FORM 10-K/A/1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________to_______________
Commission File No. 0-13715
VITRONICS CORPORATION
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF MASSACHUSETTS 04-2726873
--------------------------------- -------------------
(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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
--------------
(Title of Class)
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 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
----- -----
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. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 9, 1995, was $10,856,702.00
Number of shares outstanding of the registrant's Common Stock, $.01 par
value as of March 9, 1995: 7,552,488 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for the 1995 Annual
Meeting of Shareholders are incorporated by reference into Part III.
VITRONICS CORPORATION
PART I
ITEM 1. BUSINESS
Vitronics Corporation (the "Company") was incorporated in Massachusetts on
April 21, 1981. The Company is engaged in the design, engineering, manufacture
and marketing of state-of-the-art thermal processing systems for soldering
surface mounted devices to printed circuit boards and cleaning of the finished
assembly. The Company's customers are captive and contract manufacturers of
medium to high reliability printed circuit boards.
CURRENT PRODUCTS:
The Company produces several lines of solder reflow ovens used primarily in
the final step of attachment of surface mounted devices to printed circuit
boards. Using similar technology, the Company has also produced systems for
attaching hybrid circuits to ceramic substrates and for curing epoxies and
adhesives used in bonding applications by the electronics industry.
The products fall into four broad categories, each available in a range of
sizes to accommodate the throughput and space requirements of the circuit board
manufacturer.
- The SMR UNITHERM reflow series - high production rate, fully featured,
forced convection reflow ovens.
- The SMR ISOTHERM reflow series - low to medium production rate, forced
convection reflow ovens with basic features.
- The SMD reflow series - high production rate, infrared/natural convection
reflow ovens.
- The GP/MP series - low volume, benchtop, infrared/natural convection reflow
ovens.
Soldering remains the preferred method of permanently attaching hybrid and
semiconductor packages, microprocessors, resistors, capacitors and other common
electronic components to the surface of printed circuit boards.
Substrate/component assemblies treated with a coating of solder paste are placed
onto the conveyor system, which transports them at a constant rate through a
heated tunnel consisting of one or more individually heated and controlled
zones. Heat is transferred at a precisely controlled rate to the assemblies by
means of convection and radiation until the solder melts and flows between the
component leads and the circuit board. Rapid cooling ensures the formation of
the desired solder joints. This thermal process is also applicable to the
production of a variety of electronic component packages, including ceramic
hybrids, semiconductors and glass/epoxy circuits.
The Company's SMR series reflow soldering systems incorporate a heater and
cell design with the benefits of high efficiency, forced convection heat
transfer, in addition to a background of infrared radiation. A unique feature of
this cell is the individual zone exhaust which removes solder paste fumes as
they are generated. Patent applications are pending worldwide covering the
unique features of the SMR series reflow soldering systems. The UNITHERM version
incorporates multiple heating cells both above and below the conveyor. The
economical ISOTHERM version, introduced in 1994, employs heater cells only above
the conveyor. In both versions, product heating is accomplished with high
velocity heated gas that is distributed with optimal flow uniformity across the
entire heating area supported by a background of infrared emission from the
heated surfaces. A second generation UNITHERM series introduced in 1994, offers
advanced features including controlled exhaust heater, auto chain lubrication,
variable tunnel aperture, and fume capture, for full automation. The Company
continues to produce its original SMD reflow systems for selected customers and
applications.
In addition to reflow ovens, the Company markets a line of aqueous and semi-
aqueous circuit board cleaners. These cleaners offer the printed circuit board
industry environmentally safe, yet cost effective, cleaning methods. The semi-
aqueous cleaners are designed to remove both rosin-based and water soluble
organic fluxes using non-CFC, biodegradable solvents for environmental safety.
The systems will
2
operate both on-line or off-line with a variable speed conveyor system
facilitating the interface with any in-line soldering system. The first model
introduced by the Company in 1990, is known as the ENVIROCLEAN 3000 semi-aqueous
cleaning system. In 1993, the Company introduced the advanced ENVIROCLEAN 3500
semi-aqueous cleaning system, which incorporates an integrated emulsion module
with a decanter/separator and enhanced cleaning and drying capabilities.
PRODUCT APPLICATIONS:
Printed Circuit Board Systems - The trend in the printed circuit board (PCB)
-----------------------------
segment of the electronics industry is the attachment of surface-mounted
electronic components and devices to PCBs. The Company's solder reflow systems
are well suited to this task because of unique forced convection/infrared
heating cells and process gas management systems. The wide range of oven sizes
and features ensures the satisfaction of virtually all market requirements. The
Company's cleaning systems used for the removal of flux residues from finished
assemblies are not harmful to the environment due to the use of non-CFC
solvents. Specifically, the ENVIROCLEAN and AQUAPRO cleaning products use either
semi-aqueous or aqueous cleaning technology. In both cases, the residues from
the cleaning process may be disposed of in the environment with no substantial
long term harm. The aqueous cleaner uses just water or water with a small amount
of common saponifier. Furthermore, the semi-aqueous terpenes are biodegradable.
This is in direct contrast to previous cleaning technologies that utilized
organic solvents known commonly as CFCs (chlorofluorocarbons). CFCs are both
toxic and ozone depleting.
PRODUCT OPTIONS AND ENHANCEMENTS:
Nitrogen Atmosphere - This option gives an inert atmosphere with tight control
-------------------
of oxygen levels (below 20 parts per million), which gives the process engineer
the ability to accommodate new assembly materials and processes.
Controlled Convection/Infrared - This option allows the process engineer
------------------------------
increased thermal stability and uniformity throughout the reflow cycle, thus
increasing production yields.
32 Loop Controller - A 32 loop proportional controller with integral and
------------------
differential control has been developed and integrated into the SMD and UNITHERM
series ovens. The 32 loop reduces cost on the larger ovens and adds versatility
of control.
Rail/Chain Conveyor Transport System - This option allows routine double-sided
------------------------------------
surface mount soldering without the necessity of fixturing as is necessary with
standard belt conveyors. This is made possible by allowing two edges of a board
to rest on pins which protrude from two moving chains that ride through
adjustable rails. A key benefit of this edge rail system is the 10 to 30 percent
increase in processing speed relative to the belt system.
Enhanced Cooling - This option provides additional cooling capacity within the
----------------
process tunnel to reduce both solder liquidous times and finished product
temperatures for product handling requirements.
PRODUCTS AND PROCESSES UNDER DEVELOPMENT:
Thermal Process Management - The Company continues to research methods and
--------------------------
products that improve the process integrity, automation and efficiency of its
thermal methodology.
Product Range - The Company continues to broaden its product range to address
-------------
ever larger segments of the printed circuit board market.
RESEARCH AND DEVELOPMENT:
During the year ended December 31, 1994, the Company expended $1,010,000 or 6%
of its net sales on research and development. Such expenditures were $860,000 or
7% of net sales in 1993, and $1,130,000 or 9% of net sales in 1992. All of the
Company's existing products have been designed and developed by the Company or
its subsidiaries.
MARKETS:
The primary market for the Company's products is the electronics industry,
where the systems are used in the production of printed circuit boards, ceramic
hybrids, semiconductor packages, and glass/epoxy circuits. Additional
applications of the Company's products within the electronics industry include:
circuit board drying, epoxy curing, hybrid solder reflow, polymer curing, and
thick film drying.
Segments of the electronics industry served by the Company's products are:
computers and peripheral office equipment, military electronics, consumer
electronic products, automotive electronics, telecommunication equipment, test
and measurement equipment, mechanical electronics, and contract assembly.
3
MATERIALS:
The Company continues to produce in-house all of its thermal source emitters
and cells. The Company currently has one source for its microprocessor which is
used to interface the onboard computer with the machine in the Command Control
system, and feels that this microprocessor could be produced in-house or
obtained from another source. The Company has developed a new microprocessor for
its ISOTHERM machines. Work is currently being done to upgrade the
microprocessor for use on the UNITHERM product line. This new microprocessor
will enable the Company to develop an alternative source for its microprocessor.
The other components being used in the assembly of systems produced by the
Company are purchased from original equipment manufacturers, electronic supply
firms and others. The Company has no reason to believe that it cannot continue
to obtain such components, or suitable substitutes as required.
