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 June 30, 1998
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
June 30, 1998 0-12716
Novitron International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-2573920
(State or other jurisdiction (IRS Employee
of incorporation or organization) Identification No.)
One Gateway Center, Suite 411, Newton, MA. 02458
(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 July 24,1998
is 1,454,420.
Novitron International, Inc. AND SUBSIDIARIES
FORM 10-Q
Index
Page
Part I: FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
Consolidated balance sheets at June 30, 1998 and
March 31, 1998 1
Unaudited consolidated statements of operations
for the three months ended June 30, 1998 and 1997 3
Consolidated statements of stockholders'
investment for the years ended March 31, 1997,
and 1998 and the three months ended June 30,
1997 (unaudited) 3
Unaudited consolidated statements of cash flows
for the three months ended June 30, 1998 and 1997 4
Notes to unaudited consolidated financial statements 5
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II: OTHER INFORMATION 10
SIGNATURE 10
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 1998 March 31, 1998
CURRENT ASSETS:
Cash and cash equivalents $ 860,371 $ 1,229,918
Accounts receivable, less
reserves of $59,000 and
$49,000 at June 30 and March 31,
1998, respectively 2,546,010 2,412,725
Inventories 3,704,126 3,719,698
Prepaid expenses 293,454 347,118
Other current assets 32,224 28,971
Total current assets 7,346,185 7,738,430
EQUIPMENT, at cost:
Manufacturing and computer equipment 2,138,525 2,010,683
Furniture and fixtures 392,871 386,090
Leasehold improvements 268,904 247,868
Vehicles 62,572 65,787
2,862,872 2,710,428
Less: Accumulated depreciation
and amortization 2,049,616 1,944,063
813,256 766,365
OTHER ASSETS, net 1,010,344 899,929
$ 9,169,785 $ 9,404,724
<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
June 30, 1998 March 31, 1998
CURRENT LIABILITIES:
Short-term notes payable and
current portion of long-term debt $ 71,492 $ 52,113
Accounts payable 2,472,884 2,598,755
Accrued expenses 1,775,699 1,884,036
Accrued income taxes 89,867 105,010
Total current liabilities 4,409,942 4,639,914
LONG - TERM DEBT, net of
current portion 26,557 30,028
DEFERRED TAXES 132,310 93,844
COMMITMENTS AND CONTINGENCIES:
(Note 6)
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:
1,454,420 and 1,454,211 at
June 30, and March 31, 1998,
respectively (Note 2) 14,544 14,542
Capital in excess of par value 4,881,066 4,881,068
Retained earnings (deficit) (139,207) 32,712
Cumulative translation adjustment (155,427) (287,384)
Total stockholders' investment 4,600,976 4,640,938
$ 9,169,785 $ 9,404,724
<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 THE THREE MONTHS ENDED JUNE 30,
1998 1997
REVENUES $ 3,488,417 $ 2,871,308
COST OF REVENUES 2,581,983 2,164,589
Gross profit 906,434 706,719
OPERATING EXPENSES:
Sales and marketing 235,374 239,468
Research and development 456,856 298,323
General and administrative 431,048 415,288
1,123,278 953,079
Loss from operations (216,844) (246,360)
Interest expense (14,825) (14,059)
Interest income 2,626 14,312
Other income 9,261 8,369
(219,782) (237,738)
Benefit from income taxes (47,863) (53,821)
(171,919) (183,917)
Minority interest - 5,335
Net loss $ (171,919) $ (178,582)
Basic and Diluted
Net loss per share $ (0.12) $ (0.14)
Weighted average common
shares outstanding 1,454,420 1,322,005
<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, AND 1998 AND FOR THE THREE MONTHS ENDED JUNE 30, 1998
Common Stock Capital in Cumulative
Number of Par Excess of Retained Translation
Shares Value Par Value Earnings Adjustment
BALANCE at March 31, 1998 $ 1,322,005 $ 13,220 $ 4,882,390 $ 511,312 $ 785,223
Net loss (582,550)
Translation adjustment (636,527)
BALANCE at March 31, 1997 1,322,005 13,220 4,882,390 (71,238) 148,696
Net income 103,950
Translation adjustment (436,080)
Issuance of
common stock in
connection with a
10% stock dividend 132,206 1,322 (1,322)
BALANCE at March 31, 1998 1,454,211 $ 14,542 $ 4,881,068 $ 32,712 (287,384)
Net loss (171,919)
Translation adjustment 131,957
Issuance of
common stock in
connection with a
10% stock dividend
of March 27, 1998 209 2 (2)
BALANCE at June 30, 1998 1,454,420 $ 14,544 $ 4,881,066 $(139,207) $(155,427)
<FN>
The accompanying notes are an integral part of these consolidated financial
</FN> statements
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30,
1998 1997
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (171,919) $ (178,582)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities -
Depreciation and amortization 91,756 104,780
Minority interest - (5,335)
Capitalization of research costs (32,135) (85,659)
Deferred income taxes 36,580 (84,573)
Changes in Current Assets
and Liabilities-
Accounts receivable 11,875 (3,286)
Inventories 101,194 (15,688)
Prepaid expenses 61,929 (16,095)
Other current assets (2,624) 45,413
Accounts payable (185,931) 480,337
Accrued expenses (151,090) 199,457
Customer advances - 151
Accrued income taxes (87,508) (1,600)
Net cash provided by (used in)
operating activities (327,873) 439,320
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities - 24,930
Decrease in other assets 129 27,993
Purchases of equipment (28,522) (55,800)
Proceeds from sale of equipment - 790
Other, including foreign
Exchange effects on cash (27,413) (77,993)
Net cash used in
investing activities (55,806) (80,080)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term notes payable 18,318 33,794
Payments on long-term debt (4,186) (1,607)
Net cash provided by
financing activities 14,132 32,187
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (369,547) 391,427
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 1,229,918 1,634,270
CASH AND CASH EQUIVALENTS
AT June 30, 1998 and 1997 $ 860,371 $ 2,025,697
<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
June 30, 1998
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 June 30, 1998
and June 30, 1997. 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, 1998.
