SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 10, 1997
VITECH AMERICA, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 0-21369 65-041-9086
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
8807 NORTHWEST 23 STREET, MIAMI, FLORIDA 33172
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (305) 477-1161
N/A
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
INDEX TO FINANCIAL STATEMENTS AND PRO FORMA INFORMATION
Microtec Sistemas Industria e Comercio S.A. Financial Statements
for the Years Ended December 31, 1996 and 1995,
and Independent Auditors' Report......................................PAGE 3
Microtec Sistemas Industria e Comercio S.A. Financial Statements
for the Six-Month Periods Ended June 30, 1997 and 1996,
and Independent Auditors' Review Report...............................PAGE 13
Vitech America, Inc. and Microtec Sistemas Industria e Comercio S.A.
Pro Forma Condensed Combined Financial Statements.....................PAGE 23
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Management
Microtec Sistemas Industria e Comercio S.A.
We have audited the accompanying balance sheet of Microtec Sistemas Industria e
Comercio S.A. as of December 31, 1996 and 1995, and the related statements of
income, changes in shareholders' equity and cash flows for the years then ended,
as expressed in Brazilian reais and remeasured into United States dollars. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements described in the first paragraph
present fairly, in all material respects, the financial position of Microtec
Sistemas Industria e Comercio S.A. at December 31, 1996 and 1995, and the
results of its operations, changes in its stockholders' equity and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
Our audits also comprehended the remeasurement of the Brazilian real amounts
into U.S. dollar amounts and, in our opinion, such remeasurement has been made
in accordance with the standards set forth in Statement of Financial Accounting
Standards No. 52. The remeasurement of the financial statement amounts into U.S.
dollars and the free translation of the financial statements into English, with
the inclusion of additional disclosures in the notes to the financial
statements, have been made solely for the convenience of readers outside Brazil.
/s/ Deloitte Touche Tohmatsu
March 14, 1997
3
<PAGE>
<TABLE>
<CAPTION>
MICROTEC SISTEMAS INDUSTRIA E COMERCIO S.A.
BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995
(Expressed in thousands of United States dollars - US$)
US$
------------------------------------
ASSETS 1996 1995
----------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and banks 123 113
Marketable securities 2,902 726
Trade accounts receivable 6,574 5,988
Other accounts receivable 767 557
Inventories 4,113 5,441
Prepaid expenses 100 413
Deferred tax asset 323 314
----------------- -----------------
Total current assets 14,902 13,552
----------------- -----------------
LONG TERM ASSETS
Affiliated company 16 16
Other receivables and credits 532 12
Deferred tax asset 527 489
----------------- -----------------
Total long-term assets 1,075 517
----------------- -----------------
PERMANENT ASSETS
Investments 13 13
Property, plant and equipment - net 569 805
----------------- -----------------
Total permanent assets 582 818
================= =================
TOTAL 16,559 14,887
================= =================
LIABILITIES
CURRENT LIABILITIES
Suppliers 4,321 6,394
Bank loans 1,889 512
Taxes payable 786 827
Other accounts payable and provisions 1,917 1,990
Accrued salary and vacation pay 537 577
----------------- -----------------
Total current liabilities 9,450 10,300
----------------- -----------------
LONG TERM LIABILITIES
Other accounts payable 433 -
----------------- -----------------
STOCKHOLDERS' EQUITY
Share capital - no par value shares authorized and issued
Preferred shares - 5,375,400 shares 300 300
Common shares - 59,000,000 shares 3,287 3,287
Retained earnings 3,089 1,000
----------------- -----------------
Total stockholders' equity 6,676 4,587
================= =================
TOTAL 16,559 14,887
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
MICROTEC SISTEMAS INDUSTRIA E COMERCIO S.A.
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(Expressed in thousands of United States dollars - US$)
US$
------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
OPERATING REVENUES
Product sales 70,408 48,024
Services rendered 13,216 9,021
----------------- -----------------
Total 83,624 57,045
DEDUCTIONS
Value-added tax (9,637) (7,181)
Returns and cancellations (1,870) (1,482)
----------------- -----------------
Total (11,507) (8,663)
----------------- -----------------
OPERATING REVENUES - NET 72,117 48,382
Cost of sales and services rendered (52,588) (34,860)
----------------- -----------------
GROSS PROFIT 19,529 13,522
----------------- -----------------
OTHER OPERATING EXPENSE
Selling expenses (7,419) (6,546)
Administrative expenses (7,435) (5,755)
----------------- -----------------
Total other operating expense (14,854) (12,301)
----------------- -----------------
OPERATING INCOME 4,675 1,221
OTHER INCOME (EXPENSES):
Nonoperating income - net 8 163
Interest expenses - net (2,297) (1,279)
Exchange gain on remeasurement 89 232
----------------- -----------------
INCOME BEFORE EXTRATORDINARY ITEM
AND INCOME TAX AND SOCIAL CONTRIBUTION 2,475 337
Extraordinary item - Patent agreement (433)
----------------- -----------------
INCOME BEFORE INCOME TAX AND
SOCIAL CONTRIBUTION 2,042 337
Deferred income tax and social contribution provision 47 (156)
================= =================
NET INCOME FOR THE YEAR 2,089 181
================= =================
EARNINGS PER SHARE 0.0325 0.0028
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
MICROTEC SISTEMAS INDUSTRIA E COMERCIO S.A.
