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 For the quarterly period ended: December 31, 1999
Commission File Number: 0-11309
NETOPTIX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2526583
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Sturbridge Business Park, P.O. Box 550 01566
Sturbridge, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number including area code (508) 347-9191
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
------------------ ------------------
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 9, 2000
- ------------------------------- ----------------------------------------
Common stock, par value $.01 11,452,596 shares
NETOPTIX CORPORATION
INDEX
Part I. Financial Information: Page No.
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets................................... 3
Consolidated Statements of Operations......................... 4
Consolidated Statements of Cash Flows......................... 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II.Other Information:
Forward-Looking Statements..................................... 12
Item 1. Legal Proceedings.............................................. 12
Item 2. Changes in Securities and Use of Proceeds...................... 12
Item 4. Submission of Matters to a Vote of Security Holders............ 12
Item 6. Exhibits and Reports on Form 8-K............................... 13
Signatures..................................................... 14
Part I. FINANCIAL INFORMATION
Item 1..........Financial Statements
NETOPTIX CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands except share data) Dec. 31, 1999 Sept. 30, 1999
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 408 $ 2,117
Accounts receivable, less allowances of $507 3,274 2,789
Inventories 1,631 1,593
Other current assets 286 389
Assets relating to discontinued operations, net 13,807 14,009
Assets held for sale 3,288 3,288
--------- ---------
Total current assets 22,694 24,185
Property, plant and equipment, net 13,252 10,520
Excess of cost over the fair value of assets acquired, net 11,690 11,796
Other assets, net 2,470 1,864
--------- ---------
Total assets $50,106 $ 48,365
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 1,630 $ 1,150
Current portion of long term debt 5,350 5,350
Accounts payable 1,990 3,148
Accrued liabilities 2,972 3,590
Accrued liabilities, relating to discontinued operations 5,091 5,000
--------- ---------
Total current liabilities 17,033 18,238
Long-term debt 2,345 550
Other liabilities 679 660
--------- ---------
Total Liabilities 20,057 19,448
Commitments & contingencies (Note 7)
Stockholders' equity:
Common stock, $0.01 par value, 36,000,000 shares authorized,
11,416,846 and 11,326,481 issued and outstanding, respectively 114 113
Additional paid-in capital 61,952 61,389
Accumulated deficit (31,803) (32,422)
Accumulated other comprehensive loss (214) (163)
--------- ---------
Total stockholders' equity 30,049 28,917
--------- --------
Total liabilities and stockholders' equity $50,106 $ 48,365
========= =========
See accompanying notes
NETOPTIX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
December 31,
(Dollars in thousands, except per share data) 1999 1998
---- ----
Net Sales $ 4,695 $ 3,831
Cost of sales 2,287 2,647
------- --------
Gross profit 2,408 1,184
Research and development expenses 40 278
Selling & administrative expenses 1,542 3,305
Reduction in carrying value of certain long-lived assets -- 1,841
-------- --------
Total operating expense 1,582 5,424
------- --------
Operating profit (loss) 826 (4,240)
Interest expense, net (249) (320)
Other income, net 82 27
-------- --------
Income (loss) from continuing operations before income tax 659 (4,533)
Provision for income taxes 40 --
-------- --------
Income (loss) from continuing operations 619 (4,533)
Discontinued operations:
Income from operations of discontinued operations, net of income taxes -- 392
-------- --------
Net income (loss) $ 619 $ (4,141)
======== ========
Net income (loss) per common shares outstanding:
Income (loss) from continuing operations $ 0.05 $ (0.56)
Effect of discontinued operations -- 0.05
-------- --------
Net income (loss) $ 0.05 $ (0.51)
======== ========
See accompanying notes
NETOPTIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
For the Three Months Ended
December 31,
1999 1998
---- ----
Cash flows from operating activities:
Net income (loss) $ 619 $ (4,141)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Depreciation and amortization 394 819
Reduction in carrying value of long-lived assets -- 1,841
Other adjustments, net 38 241
Increase (decrease) in cash from changes in operating
assets and liabilities:
Accounts receivable (485) 1,252
Inventories (38) 201
Accounts payable (1,706) 80
Other changes, net (216) (217)
-------- --------
Total adjustments (2,013) 4,217
-------- --------
Net cash provided (used) by operating activities (1,394) 76
Cash flows from investing activities:
Capital expenditures (2,993) (730)
Proceeds from sale of assets 2 --
-------- --------
Net cash used in investing activities (2,991) (730)
Cash flows from financing activities:
Borrowings on note payable 9,006 1,750
Payment of notes payable (6,731) (1,059)
Proceeds from issuance of common stock, net of expenses 564 56
Payment of financing costs (112) (62)
-------- --------
Net cash provided by financing activities 2,727 685
Effect of exchange rate changes on cash (51) 13
-------- --------
Net increase/decrease in cash and cash equivalents (1,709) 44
Cash and cash equivalents at beginning of period 2,117 563
-------- --------
Cash and cash equivalents at end of period $ 408 $ 607
======== ========
NETOPTIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
1. BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from these estimates.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (consisting
of normal recurring adjustments except as disclosed in Note 7)
considered necessary for a fair presentation. The Company's accounting
policies are described in the Notes to the Consolidated Financial
Statements in the Company's 1999 Form 10-K, which should be read in
conjunction with these financial statements.
