Opt-Sciences Corporation
Annual Report
2010
March 9, 2011
To Our Stockholders,
The Company finished Fiscal Year 2010 with net sales of $4,899,983, an increase
of $18,672 or less than 1% from Fiscal 2009. Net income of $460,650 or $0.59
per share for Fiscal 2010 increased approximately 70% from $271,780 or $0.35
per share for Fiscal 2009. Our backlog of unshipped orders stood at $2,412,000
at the end of Fiscal Year 2010, up $1,393,000 from the end of Fiscal Year 2009
and up $211,000 from the end of the third quarter.
In fiscal 2011, first quarter net sales were $1,826,000, up $1,062,000 from
first quarter of fiscal 2010. Net sales also increased 8.3% from the fourth
quarter of 2010. The past three quarters have shown a steady increase in
sales partly as a result of a modest improvement in our markets, but primarily
because one of our major customers accumulated substantial additional
inventory in advance of a manufacturing site change from Japan to Taiwan. As
a result, I anticipate that our sales will decline over the balance of this
fiscal year as this major customer suspends further purchases, while
implementing the manufacturing site change.
Our backlog at the end of the first quarter was $1,956,000, down about
$456,000 from the end of Fiscal 2010. I expect that our backlog will continue
to decline during the course of the year, until our major customer places new
orders with us. Based on our current evaluation of our customers and the
market place, we expect that net sales for Fiscal 2011 will be similar to
those for Fiscal 2010.
The aerospace industry is still feeling the effects of the global economic
downturn especially in the regional jet and business jet markets. Although
some trends are positive, the future demand for the Company's anti-glare
products used on new commercial and business aircraft is difficult to predict.
For example, regional jet production continued to decline in 2010 dropping to
less than 100 from over 200 in 2008. On the commercial aircraft side, Boeing
elected not to reduce output of its 737 Next Generation and its 777 airplanes
in 2010. In fact, Boeing has planned to increase output of both planes starting
early 2012. The Company currently provides display glass for the majority of
displays in these two airplanes. Over the next two years, the 737 is expected
to be re-designed in an effort to compete more successfully with the Airbus
320-NEO. Production of such aircraft is likely to begin in 2013. The instrument
displays in the new aircraft are likely to be 15.4" wide and there is no
certainty that our Company will be selected to manufacture the cover glass
for them. The Company also supplies display glass products used on long range
business jets like the Gulfstream and Dassault Falcons. Gulfstream is expected
to produce slightly fewer large cabin aircraft in 2011 than 2010. Although
output in this market is down since 2008, it is expected to bottom out either
this year or next. Fortunately, it has not been hit quite as hard as the
light and medium range business jet market. The military market, although a
much smaller percentage of sales than the other two, continues at a steady
pace. Future business growth in this segment is dependent on our ability to
increase our conductive coating capability and persuade our customers to
qualify our glass products for new military applications.
