Opt-Sciences Corporation
Annual Report
2007
OPT-Sciences Corporation and Subsidiary
2
March 3, 2008
To Our Stockholders,
Fiscal 2007 turned into a very good year after a less than stellar start.
Total revenue of
$5,712,810 for Fiscal 2007 increased $1,447,414 or approximately 34% from
Fiscal 2006
and net income of $832,761 increased 106% from Fiscal 2006. Our backlog of
orders
increased to $2,250,342 at the end of Fiscal 2007, up almost 73% from Fiscal
2006.
As for this year, first quarter net sales have started out at a pace
considerably higher than
last year, approximately $1,378,000, up 38% from Fiscal 2007. However, it
should be noted
that the first quarter last year was lower than expected because of deferred
shipments. Aside
from that, we believe the results to date point to a strong year since the
first quarter is
historically low due to the winter Holidays. The backlog at the end of the
first quarter of fiscal
2008 remained at approximately $2.25 million, the same as the prior quarter.
The aerospace industry continues to do well, and the major aircraft
manufacturers which
incorporate the Company's anti-glare products are producing planes at
increasing rates. We
believe that our backlog this year has started to reflect some of this
positive momentum. On
the commercial aircraft side, we anticipate that Boeing will continue to
increase production of
its 737 Next Generation airplanes and its model 777. The Company provides
display glass
for the majority of displays in these two Boeing commercial airplanes. The
Company has a
smaller presence on the new 787 Dreamliner, supplying the cursor control
devices used by
the pilots to select information on the flight management computer. It is
essentially the same
device the Company supplies for the 777. The Company also supplies display
glass products
used on regional jets and medium and large business jets. Both of these
markets are doing
well and production of airplanes is expected to continue increasing this year.
The military
market appears to be flat with any increased sales in that market coming from
cockpit
upgrades. With the planned acquisition of more thin film coating equipment
this year, we will
increase our capacity to produce more advanced conductive coatings that are
used for
cockpit upgrades in the military market and, at the same time, supplement our
capacity to
serve our traditional markets.
Our annual meeting of stockholders this year will be held at 2:30 p.m. on
Tuesday, March 26
in Suite 525 located at Two Bala Plaza, 333 City Line Avenue, Bala Cynwyd,
Pennsylvania. I
look forward to having you join us.
Sincerely,
OPT-SCIENCES CORPORATION
Anderson L. McCabe
President
OPT-Sciences Corporation and Subsidiary
3
SELECTED FINANCIAL DATA
Fifty-two weeks ended
October 27, October 28, October 29, October 30, November 1,
2007 2006 2005 2004 2003
OPERATIONS
Net Sales $ 5,712,810 $ 4,265,396 $ 4,323,241 $ 4,067,838 $ 3,848,169
Cost of goods sold 3,701,161 3,018,718 2,987,861 3,207,329 3,209,446
Gross profit on
sales 2,011,649 1,246,678 1,335,380 860,509 638,723
Operating expenses 923,942 783,716 926,767 647,505 625,802
Net income from
operations 1,087,707 462,962 408,613 213,004 12,921
Other income 314,452 211,833 137,446 107,450 109,358
Other expenses 0 0 0 0 0
Income taxes 569,398 270,602 197,045 121,926 60,022
Net income $ 832,761 $ 404,193 $ 349,014 $ 198,528 $ 62,257
PER SHARE DATA
Weighted average
number of common
shares 775,585 775,585 775,585 775,585 775,585
Net income (A) 1.07 0.52 0.45 0.26 0.08
Cash distributions none none none none none
Stock dividends none none none none none
BALANCE SHEET
Current assets 9,298,048 8,000,322 7,683,957 6,965,522 6,479,812
Current liabilities 723,662 308,824 512,700 405,395 247,961
Working capital 8,574,386 7,691,498 7,171,257 6,560,127 6,231,851
Property, plant and
equipment (net) 587,509 628,238 702,603 974,356 1,102,719
Total assets 9,888,394 8,631,397 8,389,397 7,942,715 7,585,368
Shareholders' equity 9,164,732 8,322,573 7,876,697 7,537,320 7,337,407
(A) Earnings per share were computed by dividing net income by the weighted
average number of
shares outstanding. There is one class of stock outstanding, Common Stock; the
Company does
not have outstanding warrants, stock options or convertible debt instruments.