The results of operations for the three months ended December 31, 1999,
are not necessarily indicative of the results to be expected for the
full year.
As stated in Note 4, on January 31, 2000, the Company sold its
Leisegang Medical, Inc. and related women's health businesses ("LMI")
and related assets, and on July 1, 1999, the Company sold its
Scientific Detector and Spectroscopy Products business ("SDP"). These
businesses have been presented as discontinued operations in the
accompanying consolidated financial statements. For comparative
purposes, the statement of operations and related earnings per share
information, for all periods presented, have been restated to reflect
the results of operations for the discontinued businesses in "Income
from operations of discontinued operations, net of income taxes." The
consolidated balance sheets reflect the assets related to LMI as
"Assets relating to discontinued operations, net." The liabilities,
estimated loss from operations and estimated loss on the sale of LMI
are reflected on the balance sheet as "Accrued liabilities related to
discontinued operations."
Certain reclassifications have been made to amounts reported in
previous years in order to conform to the current year presentation.
2. INVENTORIES
Inventories consist of the following:
December 31, September 30,
1999 1999
------ -----
Finished goods $ 276 $ 569
Work-in-progress 1,043 819
Raw materials 312 205
------ ------
$1,631 $1,593
====== ======
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
For the Three Months ended
December 31,
1999 1998
---- ----
Numerator:
Income (loss) from continuing operations $ 619 $(4,533)
======== ========
Denominator:
Weighted average shares - basic 11,383 8,071
Dilutive stock warrants 955 --
Dilutive employee stock options 388 --
-------- --------
Weighted average shares - assuming dilution 12,726 8,071
======== ========
Net income (loss) per common share -
basic and diluted
Income (loss) from continuing operations $ 0.05 $ (0.56)
Effect of discontinued businesses -- 0.05
-------- --------
$ 0.05 $ (0.51)
======== ========
4. DISCONTINUED BUSINESSES
On January 31, 2000, the Company sold its LMI and related women's
health businesses and related assets. The transaction includes the
Company's operating units in Germany and Canada as well as the LMI
operation in Boca Raton, Florida. The purchase price is approximately
$10 million. The net proceeds will be used to reduce debt and
accordingly, such indebtedness have been reflected as a current
liability. The Company is in the process of finalizing the actual gain
or loss on the disposition of LMI. The Company does not anticipate any
material differences from the amounts previously reported.
On July 1, 1999, the Company sold its SDP business. The proceeds from
the sale, totaling approximately $7.1 million, were applied to the
Company's outstanding debt. The Company recorded a gain on the sale of
approximately $2.7 million.
The tax benefit associated with the net loss on the sale has been fully
reserved at September 30, 1999.
The operating results and estimated net loss on the sale of these
businesses have been presented as discontinued operations.
