795
<TOTAL-REVENUES> 2,122,243
<CGS> 934,817
<TOTAL-COSTS> 934,817
<OTHER-EXPENSES> 1,057,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,259
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,558
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
