FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 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
September 30, 1998 0-12716
Novitron International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-2573920
(State or other jurisdiction (IRS Employer
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 November 2, 1998,
is 1,454,423.
Novitron International, Inc. AND SUBSIDIARIES
FORM 10-Q
Index
Page
Part I: FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
Unaudited consolidated balance sheets at September 30,
1998 and March 31, 1998 3
Unaudited consolidated statements of operations for the
three and six months ended September 30, 1998 and 1997 5
Unaudited consolidated statements of stockholders'
investment for the years ended March 31, 1998 and 1997
and the six months ended September 30, 1998 6
Unaudited consolidated statements of cash flows for
the six months ended September 30, 1998 and 1997 7
Notes to unaudited consolidated financial statements 9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Part II: OTHER INFORMATION 15
SIGNATURE 16
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 1998 March 31, 1998
CURRENT ASSETS:
Cash and cash equivalents $ 476,686 $ 1,229,918
Accounts receivable, less
reserves of $36,000 and
$49,000at September 30, and
March 31, 1998, respectively 3,024,578 2,412,725
Inventories 3,143,940 3,719,698
Prepaid expenses 248,803 347,118
Other current assets 134,088 28,971
Total current assets 7,028,095 7,738,430
EQUIPMENT, at cost:
Manufacturing and computer 2,397,001 2,010,683
equipment
Furniture and fixtures 422,354 386,090
Leasehold improvements 291,252 247,868
Vehicles 65,613 65,787
3,176,220 2,710,428
Less: Accumulated depreciation
and amortization 2,272,311 1,944,063
903,909 766,365
OTHER ASSETS, net 1,019,251 899,929
$ 8,951,255 $ 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
September 30, 1998 March 31, 1998
CURRENT LIABILITIES:
Short-term notes payable and $ 42,314 $ 52,113
current portion of long-term
debt
Accounts payable 1,693,530 2,598,755
Accrued expenses 2,095,052 1,884,036
Accrued income taxes 102,634 105,010
Total current liabilities 3,933,530 4,639,914
LONG - TERM DEBT, net of 27,273 30,028
current portion
DEFERRED TAXES 156,063 93,844
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:
1,454,423and 1,454,211 at
September 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) (228,226) 32,712
Cumulative translation
adjustment 167,005 (287,384)
Total stockholders'
investment 4,834,389 4,640,938
$ 8,951,255 $ 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 Three Months For the Six Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
REVENUES $ 3,662,125 $ 2,608,696 $ 7,150,542 $ 5,480,004
COST OF REVENUES 2,740,856 1,880,680 5,322,839 4,045,269
Gross profit 921,269 728,016 1,827,703 1,434,735
OPERATING EXPENSES:
Sales and marketing 263,681 191,053 499,055 430,521
Research and
development 452,761 294,846 909,617 593,169
General and
administrative 324,158 442,046 755,206 857,334
1,040,600 927,945 2,163,878 1,881,024
Loss from operations (119,331) (199,929) (336,175) (446,289)
Interest expense (14,230) (25,114) (29,055) (39,173)
Interest income 6,521 16,896 9,147 31,208
Other income (expense) (38,345) 23,924 (29,084) 32,293
(165,385) (184,223) (385,167) (421,961)
Benefit from income
taxes (76,366) (33,918) (124,229) (87,739)
(89,019) (150,305) (260,938) (334,222)
Minority interest - 3,702 - 9,037
Net loss $ (89,019) $ (146,603) $ (260,938) $ (325,185)
Basic and Diluted
Net loss per share $ (0.06) $ (0.11) $ (0.18) $ (0.25)
Weighted Average Common
Shares Outstanding 1,454,423 1,322,005 1,454,423 1,322,005
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
Novitron International, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED MARCH 31, 1997, AND 1998
AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
Common Stock
Capital in Cumulative
Number Excess of Retained Translation
of Shares Par Value Par Value Earnings Adjustment
BALANCE at March 31,
1996 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 of
March 27, 1998 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 (260,938)
Translation adjustment 454,389
Further Issuance of
common stock in
connection with a 10%
stock dividend of
March 27, 1998 212 2 (2)
BALANCE at September
30, 1998 1,454,423 $ 14,544 $ 4,881,066 $(228,226) $ 167,005
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
1998 1997
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (260,938) $ (325,185)
Adjustments to reconcile
net loss to net cash provided
