UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1997
Commission File Number 0-21369
VITECH AMERICA, INC
(Exact name of registrant as specified in its charter)
FLORIDA 65 041 9086
(State of incorporation) (I.R.S. Employer ID No.)
8807 Northwest 23 Street
Miami, Florida 33172-2419
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (305) 477-1161
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 ___
As of November 14, 1997 there were 10,921,314 shares of the Common
Stock of the Company, no par value, outstanding.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
VITECH AMERICA, INC.
BALANCE SHEET
Assets
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 3,811,520 $ 1,757,731
Accounts receivable, net 46,930,135 28,430,066
Inventories, net 32,253,722 11,394,477
Deferred tax asset 343,000 -
Due from officers - 72,212
Other receivable 1,675,000 -
Other current assets 1,577,931 304,955
--------------- ---------------
Total current assets 86,591,308 41,959,441
Other accounts receivable 654,480 -
Goodwill 10,368,624 -
Other assets 267,663 128,929
Property and equipment, net 8,172,744 4,518,024
Land held for development 802,131 770,192
--------------- ---------------
Total assets $ 106,856,950 $ 47,376,586
=============== ==============
Liabilities and Shareholders' Equity
Current liabilities
Trade accounts payable $ 16,901,852 $ 2,545,834
Accrued expenses 830,152 393,513
Sales tax payable 103,091 604,341
Income tax payable 1,029,625 729,048
Accrued employee expenses 1,100,000 -
Due to officers 1,402,730 -
Note payable - acquisition 4,462,500 -
Notes payable - related party 10,000,000 5,000,000
Current maturities of long-term liabilities 186,585 117,030
Short-term debt 7,219,239 696,270
--------------- ---------------
Total current liabilities 43,235,774 10,086,036
--------------- ---------------
Long-term liabilities
Convertible notes - related party 15,000,000 -
Income and sales tax payable 328,589 703,075
Loans payable 1,540,037 1,054,292
--------------- ---------------
Total long-term liabilities 16,868,626 1,757,367
--------------- ---------------
Minority interest 352,413 -
--------------- ---------------
Shareholders' equity
Preferred stock, no par value, 3,000,000 shares
Authorized, no shares issued - -
Common stock, no par value, 30,000,000 shares authorized,
10,921,314 and 8,013,648 shares issued and outstanding 22,963,903 20,203,903
Retained earnings 23,436,234 15,329,280
--------------- ---------------
Total shareholders' equity 46,400,137 35,533,183
--------------- ---------------
Total liabilities and shareholders' equity $ 106,856,950 $ 47,376,586
=============== ==============
</TABLE>
See notes to financial statements
2
<PAGE>
<TABLE>
<CAPTION>
VITECH AMERICA, INC.
STATEMENT OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales (including $8,066,878 to
an affiliate for the nine month
period ended September 30, 1996) $ 31,270,598 $ 17,845,553 $ 71,607,921 $ 43,925,852
Cost of sales 20,007,009 12,317,392 47,596,686 31,005,728
------------- ------------- ------------- -------------
Gross profit 11,263,589 5,528,161 24,011,235 12,920,124
Selling, general and administrative
expenses 5,001,365 1,885,902 10,678,699 4,348,547
------------- ------------- ------------- -------------
Income from operations 6,262,224 3,642,259 13,332,536 8,571,576
------------- ------------- ------------- -------------
Other expenses:
Discount on sale of receivables 509,104 774,778 802,104 1,941,120
Interest expense, net 1,570,240 321,560 2,281,700 844,165
Foreign currency exchange losses 345,007 167,413 1,615,863 541,040
------------- ------------- ------------- -------------
Total other expenses 2,424,351 1,263,751 4,699,667 3,326,325
------------- ------------- ------------- -------------
Income before taxes 3,837,873 2,378,508 8,632,869 5,245,251
Provision for income taxes and minority interest 219,341 277,904 485,374 440,506
Minority interest 40,541 - 40,541 -
------------- ------------- ------------- -------------
Net income $ 3,577,991 $ 2,100,604 $ 8,106,954 $ 4,804,745
============= ============= ============= =============
Net income per share $ 0.32 $ 0.25 $ 0.75 $ 0.56
============= ============= ============= =============
Weighted average common and
common stock equivalents
outstanding 11,012,633 8,508,606 10,832,172 8,508,606
============= ============= ============= =============
</TABLE>
See notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
VITECH AMERICA, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 8,106,954 $ 4,804,745
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 714,791 142,626
Amortization of goodwill 131,248 -
Minority interest 40,541
Provision for doubtful accounts 375,432 -
Reserve for inventory obsolescence 233,458 -
Changes in assets and liabilities, net of business acquisition
Accounts receivable (11,796,981) 5,205,168
Inventories (15,991,702) (9,566,464)
Deferred tax asset (52,000) -
Other assets (1,352,710) (173,976)
Trade accounts payable 8,238,017 (1,577,350)
Accrued expenses (202,361) 46,747
Due to officers - (165,463)
Income and other taxes payable (810,673) 1,259,568
-------------- --------------
Total adjustments (20,472,940) (4,829,144)
-------------- --------------
Net cash (used) by operating activities (12,365,986) (24,399)
-------------- --------------
Cash flows from by investing activities
Purchase of property and equipment (3,818,511) (2,818,988)
Investment (31,939) -
Payment for business acquisition, net of cash acquired (4,003,000) -
-------------- --------------
Net cash (used) by investing activities (7,853,450) (2,818,988)
-------------- --------------
Cash flows from financing activities
Deferred offering costs - (217,047)
Net proceeds under short-term debt 2,474,969 3,890,171
Net proceeds under long-term debt 125,300 -
Net payments of income and sales tax payable (374,486) -
Proceeds from private placement debentures - 1,375,014
Payment under note payable for business acquisition (1,487,500) -
Net proceeds from note payable - officer 1,474,942 -
Net proceeds from note payable - related party 5,000,000 (1,911,917)
Proceeds from issuance of convertible note - related party 15,000,000 -
Proceeds from issuance of common stock 60,000 -
-------------- --------------
Net cash provided by financing activities 22,273,225 3,156,693
-------------- --------------
Net increase in cash and cash equivalents 2,053,789 313,306
Cash and cash equivalents - beginning of period 1,757,731 115,925
-------------- --------------
Cash and cash equivalents - end of period $ 3,811,520 $ 429,231
============== ==============
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest and discount on sale of receivables $ 2,569,927 $ 2,741,120
-------------- --------------
Income taxes $ 644,434 $ 568,079
-------------- --------------
</TABLE>
See notes to financial statements
4
<PAGE>
VITECH AMERICA, INC.
STATEMENT OF CASH FLOWS
(CONTINUED)
Supplemental disclosure of noncash investing activity:
During the period ended September 30, 1996, the Company's subsidiary
received property valued at $417,258 as settlement of an
outstanding accounts receivable.
During the period ended September 30, 1997, the Company issued 192,857
shares of the Company's Common Stock and a note payable for
$5,950,000 as consideration for a business acquisition. The
consideration given was based on an aggregate value of $2,700,000
or $14 per share.
See notes to financial statements
5
<PAGE>
VITECH AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Vitech America, Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information. In the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements have been included, and all adjustments are of a normal and recurring
nature. The financial statements as of and for the interim period ended
September 30, 1997 should be read in conjunction with the Company's financial
statements as of and for the year ended December 31, 1996, which are included in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Operating results for the nine months ended September 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The financial statements for 1997 and 1996 include the accounts of the Company
and its subsidiary, Bahiatech - Bahia Tecnologia, Ltda. The accounts of Microtec
Sistemas Industria e Comercio S.A. ("Microtec") are included under the purchase
method of accounting as of July 10, 1997, the date the Company completed the
acquisition of Microtec. All of the Company's sales are concentrated in Brazil,
with approximately 25% to two unrelated customer for the nine months ended
September 30, 1997. During the nine months ended September 30, 1996, the Company
had $8,066,878 in sales to Vitoria Tecnologia S.A., an affiliate through common
ownership.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICY - REVENUE RECOGNITION
Effective January 1, 1997, the Company implemented an accounting policy whereby
it discounts all of the sales associated with its "10X" consumer financing
program using a present value calculation with an imputed annual rate of 15%.
