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 June 30, 1999
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 August 13, 1999, there were 14,635,655 shares of the Common Stock
of the Company, no par value, outstanding.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
VITECH AMERICA, INC.
Balance Sheet
Assets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,299,491 $ 7,719,185
Accounts receivable, net 42,832,791 75,893,857
Inventories, net 34,572,612 40,351,585
Investment in subordinated debentures - short term 1,617,442 14,676,585
Due from officer 619,234 --
Other current assets 5,951,461 8,538,379
----------------- -----------------
Total current assets 87,893,031 147,179,591
Property and equipment, net 20,091,472 19,696,097
Investment in subordinated debentures - long term 195,322 2,677,906
Investments 1,130,826 1,248,434
Goodwill, net 19,644,666 20,191,646
Deferred tax asset 721,403 1,567,000
Other assets 2,820,174 3,106,301
----------------- -----------------
Total assets $ 132,496,894 $ 195,666,975
----------------- -----------------
Liabilities and Shareholders' Equity
Current liabilities
Trade accounts payable $ 28,609,894 $ 36,748,951
Accrued expenses 1,953,724 4,811,130
Taxes payable -- 1,804,792
Deferred tax liability 312,202 1,041,000
Notes payable - related party 17,200,000 6,700,000
Notes payable 11,000,000 --
Current maturities of long-term debt 484,342 863,021
Short-term debt 7,237,835 25,036,536
----------------- -----------------
Total current liabilities 66,797,997 77,005,430
----------------- -----------------
Long-term liabilities
Convertible notes 19,453,370 13,730,535
Long-term debt 1,908,035 2,709,655
----------------- -----------------
Total long-term liabilities 21,361,405 16,440,190
----------------- -----------------
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,
14,635,655 and 14,635,655 shares issued and outstanding 60,844,866 60,844,866
Accumulated other comprehensive loss (40,234,092) (4,607,064)
Retained earnings 23,726,718 45,983,553
----------------- -----------------
Total shareholders' equity 44,337,492 102,221,355
----------------- -----------------
Total liabilities and shareholders' equity $ 132,496,894 $ 195,666,975
----------------- -----------------
See notes to financial statements
</TABLE>
2
<PAGE>
VITECH AMERICA, INC.
Statement of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------------- ----------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 25,641,391 38,635,842 $ 40,944,105 $ 72,410,486
Cost of sales 14,832,923 22,430,545 23,192,059 43,137,869
------------------- ------------------ ---------------- -----------------
Gross profit 10,808,468 16,205,297 17,752,046 29,272,617
Selling, general and administrative expenses 5,570,733 9,009,344 12,313,993 16,146,704
------------------- ------------------ ---------------- -----------------
Income from operations 5,237,735 7,195,953 5,438,053 13,125,913
------------------- ------------------ ---------------- -----------------
Other (income) expenses
Interest expense, net 2,954,322 1,835,832 6,957,522 3,248,011
Discount on sale of receivables 1,277,747 1,579,364 3,540,243 1,579,364
Foreign currency exchange losses 540,243 267,678 17,197,123 1,393,351
------------------- ------------------ ---------------- -----------------
Total other expenses 4,772,312 3,682,874 27,694,888 6,220,726
------------------- ------------------ ---------------- -----------------
Income (loss) before provision for
income taxes and minority 465,423 3,513,079 (22,256,835) 6,905,187
interest
Provision for income taxes -- 348,000 -- 606,560
------------------- ------------------ ---------------- -----------------
Income (loss) before minority 465,423 3,165,079 (22,256,835) 6,298,627
interest
Minority interest -- (759,022) -- (731,974)
------------------- ------------------ ---------------- -----------------
Net income (loss) $ 465,423 $ 3,924,101 $ (22,256,835) $ 7,030,601
------------------- ------------------ ---------------- -----------------
Net income (loss) per common share - Basic:
Weighted common shares 14,635,655 12,177,839 14,635,655 12,176,739
Net income per common share $ 0.03 $ 0.32 $ (1.52) $ 0.58
------------------- ------------------ ---------------- -----------------
Net income (loss) per common share - Assuming
dilution:
Weighted common shares 14,650,355 12,457,002 14,660,446 12,421,487
Net income per common share $ 0.03 $ 0.32 $ (1.52) $ 0.57
------------------- ------------------ ---------------- -----------------
</TABLE>
See notes to financial statements
3
<PAGE>
VITECH AMERICA, INC.
Statement of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------
June 30, 1999 June 30, 1998
---------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities
Net income / (loss) $ (22,256,835) $ 7,030,601
Adjustments to reconcile net income to net cash
provided from / (used) in operating activities
Depreciation 1,593,036 1,150,003
Amortization of goodwill 546,980 439,250
Minority interest - (731,974)
Translation adjustment (269,000)
Allowance for doubtful accounts (200,743) (504,494)
Reserve for inventory obsolescence - 568,204
Changes in assets and liabilities
Accounts receivable 13,176,508 17,316,515
Inventories 5,778,973 (17,475,088)
Deferred tax asset 116,799 12,000
Other assets 2,975,435 (4,080,614)
Trade accounts payable (8,139,057) 3,872,731
Accrued expenses (2,857,406) 228,443
Due to/from officers (619,234) 303,022
Income and sales taxes payable (1,907,182) 1,592,943
---------------------- ----------------------
Total adjustments 10,464,109 2,421,941
---------------------- ----------------------
Net cash (used) / provided from operating activities (11,792,726) 9,452,542
---------------------- ----------------------
Cash flows from investing activities
Purchases of property and equipment (1,988,411) (6,455,941)
Payment for business acquisition - (136,000)
Other investments 117,608 (68,353)
---------------------- ----------------------
Net cash used in investing activities (1,870,803) (6,660,294)
---------------------- ----------------------
Cash flows from financing activities
Net (payments)/proceeds under short-term bank borrowings (17,798,701) 10,231,736
Net payments of taxes payable (309,762) (472,839)
Payment of convertible notes (4,277,165) -
Proceeds from convertible notes 10,000,000 -
Payment of note payable for business acquisition - (2,231,250)
Proceeds from note payable - related party 10,500,000 -
Proceeds from note payable 11,000,000 -
Net (payments)/proceeds of notes payable (870,537) 250,564
Proceeds from sale of common stock - 20,000
---------------------- ----------------------
Net cash provided by financing activities 8,243,835 7,798,211
---------------------- ----------------------
Net increase / (decrease) in cash and cash equivalents (5,419,694) 10,590,459
Cash and cash equivalents - beginning of period 7,719,185 22,704,632
---------------------- ----------------------
Cash and cash equivalents - end of period $ 2,299,491 $ 33,295,091
---------------------- ----------------------
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest and discount on sale of receivables $ 9,589,939 $ 5,602,329
----------------------- ----------------------
Income taxes $ 256,762 $ 85,952
----------------------- ----------------------
Supplemental schedule of non-cash investing and financing activities
Investment in property equipment through financing agreements $ - $ 1,180,000
----------------------- ----------------------
</TABLE>
See notes to financial statements
4
<PAGE>
Vitech America, Inc.