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND 1995
(Expressed in thousands of United States dollars - US$)
RETAINED
CAPITAL EARNINGS TOTAL
----------------- ---------------- -----------------
US$ US$ US$
----------------- ---------------- -----------------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1994 3,587 819 4,406
Net income for the year 181 181
----------------- ---------------- -----------------
BALANCE AS OF DECEMBER 31, 1995 3,587 1,000 4,587
Net income for the year 2,089 2,089
================= ================ =================
BALANCE AS OF DECEMBER 31, 1996 3,587 3,089 6,676
================= ================ =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
MICROTEC SISTEMAS INDUSTRIA E COMERCIO S.A.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(Expressed in thousands of United States dollars - US$)
US$
------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 2,089 181
Adjustments to reconcile net income for the year
with cash provided by (used in) operating activities:
Extraordinary item - Patent agreement 433
-
Depreciation 338 212
Deferred income taxes (47) 156
Decrease (increase) in assets:
Marketable securities (2,176) 1,063
Trade accounts receivable (586) (2,944)
Other accounts receivable (210) (356)
Inventories 1,328 (1,635)
Prepaid expenses 313 (399)
Affiliated company - (16)
Other receivables and credits (520) 3
Increase (decrease) in liabilities:
Suppliers (2,073) 3,176
Taxes payable (41) 453
Other accounts payable and provisions (73) 21
Accrued salary and vacation pay (40) (21)
----------------- -----------------
Net cash used in operating activities (1,265) (106)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of permanent assets (102) (315)
----------------- -----------------
Net cash used in investing activities (102) (315)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank loans 1,377 512
----------------- -----------------
Net cash provided by financing activities 1,377 512
----------------- -----------------
INCREASE IN CASH 10 91
CASH AT BEGINNING OF YEAR 113 22
----------------- -----------------
CASH AT END OF YEAR 123 113
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
MICROTEC SISTEMAS INDUSTRIA E COMERCIO S.A.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(Expressed in thousands of United States dollars - US$ or Brazilian Reais - R$)
1. COMPANY'S OPERATIONS
The Company's principal activities are the development,
industrialization and commercialization of microcomputers and related
peripherals.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The financial statements have been prepared in
accordance with accounting principles generally accepted (GAAP) in the
United States of America. Such accounting principles differ in certain
respects from Brazilian GAAP, which is applied by the Company for
statutory financial statement presentation. The preparation of
financial statements in conformity with GAAP requires the use of
management estimates. Actual results could differ from those estimates.
The U. S. dollar amounts for all periods presented have been remeasured
from Brazilian Real (R$) amounts in accordance with the criteria set
forth in U.S. accounting standards (Statement of Financial Accounting
Standards [SFAS] No. 52, as it applies to entities in highly
inflationary economies).
Inventories, property, plant and equipment, accumulated depreciation
and stockholders' equity are remeasured at historical rates of exchange
and other assets and liabilities denominated in reais at year-end
rates. Cost of sales and depreciation relating to assets remeasured at
historical rates are calculated based on those historical rates. All
other statement of operations accounts are remeasured at the exchange
rates prevailing on the dates in which they were recorded.
MARKETABLE SECURITIES - Investments in marketable securities are stated
at cost plus accrued interest up to the balance sheet date.
TRADE ACCOUNTS RECEIVABLE AND PAYABLE - These accounts are recorded at
their nominal value. The allowance for doubtful accounts is recorded by
an amount considered sufficient to cover any potential losses on the
realization of accounts receivable, based on an analysis of credit
risk.
INVENTORIES - Inventories are stated at the lower of cost or market.
Cost of inventories is determined principally on the average cost
basis.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
carried at cost, less accumulated depreciation. Any gains on disposal
of property, plant and equipment, or losses in excess of related
allowances, are recognized in the year of disposal and are included in
operating revenues.
DEPRECIATION - Depreciation and amortization are computed using the
straight-line method, based on the estimated useful lives of the asset
at the rates stated in Note 3. Leasehold improvements and installations
are amortized in accordance with the duration of the lease contract, at
the rates stated in Note 3.
REVENUE AND EXPENSE RECOGNITION - Revenues are recognized when product
is shipped; expenses and costs are recognized on the accrual basis.
EARNINGS PER SHARE - As each share of each class of stock is given
equal weight in the computation, earnings per share are of equal
amounts for all classes. The calculation is based on the weighted
average number of shares outstanding during the period.
8
<PAGE>
<TABLE>
<CAPTION>
3. BALANCE SHEET INFORMATION
DECEMBER 31,
------------------------------------
1996 1995
----------------- -----------------
US$ US$
<S> <C> <C>
ACCOUNTS RECEIVABLE
Trade 7,456 6,791
Allowance for doubtful accounts (882) (803)
----- -----
Total 6,574 5,988
----- -----
INVENTORIES
Finished products 768 1,139
Work in process 399 1,165
Raw materials 3,299 3,249
Allowance for loss in value of raw materials
and finished products (353) (112)
----- -----
Total 4,113 5,441
----- -----
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION
AND MONETARILY
AMORTIZATION CORRECTED ACCUMULATED
PROPERTY, PLANT AND EQUIPMENT RATES COST DEPRECIATION NET NET
----------------------------- ------------ ---------- ------------ --- ---
% R$ R$ R$ US$
- -- -- -- ---
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1996
Computer equipment 20 1,105 (961) 144 97
Furniture and fixtures 10 1,003 (732) 271 183
Machinery and equipment 10 787 (600) 187 126
Leasehold improvements and
Installations 50 262 (197) 65 44
Tools 20 335 (318) 17 11
Vehicles 20 33 (24) 9 6
----- ------ ----- ---
Subtotal 3,525 (2,832) 693 467
Rights of use of telephone lines
And other 149 - 149 102
----- ------ ----- ---
Total 3,674 (2,832) 842 569
----- ------ ----- ---
DECEMBER 31, 1995
Computer equipment 20 1,067 (903) 164 121
Furniture and fixtures 10 1,007 (648) 359 264
Machinery and equipment 10 773 (589) 184 136
Leasehold improvements and
installations 50 263 (66) 197 145
Tools 20 341 (316) 25 18
Vehicles 20 33 (18) 15 11
----- ------ ----- ---
Subtotal 3,484 (2,540) 944 695
Rights of use of telephone lines
and others 149 - 149 110
----- ------ ----- ---
Total 3,633 (2,540) 1,093 805
----- ------ ----- ---
</TABLE>
9
<PAGE>
4. RELATED PARTY TRANSACTIONS
The balances and transactions with related parties are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
----------------- -----------------
US$ US$
<S> <C> <C>
DIGITAL EQUIPMENT DO BRASIL LTDA.