OPT-Sciences Corporation and Subsidiary
4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
Accumulated
Contributions Retained Other
Common in Excess Of Earnings Treasury Stock Comprehensive
Total Stock Par Value (Deficit) Shares Amount Income
Balance,
November 2, 2002 $ 7,215,170 $ 250,000 $ 272,695 $ 6,963,623 (224,415) $
(187,218) $ (83,930)
Income,Year ended
November 1, 2003 62,257 0 0 62,257 0 0 0
Unrealized holding
gains 59,980 0 0 0 0 0 59,980
Balance,
November 1, 2003 7,337,407 250,000 272,695 7,025,880 (224,415) (187,218)
(23,950)
Income,Year ended
October 30, 2004 198,528 0 0 198,528 0 0 0
Unrealized holding
gains 1,385 0 0 0 0 0 1,385
Balance,
October 30, 2004 7,537,320 250,000 272,695 7,224,408 (224,415) (187,218)
(22,565)
Income,Year ended
October 29, 2005 349,014 0 0 349,014 0 0 0
Unrealized holding
losses (9,637) 0 0 0 0 0 (9,637)
Balance,
October 29, 2005 7,876,697 250,000 272,695 7,573,422 (224,415) (187,218)
(32,202)
Income,Year ended
October 28, 2006 404,193 0 0 404,193 0 0 0
Unrealized holding
gains 41,683 0 0 0 0 0 41,683
Balance,
October 28, 2006 8,322,573 250,000 272,695 7,977,615 (224,415) (187,218) 9,481
Income,Year ended
October 27, 2007 832,761 0 0 832,761 0 0 0
Unrealized holding
gains 9,398 0 0 0 0 0 9,398
Balance,
October 27, 2007 $ 9,164,732 $ 250,000 $ 272,695 $ 8,810,376 (224,415) $
(187,218) $ 18,879
OPT-Sciences Corporation and Subsidiary
5
BUSINESS
Opt-Sciences Corporation, formed in 1956, conducts its business through its
wholly owned
subsidiary, O & S Research, Inc. Both companies are New Jersey corporations.
As used in this
Annual Report, the terms "Company", "we" or "our" refer to the combined
operations of Opt-
Sciences Corporation and O & S Research, Inc. Our principal business is to
provide anti-glare and
transparent conductive optical coatings on glass used primarily to cover
instrument panels in
aircraft cockpits. We also provide full glass cutting, grinding and painting
operations which augment
our optical coating capabilities. Most of our products are designed to enable
pilots to read aircraft
instruments in direct sunlight or at night or in covert situations using
appropriate night vision filters.
This is a niche business primarily dependent on the needs of new and used
aircraft for initially
installed parts, spare parts, replacements and upgrades. It requires custom
manufacturing of small
lots of products to satisfy specific requirements identified by our customers.
The distinguishing characteristic of our business is our optical thin film
coating capability. Almost all
products which we offer incorporate an optical coating of some type. Our
primary coatings are for
aircraft cockpit display applications and consist of our anti-reflection
coating used for glare reduction
and our transparent conductive coating used for electromagnetic interference
shielding and LCD
heaters. We apply either or both coatings to different types of glass face
plates which are usually
mounted on the front of liquid crystal displays (LCDs),cathode ray tubes
(CRTs) and
electromechanical displays(EMDs). In addition to the coated glass described
above, we also offer a
full range of other specialty instrument glass, including circular polarizers,
touchpads, glass
sandwiches for LCDs and other custom designed specialty glass components and
assemblies. The
Company's business is highly dependent on a robust commercial, business, and
regional aircraft
market and to a lesser degree on the military aircraft market. We generally
have a four to twelve
week delivery cycle depending on product complexity, available plant capacity
and required lead
time for specialty raw materials such as polarizers or filter glass. Our sales
tend to fluctuate from
quarter to quarter because all orders are custom manufactured. Customer orders
are generally
scheduled for delivery based on our customer's need date and our capacity.
