FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended Commission File Number
September 30, 1996 0-12716
Novitron International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-2573920
(State of incorporation) (IRS Employer Identification No.)
One Gateway Center, Suite 411, Newton, MA 02158
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (617) 527-9933
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 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 __
The number of shares of common stock outstanding, as of November 8, 1996, is
3,965,940.
Novitron International, Inc. AND SUBSIDIARIES
FORM 10-Q
Index
Page
Part I: FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
Unaudited consolidated balance sheets at
September 30, 1996 and March 31, 1996 3
Unaudited consolidated statements of operations
for the three and six months ended
September 30, 1996 and 1995 5
Unaudited consolidated statements of
stockholders' investment for the years ended
March 31, 1996 and 1995 and the six months
ended September 30, 1996 6
Unaudited consolidated statements of cash flows
for the six months ended September 30, 1996
and 1995 7
Notes to unaudited consolidated financial
statements 9
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Part II: OTHER INFORMATION 15
SIGNATURE 16
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 1996 March 31, 1996
CURRENT ASSETS:
Cash and cash equivalents $ 2,102,918 $ 1,018,501
Marketable securities 249,153 349,043
Accounts receivable, less
reserves of $130,000 at September 30,
1996 and $119,000 at March 31, 1996,
respectively 2,686,570 4,760,880
Inventories 3,692,543 4,615,179
Prepaid expenses 192,871 186,530
Other current assets 303,423 142,073
Total current assets 9,227,478 11,072,206
EQUIPMENT, at cost:
Manufacturing and computer equipment 2,995,780 2,999,413
Furniture and fixtures 845,734 866,606
Leasehold improvements 252,768 261,565
Vehicles 130,864 109,854
4,225,146 4,237,438
Less- Accumulated depreciation
and amortization 3,446,441 3,387,058
778,705 850,380
OTHER ASSETS, net 335,821 371,380
$ 10,342,004 $ 12,293,966
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' INVESTMENT
September 30, 1996 March 31, 1996
CURRENT LIABILITIES:
Short-term notes payable and
current portion of long-term debt $ 648,394 $ 589,410
Accounts payable 1,926,108 3,068,839
Accrued expenses 1,373,301 1,566,139
Customer advances 212,753 220,115
Accrued income taxes 295,355 350,820
Total current liabilities 4,455,911 5,795,323
LONG-TERM DEBT, net of current portion 57,634 53,563
MINORITY INTEREST 242,508 252,935
COMMITMENTS AND CONTINGENCIES
(Note 4)
STOCKHOLDERS' INVESTMENT:
Preferred stock, $.01 par value,
Authorized--1,000,000 shares
Issued and outstanding--none
Common stock, $.01 par value,
Authorized--6,000,000 shares
Issued--3,965,940 shares at
September 30, and March 31, 1996 39,660 39,660
Capital in excess of par value 4,855,950 4,855,950
Cumulative translation adjustment 658,725 785,223
Retained earnings 31,616 511,312
Total stockholders' investment 5,585,951 6,192,145
$ 10,342,004 $ 12,293,966
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For Three Months For the Six Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
REVENUES $ 2,735,402 $4,291,915 $ 7,390,954 $ 7,841,820
COST OF REVENUES 2,007,058 3,100,444 5,487,049 5,485,764
Gross profit 728,344 1,191,471 1,903,905 2,356,056
OPERATING EXPENSES:
Sales & marketing 271,550 341,626 578,844 634,664
Research & development 418,344 310,934 767,475 646,096
General & administrative 562,547 514,208 1,016,465 1,093,657
1,252,441 1,166,768 2,362,784 2,374,417
Income (loss) from
operations (524,097) 24,703 (458,879) (18,361)
Interest expense 617 (28,198) (27,087) (44,055)
Interest income 12,746 22,338 24,172 39,940
Other income (expense) (96,501) (112,765) (93,232) (81,628)
(607,235) (93,922) (555,026) (104,104)
Provision for (Benefit
from) income taxes (160,922) 2,581 (64,903) 72,846
(446,313) (96,503) (490,123) (176,950)
Minority interest 16,436 2,291 10,427 (3,459)
Net loss $ (429,877) $ (94,212) $ (479,696) $ (180,409)
Net loss per share $ (0.11) $ (0.02) $ (0.12) $ (0.05)
Weighted Average Common