Proceeds from commission 179
Proceeds from sale of equipment 790
Proceeds from services rendered 425
Royalty expenses 694
Suppliers 6
DIGITAL EQUIPMENT CORPORATION
Suppliers 133 1,471
Purchases 5,860 4,905
Financial expenses 170 205
MICROHOLD PARTICIPACOES E EMPREENDIMENTOS S/C LTDA.
Intercompany loans receivable 16 16
Financial income 1 4
</TABLE>
The loan with Microhold Participacoes e Empreendimentos S/C Ltda. is
monetarily adjusted in reais by the variation in the UFIR, an inflation
index, plus interest at 6% per annum. It has no specific maturity date.
The transactions with related parties were based on usual market prices
and terms, in a manner similar to arm's length transactions with
non-related parties.
5. INCOME TAXES
Deferred income taxes reflect the effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes
calculated using enacted rates in effect in the years in which the
differences are expected to reverse and (b) tax-loss carryforwards.
The tax effects of items comprising the Company's net deferred tax
asset as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
----------------- -----------------
US$ US$
<S> <C> <C>
Deferred tax assets:
Tax-loss carryforwards 527 489
Allowances and accruals currently not deductible 583 422
----- ---
Total 1,110 911
Deferred tax liability - revenues currently not taxable 260 108
----- ---
Deferred tax asset, net 850 803
----- ---
Current 323 314
Long-term 527 489
--- ---
Total 850 803
--- ---
</TABLE>
Although realization of the net deferred asset is not assured,
management believes such realization is more likely than not to occur.
The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income
during the carryforward period are reduced.
10
<PAGE>
Enacted changes in tax rates resulted in an increase in the net
deferred tax asset of US$ 87 in 1996 and a decrease of US$ 384 in 1995.
At December 31, 1996, the Company had tax loss carryforwards of US$
2,574 with no expiration date.
Following is a reconciliation of the amount of reported income tax
expense or benefit and the amount computed by applying the statutory
tax rate of 30% in 1996 (36% in 1995) to income before income taxes:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
US$ US$
----------------- -----------------
<S> <C> <C>
Income before income tax and social contribution 2,042 337
----- ---
Social contribution at statutory rate 145 32
Income tax at statutory rate 432 95
Reduction in income tax for fiscal incentives (216) (47)
Difference in income between U.S. GAAP and Brazilian Tax Law (361) (80)
Permanent differences and temporary differences not recognized currently 62 (79)
Effect on changes in tax rates on deferred income taxes (87) 384
Tax loss carryforwards not recognized currently (22) (149)
---- ----
Income tax (benefit) as reported in the accompanying financial statements (47) 156
---- ----
</TABLE>
The differences in income between U.S. GAAP and Brazilian Tax Law
relate to assets that under SFAS No. 52 are remeasured from the
Brazilian Real to the U.S. dollar using historical exchange rates and
that result from indexing for tax purposes.
6. CAPITAL STOCK
The Company's capital stock is fully subscribed and paid in. It is
represented by 59,000,00 nominative common shares and 5,375,400
nominative preferred shares, with no par value.
The preferred shares are nonconvertible into common shares and
non-voting. They have priority in reimbursement of capital and parity
with common shareholders regarding distribution of profits, bonuses and
other benefits.
The Company's bylaws require that 5% of net income each year, adjusted
as per the law, shall be distributed to the stockholders as an
obligatory dividend.
7. FINANCIAL INSTRUMENTS
The Company operates with financial instruments, both assets and
liabilities, which are contracted under normal conditions prevailing in
the domestic market. The fair value estimates as of December 31, 1996
and 1995 presented below are based on pertinent information available
to management as of those dates. The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies. However, considerable judgement is
necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts. While management is not aware of
any factors that would significantly affect these estimated fair value
amounts, such amounts have not been comprehensively reviewed for
purposes of these financial statements since December 31, 1996 and
1995, and current estimates of fair value may differ significantly from
the amounts presented herein.
11
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
US$ US$ US$ US$
-------- ---------- --------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Cash equivalents 123 123 113 113
Financial applications 2,902 2,902 726 726
----- ----- --- ---
Total 3,025 3,025 839 839
----- ----- --- ---
LIABILITIES:
Short-term loans 1,889 1,889 512 512
----- ----- --- ---
</TABLE>
Cash equivalents - amounts are immediately available or with very
short-term maturity, therefore reflecting market values.
Financial applications - are stated at cost plus accrued interest up to
the balance sheet date. Due to the short-term nature of these
investments, the recorded amounts reflect market values.
Short term loans - consist of bank loans stated at cost plus accrued
interest expense. Due to the short-term maturity of these loans, the
recorded amounts reflect market values.
The Company has no derivative operations.
8. LONG-TERM LIABILITIES - OTHER ACCOUNTS PAYABLE.
As a result of a negotiated settlement with a patent holder, the
Company agreed to pay an US$ 500 for prior years' use of a patented
process. This amount will be paid in annual installments, due in
February, as follows: 1998 - 10%; 1999 - 19% ; 2000 - 25% ; 2001 - 23%
; 2002 - 23%. The amount was recorded as its present value of US$ 450.
9. CONTINGECIES
The Company is challenging, in the courts, the constitutionality of
certain taxes and contributions and other items, and has a tax
assessment relating to ICMS (value-added tax) against it. Judicial
deposits were made for some of these judicial proceedings. The
principal items being challenged are: PIS and FINSOCIAL (taxes on
revenue).
10. CANCELLATION PROCESS OF REGISTRATION OF PUBLICLY HELD CORPORATION
In the Ordinary and Extraordinary General Meetings held on April 27,
1992 and in the Extraordinary General Meeting of June 5, 1992, the
controlling stockholders approved the cancellation of the registration
of Publicly Held Corporation, which is treated by Article 21 of Law No.
6385 dated December 7, 1976, and by Article 29 and following CVM
Instruction No. 185 of February 27, 1992. However, considering that the
minority stockholders, owners of preferred shares, initiated a document
challenging the cancellation of the registration and, therefore, did
not fulfill the requirements set forth in Article 1 of CVM instruction
No. 185, the Company continues being a publicly held corporation.