Since the Company
has two customers that together represent over 50% of sales, any significant
change in the
requirements of either of those customers has a direct impact on our revenue
for any given quarter.
When one of these customers defers a sizable order, sales for the following
quarter often rebound
as the customer replenishes its inventory.
In Fiscal Year 2008, we anticipate hiring additional technical staff and
production employees in
support of our higher level of sales. For Fiscal Year 2008, we expect an
improved aircraft
instrument glass market with more potential growth in our conductive coating
business. We expect
our core anti-reflective coating market to increase moderately. As we view it,
our future growth is
contingent on increasing our capacity to provide conductive coatings, securing
new customers,
developing new products and providing adequate staff and facilities to meet
our needs. We are
continuing to look at increasing the current facility size or moving to a
larger facility to accommodate
higher capacity should it be required.
Our principal sales executive is our President, who maintains regular contact
with the largest
customers and continually seeks to develop new customers. We do not currently
employ the
services of manufacturer's representatives or sales personnel. O & S Research,
Inc. and our
products are listed in the Thomas Register. We also maintain sales websites at
osresearch.com
and optsciences.com. We engage in a low cost public relations and advertising
program.
Purchasing personnel of major corporations or governmental agencies place
orders with us, based
on price, delivery terms, satisfaction of technical specifications and quality
of product. Procurement
departments of customers ordinarily purchase products from us because we are
on an approved
OPT-Sciences Corporation and Subsidiary
6
vendor list. We enhance sales prospects by providing creative technical
solutions to customer
requirements. We are currently an approved vendor for major aircraft programs.
We continue to be
a major supplier for the anti-glare face plates covering the flat panel
displays on the Boeing 777 and
the 737 Next Generation models of commercial aircraft. During 2008 we
anticipate Boeing is going
to produce about 80 777s and over 350 737s. We also expect that most of the
future growth in
overall commercial airplane production at Boeing will be from the 737 and 787.
However, Boeing's
manufacture of the 787 and 747-8 is not expected to increase our future
revenues because their
cockpit displays will be provided by RockwellCollins, a company that currently
purchases its
instrument glass requirements for the 787 and 747-8 from one of our
competitors. In Fiscal 2007,
we derived 50% of our revenues from two major customers, Honeywell Inc. and
TPO Displays
Corporation. The loss or curtailment of additional business with either of
these companies could
have a negative impact on our operating results.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Shares are not listed on an established public trading market, but
are quoted by the
Pink Sheets, in the non-NASDAQ over the counter market. The symbol for our
Shares is OPST.
Only limited and sporadic trading occurs. Subject to the foregoing
qualification, the following table
sets forth the range of bid quotations, for the calendar quarter indicated, as
quoted by Pink Sheets
LLC., and reflects inter- dealer prices, without retail mark up, mark down or
commission and may
not necessarily represent actual transactions.
Fiscal 2006 Bid
First Quarter $6.30 - 6.50
Second Quarter 6.50 - 8.00
Third Quarter 6.25 - 8.00
Fourth Quarter 6.25 - 6.50
Fiscal 2007 Bid
First Quarter $6.70 - 7.55
Second Quarter 6.80 - 8.60
Third Quarter 6.80 - 10.50
Fourth Quarter 8.85 - 13.00
As of December 31, 2007, the closing bid for the Common Stock was $10.10. The
closing ask price
was $13.00. The Company had 924 stockholders of record of its Common Stock as
of December
31, 2007.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Opt-Sciences does not have any equity compensation plan in place and did not
issue any equity
securities to any person during Fiscal Year 2007.
DISTRIBUTIONS
We did not declare or pay any dividend on our Common Stock during Fiscal Year
2007 and,
although there is no prohibition on payment of dividends, we do not anticipate
the payment of
dividends on our Common Stock in the foreseeable future.
