SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
EXCEL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its Charter)
For the quarter ended September 30, 1997 Commission File Number 0-19306
Delaware 11-2780242
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
45 Adams Ave. (516) 273-6900
Hauppauge, NY 11788 (Registrant's Telephone Number)
(Address of Principal Executive Offices)
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 the Registrant's common stock outstanding as of
October 28, 1997 was: 11,607,317
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements: Page
Balance Sheets as of September 30, 1997 and
December 31, 1996 3
Statements of Earnings and Accumulated Deficit for
for the Three Months Ended September 30, 1997
and 1996 4
Statements of Earnings and Retained Earnings
Accumulated Deficit for the Nine months
Ended September 30, 1997 and 1996 5
Statements of Cash Flows for the Nine months Ended
September 30, 1997 and 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security-Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit 11 Computation of net earnings per share 12
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
.................................
CONSOLIDATED BALANCE SHEETS
Sept. 30, 1997 Dec. 31, 1996
.............. .............
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 5,631,104 $ 2,910,982
Investments 15,318,229 4,076,045
Prepaid and refundable income taxes 124,492 124,492
Accounts receivable, less allowance
for doubtful accounts of $279,000 and
$276,000 in 1997 and 1996, respectively 11,516,294 9,145,460
Inventories 12,696,583 10,977,407
Deferred income taxes 645,100 650,200
Other current assets 620,645 532,295
........... ...........
Total current assets 46,552,447 28,416,881
........... ...........
Property, plant and equipment, net 3,528,374 2,475,586
Other assets 595,708 701,896
Deferred income taxes 1,854,000 1,854,000
Excess of cost over fair value of net assets
of businesses acquired, net of accumulated
amortization of $1,756,906 in 1997
and $1,479,628 in 1996. 6,215,293 6,492,571
........... ...........
Total assets $58,745,822 $39,940,934
........... ...........
........... ...........
Liabilities and Stockholders' Equity
.....................................
Current liabilities:
Current portion of long-term debt $ -- $ 1,923,024
Notes payable, current 201,354 1,288,282
Accounts payable 3,054,514 2,161,740
Accrued expenses and other current
liabilities 6,426,719 5,551,548
Total current liabilities 9,682,587 10,924,594
Stockholders' equity:
Common stock, par value $.001 per share:
20,000,000 shares authorized, 11,223,690
and 9,189,265 issued and outstanding in
1997 and 1996, respectively. 11,224 9,189
Additional paid-in capital 45,561,086 31,559,063
Retained earnings (accumulated deficit) 3,660,219 (2,474,327)
Foreign currency translation adjustment (169,294) (77,585)
........... ...........
49,063,235 29,016,340
........... ...........
Total liabilities and shareholders' equity $58,745,822 $39,940,934
........... ...........
........... ...........
CONSOLIDATED STATEMENTS OF EARNINGS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
Three Months Ended
September 30
1997 1996
........... ..........
Net sales and services $16,504,828 $ 14,678,089
Cost of sales and services 8,079,912 8,262,587
........... ..........
Gross profit 8,424,916 6,415,502
Operating expenses:
Selling and marketing 2,624,745 2,230,671
General and administrative 1,198,263 881,726
Research and development 1,238,113 1,025,256
Amortization of excess of cost over
fair value of net assets of business
acquired 92,426 124,602
........... ..........
Earnings from operations 3,271,369 2,153,247
Non operating expenses (income):
Interest expense 6,690 126,794
Interest income (239,726) (110,618)
Other income, net (60,655) (19,128)
........... ..........
Earnings before provision for income taxes 3,565,060 2,156,199
Provision for income taxes 1,246,816 703,424
........... ..........
Net earnings 2,318,244 1,452,775
........... ..........
Retained earnings (accumulated deficit),
beginning of period 1,341,975 (5,108,280)
Retained earnings (accumulated deficit),
end of period $ 3,660,219 $(3,655,505)
........... ...........
........... ...........
Earnings per share:
Primary and fully diluted $0.20 $0.15
...... .....
...... .....
Weighted average common and common
equivalent shares outstanding: 11,701,663 9,934,046
CONSOLIDATED STATEMENTS OF EARNINGS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
Nine Months Ended
September 30
1997 1996
........... ..........
Net sales and services $ 49,679,746 $ 43,190,638
Cost of sales and services 25,101,338 23,831,199
........... ..........
Gross profit 24,578,408 19,359,439
Operating expenses:
Selling and marketing 8,017,124 6,780,407
General and administrative 3,443,707 3,068,050
Research and development 3,671,665 3,128,561
Amortization of excess of cost over fair
value of net assets of business acquired 277,278 385,698
........... ..........
