U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
----------------------------------
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
Commission File No. 0-21852
----------------------------------
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
(Exact name of small business issuer as specified in its charter)
Delaware 94-3123210
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1265 Naperville Drive, Romeoville, Illinois 60446, (630) 759-7666
(Address and Registrant's telephone number)
----------------------------------
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 _
As of January 31, 1998 the Registrant had outstanding 19,580,879 shares
of common stock $0.001 par value.
Transitional small business disclosure form: YES __ NO X
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 1997
INDEX
PART I 1
ITEM 1. FINANCIAL STATEMENTS 1
BALANCE SHEETS 1
STATEMENT OF OPERATIONS 3
STATEMENT OF CASH FLOWS 4
NOTES TO FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION 8
PART II 11
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5. OTHER INFORMATION AND SUBSEQUENT EVENTS 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
<PAGE>
PART I
Item 1. Financial Statements.
The following financial statements of Franklin Ophthalmic
Instruments Co., Inc. (the _Company_) are included herein and are
unaudited, but in the opinion of management include all adjustments
necessary for fair presentation of the Company's financial condition as
of December 31, 1997 and results of operations and cash flows for the
three months ended December 31, 1996 and December 31, 1997,
respectively:
(a) Balance Sheets
(b) Statements of Operations
(c) Statements of Cash Flows
(d) Notes to Financial Statements
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
BALANCE SHEETS
(Unaudited)
ASSETS
September December
30, 31,
1997 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ - $ 69,419
Accounts receivable, less
allowance for doubtful
accounts of $23,439 851,574 1,179,741
Inventory, less valuation 1,583,510 1,638,739
allowance of $60,000
Prepaid expenses and other
assets 170,787 244,787
Total current assets 2,605,871 3,132,686
Property and equipment, at cost:
Furniture and equipment 638,938 652,619
Automobiles and trucks 119,193 119,193
Leasehold improvements 121,915 121,916
Property and equipment, at cost: 880,046 893,728
Less: Accumulated depreciation 707,837 727,088
and amortization
Total property and equipment 172,209 166,640
Other assets:
Deposits 13,903 13,903
Intangible assets, net of
accumulated amortization of
$924,978 and $971,129 2,053,916 2,007,765
Total other assets 2,067,819 2,021,668
Total assets $4,845,899 5,320,994
The accompanying notes are an
integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
BALANCE SHEETS
(Continued)
(Unaudited)
September December
30, 31,
1997 1997
<S> <C> <C>
Current liabilities:
Bank overdrafts $ 95,309 $ -
Current portion of long-term debt 157,127 161,726
Accounts payable 1,075,382 1,166,850
Current portion of capitalized
lease obligations 18,314 15,143
Deposits 114,839 150,942
Accrued liabilities 259,089 233,085
Total current liabilities 1,720,060 1,727,746
Long-term debt:
Long-term portion of line of
credit with bank 1,659,314 1,817,698
Long-term debt, less current
portion - 282,867
Capitalized lease obligations,
less current portion 12,382 12,380
Total long-term debt 1,671,696 2,112,945
Total liabilities 3,391,756 3,840,691
Stockholders' equity (deficit):
Common stock: $0.001 par value;
authorized
25,000,000 shares; 19,583,378
shares issued
and outstanding at September
30, 1997 and
December 31, 1997 19,583 19,583
Additional paid-in capital 11,022,940 11,022,940
Accumulated deficit (9,588,380) (9,562,220)
Total stockholders' equity (deficit) 1,454,143 1,480,303
Total liabilities and
stockholders' equity (deficit) $4,845,899 $5,320,994
The accompanying notes are an
integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
December 31,
1996 1997
<S> <C> <C>
Sales $2,306,328 $ 2,613,026
Cost of Sales 1,719,190 1,879,286
Gross profit 587,138 733,740
Less:
Selling, general and
adminstrative expenses 549,094 587,166
Amortization and depreciation 75,227 65,402
Income (loss) from operations (37,183) 81,172