12
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
To the Stockholders and Management
Microtec Sistemas Industria e Comercio S.A.
Cotia, SP - Brazil
1. We have reviewed the accompanying balance sheet of Microtec Sistemas
Industria e Comercio S.A. as of June 30, 1997, and the related
statements of income, changes in stockholders' equity, and cash flows
for the six-month period then ended. These financial statements are the
responsibility of the management of Microtec Sistemas Industria e
Comercio S.A.
2. We conducted our review in accordance with standards established by the
Brazilian Institute of Accountants -IBRACON. A review of interim
financial information consists principally of inquiries of company
personnel and applying analytical procedures to financial data. It is
substantially less in scope than an examination conducted in accordance
with generally accepted accounting standards, the objective of which is
the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
3. Based on our review, we are not aware of any material modifications
that should be made to the financial statements in order for them to be
in conformity with accounting principles generally accepted in the
United States of America.
4. Our review also comprehended the remeasurement of Brazilian real
amounts into U.S. dollar amounts and, in our opinion, such
remeasurement has been made in accordance with the standards set forth
in Statement of Financial Accounting Standards No. 52. The
remeasurement of the financial statement amounts into U.S. dollars and
the free translation of the financial statements into English, with the
inclusion of additional disclosures in the notes to financial
statements, have been made solely for the convenience of readers
outside Brazil.
5. The financial statements for the six-month period ended June 30, 1996
were not reviewed by us and, accordingly, we do not assume
responsibility for such financial statements.
/s/ Deloitte Touche Tohmatsu
August 20, 1997
13
<PAGE>
<TABLE>
<CAPTION>
MICROTEC SISTEMAS INDUSTRIA E COMERCIO S.A.
BALANCE SHEETS AS OF JUNE 30, 1997 AND 1996
(Expressed in thousands of United States dollars - US$) (UNAUDITED)
US$
--------------------------------
ASSETS 1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and banks 289 73
Marketable securities 1,708 25
Trade accounts receivable 6,798 9,872
Other accounts receivable 1,605 821
Inventories 5,436 7,642
Prepaid expenses 46 14
Deferred tax asset 291 291
------------ ------------
Total current assets 16,173 18,738
------------ ------------
LONG TERM ASSETS
Affiliated company 1,158 16
Other receivables and credits 557 385
Deferred tax asset 447 485
------------ ------------
Total long term assets 2,162 886
------------ ------------
PERMANENT ASSETS
Investments 13 13
Property, plant and equipment - net 551 735
------------ ------------
Total permanent assets 564 748
============ ============
TOTAL 18,899 20,372
============ ============
LIABILITIES
CURRENT LIABILITIES
Suppliers 4,066 8,402
Bank loans 4,048 1,698
Taxes payable 610 82
Other accounts payable and provisions 2,052 2,613
Accrued salary and vacation pay 639 723
------------ ------------
Total current liabilities 11,415 13,518
------------ ------------
LONG TERM LIABILITIES
Other accounts payable 430 -
------------ ------------
STOCKHOLDERS' EQUITY
Share capital - no par value shares authorized and issued
Preferred shares - 5,375,400 shares 300 300
Common shares - 59,000,000 shares 3,287 3,287
Retained earnings 3,467 3,267
------------ ------------
Total stockholders' equity 7,054 6,854
============ ============
TOTAL 18,899 20,372
============ ============
</TABLE>
See independent auditors' review report and notes to financial statements
14
<PAGE>
<TABLE>
<CAPTION>
MICROTEC SISTEMAS INDUSTRIA E COMERCIO S.A.
STATEMENTS OF INCOME
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(Expressed in thousands of United States dollars - US$) (UNAUDITED)
US$
--------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING REVENUES
Product sales 25,725 40,811
Services rendered 5,063 6,692
------------ ------------
Total 30,788 47,503
------------ ------------
DEDUCTIONS
Value-added tax (3,200) (5,357)
Returns and cancellations (1,097) (678)
------------ ------------
Total (4,297) (6,035)
------------ ------------
OPERATING REVENUES - NET 26,491 41,468
Cost of sales and services rendered (19,784) (30,725)
============ ============
GROSS PROFIT 6,707 10,743
============ ============
OTHER OPERATING EXPENSE
Selling expenses (2,660) (3,356)
Administrative expenses (2,982) (3,920)
------------ ------------
Total other operating expense (5,642) (7,276)
------------ ------------
OPERATING INCOME 1,065 3,467
OTHER INCOME (EXPENSES):
Nonoperating income - net 13 39
Interest expenses - net (564) (1,362)
Exchange gain (loss) on remeasurement (24) 150
------------ ------------
INCOME BEFORE INCOME TAX AND
SOCIAL CONTRIBUTION 490 2,294
Deferred income tax and social contribution provision (112) (27)
============ ============
NET INCOME FOR THE YEAR 378 2,267
============ ============
EARNINGS PER SHARE 0.01 0.04
============ ============
</TABLE>
See independent auditors' review report and notes to financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
MICROTEC SISTEMAS INDUSTRIA E COMERCIO S.A.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(Expressed in thousands of United States dollars - US$)
(UNAUDITED)
RETAINED
CAPITAL EARNINGS TOTAL
US$ US$ US$
=============== ============== ==============
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1995 3,587 1,000 4,587
Net income for the semester 2,267 2,267
=============== ============== ==============
BALANCE AS OF JUNE 30, 1996 3,587 3,267 6,854
=============== ============== ==============
BALANCE AS OF DECEMBER 31, 1996 3,587 3,089 6,676
Net income for the semester 378 378
=============== ============== ==============
BALANCE AS OF JUNE 30, 1997 3,587 3,467 7,054
=============== ============== ==============
</TABLE>
See independent auditors' review report and notes to financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
MICROTEC SISTEMAS INDUSTRIA E COMERCIO S.A.
