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 September 30, 1995
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( ) 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
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(Exact name of registrant as specified in its charter)
COMMONWEALTH OF
MASSACHUSETTS O4-2726873
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Forbes Road, Newmarket, NH 03857
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (603) 659-6550
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NONE
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(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 ________
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Number of shares outstanding of each of the registrant's classes of common
stock as of September 30, 1995:
Common Stock, $.01 par value: 10,234,889 shares
VITRONICS CORPORATION
INDEX
Page
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Part I - Financial Information:
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Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
September 30, 1995 (Unaudited)
and December 31, 1994 ................................... 3
Condensed Consolidated Statements of Operations (unaudited) -
Three Months and Nine Months Ended September 30, 1995
and October 1, 1994 ..................................... 4
Condensed Consolidated Statements of
Cash Flows (unaudited) - Nine Months
Ended September 30, 1995 and October 1, 1994 ............. 5
Notes to Condensed Consolidated Financial Statements
(unaudited).............................................. 6
Calculation of Net Income Per Share -
Three Months Ended
September 30, 1995 and October 1, 1994.................. 7
Calculation of Net Income Per Share -
Nine Months Ended
September 30, 1995 and October 1, 1994.................. 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 9
Part II - Other Information
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Items 1 through 6.......................................... 11
Signatures................................................. 12
VITRONICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
September 30, December 31,
1995 1994
(Unaudited) (*)
----------- -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents $1,629 $ 671
Accounts receivable, net 3,717 2,723
Inventories 2,866 2,094
Other current assets 188 189
------ ------
Total current assets 8,400 5,677
Property and equipment, net 195 223
Other assets 62 152
------ ------
$8,657 $6,052
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $2,019 $1,751
Other current liabilities 1,858 945
Current maturities of long-term liabilities 102 305
------ ------
Total current liabilities 3,979 3,001
Long-term liabilities, net of current maturities 111 1,323
Stockholders' Equity:
Common Stock, $.01 par value 102 76
Additional paid-in capital 6,778 5,401
Foreign currency translation adjustment (173) (184)
Retained earnings (deficit) (2,140) (3,565)
------ ------
4,567 1,728
------ ------
$8,657 $6,052
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*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
(Unaudited)
(000's omitted except per share amounts)
Three Months Ended Nine Months Ended
------------------- ------------------
Sept.30, Oct. 1, Sept.30, Oct. 1,
1995 1994 1995 1994
------- ------ ------- ------
Net sales $ 6,450 $ 4,698 $17,070 $11,986
Cost of goods sold 3,782 3,038 10,109 7,765
------ ------ ------ ------
Gross profit 2,668 1,660 6,961 4,221
Selling, general and
administrative expenses 1,479 1,084 4,117 2,859
Research & development costs 342 248 978 752
Patent Litigation 150 90 300 181
------ ------ ------ ------
1,971 1,422 5,395 3,792
------ ------ ------ ------
Income from operations 697 238 1,566 429
Other (income) expense (14) (5) 89 115
------ ------ ------ ------
Income before income taxes 711 243 1,477 314
Income tax 36 - 52 -
------ ------ ------ ------
Net income $ 675 $ 243 $ 1,425 $ 314
====== ====== ====== ======
Net income per common share
Primary $.07 $.03 $.17 $.04
==== ==== ==== ====
Fully Diluted $.06 $.03 $.14 $.04
==== ==== ==== ====
Weighted average number of
common and common equivalent
shares used in calculation
of income (loss) per
common share
Primary 9,548 7,602 8,604 7,572
====== ====== ====== ======
Fully Diluted 10,785 10,002 10,588 9,972
====== ====== ====== ======
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)
Nine Months Ended
-----------------
Sept. 30, Oct. 1,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,425 $ 314
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 128 132
Provision for excess and obsolescence 285 142
Changes in current assets and liabilities:
Accounts receivable (994) (506)
Inventories (1,057) (165)
Other current assets 1 (89)
Accounts payable 268 595
Income taxes 49 20
Other current liabilities 864 166
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Total adjustments (456) 295
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Net cash provided by operating activities 969 609
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (46) (13)