Other income (expenses):
Interest income - -
Interest expense (71,724) (55,012)
Other income (expense) - -
Other income (expense), net (71,724) (55,012)
Net income (loss) before
extraordinary item (108,907) 26,160
Extraordinary item, gain from debt
restructuring 2,886,513 -
Net income (loss) $ 2,777,606 $ 26,160
Income (loss) per common share:
Net income ( loss) before $ (0.01) $ 0.00
extraordinary item)
Net income ( loss) $ 0.22 $ 0.00
Weighted average number of
common shares outstanding 12,355,810 19,583,378
The accompanying notes are an
integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
STATEMENT OF CASH FLOWS
(Unaudited)
For the three months ended
December 31,
1996 1997
<S> <C> <C>
Cash flows from operating activities:
Net Income $2,777,606 $ 26,160
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 20,638 19,251
Amortization 54,589 46,151
Gain from debt restructuring (2,886,513) -
Changes in current assets and
liabilities:
Accounts receivable (449,096) (328,167)
Inventory (103,920) (55,229)
Prepaid expenses (43,715) (74,000)
Deposits (48,395) 36,103
Accounts payable, trade and
accrued liabilities (149,459) 65,464
Net cash used in operating
activities (828,265) (264,267)
Cash flows from investing activities:
Acquisition of equipment
(1,663) (13,682)
Net cash used in investing
activities (1,663) (13,682)
Cash flows from financing activities:
Net change in bank overdrafts (55,597) (95,309)
Decrease in capital leases (2,581) (3,173)
Net change in borrowings under
line of credit - 158,384
Net proceeds from issuance of -
common stock 985,062
Increase (decrease) in long-term
debt (76,044) (12,534)
Promissory notes converted to - -
stock in private placement
Proceeds from issuance of
promissory note to bank - 300,000
Net cash provided by financing $ 850,840 $ 347,368
activities
Net decrease in cash and cash $ 20,912 $ 69,419
equivalents
Cash and cash equivalents at
beginning of period $ - $ -
Cash and cash equivalents at end of
period $ - $ 69,419
The accompanying notes are an
integral part of these statements.
</TABLE>
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the financial
statements include all adjustments necessary to present fairly the
financial position, results of operations and cash flows for the periods
presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. The financial statements and these notes should be read in
conjunction with the financial statements of the Company included in the
Company's Annual Report on Form 10-KSB for the year ended September 30,
1997.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year.
2. RESTRUCTURING
During the quarter ended December 31, 1996, the Company completed a
financial and operational restructuring that began during fiscal 1995
with the consolidation of the Company's facilities into Romeoville,
Illinois and a change in management that included the appointment of
the Company's current Chief Executive Officer, Chief Operating Officer,
and Chief Financial Officer. During the fourth quarter of fiscal 1996,
the Company reached agreements with Silicon Valley Bank (_Silicon_),
its primary trade creditors and certain of its debtholders for
the restructuring of some of the Company's outstanding debt. In
addition, the Company was able to raise $1,200,250 and $580,000 through
the private placements of equity in the first and third quarters of
fiscal 1997 respectively.
Pursuant to the agreement with Silicon, during the first quarter
of fiscal 1997 approximately $3.2 million owing to Silicon was
converted into shares of the Company's Common Stock at a
conversion rate of $1.52 per share and the remaining $1.8 million
owing to Silicon was transferred into a new credit facility. In
connection with the restructuring of trade debt during the fourth
quarter of fiscal 1996 and the first quarter of fiscal 1997: (i)
$533,000 of trade debt was converted to Common Stock in the Company
at a rate of $1.52 per share; (ii) $201,000 was forgiven; and (iii)
approximately $335,000 was converted to promissory notes with terms of
up to 24 months. The debt restructuring completed during the quarter
ended December 31, 1996 resulted in an extraordinary gain of $2,886,513
for the quarter.
