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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the period ended MARCH 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-15198
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Osmic, Inc.
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(Exact name of registrant as specified in its charter)
DELAWARE 38-2640630
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1788 NORTHWOOD, TROY, MICHIGAN 48084
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (810) 362-1290
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Former name, former address and former fiscal year, if changed since last
report
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 .
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As of April 15, 1996 there were 1,970,894 shares of Common Stock
outstanding.
Page 1 of 8
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Osmic, Inc.
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
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1996 1995 1996 1995
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Net product sales $ 706,303 $ 692,575 $2,102,308 $1,566,385
Cost of products sold 276,610 224,053 751,637 495,062
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Gross profit 429,693 468,522 1,350,671 1,071,323
Other operating revenue:
Revenue from business agreements 160,939 25,000 182,031 106,565
Other revenue 4,100 20,947 18,725 64,864
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Total other operating revenue 165,039 45,947 200,756 171,429
Operating expenses:
Cost of revenues from business agreements 80,788 13,315 93,322 76,850
Direct product development and research 80,638 84,066 242,508 366,750
Patent fees and expenses 28,600 12,181 57,245 36,551
Selling, general & administrative 178,701 184,001 497,862 498,306
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Total operating expenses 368,727 293,563 890,937 978,457
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Operating income 226,005 220,906 660,490 264,925
Interest income 11,994 4,837 31,291 4,837
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Income before income taxes 237,999 225,743 691,781 269,132
Provision for income taxes 95,000 76,750 277,000 91,500
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Net income $ 142,999 $ 148,993 $ 414,781 $ 177,632
========= ========= ========= =========
Net income per common share $ 0.07 $ 0.08 $ 0.21 $ 0.09
========= ========= ========= =========
Weighted Average Number
of Shares Outstanding 1,970,894 1,970,894 1,970,894 1,961,353
========= ========= ========= =========
See notes to financial statements.
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Osmic, Inc.
CONDENSED BALANCE SHEETS
March 31, June 30,
1996 1995
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,151,522 $ 879,922
Accounts receivable 617,948 355,275
Inventories 357,302 163,153
Prepaid expenses and other current assets 6,382 3,150
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Total current assets 2,133,154 1,401,500
Net property and equipment 322,178 86,310
Other assets 45,000 60,000
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$ 2,500,332 $ 1,547,810
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 523,952 $ 243,311
Accrued compensation 95,933 134,846
Deferred revenue 206,013 -
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Total current liabilities 825,898 378,157
Stockholders' equity:
Preferred stock, no par value - -
Common stock, par value $.01 per share 19,709 19,709
Additional paid-in capital 755,632 755,632
Retained earnings 899,093 394,312
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Total stockholders' equity 1,674,434 1,169,653
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$ 2,500,332 $ 1,547,810
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See notes to financial statements.
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Osmic, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended March 31,
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1996 1995
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Operating activities:
Net income $ 414,781 $ 177,632
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 37,855 58,665
Gain on sale of capital equipment (14,300) -
Changes in working capital other than debt:
Accounts receivable (262,673) (35,404)
Inventories (194,149) 66,557
Prepaid expenses and other current assets (3,232) (3,713)
Accounts payable 280,641 (12,657)
Accrued compensation (38,913) 82,857
Deferred revenue 206,013 -
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Net cash provided by operations 426,023 333,937
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Investing activities:
Purchases of capital equipment (258,723) (9,049)
Proceeds from sales of capital equipment 14,300 -
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Net cash (used in) investing activities (244,423) (9,049)
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Financing activities:
Tax benefit of net operating loss carryforward 90,000 91,500
Preferred stock exchange - (14,875,353)
Common stock issued - 5,509
Additional paid-in-capital reduction - (8,434,999)
Accumulated deficit reclassification,
pursuant to quasi-reorganization - 23,304,843
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Net cash provided by financing activities 90,000 119,836
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Increase in cash and cash equivalents 271,600 444,724
Cash and cash equivalents at beginning of period 879,922 304,332
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Cash and cash equivalents at end of period $1,151,522 $ 749,056
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Supplemental disclosures of cash flow information:
Cash equivalents - Cash equivalents consists of investments in short-term,
highly-liquid securities having a maturity of three months or less from
date of acquisition.
See notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS - MARCH 31, 1996
NOTE A - Basis of Presentation
Information for the three and nine months ended March 31, 1996 and 1995 is
unaudited but includes all adjustments which Osmic, Inc. ("Osmic") considers
necessary for a fair presentation of financial condition, cash flows and
results of operations.
In accordance with the instructions for the completion of the Quarterly
Report on Form 10-Q, certain information and footnotes necessary to comply with
generally accepted accounting principles have been condensed or omitted. These
financial statements should be read in conjunction with Osmic's 1995 Annual
Report on Form 10-K which contains a summary of Osmic's accounting principles
and other footnote information.
Revenue Recognition
Revenues from product sales are recognized upon shipment of the product.
Revenues from business agreements which are on a cost-plus basis are recognized
in accordance with the terms of the agreement. Revenues from other business
agreements are accounted for on a percentage of completion basis; if there are
losses, Osmic records losses at the time such losses become apparent. All
costs incurred by Osmic in connection with its performance under these
agreements are recorded in Osmic's financial statements as cost of revenues
from business agreements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
As of March 31, 1996, Osmic had working capital of approximately
$1,307,000 including cash and cash investments of approximately $1,152,000.