Summarized information of the discontinued operations is as follows:
For the Three Months ended
December 31,
1999
Income statement data: LMI SDP Total
--- --- -----
Net sales $ 3,461 $ -- $ 3,461
Loss from discontinued operations(1) (613) -- (613)
1998
LMI SDP Total
--- --- -----
Net sales $ 16,659 $ 2,463 $ 19,122
Income from discontinued operations 121 271 392
Earnings per share from discontinued operations
0.02 0.03 0.05
Balance sheet data: December 31, 1999 September 30, 1999
----------------- ------------------
Cash $ 136 $ 75
Accounts receivable 2,030 1,969
Inventories 3,319 3,521
Property, plant and equipment, net 1,387 1,434
Goodwill and other 6,935 7,010
------- ------
Total assets of discontinued operations $ 13,807 $ 14,009
====== ======
Other accrued liabilities 505 414
Estimated loss on sale 4,586 4,586
----- ------
Total liabilities of discontinued operations $ 5,091 $ 5,000
===== ======
(1) The loss from discontinued operations for the three months ended
December 31, 1999 has been provided for in the accrual established
as of September 30, 1999.
5. REVOLVING CREDIT FACILITY
In September 1999, the Company refinanced its outstanding bank loan
through a new credit facility ("Credit Facility"). The Credit Facility
provides for a term loan ("Term Loan") of $13.0 million, bearing
interest at prime rate plus 2.0% or LIBOR plus 3.0% (10.50% at December
31, 1999) and a revolving line of credit ("Revolver") of $12.0 million,
bearing interest at prime plus 1.75% or LIBOR plus 2.5% (10.25% at
December 31, 1999). The Term Loan is used to finance equipment and
capital expenditures for use in the Company's optical systems and
components business in the United States and Germany. Such equipment
collateralizes the Term Loan, whereas the Revolver is secured by
accounts receivables and inventory. The borrowings under the Revolver
are subject to eligible accounts receivable and inventory. The Credit
Facility includes provisions which require the Company to remit the net
cash proceeds of the LMI sale to the bank. Therefore, $5.4 million of
the $7.6 million and $5.9 million outstanding on the Term Loan at
December 31, 1999 and September 30, 1999, respectively, as well as the
$1.6 million and $1.2 million outstanding on the Revolver as of
December 31, 1999 and September 30, 1999, respectively, are stated as
current liabilities. The outstanding balance of the Term Loan as of
September 30, 2000 will become payable in 20 quarterly installments
starting November 1, 2000. The carrying value of this debt as of
December 31, 1999 approximated its fair market value. The Credit
Facility contains certain covenants and requirements concerning
financial ratios and other indebtedness, as well as limitations
regarding the payment of dividends in fiscal year 2000.
6. NONRECURRING CHARGES
(a) Impairment of Long-Lived Assets
For the three months ended December 31, 1998, the Company recorded a
charge of $1.8 million for costs to reduce the carrying value of
certain long-lived assets to estimated fair market value primarily
related to land and buildings, as well as maintenance and engineering
equipment at the Company's Sturbridge, Massachusetts facility.
(b) Telecommunications Products
During the three months ended December 31, 1998, the Company terminated
its telecommunications business and reduced the workforce. The Company
suspended all investments for this business and related activities. The
Company incurred operating losses related to the telecommunications
business of $0.4 million for the three months ended December 31, 1998.
7. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in four class action law suits filed in
Federal District Court in the Commonwealth of Massachusetts by
stockholders of the Company alleging violations of the federal
securities laws based on alleged misleading statements regarding the
Company's financial performance and other matters. The Company believes
these lawsuits are without merit and intends to defend them vigorously.
8. COMPREHENSIVE INCOME
Total comprehensive income (loss) was ($51) and $13 for the three
months ended December 31, 1999 and 1998, respectively.
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Financial Condition
Revenues for the three month period ended December 31, 1999 of $4.7 million were
22.6% greater than the comparable prior year period. In the most recent quarter,
sales of approximately $1.5 million were included from the Dense Wavelength
Division Multiplexing (DWDM) filter business. This was the first ever quarter to
include results from the DWDM filter business which resulted from the Company's
shift to a telecommunications strategy that has been in progress since January
1999. As part of this strategy, the Company, during the fourth quarter ending
September 30, 1999, sold its Scientific Detector and Spectroscopy Products (SDP)
business and announced the sale of the Leisegang Medical, Inc. (LMI) and related
women's health businesses. The sale of the LMI businesses was closed on January
31, 2000. The disposition of those businesses have been treated as discontinued
operations and their results are included in the discontinued operations section
of the Statements of Operations. As the focus was being shifted to the start-up
of its DWDM business at the OFC subsidiary, resources were shifted away from its
historical core business, which resulted in sales decreases during the quarter
of approximately 40.0% in that core business. Also during the quarter, sales at
its Diamond Turning Division increased by 8.0%.
