FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended March 31, 1997
( ) 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: 0-12716
Novitron International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-2573920
(State of incorporation) (IRS Employer ID Number)
One Gateway Center, Suite 411, Newton, Massachusetts 02158
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 527-9933
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
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 requirement for the past 90 days. Yes x No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting Common Stock held by non-
affiliates of the registrant was approximately $3,640,000 based on the
average price of the Common Stock as reported by NASDAQ on June 24, 1997.
As of June 24, 1997, there were 1,323,480 shares of the Registrant's Common
Stock issued and outstanding.
Documents Incorporated by Reference: Portions of the Company's Proxy
Statement for its 1997 Annual Meeting into Part III of Form 10-K.
Novitron International, Inc.
ANNUAL REPORT ON FORM 10-K
For the Year Ended March 31, 1997
Table of Contents
Page
PART I
Item 1 Business 1
Item 2 Properties 9
Item 3 Legal Proceedings 10
Item 4 Submission of Matters to a Vote of Security Holders 10
PART II
Item 5 Market Price for Registrant's Common Equity and
Related Stockholder Matters 11
Item 6 Selected Financial Data 12
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8 Financial Statements and Supplementary Data 17
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 17
PART III
Item 10 Directors and Executive Officers of the Registrant 18
Item 11 Executive Compensation 18
Item 12 Security Ownership of Certain Beneficial Owners
and Management 18
Item 13 Certain Relationships and Related Transactions 18
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 19
Signatures 20
PART I
Item 1. Business
Novitron International, Inc. (the "Company") is a multinational
corporation focusing operations on the development of scientific
instrumentation used in medical and analytical laboratories and in process
monitoring in industry. The Company's Dutch subsidiary, Vital Scientific NV
("Vital Scientific"), designs and manufactures scientific and clinical
laboratory instrumentation marketed worldwide through distributors and
strategic partnerships. The Company's Dutch subsidiary, NovaChem BV
("NovaChem"), develops and markets process monitoring spectrophotometers
with applications in petrochemical and pharmaceutical production and in
environmental monitoring. The Company's subsidiary, Clinical Data
(Australia) Pty. Ltd. ("Clinical Data Australia"), distributes diagnostic
instruments and assays in the South Pacific and Southeast Asia.
Company History
Novitron International, Inc. was established in 1972 as Clinical Data,
Inc. to develop and market ambulatory electrocardiographic ("ECG")
monitoring technology. In 1983, through a series of acquisitions, the
Company grew to over $14 million in revenue. As the Company believed that
future growth was limited, these businesses were sold or discontinued in
1990 and 1991.
In 1984, the Company acquired a thirty-three percent (33%) equity
interest in Vital Scientific. From 1985 to 1991, the Company increased its
equity position in Vital Scientific to the present ninety-four percent
(94%).
In June 1992, the Company invested in NovaChem BV, a Dutch company
formed to develop and market spectrophotometric process monitoring
technology. In March 1995, NovaChem BV became a wholly owned subsidiary of
the Company.
In April 1994, to better reflect the Company's diversification into
industrial process and environmental monitoring technology, the Company's
name was changed from Clinical Data, Inc. to Novitron International, Inc.
VITAL SCIENTIFIC NV
Vital Scientific, established in 1956 and headquartered in
Spankeren/Dieren, The Netherlands, is the nucleus of the Company's
operations. Vital Scientific designs, develops, manufactures, and
distributes scientific instrumentation for medical and industrial
applications. The subsidiary's principal products, marketed under the
"Vitalab" tradename, are automated and semi-automated clinical chemistry
analyzers used in medical laboratories.
Vital Scientific maintains a research and development group of
fourteen professionals augmented by contract personnel and the TNO Product
Centre, the Netherlands organization for applied scientific research. The
Company has in-house expertise in the disciplines of mechanical and
electronic engineering and software system design and programming. Its
machining and electronic assembly operations are CNC based and highly
automated. Vital Scientific manufactures precision metal and plastic
mechanical components to the high tolerances required in optical and
electromechanical instrumentation.
In January 1996, Vital Scientific signed an agreement with Hycor
Biomedical, Inc. of Irvine, California for the design and manufacture of an
automated instrument tailored for use with Hycor's allergy and autoimmune
diagnostic assays. The agreement, which covers a four-year period, calls
for the exclusive worldwide distribution of the instrument by Hycor
Biomedical. The collaboration with Hycor Biomedical offers the opportunity
to diversify Vital Scientific's instrumentation knowledge base into new
diagnostic fields. The first unit was exhibited at the Medica in Dusseldorf
Germany in November of 1996.
During fiscal 1996, Vital Scientific obtained ISO 9002 certification
and is expecting ISO 9001 approval in the coming year.
Marketing and Distribution
During the past fiscal year, E. Merck continued to represent the
primary distribution channel for instruments designed and manufactured by
Vital Scientific. Sales to E. Merck represented approximately seventy-five
percent (75%) and eighty-four percent (84%) of the Company's revenues
during fiscal 1997 and 1996, respectively.
Vital Scientific sales to E. Merck and its agencies are continuing,
but are lower than specified in contractual agreements between the two
companies. The Company has retained German and U.S. counsel to advise the
Company on certain defaults in these agreements. The Company believes that,
as a result of such defaults, the damages to the Company are considerable.
The Company is presently in negotiation with this customer and is hoping to
settle amicably all outstanding issues.
Vital Scientific also maintains a dealer network for marketing certain
of the subsidiary's products in Europe, the Far East, China and Russia.
Vital Scientific has made significant progress during the past year in
enhancing this distribution channel. In addition to the new Hycor
Biomedical relationship noted above, the Company is actively seeking other
strategic alliances for the distribution of its products.
Product Development
During fiscal 1997, 1996, and 1995, the Company spent approximately
$1,698,000, $1,110,000, and $1,217,000, respectively, on research and
development at Vital Scientific.
Seven new models of clinical laboratory analyzers have been developed
in the past eight (8) years; the MicroLab 200, the Vitalab Eclipse, the
Vitalab Eclipse Plus, the Vitalab Eclair, the Vitalab Selectra, the Vitalab
Selectra II and the HYTEC 228. The top-of-the-line Vitalab Selectra II is a
patient selective, high throughput clinical chemistry analyzer, capable of
a wide range of routine, immunologic and esoteric testing. The instrument,
designed for use with reagent diagnostics from different sources, targets
the hospital and alternative care markets. Vital Scientific believes that
the unique robotic features, the user-friendly interface and the wide range
of applicable reagents for the Vitalab Selectra II provide its target
market with state-of-the-art affordable "walk-away" testing capability.
The new HYTEC-288 is the latest addition to the product range. The
HYTEC-288 is a fully automated EIA immuno-assay system designed for allergy
and autoimmune disease testing. This "walk-away" instrument permits the
processing of fifty (50) patient samples and two hundred and eighty-eight
(288) test results in a single run.
Research and development efforts at Vital Scientific are expected to
be maintained at a constant level during fiscal 1998. The Company intends
to develop new products and/or services where the Company perceives a
demand and believes the product or service may be effectively marketed.
There is no assurance that any developments or enhancements will be
successfully completed or that, if developed, any of the products will be
successfully marketed.
Competition
In developing instruments for dual-label and private label sales by
third parties, and in marketing directly to distributors, the Company
competes with numerous other companies to establish relationships in Europe
and the United States. These include the Kollsman division of the Sequa
Corporation, Wilj International and many other smaller European and
American companies. The Company believes that it competes on its
capabilities, the quality of its products, and its ability to produce in a
timely fashion.
