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,
1999, 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
- --------------------------------------------------------------------------------
(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, 1999 was 1,173,929.
<PAGE>
INDEX
PHOTON TECHNOLOGY INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1999
Consolidated Statements of Operations and
Comprehensive Income (Loss) for the
three months ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows for the
three months ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements
September 30, 1999
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
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>
September 30
1999
------------
ASSETS (Unaudited)
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 193,700
Trade accounts receivable, less allowance
of $29,005 1,418,635
Inventory
Finished goods 678,685
Work in process 228,214
Raw materials 892,845
-----------
1,799,744
Prepaid expenses and other current assets 155,106
TOTAL CURRENT ASSETS 3,567,185
PROPERTY AND EQUIPMENT
Furniture and fixtures 228,254
Machinery and equipment 2,363,246
-----------
2,591,500
LESS: Accumulated depreciation 2,011,772
-----------
579,728
OTHER ASSETS 1,142,042
-----------
$5,288,955
===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS - Continued
September 30
1999
------------
(Unaudited)
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness $ 695,161
Accounts payable 702,773
Deferred Revenue 50,878
Accrued expenses 193,340
Current portion of long term debt and capital lease obligations 123,969
-----------
TOTAL CURRENT LIABILITIES 1,766,121
LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS 1,492,605
PREFERRED SHARES - Canadian Subsidiary 1,958,147
STOCKHOLDERS' 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 118,548 shares in treasury 6,308,885
Accumulated deficit (5,634,703)
Treasury stock, at cost (51,082)
Accumulated Other Comprehensive Loss (551,018)
------------
TOTAL STOCKHOLDERS' EQUITY 72,082
-----------
$5,288,955
============
</TABLE>
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS) - (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
REVENUES
Net sales $ 2,015,648 $ 2,112,795
Other income 1,369 9,448
----------- -----------
2,017,017 2,122,243
COSTS AND EXPENSES
Cost of products sold 971,768 934,817
Selling, general and administrative 844,386 719,970
Research and development 155,845 149,448
Interest 54,055 69,259
Depreciation and amortization 122,109 175,091
Foreign exchange (income) loss (4,474) 9,600
----------- -----------
2,143,689 2,058,185
----------- -----------
Income (loss) before income tax expense (126,672) 64,058
Income taxes -0- 3,500
Net Income (Loss) ($ 126,672) $ 60,558
=========== ===========
Other Comprehensive Income:
Foreign Currency Translation Adjustment 9,682 73,352
----------- -----------
Total Comprehensive Income (Loss) ($ 116,990) $ 133,910
=========== ===========
Net Income (Loss) per common share ($ 0.11) $ 0.05
=========== ===========
Weighted average number of common
shares outstanding 1,173,929 1,167,356
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
OPERATING ACTIVITIES: 1999 1998
---- ----
<S> <C> <C>
Net income (loss) ($126,672) $ 60,558
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 113,650 139,079
Goodwill amortization 8,459 36,012
Decrease in deferred income taxes 0 3,500
Changes in operating assets and liabilities
(Increase) decrease in trade accounts receivable (181,907) 93,565
(Increase) decrease in inventory (196,692) 93,877
(Increase) decrease in prepaid expenses and other
current assets 26,302 (49,950)
Increase (decrease) in accounts payable and
accrued liabilities 203,467 (186,499)
Increase in deferred revenue 1,270 12,249
--------- ---------
Net cash provided (used) by operating activities (152,123) 202,391
INVESTING ACTIVITIES:
Purchase of property and equipment (7,408) 0
Capitalized software (22,636) (10,663)
--------- ---------
Net cash (used) by investing activities (30,044) (10,663)
--------- ---------
FINANCING ACTIVITIES:
Increase (decrease) in bank indebtedness 157,351 (104,148)
Repayment of long term debt (46,943) (116,962)
--------- ---------
Net cash provided (used) by financing activities 110,408 (221,110)
Effect of exchange rate changes on cash 3,802 55,497
--------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (67,957) 26,115
CASH AND CASH EQUIVALENTS-BEGINNING 261,657 258,007
--------- ---------
CASH AND CASH EQUIVALENTS-ENDING $ 193,700 $ 284,122
========= =========
Supplemental disclosure of cash paid for:
Interest $ 52,973 $ 67,087
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
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 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, 1999 are not necessarily indicative of
the results that may be expected for the year ending June 30, 2000. 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, 1999.
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 - SUBSEQUENT EVENT
The Company's Board of Directors voted to approve, in principle, the sale of its
German subsidiary, PhotoMed GmbH, to a group of investors, which includes the
Company's Chairman and Chief Executive Officer, Charles G. Marianik. PhotoMed
will enter into an exclusive distributorship of the Company's products in
Germany, Scandinavia and several other European countries. In addition, PhotoMed
GmbH will retain its exclusive distributorship for Omega/USA in Germany and
Austria. The Company expects this transaction to be completed prior to January
1, 2000. 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, 1999.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three months ended September 30, 1999 of $2.0 million
decreased $97,000, or 4.6%, compared to the same period of fiscal 1999. The
decreases reflect the impact of product orders received late in the quarter
which have a 45-60 day lead time to produce and ship to customers and several
special orders that are in the late stages of production that have a longer lead
time.