As a result of the DWDM filter business, the overall gross profit percentage
increased to 51.3% from 30.9% from the prior year due to the higher gross profit
on filter sales as compared to the existing core business.
Research and Development (R&D) expenses for the period ended December 31, 1998
included project costs associated with the Telecom business that was terminated
during the first quarter of fiscal year 1999. That elimination accounts for the
decrease in R&D spending year-over-year in addition to the fact that the
development team has been focused on production rather than research.
Selling and administrative expenses were approximately $1.8 million lower for
the fiscal year 2000 first quarter as the previous year's results included $0.8
million of one-time costs associated with a reduction in workforce and other
consolidation costs. The balance of the reduced spending is accounted for by the
subsequent downsizing, primarily, of Corporate administrative functions and
lower general Corporate expenditures resulting from a smaller and less complex
Corporate structure. Also during the quarter ended December 31, 1998,
approximately $1.8 million of asset impairment costs were incurred associated
with the termination of the Medical Endoscope Products business and certain
portions of its SDP businesses.
Interest expense for the recent quarter ended was $71,000 lower than the prior
year as the average bank balance outstanding decreased to $9.3 million from
$13.5 million for the prior year. The borrowing rates were not significantly
different between years. Current borrowings supported the DWDM project spending
and some working capital requirements while the previous years' balance almost
entirely supported working capital shortfalls, as the Company was experiencing
severe liquidity problems at that time.
For both the current and comparable prior year periods, the Company's effective
tax rate differs from the statutory rate primarily due to the available tax loss
carry-forwards. The provision principally relates to foreign and state income
taxes.
As discussed earlier, the disposition of SDP and LMI are accounted for as
discontinued operations with the results for the periods presented restated to
reflect that accounting treatment. For the quarter ended December 31, 1998,
results from discontinued operations included net incomes of $0.3 million for
SDP and $0.1 million for LMI. For the current period, LMI incurred a small loss
which was charged to a reserve for discontinued operations that was established
at September 30, 1999.
Year 2000
As previously disclosed, the Company had put into place various strategies to
address and remedy Year 2000 issues. As of the date of this filing, the Company
has experienced no Year 2000 related difficulties and none are expected. There
were no costs related to remediation efforts during the first quarter of fiscal
2000.
Part II. Other Information
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes forward-looking statements concerning pending
legal proceedings and other aspects of future operations. These forward-looking
statements are based on certain underlying assumptions and expectations of
management. Certain factors could cause actual results to differ materially from
the forward-looking statements included in this Form 10-Q. For additional
information on those factors which could affect actual results, please refer to
the Company's Form 10-K for the fiscal year ended September 30, 1999.
ITEM 1. LEGAL PROCEEDINGS
There is one class action lawsuit pending against the Company and
certain of its former officers alleging violations of federal securities laws
which was filed on June 21, 1999. This lawsuit consolidates and amends four
class action lawsuits filed during the first quarter of fiscal year 1999. The
Company is in the process of responding to the allegations contained in the
lawsuit. As indicated previously, the Company will vigorously defend this
lawsuit and believes that it is without merit.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(C) Sales of Unregistered Securities
On September 1, 1999, the Company issued a total of 50,000 shares of
common stock to Fleet National Bank, as Custodian FBO NetOptix Corporation
Employee Pension Plan, for an aggregate purchase price of $623,437.50. The
Company issued the shares without registration under the Securities Act of 1993
(the "Act") in reliance upon the exemption provided in Section 4(2) of the Act.
This exemption was made available to the Company based on the fact that there
was a single purchaser who made appropriate investment representations to the
Company in connection with the acquisition of the shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders began on January 26, 2000 and later
that day was adjourned until February 9, 2000, on which date the
Annual Meeting of Stockholders was concluded.