Such 10X program enables customers to enter into a consumer contract with the
Company whereby the customer makes equal monthly payments over a specified term
ranging from 2 to 24 months. The discounted portion of such revenues is then
recognized over the remaining term of the contract.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable as of September 30, 1997 consisted of the following:
Consumer receivables - Class I (a)........... $ 1,638,845
Less provision for bad debt (2.5%)....... (40,470)
------------
Net.......................... $ 1,598,375
Consumer receivables - Class II (b).......... 5,353,213
Less provision for bad debt (5.5%)....... (293,815)
------------
Net.......................... 5,059,398
Trade accounts receivables................... 42,188,943
Less provision for bad debt (4.5%)....... (1,916,581)
------------
Net......................... 40,272,362
------------
Total accounts receivable...................... $ 46,930,135
============
Consumer receivables are receivables generated through the Company's 10X plan
which enables customers to enter into a consumer contract with the Company
whereby the customer makes equal monthly payments over a specified term ranging
from 2 to 24 months. Such consumer receivables are categorized as follows:
6
<PAGE>
(a) Class I consumer receivables represent accounts receivable for
which the Company has received post dated checks for. Such post
dated checks are applied against the receivable and held as a
security interest until the maturity of the receivable.
(b) Class II consumer receivables represent consumer contracts which
specify payment on certain dates over the maturity of the
contract.
Trade accounts receivable represent normal trade receivables generated through
commercial sales at various terms ranging from 0 to 180 days.
NOTE 4 - INVENTORIES
Inventories as of September 30, 1997 consisted of the following:
Finished goods.............................. $ 3,197,270
Components in the factory................... 17,403,243
Consigned inventories....................... 5,582,287
Components in transit to the factory*....... 6,070,922
------------
Total inventories....................... $ 32,253,722
============
* Components in transit to the factory consist of inventories in the
Company's Miami warehouse facility and inventories in route to the
Company's factory in Brazil. The Company purchases principally all
of its components FOB shipping point from the US and Asia.
NOTE 5 - NOTES PAYABLE - RELATED PARTY
At September 30, 1997, the Company had the following notes payable to Georges C.
St. Laurent, Jr. ("GSL Jr."), the father of Georges C. St. Laurent III, the
Chairman of the Board and CEO, and William St. Laurent, the President and COO:
Promissory note payable, due December 11, 1997
bearing interest at 20% per annum*................. $ 5,000,000
Promissory note payable, due October 7, 1997
bearing interest at 20% per annum.................. 5,000,000
------------
Total....................................... $ 10,000,000
============
* In June 1997, the agreement was amended to extend the term of the
note 180 days from its original maturity of June 14, 1997.
On June 26, 1997, the Company completed a private placement of a two year senior
convertible note to GSL Jr. for the principal amount $10,000,000. The note bears
an annual interest rate of 10% payable monthly and is convertible, with 90 days
notice, into common stock of the Company, in whole or in part, at the rate of
one share of common stock for each $15 of principal converted. The proceeds of
the note were used for the acquisition of Microtec Sistemas Industria e Comercio
S.A. and for general working capital purposes.
On August 19, 1997, the Company entered into a loan agreement with GSL Jr. for a
principal amount of up to $10,000,000 to be evidenced by senior convertible
notes. The notes have a two year term and bear an annual interest rate of 10%
payable monthly and are convertible, with 90 days notice, into common stock of
the Company, in whole or in part, at the rate of one share of common stock for
each $16.10 of principal converted. On August 19, 1997, the Company issued the
first of such notes for the principal sum of $5,000,000. On October 10, 1997,
the Company issued the second of such notes for the principal sum of $5,000,000.
The proceeds of the notes are being used for general working capital purposes.
NOTE 6 - SHORT-TERM DEBT
The Company had an aggregate of $7,219,239 in short-term debt at September 30,
1997, consisting of various bank lines-of-credit and other short-term borrowings
due banks with interest rates at September 30, 1997 ranging from 1.3% to 3% per
month and maturing on a revolving basis.
7
<PAGE>
NOTE 7 - SALE OF ACCOUNTS RECEIVABLE
During the nine month period ended September 30, 1997, the Company had
negotiated a net amount of $12,287,346 of its Class I and Class II consumer
receivable to various banks in Brazil, recognizing a financing expense of
approximately $802,104. Such receivables were negotiated with full recourse
against the Company.
NOTE 8 - SHAREHOLDERS' EQUITY
In March 1997 and in July 1997, the Company issued an aggregate total of 6,000
shares of common stock as the result of the exercise of 6,000 warrants. Such
warrants were issued in a private placement that the Company completed on August
30, 1996 and were exercised at a price of $10 per common share.
NOTE 9 - PER SHARE INFORMATION
Per share information is based on the weighted average number of common shares
outstanding and dilutive common equivalent shares from stock options and
warrants outstanding during each period. During the three month period ended
September 30, 1996 and the nine month period ended September 30, 1996, the
weighted average number of common equivalent shares resulted from the assumed
conversion of a $2,000,000 promissory note issued in May of 1995 which was
subsequently converted into 593,309 shares of common stock in November 1996.
Fully diluted earnings per common and common equivalent shares are not presented
as such amounts are the same as primary earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" (SFAS No. 128), which revises the calculation and
presentation provisions of Accounting Principles Board Opinion 15 and related
interpretations. SFAS No. 128 is effective for the Company's fiscal year ending
December 31, 1997. Retroactive application will be required. The Company
believes the adoption of SFAS No. 128 will not have a significant effect on its
reported earnings per share.
NOTE 10 - STOCK OPTIONS
In June of 1997, Georges C. St. Laurent III and William St. Laurent transferred
a portion of their options to purchase shares of the Company's common stock to
certain members of the Company's management. Georges transferred options for
612,000 shares and William transferred options for 588,000 shares. Of the
1,200,000 options transferred, 300,000 are exercisable at $15.00 per share,
another 300,000 are exercisable at $20.00 per share and 600,000 are exercisable
at $25.00 per share. The options were transferred with the same terms and
conditions as originally granted.
In April 1997, the Company granted options to purchase 45,843 shares of the
Company's common stock at an exercise price of $12 per share to GSL Jr. In June
1997, the Company granted an additional 24,000 options to purchase shares of the
Company's common stock at an exercise price of $18 per share. Such options were
granted in connection with consulting services for the Company. The options are
exercisable for a five year period. The options were issued pursuant to the
provisions of the Company's 1996 Stock Option Plan.
NOTE 11 - ACQUISITION
On July 10, 1997, the Company entered into agreements with Microhold
Participacoes e Empreendimentos S/C Ltda., and Microtec Holding USA, Inc.
whereby the Company acquired 94.4% of the capital stock of Microtec Sistemas
Industria e Comercio S.A. ("Microtec"). In accordance with the agreements, the
Company paid total consideration of $14,650,000 in the form of 192,857 shares of
Vitech America, Inc. common stock with a value of $2,700,000 and $11,950,000 in
cash. Of the $11,950,000 in cash, $6,000,000 was paid upon closing of the
acquisition and the remainder will be paid in monthly installments over an eight
month period commencing August 13, 1997. The number of shares issued as
consideration was based on a per share value of $14 which approximated the
market value of the common stock at the time negotiations were completed. The
shares of common stock issued will be held in escrow for a period one year from
the date of the closing of the acquisition against any contingent liabilities
associated with the prior operations of Microtec. The consideration paid was
derived through negotiations between the Company and the shareholders of
Microtec. The shareholders of Microtec had no relationship with the Company or
any of its affiliates prior to the acquisition.
