Photonic Products Group, Inc. Reports Profitable FY 2006

Apr 02, 2007, 01:00 ET from Photonic Products Group, Inc.

    NORTHVALE, N.J., April 2 /PRNewswire-FirstCall/ -- Photonic Products
 Group, Inc. (OTC Bulletin Board:   PHPG) today reported its consolidated,
 audited, financial results for its fiscal year which ended December 31,
     Revenues in fiscal year 2006 were $13,921,000, up slightly compared
 with $13,785,000 last year.
     Pre-tax income for the year was $793,000, compared to a loss of
 ($11,000) in 2005. Income in 2006 included a $300,000 insurance recovery,
 the policy maximum, under the Company's employee dishonesty coverage. This
 "one-time" component of income was largely offset by non-recurring expenses
 during the year for investigation of the same employee matter and related
 remediation of certain of the Company's internal controls. Net income in
 2005 included a profit of $134,000 from the sale of non-productive
 production assets.
     Net income in 2006 was $772,000, after an income tax provision of
 $21,000, and was a net loss of ($11,000) in 2005.
     Gross profit margin for the year improved to 32.6% from 27.8% in 2005,
 and gross profit in dollar terms was up 19%. Income from operations
 increased to $917,000, up 156% from last year's $358,000.
     Both basic and diluted EPS, on net income after accounting for the
 common stock dividend on preferred stock, were $0.07 and $0.06 in 2006,
 respectively, compared with a net loss (both basic and diluted) of $(0.02)
 per share in 2005.
     Net cash flow from operating activities was $2,672,000 for the year,
 compared with $360,000 in 2005. The Company's cash balance at the end of
 the year was $3,078,000, including a net increase of $336,000 in customer
 advances, compared with $1,157,000 at the end of 2005.
     EBITDA(1) for the year rose to $2,412,000, up from $1,485,000 in 2005
 and $303,000 in 2004.
     The Company reported revenues for its fourth quarter of $3,677,000,
 compared with revenues of $3,863,000 in the same period a year ago. Net
 income for the fourth quarter was $391,000 in 2006, compared with $342,000
 in 2005, the Company's sixth successive quarter with positive net income.
 Basic earnings per share for the fourth quarter were positive at $0.05,
 while fully diluted earnings per share were $0.04. This compares with basic
 and diluted income per share of $0.05 and $0.03, respectively, in the
 fourth quarter of 2005.
     Dan Lehrfeld, President and CEO of PPGI commented, "We finished our
 best year to date with strongly positive results in our fourth quarter.
 Revenues for the year were up a bit to a new record, and our gross and net
 margins were up significantly. Our customers are our first priority, but
 continual improvement of productivity and efficiency in operations has been
 our second point of focus. We have been profitable for the past six fiscal
 quarters, and 2006 marked our return to profitability for the year as a
 whole. EBITDA(1) reached 17% of sales, also a new record. Our order intake
 for the year was $13.3 million and it lagged 2005's record levels by 13% on
 weak fourth quarter bookings. But it was our second highest annual order
 intake ever, as was our ending backlog of $7.0 million. Quarterly ups and
 downs are typical, especially in our largest market sector,
 defense/aerospace. Cash flow from operations was strongly positive, and
 also a record. We ended the year with a large cash position and have been
 steadily paying-off the high interest debt components on our balance sheet.
 We also deployed nearly a million dollars into internal capital
 investments. The Company dealt rapidly and thoroughly with the internal
 control issue surrounding the misappropriation of funds matter we uncovered
 and reported on early in 2006. No financial restatements were necessary,
 and I am pleased to report our internal controls have been restored."
     Mr. Lehrfeld added, "In optical terms, we narrowed our field of view
 and sharpened our focus in 2006. Specifically, we concentrated on current
 operations and targeted a firmly profitable year, increased margins, and
 increased cash flow, while pursuing further revenue growth through organic
 means alone. I look forward in 2007 to our again delivering positive
 financial results, and continued growth."
     (1) Note Regarding Use of Certain Non-GAAP Financial Measures:
     The Company defines EBITDA as earnings before non-cash, stock-based
 compensation, net interest, income taxes, depreciation, and amortization.