by (used in) operating
activities-
Depreciation and amortization 227,282 159,954
Minority interest - (9,037)
Capitalization of research
costs (32,401) (154,754)
Deferred income taxes 49,643 (214,902)
Changes in Current Assets and
Liabilities-
Accounts receivable (345,223) 552,533
Inventories 899,641 (579,470)
Prepaid expenses 125,742 (61,314)
Other current assets (96,359) 44,337
Accounts payable (1,101,490) 921,313
Accrued expenses 25,023 416,774
Customer advances - 52,653
Accrued income taxes (82,458) 581
Net cash provided by (used
in)operating activities $ (591,538) $ 803,483
CASH FLOWS FROM
INVESTING ACTIVITIES:
Marketable securities $ - $ 24,992
Other assets (1,450) 27,499
Purchases of equipment (83,410) (164,005)
Sales of equipment - 16,224
Other, including foreign
exchange effects on cash (57,118) (63,269)
Net cash used in
investing activities $ (141,978) $ (158,559)
<FN>
Continues on next page
</FN>
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
(Continued)
1998 1997
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from (payments on)
short-term debt $ (14,238) $ 13,219
Payments on long-term debt (5,478) (3,713)
Net cash provided by (used
in) financing activities $ (19,716) $ 9,506
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (753,232) $ 654,430
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 1,229,918 1,634,270
CASH AND CASH EQUIVALENTS
AT September 30, 1998 and 1997 $ 476,686 $ 2,288,700
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
Basis of Presentation
Novitron International, Inc. ("the Company") prepared the consolidated
financial statements included herein pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information normally
included in footnote disclosures in financial statements prepared in
accordance with generally accepted accounting principles was condensed or
omitted pursuant to such rules and regulations. In management's opinion,
the consolidated financial statements and footnotes reflect all adjustments
necessary to disclose adequately the Company's financial position at
September 30, 1998 and September 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) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market, include material, labor and manufacturing overhead, and consist of
the following at September 30, and March 31, 1998:
September 30, 1998 March 31, 1998
Raw materials $ 1,470,280 $ 788,420
Work-in-process 867,135 1,768,431
Finished goods 806,525 1,162,847
$ 3,143,940 $ 3,719,698
(d) 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
September 30, 1998
(Continued)
(1) Operations and Accounting Policies (continued)
(e) 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 equipment 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 September 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
September 30, 1998, the Company does not believe impairment exists.
(f) 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 96,617 and 100,368 weighted average common equivalent shares not
included in the diluted weighted average shares outstanding at September
30, 1998 and 1997, respectively, because they were antidilutive.
(g) 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
September 30, 1998
(Continued)
(1) Operations and Accounting Policies (continued)
(h) Post-retirement Benefits
The Company has no obligations for postretirement benefits.
(i) 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.
(j) 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.
(k) 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.
(l) 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.
(m) 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.
During the six months ended September 30, 1998 and during the year ended
March 31, 1998 the Company capitalized $34,000 and $242,000, respectively,
under SFAS No. 86, which have been included as a component of other assets
in the accompanying consolidated balance sheet.
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 six months ended
September 30, 1998 and during fiscal year 1998 was approximately $70,600
and $11,000, respectively. The Company has begun to amortize the software
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Continued)
(1) Operations and Accounting Policies (continued)
(m) Software Development Costs (continued)
costs capitalized during the three months ended June 30, 1998 related to
a new product over three years using the straight-line method. Amortization
recorded with respect to this product for the six months ended September
30, 1998 approximated $3,600.