Our annual meeting of stockholders this year will be held at 2:30 p.m. on
Thursday, March 24 at 560 E. Lancaster Avenue, Suite 108, St. Davids, PA
19087. I look forward to having you join us.
Sincerely,
OPT- SCIENCES CORPORATION
/s/ Anderson L. McCabe
Anderson L. McCabe
President
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OPT-Sciences Corporation and Subsidiary
Selected Financial Data
Fifty-three
Fifty-two weeks ended weeks ended Fifty-two weeks ended
October 30, October 31, November 1, October 27, October 28,
2010 2009 2008 2007 2006
OPERATIONS
Net Sales $4,899,983 $4,881,311 $6,748,691 $5,712,810 $4,265,396
Cost of
goods sold 3,444,311 3,611,895 4,465,872 3,701,161 3,018,718
Gross profit
on sales 1,455,672 1,269,416 2,282,819 2,011,649 1,246,678
Operating
expenses 828,583 780,365 1,009,657 923,942 783,716
Net income
from operatons 627,089 489,051 1,273,162 1,087,707 462,962
Other income 75,293 (17,557) 182,828 314,452 211,833
Other expenses 0 0 0 0 0
Income taxes 241,732 199,714 597,295 569,398 270,602
Net Income $460,650 $271,780 $858,695 $832,761 $404,193
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PER SHARE DATA
Weighted average
of common
shares 775,585 775,585 775,585 775,585 775,585
Net income(A) 0.59 0.35 1.11 1.07 0.52
Cash dividends none none none none none
Stock dividends none none none none none
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BALANCE SHEET
Current assets 10,257,594 9,390,833 9,464,326 9,298,048 8,000,322
Current
liabilities 515,433 260,053 592,998 723,662 308,824
Workin capital 9,742,161 9,130,780 8,871,328 8,574,386 7,691,498
Property, plant and
equipment (net) 964,195 1,082,021 691,345 587,509 628,238
Total assets 11,224,626 10,475,691 10,400,575 9,888,394 8,631,397
Stockholders'
equity 10,709,193 10,215,638 9,807,577 9,164,732 8,322,573
|
OPT-Sciences Corporation and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Contributions Accumulated
in Excess Retained Other
Common of Earnings Treasury Stock Comprehensive
|
Total Stock Par Value (Deficit) Shares Amount Income
Balance,
October 29,
2005 $7,876,697 $250,000 $272,695 $ 7,573,422 224,415 $(187,218) $(32,202)
Income Year
ended
October 26,
2006 404,193 0 0 404,193 0 0 0
Unrealized
holding
gains 41,683 0 0 0 0 0 41,683
Balance,
October 26,
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
Income Year
ended
November 1,
2008 858,695 0 0 858,695 0 0 0
Unrealized
holding
losses (215,850) 0 0 0 0 0 (215,850)
Balance,
November 1,
2008 9,807,577 250,000 272,695 9,669,071 224,415 (187,218) (196,971)
Income Year
ended
October 31,
2009 271,780 0 0 271,780 0 0 0
Unrealized
holding
gains 136,281 0 0 0 0 0 136,281
Balance,
October 31,
2009 10,215,638 250,000 272,695 9,940,851 224,415 (187,218) (60,690)
Income Year
ended
October 30,
2010 460,650 0 0 460,650 0 0 0
Unrealized
holding
gains 32,905 0 0 0 0 0 32,905
Balance,
October 30,
|
2010 $10,709,193 250,000 272,695 $10,401,501 224,415 $(187,218) $(27,785)
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 Company's business is highly dependent on a robust commercial, business,
and regional aircraft market; to a lesser degree, it is also dependent 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, and customer orders are generally scheduled for delivery based
on our customer's need date, not on our ability to make shipments. Since the
Company has two customers that together represent approximately 69% 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
accelerates or defers a sizable order, sales for the following quarters may be
adjusted as the customer reevaluates its needs. One of our largest customers
has recently placed significantly higher levels of orders, as it transitions
its primary manufacturing facilities to a new location. That customer plans
to reduce future orders substantially as the transition process is concluded.
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. 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), light emitting diode displays
(LEDs) 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.
In Fiscal Year 2010, we hired 6 production employees as sales increased over
the course of the year. For Fiscal Year 2011, we expect overall sales to
match Fiscal Year 2010, beginning with a very strong first quarter followed
by weaker subsequent quarters. We continue to see potential for growth in
our conductive coating business which is used primarily, but not exclusively,
on military platforms. We expect the anti-reflective coating market to remain
at current levels. We believe our future success is contingent on the timely
increase of our capacity to provide conductive coatings, satisfying the needs
of our current customers, securing new customers, developing new products and
providing adequate staff and facilities to meet our requirements. Accordingly,
we will continue to review possible plans for increasing capacity and facility
size so we will be better positioned when the inevitable financial recovery
occurs.
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 vendor list. We enhance sales
prospects by providing creative technical solutions to customer requirements.
We are currently an approved vendor for several 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, the long range Gulfstream and Dassault Falcon business
jets and the Embraer E series regional aircraft. We are also an approved
vendor for instrument glass used on several military aircraft platforms
including the C5 Galaxy and the C130. In Fiscal 2010, we derived approximately
69% of our revenues from two major customers. The loss or permanent curtailment
of business with either of these companies would have a negative impact on our
operating results. Boeing's production of the 787 is not expected to increase
our future revenues because its cockpit displays are expected to be provided
by RockwellCollins, a company that currently purchases its instrument glass
requirements for the 787 from one of our competitors.