OPT-Sciences Corporation and Subsidiary
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Management's Discussion and Analysis as of October 27, 2007 should be
read in conjunction
with the audited condensed consolidated financial statements and notes thereto
set forth in this
report. It may also contain forward looking statements. We make statements in
this Annual Report
regarding our outlook or expectations for earnings, revenues, expenses and/or
other matters
regarding or affecting our 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 statements 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.
We provide greater detail regarding these factors in our Form 10-KSB for the
year ended October
27, 2007, particularly in the Risk Factors section. Our forward-looking
statements are subject to the
following principal risks and uncertainties, many of which are not within the
Company's control, such
as:
. the uncertainty of future demand for the Company's products;
. the uncertainty and timing of the successful development of the Company's
new products;
. the risks associated with reliance on a few key customers;
. the Company's ability to attract and retain personnel with the necessary
scientific and
technical skills;
. the timing and completion of significant orders;
. the timing and amount of the Company's research and development
expenditures;
. the timing and level of market acceptance of customers' products for which
the Company
supplies components;
. the level of market acceptance of competitors' products;
. the ability of the Company to control costs associated with performance
under fixed price
contracts;
. the performance and reliability of the Company's vendors;
. potential product and contractual liability to its customers;
. and the continued availability to the Company of essential supplies,
materials and services.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which
speak only as of the date hereof.
LIQUIDITY AND CAPITAL RESOURCES
We have sufficient liquidity and credit to fund our contemplated capital and
operating activities
through Fiscal 2008. We continue to use our working capital to finance current
operations, including
equipment purchases, capital improvements, inventory, payroll, and accounts
receivable.
OPT-Sciences Corporation and Subsidiary
8
Our cash position improved in Fiscal 2007, primarily because of the net income
of $832,761 in
Fiscal 2007. Other income also increased over the last year primarily due to
higher interest rates.
Overall, our cash balances increased during Fiscal 2007 to $6,777,104 from
$5,798,506 at the end
of Fiscal 2006. At the same time, our total current assets increased
$1,297,726 to $9,298,048 in
Fiscal 2007 from $8,000,322 in Fiscal 2006.
Because of changes in the marketplace and an increasingly competitive
environment, we believe it
is necessary to make ongoing investments in new equipment and processes to
compete
successfully in the aerospace and commercial display markets. In Fiscal 2008,
we have projected
significant expenditures of capital to update equipment.
RESULTS OF OPERATIONS
FISCAL YEAR 2007
NET SALES
Net sales of $5,712,810 for the Fiscal Year 2007 increased $1,447,414 or
approximately 34% from
Fiscal 2006. This large increase in total sales over last year is due to a
significant increase in orders
from three of our major customers for three different reasons. One customer
unexpectedly gave us
a contract for the Eclipse 500 very light jet cockpit display glass; another
customer decided to place
more business with us instead of its other glass supplier; and the third
customer created a
temporary surge in demand as it migrated from one LCD platform to another.
COST OF SALES
Cost of sales increased $682,443 or 23% for Fiscal 2007 versus Fiscal 2006.
This smaller increase
relative to the increase in sales is primarily due to the Company's continuous
improvement
initiatives resulting in more efficient operations and lower scrap rates. 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, medical and dental benefits,
building expenses, production
supplies, and costs related to our production, inventory control and quality
departments.
OPERATING EXPENSES
Operating expenses for Fiscal 2007 were $923,942, an increase of $140,226 over
Fiscal 2006.
Operating Expenses include both General and Administrative expenses and Sales
and Delivery
expenses. Our General and Administrative 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.
OPERATING INCOME
Operating income increased $624,745 or 135% to $1,087,707 in Fiscal 2007 from
$462,962 in
2006. The sizeable increase over Fiscal 2006 is primarily due to the
significant increase in sales
and higher gross margins.
OTHER INCOME
Other income of $314,452 for Fiscal Year 2007 increased from $211,833 for
Fiscal Year 2006.
This increase is mainly attributable to higher interest rates.
OPT-Sciences Corporation and Subsidiary
9
NET INCOME
Net income of $832,761 or $1.07 per share for Fiscal 2007 increased from
$404,193 or $.52 per
share for Fiscal 2006 as a result of the factors described above.
