UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
__________________
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 0-23125
___________________________________
OSI SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 33-0238801
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12525 Chadron Avenue
Hawthorne, California 90250
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 978-0516
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 as the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
YES NO X
--- ---
As of October 31, 1997 there were 9,570,040 shares of common stock outstanding.
-1-
OSI SYSTEMS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 1997 3
and June 30, 1997 (Unaudited)
Consolidated Statements of Operations for the three 4
months ended September 30, 1997 and September 30, 1996
(Unaudited)
Consolidated Statements of Cash Flows for the three 5
months ended September 30, 1997 and September 30, 1996
(Unaudited)
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2 - Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds 11
Item 4 - Submission of Matter to a Vote of Security-Holders 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
September 30, June 30,
1997 1997
------------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,185 $ 553
Accounts receivable, net of allowance for doubtful accounts of $584 and $586
at September 30, 1997 and June 30, 1997, respectively 18,122 15,556
Other receivables 2,525 2,346
Inventory 18,867 18,517
Prepaid expenses 936 537
Deferred income taxes 846 874
-------- --------
Total current assets 43,481 38,383
-------- --------
Property and Equipment, Net 6,715 5,841
Intangible and Other Assets, Net 2,931 3,109
-------- --------
Total $ 53,127 $ 47,333
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank lines of credit $ 12,599 $ 9,100
Current portion of long-term debt 1,564 1,240
Accounts payable 8,289 7,712
Accrued payroll and related expenses 1,214 1,607
Income taxes payable 2,016 1,804
Advances from customers 2,291 2,410
Other accrued expenses and current liabilities 4,055 3,710
-------- --------
Total current liabilities 32,028 27,583
Long-Term Debt 2,980 2,840
Deferred Income Taxes 88 101
-------- --------
Total liabilities 35,096 30,524
Shareholders' Equity
Preferred stock, no par value; authorized, 10,000,000 shares; none issued and
outstanding at September 30, 1997 and June 30, 1997, respectively
Common stock, no par value; authorized, 40,000,000 shares; issued and
outstanding 6,230,028 and 6,156,528 shares at September 30, 1997 and June 30,
1997, respectively 7,612 7,367
Retained earnings 10,612 9,171
Cummulative foreign currency translation adjustment (193) 271
-------- --------
Total shareholders' equity 18,031 16,809
-------- --------
Total $ 53,127 $ 47,333
======== ========
See accompanying notes to consolidated financial statements.
-3-
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Three months ended
September 30,
-----------------------
1997 1996
--------- ---------
Revenues $ 22,961 $ 16,530
Cost of goods sold 16,649 11,884
--------- ---------
Gross profit 6,312 4,646
Operating expenses:
Selling, general and administrative 3,099 2,737
Research and development 827 517
--------- ---------
Total operating expenses 3,926 3,254
--------- ---------
Income from operations 2,386 1,392
Interest expense 411 360
--------- ---------
Income before provision for income taxes 1,975 1,032
Provision for income taxes 534 259
--------- ---------
Net income $ 1,441 $ 773
========= =========
Historical net income $ 1,441 $ 773
Interest on subordinated debt,
net of income taxes -- 37
--------- ---------
Net income available to common shareholders $ 1,441 $ 810
========= =========
Net income per share $ 0.22 $ 0.13
Weighted average shares outstanding 6,472,039 6,181,145
========= =========
See accompanying notes to consolidated financial statements.