(n) 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.
(o) 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
$2,115,000) 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. There were no borrowings outstanding
under this credit line at September 30, 1998.
(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 September 30, 1998
and 1997 are as follows:
For Three Months For the Six Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Net Loss $( 89,019) $(146,603) $(260,938) $(325,185)
Foreign currency
translation adjustments 322,432 ( 62,560) 454,389 (241,252)
Comprehensive income(loss) $ 233,413 $(209,163) $ 193,451 (566,437)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of the Securities Exchange
Act of 1934 (Section 21E), may be made throughout this Discussion and
Analysis. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, such words as, "anticipates,"
"plans," "expects, "believes", "estimates," and similar expressions are
intended to identify such forward-looking statements. Such statements
involve risk and uncertainties, including but not limited to competitive,
governmental, economic, and technological factors that may affect the
Company's operations, products, markets, and services. Actual results could
differ materially from those expressed in such statements and readers are
referred to the Company's other SEC reports and filings.
Results of Operations
Second Quarter ended September 30, 1998 compared to the Second Quarter
ended September 30, 1997
Consolidated revenues for the second quarter of fiscal year 1999 increased
40.3% as compared with the same period in the prior year. The year-to-date
consolidated revenues increased 30.5% from the same period last year. When
compared to the second quarter of fiscal year 1998, Vital Scientific's
sales increased 33.3% based on continuing deliveries of two new products
for allergy testing and the measurement of drugs-of-abuse, as well as
improvement in sales of clinical chemistry instrumentation. At Clinical
Data (Australia), sales increased 26.3% from the prior year reflecting the
addition of new products. The increase in turnover was partially
contributed by a 2.3% strengthening of the Company's primary functional
currency, the Dutch Guilder, against the U.S. dollar.
The gross profit margin decreased from 26.2% for the six months ended
September 30, 1997 to 25.6% for the same period ended September 30, 1998
and from 27.9% for the three months ended September 30, 1997 to 25.2% for
the same period ended September 30, 1998. The decline is primarily the
result of changes in the product mix and pricing.
When analyzing the comparative figures for the three and six month
reporting periods, the aforementioned 2.3% strengthening in the value of
the Dutch Guilder against the U.S. dollar unfavorably affected each of the
expense categories noted below.
Comparing fiscal 1999 with fiscal 1998, sales and marketing expenses
increased 38.0% and 15.9% for the three and six-month periods,
respectively, reflecting increasing sales costs and commissions resulting
from the improved sales at each of the Company's operating subsidiaries.
Research and development charges, as shown on the September 30, 1998
consolidated statement of operations, increased $316,000 or 53.3% as
compared to the six months ended September 30, 1997, and the increase is in
line with the previous quarter ended June 30, 1998. During the first three
months of fiscal year 1999, the Company spent an additional $32,000 which
was 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). No research and development
expenses were capitalized during the second quarter ended September 30,
1998. During the first six months of fiscal year 1998, the Company spent an
additional $155,000 ($70,000 for the second quarter) which were capitalized
onto the consolidated balance sheet at September 30, 1997. The overall
increase in research and development activities, therefore, is 22.9% and
26.0% for the three and six-month periods ended September 30, 1998,
respectively, when compared to the same periods ended September 30, 1997.
The increase is related primarily to new product development activities at
Vital Scientific.
General and administrative expenses decreased by 26.7% for the three-month
and 11.9% for the six-month periods ended September 30, 1998 when compared
to the same periods as of September 30, 1997 due to cost containment.