8
<PAGE>
The purchase price of the Microtec capital stock has been allocated to the
assets acquired and liabilities assumed based upon their fair market value. The
excess of the consideration paid over the estimated fair value of the net assets
acquired, totaling $10,499,872, has been recorded as goodwill and is being
amortized on a straight-line basis over twenty years. The purchase price
allocation is summarized as follows:
Net working capital......................... $ 3,490,272
Property, plant and equipment............... 520,144
Goodwill.................................... 10,499,872
Other noncurrent assets, net................ 139,712
--------------
Total................................ $ 14,650,000
==============
The following summary, prepared on an unaudited pro forma basis, reflects the
business combination between the Company and Microtec accounted for under the
purchase method of accounting and presents the results of operations for the
nine month period ended September 30, 1997 as if Microtec had been acquired as
of the beginning of the period presented:
SEPTEMBER 30,
1997
--------------
(unaudited)
Pro forma revenues.......................... $ 98,098,921
Pro forma expenses.......................... (91,539,127)
--------------
Pro forma net income........................ $ 6,559,794
==============
Pro forma net income per share.............. $ 0.61
==============
The unaudited summary pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had occurred on the above date,
nor is it necessarily indicative of future operating results. Pro forma
information for the nine month period ended September 30, 1996 has not been
presented as the related information is not readily determinable.
NOTE 12 - PRIVATE PLACEMENTS
On October 10, 1997, the Company completed a private placement of three year 10%
convertible promissory notes resulting in gross proceeds to the Company of
$20,000,000. The private placement was between the Company and four
institutional investors. The notes are initially convertible at a conversion
price of $16.50 (the "Initial Conversion Price") subject to stock-splits, stock
dividends, rights offering other similar events. In the event that the Company
shall have declined to repay in full, following the exercise by noteholders of
the first or second put right (as defined below), the Initial Conversion Price
shall be (i) the lesser of .85 multiplied by the 10-day weighted average sale
price ("VWASP") on Nasdaq as reported by Bloomberg, LP (or other principal
exchange on which the Company's securities are traded) for the lowest 10-day
consecutive period during 30 consecutive trading day period ending one trading
day prior to the conversion date or (ii) $16.50 per share.
Beginning October 10, 1998 and continuing for a period of 30 days thereafter,
each Noteholder shall have the right ("First Put Right") to request the Company
to repurchase all, but not less than all of the outstanding Notes held by such
Holder at a price equal to 110% of the principal amount thereof, plus accrued
and unpaid interest thereon. Commencing 180 days after the First Put Date and
continuing for a period of 30 days thereafter, each Noteholder shall have a
second right (the "Second Put Right") to request the Company to repurchase all,
but not less than all of the outstanding Notes at a price equal to 115% of the
principal amount thereof plus accrued and unpaid interest thereon. The purchase
price for any Put Right shall be paid in four equal monthly installments on the
last business day of each month commencing on the first full month following the
put notice with respect to the applicable First or Second Put Right, with
interest on each installment at the rate of 10% per annum. The Company shall
have the right at any time from time to time commencing on October 10, 1998 to
purchase from any Holder of the Notes, the Notes at a call price at 112% of the
principal amount, plus accrued in unpaid interest thereon provided that such
call price shall be increased by 1% per month.
Under the terms of the Agreement, the Company is obligated to prepare and file a
Form S-3 Registration Statement providing for the resale of the shares of Common
Stock issuable upon conversion of the Notes within 20 days of November 4, 1997
and to use its best efforts to have such Registration Statement declared
effective on or before January 15, 1998. The proceeds from the issuance of these
securities are being used to refinance $10 million of 20% notes payable to GSL
Jr., to fund the purchase of the acquisition of Microtec and for general
corporate purposes.
9
<PAGE>
Additionally, on October 10, 1997, the Company completed the issuance of an
additional $18,608,250 of three year 10% Convertible Notes. The Notes were
issued in a private placement transaction to 52 investors. The Company intends
to use the net proceeds from such offering for expansion of inventory, increase
of manufacturing capacity and for the repayment of short-term debt to Brazilian
banks. This offering, which was not conditioned on completion of the previously
described offering, provided from the issuance of Convertible Notes containing
substantially the same terms and conditions as set forth above.
The Company incurred fees and expenses equal to approximately 1.75% of the gross
proceeds of the offerings and issued warrants to purchase 219,444 shares of the
Company's Common Stock.
10
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION CONTAINED IN THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES
THERETO APPEARING ELSEWHERE IN THIS REPORT.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain line
items from the Company's statement of income as a percentage of the Company's
consolidated revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------- ------------- ------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales.............................. 100% 100% 100% 100%
Cost of sales.......................... 64.0 69.0 66.5 70.6
Gross profit........................... 36.0 31.0 33.5 29.4
Selling, general and
administrative expenses.............. 16.0 10.6 14.9 9.9
Income from operations................. 20.0 20.4 18.6 19.5
Interest and financing expense......... 6.7 1.8 4.3 6.3
Net Income............................. 11.4 11.8 11.3 10.9
</TABLE>
Net sales increased by $13,425,045, or approximately 75%, to
$31,270,598 for the third quarter of 1997 as compared to $17,845,553 for the
third quarter of 1996. For the nine month period ended September 30, 1997, net
sales increased by $27,682,069, or approximately 63%, to $71,607,921 as compared
to $43,925,852 for the nine month period ended September 30, 1996. Such increase
in sales was primarily attributable to increased demand by the Company's
customers, the expansion of the Company's direct end-user sales strategy and the
expansion of the Company's sales through new distribution channels. The
acquisition of Microtec which was completed on July 10, 1997, has enabled the
Company to expand into the corporate, government and distributor channels.
Cost of sales during the third quarter of 1997 were $20,007,009,
representing 64% of the sales during the period, as compared to $12,317,392 for
the third quarter of 1996, representing 69% of sales for the period. Cost of
sales during the nine month period ended September 30, 1997 were $47,596,686,
representing 66.5% of the sales during the period, as compared to $31,005,728
for the nine month period ended September 30, 1996, representing 70.6% of sales
for the period. The decrease in cost of sales as a percentage of sales during
the quarter and nine month period ended September 30, 1997, when compared to the
quarter and nine month period ended September 30, 1996, was attributable to the
expansion of the Company's end-user sales strategy which has provided the
Company with better control over its margins through the elimination of
distribution layers and the retention of pricing power. Also contributing to the
reduction in cost of sales as a percentage of sales was the Company's reduction
of consumer electronics in its product mix. Contract manufacturing of
consumer electronics represents a lower margin sale that of the Company's
core products, personal computers. Sales of consumer electronics to Casas Bahia
represented approximately 14% of sales during the nine month period ended
September 30, 1997 as compared to 30% of sales during the nine month period
ended September 30, 1996. Historically, the Company initiated the contract
manufacturing of consumer electronic products in order to utilize excess
capacity in its manufacturing facility. As the Company has expanded the
production and sales of personal computers, it has elected to phase out the
contract manufacturing of consumer electronics. While the Company believes that
its expansion efforts in the areas of personal computers and related products
will be sufficient to replace the loss of revenues associated with the contract
manufacturing of consumer electronics, there can be no assurance that such
expansion efforts will be successful.