PATENTS AND TRADEMARKS:
The Company was issued a United States patent in January 1986 covering the
multi-zone thermal processing systems produced by the Company. A second patent
was issued in July 1986, on the source emitter panel produced by the Company.
Other patents cover the process for mounting surface-mount devices to printed
circuit boards through the use of solder reflow, and an improved source emitter
panel. The Company has also filed foreign patent applications corresponding to
the foregoing United States patents where it has been deemed advisable. Several
of these foreign applications have been granted. Management believes that the
patents strengthen the Company's competitive position.
With respect to the ENVIROCLEAN product line, the Company's utilizes semi-
aqueous cleaning agent known as "terpenes." These compounds have a low flash
point which may create a hazard with hot circuit boards. The Company has a
patent on a fire-retardant system and on a particular spray nozzle device both
of which reduce the risk of fire/heat damage and enable safer utilization of the
terpenes in the Company's cleaning systems. The Company believes that these
patents theoretically strengthen its competitive position of its cleaning
systems by enhancing marketability and serving as a barrier to new competitors
in this field who could otherwise develop similar technology. The Company has
three issued U.S. Patents and several pending applications worldwide covering
various aspects of the semi-aqueous cleaning systems.
With respect to the UNITHERM product line, the patents cover both the heater
technology and the individual zone exhausts. The Company again believes that
these patents theoretically strengthen its competitive position by enhancing
marketability of its UNITHERM product line and serving as a barrier to new
competitors in this field who could otherwise develop similar technology. The
Company has an issued U.S. Patent, as well as additional pending patent
applications in the U.S. and worldwide, covering its UNITHERM product line.
In general, the Company does not believe that its patents have any direct
impact at present on existing competitors. However, if the Company's lawsuit
--------
against Conceptronic, Inc. (See "Legal Proceeding" below) is successful, the
Company believes that certain licensing opportunities may arise with respect to
its technology that could serve to further strengthen its competitive position
with both existing and potential competitors. The Company at present does not
license any of its technology to any competitors or other non-affiliated
entities. See "Competition" below.
The Company has U.S. and foreign trademark registrations for the trademark
VITRONICS, as well as a U.S. trademark registration for the VITRONICS LOGO,
UNITHERM and ENVIROCLEAN. The Company also uses unregistered trademarks for
ISOTHERM, VITRO-SENSE, Natural Convection/Infrared, Controlled
Convection/Infrared, VITRO-FOIL and VITRO-CLEAN.
CUSTOMERS AND MARKETING:
The Company is involved in surface-mount solder reflow with its patented
convection/infrared thermal technology. The Company has systems operating
successfully in most of the major contract and captive electronics companies
throughout the world. Such customers include:
Allied-Signal GTE
AT&T Hughes Aircraft SCI Systems
Avex Electronics IBM Scientific Atlanta
Bose Intergraph TRW
Chrysler Intel US Assemblies
Cray Research Lockheed Varian
DuPont Motorola Xerox
General Electric Northern Telecom Zenith
GM (Delco Div.) Raytheon
International customers of the Company include:
L.M. Ericsson Mitsubishi Rank Xerox
Fujitsu Motorola Samsung
General Motors NEC Siemens
Goldstar Olivetti Texas Instruments
Hitachi Olympus Toshiba
Lucas Phillips
4
The Company's marketing and sales program includes: paid advertising, new
product announcements in industrial and commercial publications, direct mail
campaigns, technical articles, trade show exhibits, personal contacts and
trained sales representatives in the U.S., Canada, Southeast Asia, Europe, South
America, India and Israel.
The Company has 10 persons employed in its sales and marketing department,
including one person in both the West Coast and Central Regions, and 1 person in
its U.K. direct sales organization. The Company also utilizes 20 independent
sales representative organizations located in the United States and Canada, and
22 independent distributor organizations overseas.
During 1994, one of the Company's customers accounted for 15% of net sales
($2,544,000). None of the Company's customers accounted for 10% or more of its
net sales in 1993 and one customer accounted for 11% of total net sales in 1992
($1,315,000). The Company has no contracts that are subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
government. The Company's business is not seasonal in any material respect.
OEM Supply Relationships The Company has formed supply relationships with
------------------------
a number of "pick and place" original equipment manufacturers. "Pick and place"
is the term used to describe the automated technology used to place components
on PCBs prior to attachment and soldering. In each of these relationships, the
Company's solder reflow systems are purchased by the OEM and resold as a package
with pick and place equipment as part of an in-line assembly system.
BACKLOG:
On December 31, 1994, the Company had purchase orders reflecting a backlog
of $2,589,000 as compared to a December 31, 1993 backlog of $2,133,000. The
backlog has increased as a result of the increased bookings activity seen during
the year. All of the backlog at December 31, 1994 is expected to be shipped
within the next six months. At present, most of its customers pay the Company
within 40 to 60 days of billing.
COMPETITION:
Solder Reflow Systems Both domestically and internationally, the Company
---------------------
confronts competition from three primary competitors in the solder reflow
systems market. In addition, there are three lesser competitors selling systems
primarily in the United States' domestic market. In Europe, the Company competes
with companies based in Germany, France and the United Kingdom. The Japanese
market is dominated by three Japanese manufacturers that have focused almost
exclusively on that market. Asia (excluding Japan) has a mix of competitors,
none of which have significant market share on a worldwide basis. Management of
the Company believes that product performance, reliability and cost of operation
are the chief competitive factors in the market for solder reflow products. The
Company believes that its UNITHERM product line permits the Company to retain a
substantial market share in the solder reflow market place.
The Company's solder reflow systems may also face competition from the
development of electrically conductive adhesives designed to eliminate the need
to solder components to PCBs. At this point in the development of conductive
adhesives we believe that even if the adhesives are technologically sucessful,
they will require heat treatment or curing, and therefore they will continue to
represent a market for the Company's solder reflow technology. The potential
impact on the Company's semi-aqueous system business is uncertain, and this
business could be jeopardized.
Semi-Aqueous Cleaning Systems The Company is in strong competition with
-----------------------------
three primary competitors that manufacture semi-aqueous cleaning systems.
Competition is based on both price and performance considerations. Due to the
relatively large base of potential customers who have previously purchased the
Company's solder reflow systems, and the fact that the Company's semi-aqueous
system was the first such system to gain market acceptance, the Company believes
it is favorably positioned to take advantage of the expected rise in demand for
environmentally friendly semi-aqueous cleaning systems.
The Company's semi-aqueous cleaning technology, unlike the technology
employed by its three main competitors, utilizes a spray technique as opposed to
an immersion process. The Company believes that its spray technique is more
advanced and also gives the Company a cost advantage over its competitors.
5
The Company's semi-aqueous cleaning systems, which have been fully
developed, also face competition from the growing acceptance and utilization of
"no clean" solder pastes which produce minimal flux residue, thus reducing and
potentially eliminating the need for post-assembly PCB cleaning and the
emergence of electrically-conductive adhesives. There can be no assurance that
the technology necessary to make and effectively use "no clean" solder pastes
which meet high reliability standards will not be developed. In this event the
market for semi-aqueous cleaning systems could be substantially reduced.
ENVIRONMENTAL COMPLIANCE:
Due to the nature of the Company's products, it has not been materially
affected by environmental laws. Management does not expect its capital
expenditures, earnings or competitive position to be materially affected in the
future.
EMPLOYEES:
As of December 31, 1994, the Company employed 114 full-time persons.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES:
During the year ended December 31, 1994, approximately $7,912,000 or 46% of
the Company's sales were foreign sales, primarily to European and Southeast
Asian companies, and $7,436,000 or 58% for the year ended December 31, 1993,
were foreign sales. Other information concerning foreign sales for the last
three fiscal years is presented in Note K to the Consolidated Financial
Statements.
ITEM 2. PROPERTIES
The executive offices and principal place of business of the Company are
located at Forbes Road, Newmarket Industrial Park, Newmarket, New Hampshire. The
Company leases two buildings, one 23,990 square foot facility for administration
and manufacturing, and one 9,400 square foot facility used exclusively as a
stockroom. The 23,990 square foot facility has a lease which expires in February
1999, and the 9,400 square foot facility has a three year lease which expires in
January 1997. The Company has the option to purchase the 23,990 property at the
end of the lease period for $1,100,000.00. The interior layout and leasehold
improvements to the 23,990 square foot facility were constructed to the
Company's specifications for its use of the facilities.