Total revenues for the three months ended September 30, 1999 of $2.0 million,
which include net sales and other income, decreased $105,000, or 5.0%, compared
to the same period of fiscal 1999. This performance reflects both the decreased
net sales and other income. Other income decreased $8,000, or 85.5%, from the
same period in fiscal 1999.
Cost of products sold for the first quarter of fiscal 2000 was $972,000, or
48.2%, of net sales, which compares to $935,000, or 44.2% of net sales for the
same period of fiscal 1999. This increase of $37,000, or 4.0%, was primarily due
to increased sales in the Omega filter product line, which are sold at a lower
margin than the remaining product mix of the Company.
Selling (including marketing), general and administrative expenses of $844,000,
or 41.9% of net sales, compares to $720,000, or 34.1% of net sales for the same
period in fiscal 1999. This increase of $124,000, or 17.2%, primarily relates to
an increase of selling and marketing expenses principally for increase in staff,
trade shows, and agents' commissions on foreign sales.
Research and development expenses of $156,000, or 7.7% of net sales, increased
$7,000, or 4.3%, in comparison to $149,000, or 7.1% of net sales, for the same
period in fiscal 1999. An additional $23,000 of software development expenses,
which represents 1.1% of net sales, was capitalized in comparison to $11,000 for
the same period in fiscal 1999. These expenses are due to the level of project
activity for new products.
Interest expense for the three months ended September 30, 1999 of $54,000, or
2.7% of net sales, compares to $69,000, or 3.3% of net sales for the same period
in fiscal 1999. This decrease of $15,000, or 22.0%, primarily relates to the
decreased level of bank indebtedness in comparison to the prior fiscal year.
Depreciation and amortization of $122,000 for the three months ended September
30, 1999 compares to $175,000 for the same period in fiscal 1999, a decrease of
$53,000, or 30.3%. This decrease was primarily due to no amortization in the
current period relating to specific goodwill of the Company's German subsidiary,
which was fully amortized by the fourth quarter of fiscal 1999.
Foreign exchange income of $4,000 compares to loss of $10,000 for the same
period in fiscal 1999, due to a mix of transactional activity.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
No income tax provision has been provided for the three months ended September
30, 1999. Income tax provision for the same period in fiscal 1999 was $4,000,
resulting from the recognition of certain deferred tax assets, which expired in
fiscal 1999.
The Company reported a net loss of $127,000 for the first quarter, compared to a
net income of $61,000 for the first quarter of the prior fiscal year. The
increase in cost of products sold, and selling, general and administrative
expenses discussed above were major impacts on income.
The resulting loss per share performance based on the number of common shares
each year was of $(0.11) per share for the first quarter in comparison to a net
income of $0.05 per share for the same period in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The working capital of the Company at September 30, 1999 was $1,801,000 compared
to $1,843,000 at June 30, 1999, a decrease of $42,000, or 2.3%.
Current assets of $3,567,000 increased $284,000, or 8.7%, from June 30, 1999.
This change primarily reflects increases of $182,000 and $197,000 in accounts
receivable and inventory, respectively. These increases were 14.7% and 12.3% of
the respective balances at June 30, 1999. The inventory balance represented 5.6
months of sales in inventory, which is comparable to the 5.5 months of sales in
inventory at June 30, 1999. The trade accounts receivable balance of $1.4
million represents 2.11 months of sales in comparison to 1.88 months of sales at
June 30, 1999.
Current liabilities of $1,766,000 increased $326,000 or 22.7% in comparison to
the balance as of June 30, 1999. This increase was due principally to increases
in bank indebtedness and trade accounts payable of $157,000 and $194,000, or
29.3% and 38.2% of their respective balances at June 30, 1999.
As of December 14, 1998 the Company renewed its working capital line of credit
with Silicon Valley Bank of California for $2,000,000. This credit facility has
a one (1) year term (expiring December 13, 1999) and carries an interest rate at
the prime rate plus 1.5% (approximately 9.75% at September 30, 1999). 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 the assets of
the Company, its wholly owned Canadian subsidiary and United Kingdom branch. 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
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
and Canadian receivables within ninety (90) days from invoice date and 90%
against insured or letter of credit domestic and foreign receivables. The
Company is not required to pay the outstanding balance in full at any time
during the term of the note. The balance outstanding at September 30, 1999 was
$583,336. The securities related to the Covington Capital debenture and the MLTV
note are subordinated to the bank debt.