Selling, general, and administrative expenses increased by $3,115,463,
or approximately 165%, to $5,001,365 for the third quarter of 1997 as compared
to $1,885,902 for the third quarter of 1996. For the nine month period ended
September 30, 1997, selling, general, and administrative expenses increased by
$6,330,152, or approximately 146%, to $10,678,699 as compared to $4,348,547 for
the nine month period ended September 30, 1996. The increase for the third
quarter of 1997 was primarily attributable to the acquisition of Microtec which
11
<PAGE>
occurred on July 10, 1997. The increases for the third quarter and the nine
month period ended September 30, 1997 was also attributable to the increased
costs associated with expanding the Company's manufacturing capacity in Brazil
as well as the increase in operating expenses to meet the demands of the
Company's growth. Selling, general, and administrative expense as a percentage
of sales was 16% for the third quarter of 1997, compared to 10.6% for the third
quarter of 1996. For the nine month period ended September 30, 1997, selling,
general, and administrative expense as a percentage of sales was 14.9%, compared
to 9.9% for the nine month period ended September 30, 1996. Such increases were
primarily attributable to the acquisition of Microtec and the incorporation of
their general and administrative expenses into the Company's operations which
more than offset the Company's increases in revenues. Also contributing to the
increase in selling, general, and administrative expenses as a percentage of
sales was the increased marketing expenditures associated with the Company's
direct end-user sales strategy. While the level of these expenses in future
years can not be predicted and is dependant in large part upon the Company's
success in implementing its business strategy, management anticipates that the
increased expenses will be offset by the increases in revenues resulting from
the expansion of distribution channels.
Income from operations increased by $2,619,965, or approximately 72%,
to $6,262,224 for the third quarter of 1997 as compared to $3,642,259 for the
third quarter of 1996. For the nine month period ended September 30, 1997,
income from operations increased by $4,760,960, or approximately 56%, to
$13,332,536 as compared to $8,571,576 for the nine month period ended September
30, 1996. Such increase was primarily attributable to the aforementioned
increase in sales and the decrease in cost of sales as a percentage of sales
which more than offset the increase in selling, general, and administrative
expenses. Income from operations as a percentage of sales decreased to 18.6% for
the nine month period ended September 30, 1997 from 19.5% for the nine month
period ended September 30, 1996. This decrease was primarily attributable to the
aforementioned increase in selling, general, and administrative expenses as a
percentage of sales.
Interest and financing expense increased by $983,006, or approximately
90%, to $2,079,344 for the third quarter of 1997 as compared to $1,096,338 for
the third quarter of 1996. For the nine month period ended September 30, 1997,
interest and financing expense increased by $298,519, or approximately 11%, to
$3,083,804 as compared to $2,785,285 for the nine month period ended September
30, 1996. This increase was primarily attributable to the Company's increased
use of debt financing and the sale of accounts receivable to support its
working capital needs.
During the nine month period ended September 30, 1997, the Company
experienced a foreign currency exchange loss of $1,615,863 from the settlement
of certain receivables and payables denominated in the Brazilian Real and the
translation of financial statements from the Real to the U.S. Dollar as compared
to $541,040 during the nine month period ended September 30, 1996. At September
30, 1997, the Company had a net exposure to currency fluctuations of
approximately $44.5 million consisting primarily of accounts receivable
denominated in Real less payables denominated in the Real.
Net income increased by $1,477,387, or approximately 70%, to $3,577,991
for the third quarter of 1997 as compared to $2,100,604 for the third quarter of
1996. For the nine month period ended September 30, 1997, net income increased
by $3,302,209, or approximately 69%, to $8,106,954 as compared to $4,804,745 for
the nine month period ended September 30, 1996. The increase in net income was
primarily attributable to the aforementioned increase in income from operations
which more than offset increases in interest and financing expense and increases
in selling general and administrative expenses. Net income as a percentage of
sales increased to 11.3% for the nine month period ended September 30, 1997 from
10.9% for the nine month period ended September 30, 1996. This increase was
primarily attributable to the reduction in interest and financing expense as a
percentage of sales which more than offset the decrease in income from
operations as a percentage of sales.
Net income per common and common share equivalent increased by $0.07,
or 28%, to $0.32 for the third quarter of 1997 as compared to $0.25 for the
third quarter of 1996. For the nine month period ended September 30, 1997, net
income per common and common share equivalent increased by $0.19, or
approximately 34%, to $0.75 as compared to $0.56 for the nine month period ended
September 30, 1996. The percentage increase in net income per common and common
share equivalent was less than the percentage increase in net income primarily
because of the dilution presented by the 2,115,500 shares issued in the
Company's initial public offering in November of 1996.
In November 1997, the Brazilian Government introduced a budget cutting
plan designed to control Brazil's budget and trade deficits. The plan, which
includes measures ranging from tax increases to public sector layoffs is
designed to save the Brazilian government approximately $20 billion Reais. These
proposed changes in addition to future changes in, or the implementation of,
such policies, and increased Brazilian political uncertainty, could have a
material adverse effect on the Company and its financial results.
12
<PAGE>
HEDGING ACTIVITIES
Although the Company's financial statements are presented in U.S.
dollars in accordance with generally accepted accounting principles, the
Company's transactions are consummated in both the Brazilian Real and the U.S.
dollar. Inflation and devaluation have had, and may continue to have, an effect
on the Company's results of operations and financial condition. Although the
Company had used Brazilian Real futures and options contracts during 1996, in an
effort to hedge against currency risks, its highest coverage at any one time had
only met 20% of its exposure, consisting of accounts receivable denominated in
Reals, net of accounts payable and other current liabilities denominated in
Reals. Currently, the Company is not engaged in any hedging activities, however,
the Company is constantly monitoring its exposure to currency risks and plans to
use hedging activities to offset currency risks as it deems appropriate.
Accordingly, any significant devaluation of the Real relative to the U.S. dollar
could have a material adverse effect on the Company's operating results.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements have been to fund increased
levels of inventories and accounts receivable. Up to the Company's initial
public offering in November of 1996, the Company had historically satisfied its
working capital requirements through cash flow from operations and debt
financing. On November 7, 1996, the Company completed an initial public offering
of securities issuing 2,115,500 shares of the Company's common stock, no par
value, for $10.00 per share. Such offering provided the Company with net
proceeds of approximately $18,000,000 which were used to expand inventory, to
expand consumer financing operations, to expand marketing activities, to repay
indebtedness, to increase manufacturing capacity, and for general working
capital purposes. During the nine month period ended September 30, 1997, the
Company has continued to use debt financing to satisfy its working capital
requirements.
At September 30, 1997, the Company had a working capital surplus of
$43,355,534 compared to $31,873,405 at December 31, 1996. This increase in
working capital was primarily attributable to the increased levels of accounts
receivable and the increased levels of inventory which more than offset the
increases in trade accounts payable and short-term debt.
Net cash used by operating activities for the nine month period ended
September 30, 1997 was $12,365,986 as compared to $24,399 in cash used by
operating activities during the nine month period ended September 30, 1996. The
increase in cash used was primarily attributable to the increases in accounts
receivable and inventories which more than offset the increase in trade accounts
payable.
Net cash used in investing activities was $7,853,450 for the nine month
period ended September 30, 1997. Such use of cash was primarily related to the
acquisition of Microtec, the purchase of production equipment associated with
the expansion of the Company's manufacturing capacity and the purchase of
computer equipment for the Company's management information system. Net cash
provided from financing activities was $22,273,225 for the nine month period
ended September 30, 1997 and resulted primarily from the short-term borrowings
at various banks in Brazil, and the issuance of a $5 million note payable to a
related party, and the private placement of an aggregate of $15 million senior
convertible notes to a related party.
The Company has a line of credit in the amount of $1,200,000 with
Eastern National Bank in Miami, Florida, with which the Company maintains its
primary banking relationship. $200,000 of such line is a working capital line
and $1 million is a trade finance line used to support letter of credits which
the Company may issue to secure purchase obligations. The trade finance lines
require the Company to provide a cash deposit equal to 30% of each letter of
credit. The credit agreement is secured by a lien of certain property owned by
the Company. As of September 30, 1997, there was nothing owing under such
facility.