(b) Each of the persons named in the Proxy Statement as a nominee for
Director was elected.
(c) Set forth below are the voting results on each of the matters which
were submitted to the stockholders:
Withheld Broker
Election of Directors: For Against or Abstain Non-Votes
--- ------- ---------- ---------
Gerhard R. Andlinger 9,865,054 540,907
Charles E. Ball 9,832,255 573,706
John F. Blais, Jr. 9,864,755 541,206
Todd F. Davenport 9,864,355 541,606
Robert D. Happ 8,433,625 1,972,336
Stephen A. Magida 9,863,955 542,006
Paul C. O'Brien 9,832,554 573,407
Resolutions:
To approve the 1999 6,963,285 529,479 147,690 2,765,507
Stock Option Plan
To approve the 1999 7,308,411 281,970 163,468 2,652,112
Stock Option Plan for
Non-Employee Directors
To approve an increase in the 9,518,246 871,505 16,210
number of authorized shares of
Common Stock to 100,000,000
To approve the authorization of 6,913,131 679,947 47,376 2,765,507
2,000,000 shares of a new class
of undesignated preferred stock
To approve the deletion of an 7,789,470 147,113
Article from the Certificate of
Incorporation which required
the approval of 66 2/3% of the
outstanding shares to approve
certain transactions
Additional information regarding the matters referred to under this
Item 4 is set forth in the Proxy Statement dated December 30, 1999 previously
filed with the Commission and incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
3 Amended and Restatd Bylaws of the Company, as amended
on January 26, 2000
27.1 Financial Data Schedule (EDGAR filing only).
27.2 Financial Data Schedule (EDGAR filing only)
b. Reports on Form 8-K
1. Current Report on Form 8-K dated September 30, 1999
and filed on October 21, 1999, with two press
releases dated September 30, 1999 and October 4, 1999
and a Loan and Security Agreement dated as of
September 30, 1999 attached as exhibits thereto,
regarding (i) the Company's change of its name to
NetOptix Corporation effective September 30, 1999;
and (ii) the Company's completion of arrangements for
a debt financing package totaling $25 million with
Deutsch Financial Services Corporation.
2. Current Report on Form 8-K dated November 18, 1999
and filed on November 22, 1999, with a press release
dated November 18, 1999 attached as an exhibit
thereto, regarding the setting of the Company's 2000
Annual Meeting of Stockholders for January 26, 2000
and the record date for determining the stockholders
allowed to vote at such Annual Meeting at November
30, 1999.
3. Current Report on Form 8-K/A dated November 17, 1999
and filed on December 10, 1999, with a press release
dated December 8, 1999 attached as an exhibit
thereto, regarding the change in the record date for
the Company's 2000 Annual Meeting of Stockholders
from November 30, 1999 to December 8, 1999.
4. Current Report on Form 8-K dated December 14, 1999
and filed on December 16, 1999, with two press
releases, each dated December 14, 1999, attached as
exhibits thereto, regarding (i) the Company's
reported financial results for its fourth quarter
ended September 30, 1999 and for the fiscal year
ended September 30, 1999 (including attached
consolidated condensed balance sheets as of September
30, 1998 and 1999 and consolidated statements of
operations for the three-month and twelve-month
periods ended September 30, 1998 and 1999), and (ii)
the Company's agreement to sell its women's health
businesses and related assets to CooperSurgical, Inc.
SIGNATURES
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.
NETOPTIX CORPORATION
Dated: February 11, 2000 /s/ Gerhard R. Andlinger
-----------------------------------------
Gerhard R. Andlinger, Chairman of the
Board and Chief Executive Officer
(Principal Executive Officer)
/s/ Thomas J. Mathews
-----------------------------------------
Thomas J. Mathews, Vice President,
Finance, Chief Financial Officer and
Assistant Secretary (Principal
Financial and Accounting Officer)
NETOPTIX CORPORATION
INDEX TO EXHIBITS
Exhibit No.
- -----------
3 Amended and Restated Bylaws of the Company,
as amended on January 26, 2000.
27.1 Financial Data Schedule
27.2 Financial Data Schedule