Earnings from operations 9,168,634 5,996,723
Non operating expenses (income):
Interest expense 155,288 525,549
Interest income (555,234) (175,604)
Other expense, net 47,792 57,033
........... ..........
Earnings before provision for income taxes 9,520,788 5,589,745
Provision for income taxes 3,386,242 1,878,097
........... ..........
Net earnings 6,134,546 3,711,648
Accumulated deficit, beginning of period (2,474,327) (7,367,153)
Retained earnings (accumulated deficit),
end of period $ 3,660,219 $(3,655,505)
........... ............
........... ............
Earnings per share:
Primary and fully diluted $0.56 $0.38
..... .....
..... .....
Weighted average common and common
equivalent shares outstanding: 11,043,991 9,896,126
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30
1997 1996
........... ..........
Cash flows from operating activities:
Net earnings $ 6,134,546 $ 3,711,648
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 962,055 1,041,356
Provision for bad debts 25,979 69,752
Changes in operating assets and
liabilities:
Increase in accounts receivable (2,396,813) (3,304,370)
(Increase) decrease in inventories (1,719,176) 2,065,018
(Increase) decrease in prepaid and
refundable taxes and other
current assets (83,250) 193,260
Decrease in other assets 106,188 86,065
Increase (decrease) in accounts
payable 892,774 (824,533)
Increase in accrued expenses and
other liabilities 875,171 770,748
........... ..........
Net cash provided by
operating activities: 4,797,474 3,808,944
........... ..........
Cash flows from investing activities:
Cash paid for acquisition of Cambridge,
net of cash acquired (723,150) (1,331,237)
Purchases of equipment and building (1,737,563) (953,517)
Purchase of investments, net (11,242,184) (298,352)
Proceeds from sale of assets -- 522,178
........... ..........
Net cash used in investing
activities: (13,702,897) (2,060,928)
........... ..........
Cash flows from financing activities:
Proceeds from exercise of common stock
options and warrants 14,004,056 2,080,629
(Repayment) proceeds from notes payable (363,778) 24,046
Repayment of borrowings on long-term debt
and revolving credit line (1,923,024) (3,940,684)
Payment of dividend on preferred stock -- (162,137)
........... ..........
Net cash provided by (used in)
financing activities: 11,717,254 (1,998,146)
........... ..........
Effect of exchange rate changes on assets and
liabilities, including cash (91,709) (109,332)
........... ..........
Net increase (decrease) in cash and
cash equivalents 2,720,122 (359,462)
........... ..........
Cash and cash equivalents, beginning of period 2,910,982 2,326,932
........... ..........
Cash and cash equivalents, end of period $ 5,631,104 $ 1,967,470
........... ..........
........... ..........
Supplemental cash flow disclosure:
Cash paid for:
Interest $ 155,288 $ 525,549
Income taxes $ 2,487,189 $ 622,756
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
..........................................
(unaudited)
A. CONSOLIDATED FINANCIAL STATEMENTS:
..................................
The consolidated balance sheet as of September 30, 1997, the
consolidated statements of earnings and retained earnings (accumulated
deficit) for the three month and nine month periods ended September 30,
1997 and the statement of cash flows for the nine months ended September
30, 1997 have been prepared by the Company without audit. In the opinion
of management, all adjustments (which included only normal recurring
adjustments) necessary to present fairly the financial position, results
of operations and cash flows (unaudited) at September 30, 1997 and for all
periods presented have been made.
For information concerning the Company's significant accounting
policies, reference is made to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996. While the Company believes that the
disclosures presented are adequate to make the information contained
herein not misleading, it is suggested that these statements be read in
conjunction with the consolidated financial statements and notes included
in the Form 10-K. Results of operations for the three and nine month
periods ended September 30, 1997 are not necessarily indicative of the
operating results to be expected for the full year.
B. EARNINGS PER SHARE
..................
Primary earnings per share is calculated by dividing net earnings
less preferred stock dividends by the weighted average number of common
and common equivalent shares (if dilutive) outstanding during the periods
presented. Common equivalent shares consist of additional shares that
would be outstanding assuming the exercise of outstanding stock options
and stock warrants (if dilutive). Fully diluted earnings per share
additionally includes the dilutive effects of assuming the conversion of
convertible preferred stock and accordingly, the preferred stock dividends
are not deducted from net earnings. Fully diluted earnings per share
amounts for the periods presented were the same as primary earnings per
share.
C. INVESTMENTS AND CASH EQUIVALENTS
................................
Investments, which consist primarily of commercial paper, are
recorded at fair value. The Company has classified its investments as
trading securities as of September 30, 1997 and, thus, unrealized gains
and losses are reported in net earnings. Investments with original
maturities of three months or less at the time of purchase are considered
cash equivalents.