3. NOTES PAYABLE - BANK
Until December 30, 1997, the Company's principal credit facility
had been a revolving credit facility with Silicon which provided
advances against the line of credit for the lower of $1.8 million or the
<PAGE>
amounts supported by a formula derived borrowing base. The borrowing
base was equal to (i) 80% of the amount of eligible accounts
receivable and (ii) the lesser of 50% of eligible inventories or
$1,000,000. During August 1997, the Company and Silicon agreed to
an extension of the line of credit (the agreement with Silicon as
revised is referred to as the _Revised Agreement_) to September 30,
1997, which maturity date could be further extended by the Company to
February 28, 1998 upon payment of a fee to Silicon and as long as the
Company was not in default under the Revised Agreement. The interest
rate charged under the Revised Agreement was increased to 3% over
Silicon's prime lending rate, increasing to 4% over Silicon's prime
lending rate if the Company was still
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
indebted to Silicon at January 1, 1998. In addition the Revised
Agreement provided for a loan fee that was payable as follows: (i)
$4,000 upon effectiveness of the Revised Agreement; (ii) $6,000 on
September 30, 1997 if the Company elected to extend the maturity of
the line of credit to February 28, 1998; and (iii) $8,000 on January 1,
1998 in the event that the Company remained indebted to Silicon at
such date. The Revised Agreement provided that the Company would be
deemed to be in default if it failed to (i) have a net profit of at
least one dollar for each of the Company's fiscal quarters, and (ii)
have an operating profit of at least one dollar for the Company's
fiscal year ending September 30, 1997. For purposes of the Revised
Agreement only, operating profit was defined as the Company's earnings
before interest, taxes, depreciation, and amortization.
On December 30, 1997, the Company reached agreement with Harris
Trust and Savings Bank (_Harris Bank_) of Chicago, Illinois on an
Amended and Restated Loan and Security Agreement (_Harris Loan
Agreement_) in which Harris Bank purchased from Silicon all of
Silicon's rights, title and interest in the Company's Revised
Agreement with Silicon. The Harris Loan Agreement provides for credit
facilities comprised of a Revolving Credit Note for an amount up to
$2,200,000 (_Revolving Note_) and a Secured Promissory Note in the
amount of $300,000 (_Promissory Note_). Both notes are secured by
all of the Company's assets, and provides for a line of credit
comprised of a borrowing base equal to the sum of (i) 80% of the amount
of eligible accounts receivable and (ii) the lesser of 50% of
eligible inventories or $1,000,000. The Revolving Note expires on
March 31, 2000.
Under the Promissory Note the Company must make principal payments
of $3,750 per month, which payments commenced on February 1, 1998 and
continue through March 1, 2000. On March 31, 2000, a final principal
payment is due equal to the entire unpaid principal balance thereof,
together with any and all other amounts due under the Promissory Note.
<PAGE>
In addition, under the terms of the Harris Loan Agreement, the
Company will have the option of borrowing rates on the Revolving Note
and the Promissory Note based on either Harris Bank's commercial
prime rate (8.5% at December 31, 1997) plus .5% or the London Interbank
Offered Rate plus 3%. The Company was also charged a one time loan
origination fee of $15,000. The Harris Loan Agreement includes the
personal guarantees of Messrs. Michael J. Carroll, James J. Urban, and
Brian M. Carroll, the Company's CEO, COO and CFO respectively, for
an amount not to exceed an aggregate of $200,000.
The Harris Loan Agreement includes certain financial covenants
that the Company must meet including: (1) a consolidated adjusted
tangible net worth such that the Consolidated Adjusted Tangible Net
Worth increases (i) by $200,000 during the period from October 1,
1997 to September 30, 1998, (ii) by $250,000 during the period from
October 1, 1998 to September 30, 1999 and (iii) by $250,000 during the
period from October 1, 1999 to September 30, 2000; (2) a net book
value equal to or greater than $1,450,000 ; and (3) during each
fiscal quarter, a fixed charge ratio of 1.4:1 for the Company's
fiscal year ending September 30, 1998 and a ratio of 2.0:1
for each fiscal year thereafter.
4. SHORT TERM DEBT - RELATED PARTY
During August 1996, the Company borrowed $215,000 from an
individual under a 30 day promissory note bearing interest at 10% per
annum and a note origination fee of $6,450. In October 1996, the note
was
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
converted to 860,000 shares of common stock in the Company as
participation in the Company's private placement offering which
commenced on October 1, 1996. In addition, warrants to purchase 430,000
shares of common stock at a price of $1.00 per share between a period 6-
18 months after the issuance of such warrants were also issued as part
of the participation in the aforementioned private placement offering.
5. STOCKHOLDERS EQUITY
During the quarter ended December 31, 1996, the Company raised
$1,200,250 of capital through the sale of 2,400,500 Units which were
sold pursuant to a private placement of Units (each Unit consisting of
two shares of Common Stock and one Common Stock purchase warrant,
exercisable between 6-18 months after the issuance of such Common Stock
purchase warrant). The sale of the 2,400,500 Units exceeded the minimum
of 2,000,000 Units required pursuant to the terms of the private
placement, which was conducted by the Company on a _best efforts_ basis
and provided for the sale and offer of up to a maximum of 3,200,000
Units.