STATEMENTS OF CASH FLOWS
FOR THE SEMESTER ENDED JUNE 30, 1997 AND 1996
(Expressed in thousands of United States dollars - US$)
(UNAUDITED)
US$
--------------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 378 2,267
Adjustments to reconcile net income for the year
with cash provided by operating activities:
Depreciation 122 157
Deferred income taxes 112 27
Decrease (increase) in assets:
Marketable securities 1,194 701
Trade accounts receivable (224) (3,884)
Other accounts receivable (838) (264)
Inventories (1,323) (2,201)
Prepaid expenses 54 399
Affiliated company (1,142)
Other receivables and credits (25) (373)
Increase (decrease) in liabilities:
Suppliers (255) 2,009
Taxes payable (176) (745)
Other accounts payable and provisions 132 623
Accrued salary and vacation pay 102 146
------------ ------------
Net cash used in operating activities (1,889) (1,138)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of permanent assets (104) (87)
------------ ------------
Net cash used in investing activities (104) (87)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank loans 2,159 1,185
------------ ------------
Net cash provided by financing activities 2,159 1,185
------------ ------------
INCREASE (DECREASE) IN CASH 166 (40)
CASH AT BEGINNING OF YEAR 123 113
------------ ------------
CASH AT END OF YEAR 289 73
============ ============
</TABLE>
See independent auditors' review report and notes to financial statements
17
<PAGE>
MICROTEC SISTEMAS INDUSTRIA E COMERCIO S.A.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SEMESTER ENDED JUNE 30, 1997 AND 1996
(Expressed in thousands of United States dollars - US$ OR Brazilian Reais - R$)
1. COMPANY'S OPERATIONS
The Company's principal activities are the development, industrialization
and commercialization of microcomputers and related peripherals.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The financial statements have been prepared in
accordance with accounting principles generally accepted (GAAP) in the
United States of America. Such accounting principles differ in certain
respects from Brazilian GAAP, which are applied by the Company for
statutory financial statement presentation. The preparation of financial
statements in conformity with GAAP requires the use of management
estimates. Actual results could differ from those estimates.
The U. S. dollar amounts for all periods presented have been remeasured
from Brazilian Real (R$) amounts in accordance with the criteria set forth
in U.S. accounting standards (Statement of Financial Accounting Standards
[SFAS] No. 52, as it applies to entities in highly inflationary
economies).
Inventories, property, plant and equipment, accumulated depreciation and
stockholders' equity are remeasured at historical rates of exchange and
other assets and liabilities denominated in reais at year-end rates. Cost
of sales and depreciation relating to assets remeasured at historical
rates are calculated based on those historical rates. All other statement
of operations accounts are remeasured at the exchange rates prevailing in
the months that they are recorded.
MARKETABLE SECURITIES - Investments in marketable securities are stated at
cost plus accrued interest through the balance sheet date
TRADE ACCOUNTS RECEIVABLE AND PAYABLE - These accounts are recorded at
their nominal value. The allowance for doubtful accounts is recorded by an
amount considered sufficient to cover any potential losses on the
realization of accounts receivable, based on an analysis of credit risk.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost
of inventories is determined principally on the average cost basis.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried
at cost, less accumulated depreciation. Any gains on disposal of property,
plant and equipment, or losses in excess of related allowances, are
recognized in the year of disposal and are included in operating revenues.
DEPRECIATION - Depreciation and amortization are computed using the
straight-line method, based on the estimated useful lives of the asset at
the rates stated in Note 3. Leasehold improvements and installations are
amortized in accordance with the duration of the lease contract, at the
rates stated in Note 3.
REVENUE AND EXPENSE RECOGNITION - Revenues are recognized when product is
shipped; expenses and costs are recognized on the accrual basis.
EARNINGS PER SHARE - As each share of each class of stock is given equal
weight in the computation, earnings per share are of equal amounts for all
classes. The calculation is based on the weighted average number of shares
outstanding during the period.
18
<PAGE>
<TABLE>
<CAPTION>
3. BALANCE SHEET INFORMATION
JUNE 30
--------------------------------
1997 1996
------------ ------------
US$ US$
------------ ------------
<S> <C> <C>
ACCOUNTS RECEIVABLE
Trade 7,424 10,649
Allowance for doubtful accounts (626) (777)
------------ ------------
Total 6,798 9,872
------------ ------------
INVENTORIES
Finished products 1,367 1,538
Work in process 427 1,696
Raw materials 4,030 4,797
Allowance for loss in value of raw materials and finished
products (388) (389)
------------ ------------
Total 5,436 7,642
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION
AND MONETARILY
AMORTIZATION CORRECTED ACCUMULATED
PROPERTY, PLANT AND EQUIPMENT RATES . COST . DEPRECIATION NET NET
----------------------------- ------------- ---------- ------------ --- ---
% R$ R$ R$ US$
- -- -- -- ---
<S> <C> <C> <C> <C> <C>
JUNE 30, 1997
Computer equipment 20 1,132 (986) 146 93
Furniture and fixtures 10 1,029 (759) 270 174
Machinery and equipment 10 799 (565) 234 151
Leasehold improvements and
Installations 50 262 (262)
- -
Tools 20 335 (323) 12 8
Vehicles 20 42 - 42 27
------------ ------------- ------- --------
Subtotal 3,599 (2,895) 704 453
Rights of use of telephone
lines and other 154 - 154 98
------------ ------------- ------- --------
Total 3,753 (2,895) 858 551
============ ============= ======= ========
JUNE 30, 1996
Computer equipment 20 1,101 (932) 169 124
Furniture and fixtures 10 1,008 (693) 315 232
Machinery and equipment 10 840 (625) 215 158
Leasehold improvements and
installations 50 264 (131) 133 98
Tools 20 341 (321) 20 15
Vehicles 20 32 (21) 11 8
------------ ------------- ------- --------
Subtotal 3,586 (2,723) 863 635
Rights of use of telephone
lines and other 146 - 146 100
------------ ------------- ------- --------
Total 3,732 (2,723) 1,009 735
============ ============= ======= ========
</TABLE>
19
<PAGE>
4. RELATED PARTY TRANSACTIONS
The balances and transactions with related parties are as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1997 1996
-------------- -------------
US$ US$
<S> <C> <C>
DIGITAL EQUIPMENT DO BRASIL LTDA.