D. INVENTORIES
...........
Inventories are recorded at the lower of average cost or market.
Average cost approximates actual cost on a first-in first-out basis.
Inventories consist of the following:
September 30, 1997 December 31, 1996
.................. .................
Raw Materials $ 4,898,168 $ 4,473,246
Work in Process 5,753,786 5,098,370
Finished Goods 1,838,301 1,124,538
Consigned Inventory 206,328 281,253
............ ............
$ 12,696,583 $ 10,977,407
............ ............
............ ............
E. NOTES AND LOANS PAYABLE
.......................
As of September 30, 1997, the Company had no borrowings on its $5
million revolving line of credit with U.S. Trust. The Company prepaid the
remaining balances of all its term loans during the quarter ended March
31, 1997 and has no outstanding debt with U. S. Trust.
F. ACQUISITION
...........
On February 14, 1995, the Company acquired Cambridge Technology, Inc.
("Cambridge"), located in Watertown, Massachusetts. Cambridge is engaged
primarily in the manufacture of laser scanners, essential components to
moving a laser beam with precision at a specified speed. On February 17,
1997, the Company paid $400 thousand to Cambridge's selling shareholders
in accordance with the acquisition agreement. In addition, the Company
paid an additional $323 thousand based on Cambridge's attainment of
performance goals, as defined in the acquisition agreement.
Item 2. Management's Discussion and Analysis of Financial
.................................................
Condition and Results of Operations
...................................
Results of Operations
.....................
Net sales and services for the quarter ended September 30, 1997
increased $1.8 million or 12.2% to $16.5 million from $14.7 million for
the comparable period in the prior year. Net sales and services for
the nine months ended September 30, 1997 were $49.7 million versus $43.2
million for the comparable period in the prior year, an increase of $6.5
million or 15.0%. The increase is primarily attributable to increased
sales at Quantronix and Cambridge.
Gross margins as a percentage of sales increased to 51.1% from 43.7%
for the quarter ended September 30, 1997 as compared to the comparable
period in the prior year. For the nine months ended September 30, 1997 the
gross margins increased to 49.5% from 44.9% of sales in the same period in
1996. The increase in gross margins is due to increased manufacturing
efficiencies at Quantronix and Photo Research and increased sales at
Cambridge which has a higher gross margin.
Selling expense for the quarter ended September 30, 1997 increased
$400 thousand to $2.63 million from $2.23 million during the same period
in 1996. The increase is attributable to the increased sales volume.
Selling expense as a percentage of sales during the quarter increased to
15.9% in 1997 from 15.2% in 1996 due to the increased sales efforts at
Control Laser and Quantronix in developing new markets coupled with the
launching of new products. For the nine months ended September 30, 1997
selling expenses increased to $8.0 million from $6.8 million in 1996.
Selling expenses as a percentage of sales for the nine months were 16.1%
in 1997 and 15.7% in 1996.
General and administrative expenses for the quarter increased $300
thousand to $1.2 million in 1997 from $900 thousand in 1996. The general
and administrative expenses for 1997 were approximately the same as 1996,
except that 1996 included an adjustment to reduce the expense for
previously estimated expense accruals. For the nine months ended
September 30, 1997 general and administrative expense increased $370
thousand to $3.44 million from $3.07 million in 1996.
Research and development expenses for the quarter increased $210
thousand to $1.24 million in 1997 from $1.03 million in 1996. The
increase is primarily attributable to increased research and development
costs related to all product lines. For the nine months ended September
30, 1997, research and development expenses increased $600 thousand to
$3.7 million from $3.1 million in 1996.
Interest expense was $155 thousand and $526 thousand for the nine
months ended September 30, 1997 and 1996, respectively, and $7 thousand
and $127 thousand for the three months ended September 30, 1997 and 1996,
respectively. The decrease in interest expense is due to a reduction in
long term debt as a result of cash flow from operations. Interest income
was $555 thousand and $176 thousand for the nine months ended September
30, 1997 and 1996, respectively. For the quarter ended September 30,
1997 and 1996, interest income was $240 thousand and $111 thousand,
respectively. The increase in income is due to higher average investments
resulting from proceeds from the exercise of options/warrants
and increased cash flow from operations.
Other income/expense for the nine months ended September 30, 1997 and
1996 was expense of $48 thousand and $57 thousand, respectively. For the
quarter ended September 30, 1997 other income/expense was income of $61
thousand as compared to income of $19 thousand for the quarter ended
September 30, 1996. This increase in other income for the current quarter
and decrease in losses for the nine months is primarily due to foreign
exchange gains and losses incurred by the Company's German subsidiary.