As of September 30, 1997, the Company had $7,219,239 in short-term
borrowings from various banks in Brazil with rates of interest ranging from 1.5%
to 3% per month and maturing on a revolving basis. As of September 30, 1997, the
Company had available approximately $15 million in unused credit facilities at
various banks in Brazil.
During the nine month period ended September 30, 1997, the Company
negotiated a net amount of $12,287,346 of its accounts receivable to various
banks in Brazil, recognizing a financing expense of approximately $802,104. Such
receivables were negotiated with full recourse to the Company.
13
<PAGE>
At September 30, 1997, the Company had a note payable in the amount of
$1.4 million to Georges C. St. Laurent III, the Chairman of the Board and Chief
Executive Officer of the Company. Such note is payable on demand and bears
interest at the rate of 1% per month.
On December 17, 1996, the Company borrowed $5 million at an annual
interest rate of 20% and a term of 180 days from Georges C. St. Laurent, Jr.,
the father of Georges C. St. Laurent III, the Company's CEO, and William St.
Laurent, the Company's President. On April 10, 1997, the Company borrowed an
additional $5 million from Georges C. St. Laurent, Jr. at an annual interest
rate of 20% and a term of 180 days. On June 26, 1997, GSL Jr. and the Company
mutually agreed to extend the term of the December 17, 1996 note for an addition
180 days. The proceeds of the notes were used for general corporate and working
capital purposes. On October 10, 1997 the Company repaid such notes out of the
proceeds of a private placement of 10% convertible notes.
On June 26, 1997, the Company completed a private placement of a two
year senior convertible note to GSL Jr. for the principal amount $10 million.
The note bears an annual interest rate of 10% payable monthly and is
convertible, with 90 days notice, into common stock of the Company, in whole or
in part, at the rate of one share of common stock for each $15 of principal
converted. The proceeds of note are being used for the acquisition of Microtec
Sistemas Industria e Comercio S.A. and for general working capital purposes.
On August 19, 1997, the Company entered into a loan agreement with GSL
Jr. for a principal amount of up to $10,000,000 to be evidenced by senior
convertible notes. The notes have a two year term and bear an annual interest
rate of 10% payable monthly and are convertible, with 90 days notice, into
common stock of the Company, in whole or in part, at the rate of one share of
common stock for each $16.10 of principal converted. On August 19, 1997, the
Company issued the first of such notes for the principal sum of $5,000,000. On
October 10, 1997, the Company issued the second of such notes for the principal
sum of $5,000,000. The proceeds of the notes are being used for general working
capital purposes.
The Company has suspended the ground breaking of its new manufacturing
plant and administrative center in Ilheus, Brazil. The Company has become aware
that the current manufacturing facility in Ilheus that it is leasing will be
coming up for auction. The Company is currently evaluating the purchase of its
current facility in such auction.
On October 10, 1997, the Company completed a private placement of three
year 10% convertible promissory notes resulting in gross proceeds to the Company
of $20,000,000. The private placement was between the Company and four
institutional investors. The notes are initially convertible at a conversion
price of $16.50 (the "Initial Conversion Price") subject to stock-splits, stock
dividends, rights offering other similar events. In the event that the Company
shall have declined to repay in full, following the exercise by noteholders of
the first or second put right (as defined below), the Initial Conversion Price
shall be (i) the lesser of .85 multiplied by the 10-day weighted average sale
price ("VWASP") on Nasdaq as reported by Bloomberg, LP (or other principal
exchange on which the Company's securities are traded) for the lowest 10-day
consecutive period during 30 consecutive trading day period ending one trading
day prior to the conversion date or (ii) $16.50 per share.
Beginning October 10, 1998 and continuing for a period of 30 days
thereafter, each Noteholder shall have the right ("First Put Right") to request
the Company to repurchase all, but not less than all of the outstanding Notes
held by such Holder at a price equal to 110% of the principal amount thereof,
plus accrued and unpaid interest thereon. Commencing 180 days after the First
Put Date and continuing for a period of 30 days thereafter, each Noteholder
shall have a second right (the "Second Put Right") to request the Company to
repurchase all, but not less than all of the outstanding Notes at a price equal
to 115% of the principal amount thereof plus accrued and unpaid interest
thereon. The purchase price for any Put Right shall be paid in four equal
monthly installments on the last business day of each month commencing on the
first full month following the put notice with respect to the applicable First
or Second Put Right, with interest on each installment at the rate of 10% per
annum. The Company shall have the right at any time from time to time commencing
on October 10, 1998 to purchase from any Holder of the Notes, the Notes at a
call price at 112% of the principal amount, plus accrued in unpaid interest
thereon provided that such call price shall be increased by 1% per month.
Under the terms of the Agreement, the Company is obligated to prepare
and file a Form S-3 Registration Statement providing for the resale of the
shares of Common Stock issuable upon conversion of the Notes within 20 days of
November 4, 1997 and to use its best efforts to have such Registration Statement
declared effective on or before January 15, 1998. The proceeds of from the
issuance of these securities are being used to refinance $10 million of 20%
notes payable to GSL Jr., to fund the purchase of the acquisition of Microtec
and for general corporate purposes.
14
<PAGE>
Additionally, on October 10, 1997, the Company completed the issuance
of an additional $18,608,250 of three year 10% Convertible Notes. The Notes were
issued in a private placement transaction to 52 investors. The Company intends
to use the net proceeds from such offering for expansion of inventory, increase
of manufacturing capacity and for the repayment of short-term debt to Brazilian
banks. This offering, which was not conditioned on completion of the previously
described offering, provided from the issuance of Convertible Notes containing
substantially the same terms and conditions as set forth above.
The Company incurred fees and expenses equal to approximately 1.75% of
the gross proceeds of the offerings and issued warrants to purchase 219,444
shares of the Company's Common Stock.
To maintain historical levels of growth, the Company may need to seek
additional funding through public or private financing and may, when attractive
sources of capital become available, elect to obtain capital in anticipation of
such needs. Adequate funds for growth through internal expansion and through
acquisitions may not be available when needed or may not be available on terms
favorable to the Company. If additional funds are raised by issuing equity
securities or related instruments with conversion or warrant features, dilution
to existing shareholders may result. If funding is insufficient, the Company may
be required to delay, reduce the scope of or eliminate some or all of its
expansion programs. In addition, the Company has in the past sought funding
through related third parties to the Company's management and there can be no
assurance that these sources can be relied upon in the future. Based on the
Company's operating plan, the Company believes that the projected cash flows
from operations and the existing and contemplated sources of financing will be
sufficient to satisfy its capital requirements for the next twelve months. Such
belief is based on certain assumptions, and there can be no assurance that such
assumptions are correct. Accordingly, there can be no assurance that such
resources will be sufficient to satisfy the Company's capital requirements for
such period. Also, there can be no assurance that such contemplated sources will
be available at the time they are needed. In any of such events, the Company may
be unable to implement its current plans for expansion.
Statements contained in this report that are not based on historical
fact are "forward-looking statements" within the meaning of the private
securities litigation reform act of 1995. Forward-looking statements may be
identified by the use of forward looking terminology such as "may," "will,"
"expect," "believe," "estimate," "anticipate," "continue," or similar terms or
variations of those terms or the negative of those terms. There are many factors
that affect the Company's business and the results of its operations and may
cause the actual results of operations in future periods to differ materially
from those currently expected or desired. These factors include, but are not
limited to: receipt and fulfillment of expected orders, changes in general
business and economic conditions, the growth of segments in which the Company
operates, market volatility; the effectiveness of price and other competition
faced by the Company; the market acceptance of the Company's products and the
timing of such acceptance; the change in customers' buying patterns; changes in
the Company's sales practice; the raising of capital and other important
factors.
