FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 001-10647
PRECISION OPTICS CORPORATION, INC.
(Exact name of small business issuer as specified in its charter)
Massachusetts 04-2795294
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22 East Broadway, Gardner, Massachusetts 01440-3338
(Address of principal executive offices ) (Zip Code)
(508) 630-1800
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 outstanding of issuer's common stock, par value $.01 per
share, at September 30, 1996 was 5,980,502 shares.
Transitional Small Business Disclosure Format (check one):
Yes ( ) No (X)
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PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets - 1
September 30, 1996
and June 30, 1996 (unaudited)
Consolidated Statements of Operations - 2
Three Months Ended September 30, 1996
and September 30, 1995 (unaudited)
Consolidated Statements of Cash Flows - 3
Three Months Ended September 30, 1996
and September 30, 1995 (unaudited)
Notes to Consolidated Financial Statements 4
Item 2
Management's Discussion and Analysis of 5-7
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Items 1-5 Not Applicable
Item 6 Exhibits and Reports on Form 8-K
- ------
(a) Exhibits - Exhibit 27
(b) Reports on Form 8-K - None
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PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, 1996 June 30, 1996
------------------ -------------
CURRENT ASSETS
Cash and Cash Equivalents $2,393,461 $2,617,813
Accounts Receivable, Net 1,254,688 1,139,804
Inventories 1,839,289 1,863,694
Deferred Tax Asset 157,000 119,000
Prepaid Expenses 57,571 44,684
Refundable Income Taxes 30,276 30,276
----------- -----------
Total Current Assets 5,732,285 5,815,271
--------- ---------
PROPERTY AND EQUIPMENT 2,674,841 2,617,706
Less: Accumulated Depreciation 1,620,868 1,531,228
--------- ---------
Net Property and Equipment 1,053,973 1,086,478
--------- ---------
OTHER ASSETS 176,432 180,871
---------- ---------
TOTAL ASSETS $6,962,690 $7,082,620
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 513,359 $ 829,428
Accrued Payroll 52,374 81,990
Accrued Professional Services 33,830 49,360
Accrued Profit Sharing and Bonuses 70,826 93,938
Accrued Income Taxes 124,338 35,383
Accrued Vacation 31,232 51,881
Accrued Warranty Expense 50,000 50,000
Current Portion of Capital Lease Obligation 84,341 82,678
Other Accrued Liabilities 9,365 51,638
----------- ---------
Total Current Liabilities 969,665 1,326,296
--------- ---------
CAPITAL LEASE OBLIGATION 257,229 278,949
--------- ----------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value-
Authorized -- 10,000,000 shares
Issued and Outstanding -- 5,980,502 shares 59,805 59,805
Additional Paid in Capital 5,145,655 5,145,655
Retained Earnings 530,337 271,915
---------- ----------
Total Stockholders' Equity 5,735,796 5,477,375
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $6,962,690 $7,082,620
========= =========
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Page 1 of 10
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PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(UNAUDITED)
1996 1995
---- ----
REVENUES $2,638,374 $1,993,787
COST OF GOODS SOLD 1,751,022 1,347,195
--------- ---------
Gross Profit 887,352 646,592
SELLING GENERAL AND
ADMINISTRATIVE EXPENSES 561,736 473,342
------- ---------
Operating Income 325,616 173,250
INTEREST EXPENSE (8,111) (2,607)
INTEREST INCOME 26,917 33,859
------ ---------
Income Before Provision for Income Taxes 344,422 205,033
PROVISION FOR INCOME TAXES 86,000 50,000
----------- ---------
Net Income $ 258,422 155,033
======== =========
INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.04 $ 0.03
============ ===========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 6,057,395 6,120,645
========= =========
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PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(UNAUDITED)
1996 1995
------------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 258,422 $ 155,033
Adjustments to Reconcile Net Income to Net
Cash Provided By (Used In) Operating Activities -
Depreciation and Amortization 94,079 52,223
Deferred Income Taxes (38,000) (25,000)
Changes in Assets and Liabilities-
Accounts Receivable (114,884) 120,984
Inventories 24,405 24,964
Prepaid Expenses (12,887) (15,047)
Accounts Payable (316,069) (93,318)
Accrued Payroll (29,616) (26,471)
Accrued Professional Services (15,530) (13,775)
Accrued Profit Sharing and Bonuses (23,112) (50,399)
Accrued Income Taxes 88,955 21,734
Other Accrued Liabilities (62,923) (17,556)
--------- ---------
Net Cash Provided by (Used In)
Operating Activities (147,160) 133,372