Disposals of property and equipment - 3
Additions/disposals of other assets 36 (11)
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Net cash provided by (used for)
investing activities (10) (21)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (215) (284)
Issuance of Common Stock 203 18
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Net cash provided by (used for)
financing activities (12) (266)
Foreign currency translation adjustment 11 46
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CASH:
Net increase (decrease) 958 368
Balance, beginning of period 671 172
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Balance, end of period $ 1,629 $ 540
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SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Conversion of debt to equity $ 1,200 $ 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 nine month period ended
September 30, 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 as amended
on August 4, 1995, and August 8, 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 $633,000 and $367,000,
respectively, were as follows (in thousands):
September 30, December 31,
1995 1994
------------- ------------
Finished goods $ 469 $ 224
Work in process 1,483 369
Raw Materials 914 1,501
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2,866 2,094
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EXHIBIT 11.1
VITRONICS CORPORATION
CALCULATION OF NET INCOME PER COMMON SHARE
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
September 30, 1995
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Fully
Primary Diluted
------- -------
Net Income $ 675,000 $ 688,000
Weighted Average Shares Outstanding:
Common Stock 8,868,820 8,868,820
Convertible Debentures - 1,186,813
Warrants 149,357 156,936
Stock Options 529,359 572,419
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Weighted Averaged Shares
Outstanding 9,547,535 10,784,988
Income Per Share $ .07 $ .06
___________________________________________________________________________
October 1, 1994
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Fully
Primary Diluted
------- -------
Net Income $ 243 $ 273
Weighted Average Shares Outstanding:
Common Stock 7,530,428 7,530,428
Convertible Debentures 2,400,000
Warrants 71,806 71,806
Stock Options 0 0
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Weighted Averaged Shares
Outstanding 7,602,234 10,002,234
Income Per Share $ .03 $ .03
7
EXHIBIT 11.2
VITRONICS CORPORATION
CALCULATION OF NET INCOME PER COMMON SHARE
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
September 30, 1995
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Fully
Primary Diluted
------- -------
Net Income $1,425,000 $ 1,498,000
Weighted Average Shares Outstanding:
Common Stock 7,991,347 7,991,347
Convertible Debentures - 1,951,648
Warrants 191,191 196,909
Stock Options 421,375 447,719
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Weighted Averaged Shares
Outstanding 8,603,913 10,587,623
Income Per Share $ .17 $ .14
________________________________________________________________________________
October 1, 1994
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Fully
Primary Diluted
------- -------
Net Income $ 314 $ 404
Weighted Average Shares Outstanding:
Common Stock 7,478,253 7,478,253
Convertible Debentures 2,400,000
Warrants 89,988 89,988
Stock Options 4,257 4,257
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Weighted Averaged Shares
Outstanding 7,572,498 9,972,498
Income Per Share $ .04 $ .04
8
VITRONICS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operation
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Sales for the third quarter ended September 30, 1995 increased 37% to
$6,450,000 from $4,698,000 for the same period of 1994. Sales for the nine
months ended September 30, 1995 were $17,070,000 versus $11,986,000 for the same
period in 1994, an increase of 42%. Bookings for the three months ended
September 30, 1995 increased 61% to $6,446,000 from $3,999,000 for the same
period in 1994. Bookings for the nine months ended September 30, 1995 were
$18,515,000 versus $12,211,000 for the same period in 1994, an increase of 52%.
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 nine month periods ending September 30, 1995 are necessarily
indicative of the percentage increase in net revenues to be expected for the
entire fiscal year. Backlog as of September 30, 1995 was $4,034,000 versus
$2,589,000 at December 31, 1994 and $2,358,000 as of October 1, 1994.
Gross margin for the three months ended September 30, 1995 increased to
41% from 35% for the same period in 1994. For the nine month period ended
September 30, 1995, the gross margin percentage was 41% versus 35% for the same
period in 1994. 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
$130,000 in the third quarter of 1995, as compared to $36,000 in the third
quarter of 1994, and increased its provision for inventory reserves from
$367,000 at the end of 1994 to $633,000 at the end of the third quarter of 1995.
