SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1997 Commission File No. 0-8828
Optelecom, Inc.
----------------------------
(Exact Name of Registrant as
Specified in its Charter)
Delaware 52-1010850
- ------------------------------- ---------------------------------
(State of Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
9300 Gaither Road Gaithersburg, MD 20877
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, (301) 840-2121
--------------
Including Area Code (Phone Number)
NONE
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Indicate by checkmark 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 twelve (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
ninety (90) days.
Yes X No
--- ---
Common Stock Outstanding
as of September 30, 1997 1,223,274
---------
OPTELECOM, INC.
FORM 10-Q
CONTENTS
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PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Condensed Balance Sheets as of September 30, 1997
(Unaudited) and December 31, 1996 (Audited)
Condensed Statements of Operations for the Three Months
Ended September 30, 1997 and 1996 (Unaudited)
Condensed Statements of Operations for the Nine Months Ended
September 30, 1997 and 1996 (Unaudited)
Statements of Cash Flows for the Nine months Ended September
30, 1997 and 1996 (Unaudited)
Notes to Condensed Financial Statements (Unaudited)
ITEM 2. MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
2
OPTELECOM, INC.
Condensed Balance Sheets
as of September 30, 1997 and December 31, 1996
1997 1996
----------- -----------
ASSETS (Unaudited) (Audited)
------
Current Assets:
Cash and cash equivalents $ 68,615 $ 266,575
Accounts receivable 2,971,092 1,463,426
Inventory 1,682,562 1,504,968
Prepaid expenses and other assets 407,177 306,620
Deferred tax asset 66,145 66,145
----------- ----------
Total current assets 5,195,591 3,607,734
Property and Equipment, at cost less accumulated
depreciated and amortization 949,049 779,053
Deferred Tax Asset 79,676 79,676
----------- ----------
TOTAL ASSETS 6,224,316 4,466,463
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable 816,089 591,682
Accrued payroll 92,257 127,172
Accrued annual leave 131,607 104,788
Other current liabilities 773,550 362,808
Demand note payable 300,000 ---
Current portion of notes payable --- 34,819
----------- ----------
Total current liabilities 2,113,503 1,221,269
Long Term Liabilities:
Note payable --- 11,607
Deferred rent liability 178,443 191,956
----------- ----------
Total long-term liabilities 178,443 203,563
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TOTAL LIABILITIES 2,291,946 1,424,832
----------- ----------
Stockholders' Equity
- --------------------
Common Stock - par value $.03 per share,
Authorized 5,000,000 shares, issued and outstanding
1,223,274 and 1,207,574 36,698 36,227
Discount on common stock (11,161) (11,161)
Additional paid-in capital 2,087,312 2,027,916
Retained earnings 1,819,521 988,649
----------- ----------
Total stockholders' equity 3,932,370 3,041,631
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,224,316 $ 4,466,463
=========== ===========
The accompanying notes are an integral part of this statement.
3
OPTELECOM, INC.
Condensed Statements of Operations
for the Three Months Ended September 30, 1997 and 1996
(UNAUDITED)
Three Months Three Months
Ended Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Revenue $3,179,442 $2,382,428
Direct Costs, Overhead and G&A 2,658,151 1,823,850
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Operating Income 521,291 558,578
Other Expenses 23,064 7,081
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Income Before Income Taxes 498,227 551,497
Provision for Income Taxes 131,120 219,249
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Net Income 367,107 332,248
========== ==========
Net Earnings Per Share 0.28 0.28
Weighted Average Number of Common Shares and Common Share
Equivalents Outstanding 1,309,953 1,197,904
The accompanying notes are an integral part of this statement.
4
OPTELECOM, INC.
Condensed Statements of Operations
for the Nine Months Ended September 30, 1997 and 1996
(UNAUDITED)
Nine Months Nine Months
Ended Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Revenue $9,381,615 $6,433,078
Direct Costs, Overhead and G&A 8,107,022 5,525,829
---------- ----------
Operating Income 1,274,593 907,249
Other Expenses 25,162 42,907
---------- ----------
Income Before Income Taxes 1,249,431 864,342
Provision for Income Taxes 418,559 330,049
---------- ----------
Net Income 830,872 534,293
========== ==========
Net Earnings Per Share 0.64 0.45
Weighted Average Number of Common Shares and Common Share
Equivalents Outstanding 1,296,571 1,175,356
The accompanying notes are an integral part of this statement.
5
OPTELECOM, INC.
Statements of Cash Flows
as of September 30, 1997 and 1996
(UNAUDITED)
Nine Months Ended September 30
1997 1996
------------ -----------
Operating Activities
- --------------------
Net Income $ 830,872 $ 534,293
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 204,906 173,664
Gain on sale of equipment (15,357) ---
Deferred rent (13,513) (8,676)
Income tax receivable --- 163,322
Common stock for services 8,000 ---
Increase in assets:
Accounts receivable (1,507,666) (558,774)
Inventory (177,594) (360,345)
Prepaid expenses and other assets (100,557) 19,600
Increase in liabilities:
Accounts payable 224,407 (169,039)
Accrued payroll (34,915) (1,008)
Accrued annual leave 26,819 12,479
Other current liabilities 410,742 240,413
Accrued income tax --- 110,000
------------ ----------
Net cash used in operating activities (143,856) 155,929
Investing Activities
- --------------------
Proceeds from sale of equipment 22,000 ---
Capital expenditures (381,546) (117,366)
------------ ----------
Net cash used in investing activities (359,546) (117,366)
Financing Activities
- --------------------
Borrowings on note payable to bank 300,000 (26,115)
Payments on long term debt (46,426) (10,000)
Proceeds from stock options 51,868 13,563
------------ ----------
Net cash provided by financing activities 305,442 (22,552)
Net (decrease) increase in cash and cash equivalents (197,960) 16,011
Cash and cash equivalents - beginning of period 266,575 62,436
------------ ----------
Cash and cash equivalents - end of period 68,615 78,447
============ ==========
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for Interest 10,016 19,473
The accompanying notes are an integral part of this statement.