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (57,135) (61,103)
Increase in Other Assets -- (5,005)
------------ ----------
Net Cash Used in Investing Activities (57,135) (66,108)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Capital Lease Obligation (20,057) (6,973)
---------- -----------
Net Cash Used in Financing Activities (20,057) (6,973)
---------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (224,352) 60,291
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 2,617,813 2,527,846
--------- ---------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $2,393,461 $2,588,137
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash Paid for-
Interest $ 8,111 $ 2,076
============ ===========
Income Taxes $ 35,912 $ 55,912
=========== ==========
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PRECISION OPTICS CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts
of Precision Optics Corporation, Inc. and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
These financial statements have been prepared by the Company, without
audit, and reflect normal recurring adjustments which, in the opinion of
management, are necessary for a fair statement of the results of the
first quarter of the Company's fiscal year 1997. These financial
statements do not include all disclosures associated with annual
financial statements and, accordingly, should be read in conjunction
with footnotes contained in the Company's financial statements for the
period ended June 30, 1996 together with the auditors' report filed
under cover of the Company's 1996 Annual Report on Form 10-KSB.
Income per common and common equivalent share is computed based on the
weighted average number of common and common equivalent shares
outstanding, where dilutive, during each period. The difference
between the average number of shares under the primary and fully diluted
calculations is immaterial, and therefore fully diluted earnings per
share has not been disclosed in the accompanying financial statements.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consists of the following:
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September 30, 1996 June 30, 1996
Raw Materials $1,263,166 1,282,924
Work-In-Process 462,698 502,658
Finished Goods and Components 113,425 78,112
----------- -----------
Total Inventories $1,839,289 1,863,694
========= =========
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PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Important Factors Regarding Forward-Looking Statements
When used in this discussion, the words "believes", "anticipates",
"intends to", and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected. See
"Important Factors Regarding Forward-Looking Statements" filed with the
Company's Quarterly Report on Form 10-QSB for the period ending March 31, 1996
as Exhibit 99 and incorporated herein by reference. Readers are cautioned not to
place undue reliance on these forward-looking statements which speak only as of
the date hereof. The Company undertakes no obligation to publicly release the
result of any revision to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Liquidity and Capital Resources
For the three months ended September 30, 1996, the Company's cash and
cash equivalents decreased by approximately $224,000 to $2,393,000. The decrease
in cash and cash equivalents was due to cash used by operating activities of
approximately $147,000, capital expenditures of approximately $57,000, and
repayment of debt of approximately $20,000.
The Company intends to continue devoting significant resources to
internally-funded research and development spending on both new products and the
improvement of existing products. The Company also intends to devote resources
to the marketing and product support of its endoscope product line, and the
development of new methods of distribution. These investments may temporarily
result in negative cash flow, but the Company anticipates that the results of
these efforts will translate into increased revenues and profits.
Furthermore, depending upon the market acceptance of the Company's
products, the Company believes that it may be obligated to acquire new
facilities, add additional manufacturing or research and development equipment,
or acquire a business that has complementary products or manufactures or sells
to the Company components, materials, supplies, or services used in the
manufacture, marketing, distribution, or servicing of the Company's new
products, as well as the Company's existing products.
The Company continues to maintain a secured line of credit of $500,000
available with a bank at 1/4% over the prime rate.
