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, 2000,
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.
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(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.)
1009 Lenox Drive, Suite 104, Lawrenceville, NJ 08648
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (609) 896-0310
---------------------------------
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, 2000 was 1,182,273.
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----------------------------------- ----
Item 1. Financial Statements:
Consolidated Balance Sheet as of September 30, 2000...............3-4
Consolidated Statements of Operations and
Comprehensive Income (Loss) for the
three months ended September 30, 2000 and 1999.....................5
Consolidated Statements of Cash Flows for the
three months ended September 30, 2000 and 1999....................6-7
Notes to Consolidated Financial Statements
September 30, 2000.................................................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................9-12
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.................................................13
Item 2. Changes in Securities.............................................13
Item 3. Defaults Upon Senior Securities...................................13
Item 4. Submission of Matters to a Vote of Security Holders...............13
Item 5. Other Information.................................................13
Item 6. Exhibits and Reports on Form 8-K..................................13
SIGNATURES .................................................................14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30
2000
------------
ASSETS (Unaudited)
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 159,074
Trade accounts receivable, less allowance
of $19,750 1,293,226
Inventory
Raw materials 839,968
Work in process 271,233
Finished goods 112,512
-----------
1,223,713
Prepaid expenses and other current assets 186,623
-----------
TOTAL CURRENT ASSETS 2,862,636
PROPERTY AND EQUIPMENT
Furniture and fixtures 81,333
Machinery and equipment 1,227,202
----------
1,308,535
LESS: Accumulated depreciation 934,306
-----------
374,229
OTHER ASSETS
Intangible Assets 1,219,713
Note Receivable 840,456
-----------
$5,297,034
===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
September 30
2000
------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C>
Bank indebtedness $ 585,223
Accounts payable 532,416
Deferred revenue 61,136
Accrued liabilities 254,105
Current maturities of long term debt and capital lease obligations 69,184
------------
TOTAL CURRENT LIABILITIES 1,502,064
LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS 1,402,520
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 1,295,810 shares,
including 113,537 shares in treasury 6,311,465
Accumulated (deficit) (5,651,911)
Treasury stock, at cost (48,922)
Accumulated other comprehensive (loss) (176,329)
------------
TOTAL STOCKHOLDERS' EQUITY 434,303
------------
$5,297,034
============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS) - (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
---- ----
REVENUES
<S> <C> <C>
Net sales $1,639,377 $2,015,648
Other income 21,634 1,369
----------- -----------
1,661,011 2,017,017
COSTS AND EXPENSES
Cost of products sold 831,536 971,768
Selling, general and administrative 626,821 844,386
Research and development 174,774 155,845
Interest 57,877 54,055
Depreciation 38,346 46,539
Amortization 79,556 75,570
Foreign exchange (gain) (160) (4,474)
----------- -----------
1,808,750 2,143,689
----------- -----------
(Loss) before income tax expense (147,739) (126,672)
Income taxes -0- -0-
----------- -----------
Net (Loss) ($147,739) ($126,672)
=========== ===========
Other Comprehensive Income (Loss), net of tax:
Foreign Currency Translation Adjustment (13,716) 9,682
----------- -----------
Total Comprehensive (Loss) ($161,455) ($116,990)
=========== ===========
Basic Net (Loss) per common share ($0.12) ($0.11)
=========== ===========
Diluted Net (Loss) per common share ($0.12) ($0.11)
=========== ===========
Weighted average number of common
shares outstanding 1,182,273 1,173,929
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
OPERATING ACTIVITIES: 2000 1999
---- ----
<S> <C> <C>
Net (Loss) ($147,739) ($126,672)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
Depreciation 38,346 46,539
Amortization 79,556 75,570
Changes in operating assets and liabilities
(Increase) in trade accounts receivable (95,377) (181,907)
(Increase) decrease in inventory 157,917 (196,692)
(Increase) decrease in prepaid expenses and other
current assets (3,914) 26,302
Increase in accounts payable and
accrued liabilities 65,176 203,467
Increase (decrease) in deferred revenue (65,589) 1,270
--------- ----------
Net cash provided (used) by operating activities 28,376 (152,123)
--------- ----------
INVESTING ACTIVITIES:
Purchase of property and equipment (31,458) (7,408)
Capitalized software (84,646) (22,636)
--------- ----------
Net cash (used) by investing activities (116,104) (30,044)
--------- ----------
FINANCING ACTIVITIES:
Increase in bank indebtedness 169,934 157,351
Repayment of long-term debt (29,810) (46,943)
--------- ----------
Net cash provided by financing activities 140,124 110,408
--------- ----------
Effect of exchange rate changes on cash (9,419) 3,802
--------- ----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 42,977 (67,957)
CASH AND CASH EQUIVALENTS-BEGINNING 116,097 261,657
--------- ----------
CASH AND CASH EQUIVALENTS-ENDING $159,074 $ 193,700
========= ==========
Supplemental disclosure of cash paid for:
Interest $ 57,291 $ 53,551
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED) - Continued
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTION
The Company retired and disposed of equipment and fixtures with a gross book
value of $1,093,922 in conjunction with relocation of the Company's New Jersey
and United Kingdom offices in July 2000. These assets were fully depreciated at
the time of retirement and disposal.