The Company's wholly-owned subsidiary, Vitronics Europe Limited ("VEL"),
leases a 15,000 square foot manufacturing and distribution facility in Plymouth,
England. This lease, which expired in June 1992, is continuing on a month-to-
month basis.
The Company believes that its current facilities are adequate for 1995
operations.
ITEM 3. LEGAL PROCEEDINGS
On November 26, 1991, the Company commenced an action entitled Vitronics
Corporation v. Conceptronic, Inc., Civil Action No. C91-696L in the United
States District Court for the District of New Hampshire. The Company brought
suit for infringement of its patents covering its method and apparatus for
solder reflow of surface-mounted devices to printed circuit boards. The specific
patents involved were U.S. Patent 4,833,301 (the "301 Patent") and U.S. Patent
4,654,502 (the "502 Patent"). The Company is seeking an injunction and monetary
damages in the form of profits lost because of the defendant's sales of
infringing devices.
The '301 Patent covers the reflow soldering apparatus used by the Company
to attach electronic circuit components to pre-printed infrared heating. The
'502 Patent covers the operating procedure associated with this apparatus. Both
patents were issued to Edward Furtek, a former employee of the Company, and
assigned to the Company. Mr. Furtek subsequently founded Conceptronic, and began
selling reflow soldering apparatus which constitutes the subject matter of this
litigation.
On July 20, 1992, the Court granted the Company's motion for summary
judgment of infringement with respect to the '301 patent but denied the
Company's motion for summary judgment with respect to the '502 patent, because
it found that a factual dispute remained over whether the component temperatures
claimed in the '502 patent existed in the Conceptronic system. Further, the
Court denied
6
Conceptronic's motion for summary judgment.
However, on October 8, 1992, in response to a motion for reconsideration
filed by Conceptronic, the Court reconsidered its earlier grant of summary
judgment. The Court determined that there was indeed a dispute between the
parties as to whether or not the thermocouple used by Conceptronic to measure
the temperature of the air passing through its heater panels was substantially
equivalent in structure to the means for controlling the heater panel
temperature described in the Vitronics patents. In its findings, the Court did,
however, determine that the Conceptronic system performs the same function as
the apparatus disclosed in the patent. Thus, the only issue relating to
infringement to be resolved at trial is whether or not the structure described
in the patent is substantially equivalent to the structure used to control the
temperature in the Conceptronic system.
On October 20, 1992, in response to a second motion by Conceptronic to
reconsider its ruling on assignor estoppel, the Court reaffirmed its finding in
the original grant of summary judgment that because Edward Furtek was the named
inventor on the patents assigned to Vitronics, both he and his company,
Conceptronic, were precluded from challenging the validity of these patents in
this litigation.
In a further order on March 29, 1993, in response to a motion filed by the
Company to limit discovery, the Court reaffirmed its view that the only issues
to be resolved at trial relate to the foregoing issue of whether or not the
structure of the temperature control system in the Conceptronic oven is
equivalent to the structure described in the Vitronics patents, and to the
defense of Conceptronic that the Conceptronic system is so different from that
described in the Vitronics patents, that it cannot be held to infringe, even
though the claims of the patent literally read on the Conceptronic system. The
Court then went on to rule that discovery which extended beyond these topics and
Conceptronic's counterclaims would be prohibited.
On December 6, 1993, the Court granted the Company's motion for summary
judgment with respect to Conceptronic's counterclaims alleging abuse of process
and tortious interference with business relations. These counterclaims were
based solely on the Company's filing of its claim for patent infringement.
Conceptronic's counterclaims were dismissed in their entirety, thereby relieving
Vitronics of any potential liability, and greatly simplifying the remaining
discovery.
Conceptronic filed a motion to amend the answer and counterclaim to include
a defense based on fraud or inequitable conduct in the procurement of the '301
and '502 patents. This motion to amend was denied on March 22, 1994, and on
September 29, 1994, the Court denied a subsequent motion filed by Conceptronic
for reconsideration of the denial of its motion to amend.
Conceptronic also filed a motion for partial summary judgment of non-
infringement relating to Conceptronic's HVC Series ovens. This motion for
partial summary judgment was denied on October 4, 1994.
The foregoing rulings mean that the Court has determined that
Conceptronic's inequitable conduct defense has no merit. The rulings also mean
that the Court has determined as a matter of law that Vitronics has come forward
with sufficient facts, if proved at trial, to establish Conceptronic's
infringement of the Vitronics' patents by its manufacture and sale of
Conceptronic's HVC Series ovens.
Conceptronic has requested re-examination of the '301 patent by the U.S.
Patent and Trademark Office. Conceptronic contends that the '301 patent is
invalid due to certain prior art which it has uncovered, including Vitronics'
own sales literature. Vitronics is confident that Conceptronic's challenge to
the validity of the '301 patent will fail. Moreover, Conceptronic's motion
requesting the Court to stay the foregoing litigation pending the outcome of
this re-examination proceeding was denied by the Court on December 8, 1994. As a
result, the trial has been set to begin on June 20, 1995.
Based upon the events to date and upon the findings by the Court, the
Company is very optimistic that it will ultimately prevail in this litigation.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders, through the solicitation of
proxies or otherwise.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the American Stock Exchange under the
trading symbol VTC. As of December 31, 1994, there were 7,550,538 shares of
common stock issued and outstanding held by 682 stockholders of record.
The following table presents high and low sales prices for the Common Stock
for each fiscal quarter within the fiscal years ended December 31, 1994 and
1993.
Common Stock
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------- ------------- ------------- ------------
High Low High Low High Low High Low
1994 1 3/16 5/8 15/16 5/8 1 5/8 1 13/16 11/16
1993 7/8 9/16 11/16 7/16 13/16 3/8 1 1/8 9/16
As of March 9, 1995, $1 /7//16 was the closing price for the Company's
Common Stock. Dividends are payable only when, and if, declared by the Board of
Directors from funds legally available and are dependent upon earnings, the
general financial status of the Company, and various other factors. The Company
has paid no dividends on its Common Stock and has no intention of doing so in
the near future.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands except share amounts)
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
OPERATING DATA - YEAR ENDED DECEMBER 31
Net sales $17,346 $12,778 $12,373 $14,312 $18,168
Income (loss) after extraordinary item 602 (1,357) (2,965) (2,252) 702
Income (loss) per common share:
Primary .08 (.18) (.70) (.57) .18
Fully Diluted .07 (.18) (.70) (.57) .18
Backlog 2,589 2,133 3,018 1,282 2,874
Weighted average number of common
shares outstanding:
Primary 7,739 7,379 4,216 3,929 3,936
Fully Diluted 10,190 7,379 4,216 3,929 3,936
BALANCE SHEET DATA AT DECEMBER 31
Working capital $ 2,676 $ 2,096 $ 1,729 $ 2,635 $ 6,698
Total assets 6,052 4,796 6,755 9,620 12,392
Long-term liabilities 1,323 1,605 54 124 2,584
Stockholders' equity 1,728 999 2,382 4,265 6,527
No dividends have been paid or declared by the Company.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table provides percentage comparisons of the components of net
income (loss) as presented in the Consolidated Statements of Operations included
elsewhere herein for the last three fiscal years.
% Increase (Decrease)
--------------------------------
% of Net Sales 1994 1993
-------------------------
Years Ended December 31, Compared to Compared to
-------------------------
1994 1993 1992 1993 1992
---- ---- ---- ------------ --------------
Net Sales 100% 100% 100% 36% 3%
Gross Profit 36 28 16 76 78
Selling, General
& Administrative 23 26 31 22 (12)
Research & Development 6 7 9 17 (24)
Non-Recurring Charges - 3 - - -
Patent litigation 2 1 2 160 (31)
Sales were $17,346,000 in 1994, $12,778,000 in 1993, and $12,373,000 in 1992.
Bookings for 1994 increased 50% to $17,802,000 from $11,893,000 in 1993.
Bookings for 1992 were $14,109,000. The Company's backlog was $2,589,000 at
December 31, 1994 versus $2,133,000 at December 31, 1993. The increase was a
result of a turnaround in the electronics industry, an increased demand for the
Company's new products, ISOTHERM and UNITHERM II, and a recapture of market
share lost in 1991 through 1993. During 1994, sales of semi-aqueous cleaners
were very slow, while sales of aqueous cleaners had slightly more activity.