15
<PAGE>
II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named in two separate lawsuits, one by IBM and
another by YE Data, both relating to TNT Systems, Inc., a business in which
Georges C. St. Laurent III was a shareholder and which ceased operations in
1993. During the third quarter of 1997, the YE Data case was dismissed by the
courts with no action taken against either party. The company believes that the
IBM lawsuit is frivolous in nature and without merit and is not material to the
financial results or condition of the Company. Mr. Georges C. St. Laurent III
has agreed to indemnify the Company against any and all claims having to do with
this lawsuits against the Company by IBM or and others that may arise from the
past operations of businesses owned by Mr. Georges C. St. Laurent III. Mr.
William C. St. Laurent has agreed to indemnify the Company against any and all
claims having to do with lawsuits that may arise from the past operations of
businesses owned by Mr. William C. St. Laurent.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by item 601 of Regulation S-K
The following exhibits are filed as part of this report:
Exhibits:
(10.14) Loan Agreement dated August 19, 1997 between the Company and
Georges C. St. Laurent Jr.
(10.15) Senior Convertible Note dated August 19, 1997 to Georges C.
St. Laurent Jr.
(10.16) Senior Convertible Note dated October 10, 1997 to Georges C.
St. Laurent Jr.
(11) Statement Re: Computation of Per Share Earnings
(27.1) Financial Data Schedule
(b) Reports on Form 8-K.
1. The Company filed a Current Report on Form 8-K dated July 10, 1997
as amended by Form 8-K/A filed September 23, 1997 disclosing the
Company's acquisition of Microtec Sistemas Industria e Comercio
S.A.
16
<PAGE>
SIGNATURE
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.
Vitech America, Inc.
By: /s/ EDWARD A. KELLY
------------------------------
Edward A. Kelly
Vice President and Chief Financial Officer
(authorized officer and chief accounting officer)
Date: November 14, 1997
17
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.14 Loan Agreement dated August 19, 1997 between the Company and Georges
C. St. Laurent Jr.
10.15 Senior Convertible Note dated August 19, 1997 to Georges C. St.
Laurent Jr.
10.16 Senior Convertible Note dated October 10, 1997 to Georges C. St.
Laurent Jr.
11 Statement Re: Computation of Per Share Earnings
27.1 Financial Data Schedule
EXHIBIT 10.14
LOAN AGREEMENT DATED AUGUST 19, 1997 BETWEEN THE COMPANY AND
GEORGES C. ST. LAURENT JR.
<PAGE>
LOAN AGREEMENT
This Loan Agreement is made and entered into this 19th day of August,
1997, by and between Vitech America, Inc., a Florida corporation (the
"Borrower"), and Georges C. St. Laurent Jr., residing at 5115 Dubois Drive,
Vancouver, WA 98661 (the "Lender"). The Borrower has requested the Lender to
provide a loan facility in the principal amount of $10,000,000. The loan will be
evidenced by senior convertible notes issued by the Borrower in favor of the
Lender with the following terms and conditions:
<TABLE>
<CAPTION>
<S> <C>
ISSUER: Vitech America, Inc. (the "Company")
SECURITIES: Senior Convertible Note (the "Note")
PRINCIPAL AMOUNT: $10 million in two tranches of $5 million.
The Company shall have the option to draw
the second tranche after 45 days from the
first tranche.
COUPON RATE: 10%
COUPON PAYMENTS: Payable monthly in cash
MATURITY: 2 years
PRINCIPAL PAYMENTS: Outstanding principal balance at maturity
USE OF PROCEEDS: General corporate and working capital
purposes
CONVERSION TERMS: The Note shall be convertible in whole or in
part at the option of the holder with no
less than 90 days notice to the Company.
CONVERSION: (a) INITIAL CONVERSION PRICE: The Note shall
be convertible at the rate of one share of
common stock for each $16.10 of principal
converted.
(b) CONVERSION PRICE RESET FEATURE: If the
put feature described below is exercised by
the Note holder, and the Company does not
pay the full redemption price when due, then
the conversion price shall be reset to equal
the lesser of (i) the Initial Conversion
Price, or (ii) 85% of the average closing
bid price for the 45 trading days prior to
conversion. The note holder will agree to
not short the Company's stock while this
feature is available.
HOLDER PUT RIGHT: Commencing one year after the date of
issuance, the holder shall have the right to
cause the Company to repurchase the
outstanding principal at a price equal to
110% of the principal thereof plus accrued
and unpaid interest. The put shall increase
at 1% per month until maturity of the note,
i.e. 110% plus 1% for each additional month
after the twelfth month. The put right must
be exercised on at least 60 days prior
written notice to the Company. After
notification of the note holder's desire to
<PAGE>
exercise the put option, anti-dilution
provisions will be null, unless the put is
not successful, whereupon the anti-dilution
rights shall return to full force. If the
note holder has informed the Company of his
desire to put the note back to the Company,
and in the event that the Company arranges
new investors in a structure that is
dilutive to the note holder, the note holder
shall have the right to invest or
restructure the note at the same terms as
the new investor.
CALL PROVISION: The Company shall have the right to redeem
the Note at 100% of principal at any time
plus 1% per month for each month the note is
held, with a cap of 110%, subject always to
the conversion rights of the holder. Upon
notice of the holder's intent to convert,
the Company's right to call the Note shall
be surrendered
REGISTRATION RIGHTS: Upon notification of the Holder's intent to
convert, the Company will use its best
efforts to file a registration statement on
Form S-3 to register a sufficient number of
shares of common stock to satisfy the
conversion of the Note.
ANTI-DILUTION RIGHTS: The note holder shall be entitled to
anti-dilution rights. Upon notification of
the Holder's intent to convert, the
anti-dilution provisions will be null,
unless the put is not successful, whereupon
the anti-dilution rights shall return to
full force.
OTHER RIGHTS: If the Company consummates a structure more
favorable to investors after the date of
this note, then the note holder shall be
entitled to either adjustment in the terms
to meet the terms of the new investors, or
repayment of the principal amount plus
interest owing.
</TABLE>
In witness whereof, the parties hereto have executed this Loan Agreement as of
the day and year first above written.
Vitech America, Inc. (the "Borrower") Georges C. St. Laurent Jr.
(the "Lender")
By:/S/ EDWARD A. KELLY /S/ GEORGES C. ST. LAURENT JR.
- ---------------------- --------------------------------
Edward A. Kelly Georges C. St. Laurent Jr.
Its: Chief Financial Officer
EXHIBIT 10.15
SENIOR CONVERTIBLE NOTE DATED AUGUST 19, 1997 TO
GEORGES C. ST. LAURENT JR.
<PAGE>
VITECH AMERICA, INC.
10% SENIOR NOTE
DUE August 19, 1999
$5,000,000 AUGUST 19, 1997
This Note is being issued in connection with the loan facility
established between Vitech America, Inc. and Georges C. St. Laurent Jr.
established on August 19, 1997 for the principal amount of up to $10,000,000.
VITECH AMERICA, INC. a Florida corporation (the "Company") having its
principal office at 8807 Northwest 23rd Street, Miami, Florida 33172, for value
received, hereby promises to pay to GEORGES C. ST. LAURENT JR., or registered
assigns (the "Holder") on August 19, 1999 or prior thereto as hereinafter
provided (the "Maturity Date") at the principal offices of the Company, the
outstanding principal sum of Five Million Dollars ($5,000,000) in legal tender
of the United States of America, and to pay interest on the outstanding
principal balance at the rate of ten percent (10%) per annum from the date
hereof until the Company's obligation with respect to the payment of such
principal sum shall be discharged as herein provided. Interest hereunder shall
accrue from the date of this Note and shall be payable monthly on the 1st day of
each month in arrears for interest accrued during the preceding month,
commencing September 1, 1997, while this Note is outstanding.
