FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 1, 1995 -------------- ( ) 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: O-13715 VITRONICS CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) COMMONWEALTH OF MASSACHUSETTS O4-2726873 ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1 Forbes Road, Newmarket, NH 03857 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (603) 659-6550 -------------- NONE ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 requirements for the past 90 days. YES X NO -------- -------- Number of shares outstanding of each of the registrant's classes of common stock as of July 1, 1995: Common Stock, $.01 par value: 7,553,638 shares VITRONICS CORPORATION INDEX Page ---- Part I - Financial Information: ------------------------------- Item 1 - Financial Statements: Condensed Consolidated Balance Sheets - July 1, 1995 (unaudited) and December 31, 1994 ................................... 3 Condensed Consolidated Statements of Operations (unaudited) - Three Months and Six Months Ended July 1, 1995 and July 2, 1994 ........................................ 4 Condensed Consolidated Statements of Cash Flows (unaudited) - Six Months Ended July 1, 1995 and July 2, 1994 ..................... 5 Notes to Condensed Consolidated Financial Statements (unaudited).............................................. 6 Calculation of Net Income Per Share for Three Months Ended July 1, 1995 and July 2, 1994......... 7 Calculation of Net Income Per Share for Six Months Ended July 1, 1995 and July 2, 1994........... 8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 9 Part II - Other Information --------------------------- Items 1 through 6............................................. 11 Signatures.................................................... 13 VITRONICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (000's omitted) July 1, December 31, 1995 1994 (Unaudited) (*) ----------- ------------ ASSETS ------ Current assets: Cash and cash equivalents $ 852 $ 671 Accounts receivable, net 3,214 2,723 Inventories 2,777 2,094 Other current assets 146 189 ------- ------- Total current assets 6,989 5,677 Property and equipment, net 165 223 Other assets 59 152 ------- ------- $ 7,213 $ 6,052 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable 2,101 $ 1,751 Other current liabilities 1,218 945 Current maturities of long-term liabilities 253 305 ------- ------- Total current liabilities 3,572 3,001 Long-term liabilities, net of current maturities 1,243 1,323 Stockholders' Equity: Common Stock, $.01 par value 76 76 Additional paid-in capital 5,405 5,401 Foreign currency translation adjustment (168) (184) Retained earnings (deficit) (2,915) (3,565) ------- ------- 2,398 1,728 ------- ------- $ 7,213 $ 6,052 ======= ======= *Condensed from audited financial statements The accompanying notes are an integral part of these condensed financial statements. 3 VITRONICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (000's omitted except per share amounts) Three Months Ended Six Months Ended ------------------ ------------------ July 1, July 2, July 1, July 2, 1995 1994 1995 1994 ------- ------- ------- ------- Net sales $5,767 $3,704 $10,620 $7,288 Cost of goods sold 3,345 2,344 6,327 4,702 ------ ------ ------- ------ Gross profit 2,422 1,360 4,293 2,586 Selling, general and administrative expenses 1,523 942 2,738 1,799 Research & development costs 333 244 636 504 Patent Litigation 75 60 150 91 ------ ------ ------- ------ 1,931 1,246 3,524 2,394 ------ ------ ------- ------ Income from operations 491 114 769 192 Non-operating expense - net (52) (55) (103) (121) ------ ------ ------- ------ Income before income taxes 439 59 666 71 Income tax 13 - 16 - ------ ------ ------- ------ Net income $ 426 $ 59 $ 650 $ 71 ====== ====== ======= ====== Net earnings per common share Primary $.05 $.01 $.08 $.01 ==== ==== ==== ==== Fully Diluted $.04 $.01 $.07 $.01 ==== ==== ==== ==== Weighted average number of common and common equivalent shares used in calculation of earnings per common share Primary 8,095 7,592 8,132 7,566 ====== ====== ====== ====== Fully Diluted 10,537 9,992 10,155 9,966 ====== ====== ====== ====== The accompanying notes are an integral part of these condensed financial statements. 4 VITRONICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (000's omitted) Six Months Ended ------------------- July 1, July 2, 1995 1994 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 650 $ 71 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 111 89 Provision for excess and obsolescence 155 106 Changes in current assets and liabilities: Accounts receivable (491) (449) Inventories (838) (80) Other current assets 43 18 Accounts payable 350 298 Income taxes - 20 Other current liabilities 273 (68) ----- ----- Total adjustments (397) (66) ----- ----- Net cash provided by operating activities 253 5 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (17) (9) Disposals of property and equipment - 3 Additions\disposals of other assets 57 (9) ----- ----- Net cash provided by (used for) investing activities 40 (15) CASH FLOWS FROM FINANCING ACTIVITIES: Payments of long-term debt (132) (134) Issuance of common stock 4 ----- ----- Net cash provided by (used for) financing activities (128) (134) Foreign currency translation adjustment 16 15 ----- ----- CASH: Net increase (decrease) 181 (129) Balance, beginning of period 671 172 ----- ----- Balance, end of period $ 852 $ 43 ===== ===== Supplemental disclosure of non-cash financing activities: Conversion of debt to equity - $ 71 The accompanying notes are an integral part of these condensed financial statements. 