Despite the total elimination of CFC production in 1995, the expected increased
revenue from these products has not yet materialized as expected. The decrease
in bookings for 1993 was due to a continued slow-down in capital spending in the
U.S. and Europe. In particular, the reduction in revenues from Asia in 1994 of
approximately $1 million as compared to 1993 was principally related to the
introduction of the UNITHERM product in Asia in the first quarter of 1993. The
product was scheduled for introduction in 1992. The resulting sales increase in
1993 reflected backlog which developed as a result of the delayed introduction.
In 1994, gross profit percentage increased to 36% from 28% in 1993, primarily
due to decreased material costs and increased labor productivity, which was
partially offset by increased discounting and unabsorbed manufacturing overhead.
Steps were taken in the fourth quarter of 1993 to consolidate manufacturing
operations into one building in New Hampshire. This resulted in substantial
savings in 1994.
In 1992, margins were adversely affected by increased material costs with a
premium paid for materials associated with the start-up and enhancement of the
UNITHERM reflow system and higher learning costs of direct labor. The Company
also adjusted inventory values with the changeover to the new UNITHERM line.
Selling, general and administrative expenses increased in 1994 to $4,072,000
from $3,338,000 in 1993. However, as a percentage of sales, selling, general
and administrative expenses decreased to 23% in 1994 from 26% in 1993. The
increase in actual spending is partially a result of the increased sales volume
and the restoration of commission rates to previous levels. In 1992, selling,
general and administrative expenses were $3,778,000 or 31% of sales. The
Company incurred advertising costs of $176,000 in 1994, $147,000 in 1993, and
$143,000 in 1992.
Research and development expenses increased 17% to $1,010,000 in 1994 from
$860,000 in 1993. The increase was a result of increased headcount as the
Company accelerated the introduction of new products and enhanced features
during the year. Research and development expenses were $1,130,000 in 1992.
In 1993, the Company incurred $420,000 of non-recurring charges. The Company
wrote off restructuring charges of $290,000 relating to the consolidation of
manufacturing from two buildings into one building and the payment of severance
costs. The Company wrote off $130,000 of goodwill relating to the Gram
Corporation acquisition in 1988. During 1993 the Company's revenues from the
product line were diminishing and as such the asset had no value. Revenues from
the Gram product line were approximately $1,700,000 in 1992 and had decreased to
approximately $500,000 in 1993. The Company also believed that future sales of
this product would continue to decrease. The Company also wrote off $90,000
relating to a prior year foreign tax credit. This credit was for the Company's
United Kingdom subsidiary, which had losses in 1991, 1992 and 1993. The income
tax reserve account analysis showed that the $90,000 foreign tax credit was
determined to be unrealizable by the Company.
9
Costs relating to the Company's patent infringement lawsuit against
Conceptronic were $530.000 for 1994, $127,000 for 1993, and $184,000 for 1992.
The Company had net non-operating expenses of $171,000 in 1994 compared to
$105,000 for 1993 and $(90,000) for 1992. The Company also incurred $72,000 of
legal and consulting costs relating to the Company's term loan agreement default
in 1992. The Company, as part of a planned program to generate cash, sold a
number of its demo machines, in either inventory or fixed assets, and realized a
gain of $85,000 in 1994, versus $42,000 in 1993, and $151,000 in 1992. The
Company also incurred $61,000 of cash discounts in 1994, versus $86,000 in 1993,
and $45,000 in 1992.
The Company increased its deductions/write-offs for excess and obsolete
inventory to $219,000 in 1994 as compared to $74,000 in 1993, and increased its
provision for inventory reserves from $289,000 at the end of 1993 to $367,000 at
the end of 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 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.
LIQUIDITY AND CAPITAL RESOURCES
During the last three fiscal years, the Company has financed its operations
with internally generated funds and equity raised in a Rights Offering completed
in December 1992 and a subordinated convertible loan in 1993. In addition,
during January 1994, the Company pledged receivables and received a $350,000
loan from New England Growth Fund I, L.P.. This loan was repaid in full on
March 31, 1994. In 1994, cash increased by $499,000 as a result of the improved
operations of the Company. During 1994, the Company reduced its long-term debt
by approximately $447,000. During 1993, cash decreased by $1,084,000 as the
Company paid off its bank loan by approximately $684,000 and reduced its accrued
liabilities by $600,000. During 1992, the Company's cash decreased by
approximately $150,000 and the Company also reduced its bank indebtedness by
$1,200,000. During 1993 and 1992, there were no short term borrowings.
During 1992, the Company sold its investments in Research, Inc., Anafaze,
Inc., and the Surface Mount Center of Canada. The proceeds from Research, Inc.,
the SMT Center, and a portion of the Anafaze proceeds were applied to the bank
loan.
The Company has reviewed its capital spending budget for 1995 and expects to
finance its 1995 capital equipment acquisitions through lease financing. The
Company continues to monitor its operational spending levels very closely in
order to conserve cash. In early March 1995, the Company signed a commitment
letter for a $500,000 revolving line of credit with First National Bank of
Portsmouth which is expected to close in late March 1995. The Company believes
that its current cash balances and cash from operations will be adequate to meet
the Company's working capital requirements during the next year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements, together with the reports of the Company's
independent auditors, Coopers & Lybrand L.L.P., are contained on pages 16
through 30 of the 1994 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 response to this item is incorporated herein by reference to the Company's
definitive proxy statement for the Annual Meeting of Shareholders to be held on
May 4, 1995.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated herein by reference to the Company's
definitive proxy statement for the Annual Meeting of Shareholders to be held on
May 4, 1995.
10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is incorporated herein by reference to the Company's
definitive proxy statement for the Annual Meeting of Shareholders to be held on
May 4, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is incorporated herein by reference to the Company's
definitive proxy statement for the Annual Meeting of Shareholders to be held on
May 4, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page No.
(a) 1. The following consolidated financial statements are filed as
part of this report:
Report of Coopers & Lybrand L.L.P., Independent Auditors,
dated February 21, 1995 16
Consolidated Balance Sheets at December 31, 1994 and 1993 17
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1994 18
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended December 31, 1994 19
Consolidated Statements of Cash Flow for each of the
three years in the period ended December 31, 1994 20
Notes to Consolidated Financial Statements for each of the
three years in the period ended December 31, 1994 21
2. THE FOLLOWING FINANCIAL STATEMENT SCHEDULE IS FILED WITH THIS
REPORT:
Schedule II - Valuation and qualifying accounts
All other schedules have been omitted because they are not
applicable, not required under the instructions, or the information
is contained in the financial statements or the notes thereto.
11
3. THE FOLLOWING EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K ARE FILED
WITH THIS REPORT:
EXHIBIT INDEX PAGE NO.
------------- --------
3.1 Articles of Organization, as amended to date (1)
3.2 By-Laws, as amended to date (16)
4.1 Specimen Common Stock Certificate (2)
4.2 Form of Warrant issued to the Underwriter in the Company's
1992 Rights Offering (12)
4.3 Form of 10% Convertible Subordinated Debenture (16)
4.4 Form of Common Stock Purchase Warrant (16)
* 10.1 Incentive Stock Option Plan of 1983 (3)
* 10.2 Incentive Stock Option Plan of 1983-II (3)
* 10.3 Form of Incentive Stock Option Agreement for 1983 Plan
and the 1983-II Plan (3)
10.4 Lease of Real Property from Susan J. Conway, Trustee of
Forbes Realty Trust (2)
* 10.5 1987 Stock Option Plan (5)
10.6 Form of Non-qualified Stock Option Agreement (5)
10.7 Building Agreement and Lease of Premises at Bush Park, Estover,
Plymouth from The Counsel of the City of Plymouth (5)
10.8 Lloyd's Bank Loan Agreement (5)
10.9 Department of Trade and Industry Grant (5)
10.10 Lease of Real Property from Susan J. Conway, Trustee of
Afton Realty Trust (6)
10.11 Consulting Agreement with George F. Soderberg (7)
10.12 Non-Compete Agreement with George F. Soderberg (7)
10.13 Stock Repurchase Agreement with George F. Soderberg (7)
10.14 Subordinated Term Note with George F. Soderberg (7)
10.15 Lease Amendments of Real Property from Susan J. Conway,
Trustee of Forbes Realty Trust (8)
* 10.16 Employment Agreement with James J. Manfield, Jr. (8)(10)(14)
* 10.17 Employment Agreement with Edward A. Richards (8)(10)(14)
10.18 Lease of Real Property from the Corporate Business
Service Limited (9)
10.19 Term Note due from Anafaze, Incorporated and
Security Agreement (9)
* 10.20 Employment Agreement with Albert J. Chanasyk (14)
10.21 Employment Agreement with Dennis J. Monroe (14)
10.22 Employment Agreement by and between Peter D. Spilling and
Vitronics Europe Ltd. (11)
* 10.23 Employment Agreement with Ronald W. Lawler (15)
* 10.24 Severance Agreement with Edward A. Richards (16)
10.25 Convertible Subordinated Debenture Purchase dated October 1, 1993
between the Company and New England Growth Fund I, L.P. (NEGF) (16)
10.26 $1,200,000 10% Convertible Subordinated Debenture dated
October 1, 1993 issued to NEGF (16)
10.27 Amendment to Lease between Forbes Realty Trust and
Vitronics Corporation (16)
10.28 $350,000 Demand Promissory Note of the Company issued to NEGF
dated January 13, 1994 (16)
12
EXHIBIT INDEX PAGE NO.