BACKLOG OF ORDERS
Our backlog of unshipped orders stood at $2,250,342 at the end of Fiscal Year
2007, up $946,678
from the end of Fiscal Year 2006 and up $283,395 from the end of the third
quarter. We anticipate
that the backlog will fluctuate between $1,500,000 to $2,500,000 in Fiscal
2008, assuming that we
are able to book new business at the rate we are able to deliver products to
our customers. Of the
backlog of orders existing at year end, we expect to deliver 70% within the
first quarter of Fiscal
Year 2007. This increase in backlog reflects a general increase in demand for
the Companys
aircraft components.
FISCAL YEAR 2006
Fiscal 2006 ended with net sales of $4,265,396 a decrease of approximately
$57,800 or 1.3% over
Fiscal 2005. The minor decrease in total sales for 2006 over 2005 was
primarily due to a decline in
the demand for wedge glass products, a continuation of a trend we identified
in our earlier reports.
Cost of sales increased $30,857 or 1% for Fiscal 2006 versus Fiscal 2005.
General and
administrative expenses, including selling expenses, were $783,716 for Fiscal
2006, an increase of
$21,847 over Fiscal 2005. These expenses were higher in Fiscal 2006
principally because of
expenses associated with Sarbanes/Oxley compliance. Operating income increased
$54,349 or
13% to $462,962 in Fiscal 2006 from $408,613 in 2005. Interest and other
income of $211,833 for
Fiscal 2006 increased from $137,446 for Fiscal 2005. Net income after taxes of
$404,193 or $.52
per share for Fiscal 2006 increased from $349,014 or $.45 per share for Fiscal
2005.
INFLATION
During the three year period that ended on October 27, 2007, inflation did not
have a material effect
on our operating results.
OPT-Sciences Corporation and Subsidiary
10
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these financial statements
ASSETS
October 27, October 28,
2007 2006
CURRENT ASSETS
Cash and cash equivalents $ 6,777,104 $ 5,798,506
Trade accounts receivable 1,012,659 811,369
Inventories 592,660 569,967
Prepaid expenses 21,074 39,578
Prepaid income taxes -0- 23,900
Loans and exchanges 4,390 3,505
Deferred income taxes -0- 3,070
Marketable securities 890,161 750,427
Total current assets 9,298,048 8,000,322
PROPERTY AND EQUIPMENT
Land 114,006 114,006
Building and improvements 449,987 449,987
Machinery and equipment 1,485,573 1,415,709
Small tools 53,580 53,580
Furniture and fixtures 8,624 8,624
Office equipment 57,419 52,148
Automobiles 71,211 85,605
Total property and
equipment 2,240,400 2,179,659
Less: accumulated depreciation 1,652,891 1,551,421
Net property and
equipment 587,509 628,238
OTHER ASSETS
Deposits 2,837 2,837
Total assets $ 9,888,394 $ 8,631,397
OPT-Sciences Corporation and Subsidiary
11
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these financial statements
LIABILITIES AND STOCKHOLDERS' EQUITY
October 27, October 28,
2007 2006
CURRENT LIABILITIES
Accounts payable - trade $ 86,759 $ 83,621
Accrued income taxes 267,980 -0-
Deferred income taxes 30,100 -0-
Other current liabilities 338,823 225,203
Total current liabilities 723,662 308,824
STOCKHOLDERS' EQUITY
Common capital stock - par value
$.25 per share - authorized
and issued 1,000,000 shares 250,000 250,000
Additional paid in capital 272,695 272,695
Retained earnings 8,810,376 7,977,615
Accumulated other comprehensive income:
Unrealized holding gain (loss)
on marketable securities 18,879 9,481
Less treasury stock at cost -
224,415 shares (187,218) (187,218)
Total stockholders' equity 9,164,732 8,322,573
Total liabilities and
stockholders' equity $ 9,888,394 $ 8,631,397
OPT-Sciences Corporation and Subsidiary
12
CONSOLIDATED STATEMENTS OF OPERATIONS
(The accompanying notes are an integral part of these financial statements)