-4-
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three months ended September 30,
--------------------------------
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 1,441 $ 773
Adjustments to reconcile net income to net cash used in
operating activities:
Provision for losses on accounts receivable 0 41
Depreciation and amortization 597 569
Changes in operating assets and liablities:
Accounts receivable (2,780) (2,341)
Other receivables (191) 60
Inventory (1,006) (806)
Prepaid expenses (409) 2
Accounts payable 772 424
Accrued payroll and related expenses (377) (300)
Income taxes payable 312 212
Advances from customers (128) (118)
Other accrued expenses and current liabilities 509 473
------- -------
Net cash used in operating activities (1,260) (1,011)
------- -------
Cash flows from investing activities:
Additions to property and equipment (620) (454)
Other assests 71 (18)
------- -------
Net cash used in investing activities (549) (472)
------- -------
Cash flows from financing activities:
Net proceeds from bank lines of credit 3,551 1,498
Payments on long-term debt (275) (400)
Proceeds from exercise of stock options and warrants 245 0
-------- -------
Net cash provided by financing activities 3,521 1,098
-------- -------
Effect of exchange rate changes on cash (80) 0
-------- -------
Net increase (decrease) in cash and cash equivalents 1,632 (385)
Cash and cash equivalents, beginning of period 553 581
-------- -------
Cash and cash equivalents, end of period $ 2,185 $ 196
======== =======
Supplemental disclosures of cash flow information - Cash paid
during the period for:
Interest $ 372 $ 288
Income taxes $ 344 $ 47
During the period ended September 30, 1997 the Company acquired property and
equipment under extended financing terms in the amount of $708.
See accompanying notes to consolidated financial statements.
-5-
OSI SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - OSI Systems, Inc. and its subsidiaries (collectively, the "Company")
is a vertically integrated worldwide provider of devices, subsystems and end-
products based on optoelectronic technology. The Company designs and
manufactures optoelectronic devices and value-added subsystems for original
equipment manufacturers in a broad range of applications, including security,
medical diagnostics, telecommunications, office automation, aerospace, computer
peripherals and industrial automation. In addition, the Company utilizes its
optoelectronic technology and design capabilities to manufacture security and
inspection products that it markets worldwide to end users under the "Rapiscan"
brand name. These products are used to inspect baggage, cargo and other objects
for weapons, explosives, drugs and other contraband.
Period End - The Company's period ends were September 28, 1997 and September 29,
1996. For presentation purposes, the Company describes its period end as
September 30.
Consolidation - The consolidated financial statements include the accounts of
OSI Systems, Inc. and its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated balance sheet as of September 30, 1997, the consolidated
statements of operations and the consolidated statements of cash flows for the
three month periods ended September 30, 1997 and 1996 have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "Commission"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion of management
all adjustments, consisting of only normal and recurring adjustments, necessary
for a fair presentation of the financial position and the results of operations
for the periods presented have been included. These consolidated financial
statements and the accompanying notes should be read in conjunction with the
audited consolidated financial statements and accompanying notes for the fiscal
year ended June 30, 1997 included in the Company's Registration Statement on
Form S-1 as filed with the Commission on October 1, 1997. The results of
operations for the three months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the fiscal year ending June 30,
1998.
Inventory - Inventory is stated at the lower of cost or market; cost is
determined on the first-in, first-out method.
-6-
Inventory at September 30, 1997 and June 30, 1997 consisted of the following (in
thousands):
September 30, June 30,
1997 1997
Raw Materials..... $10,295 $11,408
Work-in-process... 5,681 4,224
Finished goods.... 2,891 2,885
------- -------
Total.......... $18,867 $18,517
======= =======
Earnings Per Share - For the period ended September 30, 1997, earnings per share
is computed using the weighted average number of shares outstanding and dilutive
common stock equivalents from the Company's stock option plans, calculated using
the treasury stock method.
For the period ended September 30, 1996, earnings per share information is
computed using the weighted average number of shares of common stock outstanding
and dilutive common equivalent shares from preferred stock, convertible debt and
stock options using the treasury stock method. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin Topic 4D, common stock and stock
options issued or granted during the twelve month period prior to the date of
the initial filing of the Company's Form S-1 Registration Statement have been
included in the calculation of the weighted average number of common and common
equivalent shares using the treasury stock method as if they were outstanding
for each period. Net income and net income per share have been presented to
reflect the effect of the conversion of the preferred stock into shares of the
Company's common stock.