Proceeds from sale of equipment 815 9
Proceeds from services rendered 131
Royalty expenses 318 348
Suppliers 452
DIGITAL EQUIPMENT CORPORATION
Suppliers 95 3,890
Purchases 81 5,240
Financial expenses 73 113
MICROHOLD PARTICIPACOES E EMPREENDIMENTOS S/C LTDA.
Intercompany loans receivable 1,158 16
Financial income 30 2
</TABLE>
The loan with Microhold Participacoes e Empreendimentos S/C Ltda. is
monetarily adjusted in reais by the variation in the UFIR, an inflation
index, plus interest at 6% per annum. It has no specific maturity date.
The transactions with related parties were based on usual market prices
and terms, in a manner similar to arm's length transactions with
non-related parties.
5. INCOME TAXES
Deferred income taxes reflect the effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes calculated
using enacted rates in effect in the years in which the differences are
expected to reverse and (b) tax-loss carryforwards.
The tax effects of items comprising the Company's net deferred tax asset
as of June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------
1997 1996
--------------- ----------------
US$ US$
<S> <C> <C>
Deferred tax assets:
Tax-loss carryforwards 447 485
Allowances and accruals currently not deductible 419 628
--- ---
Total 866 1,113
Deferred tax liability - revenues currently not taxable 128 337
--- ---
Deferred tax asset, net 738 776
--- ---
Current 291 291
Long-term 447 485
--- ---
Total 738 776
--- ---
</TABLE>
Although realization of the net deferred asset is not assured, management
believes such realization is more likely than not to occur. The amount of
the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the
carryforward period are reduced.
Enacted changes in tax rates resulted in a decrease of US$ 384 in 1996.
20
<PAGE>
At June 30, 1997, the Company had tax loss carryforwards of US$ 2,134 with
no expiration date.
Following is a reconciliation of the amount of reported income tax expense
or benefit and the amount computed by applying the statutory tax rate of
33% in 1997 (30% in 1996) to income before income taxes and social
contribution:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
US$ US$
------------ ------------
<S> <C> <C>
Income before income tax and social contribution 490 2,294
--- -----
Social contribution at statutory rate (39) (169)
Income tax at statutory rate (110) (505)
Reduction in income tax for fiscal incentives 55 252
Difference in income between U.S. GAAP and Brazilian Tax Law (97) (7)
Permanent differences and temporary differences not recognized currently
(74) (4)
Effect of changes in tax and exchange rates on deferred income taxes (52) (26)
Tax loss carryforwards not recognized currently 205 432
--- ---
Income tax as reported in the accompanying financial statements (112) (27)
----- ----
</TABLE>
The differences in income between U.S. GAAP and Brazilian Tax Law relate
to assets that under SFAS No. 52 are remeasured from the Brazilian real to
the U.S. dollar using historical exchange rates and that result from
indexing for tax purposes.
6. CAPITAL STOCK
The Company's capital stock is fully subscribed and paid in. It is
represented by 59,000,00 nominative common shares and 5,375,400 nominative
preferred shares, with no par value.
The preferred shares are nonconvertible into common shares and non-voting.
They have priority in reimbursement of capital and parity with common
shareholders regarding distribution of profits, bonuses and other
benefits.
The Company's Bylaws require that 5% of net income each year, adjusted as
per the law, shall be distributed to the stockholders as an obligatory
dividend.
7. FINANCIAL INSTRUMENTS
The Company operates with financial instruments, both assets and
liabilities, which are contracted under normal conditions prevailing in
the domestic market. The fair value estimates as of June 30, 1997 and 1996
presented below are based on pertinent information available to management
as of those dates. The estimated fair value amounts have been determined
by the Company using available market information and appropriate
valuation methodologies. However, considerable judgement is necessarily
required in interpreting market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. While management is not aware of any factors that would
significantly affect these estimated fair value amounts, such amounts have
not been comprehensively reviewed for purposes of these financial
statements as of June 30, 1997 and 1996, and current estimates of fair
value may differ significantly from the amounts presented herein.
21
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
US$ US$ US$ US$
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Cash equivalents 289 289 73 73
Marketable Securities 1,708 1,708 25 25
----- ----- -- --
Total 1,997 1,997 98 98
----- ----- -- --
LIABILITIES:
Short-term bank loans 4,048 4,048 1,698 1,698
----- ----- ----- -----
</TABLE>
Cash equivalents - amounts are immediately available or with very
short-term maturity, therefore reflecting market values.
Marketable securities - are stated at cost plus accrued interest up to the
balance sheet date. Due to the short term nature of these investments, the
recorded amounts reflect market values.
Short-term bank loans - consist of bank loans stated at cost plus accrued
interest expense. Due to the short-term maturity of these loans, the
recorded amounts reflect market values.
The Company has no derivative operations.
8. LONG-TERM LIABILITIES - OTHER ACCOUNTS PAYABLE
As a result of a negotiated settlement with a patent holder, the Company
agreed to pay US$500 for prior years use of a patented process. This
amount will be paid in annual installments, due in February, as follows:
1998 - 10%; 1999 - 19%; 2000 - 25%; 2001 - 23%; and 2002 - 23%. The amount
was recorded at its present value of US$430.
9. CONTINGENCIES
The Company is challenging, in the courts, the constitutionality of
certain taxes and contributions and other items, and has a tax assessment
relating to ICMS (value-added tax). Judicial deposits have been made for
certain of these processes. The principal items being challenged are: PIS
and FINSOCIAL (taxes on revenue).
10. CANCELLATION PROCESS OF REGISTRATION OF PUBLICLY HELD CORPORATION
In the Ordinary and Extraordinary General Meetings held on April 27, 1992
and in the Extraordinary General Meeting of June 5, 1992, the controlling
stockholders approved the cancellation of the registration of Publicly
Held Corporation, which is treated by Article 21 of Law No. 6385 dated
December 7, 1976, and by Article 29 and following of CVM Instruction No.
185 of February 27, 1992. However, considering that the minority
stockholders, owners of preferred shares, initiated a document challenging
the cancellation of the registration and, therefore, did not fulfill the
requirements set forth in Article 1 of CVM instruction No. 185, the
Company continues being a publicly held corporation.