Bank indebtedness also includes the outstanding balance of $111,825 US (205,409
DM) at September 30, 1999 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
(2) points. (The interest rate charged by Stadparkassee Bank as of September 30,
1999 was 8.75%.)
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 Venture
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 ($4,266 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. The
outstanding balance as of September 30, 1999 was $1,281,250 Canadian dollars
($874,454 US)
In July 1994, documents were fully executed between the "ODC" and the Company
for a term loan facility in the amounts of $500,000 Canadian dollars. The loan
credit facility was established to allow production requests for equipment,
inventory and training expenditures associated with moving the production
operation from New Jersey plant to the London, Ontario plant. The balance
outstanding as of September 30, 1999 on the ODC fixed loan was $11,533 Canadian
dollars ($7,871 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%.
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 10-KSB for June 30, 1999). 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 it sales and marketing coverage.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
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
The Company has been and is currently continuing to assess the potential impact
of the Year 2000 issue on the Company's operations. This assessment is
concentrated into three main areas; compliance of the Company's products and
software, evaluation of the Company's internal computers and information
systems, and assessments of third parties critical with regard to the Company's
operations.
All the Company's software stores the year as a four digit code, and
consequently is unaffected by the Year 2000 issue. The date and time stamps are
provided by the users' MS-DOS and Windows operating systems. These are not
expected to have problems until the year 2099. However, the Company cannot
assure any of its customers that problems will not be encountered with its
products if these organizations have not properly assessed the readiness of
their internal systems.
The Company has been assessing its computer systems and operations related
software used at all of its locations. To the extent that the Company is not
able to test the technology provide by third party hardware or software vendors,
the Company is in the process of obtaining assurances that their systems are
Year 2000 compliant. Currently, the Company believes all its computer systems
will be in compliance and has received obtained assurances from several of its
key software vendors that their products will be compliant.
The Company is also assessing the impact on its operations of the Year 2000
readiness of key vendors and suppliers, several product distributors, and
financial services organizations. When possible the Company has received
assurances from several key organizations that their systems will be compliant.
The failure of key companies in any one of these areas to adequately address and
remedy their Year 2000 readiness could have a material impact on the Company's
operating results and financial condition.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
YEAR 2000 ISSUE (continued)
The resources available to the Company to address the compliance capability of
several of these key organizations are limited. Therefore the Company must rely
upon statements of assurances provided by these organizations which have far
greater resources than the Company and have invested significant resources to
address the compliance issues of their internal systems, and products and
services. Such areas of concern include, but are not limited to, public
utilities, local and long distance telephone services, telephone systems,
banking services, commercial and public parcel carriers, and commercial airline
travel. At this time the Company does not believe there will be any disruption
of services in these areas.
In addition, it is unforeseen how the Year 2000 issue may impact the Company's
customers' purchasing patterns. Currently, the Company has not experienced any
negative impact that could potentially arise if customers shift their resources
to remedy their internal systems or delay purchasing the Company's products as
the calendar year progresses. Possible decreases in future revenues resulting
from these circumstances could have a material impact on the Company's operating
results and financial condition.
The Company believes that the cost of any Year 2000 modifications for both
internal use software and systems or the Company's products are not material.
(The Company estimates the expenditures relating to Year 2000 issues have not
exceeded $100,000) However, there can be no assurance that the various factors
discussed above relating to the Year 2000 compliance issues will not have a
material adverse effect on the Company's operating results and financial
position.
The Company currently has not developed nor implemented any Year 2000
contingency plans to date. However, the Company believes that it would be able
to maintain operations at levels sufficient to conduct necessary business
functions.
<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 Issuer
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PHOTON TECHNOLOGY INTERNATIONAL, INC.
Date: November 12, 1999 By: /s/ Charles G. Marianik
--------------------------
Charles G. Marianik
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: November 12, 1999 By: /s/ William J. Hiltner, III
------------------------------
William J. Hiltner, III
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 193,700
<SECURITIES> 0
<RECEIVABLES> 1,447,640
<ALLOWANCES> (29,005)
<INVENTORY> 1,799,744
<CURRENT-ASSETS> 3,567,185
<PP&E> 2,591,500
<DEPRECIATION> 2,011,772
<TOTAL-ASSETS> 5,288,955
<CURRENT-LIABILITIES> 1,766,121
<BONDS> 0
1,958,147
0
<COMMON> 6,308,885
<OTHER-SE> (6,236,803)
<TOTAL-LIABILITY-AND-EQUITY> 5,288,955
<SALES> 2,015,648
<TOTAL-REVENUES> 2,017,017
<CGS> 971,768
<TOTAL-COSTS> 971,768
<OTHER-EXPENSES> 1,117,866
<LOSS-PROVISION> 20,943
<INTEREST-EXPENSE> 54,055
<INCOME-PRETAX> (126,672)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (126,672)
<EPS-BASIC> (0.11)
<EPS-DILUTED> 0
</TABLE>