Notes to Financial Statements
June 30, 1999
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 June 30,
1999 should be read in conjunction with the Company's financial statements as of
and for the year ended December 31, 1998, which are included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Operating results for the six month period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. 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 1999 and 1998 include the accounts of the Company
and its subsidiaries. All of the Company's sales are concentrated in Brazil.
On June 15, 1998, the Board of Directors of the Company, approved a 10% common
stock dividend to be distributed to shareholders of record of the Company's
common stock as of July 13, 1998. The common stock issued as a result of this
stock dividend was distributed on July 27, 1998. All references in this report
to the common stock of the Company and net income per common share have been
recalculated to reflect the 10% common stock dividend.
Note 2 - Significant accounting policy - Translation into U.S. Dollar
- ---------------------------------------------------------------------
The financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in the United States in U.S. dollars.
Until December 31, 1997, amounts in Brazilian currency were remeasured into U.S.
Dollars in accordance with the methodology set forth in Statement of Financial
Accounting Standards No. 52 ("SFAS 52") as it applies to entities operating in
highly inflationary economies. The assets and liabilities of the Company's
subsidiaries are translated into U.S. dollars at exchange rates in effect at the
balance sheet date for monetary items and at historical rates for nonmonetary
items. Revenue and expense accounts are translated at the average exchange rate
in effect during each month, except for those accounts that relate to
nonmonetary assets and liabilities which are translated at historical rates.
Effective January 1, 1998, the Company determined that Brazil ceased to be a
highly inflationary economy under SFAS 52. Accordingly, as of January 1, 1998,
the Company began using the Brazilian currency, the Real, as the functional
currency of its Brazilian subsidiaries. As a result, all assets and liabilities
are translated into dollars at period end exchange rates and all income and
expense items are translated into U.S. dollars at the average exchange rate
prevailing during the period. In addition, the Company recorded a currency
exchange loss associated with dollar-denominated monetary assets and liabilities
held by the Company's Brazilian subsidiaries. Any translation adjustments are
reflected as a component of shareholders' equity.
Note 3 - Net income per share
- -----------------------------
In 1997, the Financial Accounting Standards Board issued Statement No. 128 (SFAS
128), "Earnings per Share". SFAS 128 replaced the calculation of primary and
fully diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of stock options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS 128 requirements.
5
<PAGE>
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ---------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- --------------
<S> <C> <C> <C>
Net income (loss) for basic and diluted
income per common share $ 465,423 $ 3,924,101 $ (22,256,835) $ 7,030,601
--------------- --------------- --------------- --------------
Weighted average number of shares
for basic income per share 14,635,655 12,177,839 14,635,655 12,176,739
Dilutive securities:
Stock options 6,474 216,367 7,531 191,035
Warrants 8,226 62,796 17,260 53,713
--------------- --------------- --------------- --------------
Weighted average number of shares
for diluted income per share 14,650,355 12,457,002 14,660,446 12,421,487
--------------- --------------- --------------- --------------
Net income (loss) per common share:
Basic $ 0.03 $ 0.32 $ (1.52) $ 0.58
Diluted $ 0.03 $ 0.32 $ (1.52) $ 0.57
</TABLE>
For the three month and six month periods ended June 30, 1999 and 1998, the
effects on earnings per share of the $19,453,370 and $58,608,250 aggregate
principal amount of 10% convertible notes, respectively, would have been
antidilutive and therefore are not included in the computations.
For the three month and six month periods ended June 30, 1999, there were
outstanding 4,603,827 stock options and 570,251 warrants not included in the
computation of diluted earnings per share of common stock because the options'
and warrants' exercise prices were greater than the average market price of the
common shares. For the three month and six month periods ended June 30, 1998,
there were outstanding 3,300,000 stock options not included in the computation
of diluted earnings per share of common stock because the option exercise
prices were greater than the average market price of the common shares.
Note 4 - Accounts receivable
Accounts receivable consisted of the following:
June 30,
1999
-----------------
Trade accounts receivable $ 46,660,795
Allowance for doubtful accounts (3,828,004)
-----------------
Total $ 42,832,791
-----------------
In April 1998, the Company entered into an accounts receivable financing program
with Technology Acceptance Corp. ("TAC"), an independently owned special purpose
corporation, whereby the Company's subsidiary, Bahiatech - Bahia Tecnologia
Ltda. ("Bahiatech"), may sell certain of its accounts receivable to TAC in
exchange for cash and a subordinated debentures. The subordinated debentures are
revolving non-interest bearing bearer notes. (See Note 5).
The program is a $150 million collateralized global medium term note program
whereby TAC may issue notes which are collateralized by the purchased accounts
receivable. TAC is an exempted company incorporated under the laws of the Cayman
Islands. One hundred percent (100%) of TAC's voting shares are held by a Cayman
Islands trust. TAC is a special purpose company that was established solely to
participate in the securitization, to acquire and hold the designated
receivables and to issue collateralized global medium term notes under a note
program. TAC has covenanted in the indenture pursuant to which the notes are
issued not to engage in any activities other than those contemplated by the
indenture. The receivables constitute the principal asset of TAC.