In the sale of clinical chemistry analyzers, the Company experiences
intense competition in the marketplace. Worldwide there are over fifteen
companies, many of which have substantially greater resources than Vital
Scientific. The Company competes on the basis of specialized features of
its technology, added value, simplicity of operation, high performance-to-
cost ratio, compatibility of instruments with reagents of various
manufacturers, and strategic marketing alliances.
CLINICAL DATA (AUSTRALIA) PTY. LTD.
Clinical Data Australia was formed in July 1992 to distribute
diagnostic products in Australia, New Zealand, and the South Pacific.
Clinical Data Australia also oversees Vital Scientific instrument sales to
the People's Republic of China through a Hong Kong affiliate of the
Company, Linkyears International Ltd.
Clinical Data Australia also provides the Company with strategic
access to the diagnostics market. Australian medicine provides an ideal
blend of the characteristics found in Europe and the United States, and the
Company was fortunate to have a capable marketing individual on-site. The
Company's competitors also use Australia as a "test market" for new
products.
To support these strategic marketing activities, the Company
recognized the opportunity to establish a diagnostics distribution business
that was ideally positioned to represent smaller European and U.S.
companies.
Clinical Data Australia currently represents the following companies
in Australia:
Hycor Biomedical - Urinalysis systems and consumables
E. Merck - Clinical chemistry reagents
Heinrich Amelung GmbH - Coagulation analyzers
Nycomed Pharma - QC sera and Cell biology products
R&R Mechatronics - ESR analyzers
Vital Scientific - Clinical chemistry analyzers
Medical Specialties International - Hematology controls
Sigma Diagnosticsr - Wide range of diagnostics
The Hycor Biomedical line was launched in 1995 and has proven to be
very successful. The product is the leading urinalysis system in Australia
with a market share of approximately 65%.
Beginning in January 1996, Clinical Data Australia has been appointed
the exclusive distributor in Australia for Sigma Diagnosticsr. This company
had operated as a catalogue based supplier with a number of non-exclusive
distributors.
Sales to Linkyears International Ltd. destined for the People's
Republic of China represented approximately six percent (6%) and seven
percent (7%) of the Company's revenues during fiscal 1997 and 1996,
respectively.
NOVACHEM BV
NovaChem was established in August 1992 to develop and market on-line,
real-time, spectrophotometric industrial process monitors. Located in
Spankeren/Dieren, The Netherlands, NovaChem has developed a series of
applications for the use of diode-array spectroscopy which include the
monitoring of Claus Plant sulfur recovery; chlorine production; and the
measurement of sulfur dioxide, oxides of nitrogen, and ammonia in stack
emissions. The technology has also been proven effective in controlling
ethylene glycol manufacture, refining cobalt, and monitoring the clean-in-
place process in the production of pharmaceuticals.
In January 1996, NovaChem introduced the Mark II - IPM Process
Analyzer, a new generation of industrial process monitors. Designed and
developed by NovaChem, the Mark II - IPM represents a major step forward in
the advancement of state-of-the-art solid state, fiber-optic, diode-array
technology specifically designed for process control applications.
The IPM Mark II provides major advancements in spectroscopic hardware,
user interface, and chemometric software as compared to conventional
systems. In addition, the new Mark II - IPM Process Analyzer complies with
all requirements necessary to obtain the CE marking. This new generation of
diode-array process analyzers expands the company's proprietary technology
base.
NovaChem's products are production engineered and manufactured by
Vital Scientific.
Marketing and Distribution
The market for process monitoring instrumentation has evolved from a
demand for on-line, real-time analytical techniques similar to those
employed in the industrial laboratory. The market, international in scope,
is driven by solving specific processing application problems. The market
is characterized by many small niches with specialized vendors. Success
factors in this market include an in-depth knowledge of end-user
processing, active product development, international market targeting, a
reputation for stability and service, and strategic planning.
NovaChem's technology is marketed in North America, Europe, South
America and Asia, through established dealers and manufacturer's
representatives representing the process monitoring industry.
In January 1997, NovaChem signed a series of agreements with Houston
Atlas, Inc. for development and exclusive distribution of certain
petrochemical and refining applications of the NovaChem proprietary diode-
array process monitoring technology. Houston Atlas of Dallas, Texas, is a
subsidiary of Thermo Instrument Systems, Inc. a leader in the field of
process monitoring in the hydrocarbon industry, which includes refining,
petrochemical and natural gas processing and transport.
Product Development
During fiscal 1997 and 1996, NovaChem spent approximately $124,000 and
$144,000, respectively, on research and development. Resources were also
used for the development of related sampling systems necessary for the
coupling of the diode-array monitor to the process line.
Competition
In developing and marketing instruments for process monitoring,
NovaChem competes with many companies in Europe and the United States.
These include Ametek, Applied Systems, Western Research, and numerous
others. The Company believes that it competes on the basis of specialized
features of its technology, simplicity of operation, high performance-to-
cost ratio, and quality of its products. The above notwithstanding, many of
its competitors have greater financial and marketing resources than
NovaChem.
OTHER BUSINESS MATTERS
Government Regulation
Where necessary, the Company has obtained government approval to
market its products and may have to obtain prior approval of certain
European regulatory bodies or the Food and Drug Administration ("FDA") to
market products which it may develop. Domestically, certain of the
Company's products are classified as medical devices under the Federal
Food, Drug and Cosmetics Act. As such, if and when these products are
offered for sale in the United States, these products are subject to
regulation by the FDA. The cost of obtaining such approvals may be high and
the process lengthy, with no assurance that such approvals will be
obtained.
To date, neither the FDA nor the European medical regulatory bodies
have developed industry-wide performance standards with respect to the
safety and effectiveness of the products presently marketed by the Company.
Although the Company intends to use reasonable efforts to comply with
international standards, when and if developed, there can be no assurance
that all the Company's products will so comply. Any failure to receive
approvals for the Company's future products, or noncompliance with any
international performance standards promulgated in the future, could have a
material adverse effect on the Company. Furthermore, any material change in
the existing rules and regulations or any new regulations developed might
adversely affect the Company.
The Company's subsidiaries comply with European CE regulations and
Vital Scientific is ISO 9002 approved.
The instruments developed by NovaChem for the environmental market may
now or in the future require certification by governmental authorities. Any
failure to receive approvals for such products could have a material
adverse effect on this investment.
Patents
The Company or its subsidiaries either own or have applied for patents
and trademarks on certain of their products. However, the Company does not
believe that its business as a whole is or will be materially dependent
upon the protection afforded by such patents or trademarks, and a
substantial majority of the Company's revenues are attributable to products
without patent protection.
Warranty and Product Liability
After an in-depth evaluation of the potential liabilities from the
sales of instrumentation and the high premium costs related thereto, the
Company decided to self-insure. The Company believes that the potential
risk from international instrumentation sales is low in view of its past
loss experience and the Company's belief that there are no present material
claims from existing operations.
Warranty expenses during fiscal 1997 were approximately one percent
(1.0%) of product revenue versus one and one-half percent (1.5%) for fiscal
1996.
Production and Availability of Raw Materials
The Company's manufacturing operations require a variety of purchased
components. The Company purchases these components in sufficient quantities
to take advantage of price discounts and currently has an adequate
inventory. Most of the components are available from multiple sources and
the Company anticipates that they will continue to be readily available.
Certain components and supplies are available from single sources only. If
such suppliers should fail in deliveries, delays in production could
result. However, these components and supplies are generally not
manufactured to the Company's specifications, but are produced for other
applications, and the Company believes that they will continue to be
available in the foreseeable future. In addition, the Company, where
appropriate, has placed scheduled blanket purchase orders, has placed a
sufficient number of such components in inventory, or has provided vendors
with greater lead time for filling orders for such components.