Fiscal Year Ended Fiscal Year Ended
October 27, 2007 October 28, 2006
(52 weeks) (52 weeks)
NET SALES $ 5,712,810 $ 4,265,396
COST OF SALES 3,701,161 3,018,718
Gross profit on sales 2,011,649 1,246,678
OPERATING EXPENSES
Sales & delivery 46,427 60,739
General and administrative 877,515 722,977
Total operating expenses 923,942 783,716
Operating income 1,087,707 462,962
OTHER INCOME 314,452 211,833
Income before taxes 1,402,159 674,795
FEDERAL AND STATE INCOME TAXES 569,398 270,602
Net income $ 832,761 $ 404,193
EARNINGS PER SHARE OF COMMON STOCK $ 1.07 $ 0.52
Weighted average number of shares 775,585 775,585
OPT-Sciences Corporation and Subsidiary
13
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(The accompanying notes are an integral part of these financial statements)
Accumulated
Other
Common Paid-in Retained Comprehensive Treasury
Stock Capital Earnings Income Cost Total
BALANCE OCTOBER 29, 2005 $ 250,000 $ 272,695 $ 7,573,422 $ (32,202) $(187,218)
$ 7,876,697
Net income for fiscal year
ended October 28, 2006 404,193 404,193
Unrealized holding gains on
securities arising during period,
net of tax of $31,445 41,683 41,683
TOTAL COMPREHENSIVE INCOME 445,876
BALANCE OCTOBER 28, 2006 $ 250,000 $ 272,695 $ 7,977,615 $ 9,481 $(187,218) $
8,322,573
Net income for fiscal year
ended October 27, 2007 832,761 832,761
Unrealized holding gains on
securities arising during period,
net of tax of $7,089 9,398 9,398
TOTAL COMPREHENSIVE INCOME 842,159
BALANCE OCTOBER 27, 2007 $ 250,000 $ 272,695 $ 8,810,376 $ 18,879 $(187,218) $
9,164,732
OPT-Sciences Corporation and Subsidiary
14
CONSOLIDATED STATEMENTS OF CASH FLOWS
(The accompanying notes are an integral part of these financial statements)
Fiscal Year Ended Fiscal Year Ended
October 27, 2007 October 28, 2006
(52 weeks) (52 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 832,761 $ 404,193
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 115,864 118,719
(Gain) loss on sale of securities (33,721) 21,363
Deferred income taxes 26,080 1,659
Decrease (increase) in:
Accounts receivable (201,290) (224,341)
Inventories (22,693) (171,904)
Prepaid expenses 18,504 (10,863)
Prepaid income taxes 23,900 (23,900)
Loans and exchanges (885) 1,123
(Decrease) increase in:
Accounts payable 3,138 21,170
Accrued income taxes 267,980 (231,141)
Other current liabilities 113,620 6,095
Net cash provided (used)
by operating activities 1,143,258 (87,827)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (75,135) (44,354)
Purchases of securities (500,606) (154,474)
Proceeds from sale of securities 411,081 728,933
Net cash (used) provided
by investing activities (164,660) 530,105
OPT-Sciences Corporation and Subsidiary
15
CONSOLIDATED STATEMENTS OF CASH FLOWS
(The accompanying notes are an integral part of these financial statements)
Fiscal Year Ended Fiscal Year Ended
October 27, 2007 October 28, 2006
(52 weeks) (52 weeks)
Increase in cash $ 978,598 $ 442,278
Cash and cash equivalents
at beginning of period 5,798,506 5,356,228
Cash and cash equivalents
at end of period $ 6,777,104 $ 5,798,506
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 3,550 $ 571
Income taxes paid $ 251,438 $ 525,262
OPT-Sciences Corporation and Subsidiary
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of OPT-Sciences
Corporation and its wholly owned subsidiary. All significant intercompany
accounts
and transactions have been eliminated.
Use of Estimates
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 and the reported
amounts of
revenues and expenses during the reporting period. Actual results could differ
from
those estimates.
Cash and Cash Equivalents
The Company considers certificates of deposit and debt securities purchased
with a
maturity of three months or less to be cash equivalents.