There is a repurchase provision whereby Bahiatech is required to repurchase the
receivables sold to TAC under certain circumstances including default under the
program, delinquencies or violations of certain concentration limits. The
6
<PAGE>
repurchase obligation may be satisfied by transferring to TAC, for no additional
consideration, an aggregate amount of additional receivables the net present
value of which is equal to the repurchase price. If the net present value of the
receivables available to Bahiatech to effect such substitution is less than the
relevant repurchase price thereof, then Bahiatech will be required to pay in
cash the excess of the repurchase price over the net present value of the
additional receivables transferred to TAC pursuant to such substitution. The
Company serves as guarantor of the repurchase obligation. If Bahiatech fails to
comply in full with its repurchase obligation on or prior to the relevant
repurchase date, the Company shall be required to deposit, within twenty-four
(24) hours of such expired required repurchase date, the amount of the
repurchase price not paid by Bahiatech. As a result of the structure of the
program, there is a contingent liability in the amount of approximately $43.8
million which represents the balance as of June 30, 1999, at face value, of the
accounts receivable sold to TAC. The Company maintains an allowance for doubtful
accounts on its balance sheet with respect to the sold receivables.
Note 5 - Investment in subordinated debentures
In connection with the TAC financing program whereby the Company receives cash
and subordinated debentures (which represents its retained interest in the
program) in consideration for the sale of its accounts receivable to TAC, the
Company had an investment in subordinated debentures at June 30, 1999 as
follows:
Current portion $ 1,617,442
Long term portion 195,322
-----------------
Total $ 1,812,764
-----------------
The subordinated debentures are U.S. dollar denominated, non-interest bearing
bearer notes that are subordinated to the senior notes issued by TAC and arise
from the overcollateral amount and the unpaid principal amount of each series of
senior notes outstanding. The financing program requires a minimum
overcollateral ratio, as defined, of 125%. With the exception of amounts payable
to it on any excess overcollateral date, as defined, the bearer of the debenture
will not be entitled to receive any payment until the final termination date, as
defined, of the program. The overcollateral ratio of the program at December 31,
1998 was approximately 127%.
In January 1999, the Brazilian government allowed its currency, the Real, to
trade freely against other foreign currencies, which resulted in an immediate
devaluation of the Real against the U.S. dollar in excess of 30%. With the post
devaluation exchange rates of the Real to the U.S. dollar the overcollateral
ratio fell below its required minimum which caused trigger and default events,
as defined, of the TAC program. As a result, the Company has not been selling
any of its accounts receivable to TAC, and may not, other than pursuant to its
repurchase obligation. Additionally, with the devaluation of the Real against
the U.S. dollar in excess of the overcollateral ratio, the Company's residual
interest in the program represented by the subordinated debentures has been
written down substantially from its values at December 31, 1998. Should the Real
recover in value against the U.S. dollar, then the Company could regain its
value in the subordinated debentures.
In June 1999, TAC received approval on a consent solicitation proposal made to
the holders of TAC notes for temporary and permanent adjustments to the
structure of the TAC program in order to allow the TAC program to operate more
effectively in the post devaluation environment. With the approval of the
consent solicitation, TAC paid a 1% fee to the holders of TAC notes and the
Company put up additional collateral (in the form of eligible accounts
receivable) for the benefit of the TAC note holders to put the collateralization
ratio at 100%. While the consensus has provided time for the program to recover,
with the continuing difficult economic conditions of Brazil and the conditions
of the financial markets which have prohibited TAC from refinancing its
short-term obligations, TAC has not had the liquidity available to meet is
current obligations which has caused trigger and default events for TAC.
Considering these events, the TAC program is expected to self-amortize over the
life of the receivable portfolio held by TAC and the Company believes that TAC
will no longer be a viable financing source for the Company.
7
<PAGE>
Note 6 - Inventories
- --------------------
Inventories are summarized as follows:
June 30,
1999
-----------------
Finished goods $ 10,518,564
Work in process 2,286,366
Components in the factory 17,881,227
Components in transit (a) 4,888,695
-----------------
35,574,852
Allowance for obsolescence (1,002,240)
-----------------
Total $ 34,572,612
-----------------
(a) Components in transit consist of inventories in the Company's Miami,
Florida facility and inventories in route to the Company's factories in
Brazil.
Note 7 - Comprehensive Income
- -----------------------------
The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income" during the year ended December
31, 1998. SFAS 130 establishes new rules for the reporting and presentation of
comprehensive income and its components. The Company's comprehensive income is
comprised of net income adjusted for foreign currency translation. For the six
month period ended June 30, 1999, the Company had a comprehensive loss of $57.7
million as compared to a reporting net loss of $22.2 million. Comprehensive loss
includes a cumulative translation adjustment of $35.5 million associated with
the translation of the Company's subsidiary financial statements to the US
dollar.
Note 8 - Business Conditions
- ----------------------------
In January 1999, the Brazilian government allowed its currency, the Real, to
trade freely against other foreign currencies, which resulted in an immediate
devaluation of the Real against the U.S. dollar. The Company's accounts
receivable are denominated in the Real while principally all of the Company's
trade accounts payable and other debts are denominated in U.S. dollars.
Accordingly, with the devaluation, the Company recorded a currency transaction
loss of $16,656,880 associated with dollar-denominated monetary assets and
liabilities held by the Company's Brazilian subsidiaries.
Furthermore, the devaluation and the resulting unfavorable business conditions
in Brazil have resulted in reduced demand as well as less liquidity in the
borrowing capacity among the Company's customers and in the market in general.
In an effort to minimize any further effects of the currency devaluation,
unfavorable business conditions and to improve the liquidity of the Company,
management has taken the following actions:
o Indexed the pricing of its products in Reais to the U.S. dollar.
o Significantly reduced the credit terms that it extends to customers.
o Renegotiated trade accounts payable of approximately $22 million at
December 31, 1998 to terms which average 10 months.
o Negotiated short term financing (see Notes 9, 10, and 11).
o Modified the repayment terms of certain convertible notes.
o Continue to negotiate with TAC (see Note 5).
o Completion of the consolidation of the manufacturing facilities in 1999
which reduces administrative expenses and inventory carrying costs.