22
<PAGE>
VITECH AMERICA, INC. AND MICROTEC SISTEMAS INDUSTRIA E COMERCIO S.A
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
On July 10, 1997, Vitech America, Inc. ("Vitech") acquired 94.4% of the
capital stock of Microtec Sistemas Industria e Comercio S.A. ("Microtec") for
$14,650,000 in cash and common stock.
The following pro forma condensed combined financial statements are
included as required by rules and regulations of the Securities and Exchange
Commission and reflects the business combination between Vitech and Microtec
accounted for under the purchase method of accounting. The pro forma condensed
combined balance sheet as of June 30, 1997 combines Vitech's June 30, 1997
balance sheet with Microtec's June 30, 1997 balance sheet assuming the
acquisition occurred as of June 30, 1997. The pro forma condensed combined
statements of operations combine Vitech's historical statements of operations
for the six month period ended June 30, 1997 and for the year ended December 31,
1996 with the historical statements of operations of Microtec with effect from
the first day of the period presented.
The unaudited pro forma condensed combined financial statements have
been prepared based upon the historical financial statements of Vitech and
Microtec for the periods indicated and do not include any of the synergies that
management expects to realize from the combination of the companies. Such pro
forma statements are not necessarily indicative of the results that would have
occurred had the transactions been in effect as of the beginning of the periods
presented, or of the operating results that may be achieved by the combined
companies in the future.
The pro forma statements presented herein should be read in conjunction
with the Vitech financial statements and related notes and the Microtec
financial statements and related notes.
23
<PAGE>
VITECH AMERICA, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
The following unaudited pro forma condensed combined balance sheet
presents the combined financial position of Vitech America, Inc. and Microtec
Sistemas Industria e Comercio S.A. as of June 30, 1997. Such unaudited pro forma
information is based on the combined historical balance sheets of Vitech and
Microtec as of June 30, 1997 giving effect to (1) the acquisitions of 94.4% of
the capital stock of Microtec accounted for under the purchase method of
accounting and (2) the pro forma adjustments described in the accompanying notes
to the pro forma condensed combined financial statements.
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF JUNE 30, PRO FORMA AS OF JUNE 30, 1997
1997 1997 ----------------------------------------
---------------- ----------------- INCREASE SEE
VITECH MICROTEC (DECREASE) NOTE COMBINED
---------------- ----------------- -------------- ------- --- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 9,627,703 $ 1,997,000 $ (4,850,000) (1)(2) $ 6,774,703
Accounts receivable, net 34,879,630 6,798,000 (710,000) (1) 40,967,630
Inventories, net 22,494,413 5,436,000 (335,000) (1) 27,595,413
Deferred tax asset 1,310,641 291,000 1,601,641
Other accounts receivable - 1,605,000 1,605,000
Other current assets 1,081,675 46,000 1,127,675
---------------- ----------------- -------------- -------------
Total current assets 69,394,062 16,173,000 (5,895,000) 79,672,062
Noncurrent assets
Other accounts receivable - 1,715,000 (1,150,000) (2) 565,000
Other assets 225,076 447,000 (447,000) (1) 225,076
Goodwill - - 10,533,390 (1) 10,533,390
---------------- ----------------- -------------- -------------
Total long term assets 225,076 2,162,000 8,936,390 11,323,466
Investments - 13,000 13,000
Property, plant & equipment 6,491,876 551,000 7,042,876
Land held for development 788,200 - 788,200
---------------- ----------------- -------------- -------------
TOTAL ASSETS $ 76,899,214 $ 18,899,000 $ 3,041,390 $ 98,839,604
================ ================= ============== =============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 8,485,668 $ 4,066,000 $ $ 12,551,668
Short term debt 4,520,011 4,048,000 5,950,000 (1) 14,518,011
Other accounts payable - 2,052,000 2,052,000
Accrued expenses 345,454 639,000 984,454
Taxes payable 1,920,527 610,000 2,530,527
Note payable - Related party 10,000,000 - 10,000,000
Current maturities of long term debt 148,686 - 148,686
---------------- ----------------- -------------- -------------
Total current liabilities 25,420,346 11,415,000 5,950,000 42,785,346
Accrued employee expenses - - 1,100,000 1,100,000
Long term debt 11,376,722 430,000 11,806,722
Minority interest - - 345,390 (3) 345,390
Shareholders' equity
Preferred stock - 300,000 (300,000) (1) -
Common stock 20,243,903 3,287,000 (587,000) (1) 22,943,903
Retained earnings 19,858,243 3,467,000 3,467,000 (1) 19,858,243
---------------- ----------------- -------------- -------------
Total shareholders' equity 40,102,146 7,054,000 4,354,000 42,802,146
---------------- ----------------- -------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' $ 76,899,214 $ 18,899,000 $ 3,041,390 $ 98,839,604
EQUITY
================ ================= ============== =============
</TABLE>
24
<PAGE>
VITECH AMERICA, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
The following unaudited pro forma condensed combined statement of
operations presents the combination of Vitech America, Inc. and Microtec
Sistemas Industria e Comercio S.A. by combining the results of operations of
Vitech for the six months ended June 30, 1997 with the results of operations of
Microtec for the same period, giving effect to (1) the acquisition of Microtec
as of the beginning of the period accounted for under the purchase method of
accounting and (2) the pro forma adjustments described in the accompanying notes
to the pro forma condensed combined financial statements.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------- PRO FORMA SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, 1997
1997 1997 --------------------------------------------
---------------- -------------- INCREASE SEE
VITECH MICROTEC (DECREASE) NOTE COMBINED
---------------- -------------- --------------- ---------- -- --------------
<S> <C> <C> <C> <C>
Net Sales $ 40,337,322 $ 26,491,000 $ - $ 66,828,322
Cost of sales 27,589,677 19,784,000 - 47,373,677
---------------- -------------- --------------- --------------
Gross profit 12,747,645 6,707,000 - 19,454,645
Selling, general and administrative
expenses 5,677,333 5,642,000 263,335 (4) 11,582,668
---------------- -------------- --------------- --------------
Income from operations 7,070,312 1,065,000 (263,335) 7,871,977
---------------- -------------- --------------- --------------
Other (income) expenses
Discount on sale of receivables 293,000 - - 293,000
Interest expense, net 711,460 564,000 500,000 (5) 1,775,460
Non-operating expense - (13,000) - (13,000)
Foreign currency exchange losses 1,270,856 24,000 - 1,294,856
---------------- -------------- --------------- --------------
Total other expenses 2,275,316 575,000 500,000 3,350,316
---------------- -------------- --------------- --------------
Income before taxes 4,794,996 490,000 (763,335) 4,521,661
Provision for income taxes 266,033 112,000 - 378,033
Minority interest - - 21,168 (3) 24,136
---------------- -------------- --------------- --------------
Net income $ 4,528,963 $ 378,000 $ (784,503) $ 4,122,460
================ ============== =============== ==============
Net income per common and
common share equivalent $ .42 $ .38
================ ==============
Weighted average common and
common share equivalents
outstanding 10,739,941 192,857 (6) 10,932,798
================ ==============
</TABLE>
25
<PAGE>
VITECH AMERICA, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
The following unaudited pro forma condensed combined statement of
operations presents the combination of Vitech America, Inc. and Microtec
Sistemas Industria e Comercio S.A. by combining the results of operations of
Vitech for the year ended December 31, 1996 with the results of operations of
Microtec for the same period, giving effect to (1) the acquisition of Microtec
as of the beginning of the period accounted for under the purchase method of
accounting and (2) the pro forma adjustments described in the accompanying notes
to the pro forma condensed combined financial statements.