Deferred revenue as of March 31, 1996 of approximately $206,000 consists
primarily of advance payments received from customers for product scheduled to
be delivered during May 1996.
The Company has signed a preliminary memorandum agreement with a third
party for the commercialization of its permanent magnet technology. This
agreement if finalized and effectuated, would provide the Company with a net
upfront payment of $500,000 over two years and a continuous presence in the
permanent magnet industry. However, no assurance can be given that such a
final agreement will be effectuated.
The Company is finalizing its evaluation of its available net operating
loss carryforwards. During the fourth quarter any benefit associated with that
analysis will be reflected as an adjustment to equity in accordance with
Financial Accounting Standards No. 109.
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Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
The decrease in net income for the three months ended March 31, 1995
compared to the three months ended March 31, 1996, $148,993 and $142,999
respectively, was primarily a result of increased effective tax rate for the
1996 period.
The increase in product sales from $692,575 in the three months ended
March 31, 1995 to $706,303 in the three months ended March 31, 1996 was due to
an increase in neutron product sales partially offset by reduced custom X-ray
products.
Revenue from business agreements increased from $25,000 during the three
months ended March 31, 1995 to $160,939 for the three months ended March 31,
1996 principally as a result of completing a SBIR Phase I contract with the
Department of Commerce in fiscal year 1995 as compared to commencing work in
fiscal year 1996 on a Phase II contract also with the Department of Commerce
and a Phase I with NASA. Additionally, during fiscal year 1996 the Company
began providing consulting services to a third party with respect to its
permanent magnet technology.
The increase in cost of product sales from $224,053 in the three months
ended March 31, 1995 to $276,610 in the three months ended March 31, 1996 was
the result of increased neutron product sales. Gross profit as a percentage
of sales decreased during the respective periods from 68% to 61% as a result of
increased neutron product sales which have a lower gross margin than x-ray
products.
The cost of revenue from business agreements increased from $13,315 for
the three months ended March 31, 1995 to $80,788 for the three months ended
March 31, 1996 as a result of increased revenues from business agreements.
Gross margin remained approximately the same at 46% and 49%, respectively.
Direct product development and research expense remained relatively
constant with $84,066 in expenses for the three months ended March 31, 1995 and
$80,638 for the three months ended March 31, 1996.
Selling, general and administrative expenses remained stable during the
three month periods ended March 31, 1995 and 1996 at $184,001 and $178,701,
respectively.
The income tax provision of $76,750 and $95,000 for the respective periods
is a result of increased profitability and utilizing the effective federal and
state income tax rates. The tax benefit associated with utilizing the
Company's net operating loss carryforwards are reflected in the balance sheet
as an increase in retained earnings.
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Nine Months Ended March 31, 1996 Compared to Nine Months Ended March 31, 1995
The increase in net income for the nine months ended March 31, 1995
compared to the nine months ended March 31, 1996, $177,632 and $414,781
respectively, was primarily a result of increased product sales.
The 34% increase in product sales from $1,566,385 in the nine months ended
March 31, 1995 to $2,102,308 in the nine months ended March 31, 1996 was due to
an increase in the number of units of X-ray dispersive mirrors sold to
original equipment manufacturers and an approximate $159,000 increase in custom
and neutron project sales.
Revenue from business agreements increased from $106,565 for the nine
months ended March 31, 1995 to $182,031 for the nine months ended March 31,
1996 as a result of completing an agreement for the development of the magnet
technology and a SBIR Phase I contract in fiscal year 1995 compared to
commencing work on SBIR Phase I and Phase II contracts in fiscal year 1996
along with a consulting services agreement related to the company magnet
technology.
The increase in cost of product sales from $495,062 in the nine months
ended March 31, 1995 to $751,637 in the nine months ended March 31, 1996 was
the result of increased product sales and the decrease in gross profit
percentage from 68% to 64% for the respective periods. The reduced gross
profit percentage is a result of increased custom and neutron product sales as
a percentage of total product sales.
The cost of revenue from business agreements increased from $76,850 for
the nine months ended March 31, 1995 to $93,322 for the nine months ended March
31, 1996 as a result of increased revenue from business agreements. Gross
margin increased from 27% to 48% during the respective periods as more
profitable contracts were received during fiscal year 1996.
The decrease in direct product development and research expense from
$366,750 in the nine months ended March 31, 1995 to $242,508 in the nine months
ended March 31, 1996 was due to the suspension of the magnet development
program in fiscal year 1995 coupled with more time and effort being assigned to
complete sales order requirements versus research and development.
Selling, general and administrative expenses remained virtually unchanged
with $498,306 in expenses for the nine months ended March 31, 1995 and
$497,862 in expenses for the nine months ended March 31, 1996.
The income tax provision of $91,500 and $277,000 for the respective
periods is a result of increased profitability and utilizing the effective
federal and state income tax rates. The tax benefit associated with utilizing
the Company's net operating loss carryforwards are reflected in the balance
sheet as an increase in retained earnings.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. EXHIBITS
Exhibit Number 27 - Financial Data Schedule is filed with this report.
B. REPORTS ON FORM 8-K
None.
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.
Osmic, Inc.
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(Registrant)
Date: May 6, 1996
By: /s/ Joseph Ben-Gal
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Joseph Ben-Gal
Chairman of Board
By: /s/ Wes L. Hardenburg
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Wes L. Hardenburg
Chief Financial Officer
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EXHIBIT INDEX
Exhibit
No. Description Page
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27 Financial Data Schedule