In March of 1997, the Company's Board of Directors voted to
eliminate the annual automatic granting of options to non-employee
directors that was established under the 1993 Stock Option Rights and
Appreciation Plan.
<PAGE>
In accordance with anti-dilution rights of Class A Warrants that
were issued during the Company's initial public offering in July 1993,
the exercise price under such Class A Warrants has been reduced from its
original level of $5.00 per share of Common Stock to $2.30 per share,
and the aggregate number of shares of Common Stock issuable upon
exercise of such warrants has been increased form 2,062,500 to
4,487,740. As a consequence of the increase in the number of shares
issuable upon the exercise of the Class A Warrants, the Company no
longer has sufficient shares of Common Stock authorized to provide for
the exercise of all of the outstanding common stock purchase warrants
and options (the potential shortfall being hereinafter referred to as
the _Stock Deficiency_). To remedy this situation, Michael J. Carroll
and James J. Urban, the Company's Chief Executive Officer and Chief
Operating Officer respectively, have agreed to surrender to the
Company for redemption that number of shares of Common Stock equal
to any such Stock Deficiency up to an aggregate amount of 2,450,000
shares. In the event that an amount of warrants is exercised such that
a Stock Deficiency is created, the Company will use the proceeds from
such exercise of warrants to fund the buy back of stock from Messrs. M.
Carroll and Urban. The price per share paid to Messrs. Carroll and
Urban will equal the exercise price per share under the common stock
purchase warrants or options the exercise of which results in such
deficiency, with the result that the Company will receive no net
benefit from the exercise of the warrants or options. Until such
shares are redeemed, if at all, they will remain the property of
Messrs. Carroll and Urban, although certificates representing the
shares will be held in the custody of the Company. The agreement
terminates upon the earlier to occur of (i) the effectiveness of
any amendment to the Company's Certificate of Incorporation
increasing the authorized shares of Common Stock sufficient to
eliminate any potential Stock Deficiency or (ii) the expiration of a
sufficient number of common stock purchase warrants and/or options in
an amount sufficient to eliminate any potential Stock Deficiency.
The Company entered into an agreement on April 11, 1997, as amended
May 8, May 9, and May 11 1997 (the _Investment Agreement_) with Prinz-
Franklin L.L.C., an Illinois limited liability company (_Prinz_),
pursuant to which the Company agreed to sell to Prinz up to 3,000,000
shares of Common Stock at a price of $0.20 per share. The Investment
Agreement granted Prinz piggyback registration rights with respect
to the shares of Common Stock so purchased. Pursuant to such piggy-back
registration rights, any shares of Common Stock which Prinz elects to
include in a registration statement of the Company shall be held in
escrow during the effective period of such registration statement under
the following conditions: (i) 25% of the shares purchased may not be
sold or released from escrow until the closing price of the Company's
Common Stock is equal to or greater than $0.75 per share for five
consecutive trading days; and (ii) the remaining common stock may not be
sold or released from escrow until the closing price of the Company's
Common Stock is equal to or greater than $1.25 per share for five
consecutive trading days. Such escrow restrictions shall terminate at
the earlier of the time the Common Stock sold to Prinz is exempt under
Rule 144 as promulgated under the Securities Act of 1933, as amended, or
one year from the date of each purchase of the respective shares. In
addition, the Investment Agreement provides for the issuance to Prinz of
<PAGE>
warrants to purchase up to 400,000 shares of Common Stock within a
period of four years from issuance of the applicable warrant. Under the
Investment Agreement, Prinz had purchased 2,900,000 of the shares of
Common Stock for $580,000 and had been granted warrants to purchase
400,000 additional shares of Common Stock. The Investment Agreement also
provided for the appointment of John Prinz to the Board of Directors of
the Company.