(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. 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.
(c) Marketable Securities
The Company accounts for marketable securities in accordance
with Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity
Securities." 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. There were no marketable
securities at June 30, and March 31, 1998.
(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 June 30, and March 31,
1998:
June 30, March 31,
1998 1998
Raw materials $ 1,159,529 $ 788,420
Work-in-process 1,596,518 1,768,431
Finished goods 948,079 1,162,847
$ 3,704,126 $ 3,719,698
(e) Revenue Recognition
The Company generally recognizes revenue from the sale of
products and supplies at the time of shipment.
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Continued)
(1) Operations and Accounting Policies (continued)
(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:
Asset Classification Useful
Lives
Manufacturing and computer equipemnt 3-7 years
Furniture and fixtures 3-7 years
Leasehold improvements Life of lease
Vehicles 3-5 years
Goodwill 20 years
SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," requires
the Company to continually evaluate whether events and
circumstances have occurred which 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 June 30 and March 31, 1998, the
Company's remaining goodwill relates to its investment in Vital
Scientific NV. Based on an analysis of other assets at June 30,
1998, the Company does not believe impairment exists.
(g) Net Loss Per Share
In March 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings per Share." This statement
establishes standards for computing and presenting earnings per
share and applies to entities with publicly traded common stock
or potential common stock. Basic net loss per share is determined
by dividing net income by the weighted average shares of common
stock outstanding during the period. Diluted net loss per share
has been calculated on the same basis as basic earnings per share
because the Company's potentially dilutive securities, stock
options, are antidilutive.
There were 104,818 and 67,122 weighted average common equivalent
shares not included in the diluted weighted average shares
outstanding at June 30, 1998 and 1997, respectively, because they
were antidilutive.
(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
Clinical Data BV, Vital Scientific NV and Spectronetics NV is
the Dutch Guilder; Clinical Data Australia uses the Australian
dollar and NovaChem BV's functional currency is the United
States dollar. Gains and losses from translating assets and
liabilities that 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 part of stockholders' investment in the
accompanying consolidated balance sheets.
Foreign currency transaction gains and losses are included in
other income in the consolidated statements of operations.
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Continued)
(1) Operations and Accounting Policies (continued)
(i) Post-retirement 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 a one-year warranty on its manufactured
products, which covers parts and materials. The Company reserves
for this warranty at the time of sale.
(l) Financial Instruments
The estimated fair value of the Company's financial instruments,
which include cash equivalents, accounts receivable, accounts
payable and long-term debt, approximates their carrying value.
(m) Concentration of Credit Risk
SFAS 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.
(n) Software Development Costs
In connection with the development of software included as a
significant component of new analysis products, the Company has
applied the provisions of SFAS No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed."
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. The Company began to amortize the
software costs capitalized during fiscal years 1998 and 1997 over
the sales ratio method during the year ended March 31, 1998.
Amortization recorded with respect to this product for the three
months ended June 30, 1998 and during fiscal year 1998 was
approximately $18,000 and $11,000, respectively. The Company has
begun to amortize the software costs capitalized during the three
months ended June 30, 1998 over three years using the straight-
line method. Amortization recorded for the costs associated with
this product approximated $1,000.
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Continued)
(1) Operations and Accounting Policies (continued)
(n) Software Development Costs (continued0
During the three months ended June 30, 1998 and during the year
ended March 31, 1998 the Company capitalized $32,000 and
$242,000, respectively, under SFAS No. 86, which have been
included as a component of other assets in the accompanying
consolidated balance sheet.
(o) New Accounting Standards
In July 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131
requires certain financial and supplementary information to be
disclosed on an annual and an interim basis for each reportable
segment of an enterprise. SFAS No. 131 is effective for fiscal
years beginning after December 31, 1997. Unless impracticable,
companies would be required to restate prior period information
upon adoption. The Company does not expect this accounting
pronouncement to materially effect its financial statements and
will formally adopt the pronouncement with the March 31, 1999
financial statements.