Recently Issued Accounting Pronouncements - In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings Per Share". The statement is effective for interim
periods and fiscal years ending after December 15, 1997. The Company does not
expect that the statement will have a material effect on the Company's
consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting for Comprehensive Income" and
No. 131, "Disclosure about Segments of an Enterprise and Related Information."
These statements are effective for financial statements issued for periods
beginning after December 15, 1997. The Company has not yet analyzed the impact
of adopting these statements.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CAUTIONARY STATEMENT
STATEMENTS IN THIS REPORT THAT ARE FORWARD-LOOKING ARE BASED ON CURRENT
EXPECTATIONS, AND ACTUAL RESULTS MAY DIFFER MATERIALLY. FORWARD-LOOKING
STATEMENTS INVOLVE NUMEROUS RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THE POSSIBILITIES
THAT THE DEMAND FOR THE COMPANY'S PRODUCTS MAY DECLINE AS A RESULT OF POSSIBLE
CHANGES IN GENERAL AND INDUSTRY SPECIFIC ECONOMIC CONDITIONS AND THE EFFECTS OF
COMPETITIVE PRICING AND SUCH OTHER RISKS AND UNCERTAINTIES AS ARE DESCRIBED IN
THIS REPORT ON FORM 10-Q AND OTHER DOCUMENTS PREVIOUSLY FILED OR HEREAFTER FILED
BY THE COMPANY FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION.
RESULTS OF OPERATIONS
Revenues. Revenues consist of sales of optoelectronic devices and subsystems and
security and inspection products. Revenues are recorded net of all inter-company
eliminations. Revenues for the three months ended September 30, 1997 increased
by $6.5 million, or 38.9%, to $23.0 million from $16.5 million for the three
months ended September 30, 1996. Revenues for the three months ended September
30, 1997 from security and inspection products were $11.6 million or
approximately 50.6% of the Company's revenues, and revenues from sales of
optoelectronic devices and subsystems were $11.4 million or approximately 49.4%
of the Company's revenues. The growth in revenues was the result of an increase
in sales of devices and subsystems to the medical diagnostics industry,
increased sales of the Company's Rapiscan Series 500 EPX Systems, and the
ongoing introduction of large cargo inspection machines.
Gross Profit. Cost of goods sold consists of material, labor and manufacturing
overhead. Gross profit increased by $1.7 million, or 35.9%, to $6.3 million for
the three months ended September 30, 1997 from $4.6 million for the three months
ended September 30, 1996. As a percentage of revenues, gross profit decreased to
27.5% for three months ended September 30, 1997 from 28.1% for the three months
ended September 30, 1996, due to an increase in personnel and other general
overhead to support the Company's growth.
Selling, General and Administrative. Selling, general and administrative
expenses consist primarily of compensation paid to sales, marketing, and
administrative personnel, professional service fees, and marketing expenses. For
the three months ended September 30, 1997, such expenses increased by $362,000
or 13.2%, to $3.1 million from $2.7 million for the three months ended September
30, 1996. As a percentage of revenues, selling, general and administrative
expenses decreased to 13.5% for the three months
-8-
ended September 30, 1997 from 16.6% for the three months ended September 30,
1996. The increase in expenses was due principally to increases in payroll
expenses to support revenue growth as well as increases in legal expenses.
Research and Development. Research and development expenses include research
related to new product development and product enhancement expenditures. For the
three months ended September 30, 1997, such expenses increased by $310,000 or
60.0%, to $827,000 from $517,000 for the three months ended September 30, 1996.
As a percentage of revenues, research and development expenses increased to 3.6%
from 3.1%. The increase was due primarily to continued enhancement of the
Rapiscan Series 500 EPX System and efforts to develop products for cargo
scanning. The Company intends to continue increasing its research and
development expenditures in the future.