Shares Outstanding 3,965,940 3,965,940 3,965,940 3,965,940
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
Novitron International, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED MARCH 31, 1995, AND 1996
AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
Common Stock Capital in Cumulative Treasury
Number Excess of Translation Stock, Retained
of Shares Par Value Par Value Adjustment at Cost Earnings
BALANCE at March 31, 1994 4,025,039 $ 40,251 $5,113,795 $ (28,595) $(330,550)$2,245,180
Sale of common stock 15,201 152 17,212 - - -
Issuance of common stock in
connection with the
acquisition of additional
interest in NovaChem 11,000 110 56,140 - - -
Retirement of treasury stock (85,000) (850) (329,700) - 330,550 -
Retirement of common stock (300) (3) (1,497) - - -
Translation adjustment - - - 1,097,085 - -
Net loss - - - - - (228,235)
BALANCE at March 31, 1995 3,965,940 39,660 4,855,950 1,068,490 - 2,016,945 -
Translation adjustment - - - (283,267) - -
Net loss - - - - - (1,505,633)
BALANCE at March 31, 1996 3,965,940 39,660 4,855,950 785,223 - 511,312
Translation adjustment - - - (126,498) - -
Net loss - - - - - (479,696)
BALANCE at September 30, 1996 3,965,940 $ 39,660 $4,855,950 $ 658,725 - $ 31,616
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
1996 1995
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (479,696) $ (180,409)
Adjustments to reconcile
net loss to net cash provided
by (used in) operating
activities-
Depreciation and amortization 206,690 294,111
Minority interest (10,427) 3,459
Accounts receivable 1,929,407 (190,467)
Inventories 768,125 (463,834)
Prepaid expenses (12,836) 270,066
Other current assets (168,552) 3,466
Accounts payable (902,348) (1,128,043)
Accrued expenses (141,517) (860,972)
Customer advances 481 (11)
Accrued income taxes (41,253) (89,524)
Net cash provided by
(used in) operating activities $ 1,148,074 $(2,342,158)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Marketable securities $ 99,890 $ (499,416)
Other assets 295 523
Purchases of equipment (162,136) (97,042)
Sales of equipment 24,584 11,580
Other, including foreign
exchange effects on cash (113,344) (757)
Net cash used in
investing activities $ (150,711) $ (585,112)
<FN>
Continues on next page
</FN>
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
(Continued)
1996 1995
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from short-term debt $ 80,999 $ 1,341,134
Proceeds from (payments on)
long-term debt 6,055 (14,528)
Net cash provided by
financing activities $ 87,054 $ 1,326,606
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ 1,084,417 $ (1,600,664)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 1,018,501 2,508,345
CASH AND CASH EQUIVALENTS
AT September 30, 1996 and 1995 $ 2,102,918 $ 907,681
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
Basis of Presentation
The consolidated financial statements included herein were prepared by Novitron
International, Inc. ("the Company") pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information normally included in
footnote disclosures in financial statements prepared in accordance with
generally accepted accounting principles was condensed or omitted pursuant to
such rules and regulations. In management's opinion, the consolidated financial
statements and footnotes reflect all adjustments necessary to disclose
adequately the Company's financial position at September 30, 1996 and September
30, 1995. Management suggests these condensed consolidated financial statements
be read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996.
(1)Operations and Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries: Clinical Data BV, Clinical Data (Australia), Pty. Ltd.,
NovaChem BV, Spectronetics NV, and Vital Scientific NV (94% owned subsidiary).
All significant intercompany accounts and transactions have been eliminated in
consolidation.
(b) Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates market, and
consist of cash and marketable financial instruments with original maturities of
90 days or less. Cash and cash equivalents consist of the following at September
30, and March 31, 1996.