The Company sold the PhotoMed GmbH subsidiary on December 1, 1999 for a sum of
$150,001, which included cash of $1 and a note receivable of $150,000.
Included in the PhotoMed note receivable balance of $840,456 are $690,456 of
trade accounts receivables and other accumulated transactions outstanding from
PhotoMed GmbH as of December 1, 1999.
See Notes to Consolidated Financial Statements
7
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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, 2000 are not necessarily indicative of
the results that may be expected for the year ending June 30, 2001. 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, 2000.
NOTE B -- COMPARATIVE AMOUNTS
Certain comparative amounts in the prior year have been reclassified to conform
to the presentation adopted in the current fiscal year.
NOTE C -- LONG TERM DEBT
On October 31, 1995, the Company completed a $1,100,000 ($1,500,000 Canadian)
financing agreement in the form of subordinated debt with C.I.-C.P.A. Business
Ventures Fund, Inc., a venture capital fund of Covington Capital Corporation.
This subordinated debt has a term of five years and bears interest at 12% per
annum, compounded monthly. This agreement included a first option for 83,333
shares of common stock of the Company at $3.75 per share for a term of five
years. (These expired October 31, 2000.) The Company granted a security interest
in all of the Company's right, title and interest in all accounts and proceeds.
This collateral is subordinated to the bank debt with Silicon Valley Bank and
ranks equally in priority with the subordinated promissory note payable to MLTV.
Covington Capital Corporation has agreed not to demand repayment as long as
principal repayments are not made on the MLTV debt facility. The Company's plan
is to continue to adhere to the current debt repayment schedule by remitting to
the lender monthly principal payments of $4,165 ($6,250 Canadian), plus
interest, beyond the October 2000 payoff date
8
<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, 2000 of $1.6 million
decreased $376,000, or 18.7%, compared to the same periods of fiscal 2000. These
decreases reflect the impact of the PhotoMed sale offset by a higher sales order
backlog in the current fiscal year carried over from fiscal 2000.
Net sales for the North American sales offices for the quarter ended September
30, 2000 of $1.5 million increased $276,000, or 22.6%, in comparison to the same
periods in fiscal 2000. Net sales for the UK sales office for the same period
were $140,000. This amount reflects a decrease of $128,000, or 22.3%, for the
three-month period. Net sales for PhotoMed for the three months ended September
30, 1999 were $525,000.
Total revenues for the three months ended September 30, 2000 of $1.7 million,
which include net sales and other income, decreased $356,000, or 17.7%, compared
to the same periods of fiscal 2000. This performance reflects impact of
decreased net sales resulting from the PhotoMed sale.
Cost of products sold for the first quarter of fiscal 2000 was $832,000, or
50.7% of net sales, which compares to $972,000, or 48.2%, of net sales for the
same period of fiscal 2000. This decrease of $140,000, or 14.4%, was primarily
due to the PhotoMed sale offset by the cost increase due to the increased sales
volume against the same period in fiscal 2000. Cost of products sold for
PhotoMed for the first quarter of fiscal 2000 was $364,000.
Selling (including marketing), general and administrative expenses of $627,000,
or 38.27% of net sales, for the first quarter of fiscal 2001 decreased $218,000,
or 25.8%, in comparison to $844,000, or 41.9% of net sales, for the same period
in fiscal 2000. This decrease resulted from $203,000 and $14,000 decreases in
selling and marketing, and general and administrative expenses, respectively.
Selling, general and administrative expenses for PhotoMed were $143,000 for the
first quarter of fiscal 2000.
Research and development expenses of $175,000, or 10.7% of net sales, increased
$19,000, or 12.1%, in comparison to $156,000, or 7.7% of net sales, for the same
period in fiscal 2000. An additional $85,000 of software development expenses,
which represents 5.2% of net sales, was capitalized for the three months ended
September 30, 2000 in comparison to $23,000 for the same period in fiscal 2000.