6
OPTELECOM, Inc.
Notes to Condensed Financial Statements (Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in the annual
financial statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading.
In the opinion of management, the unaudited accompanying financial
statements reflect all necessary adjustments and reclassifications (all of which
are of a normal, recurring nature) that are necessary for fair presentation for
the periods presented. It is suggested that these financial statements be read
in conjunction with the financial statements and the notes thereto included in
the Company's latest annual report to the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 1996.
2. Line of Credit
--------------
The Company has a credit agreement with a bank, whereby it may borrow
up to $1,250,000 with interest at the bank's prime rate plus 1/4%. The total
amount of borrowings which may be outstanding at any given time is based upon a
percentage of certain eligible receivables. The amount available under the
credit agreement as of September 30, 1997 is $950,000.
3. Inventory
---------
Inventory consisted of the following:
September 30, 1997 September 30, 1996
------------------ ------------------
Raw materials $ 778,369 $ 605,683
WIP 468,116 537,128
Finished goods 436,077 297,875
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Total $1,682,562 $1,440,686
========== ==========
4. New Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings
Per Share", was recently issued by the Financial Accounting Standards
Board. SFAS No. 128 is effective for periods ending after December
15, 1997 and early adoption is not permitted.
SFAS No. 128 requires the company to compute and present a basic and
diluted earnings per share. Had the company computed earnings per
share in accordance with SFAS No. 128 the results would have been as
follows:
Three Months Ending Three Months Ending
September 30, 1997 September 30, 1996
------------------ ------------------
Basic earnings per share 0.30 0.28
Diluted earnings per share 0.28 0.27
Nine Months Ending Nine Months Ending
September 30, 1997 September 30, 1996
------------------ ------------------
Basic earnings per share 0.68 0.45
Diluted earnings per share 0.64 0.44
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Set forth below is management's discussion and analysis of the
Company's financial condition and results of operations.
Results of Operations
---------------------
In 1997, year-to-date revenues were $9,381,615 with a net income of
$830,872 compared to same-period revenues of $6,433,078 and net income of
$534,293 in 1996.
Quarter-to-date revenues were $3,179,442 a net income of $367,107
compared to $2,382,428 in 1996 with net income of $332,248.
Communication Products Division
-------------------------------
Communication Products Division (CPD) had third quarter revenues of
$2,467,620. This was an increase of 63% over $1,511,605 for the same period in
1996. CPD net income also increased 461% with net income of $160,768 for the
third quarter in 1997 compared to $28,675 for the same period in 1996. The
increase in revenues is a continuation of the growth exhibited in the first and
second quarters of 1997 reflecting the increased sales and marketing efforts in
our high-resolution video products, international sales efforts in Europe and
China, and intelligent transportation systems both for highway and air traffic
controller applications. Strong management and cost control efforts in
Manufacturing have allowed the rapid increase in shipped product while
containing costs for expansion.
Government Products Division
----------------------------
Revenues for the Electro-Optics Technology Group were $175,615 for the
third quarter of 1997 compared to $133,346 for the third quarter of 1996. The
group realized a net income of $2,414 for the third quarter, which was an
improvement over the loss of ($20,662) incurred in the same quarter of 1996. The
higher revenue reflects the impact of a higher level of contract work for
winding fiber optic gyro coils booked in the first half of 1997. We anticipate
improved revenue for the balance of the year from new contracts in this area.
Laser Illuminator Group revenues were $536,207 for the quarter compared
to $737,477 for the equivalent period of 1996; net income was $264,350 compared
to a net income of $324,235 for the same quarter in 1996. The decrease in
revenue in the third quarter of 1997 was due to lower delivery requirements by
the United States Air Force. We anticipate continued significant revenue levels
for this segment through the remainder of the year, with a stable workload on
our current contracts.
Costs incurred in the third quarter of 1997 associated with a new
business activity were expensed in the Government Products Division; this
activity had no revenue and costs of ($60,425) for the third quarter of 1997.
Year-to-date expenses were ($123,284).
Company backlog at the end of the September 30, 1997 was $2,320,986.
8
Liquidity and Capital Resources
-------------------------------
There were moderate changes in the Company's financial condition in the
third quarter of 1997 with the current ratio at 2.45 compared to 2.95
at the end of 1996 and 2.61 at the end of the third quarter of 1996.
The overall cash used by operating activities for the first nine months
of 1997 was ($143,856) compared to $155,929 the first nine months of
1996.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
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
Optelecom, Inc. has signed a letter of intent to acquire Paragon Audio
Visual Limited of the United Kingdom, a privately-held supplier of
products and systems supporting financial markets data information and
business television services.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the nine months
ending September 30, 1997.
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS)
PER SHARE
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
------------------ -----------------
Average common shares and common
share equivalents outstanding 1,296,571 1,175,536
Net income 830,872 534,293
Fully diluted earnings per share 0.64 0.45
9
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.
OPTELECOM, INC.
Date: -----------------------------------------
Edmund D. Ludwig, President and CEO
-----------------------------------------
Robert S. Lalley, Chief Financial Officer
10