------------- --------
10.29 Loan Agreement between the Company and NEGF
dated January 13, 1994 (16)
10.30 Security Agreement between the Company and NEGF
dated January 13, 1994 (16)
10.31 Underwriters Common Stock Purchase Warrant issued to
Barclay Investments Inc. dated December 15, 1992 (16)
10.32 Common Stock Purchase Warrant for 125,000 Shares issued
to Barclay Investments Inc. dated October 1, 1993 (16)
11.1 Calculation of Net Income Per Common Share 31
16 Letter from Deloitte & Touche regarding change of Accountant (13)
21.1 Subsidiaries of the registrant 32
99.1 Directors and Officers Liability Policy and Company
reimbursement (4)
99.2 Complaint regarding Conceptronic Patent Litigation (14)
99.3 Conceptronic's response to the Complaint (14)
99.4 Conceptronic's Counterclaim (14)
99.5 Vitronics' response to Conceptronic's Counterclaim (14)
99.6 Order of the United States District Court concerning
Conceptronic Patent Litigation (11)
99.7 Correspondence concerning the Vitronics Europe Limited lease (11)
99.8 Conceptronic's Counterclaim Summary Judgment (16)
(1) Articles of Amendment filed on August 17, 1987 are hereby incorporated by
reference from Exhibits to Annual Report on Form 10-K (File No. 0-13715)
filed by the Company with the Securities and Exchange Commission on March
31, 1988. The balance of Exhibit 3.1 is hereby incorporated by reference
from Exhibits to Amendment No. 1 to Form S-18 Registration Statement (File
No. 2-90042) filed by the Company with the Securities and Exchange
Commission on August 1, 1984.
(2) Exhibits 4.1 and 10.4 are hereby incorporated by reference from Exhibits to
Annual Report on Form 10-K (File No.2-90042) filed by the Company with the
Securities and Exchange Commission on April 1, 1985.
(3) Exhibits 10.1, 10.2 and 10.3 are hereby incorporated by reference from
Exhibits to Form S-18 Registration Statement (File No. 2-90042) filed by
the Company with the Securities and Exchange Commission on March 20, 1984.
(4) Exhibit 99.1 is hereby incorporated by reference from Exhibits to Post-
Effective Amendment No. 1 to Form S-18 Registration Statement (File No. 2-
90042) filed by the Company with the Securities and Exchange Commission on
May 10, 1985.
(5) Exhibits 10.5, 10.6, 10.7, 10.8 and 10.9 are hereby incorporated by
reference from Exhibits to Annual Report on Form 10-K (File No. 0-13715)
filed by the Company with Securities and Exchange Commission on March 31,
1988.
(6) Exhibit 10.10 is hereby incorporated by reference from exhibits to Annual
Report on Form 10-K (File No. 0-13715) filed by the Company with the
Securities and Exchange Commission on March 24, 1989.
13
(7) Exhibits 10.11, 10.12, 10.13 and 10.14 are hereby incorporated by
reference to Form 8-K (File No. 0-13715) filed by the Company with the
Securities and Exchange Commission on February 22, 1990.
(8) Exhibits 10.15, 10.16 and 10.17 are hereby incorporated by reference from
exhibits to Annual Report on Form 10-K (File No. 0-13715) filed by the
Company with the Securities and Exchange Commission on April 2, 1990.
(9) Exhibits 10.18 and 10.19 are hereby incorporated by reference from
exhibits to Annual Report on Form 10-K (File No. 0-13715) filed by the
Company with the Securities and Exchange Commission on April 1, 1991.
(10) Exhibits 10.16 and 10.17 were amended. Copies of such agreements as
amended are hereby incorporated by reference from exhibits to Annual
Report on Form 10-K (File No. 0-13715) filed by the Company with the
Securities and Exchange Commission on March 27, 1992.
(11) Exhibits 10.22, 99.6 and 99.7 are hereby incorporated by reference to
Exhibits to Form S-2 Registration Statement (File No. 33-50928) filed by
the Company with the Securities and Exchange Commission on August 17,
1992.
(12) Exhibit 4.2 was hereby incorporated by reference to Exhibits to Amendment
No. 2 to Form S-2 Registration Statement (File No. 33-50928) filed by the
Company with the Securities and Exchange Commission on November 12, 1992.
(13) Exhibit 16 is hereby incorporated by reference to the Company's Form 8-K
dated December 30, 1992, and to the Amendment thereto on Form 8 dated
January 11, 1993.
(14) Exhibits 10.16, 10.17, 10.20, 10.21, 99.2, 99.3, 99.4 and 99.5 are hereby
incorporated by reference from exhibits to Annual Report on Form 10-K
(File No. 0-13715) filed by the Company with the Securities and Exchange
Commission on March 27, 1992.
(15) Exhibit 10.23 is hereby incorporated by reference from exhibits to Annual
Report on Form 10-K (File No. 0-13715) filed by the Company with the
Securities and Exchange Commission on March 26, 1993.
(16) Exhibits 3.2, 4.3, 4.4, 10.24, 10.25, 10.26, 10.27, 10.28, 10.29, 10.30,
10.31, 10.32, 21.1, 99.8, are hereby incorporated by reference from
Exhibits to Annual Report on Form 10-K (File No. 0-13715) filed by the
Company with the Securities & Exchange Commission on April 13, 1994.
* Management compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K
No Reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant) VITRONICS CORPORATIO
---------------------------------------
By: /s/ JAMES J. MANFIELD, JR. Date: August 4, 1995
------------------------------
James J. Manfield, Jr., Chairman of the Board
and Chief Executive Officer
By: /s/ RONALD W. LAWLER Date: August 4, 1995
-------------------------
Ronald W. Lawler, President and
Chief Operating Officer
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 and in the capacities and on the dates indicated.
By: /s/JAMES J. MANFIELD, JR. Date: August 4, 1995
-----------------------------
James J. Manfield, Jr., Chairman of the Board,
Chief Executive Officer, Chief Financial Officer
and Treasurer
By: /s/DANIEL J. SULLIVAN Date: August 4, 1995
-----------------------------
Daniel J. Sullivan
Corporate Controller and
Principal Accounting Officer
BOARD OF DIRECTORS
------------------
/s/ JAMES J. MANFIELD,JR. Date: August 4, 1995
------------------------------
James J. Manfield, Jr.
/s/ RONALD W. LAWLER Date: August 4, 1995
------------------------------
Ronald W. Lawler
/s/ DR. ALLEN H. KEOUGH Date: August 4, 1995
------------------------------
Dr. Allen H. Keough
/s/ DAVID R.A. STEADMAN Date: August 4, 1995
-------------------------------
David R.A. Steadman
/s/ ROBERT J. HANKS Date: August 4, 1995
-------------------------------
Robert J. Hanks
/s/ JOHN F. ROUSSEAU, JR. Date: August 4, 1995
-------------------------------
John F. Rousseau, Jr.