Item 2. Management's Discussion and Analysis or Plan of Operations
General
During the quarter ended December 31, 1996, the Company completed
a financial and operational restructuring that began during fiscal
1995 with the consolidation of the Company's facilities into
Romeoville, Illinois (the location of Midwest Ophthalmic Instruments,
Inc. _ a company acquired by Franklin during July of 1994) and a change
in management that included the appointment of the Company's current
CEO, COO and CFO. The restructuring was completed when the
Company: (1) completed a private placement of 2,400,500 units
comprised of two shares of Common Stock and one common stock
purchase warrant entitling the holder to purchase one share of Common
Stock at $1.00 per share within a specified period
(collectively, the 'Warrants'), for an aggregate price of
$1,200,250; (2) reached agreement with its primary lender, Silicon,
in which $3,175,104 in debt owed by the Company to Silicon was
converted into 2,088,884 shares of the Company's Common Stock; and
(3) reached agreements with certain trade creditors pursuant to
which such trade creditors: (i) converted an aggregate of
approximately $533,000 owed to them into shares of Common Stock
at a price of $1.52 per share; (ii) forgave trade debt in the amount of
approximately $201,000; and (iii) accepted certain promissory notes
(having a maturity date up to twenty-four months from the date
thereof and an applicable interest rate of 10%) in payment of
additional trade debt totaling $335,000. See Notes 2, 3, 4 and 5 of
the Financial Statements contained elsewhere herein.
In connection with the restructuring, the Company increased sales
and marketing efforts by increasing its sales representation in
locations from which the Company had previously withdrawn and
reintroducing the direct mailing of catalogs describing the products and
services provided by the Company. In addition, during the quarter
ended December 31, 1997, the Company was able to replace its former
credit facility with Silicon with a new credit facility with Harris
Trust which increased the Company's credit line from $1.8 million
to $2.5 million and the extended of the term of the Company's line
of credit to March 31, 2000. See Note and 3 to the Financial
Statements contained elsewhere herein.
Results of Operations
Sales increased by $306,698 to $2,613,026 for the quarter ended
December 31, 1997 from $2,306,328 for the quarter ended December 31,
1996. The Company attributes the 13.3% increase to the recent expansion
of marketing efforts through the addition of a national direct mail
catalog, the addition of sales personnel in new territories, and
increased availability of trade credit as a result of the completion of
the restructuring during the quarter ended December 31, 1996.
<PAGE>
The Company's gross margin on sales increased by $146,602 to
$733,740 for the quarter ended December 31, 1997 from $587,138 for the
quarter ended December 31, 1996. Gross margin as a percentage of sales
increased to 28.1% for the quarter ended December 31, 1997 from 25.46%
from the prior year's quarter. The increase in gross margin for the
quarter ended December 31, 1997 is primarily attributed to increases in
revenue derived from service revenue and the Company's sales of private
labeled products, which both have historically provided for greater
margins, and the completion of the Company's financial restructuring
which provided the Company with greater financial ability to purchase
greater quantities of product at lower costs.
Selling, general and administrative (_SG&A_) expenses increased by
$48,072 from $549,094 for the quarter ended December 31, 1996 to
$587,166 for the quarter ended December 31, 1997. As a percentage of
sales, SG&A expenses were 22.5% for the three months ended December 31,
1997, compared to 24% for the quarter ended December 31, 1996. The
increase in SG&A expenses is primarily a result of the costs associated
with the addition of new sales and services representatives during the
latter part of fiscal 1997.
Amortization and depreciation expense decreased from $75,227 for
the quarter ended December, 1996 to $65,402 for the quarter ended
December 31, 1997. The decrease is primarily attributable to the
elimination of amortization expense that the Company incurred during
fiscal 1997 pertaining to employment contracts related to the
acquisition of Midwest Ophthalmic Instruments, Inc., which were fully
amortized in fiscal 1997.
Interest expense decreased from $71,724 for the quarter ended
December 31, 1996 to $55,012 for the quarter ended December 31, 1997.
The decrease in interest expense is primarily a result of the Company's
restructuring of its bank financing with Silicon in which Silicon
converted $3,175,105 of principal and interest into 2,088,884 shares of
the Company's Common Stock. See Notes 2 and 3 to the Financial
Statements contained elsewhere herein.