Deductions and write-offs for the first nine months of 1995 were $285,000 as
compared to $142,000 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 rendered
unusable. The Company also changed its production process as the UNITHERM(R)
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 September 30, 1995 were
$1,971,000 versus $1,422,000 for the same period of 1994, an increase of 39%.
Operating expenses as a percentage of sales were 31% and 30%, respectively.
Operating expenses for the nine months ended September 30, 1995 were $5,395,000
versus $3,792,000 for the same period in 1994, an increase of 42%. Operating
expenses as a percentage of sales were 32% and 32%, for the respective nine
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 costs relating to the Registration
Statement filed on Form S-3 and conversion of the Subordinated Convertible
Debenture of approximately $142,000 for the quarter and $242,000 for the nine
months.
For the third quarter of 1995, selling, general and administrative
expenses as a percentage of sales were 23% versus 23% in 1994. Research
9
and development expenses as a percentage of sales for such periods were 5% in
1995, and 5% in 1994. For the nine months ended September 30, 1995 selling,
general and administrative expenses as a percentage of sales were 24% as
compared to 24% in 1994. The costs relating to the Registration Statement which
are included in selling, general and administrative expenses represented 2% of
sales in the third quarter and 1% of sales for the nine month period. Research
and development expenses as a percentage of sales were 6% in 1995 and 6% in
1994.
Patent litigation costs were $150,000 for the third quarter of 1995 as
compared to $90,000 for the third quarter of 1994. For the nine month period
ended September 30, 1995, patent litigation costs were $300,000 as compared to
$181,000 for the same period in 1994. With the conclusion of the Conceptronic
trial in August 1995, the Company does not anticipate that additional costs
relating to the patent defense will be significant until the time an appeal is
heard.
The Company had non-operating income, primarily interest income net, of
$14,000 for the three months ended September 30, 1995 compared with non-
operating income of $5,000 for the same period of 1994. During the first nine
months of 1995, the Company incurred non-operating expenses, primarily interest
expense net, of $89,000 compared with $115,000 for the same period of 1994. The
conversion of the Subordinated Convertible Debenture in August 1995 reduced the
interest expense.
Net income for the third quarter of 1995 was $675,000 compared to $243,000
for the comparable period of 1994. Net income was $.07 per primary share, and
$.06 per fully diluted share. For the comparable 1994 period, net income per
share was $.03. Net income for the first nine months of 1995 was $1,425,000
compared to $314,000 for the same period in 1994. Net income for the nine month
period of 1995 was $.17 per primary share, and $.14 per fully diluted share. For
the comparable period of 1994, net income per share was $.04.
Liquidity and Capital Resources
- -------------------------------
The Company continues to monitor its operational spending levels very
closely with the goal of cash conservation. During the first nine months of
1995, cash increased $958,000 to $1,629,000.
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
Item 1: Legal Proceedings
The jury in the Company's patent infringement lawsuit against
Conceptronic, Inc., issued a verdict in favor of the defendant on August 16,
1995. The Company does not expect this ruling to have a negative impact upon the
Company's financial condition or results of operations. The Company has begun
the appeal process with respect to the verdict and will vigorously defend its
patents.
Items 2 through 4: Not applicable
Item 6:
(a). Exhibits
27 Financial Data Schedule
(b). Reports on Form 8-K
The Company filed a Form 8-K dated September 7, 1995 to
report the following events:
(a) the conversion of the Company's $1,200,000 Subordinated
Convertible Debenture into 2.4 million shares of common stock
on August 11, 1995;
(b) the resignation of Robert J. Hanks and John F. Rousseau from
the Company's Board of Directors, effective August 17, 1995,
in connection with the conversion of the Debenture described
above; and
(c) the decision of the jury in favor of Conceptronic, Inc.,
described in Item 1 above.
11
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: November 10, 1995 By: /s/James J. Manfield, Jr.
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James J. Manfield, Jr.
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer,
and Treasurer
Date: November 10, 1995 By: /s/Ronald W. Lawler
----------------------------
Ronald W. Lawler,
President and
Chief Operating Officer
Date: November 10, 1995 By: /s/ Daniel J. Sullivan
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Daniel J. Sullivan,
Vice President, Controller and
Principal Accounting Officer
12