15
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Vitronics Corporation
Newmarket, New Hampshire
We have audited the accompanying consolidated financial statements and the
financial statement schedule of Vitronics Corporation and subsidiaries listed in
Items 14a (1) and (2) of this Form 10-K. These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of Vitronics
Corporation and subsidiaries as of December 31, 1994 and 1993, and the results
of its operations and its cash flows for the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion, the consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
COOPERS & LYBRAND LLP
Manchester, New Hampshire
February 21, 1995
16
VITRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share amounts)
ASSETS
December 31
-----------------
1994 1993
-------- -------
CURRENT ASSETS:
Cash and cash equivalents $ 671 $ 172
Accounts receivable - less allowance
for doubtful accounts of $100 and $120 2,723 1,696
Inventories 2,094 2,159
Refundable taxes - 20
Other current assets 189 241
------- -------
TOTAL CURRENT ASSETS 5,677 4,288
PROPERTY AND EQUIPMENT 223 318
OTHER ASSETS 152 190
------- -------
$ 6,052 $ 4,796
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,751 $ 1,026
Other current liabilities 945 696
Current maturities of long-term liabilities 305 470
------- -------
TOTAL CURRENT LIABILITIES 3,001 2,192
------- -------
LONG-TERM LIABILITIES - net of current maturities 1,323 1,605
------- -------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value:
Authorized 20,000,000 shares; issued and
outstanding 7,550,538 and 7,378,538 76 74
Additional paid-in capital 5,401 5,311
Foreign currency translation adjustment (184) (219)
Accumulated deficit (3,565) (4,167)
------- -------
1,728 999
------- -------
$ 6,052 $ 4,796
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
17
VITRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except share amounts)
Year Ended December 31
--------------------------------
1994 1993 1992
------- ------- -------
Net sales $17,346 $ 12,778 $ 12,373
Costs of goods sold 11,136 9,248 10,385
------ ------- -------
Gross profit 6,210 3,530 1,988
------ ------- -------
Selling, general and administrative expenses 4,072 3,338 3,778
Research and development costs 1,010 860 1,130
Non-recurring charges - 420 -
------ ------- -------
Patent litigation 330 127 184
5,412 4,745 5,092
------ ------- -------
Income (loss) from operations 798 (1,215) (3,104)
Non-operating expense (income) - net 171 105 (90)
------ ------- -------
Income (loss) before taxes 627 (1,320) (3,014)
Income taxes (credit) 25 37 (49)
------ ------- -------
Net income (loss) $ 602 $ (1,357) $ (2,965)
====== ======= =======
Income (loss) per common share:
Primary $ .08 $ (.18) $ (.70)
====== ======= =======
Fully diluted $ .07 $ (.18) $ (.70)
====== ======= =======
Weighted average number of common and
common equivalent shares used in
calculation of earnings per
common share:
Primary 7,739,000 7,379,000 4,216,000
========== ========= =========
Fully diluted 10,190,000 7,379,000 4,216,000
========== ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
18
VITRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Unrealized
loss on
Foreign non-current
Additional currency marketable
Common Stock paid-in translation equity Retained
----------------
Shares Amount capital adjustment securities earnings Total
------ ------ ------- ---------- ---------- -------- -----
Balances, December 31, 1991 3,928,538 $ 39 $ 4,043 $ 53 $ (25) $ 155 $ 4,265
Foreign currency translation
adjustment - - - (264) - - (264)
Exercise of stock rights
(Offering) 3,450,000 35 1,286 - - - 1,321
Change in unrealized loss on
non-current marketable
equity securities - - - - 25 - 25
Net loss - - - - - (2,965) (2,965)
------ --- ---- ---- ---- ------ ------
Balances, December 31, 1992 7,378,538 74 5,329 (211) - (2,810) 2,382
Foreign currency translation
adjustment - - - (8) - - (8)
Additional cost related
to rights offering - - (18) - - - (18)
Net loss - - - - - (1,357) (1,357)
------ --- ---- ---- ---- ------ ------
Balances, December 31, 1993 7,378,538 74 5,311 (219) - (4,167) 999
Exercise of stock options 30,000 1 20 - - - 21
Conversion of debt to equity 142,000 1 70 - - - 71
Foreign - currency translation
adjustment - - - 35 - - 35
Net income - - - - - 602 602
------ --- ---- ---- ---- ------ ------
Balances, December 31, 1994 7,550,538 $ 76 $ 5,401 $ (184) - $(3,565) $1,728
========= ==== ======= ====== ======= ======= ======
The accompanying notes are an integral part of the consolidated financial
statements.
19
VITRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31
----------------------------
1994 1993 1992
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 602 $(1,357) $(2,965)
---- ----- ------
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 192 279 404
Gain on sale of assets - (42) (179)
Provision for excess and obsolescence 297 48 191
Deferred income taxes - - 360
Writedown of non-current marketable equity securities - 130 -
Changes in current assets and liabilities:
Accounts receivable (1,027) 294 417
Inventories (232) 49 79
Other current assets 52 96 (24)
Accounts payable 725 (90) 53
Income taxes 20 189 649
Other current liabilities 249 (614) 77
------ ------ ------
Total adjustments 276 339 2,027
------ ------ ------
Net cash provided by (used for) operating activities 878 (1,018) (938)
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (32) (65) (92)
Disposals of property and equipment 2 74 332
Additions to other assets (29) (177) (21)
Loan to affiliated company - - -
Proceeds on sale of investment - - 100
------ ------ ------
Net cash provided by (used for) investing activities (59) (168) 319
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowing - 1,200 -
Issuance of common stock under stock option plans 21 - -
Payments of long-term debt (376) (1,072) (1,112)
Rights offering - (18) 1,321
------ ------ ------
Net cash provided by (used for) financing activities (355) 110 209
------ ------ ------
Foreign currency translation adjustment 35 (8) 264
------ ------ ------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) 499 (1,084) (146)
Balance, beginning of year 172 1,256 1,402
------ ------ ------
Balance, end of year $ 671 $ 172 $ 1,256
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Conversion of debt to equity $ 71 - -
The accompanying notes are an integral part of the consolidated financial
statements.
20
VITRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
Three Years Ended December 31, 1994
________________________________________________________________________________
A. Summary of Significant Accounting Policies
The Company is engaged in the business of designing, engineering,
manufacture and marketing of state-of-the-art thermal processing systems
for soldering surface mounted devices to printed circuit boards and
cleaning of the finished assembly. The significant accounting policies
employed are as follows :
OPERATIONS
In March 1995, the Company signed a commitment letter for a $500,000
revolving line of credit with First National Bank of Portsmouth.
Management believes this possible financing source, combined with its
existing cash balances and anticipated cash flow from operations, will be
adequate to meet its working capital requirements during 1995.
PRINCIPLES OF CONSOLIDATION-
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany
balances, transactions and profits have been eliminated.
CASH EQUIVALENTS-
The Company considers all highly-liquid debt instruments with a
maturity of three months or less to be cash equivalents. At December 31,
1994 and December 31, 1993, the Company had approximately $623,000 and
$172,000, respectively, on deposit at one Bank. All amounts classified as
cash equivalents as of December 31, 1994 and 1993 have original maturities
of three months or less at date of purchase.
INVENTORIES-
Inventories are stated at the lower of cost (first-in, first-out
method) or market. The Company had inventory reserves of $367,000, $289,000
and $315,000 as of December 31, 1994, 1993 and 1992, respectively. The
Company regularly reviews the carrying value of its inventory (at least
quarterly) and adjusts such reserves as needed.
PROPERTY AND EQUIPMENT-
Property and equipment are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
applicable assets. Expenditures for maintenance and repairs are charged to
expense as incurred, whereas expenditures for renewals and betterments are
capitalized. Upon sale or other disposition of assets, the cost and related
accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in income.
The estimated useful lives used to compute depreciation are as
follows:
Description Years
----------- -----
Machinery and equipment 3-8
Furniture and fixtures 5-8
Leasehold improvements are amortized over the life of the lease,
including extensions, but not in excess of the maximum useful lives of the
improvements.
21
OTHER ASSETS-
Included in other assets are patents and debenture costs associated
with the issuance of long-term debt. Patents and debenture costs are being
amortized on the straight-line method over their estimated useful lives
ranging from three to seven years.