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 2009 Bid Price Fiscal 2010 Bid Price
1st Quarter $5.55 - $8.50 1st Quarter $ 8.35 - $11.25
2nd Quarter $5.25 - $6.36 2nd Quarter $10.11 - $11.70
3rd Quarter $5.68 - $7.17 3rd Quarter $10.05 - $11.61
4th Quarter $7.17 - $9.00 4th Quarter $10.05 - $14.50
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As of December 31, 2010 the closing bid for the Common Stock was $11.95. The
closing ask price was $13.25. The Company had 828 stockholders of record of
its Common Stock as of December 31, 2010. This does not include the additional
beneficial owners of our common stock who held their shares in street name as
of that date.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The Company does not have any equity compensation plan in place and did not
issue any equity securities to any person during Fiscal Year 2010.
DISTRIBUTIONS
We did not declare or pay any dividend on our Common Stock during Fiscal
Year 2010 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Management's Discussion and Analysis as of October 30, 2010 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-K for the
year ended October 30, 2010, 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 market price of our common stock may fluctuate significantly;
* Any continuation of weakness in the global economy will have
negative implications for our Company;
* Significant quarterly fluctuations in backlog and orders challenge
the Company to adjust the scale of its activities to the demand for its
products;
* Our product offerings are concentrated;
* Our revenues come from a limited number of customers, with
approximately 69% of sales arising from two customers;
* For a major portion of our business, we rely on raw materials
manufactured in Japan. An interruption of supplies from Japan would have
a significant impact on sales;
* The Company purchases raw materials overseas;
* Our success depends on the efforts and expertise of our President,
Anderson L. McCabe. He is our chief executive officer, our chief financial
officer and our principal marketing officer. His death, disability or
termination of employment would adversely affect the future of our Company;
* The market for our products is very competitive;
* Purchase orders and specifications from our customers may include
extensive product warranties and contractual undertakings ;
* Our industry is also subject to significant risk from outside
influences, such as terrorist attacks (9/11) and biological epidemics
(SARs , Avian flu outbreaks in Asia and political unrest in the
Middle East);
* We are controlled by our major stockholder, the Arthur John Kania
Trust. The Arthur John Kania Trust, beneficially owns approximately 66%
of our outstanding common stock. Such concentrated control of the
Company may adversely affect the price of our common stock.
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 2011.
We continue to use our working capital to finance current operations,
including equipment purchases, capital improvements, inventory, payroll and
accounts receivable.
Our cash increased during Fiscal 2010 to $8,398,276 from $7,606,849 at the end
of Fiscal 2009. This increase was due primarily to earnings from operations.
Other income increased from the prior year primarily due to the reduction in
realized losses on the sale of securities. Our total current assets increased
$866,761 to $10,257,594 in Fiscal 2010 from $9,390,833 in Fiscal 2009.
Because of changes in the marketplace and an increasingly competitive
environment, we believe it may be necessary to make future investments in new
equipment and processes to compete successfully in the aerospace and
commercial display markets.
RESULTS OF OPERATIONS: FISCAL YEAR 2010
NET SALES
Net sales of $4,899,983 for the Fiscal Year 2010 increased $18,672 or
less than 1% from Fiscal 2009. This increase was due to the substantial
increase in demand for our products in the second half of FY 2010 from
the steep decline of the business and commercial jet market during FY
2009 and early 2010.
COST OF SALES
Cost of sales decreased $167,584 or 5% for Fiscal 2010 compared to Fiscal
2009. Cost of sales consists of costs to manufacture the products we ship
and 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 2010 were $828,583, an increase of
$48,218 or approximately 6% from Fiscal 2009. 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 $138,038 or approximately 28% to $627,089 in Fiscal
2010 from $489,051 in 2009. The increase from Fiscal 2009 is primarily due
to the increase in productivity as sales rebounded from depressed levels.
