UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-27022
OPTICAL CABLE CORPORATION
(Exact name of registrant as specified in its charter)
| Virginia | 54-1237042 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
5290 Concourse Drive
Roanoke, Virginia 24019
(Address of principal executive offices, including zip code)
(540) 265-0690
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of June 10, 2004, 5,616,223 shares of the registrant’s Common Stock, no par value, were outstanding.
Form 10-Q Index
Six Months Ended April 30, 2004
Condensed Balance Sheets
| (Unaudited) |
||||||
| April 30, 2004 |
October 31, 2003 | |||||
| Assets | ||||||
| Current assets: |
||||||
| Cash |
$ | 2,159,850 | $ | 2,337,259 | ||
| Trade accounts receivable, net of allowance for doubtful accounts of $429,847 at April 30, 2004 and $462,981 at October 31, 2003 |
7,982,483 | 7,688,281 | ||||
| Income taxes refundable |
100,223 | 262,427 | ||||
| Other receivables |
67,262 | 183,600 | ||||
| Due from current and former officers, net of allowance for uncollectible advances of $59,078 |
— | 25,167 | ||||
| Due from employees |
642 | — | ||||
| Inventories |
6,977,009 | 6,624,492 | ||||
| Prepaid expenses |
315,961 | 440,555 | ||||
| Deferred income taxes |
231,617 | 265,963 | ||||
| Total current assets |
17,835,047 | 17,827,744 | ||||
| Other assets, net |
114,161 | 172,690 | ||||
| Property and equipment, net |
11,256,597 | 11,284,205 | ||||
| Deferred income taxes |
797,336 | 900,524 | ||||
| Total assets |
$ | 30,003,141 | $ | 30,185,163 | ||
| Liabilities and Shareholders’ Equity | ||||||
| Current liabilities: |
||||||
| Accounts payable and accrued expenses |
$ | 2,360,615 | $ | 2,538,203 | ||
| Accrued compensation and payroll taxes |
765,426 | 1,012,956 | ||||
| Total current liabilities |
3,126,041 | 3,551,159 | ||||
| Shareholders’ equity: |
||||||
| Preferred stock, no par value, authorized 1,000,000 shares; none issued and outstanding |
— | — | ||||
| Common stock, no par value, authorized 50,000,000 shares; issued and outstanding 5,611,723 shares at April 30, 2004 and 5,459,005 at October 31, 2003 |
1,283,994 | 1,142,006 | ||||
| Retained earnings |
25,593,106 | 25,491,998 | ||||
| Total shareholders’ equity |
26,877,100 | 26,634,004 | ||||
| Commitments and contingencies |
||||||
| Total liabilities and shareholders’ equity |
$ | 30,003,141 | $ | 30,185,163 | ||
See accompanying condensed notes to condensed financial statements.
2
Condensed Statements of Operations
(Unaudited)
| Three months ended April 30, |
Six months ended April 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net sales |
$ | 10,652,998 | $ | 9,758,672 | $ | 20,002,605 | $ | 19,504,687 | ||||||||
| Cost of goods sold |
6,478,388 | 5,904,408 | 12,183,493 | 12,152,588 | ||||||||||||
| Gross profit |
4,174,610 | 3,854,264 | 7,819,112 | 7,352,099 | ||||||||||||
| Selling, general and administrative expenses |
4,056,750 | 3,352,371 | 7,597,468 | 6,645,477 | ||||||||||||
| Shareholder litigation settlement expense |
— | 283,190 | — | 574,590 | ||||||||||||
| Loss on impairment of machinery and equipment |
— | — | — | 117,337 | ||||||||||||
| Income from operations |
117,860 | 218,703 | 221,644 | 14,695 | ||||||||||||
| Other expense, net: |
||||||||||||||||
| Interest income |
1,573 | 3,911 | 7,921 | 8,621 | ||||||||||||
| Interest expense |
(36,186 | ) | (48,086 | ) | (67,704 | ) | (82,936 | ) | ||||||||
| Other, net |
4,845 | 17,877 | (5,747 | ) | 31,704 | |||||||||||
| Other expense, net |
(29,768 | ) | (26,298 | ) | (65,530 | ) | (42,611 | ) | ||||||||
| Income (loss) before income tax expense (benefit) |
88,092 | 192,405 | 156,114 | (27,916 | ) | |||||||||||
| Income tax expense (benefit) |
31,090 | 59,646 | 55,006 | (8,653 | ) | |||||||||||
| Net income (loss) |
$ | 57,002 | $ | 132,759 | $ | 101,108 | $ | (19,263 | ) | |||||||
| Net income per share: |
||||||||||||||||
| Basic and diluted |
$ | 0.01 | $ | 0.02 | $ | 0.02 | $ | — | ||||||||
See accompanying condensed notes to condensed financial statements.
