The Company is not aware of any event that occurred subsequent to the balance sheet date but prior to the filing of this report that could have a material impact on our financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
We make statements in this Report, and we may from time to time make other statements, regarding our outlook or expectations for earnings, revenues, expenses and/or other matters regarding or affecting the Company that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as "believe", "expect", "anticipate", "intend", "outlook", "estimate", "forecast", "project" and other similar words and expressions. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made. We do not assume any duty and do not undertake to update our forward-looking statements. Actual results or future events could differ, possibly materially, from those that we anticipated in our forward-looking statements, and future results could differ materially from our historical performance. Our forward-looking statements are subject to the following principal risks and uncertainties:
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Uncertain demand for the Company's products because of the current international financial concerns;
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Risks associated with dependence on a few major customers; and
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The performance, financial strength and reliability of the Company's vendors.
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We provide greater detail regarding other factors in our 2012 Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Specifically, inventory is estimated quarterly and reconciled at the end of the fiscal year when a comprehensive physical count is conducted (also see Notes to Consolidated Financial Statements, Note 1 Summary of Significant Accounting Policies and Note 2 Inventories).
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EXECUTIVE SUMMARY
Opt-Sciences Corporation, through its wholly owned subsidiary, O and S Research, Inc., both New Jersey corporations, manufactures anti-glare and transparent conductive optical coatings which are deposited on glass used primarily to cover instrument panels in aircraft cockpits. The Company's business is highly dependent on a robust commercial, business, regional and military aircraft market. We recorded
second quarter sales of $1,727,163 and net income of $325,040. Sales are up 27% or $366,552 from the first quarter of Fiscal Year 2013. Compared to the second quarter of 2012, sales are up 6% or $ 98,141. We currently expect third quarter sales to be approximately $1,500,000. Sales seem to have rebounded from recent lows. We look for an increase in sales of conductive coated instrument panels and improved sales in all our major markets. Nevertheless, international financial concerns combined with political unrest in the Middle East (resulting in higher oil prices) may affect aircraft users and purchasers by inhibiting their ability to finance and their desire to purchase new airplanes and their ability and desire to upgrade existing aircraft. During the second quarter of 2013, the Company booked $1,706,000 in new orders compared to $1,404,000 in new orders booked for the first quarter of 2013 and $1,949,000 in new orders booked in the second quarter of 2012. Our backlog of unshipped orders was approximately $2,082,000 at the end of the second quarter, down $20,000 from the end of the first quarter of 2013 and down $1,021,000 from the second quarter of 2012. The much higher backlog at the end of the same period last year was primarily due to an inventory buildup by one of our major customers causing a temporary spike in demand.
Even though we have a significant backlog, a substantial portion of that backlog is scheduled for delivery in later periods of this Fiscal Year. Based on their needs which change from time to time, our customers may accelerate or defer delivery dates; and we typically try to accommodate their needs if we have available manufacturing capacity and access to the required raw materials. We generally have a four to twelve week delivery cycle depending on product complexity, plant capacity and lead time for raw materials, such as polarizers or filter glass. Our sales tend to fluctuate from quarter to quarter, because all orders are custom manufactured and customer orders are generally scheduled for delivery based on our customer's need date and not based on our ability to make shipments. Since the Company has two customers that together represented over
42% of sales this quarter, any significant change in the requirements of either of those customers has a direct impact on our revenue for a quarter.
RESULTS OF OPERATIONS - SECOND QUARTER
THIRTEEN WEEKS ENDED APRIL 27, 2013 COMPARED WITH THIRTEEN WEEKS ENDED
APRIL 28, 2012
NET SALES
Net sales for the second quarter were $1,727,163 which is $98,141 and 6% more than the net sales of $1,629,022 for the same quarter last year.