Interest expense decreased for the period and year-to-date as compared to
last year due to reduced dependence on borrowing. Interest income decreased
because of fewer funds available for investment. Other income and expense
consists primarily of 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
In the first quarter of fiscal year 1999, the Company and its operating
subsidiaries developed a testing and compliance program to determine
whether and to what extent the Company may need to update its product lines
and operations to become "Year 2000" compliant. The Company is in the
process of evaluating its product lines and information technology
infrastructure to assess its exposure to the "Year 2000" computer problem
and plans to complete such evaluation in the quarter ending December 31,
1998.
Based upon its work to date, the Company believes that the compliance issue
will impact no critical software or hardware systems. Although the Company
believes that costs associated with its "Year 2000" compliance will not be
material, there are no assurances that an as yet unidentified "Year 2000"
problems will not cause the Company to incur material expenses in
responding to such problems.
Based upon work to date, the Company has determined that the basic
functionality of all tested products, which include all of the products
presently being sold as well as certain discontinued products, is not
affected by the "Year 2000" date change. The Company's newly introduced
products have been determined to be "Year 2000" compliant. In a few
instances, certain minor problems in the least significant category of the
standard classification of "Year 2000" problems, which is designated as
"noticeable and inconvenient", were found in certain older instruments. For
these, easy "work around" instructions are being prepared and will be made
available to users. Although the Company is testing discontinued products,
the Company does not intend to modify such discontinued products, and does
not foresee any material financial exposure arising from this decision.
The financial reporting systems currently used by the Company are either
already "Year 2000" compliant or are scheduled for replacement during
fiscal year 1999, in the normal course of business. The replacement
systems are "Year 2000" compliant and the programs for implementing such
replacements are presently on schedule.
The Company is presently accumulating information regarding the "Year 2000"
compliance status of its main customers and suppliers. Based on information
to date, the Company's major customers and suppliers are assessing and
implementing programs to deal with the "Year 2000" problem. There can be no
assurance, however, that the Company's customers and suppliers will not be
adversely affected by the "Year 2000" problem, which will in turn adversely
effect the Company.
Based on the foregoing, the Company presently believes that the "Year 2000"
problem will not have a material impact on the Company's business
operations or financial condition. There are no assurances, however, that
as yet unidentified "Year 2000" problems will not cause the Company to
incur material expenses in responding to such problems or otherwise have a
material adverse effect on the Company's business, operating results, 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 $256,000 of the September 30, 1998 balance of
$477,000 of cash and cash equivalents is denominated primarily in U.S.
dollars. The effect of foreign currency exchange rate fluctuations upon
translation into U.S. Dollars is included in cumulative translation
adjustment, 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 $6.96 million of $7.03 million of
current assets reside in the Company's foreign subsidiaries.
The Company used approximately $592,000 of cash in operations during the
first six months of fiscal year 1999. The decrease in funds comes primarily
from the funding of the period's losses, as well as the decrease in
accounts payable. Approximately $83,000 was used to purchase equipment
during the first half of the fiscal year. Financing activities were
immaterial.
In April 1998, the Company entered a new relationship with a major Dutch
bank that provides for a 4,000,000 Dutch Guilder (approximately $2,115,000)
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. As of September 30, 1998, there were no borrowings outstanding under
this line of credit.
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 2-3.
None
Item 4. Submission of Matters to a Vote of Security Holders:
At the Annual Meeting for the fiscal year ended March 31, 1998, held
on September 15, 1998, the following matters were submitted to a vote of
the security holders:
(a) Directors elected as follows:
Israel M. Stein
Gordon B. Baty
Arthur B. Malman
(b) Matters voted on as follows:
Election of directors:
Gordon B. Baty:
1,369,797 voted for
21,246 withheld authority to vote
Arthur B. Malman
1,369,797 voted for
21,246 withheld authority to vote
Israel M. Stein:
1,367,597 voted for
21,446 withheld authority to vote
Ratification of auditors:
1,380,659 voted for
8,551 voted against
1,923 abstained
Items 5-6.
None
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Novitron International, Inc.
(Registrant)
Israel M. Stein MD
Date: November 5, 1998 Israel M. Stein MD
President