As a result of the foregoing factors, the Company reported an
increase in earnings before interest, taxes, depreciation and
amortization (_EBITDA_), and extraordinary items for the quarter ended
December 31, 1997 of $146,574 versus $38,044 for the prior year's
quarter. Although the Company does not represent that the EBITDA is a
substitute for GAAP-based financials, the Company believes that it
is a reasonable measurement of the Company's progress given the amount
of income that is offset by amortization expense primarily associated
with the acquisition of Midwest Ophthalmic Instruments Co., Inc which
took place during the fourth quarter of fiscal 1994. With interest,
taxes, depreciation and amortization included, and an extraordinary
gain from restructuring of $2,886,513 in the quarter ended December 31,
1996, the Company reported net earnings of $26,161 for the quarter
ended December 31, 1997 versus net earnings of $2,777,606 for the prior
year's quarter. The reduction in net earnings is attributable to the
extraordinary gain of $2,886,513 the Company recorded during the quarter
ended December 31, 1996 whereas there was no extraordinary gain during
the quarter ended December 31, 1997. As a result of the above, the
Company reported no net earnings per share for the quarter ended
December 31, 1997 versus a net earnings per share of $.22 for the prior
year's quarter.
<PAGE>
Liquidity and Capital Resources
Cash flow from operations was a negative $264,267 for the quarter
ended December 31, 1997 versus a negative $828,265 for the prior year's
quarter. The $563,995 decrease was primarily attributed to increases in
income from operations, improved accounts receivable and inventory
turnover, and increases in customer deposits and trade payables. The
Company financed the negative cash flows with the proceeds of
private placements of securities during the quarters ended December
31, 1996 and June 30, 1997, and the addition of new credit facilities
with Harris Bank during the quarter ended December 31, 1997. The
facilities with Harris Bank replaced a prior credit facility with
Silicon. See Notes 2, 3 and 5 to the Financial Statements included
elsewhere herein.
As of December 31, 1997, the Company owed Harris Bank $1,817,698
under the line of credit facility and $300,000 under the Promissory
Note.
The Company is currently unable to raise capital through the
issuance of additional shares of Common Stock or warrants, options or
other securities exercisable for or convertible into shares of Common
Stock because of an insufficiency in the number of authorized shares of
Common Stock. See Note 5 to the Financial Statements Statements
contained elsewhere herein. While the Company does not have any
immediate plans to sell additional equity securities, the Company's
board of directors plans to submit for a vote by the stockholders of the
Company an amendment to the Certificate of Incorporation of the Company
increasing the number of authorized shares. Such an amendment would
require the affirmative vote of the holders of a majority of the
Company's outstanding shares of Common Stock.
Although the Company believes that a continued increase in sales
revenues along with the existing credit available under the Harris Loan
Agreement will be sufficient to enable the Company to fund its
operations and the expansion of its business, there can be no assurance
that the Company can continue to increase sales to such levels that
would achieve certain profitability levels which would enable the
Company to meet loan covenants as set forth in its agreement with Harris
Bank. See Note 3 to the Financial Statements contained elsewhere
herein.
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has filed a complaint against the auditing and
accounting firm of Marinelli & Scott. See Form 10-QSB of the Company
for the quarterly period ending December 31, 1996. The Company is not
aware of any other material pending or ongoing litigation to which the
Company is or would be a party.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
Other than as set forth elsewhere herein, there has been no
material default with respect to any indebtedness of the Company
required to be disclosed pursuant to this item.
Item 4. Submission of Matters to a Vote of Security Holders.
There have been no matters submitted to a vote of security holders
during the quarter ended December 31, 1997.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith:
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended December 31,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
Date: February 17, 1998 By: /S/ Michael J. Carroll
Michael J. Carroll, President
and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 69,419
<SECURITIES> 0
<RECEIVABLES> 1,179,741
<ALLOWANCES> 23,439
<INVENTORY> 1,638,739
<CURRENT-ASSETS> 3,132,686
<PP&E> 893,728
<DEPRECIATION> 727,088
<TOTAL-ASSETS> 5,320,994
<CURRENT-LIABILITIES> 1,727,746
<BONDS> 0
0
0
<COMMON> 19,583
<OTHER-SE> 1,460,720
<TOTAL-LIABILITY-AND-EQUITY> 5,320,994
<SALES> 1,727,747
<TOTAL-REVENUES> 1,727,747
<CGS> 1,879,286
<TOTAL-COSTS> 1,879,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,012
<INCOME-PRETAX> 26,160
<INCOME-TAX> 0
<INCOME-CONTINUING> 26,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,160
<EPS-PRIMARY> .00
<EPS-DILUTED> 0
</TABLE>