Income from Operations. Income from operations for the three months ended
September 30, 1997 increased by $994,000, or 71.4%, to $2.4 million from $1.4
million for the three months ended September 30, 1996. As a percent of
revenues, income from operations increased to 10.4% from 8.4%.
Interest Expense. Interest expense for the three months ended September 30, 1997
increased by $51,000, or 14.2%, to $411,000 from $360,000 for the three months
ended September 30, 1996. The increase was due to an increase in bank borrowings
to fund the Company's working capital needs. As a percentage of revenue,
interest expense decreased to 1.8% from 2.2%. Interest expense in future periods
is expected to be lower due to the repayment of the majority of the Company's
debt in October, 1997.
Provision for Income Taxes. Provision for income taxes for the three months
ended September 30, 1997 increased by $275,000, or 106.2% to $534,000 from
$259,000 for the three months ended September 30, 1996. As a percentage of
income before provision for income taxes, provision for income taxes increased
to 27.0% from 25.1% for the three months ended September 30, 1996.
Net Income. For the reasons outlined above, net income for the three months
ended September 30, 1997 increased by $668,000, or 86.4%, to $1.4 million from
$773,000 for the three months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations used net cash of $1.3 million during the three months
ended September 30, 1997. The amount of net cash used by operations reflects
increases in accounts receivable, other receivables, inventory, prepaid expenses
and reductions in accrued payroll and related expenses and advances from
customers. Net cash used in operations was offset in part by increases in
accounts payable and other accrued expenses and current liabilities.
-9-
Net cash used in investing activities was $549,000 and $472,000 for the three
months ended September 30, 1997 and 1996, respectively, in each case due
primarily to purchases of property and equipment.
Net cash provided by financing activities of $3.5 million and $1.1 million for
the three months ended September 30, 1997 and 1996, respectively, were due to
increased borrowings under the Company's lines of credit.
In October, 1997, the Company finalized an agreement with Hong Kong Bank
Malaysia Berhard to provide a line of credit up to $1.0 million Malaysian
ringgits (approximately $308,000 at September 30, 1997). The Company
concurrently finalized an agreement with Bank Utama (Malaysia) Berhad to provide
a line of credit up to $1.5 million Malaysian ringgits (approximately $461,000
at September 30, 1997).
The Company raised approximately $41.0 million in its initial public offering in
October, 1997, of which $14.1 million was used to pay down the majority of the
bank debt. The Company may also spend approximately $3.0 million as it has
exercised its option to purchase its Hawthorne, California facilities. The
Company expects to finalize the purchase of the above facilities in April, 1998.
The remaining proceeds will be used to finance the Company's research and
development activities, to enhance its sales and marketing capabilities, to
pursue possible acquisitions, and to increase the Company's funds available for
general corporate purposes, including working capital purposes.
Foreign Currency Translation. The accounts of the Company's operations in
Singapore, Malaysia, England and Norway are maintained in Singapore dollars,
Malaysian ringgits, U.K. pounds sterling and Norwegian krone, respectively.
Foreign currency financial statements are translated into U.S. dollars at
current rates, with the exception of revenues, costs and expenses, which are
translated at average rates during the reporting period. Gains and losses
resulting from foreign currency transactions are included in income, while those
resulting from translation of financial statements are excluded from income and
accumulated as a component of shareholder's equity. Transaction (losses) gains
of approximately ($5,000) and $74,000 were included in income for the three
months ended September 30, 1996 and 1997, respectively.
Inflation. The Company does not believe that inflation has had a material impact
on its results of operations.
-10-
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 1, 1997, the Company concluded the initial public offering (the
"Offering") of 3,700,000 shares of its Common Stock, no par value ("Common
Stock"), pursuant to the Company's Registration Statement on Form S-1, as
amended (the "Registration Statement") (Registration No. 333-29179), which was
declared effective under the Securities Act of 1933, as amended, by the
Securities and Exchange Commission on October 1, 1997. The underwriters of the
Offering were represented by BancAmerica Robertson Stephens, William Blair &
Company, L.L.C. and Volpe Brown Whelan & Company LLC as managing underwriters.