5 VITRONICS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) A. Basis for Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month and six month period ended July 1, 1995 are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. For further information, refer to the Company's consolidated financial statements and notes thereto contained in the Company's Form 10-K for the year ended December 31, 1994 filed with the Securities and Exchange Commission (File #0-13715) on March 22, 1995 and amended on August 4, 1995. B. Inventories Inventories valued at the lower of cost (determined using the first-in, first-out method) or market, net of valuation reserves of $522,000 and $367,000, respectively, were as follows (in thousands): July 1, December 31, 1995 1994 ------- ------------ Finished goods $ 551 $ 224 Work in process 961 369 Raw Materials 1,265 1,501 ------ ------ 2,777 2,094 ====== ====== 6 VITRONICS CORPORATION CALCULATION OF NET INCOME PER COMMON SHARE FOR THE THREE MONTHS ENDED JULY 1, 1995 AND JULY 2, 1994 July 1, 1995 ------------ Fully Primary Diluted ------- ------- Net Income $426 $456 Weighted Average Shares Outstanding: Common Stock 7,553,638 7,553,638 Convertible Debentures 2,400,000 Warrants 203,945 212,830 Stock Options 337,628 371,016 --------- ---------- Weighted Averaged Shares 8,095,211 10,537,484 Outstanding Income Per Share $.05 $.04 -------------------------------------------------------------------------------- July 2, 1994 ------------ Fully Primary Diluted ------- ------- Net Income $ 59 $ 89 Weighted Average Shares Outstanding: Common Stock 7,520,538 7,520,538 Convertible Debentures 2,400,000 Warrants 71,806 71,806 Stock Options 0 0 --------- --------- Weighted Averaged Shares Outstanding 7,592,344 9,992,344 Income Per Share $.01 $.01 7 VITRONICS CORPORATION CALCULATION OF NET INCOME PER COMMON SHARE FOR THE SIX MONTHS ENDED JULY 1, 1995 AND JULY 2, 1994 July 1, 1995 ------------ Fully Primary Diluted ------- ------- Net Income $650 $710 Weighted Average Shares Outstanding: Common Stock 7,552,611 7,552,611 Convertible Debentures 2,400,000 Warrants 212,107 216,895 Stock Options 367,383 385,369 --------- ---------- Weighted Averaged Shares 8,132,101 10,554,875 Outstanding Income Per Share $.08 $.07 -------------------------------------------------------------------------------- July 2, 1994 ------------ Fully Primary Diluted ------- ------- Net Income $ 71 $131 Weighted Average Shares Outstanding: Common Stock 7,453,806 7,453,806 Convertible Debentures 2,400,000 Warrants 99,079 99,079 Stock Options 13,528 13,528 --------- ---------- Weighted Averaged Shares Outstanding 7,566,413 9,966,413 Income Per Share $.01 $.01 8 VITRONICS CORPORATION AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operation -------------------- Sales for the second quarter ended July 1, 1995 increased 56% to $5,767,000 from $3,704,000 for the same period of 1994. Sales for the six months ended July 1, 1995 were $10,620,000 versus $7,288,000 for the same period in 1994, an increase of 46%. Bookings for the three months ended July 1, 1995 increased 47% to $6,736,000 from $4,584,000 for the same period in 1994. Bookings for the six months ended July 1, 1995 were $12,069,000 versus $8,212,000 for the same period in 1994, an increase of 47%. The increase in bookings and revenue were a result of increased demand for the Company's UNITHERM(R), UNITHERM(R) II and ISOTHERM/TM/ products. The Company does not anticipate that the percentage increase in net revenue and bookings for the three and six month periods ending July 1, 1995 are necessarily indicative of the percentage increase in net revenues to be expected for the entire fiscal year. Backlog as of July 1, 1995 was $4,038,000 versus $2,589,000 at December 31, 1994 and $3,057,000 as of July 2, 1994. Gross margin for the three months ended July 1, 1995 increased to 42% from 37% for the same period in 1994. For the six month period ended July 1, 1995, the gross margin percentage was 40% versus 35% for the same period in 1993. The increase in margins is due to a significantly higher volume of sales, reduced overhead spending and reduced material costs. The Company increased its deductions/write-offs for excess and obsolete inventory to $101,000 in the second quarter of 1995, as compared to $76,000 in the first quarter of 1994, and increased its provision for inventory reserves from $367,000 at the end of 1994 to $522,000 at the end of the second quarter of 1995. Deductions and write-offs for the first six months of 1995 were $155,000 as compared to $106,000 in 1994. Such increases are principally related to the Company's production process and product line evolution. As the Company made changes in designs and processes, certain existing inventories were affected. The Company also changed its production process as the UNITHERM/TM/ product evolved. This change necessitated the rework of certain inventory items and the obsolescence of other items. The Company increased its reserves for obsolescence in recognition of these events. Operating expenses for the three months ended July 1, 1995 were $1,931,000 versus $1,246,000 for the same period of 1994, an increase of 55%. Operating expenses as a percentage of sales were 33% and 34%, respectively. Operating expenses for the six months ended July 1, 1995 were $3,524,000 versus $2,394,000 for the same period in 1994, an increase of 47%. Operating expenses as