 EBITDA is presented herein because it is a measure of PPGI's ability to
 internally fund capital expenditures and service debt. EBITDA should not be
 considered as an alternative to cash flow as an indicator of PPGI's financial
 performance, or of the Company's liquidity.  The reader is referred to the
 Supplemental Financial Data set forth below for a reconciliation of net income
                                                 At December 31,
     Reconciliation of  EBITDA
      to Net Income                   2006             2005            2004
     Net income (loss),
      as reported                $  772,000       $  (11,000)      $ (673,000)
     Non-cash, stock-based
      compensation                  118,000           21,000                -
     Non-GAAP based Net income
     (loss)                         890,000           10,000         (673,000)
     Income tax provision
      (benefit)                      21,000                -          (96,000)
     Interest expense               402,000          505,000          359,000
     Depreciation and
      Amortization                1,099,000          970,000          713,000
     EBITDA                      $2,412,000       $1,485,000       $  303,000
     Photonic Products Group, Inc. develops, manufactures, and markets
 products and services for use in diverse Photonics industry sectors via its
 expanding portfolio of distinctly branded businesses. INRAD specializes in
 crystal-based optical components and devices, laser accessories and
 instruments. Laser Optics specializes in precision custom optical
 components, assemblies, and optical coatings. MRC Optics' business
 specializes in precision diamond turned optics, metal optics, and
 opto-mechanical and electro-optical assemblies. PPGI's customers include
 leading corporations in the Defense and Aerospace, Laser Systems, and
 Process Control and Metrology sectors of the Photonics Industry, as well as
 the U.S. Government. Its products are also used by researchers at National
 Laboratories and Universities world-wide.
     Safe Harbor Statement under the Private Securities Litigation Reform
 Act of 1995: The 2004 preliminary financial information contained in this
 news release are subject to finalization in connection with the preparation
 of the Company's Form 10K for the year ended 2004. The statements contained
 in this press release that are not purely historical are forward looking
 statements within the meaning of Section 27A of the Securities Act of 1933
 and Section 21E of the Securities Act of 1934. These statements may be
 identified by their use of forward-looking terminology such as "believes",
 "expects", "will", "plan", "targeting" or similar words. Such
 forward-looking statements, such as our expectation for continued growth in
 sales, income, and EBITDA, our expectation that these metrics will rise as
 the year progresses, and our expectation that the year will be profitable,
 involve risks and uncertainties that could cause actual results to differ
 materially from those projected. Risks and uncertainties that could cause
 actual results to differ materially from such forward looking statements
 are, but are not limited to, uncertainties in market demand for the
 company's products or the products of its customers, future actions by
 competitors, inability to deliver product on time, inability to implement
 its growth strategies or to integrate its new operations, inability to make
 acquisitions, inability to realize synergies from its acquisitions,
 inability to raise capital, inability to retain key employees, and other
 factors discussed from time to time in the Company's filings with the
 Securities and Exchange Commission, including its Annual Report on Form
 10-K for 2006. The forward looking statements made in this news release are
 made as of the date hereof and Photonic Products Group, Inc. does not
 assume any obligation to update publicly any forward looking statement.
                          CONSOLIDATED BALANCE SHEETS
                                                           December 31,
                                                       2006           2005
     Current assets:
       Cash and cash equivalents                   $3,078,052     $1,156,563
       Accounts receivable (after allowance for
        doubtful accounts of
         $15,000 in 2006 and 2005)                  2,396,486      2,265,934
       Inventories                                  2,336,033      2,423,879
       Other current assets                           176,587        153,723
       Total Current Assets                         7,987,158      6,000,099
       Plant and equipment:
        Plant and equipment at cost                13,459,212     12,472,480
       Less: Accumulated depreciation
         and amortization                          (9,164,031)    (8,143,592)
       Total plant and equipment                    4,295,181      4,328,888
     Precious Metals                                  130,732        130,732
     Goodwill                                       1,869,646      1,869,646
     Intangible Assets, net of accumulated
      amortization                                    908,708        987,272
     Other Assets                                     124,835        164,384
     Total Assets                                 $15,316,260    $13,481,021
     Liabilities and Shareholders' Equity
     Current Liabilities:
      Current portion of notes payable -Other        $100,079       $260,697
      Accounts payable and accrued liabilities      2,495,398      2,426,692
      Customer advances                               987,963        652,264
      Current obligations under capital leases        196,350        248,550
     Total Current Liabilities                      3,779,790      3,588,203
     Related Party Convertible and
      Secured Notes Payable                         5,200,000      5,200,000
     Notes Payable - Other,
      net of current portion                        1,052,680        518,786
     Capital Lease Obligations,
      Net of Current Obligation                        47,087        244,625
     Total Liabilities                             10,079,557      9,551,614
     Commitments                                            -              -
     Shareholders' equity:
      10% convertible preferred stock,
       Series A no par value; 500 shares