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The Company's cash and cash equivalents and available lines of credit
are considered sufficient to support working capital and investment needs for
the foreseeable future.
Results of Operations
Total revenues for the three months ending September 30, 1996 increased
by $644,587, or 32.3% from the same period in the prior year, due primarily to
higher sales of medical products (up 242%), partially offset by lower sales of
non-medical products (down 29%). The increase in sales of medical products was
primarily attributable to higher sales of endocouplers which increased by 260%
for the quarter. The reduction in non-medical sales was due primarily to
discontinued sales of industrial lenses to a significant customer. This customer
accounted for 22% of the Company's revenues for the quarter ended September 30,
1995. Future sales to this customer, if any, are uncertain at this time.
Gross profit for the three months ending September 30, 1996 increased
from the same period in the prior year by $240,760, and increased as a
percentage of revenues from 32.4% in fiscal year 1996 to 33.6% in the current
period. The increase in gross profit was due mainly to the higher overall sales
volume in the current quarter.
Revenues from the Company's two largest customers were approximately
38% and 36% of total revenues for the quarter ended September 30, 1996, and
approximately 44% and 22% of total revenues for the quarter ended September 30,
1995. No other customers accounted for more than 10% of the Company's revenues
during those periods.
For the quarter ended September 30, 1996, approximately 36% of the
Company's total revenues were derived from production and development contracts
and subcontracts involving the Government and its agencies compared to
approximately 47% for the corresponding period of the prior year. The Company's
current Government business is substantially comprised of subcontracts with one
customer consisting of night-vision advanced development programs on a
cost-plus-fixed-fee basis extending approximately through December 1996, and two
fixed-price production subcontracts for night-vision lens systems with
deliveries scheduled approximately through September 1997. The Government may
terminate a government contract at any time, with or without cause. After
expiration of the current subcontracts, there can be no assurance that the
Government will award future contracts or subcontracts to the Company or the
customers to which it sells.
Selling, general and administrative expenses increased by $88,394, or
18.7% from the same period in the prior year due primarily to higher research
and development expenses.
Interest expense relates primarily to capital lease obligations
incurred in the third quarter of fiscal years 1994 and 1996.
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Interest income decreased by $6,742 from the same period in the prior
year due to the slightly lower investment base of cash and cash equivalents.
The provision for income taxes is based on the Company's estimated
effective annual tax rate. This estimated rate is lower than the federal
statutory rate primarily due to recognition of available tax credits and future
tax deductions not previously benefited.
-7-
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PART II. OTHER INFORMATION
Items 1-5 Not Applicable.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits - Exhibit 27
(b) Reports on Form 8-K - There were no reports on
Form 8-K filed during the period covered by this
report.
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.
PRECISION OPTICS CORPORATION, INC.
DATE: November 5, 1996 BY: /s/ Jack P. Dreimiller
----------------------
Jack P. Dreimiller
Senior Vice President, Finance
and Chief Financial Officer
-8-
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EXHIBIT INDEX
Exhibit Number Description
27 Financial Data Schedule
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<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,393,461
<SECURITIES> 0
<RECEIVABLES> 1,254,688
<ALLOWANCES> 0
<INVENTORY> 1,839,289
<CURRENT-ASSETS> 5,732,285
<PP&E> 2,674,841
<DEPRECIATION> 1,620,868
<TOTAL-ASSETS> 6,962,690
<CURRENT-LIABILITIES> 969,665
<BONDS> 341,570
0
0
<COMMON> 59,805
<OTHER-SE> 5,675,992
<TOTAL-LIABILITY-AND-EQUITY> 6,962,690
<SALES> 2,638,374
<TOTAL-REVENUES> 2,638,374
<CGS> 1,751,002
<TOTAL-COSTS> 1,751,002
<OTHER-EXPENSES> 561,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,111
<INCOME-PRETAX> 344,422
<INCOME-TAX> 86,000
<INCOME-CONTINUING> 258,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,422
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
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