COST OF SALES
Cost of sales for the second quarter decreased $171,564 or 14% to $1,046,790 or
61% of sales, compared to $1,218,354 or 75% of sales, for the second quarter last year. The decrease in cost of sales despite a small increase in sales was primarily due to the higher operating efficiencies experienced during the second quarter resulting in lower material costs and lower direct labor costs. Cost of sales is comprised of raw materials, manufacturing direct labor and overhead expenses. The overhead portion of cost of sales is primarily comprised of salaries, benefits, building expenses, production supplies, and maintenance costs related to our production, inventory control and quality departments.
GROSS PROFIT
Gross profit for the second quarter increased $269,705 to $680,373 or 39% of sales from $410,668 or 25% of sales reported for the same quarter last year.
OPERATING EXPENSES
Operating expenses increased $35,063 to $257,594 from $222,531 for the same quarter last year.
This increase was primarily due to an increase in sales. Operating expenses consist of marketing and business development expenses, professional expenses, salaries and benefits for executive and administrative personnel, hiring, legal, accounting, and other general corporate expenses.
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OPERATING INCOME
The Company realized operating income of $422,779 or 24% of sales for the
second quarter compared to an operating income of $188,137 or 11% of sales, for the same quarter last year.
OTHER INCOME
Other income of $118,961 for the second quarter increased by $53,723 from the same quarter last year.
This difference was primarily related to recognizing a net loss on the sale of securities in the prior year's second quarter.
PROVISONS FOR INCOME TAX
Income tax expense for the second quarter was $216,700 or 40% of pre tax income compared to $103,900 and 41% of pre tax income for the comparable prior period.
NET INCOME
There was net income for the second quarter of $325,040 or $0.42 per share compared to $149,475 or $0.19 per share for
second quarter of Fiscal 2012.
TWENTY-SIX WEEKS ENDED APRIL 27, 2013 COMPARED WITH TWENTY-SIX WEEKS ENDED APRIL 28, 2012
NET SALES
Net sales for the twenty-six weeks ended April 27, 2013 were $3,087,774 which is $72,138 and
2% more than the net sales of $3,015,636 for the same twenty-six week period last year.
COST OF SALES
Cost of sales for the twenty-six weeks ended April 27, 2013 was $1,955,351 or
63% of sales, compared to $2,239,235 or 74% of sales, for the same period last year. The
decrease in cost of sales despite a small increase in sales was primarily due to the higher operating efficiencies experienced
during the second quarter resulting in lower material costs and lower direct
labor costs.
GROSS PROFIT
Gross profit for the twenty-six weeks ended April 27, 2013 increased $356,022 to $1,132,423 or
36% of sales, from $776,401 or 26% of sales reported for the same period last year. The
increase in total gross profit was due to higher operating
efficiencies and margins than for the same period last year.
OPERATING EXPENSES
Operating expenses increased by $103,461 to $556,838 during the twenty-six week period ended April
27, 2013 from $453,377 during the twenty-six week period last year. This was due
primarily to higher travel expenses and higher legal expenses.
OPERATING INCOME
The Company realized operating income of $575,585 or 18% of sales, for the twenty-six week period ended April 27, 2013, compared to operating income of $323,024 or
11% of sales, for the same period last year. The increase in operating income is primarily
due to higher operating efficiencies.
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OTHER INCOME
Other income of $223,658 for the twenty-six week period ended April 27, 2013
increased $53,625 from $170,033 for the same period for last year. This
difference was primarily related to recognizing a net loss on the sale of
securities in the prior year\'s second quarter.
INCOME TAX
Income tax expense for the twenty-six week period ended April 27, 2013 was $319,700 and 40% of pre tax income, compared to $202,200 and 41% of total income for the twenty-six week period ended April
28, 2012.
NET INCOME
Net income for the twenty-six week period ended April 27, 2013 increased $188,686 to $479,543 or $0.62 per share, compared to net income of $290,857 or $0.38 per share for the prior comparable period, primarily because of the
increased operating efficiencies then experienced in the prior year.