These expenses are due to the level of project activity for new products.
Interest expense for the three months ended September 30, 2000 of $58,000, or
3.5% of net sales, compares to $54,000, or 2.7% of net sales, for the same
period in fiscal 2000. This increase of $4,000, or 7.1%, is primarily due to the
slightly higher level of average bank indebtedness in comparison to the prior
fiscal year.
9
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
---------------------------------
Depreciation and amortization of $118,000 for the three months ended September
30, 2000 compares to $122,000 for the same period in fiscal 2000, a decrease of
$4,000, or 3.4%. This net decrease was primarily due to impact of the PhotoMed
sale, offset by an increase in amortization due to recent increased
capitalization of software development costs. Depreciation and amortization for
PhotoMed for the three months ended September 30, 1999 was $17,000.
Foreign exchange gains were minimal for the three months ended September 30,
2000 in comparison to net gains of $4,000 same period in fiscal 2000, due to a
mix of transactional activity.
The Company reported a net loss of $148,000 for the first quarter in fiscal year
2001, compared to a net loss of $127,000 for the first quarter of the prior
fiscal year. The increases in cost of products sold discussed above was the
major impact on income.
The resulting per share performance (basic) based on the weighted average number
of common shares outstanding for each period was net loss of $(0.12) per share
for the first quarter in comparison to a net loss of $(0.11) per share for the
same period in fiscal 2000.The per share performance on a diluted basis was the
same as the basic per share performance for each fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The working capital of the Company at March 31, 2000 was $1.4 million compared
to $1.5 million at June 30, 2000, a decrease of $178,000 million, or 11.6%.
Current assets of $2.9 million decreased $16,000, or 0.5%, from June 30, 2000.
This change primarily reflects a decrease of $158,000 in the inventory balance
offset by increases of $43,000 and $95,000 in cash and accounts receivable,
respectively. These changes reflected a decrease of 11.4%, and increases of
37.0% and 8.0% of the respective balances at June 30, 2000. The inventory
balance represented 4.4 months of sales in inventory, which is comparable to the
4.6 months of sales in inventory at June 30, 2000. The trade accounts receivable
balance of $1.3 million represents 2.37 months of sales in comparison to 1.97
months of sales at June 30, 2000.
Current liabilities of $1.5 million increased $162,000, or 12.1%, in comparison
to the balance as of June 30, 2000. This increase was due principally to net
increases in bank indebtedness of $170,000, or 40.9%, of the balance as of June
30, 2000.
10
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
-------------------------------------------
As of December 14, 1999 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, 2000) and carries an interest rate at
the prime rate plus 1.5% (11.5% at September 30, 2000). 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 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, 2000 was $585,220. The securities related to the Covington Capital debenture
and the MLTV note payable are subordinated to the bank debt.
During March 1998, the Company reached an understanding with MLTV that interest
would not accrue on the $630,731 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. The lender has
agreed not to require any principal repayments prior to June 30, 2001. This note
is subordinated to the bank debt with Silicon Valley Bank and ranks equally in
priority with the Covington Capital Corporation promissory note
On October 31, 1995, the Company completed a $1,100,000 ($1,500,000 Canadian)
financing agreement in the form of subordinated debt with C.I.-C.P.A. Business
Ventures Fund, Inc., a venture capital fund of Covington Capital Corporation.
This subordinated debt has a term of five years and bears interest at 12% per
annum, compounded monthly. The Company granted a security interest in all of the
Company's right, title and interest in all accounts and proceeds. This
collateral is subordinated to the bank debt with Silicon Valley Bank and ranks
equally in priority with the subordinated promissory note payable to MLTV. The
outstanding balance as of September 30, 2000 was $803,845 ($1,206,250 Canadian).
Covington Capital Corporation has agreed not to demand repayment as long as
principal repayments are not made on the MLTV debt facility. The Company's plan
is to continue to adhere to the current debt repayment schedule by remitting to
lender monthly principal payments of $4,165 ($6,250 Canadian), plus interest,
beyond the October 2000 payoff date.
11
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
-------------------------------------------
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, 2000). The
importance of this financing is that it allowed the Company to pursue its growth
goals. The Company has used this financing for new product introduction and to
expand it 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 cannot be certain that it will be
successful in efforts to raise additional funds.
12
<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
13
<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 13, 2000 By: /s/ Charles G. Marianik
------------------------
Charles G. Marianik
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: November 13, 2000 By: /s/ William J. Hiltner, III
------------------------------
William J. Hiltner, III
Corporate Controller
14