OTHER INCOME
Other income for Fiscal Year 2010 was $75,293 compared to a loss of $17,557
for Fiscal Year 2009. This large improvement is mainly attributable to
recognition of fewer capital losses from the Company's portfolio of
marketable securities.
NET INCOME
Net income of $460,650 or $0.59 per share for Fiscal 2010 increased
approximately 70% from $271,780 or $0.35 per share for Fiscal 2009 as a
result of the factors described above.
BACKLOG OF ORDERS
Our backlog of unshipped orders stood at $2,412,100 at the end of Fiscal Year
2010, up $1,393,000 from the end of Fiscal Year 2009 and up $211,000 from
the end of the third quarter.
RESULTS OF OPERATIONS: FISCAL YEAR 2009
Fiscal 2009 ended with net sales of $4,881,311 an decrease of approximately
$1,867,380 or 28% over Fiscal 2008. The significant decrease in total sales
for 2009 over 2008 was primarily due to a steep decline in demand for
business aircraft which utilize instrumentation cover glass manufactured by
the Company. Operating expenses, including selling expenses, were $780,365
for Fiscal 2009, a decrease of $229,292 or 23% from Fiscal 2008. Operating
income decreased $784,111 or 78% to $489,051 in Fiscal 2009 from $1,273,162
in 2008. Other income resulted in a net loss of $17,557 primarily as a
result of recognizing $148,269 in capital losses from the Company's portfolio
of marketable securities. Net income after taxes of $271,780 or $0.35 per
share for Fiscal 2009 decreased markedly from $858,695 or $1.11 per share
for Fiscal 2008.
INFLATION
During the three year period that ended on October 30, 2010, inflation did
not have a material effect on our operating results.
Opt-Sciences Corporation
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these financial statements
ASSETS
October 30, 2010 October 31, 2009
CURRENT ASSETS
Cash and cash equivalents $ 8,398,276 7,606,849
Trade accounts receivable 684,313 594,167
Inventories 634,247 558,609
Prepaid expenses 25,406 13,482
Loans and exchanges 12,543 10,058
Prepaid income taxes -0- 138,200
Marketable securities 502,809 469,468
Total current assets 10,257,594 9,390,833
PROPERTY AND EQUIPMENT
Land 114,006 114,006
Building and improvements 606,244 606,244
Machinery and equipment 2,134,804 2,094,592
Small tools 53,580 53,580
Furniture and fixtures 17,712 10,438
Office equipment 76,742 82,651
Automobiles 71,211 71,211
Total property and equipment 3,074,299 3,032,722
Less accumulated depreciation 2,110,104 1,950,701
Net property and equipment 964,195 1,082,021
OTHER ASSETS
Deposits 2,837 2,837
Total assets $11,224,626 $10,475,691
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Opt-Sciences Corporation
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these financial statements
LIABILITIES AND STOCKHOLDERS' EQUITY
October 30, 2010 October 31, 2009
CURRENT LIABILITIES
Accounts payable - trade $ 84,317 $ 41,761
Accrued income taxes 124,500 -0-
Accrued salaries and wages 154,993 112,636
Accrued professional fees 81,138 69,695
Deferred income taxes 66,205 33,651
Other current liabilities 4,280 2,310
Total current liabilities 515,433 260,053
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 10,401,501 9,940,851
Accumulated other comprehensive
income:
Unrealized holding (loss)
on marketable securities (27,785) (60,690)
Less treasury stock at cost -
224,415 shares (187,218) (187,218)
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Total stockholders' equity 10,709,193 10,215,638
Total liabilities and
stockholders' equity $11,224,626 $10,475,691
Opt-Sciences Corporation
CONSOLIDATED STATEMENTS OF INCOME
The accompanying notes are an integral part of these financial statements
Fiscal Year Ended Fiscal Year Ended
October 30, 2010 October 31, 2009
(52 weeks) (52 weeks)
NET SALES $4,899,983 $4,881,311
COST OF SALES 3,444,311 3,611,895