While the Company continues to believe that the long-term growth opportunities
remain for the Brazilian information technology market, it continues to evaluate
the impact of the current business conditions on its operations. The ultimate
resolution of these matters could have a material adverse effect on the
financial condition and results of operation for future quarters.
Note 9 - Note Payable - Related Party
- -------------------------------------
In March 1999, the Company received a loan from a related party for the
principal amount of $10 million. The loan bears interest at the annual rate of
15% and has a term of 120 days. The loan is evidenced by a promissory note and,
8
<PAGE>
at the makers option, can be exchanged for a convertible note, with a conversion
price of $9.25 per share, should the loan not be repaid at maturity. The
proceeds of the loan are being used to repay certain indebtedness and for
general working capital purposes. The maker had a pre-existing relationship with
the Company and was provided with and had access to relevant information
concerning the Company. The security was exempt from registration pursuant to
Section 4(2) of the Securities and Exchange Act of 1933, as amended (the
"Securities Act").
Note 10 - Note Payable
- ----------------------
In April 1999, the Company received a loan from an unrelated third party for the
principal amount of $11 million. The loan bears interest at the annual rate of
10%. The loan originally had a term of 90 days, but has been extended by mutual
agreement to 180 days. The loan is evidenced by a promissory note and is
personally guaranteed by the Company's two principal executive officers and
majority shareholders. The proceeds of these loans are being used for the
repayment of indebtedness and for general working capital purposes. The investor
was accredited and sophisticated and was provided with and had access to
relevant information concerning the Company. The security was exempt from
registration pursuant to Section 4(2) of the Securities and Exchange Act of
1933, as amended (the "Securities Act").
Note 11 - Convertible Notes
- ---------------------------
In May 1999, the Company completed a private placement of a $10 million
convertible debenture. The debenture is a two year 10% note convertible into the
Company's common stock at an initial conversion price of $11.00. The debenture
contains a provision whereby the holder may require the Company to repurchase
the debenture after nine months at a price equal to 112% of the principal
amount. For every quarter thereafter the repayment amount shall increase 4%.
Should the holder elect to require the Company to repurchase the debentures, the
Company may repay the debentures in four equal monthly payments. If the Company
elects not to repurchase the notes, the conversion price of the debentures will
be adjusted to equal 85% times the market price, as defined, at the time of
conversion. The Company issued 100,000 warrants to purchase shares of the
Company's common stock in connection with this financing and 36,000 warrants to
the placement agent. The investors were accredited and sophisticated and was
provided with and had access to relevant information concerning the Company. The
security was exempt from registration pursuant to Rule 506 of Regulation D and
Section 4(2) of the Securities Act.
9
<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 Company's 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 and their percentage of the
Company's consolidated net sales:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------------- ---------------------------------------------
1999 1998 1999 1998
-------------------- ------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 25,641,391 100% $38,635,842 100% $40,944,105 100% $72,410,486 100%
Cost of sales 14,832,923 57.9 22,430,545 58.1 23,192,059 56.6 43,137,869 59.6
Gross profit 10,808,468 42.1 16,205,297 41.9 17,752,046 43.4 29,272,617 40.4
Selling, general and
administrative expenses 5,570,733 21.7 9,009,344 23.2 12,313,993 30.1 16,146,704 22.3
Income from operations 5,237,735 20.4 7,195,953 18.6 5,438,053 13.3 13,125,913 18.1
Net interest and financing 4,232,069 16.5 3,415,196 8.8 10,497,765 25.6 4,827,375 6.7
expense
Foreign currency exchange losses 540,243 2.1 267,678 0.7 17,197,123 42.0 1,393,351 1.9
Net income (loss) $ 465,423 1.8 $ 3,924,101 10.1 (22,256,835) (54.4) $ 7,030,601 9.7
</TABLE>
Net sales decreased by $13 million, or approximately 34%, to $25.6
million for the quarter ended June 30, 1999, as compared to $38.6 million for
the quarter ended June 30, 1998. For the quarter ended June 30, 1999, the
Company sold approximately 19,500 PC units as compared to approximately 26,000
PC units during the quarter ended June 30, 1998. For the six month period ended
June 30, 1999, net sales decreased by $31.5 million, or approximately 43.5%, to
$40.9 million as compared to $72.4 million for the six month period ended June
30, 1998. Such decrease in sales (both in dollars and in PC units sold) was
primarily attributable to the devaluation of the Real, which occurred in January
1999, and the resulting unfavorable business conditions in Brazil which have
resulted in reduced demand as well as less liquidity in the borrowing capacity
among the Company's customers and in the market in general. After the
devaluation the Company had customers postponing their information technology
purchases until the economic conditions stabilized in Brazil. The Company also
had to cancel contracts with its customers to renegotiate their pricing to
reflect the post devalutation exchange rates. Also, after the devaluation, the
Company adjusted the sale prices of its products in Reais upward and maintained
them indexed to the U.S. dollar. This resulted in the Company's products
becoming more expensive in the Brazilian currency which contributed to the
reduced demand. During the quarter ended June 30, 1999, the Company began to see
the business conditions improve in Brazil. This began with the stabilizing of
the Real in the currency markets which occurred around mid-April. Conditions,
however, have not yet returned to the pre-devaluation levels.
Cost of sales during the quarter ended June 30, 1999 were $14.8
million, representing 57.9% of sales during the period, as compared to $22.4
million for the quarter ended June 30, 1998, representing 58% of sales for the
period. Cost of sales during the six month period ended June 30, 1999 were $23.2
million, representing 56.6% of sales during the period, as compared to $43.1
million for the six month period ended June 30, 1998, representing 59.6% of
sales for the period. The decrease in cost of sales as a percentage of sales
during the quarter and six month period ended June 30, 1999, when compared to
the quarter and six month period ended June 30, 1998, was attributable to the
Company increasing the pricing of its products after the devaluation of the Real
and maintaining them indexed to the US dollar, while at the same time certain
components of the Company's cost of sales are denominated in Reais and were
reduced in US dollar terms with the devaluation of the Real. Also contributing
to the decrease in cost of sales as a percentage of sales was the Company's
product mix. As the Company has expanded into the corporate and governmental
markets, it has focused on developing integrated solutions for its customers
utilizing hardware, software and networking products. For the quarter and six
month period ended June 30, 1999, there were a higher percentage of integrated
solution products, which have a higher margin, included in the Company's sales
mix.