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------- PRO FORMA YEAR ENDED
DECEMBER DECEMBER DECEMBER 31, 1996
31, 1996 31, 1996 ---------------------------------------------
---------------- -------------- INCREASE SEE
VITECH MICROTEC (DECREASE) NOTE COMBINED
---------------- -------------- --------------- ---------- -- ---------------
<S> <C> <C> <C> <C>
Net Sales $ 73,321,398 $ 72,117,000 $ - $ 145,438,398
Cost of sales 53,470,340 52,588,000 - 106,058,340
---------------- -------------- --------------- ---------------
Gross profit 19,851,058 19,529,000 - 39,380,058
Selling, general and administrative
expenses 8,083,287 14,854,000 526,670 (4) 23,463,957
---------------- -------------- --------------- ---------------
Income from operations 11,767,771 4,675,000 (526,670) 15,916,101
---------------- -------------- --------------- ---------------
Other (income) expenses
Discount on sale of receivables 1,433,199 - - 1,433,199
Interest expense, net 877,505 2,297,000 1,000,000 (5) 4,174,505
Non-operating expense - (8,000) - (8,000)
Foreign currency exchange losses 547,077 (89,000) - 458,077
---------------- -------------- --------------- ---------------
Total other expenses 2,857,781 2,200,000 1,000,000 6,057,781
---------------- -------------- --------------- ---------------
Income before
extraordinary 8,909,990 2,475,000 (1,526,670) 9,858,320
item and taxes
Extraordinary expense item - Patent - 433,000 - 433,000
---------------- -------------- --------------- ---------------
Income before taxes 8,909,990 2,042,000 (1,526,670) 9,858,320
Provision for income tax
expense/(gain from deferral) 679,402 (47,000) - 632,402
Minority interest - - 116,984 (3) 116,984
---------------- -------------- --------------- ---------------
Net income $ 8,230,588 $ 2,089,000 $ (1,643,654) $ 8,675,934
================ ============== =============== ===============
Net income per common and
common share equivalent $ .94 $ .95
================ ===============
Weighted average common and
common share equivalents
outstanding 8,906,140 192,857 (6) 9,098,997
================ =============== ===============
</TABLE>
26
<PAGE>
VITECH AMERICA, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
(1) The acquisition of Microtec is being accounted for under the purchase
method of accounting. The pro forma condensed combined balance sheet
reflects the acquisition of 94.4% of the capital stock of Microtec for a
total purchase price of $14,650,000 of which $6,000,000 in cash is to be
paid at closing, $5,950,000 in cash is to be paid in equal monthly
installments over an 8 month period, and $2,700,000 is to be paid in shares
of Vitech America, Inc. common stock. The number of shares issued as
consideration was 192,857 and was based on a per share value of $14. The
purchase price was derived through negotiations between Vitech and the
shareholders of Microtec and was based on management's best estimate of the
fair value of the assets acquired. The computation for the goodwill
involved in the acquisition is as follows:
Cost of 94.4% of capital stock of Microtec $ 14,650,000
------------------
Less adjusted book value:
Microtec equity:
Preferred stock ($300,000 x 32.91%) 98,730
Common stock ($3,287,000 x 99.99994%) 3,287,000
Retained earnings ($3,520,000 x 94.4%) 3,322,880
------------------
Total 6,708,610
------------------
Less fair value adjustments to book values:
Inventories 335,000
Other accounts receivable 710,000
Deferred tax asset 447,000
Less accrued employee expenses 1,100,000
------------------
Total adjustments 2,592,000
------------------
Total adjusted book value 4,116,610
------------------
Excess of cost over adjusted book value (goodwill) $ 10,533,390
==================
(2) To record the receipt of $1,150,000 of an account receivable due Microtec
from their shareholders. In accordance with the acquisition agreement, such
amount is do to be paid at closing out the proceeds of the sale.
(3) To record an adjustment for minority interest in Microtec.
(4) To record amortization of goodwill over a period of 20 years.
(5) To record interest on a 10% senior convertible note issued to finance
the acquisition of Microtec.
(6) To record the issuance of 192,857 shares of Vitech America, Inc.
common stock in accordance with the terms of the acquisition agreement.
27
<PAGE>
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 hereunto duly authorized.
VITECH AMERICA, INC.
By: /S/ EDWARD A. KELLY
-------------------------------
Edward A. Kelly
Chief Financial Officer
Dated: September 23, 1997
28