Backlog
At the close of the fiscal year ended March 31, 1997, the Company had
a backlog of approximately $1,478,000 as compared to $783,000 in 1996. It
is anticipated that all of the existing backlog will be filled by shipments
during fiscal 1998. Deliveries are now being made within 30 days after the
receipt of an order.
Seasonality
The Company does not believe that its business has any significant
seasonal factors.
Employees
The Company had one hundred and nine (109) full, part-time, and
contract employees as of March 31, 1997. One hundred (100) of these
employees are employed by Vital Scientific, two (2) at NovaChem, five (5)
at Clinical Data Australia, and two (2) are employed by Novitron
International, Inc.
Environmental matters
The Company does not believe that compliance with Federal, State or
Local regulations relating to the protection of the environment have any
material effect on the Company's financial or competitive position.
Significant Customers
The loss of the Company's major customer would have a significant
material adverse impact on the Company.
Industry Segments
The information required by this section is specified in Note 13 in
the accompanying notes to consolidated financial statements.
Executive Officers of the Registrant
Subject to the discretion of the Board of Directors, officers serve
for a one (1) year term expiring with the meeting of the Board of Directors
following the next Annual Meeting of Stockholders and until their
respective successors are elected and qualified.
Israel M. Stein, M.D., 54, has served as Chairman of the Board since
1972 and as President from 1972 until February 1988, and again since
February 1989. Dr. Stein is a graduate of the Albert Einstein College of
Medicine, a member of Alpha Omega Alpha, and is a Salk Scholar of the City
University of New York. Before joining the Company, Dr. Stein served as
Senior Assistant Surgeon at the National Institutes of Health and as a
resident at Harvard Medical School.
Adrian Tennyenhuis, 46, Senior Vice President of the Company is
currently also the Managing Director of Clinical Data (Australia) Pty. Ltd.
Mr. Tennyenhuis was formerly the Managing Director of Vital Scientific NV
from 1989 to 1991. Before joining the Company, he held increasingly senior
sales and marketing positions with Behring Diagnostics.
Emile Hugen, 52, has been the Managing Director of Vital Scientific NV
since October 1991. With over 25 years of increasing management
responsibility in manufacturing and operations at Vital Scientific, Mr.
Hugen is an experienced operating officer of the Company.
Item 2. Properties
The Company leases approximately 1,000 square feet of office space in
Newton under a lease expiring in December, 2000.
Vital Scientific leases approximately 35,000 square feet in Dieren,
The Netherlands. The facility was designed specifically for the Company's
needs, but was financed entirely by an unrelated third party. The facility
is leased until the year 2008 with renewal and expansion options.
NovaChem occupies approximately 1,000 square feet of office space in
Newton and a small office in Dieren, The Netherlands under a series of
short term leases.
Clinical Data Australia occupies approximately 2,000 square feet of
office and warehousing space in Castle Hill, New South Wales under a lease
expiring in January 2000.
The Company believes its current facilities are adequate for its
planned needs in the near future.
Item 3. Legal Proceedings
The Company has retained German and U.S. counsel to advise the Company
on certain defaults in a series of agreements between our Dutch subsidiary,
Vital Scientific NV, and its major customer, E. Merck. The Company believes
that its claims are meritorious and that, as a result of such defaults, the
damages to the Company are considerable. The Company is presently in
negotiation with this customer to settle amicably all outstanding issues.
There can be no assurances, however, that such discussions will result in a
solution favorable to the Company. The Company, therefore, intends to
pursue all available remedies advised by counsel.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters
a) Market information: The Company's Common Stock trades on the NASDAQ
Stock Market under the symbol NOVI. The following table sets forth the
range of high and low sale prices per share of Common Stock for each
quarter in fiscal 1997 and 1996 as reported by the NASDAQ Stock Market.
Prices
Fiscal Year Ended March 31, 19971 High Low
First Quarter $ 9.75 $ 4.69
Second Quarter $ 6.00 $ 2.63
Third Quarter $ 4.13 $ 1.69
Fourth Quarter $ 4.75 $ 2.63
Fiscal Year Ended March 31, 19961 High Low
First Quarter $17.25 $13.50
Second Quarter $17.25 $13.13
Third Quarter $15.75 $ 8.63
Fourth Quarter $12.00 $ 7.50
<FN>
1 The prices are restated for the effects of a 1 for 3 reverse stock
split on December 4, 1996.
</FN>
b) The approximate number of holders of record and beneficial owners of
the Company's Common Stock at March 31, 1997 and March 31, 1996 were 299
and 1,300, and 299 and 1,300, respectively .
c) The Company presently intends to reinvest earnings, if any, for use in
its business and therefore does not expect to pay any cash dividends in the
foreseeable future.
Item 6. Selected Financial Data
The following table summarizes certain selected consolidated data and
should be read in conjunction with the consolidated financial statements
and related notes appearing elsewhere in this Form 10-K. No cash dividends
have been declared during the periods presented below.
Fiscal Year Ended March 31
(In thousands, except per share amounts)
1997 1996 1995 1994 1993
Income Statement Data
Revenues $ 13,845 $ 17,908 $ 16,818 $ 11,920 $ 15,406
Gross profit $ 3,713 $ 5,002 $ 5,220 $ 3,602 $ 6,342
Net income (loss) $ (583) $ (1,506) $ (228) $ (1,121) $ 1,344
Net income (loss) per share $ (.44) $ (1.14) $ (.17) $ (.85) $ 1.02
Weighted average common
shares outstanding 1,323 1,323 1,327 1,322 1,316
<FN>
a Per share amounts have been retroactively adjusted to reflect the 1:3
reverse stock split on December 4, 1996.
</FN>
Balance Sheet Data
Working Capital $ 4,120 $ 5,277 $ 7,334 $ 3,214 $ 6,552
Total Assets $ 9,277 $ 12,294 $ 15,075 $ 12,354 $ 14,490
Long-Term Debt Obligations $ 41 $ 54 $ 98 $ 104 $ 129
Stockholders' Investment $ 5,100 $ 6,192 $ 7,981 $ 7,040 $ 8,551
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company generated approximately $1,854,000 of cash from operations
during the fiscal year ended March 31, 1997. The increase in funds
generated comes from the collection of accounts receivable and a reduction
in inventory levels offset by a decrease in accounts payable and accrued
expenses. During fiscal year 1997, approximately $705,000 of cash was used
by the Company in investing activities, mostly in capitalized software
development costs and the purchase of equipment. Financing activities were
immaterial during the year ended March 31, 1997. The Company's sources of
cash include cash balances and a 2,000,000 Dutch Guilder standby line of
credit from a Dutch bank. The Company believes that available funds will
provide it with sufficient working capital through fiscal year 1998.
In an effort to expand and diversify the Company's business, the
Company continues to search for potential acquisitions. The Company
currently does not have any understandings with respect to any such
opportunities and there can be no assurances that any potential situations,
if identified, will be consummated.
Results of Operations
Fiscal Year ended March 31, 1997 compared to Fiscal Year ended March 31,
1996
Consolidated revenues for fiscal year 1997 were $13,845,000 versus
$17,908,000 for fiscal year 1996, a decrease of approximately twenty-three
percent (23%). The decline is principally due to the default of a major
customer, E. Merck, on a series of agreements coupled with an eight percent
(8%) strengthening of the Company's primary functional currency, the Dutch
Guilder, against the U.S. dollar.