Liquidity and Capital Resources
...............................
Working capital at September 30, 1997 was $36.9 million as compared
to $17.5 million at December 31, 1996. The increase is primarily
attributable to the profitable operating results,($6.1 million for the
nine months ended September 30, 1997) and proceeds of approximately $14
million from exercises in options and warrants, partially offset by an
increase in property, plant and equipment of approximately $1.7 million.
In February 1997, Class B warrants to purchase 1,191,956 shares of common
stock of the Company at $8.00 per share were exercised, and resulted in
net proceeds of $9.5 million to the Company.
As of September 30, 1997, the Company had no borrowings on its $5
million revolving line of credit with U.S. Trust. The Company prepaid the
remaining balances of all its term loans during the quarter ended March
31, 1997 and has no outstanding debt with U. S. Trust.
On February 17, 1997, the Company paid $400 thousand to Cambridge's
selling shareholders in accordance with the acquisition agreement. In
addition, the Company paid an additional $323 thousand based on
Cambridge's attainment of performance goals, as defined in the acquisition
agreement.
The Company estimates that its current resources and anticipated cash
flow from operations will be sufficient to meet the Company's cash
requirements for at least the next 12 months.
The Company's subsidiary, Quantronix, is in the process of
constructing a new building at a cost of approximately $3.7 million. The
building is scheduled to be completed on March 31, 1998. As of October
16, 1997 the Company has paid over $800 thousand towards the new building.
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
.................
For information concerning Legal Proceedings, reference is made to
Item 3. Legal Proceedings in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
Item 2. Changes in Securities
.....................
None.
Item 3. Defaults upon Senior Securities
...............................
None.
Item 4. Submission of Matters to a Vote of Security-Holders
...................................................
None.
Item 5. Other Information
.................
None.
Item 6. Exhibits and Reports on Form 8-K
................................
(a) Exhibits - (11) Computation of net earnings per share
(b) Reports on Form 8-K - None
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
DATED: November 3, 1997
EXCEL TECHNOLOGY, INC.
By: /s/ J. Donald Hill
........................
J. Donald Hill
Chief Executive Officer
By: /s/ Antoine Dominic
........................
Antoine Dominic
Chief Financial Officer
EXHIBIT 11 (Unaudited)
COMPUTATION OF NET EARNINGS PER SHARE
PRIMARY FULLY DILUTED
....................... .......................
Three Months Ended Three Months Ended
September 30 September 30
....................... .......................
1997 1996 1997 1996
........... ........... ........... ...........
Net earnings $ 2,318,244 $ 1,452,775 $ 2,318,244 $ 1,452,775
........... ........... ........... ...........
........... ........... ........... ...........
Weighted average
common shares
outstanding 10,927,876 9,152,843 10,927,876 9,152,843
Weighted average
common share
equivalents:
Options and warrants 773,787 744,553 773,787 781,203
........... ........... ........... ...........
Weighted average
common and common
equivalent shares 11,701,663 9,897,396 11,701,663 9,934,046
........... ........... ........... ...........
........... ........... ........... ...........
Net earnings per share $0.20 $0.15 $0.20 $0.15
..... ..... ..... .....
..... ..... ..... .....
EXHIBIT 11 (Unaudited)
COMPUTATION OF NET EARNINGS PER SHARE
PRIMARY FULLY DILUTED
....................... ......................
Nine Months Ended Nine Months Ended
September 30 September 30
....................... .......................
1997 1996 1997 1996
........... ........... ........... ...........
Net earnings $ 6,134,546 $ 3,711,648 $ 6,134,546 $ 3,711,648
Preferred stock dividends -- (54,273) -- --
........... ........... ........... ...........
Net earnings available
to common shareholders $ 6,134,546 $ 3,657,375 $ 6,134,546 $ 3,711,648
........... ........... ........... ...........
........... ........... ........... ...........
Weighted average
common shares
outstanding 10,385,211 8,757,031 10,385,211 8,757,031
Weighted average common
share equivalents:
Options and warrants 658,780 817,986 658,780 953,466
Preferred stock -- -- -- 185,629
........... ........... ........... ..........
Weighted average
common and common
equivalent shares 11,043,991 9,575,017 11,043,991 9,896,126
........... ........... ........... ..........
........... ........... ........... ..........
Net earnings per share $0.56 $0.38 $0.56 $0.38
..... ..... ..... .....
..... ..... ..... .....
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<CASH> 5,631,104 5,631,104
<SECURITIES> 15,318,229 15,318,229
<RECEIVABLES> 11,516,294 11,516,294
<ALLOWANCES> 279,000 279,000
<INVENTORY> 12,696,583 12,696,583
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