Selling, general, and administrative expenses decreased by $3.4
million, or approximately 38%, to $5.6 million for the quarter ended June 30,
1999, as compared to $9 million for the quarter ended June 30, 1998. For the six
month period ended June 30, 1999, selling, general, and administrative expenses
decreased by $3.8 million, or approximately 23.7%, to $12.3 million as compared
to $16 million for the six month period ended June 30, 1998. The decrease was
primarily attributable to the devaluation of the Real which reduced the expenses
in U.S. dollar terms of the Company's Brazilian subsidiaries. Also contributing
10
<PAGE>
to the decrease was the execution of the Company's expense reduction plans as
part of its consolidation of the operations of its two subsidiaries, Bahiatech
and Microtec which involved closing the Microtec factory in the state of Sao
Paulo and eliminating redundant positions. Selling, general, and administrative
expense as a percentage of sales was 21.7% for the quarter ended June 30, 1999,
compared to 23.3% for the quarter ended June 30, 1998. Such decrease was
primarily attributable to the aforementioned decrease in the expenses which was
greater in percentage terms than the decrease in sales.
Income from operations decreased by $2 million, or approximately 27%,
to $5.2 million for the quarter ended June 30, 1999, as compared to $7.2 million
for the quarter ended June 30, 1998. For the six month period ended June 30,
1999, income from operations decreased by $7.7 million, or approximately 58.6%,
to $5.4 million as compared to $13.1 million for the six month period ended June
30, 1998. Such decrease was primarily attributable to the aforementioned
decrease in sales. Income from operations as a percentage of sales increased to
20.4% for the quarter ended June 30, 1999 from 18.6% for the quarter ended June
30, 1998. This increase was primarily attributable to the aforementioned
decrease in selling, general, and administrative expenses.
Interest and financing expense increased by $816,873, or approximately
23.9%, to $4.2 million for the quarter ended June 30, 1999, as compared to $3.4
million for the quarter ended June 30, 1998. For the six month period ended June
30, 1999, interest and financing expense increased by $5.7 million, or
approximately 117.5%, to $10.5 million as compared to $4.8 million for the six
month period ended June 30, 1998. Interest and financing expense as a percentage
of sales increased to 16.5% for the quarter ended June 30, 1999 from 8.8% for
the quarter ended June 30, 1998. These increases were primarily attributable to
the Company's increased use of debt financing to support its working capital
needs and the increase costs of such financing, primarily the debt financing
with Brazilian banks.
During the quarter ended June 30, 1999, the Company experienced a
foreign currency exchange loss of $540,243, or 2.1% of sales, associated with
certain U.S. dollar denominated monetary assets and liabilities of the Company's
Brazilian subsidiaries. For the six month period ended June 30, 1999, the
Company experienced a foreign currency transaction loss of $17.2 million, which
included $16.7 million which occurred during the first quarter and was a direct
result of the devaluation of the Brazilian currency. At June 30, 1999, the
Commercial Market Rate for the Real was R$1.7520 per US$1.00 as compared to
R$1.7250 per US$1.00 at March 31, 1999, and R$1.2090 per US$1.00 at December 31,
1998. Also included in foreign currency exchange loss for the six month period
ended June 30, 1999 is a write down of the Company's investment in a
subordinated debenture from TAC (see Note 5 to the Company's financial
statements dated June 30, 1999).
Net income for the quarter ended June 30, 1999 was $465,423, or $0.03
per share assuming dilution, representing 1.8% of sales during the period, as
compared to $3.9 million, or $0.32 per assuming dilution, representing 10.2% of
sales during the period. For the six month period ended June 30, 1999, the
Company incurred a net loss of $22.3 million, as compared to net income of $7
million for the six month period ended June 30, 1998. The decrease in net income
was primarily attributable to the aforementioned decrease in sales that resulted
from devaluation and the unfavorable business conditions.
Hedging Activities
Although the Company's consolidated financial statements are presented
in U.S. Dollars in accordance with U.S. generally accepted accounting
principles, the Company's transactions are consummated in both the Real and the
U.S. Dollar. Inflation and fluctuations in exchange rates have had, and may
continue to have, an effect on the Company's results of operations and financial
condition. Although the Company had used 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 Reais, net of accounts payable and other current
liabilities denominated in Reais. 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, to the extent that the Company is not
adequately hedged against currency risks, any significant devaluation, such as
occurred during the first quarter of 1999, 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 and to meet certain debt
maturities. During the six month period ended June 30, 1999, the Company used
debt financing to satisfy its working capital requirements.
11
<PAGE>
At June 30, 1999, the Company had a working capital surplus of $21.1
million compared to $70.2 million at December 31, 1998. This decrease in working
capital was primarily attributable to the devaluation of the Brazilian currency
and the corresponding devaluation of the Company's accounts receivable.
Net cash used in operating activities for the six month period ended
June 30, 1999 was $11.8 million as compared to $9.5 million in cash provided by
operating activities during the six month period ended June 30, 1998 and
resulted primarily from the net loss for the period and the repayment of trade
accounts payable and accrued expenses which more than offset the decreases in
accounts receivable and inventory for the period.
Net cash used in investing activities was $1.9 million for the six
month period ended June 30, 1999. Such use of cash was primarily related to the
purchase of computer hardware and software to support the Company's management
information system. Net cash provided from financing activities was $8.2 million
for the six month period ended June 30, 1999 and resulted primarily from the
short-term borrowings and a convertible note offering.