The gross margin decreased from 28% for fiscal year 1996 to 27% for
fiscal year 1997 primarily because of a reduced absorption rate of
manufacturing overhead expenses. In addition, there was continued pricing
pressure from a competitive market at Vital Scientific.
Sales and marketing expenses decreased by $220,000, or sixteen percent
(16%) from fiscal year 1996. A reduction in expenditures was responsible
for eight percent (8%) of the decline while the strengthening of the Dutch
Guilder contributed to the remainder of the decreased expenses between
years. The reduction in expense resulted principally from decreased
commissions on export sales at Clinical Data (Australia) and a decrease in
the sales expenses at NovaChem BV.
Research and development charges, as shown on the income statement,
increased $25,000 or two percent (2%) from fiscal year 1996. During fiscal
year 1997, the Company also spent an additional $502,000 which were
capitalized on the consolidated balance sheet pursuant to the precepts of
Statement of Financial Standards No. 86 (see Note 1(n) in the Notes to the
Consolidated Financial Statements).
General and administrative expenses decreased $336,700 or
approximately fifteen percent (15%) from the similar period in fiscal year
1996. The reduction was the result of ongoing cost containment procedures
implemented by the Company including decreased use of outside legal expense
coupled with the eight percent (8%) strengthening of the Dutch Guilder
against the U.S. Dollar.
Interest expense decreased for the annual period comparatives because
of less reliance on the line of credit than in the prior year.
Correspondingly, interest income declined as well because there were fewer
funds available for investment. Other income and expense was basically the
effect of foreign currency transaction gains and losses on the results of
operations.
For fiscal 1997 and 1996, minority interest is attributable to the six
percent (6%) of Vital Scientific not held by the Company.
The effect of foreign currency transaction exchange on the results of
operations is included in other income (expense) and is not material to the
financial statements. (Please refer to Note 10 in the Notes to the
Consolidated Financial Statements.) Any impact on the Company's liquidity
is largely dependent on the exchange rates in effect at the time the
predominant foreign functional currency, Dutch Guilders, is translated into
U.S. Dollars. Approximately $354,000 of the March 31, 1997 balance of
$1,734,000 of cash, 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 approximately two percent (2%) of total assets
on the March 31, 1997 consolidated balance sheet. The effects of currency
exchange rates on future quarterly or fiscal periods on the results of
operations are difficult to estimate.
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 $7.0 million of $7.2
million of current assets reside in the Company's foreign subsidiaries.
Fiscal Year ended March 31, 1996 compared to Fiscal Year ended March 31,
1995
Consolidated revenues for fiscal year 1996 of $17,908,000 have
increased six and one half percent (6.5%) from the fiscal year 1995
revenues of $16,818,000. The increase in revenues is primarily due to the
eight and one-half percent (8.5%) strengthening of the Company's functional
currency, the Dutch Guilder, against the dollar. Revenues improved at Vital
Scientific and Clinical Data Australia from increased sales volumes to E.
Merck and to the People's Republic of China, respectively, but were offset
by reduced sales volume of NovaChem technology. The Company did not derive
any substantial sales revenue from price increases.
The gross margin decreased from 31% for fiscal year 1996 to 28% for
fiscal year 1995 principally as a result of competitive pressure impacting
the selling price of certain Vital Scientific instruments.
Sales and marketing expenses increased $274,000, or 25% from fiscal
year 1995. The increases are predominantly located at Clinical Data
Australia which had increased sales commissions due on larger sales and at
Vital Scientific which had increased warranty expenses as compared to the
prior year. Costs also increased because of the Dutch Guilder's
strengthening against the dollar.
Research and development charges declined by $208,000 or 14% when
compared to the prior year. This reduction was primarily because Vital
Scientific entered into a collaborative research agreement with Hycor
Biomedical, who is absorbing certain research and development expenses
associated with the development work performed on the above mentioned
projects (see Part I, page 2), combined with the timing of certain
projects.
General and administrative expenses also declined from last year. The
decrease of $420,000 or 15.5% was a result of cost containment implemented
by the Company as well as a decreased use of outside consultants.
The write-down of certain assets relating to NovaChem BV reflects the
Company's judgment that the carrying value of goodwill recorded in
connection with its investment in NovaChem BV was impaired at March 31,
1996 due in part to the fact that the technology acquired with this
purchase became technologically obsolete with the introduction of the Mark
II - IPM Process Analyzer. In addition, the Company wrote off inventory
which incorporated technology that was acquired in this investment.
Interest income decreased and interest expense increased when compared
to fiscal year 1995. The Company had fewer funds for investment and
borrowed funds under its line of credit.
For fiscal 1996 and 1995, minority interest is attributable to the six
percent (6%) of Vital Scientific not held by the Company. Although the
Company owned only 52% of NovaChem as of April 1, 1994, the minority
interests were unable to fund their share of losses so, in accordance with
APB No. 18 and Accounting Research Bulletin No. 51, the Company was
required to recognize all of the losses of NovaChem during fiscal year
1996. As of March 31, 1995, NovaChem became a wholly-owned subsidiary of
the Company.
The effect of foreign currency transaction exchange on the results of
operations is included in other income (expense) and is not material to the
financial statements. (Please refer to Note 10 in the Notes to the
Consolidated Financial Statements.) Any impact on the Company's liquidity
is largely dependent on the exchange rates in effect at the time the
functional currency, Dutch Guilders, is translated into U.S. Dollars.
Approximately $871,000 of the $1,019,000 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 six and one-half
percent (6.5%) of the total assets as reflected on the balance sheet. The
effects of currency exchange rates on future quarterly or fiscal periods on
the results of operations are difficult to estimate.
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 $10.3 million of the
$11.1 million of current assets reside in the Company's foreign
subsidiaries.
Item 8. Financial Statements and Supplementary Data
See Index to the Company's Financial Statements filed as part of this
Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is contained in part under the
caption "Executive Officers of the Registrant" in Part I hereof and the
remainder is incorporated herein by reference to the table appearing under
the caption "Election of Directors" in the Company's definitive 1997 Proxy
Statement for its Annual Meeting of Stockholders to be held on September
15, 1997.
Item 11. Executive Compensation
The information required by this item is incorporated herein by
reference to the section entitled "Compensation of Executive Officers" in
the Company's definitive 1997 Proxy Statement for its Annual Meeting of
Stockholders to be held on September 15, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by
reference to the tables appearing under the captions "Principal and
Management Stockholders" in the Company's definitive 1997 Proxy Statement
for its Annual Meeting of Stockholders to be held on September 15, 1997.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to the section entitled "Certain Transactions and Relationships"
in the Company's definitive 1997 Proxy Statement for its Annual Meeting of
Stockholders to be held on September 15, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this Form 10-K
1. Financial Statements. The Financial Statements listed in
the Index to Consolidated Financial Statements are filed as part
of this Form 10-K.
2. Financial Statement Schedules. The Financial Statement
Schedules listed in the Index to Consolidated Financial
Statements are filed as part of this Form 10-K.
3. Exhibits. The exhibits which are filed with this Report or
which are incorporated herein by reference are listed in the
Exhibit Index filed as part of this Form 10-K.
(b) Reports on Form 8-K
Report on Form 8-K filed during the fourth quarter ended March
31, 1995.
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.
NOVITRON INTERNATIONAL, INC.
Israel M. Stein, M.D.
Israel M. Stein, M.D.
Dated: June 27, 1997 Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Date: June 27, 1997 Israel M. Stein, M.D.
Israel M. Stein, M.D.
Chairman of the Board
Principal Executive Officer
Date: June 27, 1997 Arthur B. Malman
Arthur B. Malman
Director
Date: June 27, 1997 Gordon Baty, Ph.D.