FOREIGN CURRENCY TRANSLATION-
All assets and liabilities of the Company's United Kingdom subsidiary,
Vitronics Europe Limited (VEL), are translated at exchange rates in effect
at each respective balance sheet date (December 31, 1994 and December 31,
1993), Income and expenses are translated at average rates for the year.
The resulting differences, due to changing exchange rates, are charged or
credited to "Foreign Currency Translation Adjustment" included as part of
Stockholders' Equity. Gains and losses from foreign currency transactions
are included in earnings.
REVENUE RECOGNITION-
Revenue is recorded upon shipment to the customer.
RESEARCH AND DEVELOPMENTS COSTS-
All research and development costs are charged to operations as
incurred.
WARRANTIES-
The Company's products are generally under warranty against defects in
material and workmanship for a one year period. Estimated warranty costs
are accrued in the same period as products are shipped.
INCOME TAXES-
The Company has adopted the liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109), effective January 1, 1993. The
---------------------------
cumulative effect of adopting this statement as of January 1, 1993 was
immaterial to the results of operations for the year ended December 31,
1993. Previous to January 1, 1993, the Company had appropriately accounted
for taxes under APB #11. SFAS 109 is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, SFAS 109 generally considers all expected future events other
than future enactments of changes in the tax law or rates. Deferred tax
assets are recognized, net of any valuation allowance, for deductible
temporary differences and operating loss and credit carryforwards. Deferred
tax expense represents the change in the deferred tax assets and
liabilities.
INCOME (LOSS) PER SHARE-
The income (loss) per share is based on the weighted average number of
common and common equivalent shares (where dilutive) outstanding during the
year.
RECLASSIFICATION-
Certain 1993 and 1992 balances have been reclassified in order to
conform to the 1994 presentation.
22
________________________________________________________________________________
B. INVENTORIES
Inventories consisted of (in thousands):
December 31
-----------------
1994 1993
----- -----
Finished goods $ 224 $ 308
Work in process 369 473
Raw materials 1,501 1,378
----- -----
$2,094 $2,159
===== =====
________________________________________________________________________________
C. PROPERTY AND EQUIPMENT
Property and equipment consisted of (in thousands):
December 31
-----------------
1994 1993
----- -----
Machinery and equipment $ 958 $1,063
Furniture and fixtures 393 389
Leasehold improvements 428 418
----- -----
$1,779 1,870
Less accumulated depreciation
and amortization 1,556 1,552
----- -----
$ 223 $ 318
===== =====
______________________________________________________________________________
D. OTHER ASSETS
Other assets consisted of (in thousands):
December 31
-----------------
1994 1993
----- -----
Patents $ 229 $ 201
Debenture costs 155 155
----- -----
384 356
Less accumulated amortization 232 166
----- -----
$ 152 $ 190
===== =====
23
________________________________________________________________________________
E. OTHER CURRENT LIABILITIES
Other current liabilities consisted of (in thousands):
December 31
----------------
1994 1993
----- -----
Accrued sales commissions $ 283 $ 194
Accrued payroll and related taxes 133 80
Accrued warranty costs 155 130
Other 374 292
----- -----
$ 945 $ 696
===== =====
________________________________________________________________________________
F. INDEBTEDNESS
Long-term liabilities consisted of (in thousands):
December 31
--------------
1994 1993
----- -----
U.K. term loan, interest at Bank
base rate plus 3% $ 220 $ 261
Notes payable, primarily to vendors,
interest ranging from 0% - 12% 204 565
Subordinated Convertible Debenture
interest at 10% 1,200 1,200
Unamortized government grants 4 49
----- -----
1,628 2,075
Less current maturities 305 470
----- -----
Total long-term liabilities -
net of current maturities $1,323 $1,605
===== =====
On October 1, 1993, the Company received $1,200,000 from an investment
fund. This was a convertible subordinated debenture with an interest rate
of 10% convertible into 2,400,000 shares of Vitronics' common stock.
Quarterly principal payments of $33,333 are to be made beginning on June
30, 1995 and continuing through December 31, 1997, at which time any unpaid
principal will be due. The agreement calls for mandatory prepayment on the
occurrence of certain events and contains certain financial covenants, the
most restrictive of which is that the Company must maintain a ratio of
consolidated net earnings to cover interest charges of not less than 1:1
and that the Company must maintain a debt to equity ratio not greater than
3:1. In addition, the agreement restricts the Company's payment of
dividends. The outstanding principal balance of this note is convertible at
any time, at the discretion of the holder. The balance is convertible, at
the option of the Company, at the conversion price of $.50 per share, if
the average of the high and low trading prices of the stock is $2.00 or
more for a period of 30 consecutive trading days.
In January 1994, the Company pledged receivables and received a
$350,000 loan at 12% interest from New England Growth Fund I, L.P.. This
loan was repaid in March 1994.
24
Borrowings under the U.K. term loan are collateralized by substantially all
of the assets of VEL, the Company's United Kingdom subsidiary and
guaranteed by the Company. The interest rate was 9% at December 31, 1994.
At December 31, 1994, this has been classified as long-term debt. The final
payments on this debt are due in August 1997.
VEL received government grants in order to subsidize the acquisition
of equipment and leasehold improvements and to stimulate employment. To the
extent that the grant is capital in nature, it is amortized over 5 years,
the equipment's useful life. Because the Company has not met its personnel
requirements under the grant, the Company may be obligated to repay the
unamortized portion of the grant ($4,000) to the government.
In 1993, approximately $365,000 of accounts payable were converted to
long-term Notes Payable. As of July 1995, approximately $60,000 of such
Notes payable remain outstanding, and are due at the end of 1996.
As of December 31, 1994, aggregate maturities of long-term liabilities
were as follows (in thousands):
1995 $ 305
1996 246
1997 243
1998 834
-----
$1,628
=====
________________________________________________________________________________
G. INCOME TAXES
The provision for income taxes consisted of (in thousands):
Year Ended December 31
------------------------
1994 1993 1992
---- ---- ----
Currently payable (refundable):
Federal $ - $ (53) $(360)
Foreign - - (49)
State 25 - -
---- ---- -----
25 (53) (409)
---- ---- -----
Deferred (prepaid):
Federal - - 360
Foreign - 90 -
State - - -
---- ---- -----
- 90 360
---- ---- -----
$ 25 $ 37 $ (49)
==== ==== =====
Reconciliations of income taxes at the statutory rate to the effective
rate reflected in the financial statements were as follows:
Year Ended December 31
---------------------------
1994 1993 1992
---- ---- ----
Statutory income tax rate 34.0% (34.0%) (34.0%)
Net losses without tax benefit - 20.9 28.8
Net operating losses utilized (34.0) - -
Goodwill amortization - 3.6 3.6
Foreign taxes - 6.8 -
State taxes net of Federal benefit 2.8 - -
Other 1.4 5.5 -
----- ----- -----
4.2% 2.8% (1.6%)
===== ===== =====
25
The 1993 foreign deferred tax provision represents an adjustment of
prior year amounts. The components of the net deferred tax assets and
liabilities were as follows (in thousands):
December 31,
------------------
1994 1993
-------- --------
Deferred tax assets:
Inventory reserves $ 127 $ 116
Accounts receivable reserves 40 40
Other liabilities and reserves 62 69
Depreciation and amortization 147 155
Capital loss carryforwards 160 160
Net operating loss carryforwards 1,168 1,407
Research and development credits 155 199
------ ------
Total deferred tax asset 1,859 2,146
Valuation allowance (1,859) (2,146)
------ ------
Net deferred tax assets $ - $ -
====== ======
The Company has placed a full valuation allowance against the deferred
tax asset due to the uncertainty regarding the utilization of these
benefits in future returns.
The Company currently has net operating loss and capital loss
carryforwards for Federal and Foreign income tax purposes of approximately
$3,116,651 and $468,668, respectively, and R&D credits of approximately
$155,000, all expiring in the years 2007 and 2008.
The Company had income (loss) before tax in the United Kingdom for the
years ended December 31, 1994, 1993 and 1992, of $218,000, $(242,000) and
$(519,000), respectively, and in the United States, $409,000, $(1,078,000)
and $(2,495,000), respectively.
________________________________________________________________________________
H. COMMITMENTS
The Company leases its facilities and certain equipment under
operating leases ranging up to 5 years with renewal and purchase options.