Gross profit on sales 1,455,672 1,269,416
OPERATING EXPENSES
Sales & delivery 26,159 26,178
General and administrative 802,424 754,187
Total operating expenses 828,583 780,365
Operating income 627,089 489,051
OTHER INCOME (LOSS) 75,293 (17,557)
Net Income before taxes 702,382 471,494
FEDERAL AND STATE INCOME TAXES 241,732 199,714
Net income 460,650 271,780
EARNINGS PER SHARE OF
COMMON STOCK 0.59 0.35
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Weighted average number
of shares 775,585 775,585
Opt-Sciences Corporation
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 Stock Total
|
BALANCE
NOVEMBER 2,
2008 $250,000 $272,695 $9,669,071 $(196,971) $(187,218) $9,807,577
Net income
for fiscal
year ended
October 31,
2009 271,780 271,780
Unrealized
holding gains
on securities
|
arising during
period, net of tax
of $102,808 ______ ________ ________ 136,281 _________ 136,281
TOTAL COMPREHENSIVE INCOME 408,061
BALANCE
OCTOBER 31,
2009 $250,000 $272,695 $9,940,851 $ (60,690) $(187,218) $10,215,638
Net income for
fiscal year
ended October 30,
2010 460,650 460,650
Unrealized
holding gains
on securities
arising during
period, net of
tax of $24,823 _________ _______ _______ 32,905 ________ 32,905
TOTAL
COMPREHENSIVE
INCOME 493,555
BALANCE
OCTOBER 30,
|
2010 $250,000 $272,695 $10,401,501 $(27,785) $(187,218) $10,709,193
Opt-Sciences Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these financial statements
Fiscal Year Ended Fiscal Year Ended
October 30, 2010 October 31, 2009
(52 weeks) (52 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 460,650 271,780
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 159,403 192,821
Loss on sale of securities 4,166 148,269
Deferred income taxes 7,730 43,059
Decrease (increase) in:
Accounts receivable (90,146) 525,383
Inventories (75,638) 52,571
Prepaid expenses (11,924) 4,812
Prepaid income taxes 138,200 (138,200)
Loans and exchanges (2,485) (3,290)
(Decrease) increase in:
Accounts payable 42,556 (161,521)
Accrued income taxes 124,500 (40,912)
Accrued salaries and wages 42,357 (156,122)
Accrued professional fees 11,443 19,195
Other current liabilities 1,970 (27,236)
Net cash provided by operating
activities 812,782 730,609
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (41,577) (341,430)
Purchases of securities (4,778) (66,999)
Proceeds from sale of securities 25,000 358,669
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Net cash (used) by investing activities (21,355) (49,760)
Opt-Sciences Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these financial statements
Fiscal Year Ended Fiscal Year Ended
October 30, 2010 October 31, 2009
(52 weeks) (52 weeks)
Increase in cash $ 791,427 $ 680,849
Cash and cash equivalents
at beginning of period 7,606,849 6,926,000
Cash and cash equivalents
at end of period $ 8,398,276 $ 7,606,849
SUPPLEMENTAL DISCLOSURES:
Interest paid -0- -0-
Income taxes paid $ 50,611 $ 335,767
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OPT-Sciences Corporation and Subsidiary
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
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 $29,371 and $33,616 for the years ended October
30, 2010 and October 31, 2009, respectively.
Earnings per Common Share
Earnings per common share were computed by dividing net income by the weighted
average number of common shares outstanding.
Revenue Recognition
The Company recognizes revenue from product sales in accordance with Financial
Accounting Standards Board Accounting Standards Codification Topic 605,
Revenue Recognition when products are shipped and risk of loss and
title has passed to the customer.
Consideration of Subsequent Events
These financial statements were approved and authorized for issue by the Board
of Directors on January 18, 2011.