Gordon Baty, Ph.D.
Director
Novitron International, Inc. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements Page
Report of Independent Public Accountants 21
Consolidated Balance Sheets at March 31, 1997 and 1996 22
Consolidated Statements of Operations for the Years Ended
March 31, 1997, 1996 and 1995 24
Consolidated Statements of Stockholders' Investment for the
Years Ended March 31, 1997, 1996 and 1995 25
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1997, 1996 and 1995 26
Notes to Consolidated Financial Statements 29
Consolidated Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Novitron International, Inc.:
We have audited the accompanying consolidated balance sheets of
NOVITRON INTERNATIONAL, INC. (a Delaware corporation) and subsidiaries as
of March 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' investment and cash flows for each of the three
years in the period ended March 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Novitron
International, Inc. and subsidiaries as of March 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three
years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The schedule
listed in the index to the consolidated financial statements is presented
for purposes of complying with the Securities and Exchange Commission's
rules and is not part of the basic financial statements. The schedule has
been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 9, 1997
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
ASSETS
1 9 9 7 1 9 9 6
CURRENT ASSETS:
Cash and cash equivalents $ 1,634,270 $ 485,029
Marketable securities 99,472 349,043
Accounts receivable, less
reserves of $102,000 and $119,000
in 1997 and 1996, respectively 2,546,221 4,760,880
Inventories 2,526,389 4,615,179
Prepaid expenses 280,915 186,530
Other current assets 83,257 142,073
Total current assets 7,170,524 10,538,734
EQUIPMENT, at cost:
Manufacturing and computer equipment 1,896,433 2,999,413
Furniture and fixtures 403,882 866,606
Leasehold improvements 232,237 261,565
Vehicles 101,818 109,854
2,634,370 4,237,438
Less: Accumulated depreciation
and amortization 2,053,108 3,387,058
581,262 850,380
OTHER ASSETS, net 816,047 371,380
$ 8,567,833 $11,760,494
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
(Continued)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
1 9 9 7 1 9 9 6
CURRENT LIABILITIES:
Short-term notes payable and
current portion of long-term debt $ 54,375 $ 55,938
Accounts payable 1,464,128 3,068,839
Accrued expenses 1,219,551 1,566,139
Customer advances 193,572 220,115
Accrued income taxes 33,287 180,400
Total current liabilities 2,964,913 5,091,431
LONG - TERM DEBT, net of current
portion 41,029 53,563
DEFERRED TAXES 347,993 170,420
MINORITY INTEREST 240,830 252,935
COMMITMENTS AND CONTINGENCIES:
(Note 5)
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 and outstanding: 1,323,480 13,235 13,235
shares
Capital in excess of par value 4,882,375 4,882,375
Cumulative translation adjustment 148,696 785,223
Retained earnings (deficit) (71,238) 511,312
Total stockholders' investment 4,973,068 6,192,145
$ 8,567,833 $11,760,494
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
1 9 9 7 1 9 9 6 1 9 9 5
REVENUES $ 13,845,483 $ 17,908,364 $ 16,818,276
COST OF REVENUES 10,132,189 12,906,518 11,598,567
Gross profit 3,713,294 5,001,846 5,219,709
OPERATING EXPENSES:
Sales and marketing 1,153,302 1,373,767 1,099,988
Research and development 1,277,960 1,252,396 1,460,443
General and administrative 1,950,567 2,286,951 2,707,526
Write-down of certain assets
relating to NovaChem BV
(Note 3) - 1,279,871 -
4,381,829 6,192,985 5,267,957
Loss from operations (668,535) (1,191,139) (48,248)
Interest expense (38,154) (106,622) (59,511)
Interest income 52,579 63,979 112,713
Other expense, net (18,545) (61,723) (13,777)
(672,655) (1,295,505) (8,823)
Provision for (Benefit from)
income taxes (78,000) 196,000 206,000
(594,655) (1,491,505) (214,823)
Minority interest 12,105 (14,128) (13,412)
Net loss $ (582,550) $ (1,505,633) $ (228,235)
Net loss per share $ (0.44) $ (1.14) $ (0.17)
Weighted average common
shares outstanding 1,323,480 1,323,480 1,327,193
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
COMMON STOCK
Capital in Cumulative Treasury Retained
Number Excess of Translation Stock at Earnings
of Shares Par Value Par Value Adjustment Cost (Deficit)
BALANCE at March 31, 1994 1,343,180 $ 13,431 $5,140,615 $ (28,595) $(330,550) $ 2,245,180
Sale of common stock 5,067 51 17,313 - - -
Issuance of common stock in
connection with the
acquisition of additional
interest in NovaChem 3,667 37 56,213 - - -
Retirement of treasury stock (28,334) (283) (330,267) - 330,550 -
Retirement of common stock (100) (1) (1,499) - - -
Translation adjustment - - - 1,097,085 - -
Net loss - - - - - (228,235)
BALANCE at March 31, 1995 1,323,480 13,235 4,882,375 1,068,490 - 2,016,945
Translation adjustment - - - (283,267) - -
Net loss - - - - - (1,505,633)
BALANCE at March 31, 1996 1,323,480 13,235 4,882,375 785,223 - 511,312
Translation adjustment - - - (636,527) - -
Net loss - - - - - (582,550)
BALANCE at March 31, 1997 1,323,480 $ 13,235 $4,882,375 $148,696 $ - $(71,238)
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
1 9 9 7 1 9 9 6 1 9 9 5
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (582,550) $ (1,505,633) $ (228,235)
Adjustments to reconcile
net loss to net
cash provided by (used in)
operating activities-
Depreciation and 403,630 529,625 611,129
amortization
Write-off of goodwill
associated with
acquisition of NovaChem
BV - 1,051,682 -
Deferred income taxes 215,673 (24,922) 35,977
Minority interest (12,105) 14,128 13,412
Changes in Current Assets
and Liabilities
Accounts receivable 1,756,560 (1,007,016) (758,852)
Inventories 1,639,802 320,514 (1,660,524)
Prepaid expenses (126,757) 281,267 (104,693)
Other current assets 44,540 (140,761) 16,178
Accounts payable (1,184,244) (516,637) 1,169,109
Accrued expenses (174,659) 216,140 177,217
Customer advances 1,045 (112) (237,356)
Accrued income taxes (126,673) (302,292 (669,225)
Net cash provided by
(used in) operating
activities 1,854,262 (1,084,017) (1,635,863)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Marketable securities 249,571 (349,043) 699,607
(Increase) decrease in
other assets (579,884) 1,039 298
Purchase of equipment (226,682) (207,328 (424,566)
Proceeds from sale of 60,528 15,729 82,600
equipment
Other, including foreign
exchange effects on cash (208,106) 79,978 175,459
Net cash provided by (used
in) investing activities (704,573) (459,625) 533,398
<FN>
Continues on page 29
</FN>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(Continued)
1 9 9 7 1 9 9 6 1 9 9 5
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from (payments
on)short-term notes
payable $ 5,886 $ 5,540 $ (289,633)
Payments on long-term
debt (6,334) (39,060) (29,112)
Sale of common stock - - 17,364
Retirement of common
stock - - (1,500)
Net cash provided by (used (448) 26,480 (302,881)
in) financing activities
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,149,241 (1,517,162) (1,405,346)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 485,029 2,002,191 3,407,537
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 1,634,270 $ 485,029 $ 2,002,191
<FN>
Continues on page 30
</FN>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(Continued)
1 9 9 7 1 9 9 6 1 9 9 5
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Interest $ 33,417 $ 130,512 $ 47,675
Income taxes 2,180 459,033 799,134
Supplemental disclosure of noncash
investing and financing
activities:
Retirement of treasury stock $ - $ - $ 330,550
Issuance of common stock in
connection with the
acquisition of additional
interest of NovaChem BV $ - $ - $ (56,250)
Write-off of fully depreciated
equipment $ 1,264,496 $ - $ -
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(1) Operations and Accounting Policies
Novitron International, Inc. ("the Company") is a multinational
company which, through its subsidiaries, designs, manufactures and markets
instrumentation used in clinical and analytical laboratories and in process
monitoring in industry. The Company's Dutch subsidiary, Vital Scientific
NV, designs and manufactures scientific instrumentation, including blood
chemistry analyzers. NovaChem BV, another Dutch subsidiary, develops and
markets process analyzers used in the production of petrochemicals and
pharmaceuticals and in environmental monitoring. To better reflect this
effort at diversification, on April 12, 1994, the Company's name was
changed from Clinical Data, Inc. to Novitron International, Inc.