All 3,330,000 shares of Common Stock registered under the Registration Statement
for the account of the Company (consisting of an aggregate offering price of
$44,955,000) and all 370,000 shares registered for the account of the selling
shareholders (consisting of an aggregate offering price of $4,995,000) were sold
in the Offering. All of the 495,000 shares of Common Stock sold pursuant to the
over-allotment option were registered for the account of certain selling
shareholders of the Company (consisting of an aggregate offering price of
$6,682,500). The Offering has terminated.
The Company incurred the following expenses in connection with the Offering
(excluding expenses incurred by the selling shareholders):
Category of Expense Amount of Expense
------------------- -----------------
Underwriting Discounts and Commissions $3,146,850
Finders' fees 0
Expenses paid to or for underwriters 0
Other expenses (estimated) $ 800,000
----------
Total expenses $3,946,850
==========
None of the expenses incurred by the Company in connection with the Offering was
paid to directors, officers, ten percent shareholders or affiliates of the
Company.
Of the total net proceeds in the amount of approximately $41.0 million received
by the Company from its sale of 3,330,000 shares of Common Stock in the
Offering, the following amounts were used from the date of the Offering through
the date of this report:
Category of Use Amount of Use
--------------- -------------
Construction of plant, building and facilities 0
Purchase and installation of machinery and equipment 0
Purchase of real estate 0
Acquisition of other businesses 0
Repayment of Indebtedness $14.1 million
-11-
Category of Use Amount of Use
--------------- -------------
Working capital $ 1.0 million
Temporary investments (Short-term, interest
bearing securities) $25.9 million
Other purposes 0
None of the net proceeds to the Company of the Offering was paid to directors,
officers, ten percent shareholders or affiliates of the Company. The foregoing
use of proceeds does not represent a material change from the use of proceeds as
described in the Registration Statement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company submitted the following matters to a vote of shareholders at its
annual meeting of shareholders held on September 4, 1997:
1. Election of Directors. The Company proposed the following slate of
directors for service until the next annual meeting of shareholders and until
their successors are duly elected and qualified: Deepak Chopra, Ajay Mehra,
Steven C. Good, Meyer Luskin and Madan G. Syal. The entire slate of directors
proposed by management was elected by the following votes:
Votes For Votes Withheld
--------- --------------
Deepak Chopra 5,778,033 0
Ajay Mehra 5,778,033 0
Steven C. Good 5,778,033 0
Meyer Luskin 5,778,033 0
Madan G. Syal 5,778,033 0
2. Approval of Form of Indemnity Agreement. The Company submitted to the
shareholders for their approval the form of Indemnity Agreement to be entered
into by all of the directors and certain officers of the Company, which
Indemnity Agreements would provide for their indemnification by the Company
under certain circumstances. The Indemnity Agreements were approved by the
shareholders by a vote of 5,778,033 votes for, 0 votes against and 0 votes
withheld.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
--------
27. Financial Data Schedule
b. Reports on Form 8-K
-------------------
None
-12-
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, in the City of Hawthorne, State of
California on the 12th date of November 1997.
OSI Systems, Inc.
-----------------
By: /s/ Deepak Chopra
___________________________
Deepak Chopra
President and
Chief Executive Officer
By: /s/ Ajay Mehra
____________________________
Ajay Mehra
Vice President and
Chief Financial Officer
-13-
5
1,000
3-MOS
JUN-30-1998
JUL-01-1997
SEP-30-1997
2,185
0
18,122
0
18,867
43,481
6,715
0
53,127
32,028
2,980
0
0
7,612
10,419
53,127
22,961
22,961
16,649
16,649
3,926
0
411
1,975
534
1,441
0
0
0
1,441
0
0.22