3
Condensed Statement of Shareholders’ Equity
(Unaudited)
| Six months ended April 30, 2004 | |||||||||||
| Common Stock |
Retained Earnings |
Total Shareholders’ Equity | |||||||||
| Shares |
Amount |
||||||||||
| Balances at October 31, 2003 |
5,459,005 | $ | 1,142,006 | $ | 25,491,998 | $ | 26,634,004 | ||||
| Stock-based compensation |
149,000 | 123,840 | — | 123,840 | |||||||
| Exercise of warrants ($4.88 per share) |
3,718 | 18,148 | — | 18,148 | |||||||
| Net income |
— | — | 101,108 | 101,108 | |||||||
| Balances at April 30, 2004 |
5,611,723 | $ | 1,283,994 | $ | 25,593,106 | $ | 26,877,100 | ||||
See accompanying condensed notes to condensed financial statements.
4
Condensed Statements of Cash Flows
(Unaudited)
| Six months ended April 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 101,108 | $ | (19,263 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation, amortization and accretion |
496,844 | 582,639 | ||||||
| Bad debt expense (recovery) |
(24,688 | ) | 169,295 | |||||
| Deferred income tax expense (benefit) |
137,534 | (102,835 | ) | |||||
| Stock-based compensation expense |
123,840 | 14,705 | ||||||
| Shareholder litigation settlement expense |
— | 566,291 | ||||||
| Loss on impairment of machinery and equipment |
— | 117,337 | ||||||
| (Increase) decrease in: |
||||||||
| Trade accounts receivable |
(269,514 | ) | (650,059 | ) | ||||
| Income taxes refundable |
162,204 | 135,661 | ||||||
| Other receivables |
116,338 | (30,000 | ) | |||||
| Due from employees, including current and former officers |
24,525 | 3,150 | ||||||
| Inventories |
(352,517 | ) | 604,450 | |||||
| Prepaid expenses |
124,594 | 165,731 | ||||||
| Other assets |
— | (57,166 | ) | |||||
| Increase (decrease) in: |
||||||||
| Accounts payable and accrued expenses |
(210,651 | ) | 45,816 | |||||
| Accrued compensation and payroll taxes |
(247,530 | ) | (112,288 | ) | ||||
| Net cash provided by operating activities |
182,087 | 1,433,464 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(377,644 | ) | (193,993 | ) | ||||
| Net cash used in investing activities |
(377,644 | ) | (193,993 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from notes payable to bank, net |
— | 1,081,819 | ||||||
| Payments for financing costs |
— | (35,154 | ) | |||||
| Repurchase of common stock |
— | (3,032,907 | ) | |||||
| Proceeds from exercise of warrants |
18,148 | — | ||||||
| Net cash provided by (used in) financing activities |
18,148 | (1,986,242 | ) | |||||
| Net decrease in cash |
(177,409 | ) | (746,771 | ) | ||||
| Cash at beginning of period |
2,337,259 | 746,771 | ||||||
| Cash at end of period |
$ | 2,159,850 | $ | — | ||||
See accompanying condensed notes to condensed financial statements.
5
Condensed Notes to Condensed Financial Statements
Three Months and Six Months Ended April 30, 2004
(Unaudited)
| (1) | General |
The accompanying unaudited condensed financial statements of Optical Cable Corporation (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all material adjustments considered necessary for a fair presentation have been included. Operating results for the six months ended April 30, 2004 are not necessarily indicative of the results for the fiscal year ending October 31, 2004 because the following items, among other things, may impact those results: changes in market conditions, seasonality, ability of management to execute its business plan, as well as other variables and contingencies set forth as risks in the Company’s Form 10-K for fiscal year 2003 or as otherwise identified in other filings by the Company as possibly affecting future results. The unaudited condensed financial statements and condensed notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company’s annual financial statements and notes. For further information, refer to the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended October 31, 2003.
| (2) | Stock Option Plan and Other Stock-Based Compensation |
Through October 31, 2003, the Company applied the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations for employee stock option grants, including stock option grants to outside members of the Board of Directors, and Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation and EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, for nonemployee stock option grants.
In December 2002, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure. SFAS No. 148 amends existing accounting literature to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The statement also requires additional disclosures in both interim and annual financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. Effective November 1, 2003, the Company adopted the prospective method of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation as allowed under SFAS No. 148. The prospective method requires the Company to apply the recognition provisions to all employee awards granted, modified, or settled after the beginning of the fiscal year in which the recognition provisions are first applied. During the first and second quarters of fiscal year 2004, the Company did not grant, modify or settle any employee stock options or other awards that would require accounting treatment different from that under APB 25; therefore, there was no impact from the adoption of this statement on the condensed financial statements of the Company.
6
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Three Months and Six Months Ended April 30, 2004
(Unaudited)
Since all previously issued employee stock options were accounted for under APB 25, no compensation costs for grants of options to employees has been recognized, as all employee stock options under the stock-based compensation plan had an exercise price equal to or greater than the fair market value of the underlying common stock at the date of grant. The following table illustrates the effect on net income (loss) and net income (loss) per share as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation. The fair value of each option was estimated at the grant date using the Black-Scholes valuation model for the periods presented.
| Three Months Ended April 30, |
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