The Company has a revolving line of credit in the amount of $4,000,000
with Eastern National Bank in Miami, Florida, with which the Company maintains
its primary banking relationship. Such line consists of $3,000,000 for working
capital and $1,000,000 for trade finance used to support letters of credit which
the Company may issue to secure purchase obligations. This credit line is
secured by a lien on certain property owned by the Company. The credit line
bears interest at a floating rate equal to prime (currently 8%). The term of the
credit facility expired in May 1999, however the facility has been renewed on a
month to month basis and the Company is currently in discussions with Eastern
National Bank to renew such credit facility on a longer term basis. As of June
30, 1999, there was $2.3 million owed under the working capital line and
$158,400 of exposure under the letter of credit facility.
As of June 30, 1999, the Company had approximately $5 million in
short-term borrowings from various banks in Brazil with rates of interest
averaging 2.5% per month and maturing on a revolving basis. As of June 30, 1999,
the Company had available approximately $20 million in unused credit facilities
at various banks in Brazil at rates of approximately 2.5% per month and subject
to certain collateral requirements as defined.
On October 31, 1998, the holders of an aggregate principal amount of
$17,967,320 of the Company's convertible notes exercised their put right,
pursuant to the terms of the notes, and requested the Company to repurchase the
remaining balance of the notes at a put price equal to 110% of the principal
amount. In accordance with the terms of the notes, the Company was to pay the
put price in four equal monthly installments commencing November 30, 1998, with
interest on each installment accruing at the rate of 10% per annum. The Company
made the first two of such payments on November 30, 1998 and December 31, 1998.
In February 1999, the Company entered into an agreement with the holders to
repay the remaining principal outstanding on the notes over a five month period
commencing March 31, 1999, with monthly principal payments of approximately $2
million plus accrued interest. As of June 30, 1999, there was a principal amount
of $5,237,745 outstanding on such notes. In a series of transactions between
April and July of 1999, the holders of such convertible notes sold their
position in the notes to an unrelated third party investor. Simultaneously with
such sale, the Company amended and restated the terms of the convertible notes
and entered into revised put and call agreements for the notes. The revised
terms provide the note holder with a conversion price equal to $11 per share and
provide the holder with the right to require the Company to repurchase the notes
at a premium during a put period, as defined in the agreement. In the event the
Company declines to repurchase the notes upon the exercise of a holder put
option during a put period, the conversion price of the note would be adjusted
to equal 85% of the market price, as defined.
In April 1999, in order to induce the holders of $3,621,875 of the
Company's 10% convertible notes, the Company amended and restated the terms of
the notes. The conversion price of the notes was adjusted to $10 per share and
the holders were provided with an additional put option in October of 1999 and
again in April of 2000.
In April 1998, the Company entered into an accounts receivable
financing program with TAC, an independently owned special purpose corporation,
whereby the Company's subsidiary, Bahiatech, may sell certain of its accounts
receivable to TAC. The program is a $150 million collateralized global medium
term note program whereby TAC may issue notes which are collateralized by the
purchased accounts receivable. TAC is an exempted company incorporated under the
laws of the Cayman Islands. One hundred percent (100%) of TAC's voting shares
are held by a Cayman Islands trust. TAC is a special purpose company that was
established solely to participate in the securitization, to acquire and hold the
designated receivables and to issue collateralized notes under a note program.
TAC has covenanted in the indenture pursuant to which the notes are issued not
to engage in any activities other than those contemplated by the indenture. The
receivables constitute the principal asset of TAC.
The accounts receivable financing program with TAC contains a
repurchase provision whereby Bahiatech is required to repurchase the receivables
sold to TAC under certain circumstances, including default under the program,
delinquencies or violations of certain concentration limits. The repurchase
12
<PAGE>
obligation may be satisfied by transferring to TAC, for no additional
consideration, an aggregate amount of additional receivables, the net present
value of which is equal to the repurchase price. If the net present value of the
receivables available to Bahiatech to effect such substitution is less than the
relevant repurchase price, then Bahiatech will be required to pay in cash the
excess of the repurchase price over the net present value of the additional
receivables transferred to TAC pursuant to such substitution. Vitech serves as
guarantor of the repurchase obligation. If Bahiatech fails to comply in full
with its repurchase obligation on or prior to the required repurchase date,
Vitech is required to deposit, within twenty-four (24) hours of such expired
required repurchase date, the amount of the repurchase price not paid by
Bahiatech. As a result of the structure of the program, at June 30, 1999, there
is a contingent liability in the amount of approximately $43.8 million which
represents the balance, at face value, of the accounts receivable sold to TAC.
The Company maintains an allowance for doubtful accounts on its balance sheet
with respect to the sold receivables.
In January 1999, the Brazilian government allowed its currency, the
Real, to trade freely against other foreign currencies, which resulted in an
immediate devaluation of the Real against the U.S. dollar in excess of 30%. With
the post devaluation exchange rates of the Real to the U.S. dollar the
overcollateral ratio fell below its required minimum which caused trigger and
default events, as defined, of the TAC program. As a result, the Company has not
been selling any of its accounts receivable to TAC, and may not, other than
pursuant to its repurchase obligation. Additionally, with the devaluation of the
Real against the U.S. dollar in excess of the overcollateral ratio, the
Company's residual interest in the program represented by the subordinated
debentures has been written down substantially from its values at December 31,
1998. Should the Real recover in value against the U.S. dollar, then the Company
could regain its value in the subordinated debentures.
In June 1999, TAC received approval on a consent solicitation proposal
made to the holders of TAC notes for temporary and permanent adjustments to the
structure of the TAC program in order to allow the TAC program to operate more
effectively in the post devaluation environment. With the approval of the
consent solicitation, TAC paid a 1% fee to the holders of TAC notes and the
Company put up additional collateral (in the form of eligible accounts
receivable) for the benefit of the TAC note holders to put the collateralization
ratio at 100%. While the consensus has provided time for the program to recover,
with the continuing difficult economic conditions of Brazil and the conditions
of the financial markets which have prohibited TAC from refinancing its
short-term obligations, TAC has not had the liquidity available to meet is
current obligations which has caused trigger and default events for TAC.