        issued and outstanding                        500,000        500,000
     10% convertible preferred stock,
      Series B no par value; 2,082 shares
       issued and outstanding at December 31,
        2006 and 2,100 issued and outstanding
         at December 31, 2005                       2,082,000      2,100,000
     Common stock: $.01 par value;
      60,000,000 authorized shares 7,882,074
       issued at December 31, 2005 and 7,287,398
        issued at December 31, 2005                    78,820         72,862
      Capital in excess of par value               11,926,815     11,145,243
      Accumulated deficit                          (9,335,982)    (9,873,748)
                                                    5,251,653      3,944,357
     Less - Common stock in treasury,
      at cost (4,600 shares)                          (14,950)       (14,950)
      Total Shareholders' Equity                    5,236,703      3,929,407
      Total Liabilities & Shareholders' Equity    $15,316,260    $13,481,021
                                            Years Ended December 31,
                                      2006             2005            2004
      Net sales                   $13,921,127     $13,785,057    $ 9,221,857
     Cost and Expenses
      Cost of goods sold            9,377,313       9,956,125      6,618,506
     Selling, general and
      administrative expense        3,627,244       3,450,224      2,916,056
     Internal research and
      development expense                   -          20,279         97,685
                                   13,004,557      13,426,628      9,632,247
     Operating profit (loss)          916,570         358,429       (410,390)
     Other income (expense)
      Interest expense, net          (402,154)       (504,509)      (358,940)
      Settlement of insurance
       claim                          300,000               -              -
      Gain on sale of
       precious metals                      -         135,931              -
      Other                           (21,150)         (1,249)            49
                                     (123,304)       (369,827)      (358,891)
     Income (loss) before income
      tax provision (benefit) and
       preferred stock dividends      793,266         (11,398)      (769,281)
     Income tax provision
      (benefit)                        21,000               -        (96,344)
     Net income (loss)                772,266         (11,398)      (672,937)
     Preferred stock dividends       (234,500)       (134,000)      (164,820)
     Net income (loss) applicable
      to common shareholders       $  537,766     $  (145,398)   $  (837,757)
     Net income (loss) per
      share - basic                $     0.07     $     (0.02)   $     (0.15)
     Net income (loss) per share
      - diluted                    $     0.06     $     (0.02)   $     (0.15)
     Weighted average shares
      outstanding - basic           7,572,637       7,218,244      5,710,354
     Weighted average shares
      outstanding - diluted        11,915,090       7,218,244      5,710,354
                                             Years Ended December 31,
                                       2006             2005          2004
     Cash flows from operating
      Net income (loss)          $   772,266      $   (11,398)  $  (672,937)
     Adjustments to reconcile net
      income (loss) to cash
       provided by operating activities:
       and amortization            1,099,003        1,025,074       713,080
      Gain on sale of
       precious metal                      -         (135,931)            -
      401K common stock
       contribution                  150,501           68,780        12,945
      Stock option acceleration
               expense                     -           21,298             -
      Share-based compensation       117,687                -             -
      Change in allowance
       for doubtful accounts               -          (73,000)            -
      Inventory reserve              102,817         (254,526)      372,106
     Changes in assets and liabilities:
      Accounts receivable           (130,552)        (744,939)      (10,756)
      Inventories                    (14,971)         309,720      (486,535)
      Unbilled contract costs              -                -       191,767
      Other current assets           (22,864)         (66,184)      (10,599)
      Other assets                    39,549           28,981        28,133
      Accounts payable and
       accrued liabilities           222,718           81,740       599,590
      Customer advances              335,699          110,546      (105,291)
      Total adjustments            1,899,587          371,659     1,304,440
      Net cash provided by
       operating activities        2,671,853          360,261       631,503
     Cash flows from
      investing activities:
      Capital expenditures          (986,732)        (453,615)   (1,013,569)
     Proceeds from sale of
      precious metals                      -          314,764             -
      Cash used for business
       acquisition, net                    -                -      (732,000)
        Net cash used in
     investing activities           (986,732)        (138,851)   (1,745,569)
     Cash flows from financing
      Net proceeds (uses)
       from issuance of
        common stock                 112,830          (19,492)    1,172,984
      Proceeds from secured
       notes payable                 700,000                -             -
      Proceeds from senior
       convertible debentures              -                -     1,000,000
      Principal payments of
       notes payable                (326,724)        (166,515)     (847,907)
      Principal payments of
       bank debt
      Principal payments of
       capital lease obligations    (249,738)        (272,347)      (99,664)
        Net cash provided by
         (used in) financing
          activities                 236,368         (458,354)    1,225,413
     Net increase (decrease)
      in cash and cash
       equivalents                 1,921,489         (236,944)      111,347
     Cash and cash equivalents
      at beginning of the year     1,156,563        1,393,507     1,282,160
     Cash and cash equivalents
      at end of the year          $3,078,052       $1,156,563    $1,393,507

SOURCE Photonic Products Group, Inc.