(p) Line of Credit
In April 1998, the Company entered a new relationship with a
major Dutch bank, which provides for a 4,000,000 Dutch Guilder
(approximately $1,920,000) line of credit. Interest on this
facility is set at 1.25% above the base rate as reported by the
Netherlands Central Bank (3.75% at March 31, 1998). Trade
receivables and inventory of Vital Scientific are provided as
security for this facility. The line continues as long as
certain capital covenants are met.
(2) Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive
Income," effective April 1, 1998. SFAS No. 130 requires that
items defined as other comprehensive income, such as foreign
currency translation adjustments, be separately classified in
the financial statements. The components of comprehensive
income for the three-month periods ended June 30, 1998 and 1997
are as follows:
June 30, June 30,
1998 1997
Net loss $(171,919) $(178,582)
Foreign currency
translation adjustments 131,957 (178,692)
Comprehensive loss $ (39,962) $(357,274)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
First Quarter ended June 30, 1998 compared to the First Quarter
ended June 30, 1997
Consolidated revenues for the first quarter of fiscal year 1999
increased 21.5%, as compared with the prior year. Vital
Scientific's sales increased 25%, primarily as a result of the
deliveries of two new products for allergy testing and for the
measurement of drugs-of-Abuse. At Clinical Data Australia, sales
increased 95% from the prior year reflecting the addition of new
products. The increase in turnover, however, was offset by a 4.9%
weakening of the Company's primary functional currency, the Dutch
Guilder, against the U.S. dollar.
The gross profit increased from 24.6% at June 30, 1997 to 26.0%
at June 30, 1998, primarily as a result of changes in the product
mix and cost containment
Sales and marketing expenses decreased $4,000 or 1.7% from the
same period as last year.
Research and development charges, as shown on the June 30, 1998
consolidated statement of operations, increased $159,000 or 53.1%
as compared to the three months ended June 30, 1997. In addition,
on a cash basis, the Company expended $32,000 and $86,000 during
the first quarter of fiscal years 1999 and 1998, respectively.
The actual increase in research funds expended is $105,000 or
27.9% from the same period in fiscal year 1998. The increase is
related primarily to new product development activities.
General and administrative expenses increased $16,000 or 3.8%
from the comparative period last year, primarily as a result of
additional expense for temporary contract labor.
For the three months ended June 30, 1998, interest expense
increased $800 from the same period last year. Interest income
decreased because of fewer funds available for investment. Other
income and expense is predominantly the effect of foreign
currency transaction gains and losses on the results of
operations.
The minority interest in fiscal year 1998 is attributable to the
6% of Vital Scientific not held by the Company. Vital Scientific
became a wholly owned subsidiary on October 21, 1997.
Year 2000
The Company is currently in the process of evaluating its
information technology infrastructure to assess its exposure to
the "Year 2000" computer problem. Based upon its work to date,
the Company believes that no critical software systems will be
impacted by this situation. Systems currently used by the Company
are either already "Year 2000" compliant or are scheduled for
replacement during fiscal year 1999. The Company does not
currently have information regarding the "Year 2000" compliance
status of its customers or suppliers, and there can be no
assurance that the Company's customers and suppliers will not be
adversely affected by the "Year 2000" problem. Nonetheless, the
Company believes that the "Year 2000" problem will not have a
material impact on the Company's business operations or financial
condition.
Financial Condition and Liquidity
The effect of foreign currency transaction exchange on the result
of operations is included in other income and expense and is not
material to the 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 $696,000
of the June 30, 1998 balance of $860,000 of cash and cash
equivalents is denominated primarily in Dutch Guilders. in U.S.
dollars. The effect of foreign currency exchange rate
fluctuations upon translation into U.S. dollars is included in
cumulative translation adjustment which is a separate component
of stockholders' investment in the balance sheet.
There are no formal hedging procedures employed by the Company.
The primary risk is to the monetary assets and liabilities
denominated in currencies other than the U.S. Dollar.
Approximately $7.27 million of $7.35 million of current assets
reside in the Company's foreign subsidiaries.
The Company used approximately $328,000 of cash from operations
during the first quarter of fiscal year 1999. The decrease in
funds comes from the decrease in accounts payable, accrued income
tax and accrued expenses offset by the decrease in prepaid
expenses and inventory. During the quarter, approximately $29,000
was used to purchase equipment. Financing activities were
immaterial.
In April 1998, the Company entered a new relationship with a
major Dutch bank, which provides for a 4,000,000 Dutch Guilder
(approximately $1,964,000) line of credit. Interest on this
facility is set at 1.25% above the base rate as reported by the
Netherlands Central Bank, presently 3.75%. Trade receivables and
inventory of Vital Scientific are provided as security for this
facility. The line continues as long as certain capital
covenants are met.
The Company's sources of cash include cash balances and the
aforementioned 4,000,000 Dutch Guilder line of credit from a
Dutch bank. The Company believes that available funds will
provide it with sufficient working capital through fiscal year
1999.
Part II. OTHER INFORMATION
Item 1. Legal proceedings:
None
Items 2 - 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:August 3, 1998 Israel M. Stein MD
President