September 30, 1996 March 31, 1996
Cash and money market investments $2,099,238 $ 914,874
Certificate of deposit - 100,000
Time deposits 3,680 3,627
$2,102,918 $1,018,501
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(continued)
(c) Marketable Securities
The Company accounts for marketable securities under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). Under SFAS No. 115, marketable securities
which the Company has the ability and positive intent to hold to maturity are
recorded at amortized cost and classified as "held to maturity" securities. For
the periods ending September 30, and March 31, 1996, marketable securities
consisted of United States Treasury securities and were stated at cost, which
approximated market value.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market,
include material, labor and manufacturing overhead, and consist of the following
at September 30, and March 31, 1996:
September 30, 1996 March 31, 1996
Raw materials $ 730,359 $ 686,723
Work-in-process 2,018,170 2,536,392
Finished goods 944,014 1,392,064
$3,692,543 $4,615,179
(e) Revenue Recognition
The Company recognizes revenue from the sale of products and supplies at the
time of shipment.
(f) Net Loss per Share
Net loss per share for the three and six month periods ended September 30, 1996
and 1995 is based on the weighted average number of common shares outstanding
during the respective fiscal period.
(g) Financial Instruments
The estimated fair value of the Company's financial instruments, which include
cash equivalents, marketable securities, accounts receivable and long-term debt,
approximates their carrying value.
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(continued)
(h) Foreign Currency Translation
The Company accounts for foreign currency transaction and translation gains and
losses in accordance with SFAS No. 52, "Foreign Currency Translation." The
functional currency of the Company's foreign subsidiaries is the Dutch Guilder.
The translation adjustment required to report these subsidiaries' financial
statements in U.S. dollars is credited or charged to cumulative translation
adjustment, included as a separate component of stockholders' investment in the
accompanying consolidated balance sheets. Gains and losses resulting from
translating asset and liability accounts which are denominated in currencies
other than the functional currency are included in other income. Foreign
currency transaction gains and losses are included in other income in the
consolidated statements of operations.
(i) Depreciation and Amortization of Equipment and Intangibles
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," ("SFAS No. 121"), effective April 1, 1995. SFAS No. 121
requires the Company to continually evaluate whether events and circumstances
have occurred that indicate that the estimated remaining useful life of long-
lived assets and such intangibles as goodwill may warrant revision or that the
carrying value of those assets may be impaired. To compute whether assets have
been impaired, the estimated gross cash flows for the estimated remaining useful
life of the asset are compared to the carrying value. To the extent that the
gross cash flows are less than the carrying value, the assets are written down
to the estimated fair value of the of the asset. At March 31, 1996, the
Company's remaining goodwill relates to its investment in Vital Scientific, NV.
(j) Concentration of Credit Risk
Statement of Financial Accounting Standards No. 105, "Disclosure of Information
about Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentrations of Credit Risk," requires disclosure of any
significant off-balance sheet and credit risk concentrations. The Company has no
significant off-balance sheet credit risk such as foreign exchange contracts,
option contracts or other foreign hedging arrangements. The Company maintains
the majority of its cash balances with financial institutions.
Item 2.Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Second Quarter ended September 30, 1996 compared to the Second Quarter ended
September 30, 1995
Revenues decreased for the three and six month periods ended September 30, 1996
by 36.3% and 5.8%, respectively, from the same periods the year before. The
decrease for the three month period is primarily due to the default of a major
customer, E. Merck, in contractual purchasing obligations. For the six month
period ending September 30, 1996, the decrease in sales is principally due to a
6.8% weakening of the Dutch Guilder (the Company's functional currency) against
the United States Dollar.
The decrease in the gross margin between years from 30.0% at September 30, 1995
to 25.8% at September 30, 1996 is due to the continuing pricing pressure at
Vital Scientific coupled with a change in the product mix.
Sales and marketing expenses have decreased 20.5% and 8.8% for the three month
and six month periods, respectively. This reduction is primarily attributable to
decreased sales to the People's Republic of China by Clinical Data (Australia)
during the most recent quarter.
Research and development expenses increased 34.5% using a quarterly comparative
and 18.8% using the semi-annual comparative figures. New development projects at
Vital Scientific and NovaChem account for the increase in expenditures.
General and administrative expenses increased 9.4% for the three months ended
September 30, 1996 as compared to the same period last year and have decreased
7.0% between the respective six month periods. The quarterly increase is
primarily attributable to one-time charges at Vital Scientific related to ISO-
9000 certification. The 6.8% weakening of the Dutch Guilder against the United
States Dollar is the major reason for the decrease in the six month
comparatives.
Interest expense decreased for the period and year-to-date as compared to the
same periods last year reflecting a decrease in the use of borrowed funds.