Line of Business and Credit Concentration
The Company, through its wholly owned subsidiary, is engaged in the business
of
applying anti-reflective, conductive and/or other coatings to the faceplates
of
instruments for aircraft cockpits. The Company grants credit to companies
within the
aerospace industry.
Accounts Receivable
Bad debts are charged to operations in the year in which the account is
determined to
be uncollectible. If the allowance method for doubtful accounts were used it
would not
have a material effect on the financial statements.
Inventories
Raw materials are stated at the lower of average cost or market. Work in
process and
finished goods are stated at accumulated cost of raw material, labor and
overhead, or
market, whichever is lower. Market is net realizable value.
OPT-Sciences Corporation and Subsidiary
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marketable Securities
Marketable securities consist of debt and equity securities and mutual funds.
Equity
securities include both common and preferred stock.
The Company's investment securities are classified as "available-for-sale".
Accordingly, unrealized gains and losses and the related deferred income tax
effects
when material, are excluded from earnings and reported as a separate component
of
stockholders' equity as accumulated other comprehensive income. Realized gains
or
losses are computed based on specific identification of the securities sold.
Property and Equipment
Property and equipment are comprised of land, building and improvements,
machinery
and equipment, small tools, furniture and fixtures, office equipment and
automobiles.
These assets are recorded at cost.
Depreciation for financial statement purposes is calculated over estimated
useful lives
of three to twenty-five years, using the straight-line method.
Maintenance and repairs are charged to expense as incurred.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the
carrying amounts of assets and liabilities for financial reporting purposes
and the
amounts used for income tax purposes.
Employee Benefit Plans
On October 1, 1998, the Company implemented a 401(k) profit sharing plan. All
eligible employees of the Company are covered by the Plan. Company
contributions
are voluntary and at the discretion of the Board of Directors. Company
contributions
were $27,069 and $26,093 for the years ended October 27, 2007 and October 28,
2006, respectively.
Earnings per Common Share
Earnings per common share were computed by dividing net income by the weighted
average number of common shares outstanding.
18
OPT-Sciences Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Inventories
Inventories consisted of the following:
October 27, October 28,
2007 2006
Raw materials and supplies $ 215,935
$ 226,048
Work in progress 332,089 305,974
Finished goods 44,636 37,945
$ 592,660 $ 569,967
NOTE 3 - Marketable Securities
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
October 27, 2007
Common stock $ 266,708 $ 40,639 $ -0-
$ 307,347
Preferred stock 112,567 -0- (10,747) 101,820
Municipal bonds 82,244 -0- (5,767) 76,477
Mutual funds 395,521 $ 8,996 -0- 404,517
$ 857,040 $ 49,635 $ (16,514) $ 890,161
October 28, 2006
Common stock $ 221,069 $ 55,974 $ -0-
$ 277,043
Preferred stock 112,567 -0- (592) 111,975
Municipal bonds 82,244 -0- (5,072) 77,172
Mutual funds 317,914 -0- (33,677) 284,237
$ 733,794 $ 55,974 $ (39,341) $ 750,427
Opt-Sciences Corporation and Subsidiary
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sales of securities available for sale during the years ended October 27, 2007
and October 28, 2006 were
as follows:
2007 2006
Proceeds from sales $ 411,081 $ 728,933
Gross realized gains $ 81,116 $ 16,140
|
Gross realized losses $ 47,395 $ 37,503
NOTE 4- Income Taxes
The income tax expense of the Company consists of the following:
2007 2006
Current tax expense:
Federal $412,054 $208,702
State 131,264 60,241
Total 543,318 268,943
Deferred tax expense:
Federal 21,825 1,330
State 4,255 329
Total 26,080 1,659
Income Tax Expense $569,398 $270,602
At October 27, 2007, the Company had a deferred tax asset of $57,758 and a
deferred tax
liability of $87,858, resulting in a net deferred tax liability of $30,100.
At October 28, 2006 the Company had a deferred tax asset of $84,340 and a
deferred tax
liability of $81,270, resulting in a net deferred tax asset of $3,070.