The accompanying consolidated financial statements reflect the
application of certain accounting policies described in this and other
notes to the consolidated financial statements.
(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 March 31, 1997 and 1996:
1 9 9 7 1 9 9 6
Cash and money market $ 1,630,638 $ 381,402
investments
Certificate of deposit - 100,000
Time deposits 3,632 3,627
$ 1,634,270 $ 485,029
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(1) Operations and Accounting Policies (continued)
(c) Marketable Securities
The Company accounts for marketable securities in accordance with
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 that 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 ended March
31, 1997 and 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 March 31, 1997 and 1996:
1 9 9 7 1 9 9 6
Raw materials $ 496,248 $ 686,723
Work-in-process 1,252,249 2,536,392
Finished goods 777,892 1,392,064
$ 2,526,389 $ 4,615,179
(e) Revenue Recognition
The Company generally recognizes revenue from the sale of products
and supplies at the time of shipment.
(f) Depreciation and Amortization of Equipment and Intangibles
The Company provides for depreciation and amortization using the
straight-line method by charges to operations in amounts that allocate the
cost of equipment and intangibles over their estimated useful lives. The
estimated useful lives, by asset classification, are as follows:
CAPTION>
Asset Classification Useful Lives
Manufacturing and computer
equipment 3-7 years
Furniture and fixtures 3-7 years
Leasehold improvements 5 years
Vehicles 3-5 years
Goodwill 20 years
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(1) Operations and Accounting Policies (continued)
(f) Depreciation and Amortization of Equipment and Intangibles
(continued)
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 these 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 asset. At March 31, 1997 and 1996, the
Company's remaining goodwill relates to its investment in Vital Scientific
NV.
(g) Net Loss Per Share
The net loss per share in fiscal 1997, 1996 and 1995 is based on the
weighted average number of common shares outstanding during the respective
fiscal years after restatement to reflect the 1-for-3 reverse stock split
on December 4, 1996 (see Note 2). In fiscal year 1998, the Company is
required to adopt Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128"). SFAS No. 128 requires the
restatement of previously stated earnings per share for comparability
purposes. The Company does not believe that the adoption of SFAS No. 128
will have a material impact on the Company's historical earnings per share.
(h) Foreign Currency Translation
The Company accounts for foreign currency transaction and translation
gains and losses in accordance with Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation." The functional currency
of Clinical Data BV, Vital Scientific NV and Spectronetics NV is the Dutch
guilder. During fiscal 1997, the functional currency of Clinical Data
Australia became the Australian dollar in recognition of the shift of its
operations to a more domestic focus. Also in fiscal 1997, NovaChem BV
changed its functional currency to the United States dollar because the
majority of its operations are now based in the United States. Gains and
losses from translating asset and liability accounts which are denominated
in currencies other than the respective functional currency are included
in other expense in the consolidated statements of operations. The
translation adjustment required to report those subsidiaries whose
functional currency is other than the United States dollar into U.S.
dollars is credited or charged to cumulative translation adjustment,
included as a separate component
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(1) Operations and Accounting Policies (continued)
(h) Foreign Currency Translation (continued)
of stockholders' investment in the accompanying consolidated balance
sheets. Foreign currency transaction gains and losses are included in
other expense in the consolidated statements of operations.
(i) Postretirement Benefits
The Company has no obligations for postretirement benefits.
(j) Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(k) Warranty Policy
The Company provides for a warranty reserve on its manufactured
products for one year which covers parts and materials.
(l) Financial Instruments
The estimated fair value of the Company's financial instruments,
which include cash equivalents, marketable securities, accounts
receivable, accounts payable, and long-term debt, approximates their
carrying value.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(1) Operations and Accounting Policies (continued)
(m) 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 large financial institutions. See Notes 9 and 13 for
significant customers and financial information by geographic area,
respectively.
(n) Software Development Costs
In connection with the development of software included as a
significant component of a new analysis product, the Company has applied
the provisions of Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed" ("SFAS No. 86"). SFAS No. 86 requires the Company to
capitalize those costs incurred for the development of computer software
that will be sold, leased or otherwise marketed once technological
feasibility has been established up to the time at which the product is
available for sale to the customer. These capitalized costs are subject to
an ongoing assessment of the recoverability based on anticipated future
revenues and changes in hardware and software technologies.
Amortization of the capitalized software development costs begins when
the product is available for general release. Amortization is provided on a
product-by-product basis on either the straight-line method over periods
not exceeding five years or the sales ratio method. Unamortized capitalized
software development costs determined to be in excess of net realizable
value of the product are expensed immediately.
During the year ended March 31, 1997, the Company capitalized
$502,331 under SFAS No. 86, included as a component of other assets in the
accompanying consolidated balance sheet. The Company has not recorded any
amortization for the year then ended, as the capitalized costs pertain to
a product that is not yet available for general release.
(o) Reclassifications
Certain reclassifications have been made to the prior years'
presentation in order to conform to that of the current year.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(2) Reverse Stock Split
On November 12, 1996, the Company declared a 1 for 3 reverse stock
split of the Common Stock payable on December 4, 1996 to the stockholders
of record on November 25, 1996. No fractional shares were distributed and
the Common Stock issued to each stockholder was rounded up to the nearest
whole number of shares. All share and per share amounts for all periods
presented have been adjusted to reflect this reverse stock split.
(3) Write-down of Certain Assets Relating to NovaChem BV
In accordance with SFAS No. 121, the Company has determined that the
carrying value of the goodwill recorded in connection with its investment
in NovaChem BV was impaired at March 31, 1996. Accordingly, the Company
recorded a charge of $1,052,000 relating to the write-off of goodwill. In
addition, the Company wrote off $228,000 of related obsolete inventory at
March 31, 1996.
(4) Short-Term Notes Payable and Long-Term Debt
The Company's foreign debt obligations are as follows at March 31,
1997 and 1996:
1 9 9 7 1 9 9 6
Short-term notes payable $ 6,521 $ -
Long-term debt -
Note payable, interest
free for a period of
five years: principal
repayment began in
fiscal 1996
(approximately $14,000
per year) 23,431 46,802
Other notes payable,
interest ranging from
11.35% - 11.55% 65,452 62,699
95,404 109,501
Less: short-term notes
payable and current
portion of long-term
debt 54,375 55,938
$ 41,029 $ 53,563
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(4) Short-Term Notes Payable and Long-Term Debt (continued)
As of March 31, 1997, Clinical Data BV, Vital Scientific NV,
Spectronetics NV and NovaChem BV have an agreement with a bank which
provides consolidated overdraft protection to a maximum of 2,000,000 Dutch
guilders (approximately $1,060,000). Interest on this facility is based on
the official Dutch prime rate (5.50% at March 31, 1997) plus 2.50%. Any
overdraft of one entity is offset against the cash balances of the others
before the line of credit is accessed. At March 31, 1997 and 1996, there
were no amounts outstanding under this facility. Trade receivables of Vital
Scientific NV and NovaChem BV are provided as security for this facility.