Considering these events, the TAC program is expected to self-amortize over the
life of the receivable portfolio held by TAC and the Company believes that TAC
will no longer be a viable financing source for the Company. (See Notes 4 and 5
to the Company's financial statements dated June 30, 1999).
In March of 1999, the Company received a loan from a related party for
the principal amount of $10 million. The loan bears interest at the annual rate
of 15% and has a term of 120 days. The loan is evidenced by a promissory note
and, at the makers option, can be exchanged for a convertible note should the
loan not be repaid at maturity. Additionally, in April of 1999, the Company
received a loan from an unrelated third party for the principal amount of $11
million. The loan bears interest at the annual rate of 10%. The original term of
the note was 90 days, but has been extended by mutual agreement to 180 days. The
loan is evidenced by a promissory note and is personally guaranteed by the
Company's two principal executive officers and majority shareholders. The
proceeds of these loans are being used for the repayment of indebtedness and for
general working capital purposes.
In May 1999, the Company completed a private placement of a $10 million
convertible debenture. The debenture is a two year 10% note convertible into the
Company's common stock at an initial conversion price of $11.00. The debenture
contains a provision whereby the holder may require the Company to repurchase
the debenture after nine months at a price equal to 112% of the principal
amount. Should the holder elect to require the Company to repurchase the
debentures, the Company may repay the debentures in four equal monthly payments.
If the Company elects not to repurchase the notes, the conversion price of the
debentures will be adjusted to equal 85% times the market price, as defined, at
the time of conversion. The Company issued 100,000 warrants to purchase shares
of the Company's common stock in connection with this financing and 36,000
warrants to the placement agent.
Business Conditions
In January 1999, the Brazilian government allowed its currency, the
Real, to trade freely against other foreign currencies, which resulted in an
immediate devaluation of the Real against the U.S. dollar. The Company's
accounts receivable are denominated in the Real while principally all of the
Company's trade accounts payable and other debts are denominated in U.S.
dollars. Accordingly, with the devaluation, the Company recorded a currency
transaction loss of $16,656,880 associated with dollar-denominated monetary
assets and liabilities held by the Company's Brazilian subsidiaries.
13
<PAGE>
Furthermore, the devaluation and the resulting unfavorable business
conditions in Brazil have resulted in reduced demand as well as less liquidity
in the borrowing capacity among the Company's customers and in the market in
general. In an effort to minimize any further effects of the currency
devaluation, unfavorable business conditions and to improve the liquidity of the
Company, management has taken the following actions:
o Indexed the pricing of its products in Reais to the U.S. dollar.
o Significantly reduced the credit terms that it extends to customers.
o Renegotiated trade accounts payable of approximately $22 million at
December 31, 1998 to terms which average 10 months.
o Negotiated short term financing (see Liquidity and Capital resources
above).
o Modified the repayment terms of certain convertible notes.
o Continue to negotiate with TAC (see Note 5 to the Company's financial
statements dated June 30, 1999).
o Completion of the consolidation of the manufacturing facilities in 1999
which reduces administrative expenses and inventory carrying costs.
While the Company continues to believe that the long-term growth
opportunities remain for the Brazilian information technology market, it
continues to evaluate the impact of the current business conditions on its
operations. The ultimate resolution of these matters could have a material
adverse effect on the financial condition and results of operation for future
quarters.
Year 2000 Compliance
Computers, software and other equipment utilizing microprocessors that
use only two digits to identify a year in a date field may be unable to process
accurately certain date-based information at or after the year 2000. The Company
recognizes the need to insure that its operations will not be adversely affected
by Year 2000 software failures. Software failures due to processing errors
potentially arising from calculations using the year 2000 date are a recognized
risk, and the Company is addressing this issue on several different fronts.
The Company believes that all Company-branded hardware products shipped
since January 1997 are Year 2000 compliant. Earlier Company-branded hardware
products can be made Year 2000 compliant through BIOS upgrades or software
supplements. In addition to internal Year 2000 software and equipment
implementation activities, the Company is in contact with its suppliers to
assess their compliance. There can be no assurance that there will not be a
material adverse effect on the Company if third parties do not convert their
systems in a timely manner and in a way that is compatible with the Company's
systems. The Company believes that its actions with suppliers will minimize
these risks.
Finally, the Company has established an internal workforce to
coordinate solutions for the Year 2000 issue for its own internal information
systems and as of December 31, 1998 had determined that its internal information
systems are Year 2000 compliant.
Through June 30, 1999, the Company has not incurred material expenses
relating to Year 2000 compliance efforts and believes that the expenses
associated with completing its Year 2000 compliance plans will not have a
material adverse impact on the Company's operations. Internal and external
expenses specifically associated with modifying internal-use software for the
Year 2000 will be expensed as incurred. The Company's current estimates of the
amount of time and expenses necessary to implement and test its computer systems
are based on the facts and circumstances existing at this time. Nevertheless,
achieving Year 2000 compliance is dependent on many factors, some of which are
not completely within the Company's control. Should either the Company's
internal system or the internal systems of one or more significant vendors or
suppliers fail to achieve Year 2000 compliance, the Company's business and its
results of operations could be adversely affected.
Impact of Inflation on Results of Operations, Liabilities and Assets
For many years prior to July 1994, the Brazilian economy was
characterized by high rates of inflation and devaluation of the Brazilian
currency against the U.S. Dollar and other currencies. However, since the
implementation in July of 1994 of the Brazilian government's latest
stabilization plan, the "Real Plan", inflation, while continuing, has been
significantly reduced and the rate of devaluation has substantially diminished.
The Company has assessed the movement of the Brazilian currency based upon the
trading ranges stated by the policy of the Central Bank of Brazil and has been
able to offset any material effects of inflation. Although the Company had used
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 Reais, net of
accounts payable and other current liabilities denominated in Reais. Currently,
the Company is not engaged in any hedging activities. There can be no assurance
that the Real Plan will continue to be effective in combating inflation and
devaluation of Brazil's currency or that the Company's assessment of the
14
<PAGE>
movement of Brazilian currency will be correct in the future. Inflation rates in
Brazil for the years 1998, 1997, 1996 and 1995 were approximately 1.7%, 7.5%,
10.3% and 22%, respectively.
Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income" during the year ended December
31, 1998. SFAS 130 establishes new rules for the reporting and presentation of
comprehensive income and its components. The Company's comprehensive income is
comprised of net income adjusted for foreign currency translation. For the six
month period ended June 30, 1999, the Company had a comprehensive loss of $57.7
million as compared to a reporting net loss of $22.2 million. Comprehensive loss
includes a cumulative translation adjustment of $35.5 million associated with
the translation of the Company's subsidiary financial statements to the US
dollar.
During 1998, the Company adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." SFAS No. 131 supercedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise", replacing
the "industry segment" approach with the "management" approach. The management
approach designates the internal reporting that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. SFAS 131 also requires disclosures about products and
services, geographic areas and major customers. The adoption of SFAS 131 did not
affect the consolidated financial position or results of operations of the
Company. Management has determined it operates in one industry segment.
In June of 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 1999. The objective of the
statement is to establish accounting and reporting standards for derivative
instruments and hedging activities. The Company may use foreign currency forward
contracts, a derivative instrument, to hedge foreign currency transactions and
anticipated foreign currency transactions. The adoption of this new accounting
pronouncement is not expected to be material to the Company's consolidated
financial position or results of operations.
In 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which is effective for fiscal
years beginning after December 15, 1998. The SOP provides guidance on when costs
incurred for internal-use computer software are and are not to be capitalized,
and on the accounting for such software that is marketed to customers. The
adoption of this SOP is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
The Financial Accounting Standards Board issued Statement 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," in June 1996. Statement 125 was effective for transfers and
servicing of financial assets and extinguishment of liabilities occurring after
December 31, 1996, and the Company adopted it in the first quarter of 1998,
since the Company did not have transactions of this nature prior to 1998.
Statement 125 provides guidance in determining whether a transfer of a financial
asset represents a sale or a secured borrowing, as well as the accounting for
any servicing assets retained. The Statement also provides guidance relating to
extinguishment of liabilities by debtors.
Foreign Currency Translation
The financial statements of the Company have been prepared in
accordance with U.S. generally accepted accounting principles and are stated in
U.S. dollars. Until December 31, 1997, amounts in Brazilian currency were
remeasured into U.S. Dollars in accordance with the methodology set forth in
Statement of Financial Accounting Standards No. 52 ("SFAS 52") as it applies to
entities operating in highly inflationary economies. The assets and liabilities
of the Company's subsidiaries were translated into U.S. dollars at exchange
rates in effect at the balance sheet date for monetary items and at historical
rates for nonmonetary items. Revenue and expense accounts are translated at the
average exchange rate in effect during each month, except for those accounts
that relate to nonmonetary assets and liabilities which are translated at
historical rates.
Effective January 1, 1998, the Company determined that Brazil ceased to
be a highly inflationary economy under SFAS 52. Accordingly, as of January 1,
1998, the Company began using the Brazilian currency, the Real, as the
functional currency of its Brazilian subsidiaries. As a result, all assets and
liabilities are translated into dollars at period end exchange rates and all
income and expense items are translated into U.S. dollars at the average
exchange rate prevailing during the period. In addition, the Company recorded a
currency exchange loss associated with dollar-denominated monetary assets and
liabilities held by the Company's Brazilian subsidiaries. Any translation
adjustments are reflected as a component of shareholders' equity.
15
<PAGE>
II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Shareholders' Meeting was held on June 14, 1999.
At the Annual Meeting, the Company's shareholders were asked to consider and
vote upon the following matters:
(1) The election of six members of the Company's Board of Directors
to serve until the Company's 2000 Annual Meeting of Shareholders
or until their successors are duly elected and qualified; and
(2) The ratification of the appointment of Pannell Kerr Forster PC as
auditors of the Company's financial statements for the fiscal
year ending December 31, 1999.
The following six members of the Company's Board of Directors were duly
elected :
<TABLE>
<CAPTION>
Director Votes For Votes Against Votes Abstained
- --------------------------------- --------------------- --------------------- ------------------------
<S> <C> <C> <C>
Georges C. St. Laurent III 13,680,801 173,861 0
William C. St. Laurent 13,680,801 173,861 0
Joseph K. Meyer 13,680,801 173,861 0
H.R. Shepherd 13,680,801 173,861 0
Touma Makdassi Elias 13,680,801 173,861 0
William Robin Blackhurst 13,680,801 173,861 0
</TABLE>
The results of the vote on the ratification of the appointment of
Pannell Kerr Forster PC as auditors of the Company's financial statements for
the fiscal year ending December 31, 1999, were as follows:
Votes For Votes Against Abstentions
------------------------ ------------------- -------------------
13,691,981 154,911 7,770
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:
(27.1) Financial Data Schedule
(b) Reports on Form 8-K.
None.
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
Chief Financial Officer
(authorized officer and chief accounting officer)
Date: August 13, 1999
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VITECH
AMERICA, INC.'S CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE
30, 1999 AND THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-3-1999
<CASH> 2,299,491
<SECURITIES> 0
<RECEIVABLES> 42,832,791
<ALLOWANCES> 3,828,004
<INVENTORY> 34,572,612
<CURRENT-ASSETS> 87,893,031
<PP&E> 20,091,472
<DEPRECIATION> 1,593,036
<TOTAL-ASSETS> 132,496,894
<CURRENT-LIABILITIES> 66,797,997
<BONDS> 21,361,405
0
0
<COMMON> 60,844,866
<OTHER-SE> (16,507,374)
<TOTAL-LIABILITY-AND-EQUITY> 132,496,894
<SALES> 40,944,105
<TOTAL-REVENUES> 40,944,105
<CGS> 23,192,059
<TOTAL-COSTS> 35,506,052
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,497,765
<INCOME-PRETAX> (22,256,835)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,256,835)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,256,835)
<EPS-BASIC> (1.52)
<EPS-DILUTED> (1.52)
</TABLE>