This Note is the direct obligation of the Company chargeable against
all of its property, whatsoever and wheresoever, both present and future, and,
if divided into separate Notes, all such Notes shall rank equal and ratably
without preference or priority of any of said Notes, over any others thereof.
CALL PROVISION
The Company shall have the right to redeem the Note, in whole or in
part, at 100% of the principal amount outstanding plus 1% per month for each
month the Note is held, with a maximum of 110%. Upon any prepayment of the
principal amount of this Note, all accrued but unpaid interest shall be paid to
the Holder of this Note on the date of prepayment. Upon notice of the Holder's
intent to convert, the Company's right to call the Note shall be surrendered
<PAGE>
CONVERSION
This Note is convertible into shares of Common Stock of the Company, at
the option of the Holder with no less than ninety (90) days prior written notice
of the Holder's intent to covert, along with the Note, delivered to the
Company's offices. The Note may be converted in whole or in part, so long as the
part is One Million Dollars ($1,000,000) or a whole multiple of One Million
Dollars ($1,000,000).
The conversion rate shall be as follows:
(a) INITIAL CONVERSION PRICE: The Note shall be convertible at the
rate of one share of common stock for each $16.10 of principal
converted.
(b) CONVERSION PRICE RESET FEATURE: If the Put Feature described in
the section below is exercised by the Holder, and the Company does
not pay the full redemption price when due, then the conversion
price shall be reset to equal the lesser of (i) the Initial
Conversion Price, or (ii) 85% of the average closing bid price for
the 45 trading days prior to conversion. The Holder will agree not
to engage in the short selling of the Company's stock while this
feature is available.
On conversion, no payment or adjustment for interest shall be made. The
conversion price will be adjusted for dividends or distributions on Common Stock
payable in the Company's Common Stock, and for subdivisions, combinations or
certain reclassifications of the Company's Common Stock. If the Company is a
party to a consolidation or merger or transfer of all or substantially all of
its assets, the right to convert a Note into Common Stock will be changed into a
right to convert it into securities, cash or other assets of the Company or
another entity, on the same basis as the other common shareholders of the
Company.
Upon notification of the Holder's intent to convert, the Company will
use its best effort to file a registration statement on Form S-3 to register a
sufficient number of shares to satisfy the conversion of the Note.
PUT FEATURE
Commencing one year after the date of issuance, the Holder shall have
the right to cause the Company to repurchase the outstanding principal at a
price equal to 110% of the principal thereof plus accrued and unpaid interest.
The repurchase price shall increase at 1% per month until maturity of the note,
i.e. 110% plus 1% for each additional month after the twelfth month.
The Put Feature must be exercised on at least 60 days prior written
notice to the Company. After notification of the Holder's desire to exercise the
Put Feature, the anti-dilution provisions described above will be cancelled,
unless the
<PAGE>
Put Feature is not successfully honored by the Company, whereupon the
anti-dilution rights shall return to full force. If the Holder has informed the
Company of his desire to exercise the Put Feature, and in the event that the
Company arranges new investors in a structure that is dilutive to the Holder,
the Holder shall have the right to invest or restructure the Note at the same
terms as the new investors.
OTHER HOLDER RIGHTS
If the Company consummates a structure more favorable to investors
after the date of this Note, then the Holder shall be entitled to either
adjustment in the terms of this Note to meet the terms of the new investors, or
repayment of the principal amount plus interest owing.
COVENANTS
The Company covenants and agrees that, so long as this Note shall be
outstanding, it will:
/bullet/ promptly pay and discharge all lawful taxes, assessments and
governmental charges or levies upon the Company or upon its income and
profits, or upon any of its property, before the same shall become in
default, as well as all lawful claims for labor, materials and
supplies, which, if unpaid, might become a lien or charge upon such
properties or any part thereof.
/bullet/ do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence, rights and franchises
and comply with all laws applicable to the Company as its counsel may
advise.
/bullet/ keep adequately insured, by financially sound reputable insurers, all
property of a character usually insured by similar corporations and
carry such insurance as is usually carried by similar corporations.
/bullet/ at all times keep true and correct books, records and accounts.
EVENTS OF DEFAULT
This Note shall become due and payable upon written demand made by the
Holder hereof if one or more of the following events, herein called "events of
default", shall happen and be continuing as hereinafter provided:
/bullet/ Default in the payment of principal and accrued interest on this Note
when and as the same shall become due and payable, if such default
shall continued uncured for 30 days after due.
/bullet/ Default in the due observance or performance of any covenant, condition
or agreement on the part of the Company to be observed or performed
pursuant to the terms hereof, if such default shall continue uncured
for 60 days after written notice specifying such default shall have
been given to the Company by the Holder of the Note.
<PAGE>
/bullet/ Application for, or consent to, the appointment of a receiver, trustee
or liquidator of the Company or of its property.
/bullet/ Admission in writing of the Company's inability to pay its debts as
they mature.
/bullet/ General assignment by the Company for the benefit of creditors
/bullet/ Filing by the Company of a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization or an arrangement with
creditors.
MISCELLANEOUS
The Company may consider and treat the person in whose name this Note
shall be registered as the absolute owner thereof for all purposes whatsoever.
Payments of interest shall be made as specified above to the registered
owner of this Note. Payment of principal shall be made to the registered owner
of this Note upon presentation of this Note upon or after maturity. No interest
shall be due on this Note for such period of time that may elapse between the
maturity of this Note and its presentation for payment.
The Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in the company, either at law or in equity until conversion of this
Note, and the rights of the Holder are limited to those expressed in this Note.
This Note shall be construed and enforced in accordance with the laws
of the State of Florida.
IN WITNESS WHEREOF, VITECH AMERICA, INC. has caused this Note to be
signed in its name by an authorized officer of the Company.
VITECH AMERICA, INC.,
A FLORIDA CORPORATION
By: /S/ EDWARD A. KELLY
-----------------------
Edward A. Kelly,
Chief Financial Officer
EXHIBIT 10.16
SENIOR CONVERTIBLE NOTE DATED OCTOBER 10, 1997 TO
GEORGES C. ST. LAURENT JR.
<PAGE>
VITECH AMERICA, INC.
10% SENIOR NOTE
DUE October 10, 1999
$5,000,000 OCTOBER 10, 1997
This Note is being issued in connection with the loan facility
established between Vitech America, Inc. and Georges C. St. Laurent Jr.
established on August 19, 1997 for the principal amount of up to $10,000,000.
VITECH AMERICA, INC. a Florida corporation (the "Company") having its
principal office at 8807 Northwest 23rd Street, Miami, Florida 33172, for value
received, hereby promises to pay to GEORGES C. ST. LAURENT JR., or registered
assigns (the "Holder") on August 19, 1999 or prior thereto as hereinafter
provided (the "Maturity Date") at the principal offices of the Company, the
outstanding principal sum of Five Million Dollars ($5,000,000) in legal tender
of the United States of America, and to pay interest on the outstanding
principal balance at the rate of ten percent (10%) per annum from the date
hereof until the Company's obligation with respect to the payment of such
principal sum shall be discharged as herein provided. Interest hereunder shall
accrue from the date of this Note and shall be payable monthly on the 1st day of
each month in arrears for interest accrued during the preceding month,
commencing November 1, 1997, while this Note is outstanding.
This Note is the direct obligation of the Company chargeable against
all of its property, whatsoever and wheresoever, both present and future, and,
if divided into separate Notes, all such Notes shall rank equal and ratably
without preference or priority of any of said Notes, over any others thereof.