The line continues as long as the Company conforms to certain capital
covenants; these covenants have been met as of March 31, 1997.
(5) Lease Commitments
The Company leases facilities, vehicles and computer equipment under
operating leases. Future minimum lease payments under these leases as of
March 31, 1997 are as follows:
Year Ending March 31, Amount
1998 $ 387,000
1999 374,000
2000 356,000
2001 330,000
2002 291,000
thereafter 1,748,000
$3,486,000
Rent expense of approximately $340,000, $418,000 and $383,000 was
incurred during fiscal 1997, 1996 and 1995, respectively.
(6) Stock Option Plans
The Company has established a 1991 Stock Option Plan ("the Plan")
and a 1991 Directors' Stock Option Plan ("the Directors' Plan") under
which an aggregate of 120,000 shares and 60,000 shares of common stock
are reserved, respectively, for the purpose of granting incentive and
nonstatutory stock options.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(6) Stock Option Plans (continued)
Under the terms of the Plan and the Directors' Plan, all options
are granted at not less than the fair value of the stock on the date of
grant. Options are exercisable over various periods not exceeding four
years; the options under the Plan expire no later than seven years after
the date of grant whereas the options granted under the Directors' Plan
expire no later than ten years after the date of grant.
During fiscal year 1997, options to purchase 30,000 shares of
common stock were granted to an officer at 110% of the fair market value
of the stock on the date of grant.
In October 1995, the Financial Accounting Standards Board released
Statement of Accounting Financial Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), which is effective for fiscal
years beginning after December 31, 1995. SFAS No. 123 encourages
companies to adopt a fair value based method of accounting for employee
stock options, but allows companies to continue to account for those
plans using the accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No.
25"). The Company has adopted the disclosure-only requirements of the
SFAS No. 123 and plans to continue to account for employee stock options
using APB No. 25, making pro forma disclosures of net income and earnings
per share as if the fair value based method had been applied.
The following table summarizes stock option activity during fiscal
1997, 1996 and 1995.
Number of Option Price Weighted-
Shares Per Share Total Average Price
Outstanding at March 31,
1994 22,876 $3.25-15.68 $ 259,010 $11.32
Options granted 3,334 15.00 50,010 15.00
Options exercised (5,167) 3.25-3.75 (17,749) (3.44)
Outstanding at March 31,
1995 21,043 $3.75-15.68 $ 291,271 $13.84
Options granted 5,734 14.25-14.63 82,960 14.47
Options canceled or
Expired (2,375) 3.75-12.00 (20,250) (8.53)
Outstanding at March 31,
1996 24,402 $12.00-15.68 $ 353,981 $14.51
Options granted 80,500 3.00-8.25 279,375 3.47
Options canceled or
expired (4,534) 14.25-15.00 (67,111) (14.80)
Outstanding at March 31,
1997 100,368 $3.00-15.68 $ 566,245 $5.64
Exercisable at March 31,
1997 17,068 $12.00-15.68 $ 246,220 $14.42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(6) Stock Option Plans (continued)
The Company has computed the pro forma disclosures required under
SFAS No. 123 for all stock options granted to employees of the Company and
its subsidiaries in the fiscal years ended March 31, 1997 and 1996 using
the Black-Scholes option pricing model prescribed by SFAS No. 123.
The assumptions used to calculate the SFAS No. 123 pro forma
disclosure and weighted average information for the fiscal years ended
March 31, 1997 and 1996 are as follows:
1 9 9 7 1 9 9 6
Risk-free interest rate 6.30% - 6.73% 6.00%
Expected dividend yield 0 0
Expected lives 6.43 years 4.00 years
Expected volatility 50.93% - 51.33% 51.56%
Weighted average grant date fair
value of options granted during
the period $1.91 $ 6.76
Weighted average exercise price of
options granted during the period $3.47 $14.47
Weighted average remaining
contractual life of options
outstanding 5.87 years 3.49 years
The pro forma compensation expense to be recognized under SFAS No.
123 for the years ended March 31, 1997 and 1996 was $12,158 and $2,281,
respectively. Such compensation expense did not change the earnings per
share as shown on the income statement for the respective years.
The range of exercise prices for options outstanding and options
exercisable at March 31, 1997 are as follows:
OUTSTANDING EXERCISABLE
Weighted
Average Weighted Weighted
Remaining Average Average
Number of Contractual Exercise Number of Exercise
Price Range Shares Life Price Shares Price
$3.00-$3.30 75,000 6.07 years $ 3.12 0 $ 0.00
$8.25 5,500 3.11 years $ 8.25 0 $ 0.00
$12.00-$15.68 19,868 1.91 years $ 14.44 17,068 $14.42
100,368 5.08 years $ 5.64 17,068 $14.42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(7) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"). Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
The provision for (benefit from) income taxes shown in the
accompanying consolidated statements of operations consists of the
following:
For the Years Ended March 31,
1 9 9 7 1 9 9 6 1 9 9 5
Current:
Domestic $ - $ - $ -
Foreign (265,000) (25,000) 170,000
Total Current (265,000) 221,000 170,000
Deferred:
Domestic - - -
Foreign 187,000 (25,000) 36,000
Total Deferred 187,000 (25,000) 36,000
$ (78,000) $ 196,000 $ 206,000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(7) Income Taxes (continued)
The provision for (benefit from) income taxes differs from the amount
computed by applying the statutory federal income tax rate to income before
taxes due to the following:
For the Years Ended March 31,
1 9 9 7 1 9 9 6 1 9 9 5
Benefit from taxes at
statutory rate $ (235,000) $ (454,000) $ (3,000)
Domestic operating loss not
benefited - - 74,000
Utilization of domestic net
operating loss carryforward (26,000) (39,000)
Utilization of foreign net
operating loss carryforward (9,000) - (41,000)
Foreign operating loss not 211,000 672,000 249,000
benefited
Taxes resulting from higher
incremental foreign rate - 38,000 41,000
Tax benefit resulting from
lower statutory foreign rate (13,000) (3,000) (132,000)
Other (6,000) (18,000) 18,000
$ (78,000) $ 196,000 $ 206,000
The approximate income tax effect of each type of temporary difference
comprising the net deferred tax asset at March 31, 1997 and 1996 is as
follows:
1 9 9 7 1 9 9 6
Net operating loss $ 2,422,321 $ 2,910,820
carryforwards
General business tax credit
carryforwards 136,048 118,820
Other, net 28,308 (1,511)
2,586,677 3,028,129
Less: valuation allowance 2,558,077 3,028,129
$ 28,600 $ -
SFAS No. 109 requires the Company to assess whether it is more likely
than not that the Company will realize its deferred tax assets. The Company
has determined that, except for the net operating loss carryforward at
Vital Scientific NV, it does not meet the "more likely than not" standard.