OPT-Sciences Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Inventories
Inventories
Inventories consisted of the
following:
October 30, October 31,
2010 2009
Raw materials and supplies $175,014 $221,791
Work in progress 334,370 182,607
Finished goods 124,863 154,211
$634,247 $558,609
|
NOTE 3- Marketable Securities
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
October 30, 2010
Common stock $ 28,578 $ 1,284 -0- 29,862
Preferred stock 237,567 5,834 -0- 243,401
Mutual funds 285,409 -0- (55,863) 229,546
$ 551,554 $ 7,118 (55,863) $ 502,809
October 31, 2009
Common stock $ 28,559 -0- (4,952) 23,607
Preferred stock 237,567 -0- (25,279) 212,288
Municipal bonds 40,000 -0- (15,880) 24,120
Mutual funds 269,816 -0- (60,363) 209,453
$ 575,942 -0- $(106,474) $ 469,468
|
Sales of securities available for sale during the years ended October 30,
2010 and October 31, 2009 were as follows:
2010 2009
Proceeds from sales $ 25,000 $ 358,669
Gross realized gains $ -0- $ 21,966
Gross realized losses $ 4,166 $ 170,235
|
OPT-Sciences Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - Income Taxes
The income tax expense of the Company consists of the following:
2010 2009
Current tax expense:
Federal $ 172,191 $ 92,990
State 61,811 63,665
Total 234,002 156,655
Deferred tax expense:
Federal (1,638) 55,303
State 9,368 (12,244)
Total 7,730 43,059
Income Tax Expense $ 241,732 $ 199,714
|
At October 30, 2010, the Company had a deferred tax asset of $114,179 and a
deferred tax liability of $180,384, resulting in a net deferred tax liability
of $66,205.
At October 31, 2009, the Company had a deferred tax asset of $159,792 and a
deferred tax liability of $193,443, resulting in a net deferred tax liability
of $33,651.
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 30, 2010, the Company had capital loss carry forwards of $219,160
expiring in 2011 through 2016. All of these losses are deemed to be usable
before expiration.
During the year, amended tax returns were filed for the years 2006 through
2008 to take advantage of tax deductions not available at the time when
the returns were initially filed. As a result, the refunds received of
$44,542 reduced the income tax expense for the period and caused the
effective tax rate to drop from 42.4% to 33.9% for the years ended October
30, 2010 and October 31, 2009, respectively. Interest income was also
recognized on these refunds of $1,253.
OPT-Sciences Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - Major Customers
Two customers accounted for $3,359,604 of net sales during the year ended
October 30, 2010. The amount due from these customers, included in trade
accounts receivable, was $525,457 on October 30, 2010.
Two customers accounted for $3,044,045 of net sales during the year ended
October 31, 2009. The amount due from these customers, included in trade
accounts receivable, was $386,877 on October 31, 2009.
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 approximately $7,500,000 on October 30, 2010.
NOTE 7 - Related Party Transactions
During fiscal years 2010 and 2009, the Company incurred legal fees of $52,500
and $47,500, 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, $52,500 and $47,500 were included in accounts payable
at October 30, 2010 and October 31, 2009, respectively.
NOTE 8 - Fair Value Measurements
Effective January 1, 2008, the Company adopted FASB ASC Topic 820, Fair
Value Measurements and Disclosures, which, among other things, requires
enhanced disclosures about assets and liabilities carried at fair value.
FASB ASC Topic 820 establishes a hierarchal disclosure framework associated
with the level of pricing observability utilized in measuring assets and
liabilities at fair value. There are three broad levels defined by FASB
ASC Topic 820 hierarchy. The Company only has assets and liabilities falling
under level I, in which quoted prices are available in active markets for
identical assets or liabilities as of the reported date. See Note 3 above.
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 30, 2010 and October 31,
2009 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 30, 2010. 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 30, 2010 and October 31, 2009 and the
consolidated results of their operations and their cash flows for each of the
fiscal years in the two year period ended October 30, 2010 in conformity with
U.S. generally accepted accounting principles.
Goff, Backa, Alfera & company, LLC
Pittsburgh, Pennsylvania
January 25, 2011
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
stocktrans.com
ATTORNEYS:
Kania, Lindner, Lasak & Feeney
Suite 108, 560 E. Lancaster Avenue
St.Davids, Pennsylvania 19087
AUDITORS:
Goff, Backa, Alfera & Company, LLC
3325 Saw Mill Run Blvd.
Pittsburgh, Pennsylvania 15227-2736
gbaco.com
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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