a percentage of sales were 33% and 33%, for the resepctive six month periods. The increase in actual spending is a result of the higher sales volume which resulted in higher commission and marketing expenses and increased staffing levels. The Company also incurred approximately $100,000 of costs relating to the Registration Statement filed on Form S-3 and an additional $100,000 of costs associated with the anticipated conversion of the $1.2 million subordinated convertible debenture. For the second quarter of 1995, selling, general and administrative 9 expenses as a percentage of sales were 26% versus 25% in 1994. The costs relating to the Registration Statement and debenture conversion which were included in selling, general & administrative expenses represented 3% of sales in the second quarter and 2% of sales for the six month period. Research and development expenses as a percentage of sales for such periods were 6% in 1995, and 7% in 1994. For the six months ended July 1, 1995 selling, general and administrative expenses as a percentage of sales were 26% as compared to 25% in 1994. Research and development expenses as a percentage of sales were 6% in 1995 and 7% in 1994. Patent litigation costs were $75,000 for the second quarter of 1995 as compared to $60,000 for the second quarter of 1994. For the six month period ended July 1, 1995, patent litigation costs were $150,000 as compared to $91,000 for the same period in 1994. The Company had non-operating expenses, primarily interest expense net, of $52,000 for the three months ended July 1, 1995 compared with $55,000 for the same period of 1994. During the first six months of 1995, the Company incurred non-operating expenses, primarily interestexpense net, of $103,000 compared with $121,000 for the same period of 1994. Net income for the second quarter of 1995 was $426,000 compared to $59,000 for the comparable period of 1994. Net income was $.05 per primary share, and $.04 per fully diluted share. For the comparable 1994 period, net income per share was $.01. Net income for the first six months of 1995 was $650,000 compared to $71,000 for the same period in 1994. Net income for the six month period of 1995 was $.08 per primary share, and $.07 per fully diluted share. For the comparable period of 1994, net income per share was $.01. Liquidity and Capital Resources ------------------------------- The Company continues to monitor its operational spending levels very closely with the goal of cash conservation. During the first six months of 1995, cash increased $181,000 to $852,000. During March 1995, the Company obtained a $500,000 revolving line of credit with First National Bank of Portsmouth. The Company believes this funding source, combined with its existing cash balances and anticipated cash flow from operations, will be adequate to meet its working capital requirements for the remainder of the year. To date, the Company has not utilized this line of credit. 10 VITRONICS CORPORATION PART II OTHER INFORMATION Items 1 through 3: Not applicable Item 4 - Submission of Matters to a Vote of Security Holders On May 4, 1995, the Company held its Annual Meeting of Stockholders. David R. A. Steadman was elected as Class B Director of the Company. Set forth below are the results of each matter voted upon at the Annual Meeting: 1. Election of Directors For Withheld --- -------- David R. A. Steadman 6,127,466 14,572 2. Ratification of the appointment of Coopers & Lybrand as the Company's independent public accountants: For Against Abstentions --- ------- ----------- 6,130,879 7,399 3,760 3. Adoption of Key Employees' Stock Option Plan For Against Abstentions --- ------- ----------- 5,938,018 112,799 91,221 Item 5: Other Information On April 25, 1995, the Company filed a Registration Statement on Form S-3, and an amended Form S-3 on July 18, 1995, August 3, 1995 and August 9, 1995 with the Securities and Exchange Commission covering 2,888,225 shares of its common stock which includes 2,400,000 shares reserved for issuance upon conversion of the Company's outstanding $1.2 million subordinated convertible debenture dated October 1, 1993, 346,225 shares issuable upon exercise of outstanding warrants held by the underwriter for the Company's 1992 Right's Offering and 142,000 shares sold to a vendor of the Company in 1992. The Company filed the Registration Statement due to the exercise of registration rights previously granted to the holders of the Company's underwriter warrants and subordinated convertible debenture. The Company will incur the cost of the registration. However, the Company will not receive any proceeds from the sale of the stock by the selling stockholders. The holders of the Company's subordinated convertible debenture will convert the entire debenture and are selling 1,920,000 of the 2,400,000 shares pursuant to a firm commitment underwriting by Schneider Securities, Inc. 11 Item 6: (a). Exhibits 27 Financial Data Schedule (b). Reports on Form 8-K None 12 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. VITRONICS CORPORATION Date: August 9, 1995 By: /s/ James J. Manfield, Jr. -------------------------- James J. Manfield, Jr. Chairman of the Board, Chief Executive Officer, Chief Financial Officer, and Treasurer Date: August 9, 1995 By: /s/ Ronald W. Lawler -------------------------- Ronald W. Lawler, President and Chief Operating Officer Date: August 9, 1995 By: /s/ Daniel J. Sullivan -------------------------- Daniel J. Sullivan, Vice President, Controller and Principal Accounting Officer 13