Accordingly, the Company has provided a valuation allowance against the
deferred tax assets for all items except for the aforementioned Vital
Scientific NV net operating loss carryforward.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(7) Income Taxes (continued)
The tax effect on the components of the deferred tax liability at
March 31, 1997 and 1996 is as follows:
1 9 9 7 1 9 9 6
Prior pension service costs $ 107,088 $ 96,035
Research and development 247,905 74,385
liabilities
$ 347,993 $170,420
The Company has net operating loss carryforwards for U.S. federal and
state tax purposes of approximately $3,577,000 and $1,401,000,
respectively; these carryforwards will expire from 1998 to 2012. In
addition, the Company has available U.S. federal tax credit carryforwards
of approximately $136,000. These carryforwards may be used to offset future
taxable income, if any. The federal tax credit carryforwards will expire
from 1998 to 2012 and are subject to review and possible adjustment by the
Internal Revenue Service.
The Company has foreign net operating loss carryforwards of
approximately $2,964,000, of which $28,000 expire between 1998 and 2001;
the balance, $2,936,000, is not subject to expiration.
(8) Pension Plan
The Company's subsidiary, Vital Scientific NV, participates in a
multiemployer defined benefit pension plan. Contributions and expenses
incurred by the Company amounted to approximately $103,000, $98,000 and
$75,000 during fiscal 1997, 1996 and 1995, respectively.
(9) Significant Customers
During fiscal 1997 and 1996, the Company had sales of scientific and
process monitoring instrumentation to one customer amounting to
approximately 75% and 83% of consolidated revenues, respectively, and in
fiscal year 1995, the Company had similar sales to two customers totaling
82% of consolidated revenues. At March 31, 1997, 75% of accounts
receivable were from this customer.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(9) Significant Customers (continued)
The Company expects that sales to this customer will decrease
significantly during the upcoming fiscal year. The Company is currently
pursuing new customer relationships, which management believes will at
least partially offset the expected decline in sales to this customer.
(10) Other Expense, net
Other expense, net, consists of the following:
For the Years Ended March 31,
1 9 9 7 1 9 9 6 1 9 9 5
Foreign exchange gain $(22,842) $ (61,947) $ 23,624
(loss)
Other income
(expense), net 4,297 224 (37,401)
$(18,545) $ (61,723) $ (13,777)
(11) Accrued Expenses
Accrued expenses consist of the following:
1 9 9 7 1 9 9 6
Payroll and payroll-related $ 478,372 $ 632,754
expenses
Warranty and retrofit 281,991 359,526
reserves
Other 459,188 573,859
$ 1,219,551 $ 1,566,139
(12) Other Assets
Other assets consist of the following:
1 9 9 7 1 9 9 6
Goodwill, net of accumulated
amortization of $381,000 and
$395,000 at March 31, 1997
and 1996, respectively $ 219,324 $ 308,915
Capitalized software 502,331 -
development costs
Other 94,392 62,465
$ 816,047 $ 371,380
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
(13) Segment Information
The Company's domestic business activities consist of corporate
administration and process monitoring. Vital Scientific NV manufactures and
sells scientific instrumentation. NovaChem BV designs and markets process
monitoring instrumentation. During fiscal years 1995 and 1996, the
Company's Australian subsidiary sold scientific instrumentation primarily
to customers in the People's Republic of China. During fiscal year 1997,
domestic sales of instruments and consumables provided the majority of the
Australian revenues. Revenues, income (loss) from operations and
identifiable assets classified by segment are as follows (in thousands):
United States Europe
Adminis- Process Scientific Process
tration Monitoring Instruments Monitoring Australia Consolidated
March 31, 1997
Sales to
unaffiliated
customers $ - $ 127 $ 11,852 $ 29 $ 1,837 $ 13,845
Sales or
transfers
areas between
geographic
areas - - 630 (9) - -
$ - $ 127 $ 12,482 $ 20 $ 1,837 $ 13,845
Income(loss)
from operations $ (408) $ (190) $ (7) $ (117) $ 53 $ (669)
Identifiable
assets $ 172 $ 150 $ 7,837 $ (132) $ 541 $ 8,568
March 31, 1996
Sales to
unaffiliated
customers $ - $ - $ 15,826 $ 186 $ 1,896 $ 17,908
Sales or - - 1,280 12 - -
transfers
between
geographic
areas $ - $ - $ 17,106 $ 198 $ 1,896 $ 17,908
Income(loss)
from operations $ (386) $ (497) $ 716 $ (995) $ (29) $ (1,191)
Identifiable
assets $ 755 $ 65 $ 10,190 $ 34 $ 716 $ 11,760
March 31, 1995
Sales to
unaffiliated
customers $ - $ - $ 11,423 $ 4,093 $ 1,302 $ 16,818
Sales or
transfers
between
geographic
areas - - 1,249 42 - -
$ - $ - $ 12,672 $ 4,135 $1,302 $ 16,818
Income(loss)
from operations $ (661) $ (321) $ 716 $ 288 $(70) $ (48)
Identifiable
assets $1,213 $ 24 $ 10,961 $ 1,665 $706 $ 14,569
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
MARCH 31, 1997
Balance at Balance at
Beginning End of
Item of Period Additions Deductions Period
Allowance for
Doubtful Accounts
1997 $ 118,707 $ - $ 17,073 $ 101,634
1996 $ 112,055 $ 69,322 $ 62,670 $ 118,707
1995 $ 207,669 $ 54,133 $ 149,747 $ 112,055
Warranty & Retrofit
Reserve
1997 $ 359,526 $ 117,016 $ 194,551 $ 281,991
1996 $ 226,363 $ 270,255 $ 137,092 $ 359,526
1995 $ 142,644 $ 321,364 $ 237,645 $ 226,363
Inventory
Obsolescence
Reserve
1997 $ 771,299 $ - $ 226,320 $ 544,979
1996 $ 460,550 $ 416,412 $ 105,663 $ 771,299
1995 $ 327,449 $ 159,293 $ 26,192 $ 460,550
EXHIBIT INDEX
Exhibit
Number Description
2.1** Purchase agreement dated February 7, 1990 between Clinical Data,
Inc. and CardioData Systems, a division of UM Holding Company.
2.2*** Stock Purchase Agreement dated October 31, 1990 between
Merrimack Valley Medical Services Company, Enviromed, Inc., and
Clinical Data, Inc.
3.1* Certificate of Incorporation
3.2* Bylaws
3.3***** Form 10-C dated June 16, 1994 - Change in Name of Issuer
effective April 12, 1994.
4.1* Article Fourth of the Certificate of Incorporation, as amended
(included in Exhibit 3.1)
10.25**** 1991 Stock Option Plan and 1991 Directors' Option Plan and forms
of option agreement.
22.1 Subsidiaries of the Registrant
24.1 Consent of Arthur Andersen LLP
* Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 2-82494).
** Incorporated by reference to exhibits to the Registrant's Notice of
Special Meeting of Stockholders held on February 7, 1990 and mailed to
stockholders on January 18, 1990.
*** Incorporated by reference to exhibits to the Registrant's Form 10-Q
for the period ended December 31, 1990.
**** Incorporated by reference to exhibits to the Registration Statement on
Form S-8 filed with the Commission on March 5, 1992.
***** Incorporated by reference to Form 10-C filed with the SEC on June 16,
1994.
EXHIBIT 22.1
SUBSIDIARIES OF THE REGISTRANT
The Registrant has the following subsidiaries, the financial
statements of which are included in the consolidated financial statements
of the Registrant:
Country Percentage
Name of Incorporation Owned
ClinicalData
(Australia) Pty. Ltd. Australia 100%
Clinical Data BV Netherlands 100%
NovaChem BV Netherlands 100%
Spectronetics NV Curacao 100%
Vital Scientific NV Netherlands 94%
EXHIBIT 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K into the Company's previously
filed Registration Statements on Form S-8 (File Nos. 33-25938, 33-25939, 33-
46233 and 33-46234).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 25, 1997