5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2011, the FASB issued Accounting Standards Update No. 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and IFRS ("ASU 2011-04"), which amends ASC 820 Fair Value Measurement. ASU 2011-04 improves the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards. The amended guidance changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB's intent about the application of existing fair value measurement and disclosure requirements. Although ASU 2011-04 is not expected to have a significant effect on practice, it changes some fair value measurement principles and disclosure requirements. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011, and must be applied prospectively. Early application is not permitted. We do not anticipate that the adoption of ASU 2011-04 will have a material impact on our financial position or results of operations.
In June 2011, the FASB issued the FASB Accounting Standards Update No. 2011-05 "Comprehensive Income" ("ASU 2011-05"), which was the result of a joint project with the IASB and amends the guidance in ASC 220, Comprehensive Income, by eliminating the option to present components of other comprehensive income (OCI) in the statement of stockholders' equity. Instead, the new guidance now gives entities the option to present all non-owner changes in stockholders' equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the amendments require entities to present all reclassification adjustments from OCI to net income on the face of the statement of comprehensive income. The amendments in this Update should be applied retrospectively and are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. This statement will be effective for us for our 2013 fiscal year. We do not anticipate that the adoption of ASE 2011-05 will have a material impact on our financial position or results of operations.
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6. SUBSEQUENT EVENTS
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:
- Uncertain demand for the Company's products because of the current international financial concerns;
- Risks associated with dependence on a few major customers;and
- The performance, financial strength and reliability of the Company's vendors.
We provide greater detail regarding other factors in our 2011 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 & 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. Market projections for commercial aircraft are improving and this trend should be positive for the Company. We recognized third quarter sales of $1,779,154 and net income of $300,975. Sales are up 9% or $242,408 from the second quarter of Fiscal Year 2012. Compared to the third quarter of Fiscal Year 2011, sales are up 26%. During the third quarter of 2012, the Company booked $1,197,000 in new orders compared to $1,949,000 in new orders booked for the second quarter of 2012 and $1,190,000 in new orders booked
during the third quarter of 2011. Our backlog of unshipped orders was approximately $2,538,000 at the end of third quarter, down approximately 18% from $3,103,000 at the end of the second quarter of 2012 and up 64% from the $1,545,000 backlog at the end of the third quarter of 2011. We currently expect fourth quarter sales to be approximately $1,600,000.
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 represent over 68% of sales, any significant change in the requirements of either of those customers has a direct impact on our revenue for the quarter.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED July 28, 2012 COMPARED WITH THIRTEEN WEEKS ENDED
JULY 30, 2011
NET SALES
Net sales for the third quarter ended July 28, 2012 were $1,779,154 which is $371,705 and 26% more than the net sales of $1,407,449 for the same quarter last year. This increase in sales is primarily the result of a general increase in demand for the Company's instrument glass for use in commercial jet aircraft. The third quarter last fiscal year reflected a steep drop in sales following a significant inventory build up by one of our major customers in the prior two quarters of that year.
COST OF SALES
Cost of sales for the quarter ended July 28, 2012 increased $143,205 or 15% to $1,111,992 or 63% of sales, compared to $968,767 or 69% of sales for the third quarter last year. This increase in cost of sales is primarily related to increased sales. The cost of sales as a percentage of sales has declined because of the operating efficiency realized from a greater volume of sales. Cost of sales is comprised of raw materials, manufacturing direct labor and overhead expenses. The overhead portion of cost of sales includes salaries, benefits, building expenses, production supplies, and maintenance costs related to our production, inventory control and quality control departments.
GROSS PROFIT
Gross profit for the quarter ended July 28, 2012 increased $228,505 to $667,162 or 38% of sales from $438,657 or 31% of sales reported for the same quarter last year, primarily as a result of increased efficiencies from economies of scale.
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OPERATING EXPENSES
Operating expenses increased by $62,198 to $248,803 from $186,605 for the same quarter last year. Operating expenses consist of marketing and business development expenses, professional expenses, salaries and benefits for executive and administrative personnel, legal, accounting, and other general corporate expenses.
OPERATING INCOME
The Company realized operating income of $418,359 or 24% of sales, for the quarter ended July 28, 2012, an increase of $166,307 over operating income of $252,052 or 18% of sales for the same quarter last year. The increase in operating income is principally the result of above described increase in sales and operating efficiencies discussed above.