The leases provide for monthly rental payments, plus, in certain
situations, payments for real estate taxes, insurance and maintenance.
Rental expense for property, machinery and equipment charged to operations
was $372,000, $463,000 and $434,000 for the years ended December 31, 1994,
1993 and 1992, respectively.
At December 31, 1994, future minimum payments applicable to non-
cancelable operating leases with initial terms of one year or more were as
follows (in thousands):
1995 $ 309
1996 313
1997 246
1998 216
1999 11
-----
$1,095
=====
26
The Company is currently involved in patent litigation against a
competitor, Conceptronic, Inc. The Company commenced this suit in November
1991 seeking an injunction and damages against Conceptronic for
infringement of two patents owned by the Company covering certain aspects
of its solder reflow systems. The trial regarding this dispute commenced on
July 25,1995 in the United States District Court in New Hampshire. The
Company is unable to predict the outcome of this trial, but does not
believe that an adverse decision, however unlikely in the Company's view,
will have a material effect on the Company's financial condition or results
of operations. The Company intends to vigorously pursue all of its legal
rights and remedies in connection with this litigation, and believes that a
favorable outcome may result in certain licensing opportunities for the
Company which could have a positive impact on its financial condition and
results of operations in the future.
The Company, in the normal course of business, is involved in various
other legal proceedings, that in the opinion of management, will not have a
material effect on the Company's financial conditions or results of
operations.
The Company does not currently offer employment benefits subject to
the provisions of Statements of Financial Accounting Standards 106 and 112.
________________________________________________________________________________
I. STOCK OPTIONS
Stock Option Plans
------------------
The Company has Stock Option Plans which allow for the granting of
options to employees, officers, directors and consultants to purchase an
aggregate of 1,000,000 shares of the Company's common stock. The Stock
Option Committee may issue options which are exercisable over a period not
to exceed 10 years and vest from date of issuance up to five years. The
following schedule summarizes the stock option activity during the three
years ended December 31, 1994:
Number
of Option price
shares per share
--------- ----------------
Balance, December 31, 1991 326,500 $1.125 to $1.875
Granted in 1992 449,900 $.5625 to $1.25
Expired/Canceled in 1992 (145,950) $1.125 to $1.87
-------
Balance, December 31, 1992 630,450 $.5625 to $1.875
Granted in 1993 200,500 $.84
Expired/Canceled in 1993 (46,350) $.5625 to $1.75
------
Balance, December 31, 1993 784,600 $.5625 to $1.875
-------
Granted in 1994 324,000 $.01 to $1.3125
Expired/Canceled in 1994 (155,800) $.5625 to $1.875
Exercised (30,000) $.01
------
Balance, December 31, 1994 922,800 $.5625 to $1.75
=======
Options to purchase 56,500 and 181,500 shares were available to be
granted under these plans as of December 31, 1994 and 1993, respectively.
When options under these plans are canceled, they may be granted again at a
later date. Options to purchase 409,900 shares at prices ranging from
$.5625 to $1.75 per share were exercisable as of December 31, 1994, and
options to purchase 393,900 shares at prices ranging from $.5625 to $1.875
were exercisable as of December 31, 1993. The Company has reserved 979,300
shares of common stock for these Plans.
In addition, the Company has 346,225 outstanding stock warrants to
purchase the Common Stock of the Company at an exercise price of $.60
exercisable from November 1993 through September 1998.
27
___________________________________________________________________
J. NON-OPERATING EXPENSE (INCOME) - NET
Non-operating expense (income) - net consisted of (in thousands):
Year Ended December 31
-------------------------
1994 1993 1992
-------- ------- ------
Loss on investment $ - $ - $ 6
Interest income (10) (6) (17)
Interest expense 189 114 160
Gain on sale of assets (85) (42) (179)
Other, net 77 39 (60)
---- ---- ----
$ 171 $ 105 $ (90)
==== ==== ====
On a cash basis, the actual interest income received and interest
expense paid by the Company during 1994, 1993 and 1992 approximated the
above amounts.
________________________________________________________________________________
K. FOREIGN OPERATIONS
The Company operates in one industry segment. Data by geographic area
were as follows (in thousands):
Year Ended December 31
--------------------------
1994 1993 1992
---- ---- ----
Foreign revenues:
Asia $ 4,974 $ 5,895 $ 3,169
Europe 2,663 1,541 2,217
Other 275 - 126
------- ------- -------
$ 7,912 $ 7,436 $ 5,512
======= ======= =======
Revenues by manufacturing operations:
United States $13,741 $10,133 $ 9,550
United Kingdom 3,605 2,645 2,823
------- ------- -------
$17,346 $12,778 $12,373
======= ======= =======
Income (loss) from operations:
United States $ 534 $ (993) $(2,571)
United Kingdom 264 (222) (533)
------- ------- -------
$ 798 $(1,215) $(3,104)
======= ======= =======
Identifiable assets:
United States $ 4,614 $ 3,758 $ 5,293
United Kingdom 1,438 1,038 1,462
------- ------- -------
$ 6,052 $ 4,796 $ 6,755
======= ======= =======
With respect to foreign revenues from Asia and Europe, there were no
customer countries with unaffiliated customer revenues equal to or greater than
10% of total revenue.
With respect to intraenterprise transfers, such transfers and revenues
approximated $500,000 in 1994, less than 3.6% of revenues from United States
manufacturing operations. The revenue figures in this footnote are reflected net
of their amounts.
28
______________________________________________________________________________
L. MAJOR CUSTOMER
During 1994, one customer accounted for 15% of net sales. Accounts
receivable from this customer at December 31, 1994 amounted to $254,934.
In 1993, there were no customer accounts over 10% of net sales. During
1992, one customer accounted for 11% of net sales. Accounts receivable from
this customer amounted to $245,498 at December 31, 1992.
______________________________________________________________________________
M. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) Plan and a defined Contribution Plan.
The 401(k) Plan covers substantially all full-time U.S. employees who have
twelve months of service and have attained the age of 21. Employee
contributions may range from 2%-15% of compensation with a discretionary
matching Company contribution. The Company is currently matching 25% of the
employees contribution, up to 1.5% of total compensation. The Company may
also make an optional contribution for any plan year at its discretion. The
defined Contribution Plan covers all full-time employees in the United
Kingdom. Contributions to the Plan are made only by the Company, and at the
Company's discretion.
The Company has expensed approximately $41,438, $34,325 and $32,469,
relating to contributions to the Plans during 1994, 1993 and 1992,
respectively.
________________________________________________________________________________
N. SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in thousands except per share amounts)
QUARTER ENDED
------------------------------------
Dec 31 Oct 1 Jul 2 Apr 2
------ ----- ----- -----
1994:
Net sales $5,360 $4,698 $3,704 $3,584
Gross profit 1,964 1,660 1,360 1,226
Gross profit % 37% 35% 37% 34%
Net income 288 243 59 12
Net income per common share
- Primary .04 .03 .01 .00
- Fully diluted .03 .03 .01 .00
QUARTER ENDED
------------------------------------
Dec 31 Oct 2 Jul 3 Apr 3
------ ------ ------ ------
1993:
Net sales $2,724 $3,238 $2,436 $4,380
Gross profit 674 1,096 536 1,224
Gross profit % 25% 34% 22% 28%
Net income/(loss) (520) 50 (790) (97)
Net income/(loss) per common share (.07) .01 (.11) (.01)
During the fourth quarter of 1993, the Company recorded writedowns of
$130,000 relating to unamortized goodwill, and wrote-off $90,000 relating to a
prior year foreign tax asset. During the second quarter of 1993, the Company
recorded writedowns of $290,000 relating to restructuring costs.
29
VITRONICS CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(000's omitted)
______________________________________________________________________________
Additions
Balance Charged to Balance
Beginning Costs and Deductions/(A)// End of
of Period Expenses Write-Offs Period
--------- -------- ---------- ------
Allowance for doubtful accounts
year ended December 31,
1994 $120 $ 1 $ 21 $100
1993 124 12 16 120
1992 110 77 63 124
Inventory reserves
year ended December 31
1994 $289 $297 $219 $367
1993 315 48 74 289
1992 455 191 331 315
(A) Deductions represent amounts determined to be uncollectible and
charged against the reserve.
30