Deferred income taxes result from significant temporary differences between
income for
financial reporting purposes and taxable income. These differences arose
principally from the
use of accelerated tax depreciation and the carry forward of capital and net
operating losses.
At October 27, 2007, the Company had capital loss carry forwards of $85,745
expiring in 2007
through 2010. Of these losses, an amount equal to $27,985 after application of
current year
capital gains of $33,721 is deemed to be usable before expiration.
NOTE 5 - Major Customers
Two customers accounted for $2,889,796 of net sales during the year ended
October 27,
2007. The amount due from these customers, included in trade accounts
receivable, was
$579,564 on October 27, 2007.
Opt-Sciences Corporation and Subsidiary
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two customers accounted for $2,241,853 of net sales during the year ended
October 28,
2006. The amount due from these customers, included in trade accounts
receivable, was
$504,554 on October 28, 2006.
NOTE 6 - Concentration of Credit Risk of Financial Instruments
The Company has various demand and time deposits with financial institutions
where the
amount of the deposits exceeds the federal insurance limits of the institution
on such deposits.
The maximum amount of accounting loss that would be incurred if an individual
or group that
makes up the concentration of the deposits failed completely to perform
according to the terms
of the deposit was $6,300,000 on October 27, 2007.
NOTE 7 - Related Party Transactions
During fiscal years 2007 and 2006, the Company incurred legal fees of $40,500
and $37,500,
respectively to the firm of Kania, Lindner, Lasak and Feeney, of which Mr.
Arthur Kania, a
shareholder and director, is senior partner. Of the legal fees, $40,500 and
$37,500 were
included in accounts payable at October 27, 2007 and October 28, 2006,
respectively.
Opt-Sciences Corporation and Subsidiary
21
Report of Independent Registered Public Accounting Firm
To Stockholders and Board of Directors
OPT-Sciences Corporation
We have audited the accompanying consolidated balance sheets of OPT-Sciences
Corporation and Subsidiary as of October 27, 2007 and October 28, 2006 and the
related statements of
operations, stockholders' equity and comprehensive income and cash flows for
each of the fiscal years in
the two year period ended October 27, 2007. These financial statements are the
responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting.
Our audit included consideration of internal control over financial reporting
as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on
the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no
opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the
consolidated financial position of OPT-Sciences Corporation and Subsidiary as
of October 27, 2007 and
October 28, 2006 and the consolidated results of their operations and their
cash flows for each of the fiscal
years in the two year period ended October 27, 2007 in conformity with U.S.
generally accepted accounting
principles.
Goff, Backa, Alfera & Company, LLC
Pittsburgh, Pennsylvania
January 21, 2008
Opt-Sciences Corporation and Subsidiary
22
OPT-SCIENCES CORPORATION
P.O. Box 221
Riverton, New Jersey 08077-0221
Tel 856-829-2800
Fax 856-829-0482
Optsciences.com
OFFICERS:
Anderson L. McCabe President, CEO and CFO
Arthur J. Kania Secretary
DIRECTORS:
Anderson L. McCabe President of the Company
Arthur J. Kania Senior Partner of Kania, Lindner, Lasak & Feeney
Arthur J. Kania, Jr. Principal of Tri-Kan
TRANSFER AGENT:
StockTrans, Inc.
44 West Lancaster Avenue
Ardmore, Pennsylvania 19003
ATTORNEYS:
Kania, Lindner, Lasak & Feeney
Suite 525, 333 E. City Avenue
Bala Cynwyd, Pennsylvania 19004
AUDITORS:
Goff, Backa, Alfera & Company, LLC
3325 Saw Mill Run Blvd.
Pittsburgh, Pennsylvania 15227-2736
CORPORATE HEADQUARTERS:
STREET ADDRESS: 1912 Bannard Street
Cinnaminson, New Jersey 08077-0221
MAILING ADDRESS: PO Box 221
Riverton, New Jersey 08077-0221
EMAIL ADDRESS: investor.relations@optsciences.com
Opt Sciences (CE) (USOTC:OPST)
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