OTHER INCOME
Other income of $91,616 for the third quarter of fiscal year 2012 decreased $19,778 from $111,394 for the same quarter last year and reflects a recognized loss of $51,250 on the sale of securities.
PROVISONS FOR INCOME TAX
Income tax expense for the third quarter ended July 28, 2012 was $209,800 or 41% of pre-tax income, compared to $149,000 or 41% of pre-tax income for the third quarter ended July 30, 2011.
NET INCOME
Net income for the third quarter ended July 28, 2012 was $300,975 or $0.39 per share, compared to net income of $214,446 or $0.28 per share, for the third quarter ended July 30, 2011 for the reasons outlined above.
THIRTY-NINE WEEKS ENDED July 28, 2012 COMPARED WITH THIRTY-NINE WEEKS ENDED
JULY 30, 2011
NET SALES
Net sales for the period ended July 28, 2012 were $4,794,790 which is $90,429 and 2% more than the net sales of $4,701,361 for the comparable period last year.
COST OF SALES
Cost of sales for the period ended July 28, 2012 was $3,351,227 or 70% of sales, compared to $3,173,981 or 68% of sales, for the same period last year.
GROSS PROFIT
Gross profit for the period ended July 28, 2012 decreased $86,817 to $1,443,563 or 30% of sales, from $1,530,380 or 32% of sales, reported for the comparable period last year.
OPERATING EXPENSES
Operating expenses increased by $39,964 and 6% from $662,216 during the period ended July 30, 2011 to $702,180 during the same period last year.
OPERATING INCOME
The Company realized operating income of $741,383 or 15% of sales, for the period ended July 28, 2012, compared to operating income of $868,164 or 18% of sales, for the same period last year.
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OTHER INCOME
Other income of $261,649 for the period ended July 28, 2012 increased $121,508 from $140,141 for the same period for last year, primarily due to a redeployment of a large portion of the Company's cash and cash equivalents into a managed portfolio of income securities, which occurred in the second quarter of Fiscal Year 2011.
INCOME TAX
Income tax expense for the period ended July 28, 2012 was $411,200 and 41% of pre-tax income, compared to $413,400 and 41% of pre-tax income for the comparable period ended July 30, 2011.
NET INCOME
Net income for the three quarter period ended July 28, 2012 decreased $3,073 to $591,832 or $0.76 per share, compared to net income of $594,905 or $0.77 per share for the prior comparable period.
FINANCIAL CONDITION
The Company utilizes its working capital to finance current operations and capital improvements. Cash and cash equivalents have increased $41,333 from $1,751,489 at the end of the fiscal year on October 29, 2011 to $1,792,822 for the thirty-nine week period ended July 28, 2012. The Company also has a significant portfolio of marketable securities, most of which is invested in a portfolio of income producing securities. All such resources are available for facilities expansion and capital equipment expenditures. We continue to review appropriate use of such financial resources for future growth and development. The Company maintains a strong liquidity in its current position in order to improve its ability to deal with the risks and uncertainties in the market place and, at the same time, increase its yield on those assets not needed for day to day operations at this time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting Company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by Item 3.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Based on an evaluation conducted as of July 28, 2012 by our management, including our Chief Executive Office ("CEO") and Chief Financial Officer ("CFO"), he has concluded that our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") are effective to reasonably ensure that information required to be disclosed in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls.
There were no changes in our internal controls during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is from time to time a party to legal proceedings. The Company currently believes that the ultimate outcome of these matters will not have a material adverse impact on the results of operations, liquidity or financial position of the Company.
ITEM 1A. RISK FACTORS
Smaller reporting companies are not required to provide the information required by this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
The registrant does not have in place procedures by which stockholders may recommend nominees to the registrant's Board of Directors.
ITEM 6. EXHIBITS
EXHIBITS
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31.1
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS
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XBRL Instance Document.
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101.SCH
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XBRL Taxonomy Extension Schema Document.
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document.
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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.
Opt-Sciences Corporation
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/s/ Anderson L. McCabe
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Anderson L. McCabe
Chief Executive Officer &
Chief Financial Officer
September
11, 2012
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