CALL PROVISION
The Company shall have the right to redeem the Note, in whole or in
part, at 100% of the principal amount outstanding plus 1% per month for each
month the Note is held, with a maximum of 110%. Upon any prepayment of the
principal amount of this Note, all accrued but unpaid interest shall be paid to
the Holder of this Note on the date of prepayment. Upon notice of the Holder's
intent to convert, the Company's right to call the Note shall be surrendered
<PAGE>
CONVERSION
This Note is convertible into shares of Common Stock of the Company, at
the option of the Holder with no less than ninety (90) days prior written notice
of the Holder's intent to covert, along with the Note, delivered to the
Company's offices. The Note may be converted in whole or in part, so long as the
part is One Million Dollars ($1,000,000) or a whole multiple of One Million
Dollars ($1,000,000).
The conversion rate shall be as follows:
(a) INITIAL CONVERSION PRICE: The Note shall be convertible at the
rate of one share of common stock for each $16.10 of principal
converted.
(b) CONVERSION PRICE RESET FEATURE: If the Put Feature described in
the section below is exercised by the Holder, and the Company does
not pay the full redemption price when due, then the conversion
price shall be reset to equal the lesser of (i) the Initial
Conversion Price, or (ii) 85% of the average closing bid price for
the 45 trading days prior to conversion. The Holder will agree not
to engage in the short selling of the Company's stock while this
feature is available.
On conversion, no payment or adjustment for interest shall be made. The
conversion price will be adjusted for dividends or distributions on Common Stock
payable in the Company's Common Stock, and for subdivisions, combinations or
certain reclassifications of the Company's Common Stock. If the Company is a
party to a consolidation or merger or transfer of all or substantially all of
its assets, the right to convert a Note into Common Stock will be changed into a
right to convert it into securities, cash or other assets of the Company or
another entity, on the same basis as the other common shareholders of the
Company.
Upon notification of the Holder's intent to convert, the Company will
use its best effort to file a registration statement on Form S-3 to register a
sufficient number of shares to satisfy the conversion of the Note.
PUT FEATURE
Commencing one year after the date of issuance, the Holder shall have
the right to cause the Company to repurchase the outstanding principal at a
price equal to 110% of the principal thereof plus accrued and unpaid interest.
The repurchase price shall increase at 1% per month until maturity of the note,
i.e. 110% plus 1% for each additional month after the twelfth month.
The Put Feature must be exercised on at least 60 days prior written
notice to the Company. After notification of the Holder's desire to exercise the
Put Feature, the anti-dilution provisions described above will be cancelled,
unless the
<PAGE>
Put Feature is not successfully honored by the Company, whereupon the
anti-dilution rights shall return to full force. If the Holder has informed the
Company of his desire to exercise the Put Feature, and in the event that the
Company arranges new investors in a structure that is dilutive to the Holder,
the Holder shall have the right to invest or restructure the Note at the same
terms as the new investors.
OTHER HOLDER RIGHTS
If the Company consummates a structure more favorable to investors
after the date of this Note, then the Holder shall be entitled to either
adjustment in the terms of this Note to meet the terms of the new investors, or
repayment of the principal amount plus interest owing.
COVENANTS
The Company covenants and agrees that, so long as this Note shall be
outstanding, it will:
/bullet/ promptly pay and discharge all lawful taxes, assessments and
governmental charges or levies upon the Company or upon its income and
profits, or upon any of its property, before the same shall become in
default, as well as all lawful claims for labor, materials and
supplies, which, if unpaid, might become a lien or charge upon such
properties or any part thereof.
/bullet/ do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence, rights and franchises
and comply with all laws applicable to the Company as its counsel may
advise.
/bullet/ keep adequately insured, by financially sound reputable insurers, all
property of a character usually insured by similar corporations and
carry such insurance as is usually carried by similar corporations.
/bullet/ at all times keep true and correct books, records and accounts.
EVENTS OF DEFAULT
This Note shall become due and payable upon written demand made by the
Holder hereof if one or more of the following events, herein called "events of
default", shall happen and be continuing as hereinafter provided:
/bullet/ Default in the payment of principal and accrued interest on this Note
when and as the same shall become due and payable, if such default
shall continued uncured for 30 days after due.
/bullet/ Default in the due observance or performance of any covenant, condition
or agreement on the part of the Company to be observed or performed
pursuant to the terms hereof, if such default shall continue uncured
for 60 days after written notice specifying such default shall have
been given to the Company by the Holder of the Note.
<PAGE>
/bullet/ Application for, or consent to, the appointment of a receiver, trustee
or liquidator of the Company or of its property.
/bullet/ Admission in writing of the Company's inability to pay its debts as
they mature.
/bullet/ General assignment by the Company for the benefit of creditors
/bullet/ Filing by the Company of a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization or an arrangement with
creditors.
MISCELLANEOUS
The Company may consider and treat the person in whose name this Note
shall be registered as the absolute owner thereof for all purposes whatsoever.
Payments of interest shall be made as specified above to the registered
owner of this Note. Payment of principal shall be made to the registered owner
of this Note upon presentation of this Note upon or after maturity. No interest
shall be due on this Note for such period of time that may elapse between the
maturity of this Note and its presentation for payment.
The Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in the company, either at law or in equity until conversion of this
Note, and the rights of the Holder are limited to those expressed in this Note.
This Note shall be construed and enforced in accordance with the laws
of the State of Florida.
IN WITNESS WHEREOF, VITECH AMERICA, INC. has caused this Note to be
signed in its name by an authorized officer of the Company.
VITECH AMERICA, INC.,
A FLORIDA CORPORATION
By: /S/ EDWARD A. KELLY
----------------------
Edward A. Kelly,
Chief Financial Officer
EXHIBIT 11
<TABLE>
<CAPTION>
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
THREE MONTH ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Primary earnings per common share:
Net Income $ 3,577,991 $ 2,100,604 $ 8,106,954 $ 4,804,745
Add interest on $2,000,000 convertible note
payable, net of tax - 29,700 - 89,100
------------------------------ ------------------------------
Net income as adjusted for calculation of primary
earnings per share $ 3,577,991 $ 2,130,304 $ 8,106,954 $ 4,893,845
------------------------------ ------------------------------
Weighted average number of common shares
outstanding 10,921,314 8,000,000 10,792,743 8,000,000
Weighted average shares of common stock
equivalents, utilizing the treasury stock method 91,319 4,750 39,429 4,750
Weighted average number of shares issuable
from assumed exercise of $2,000,000 convertible
note payable (a) - 503,853 - 503,853
------------------------------ ------------------------------
Weighted average number of shares, as adjusted for
calculation of primary earnings per common share 11,012,633 8,508,606 10,832,172 8,508,606
------------------------------ ------------------------------
Primary earnings per common share $ 0.32 $ 0.25 $ 0.75 $ 0.56
------------------------------ ------------------------------
</TABLE>
(a) For 1996, represents the weighted average of 503,853 common shares from the
assumed conversion of the 2,000,000 convertible note payable on May 26,
1995.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VITECH
AMERICA, INC.'S CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,811,520
<SECURITIES> 0
<RECEIVABLES> 46,930,135
<ALLOWANCES> 458,891
<INVENTORY> 32,253,722
<CURRENT-ASSETS> 86,591,308
<PP&E> 8,172,744
<DEPRECIATION> 714,791
<TOTAL-ASSETS> 106,856,950
<CURRENT-LIABILITIES> 43,235,774
<BONDS> 16,540,037
0
0
<COMMON> 22,963,903
<OTHER-SE> 23,436,243
<TOTAL-LIABILITY-AND-EQUITY> 106,856,950
<SALES> 71,607,921
<TOTAL-REVENUES> 71,607,921
<CGS> 47,596,686
<TOTAL-COSTS> 58,275,385
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,083,804
<INCOME-PRETAX> 8,632,868
<INCOME-TAX> 485,374
<INCOME-CONTINUING> 8,106,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,106,954
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