Interest income also decreased for the aforementioned periods because there are
fewer funds available for investing. Other income and expense consists primarily
of the effect of foreign currency transaction gains and losses on the results of
operations.
For the quarters ended September 30, 1996 and 1995, minority interest is
attributable to the six percent (6%) of Vital Scientific NV not held by the
Company.
Financial Condition and Liquidity
The increase in working capital since the Company's fiscal year ended March 31,
1996 was primarily accounted for by (i) a decrease in accounts receivable, (ii)
a decrease in inventory, (iii) a decrease in marketable securities and (iv) an
increase in the use of short-term debt. This was offset by (i) a decrease in
accounts payable, (ii) a decrease in other current assets and (iii) a decrease
in accrued liabilities.
The Company believes that its available funds will continue to provide for
working capital requirements. Approximately $0.4 million of the $2.4 million of
cash and cash equivalents and marketable securities is denominated in U.S.
Dollars. The effect of translation into U.S. Dollars is reflected as a separate
component of stockholders' investment in the balance sheet. The cumulative
translation exchange adjustment in stockholders' investment is $658,725 at
September 30, 1996 and $785,223 at March 31, 1996. Any impact on the Company's
liquidity is largely dependent on the exchange rates in effect at the time the
functional currency (Dutch Guilder) is translated to U.S. Dollars. The effects
of currency exchange rates on future quarterly or fiscal periods on the results
of operations and liquidity are difficult to estimate.
In light of the continued losses that the Company has reported, a bank, which
provides secured overdraft protection under an agreement with the Company's
subsidiary, has notified the Company that it is withdrawing, for the time being,
the overdraft facility, even though as of September 30, 1996, to the best of the
Company's knowledge, the Company was not in default of the capital covenants
required under the agreement. At September 30, 1996, on a consolidated basis,
the credit line was not utilized due to offsetting balances between the
Company's subsidiaries, although the use of this available credit has been
reflected in the Company's financial statements. It is the Company's impression
that the bank wishes to continue its current relationship with the Company and
to offer secured accounts receivable financing. Although the current secured
credit line provides a maximum of 5.0 million Dutch Guilders, the Company
expects that a new limit might be negotiated in the range of 1.5 to 2.0 million
Dutch Guilders. The Company intends to actively pursue discussions in the
upcoming weeks with the bank, but, at this time, no assurances can be made that
a new bank agreement will be effected.
There are no formal hedging procedures employed by the Company. The primary risk
is to monetary assets and liabilities denominated in currencies other than the
U.S. Dollar. Approximately $9.0 million of the $9.3 million of current assets
reside in the Company's foreign subsidiaries.
Part II. OTHER INFORMATION
Items 1-3.
None
Item 4. Submission of Matters to a Vote of Security Holders:
At the Annual Meeting for the fiscal year ended March 31, 1996, held on
September 10, 1996, the following matters were submitted to a vote of the
security holders:
(a) Directors elected as follows:
Israel M. Stein
Gordon B. Baty
Arthur B. Malman
(b) Matters voted on as follows:
Election of directors:
3,771,432 voted for
35,175 withheld authority to vote
Ratification of auditors:
3,771,432 voted for
24,000 voted against
8,375 abstained
Item 5. Other Information:
The Company has retained German counsel to advise the Company on certain
defaults in a series of agreements between our Dutch subsidiary and its major
customer, E. Merck. The Company believes that as a result of such defaults, the
damages to the Company are considerable and intends to pursue all available
remedies advised by counsel. The Company trusts, however, that the outstanding
issues may be settled amicably between the parties.
At a Board of Directors meeting held on November 12, 1996, the Board elected to
effect a 1 for 3 reverse split of the Common Stock of the Company with a record
date of November 25, 1996 and a distribution date of December 4, 1996. No
fractional shares of Common Stock shall be distributed in connection with such
reverse stock split and the number of new shares of Common Stock distributed to
each stockholder of record pursuant to such reverse stock split shall, in each
case, be rounded up from whatever fractional share to the nearest whole number
of shares of Common Stock. No new certificates will be issued unless requested.
Item 6.
None
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Novitron International, Inc.
(Registrant)
Israel M. Stein MD
Date: November 13, 1996 Israel M. Stein MD
President