<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________
_____________________________________________________________
Commission file number 0-10734
FERROFLUIDICS CORPORATION
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Massachusetts 02-0275185
- --------------------------------- --------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization Identification No.)
40 Simon Street,
Nashua, New Hampshire 03061
- ------------------------ ---------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(Registrant's telephone number, including area code) (603) 883-9800
___________________________________________________
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No___
(2) Yes X No___
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock, as of April 30, 1995.
Common Stock, $.004 par value per share 5,966,949
- --------------------------------------- ---------------
(Class) (No. of Shares)
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1995 and June 30, 1994 1
Consolidated Statements of Operations -
Three Months Ended March 31, 1995 and 1994 2
Consolidated Statements of Operations -
Nine Months Ended March 31, 1995 and 1994 3
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 1995 and 1994 4
Notes to Consolidated Financial Statements 5 - 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Position 8
Part II. Other Information 11
Signatures 12
</TABLE>
<PAGE> 3
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1.
FERROFLUIDICS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and June 30, 1994
(unaudited)
<CAPTION>
March 31, 1995 June 30, 1994
-------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,608,000 $322,000
Restricted cash 447,000 449,000
Accounts receivable - trade, less allowance
for doubtful accounts of $688,000 at
March 31, 1995 and $779,000 at June 30, 1994 5,214,000 4,676,000
Inventories (Note C) 10,941,000 10,169,000
Note receivable - 350,000
Prepaid and other current assets 557,000 590,000
----------- -----------
Total Current Assets 21,767,000 16,556,000
----------- -----------
Property, plant and equipment, at cost, net
of accumulated depreciation of $8,747,000 at
March 31, 1995 and $7,203,000 at June 30, 1994 7,408,000 7,935,000
Investment in affiliates (Note E) - 3,669,000
Cash value of life insurance 3,005,000 2,963,000
Other assets, net 1,262,000 1,385,000
----------- -----------
TOTAL ASSETS $33,442,000 $32,508,000
=========== ===========
LIABILITIES
Current Liabilities:
Industrial revenue bonds payable (Note D) 5,000,000 5,000,000
Bank notes payable (Note D) 640,000 2,801,000
Accounts payable 2,679,000 4,371,000
Customer deposits 6,332,000 1,543,000
Accrued expenses and other current liabilities 2,802,000 3,993,000
----------- -----------
Total Current Liabilities 17,453,000 17,708,000
----------- -----------
Other liabilities 563,000 467,000
Class action settlement reserve - 3,150,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, authorized
100,000 shares, issued and outstanding, none - -
Common stock, $.004 par value, authorized
12,500,000 shares, issued 5,966,949 at March 31,
1995 and 5,366,949 shares at June 30, 1994 24,000 21,000
Additional paid-in capital 35,491,000 32,109,000
Retained earnings (19,854,000) (20,352,000)
Currency translation adjustments (235,000) (595,000)
----------- -----------
Total Stockholders' Equity 15,426,000 11,183,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $33,442,000 $32,508,000
=========== ===========
</TABLE>
1
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<TABLE>
FERROFLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1995 and 1994
(unaudited)
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net product sales and operating revenues $8,491,000 $ 4,273,000
Cost of goods sold 5,025,000 2,211,000
---------- -----------
3,466,000 2,062,000
Engineering and product development expenses 824,000 703,000
Selling, general and administrative expense 2,661,000 2,105,000
Legal and other nonrecurring expenses - 3,699,000
---------- -----------
Operating Loss (19,000) (4,445,000)
Interest income 105,000 87,000
Interest expense (206,000) (94,000)
Other income 230,000 81,000
---------- -----------
Income (Loss) before income taxes 110,000 (4,371,000)
Provision for income taxes (Note E) 60,000 41,000
---------- -----------
Net Income (Loss) $ 50,000 ($4,412,000)
========== ===========
Per Share Data (Note F):
Net Income (Loss) $.01 ($.82)
==== =====
Weighted average common shares outstanding 5,686,949 5,366,949
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
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<TABLE>
FERROFLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended March 31, 1995 and 1994
(unaudited)
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net sales and operating revenues $23,977,000 $17,281,000
Cost of goods sold 14,167,000 10,547,000
----------- ------------
9,810,000 6,734,000
Engineering and product development expenses 2,387,000 2,506,000
Selling, general and administrative expense 7,646,000 8,696,000
Gain on settlement with licensee and other
nonrecurring income (Notes E & H) (1,300,000) (4,165,000)
Legal and other nonrecurring expenses 144,000 6,179,000
----------- ------------
Operating Income (Loss) 933,000 (6,482,000)
Interest income 175,000 151,000
Interest expense (515,000) (279,000)
Other expense (27,000) (52,000)
----------- ------------
Income (loss) before income taxes 566,000 (6,662,000)
Provision for income taxes (Note E) 68,000 881,000
----------- ------------
Net Income (Loss) $ 498,000 ($7,543,000)
=========== ============
Per Share Data (Note F):
Net Income (Loss) $.09 ($1.41)
==== =======
Weighted average common shares outstanding 5,534,949 5,365,837
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE> 6
<TABLE>
FERROFLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 1995 and 1994
(unaudited)
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income (Loss) $ 498,000 ($7,543,000)
Adjustments to reconcile net loss to net
cash provided by operations:
Depreciation and amortization 725,000 714,000
Provision for bad debt (17,000) (12,000)
Interest income on long-term investments 22,000 -
Valuation of restricted stock 144,000 -
Increase to cash surrender value (64,000) (306,000)
Translation (gain) loss (171,000) (74,000)
Class action settlement - 2,925,000
Other 347,000 34,000
Changes in assets and liabilities:
Accounts receivable (521,000) 1,658,000
Inventory (772,000) (2,118,000)
Prepaid expenses and other current assets 33,000 14,000
Bank notes payable (2,189,000) (429,000)
Accounts payable (1,692,000) 1,004,000
Accrued expenses (1,352,000) 808,000
Customer deposits 4,789,000 2,817,000
----------- -----------
Net cash provided by (used for) operating activities (220,000) (508,000)
----------- -----------
Cash flow from investing activities:
Investment in affiliates - (4,269,000)
Sale of investment in affiliate 3,994,000 -
Restricted cash deposited - (574,000)
Acquisition of property, plant and equipment (468,000) (1,301,000)
Proceeds from note receivable 350,000 124 ,000
----------- -----------
Net cash used by investing activities 3,876,000 (4,445,000)
----------- -----------
Cash flow from financing activities:
Proceeds from issuance of common stock - 20,000
Retirement of industrial revenue bond - (2,500,000)
Borrowing of cash value of life insurance - 2,789,000
----------- -----------
Net cash provided (used) by financing activities - 309,000
----------- -----------
Effect of currency rate changes on cash 630,000 63,000
----------- -----------
Net increase(decrease)in cash and cash equivalents 4,286,000 (4,581,000)
----------- -----------
Cash and cash equivalents at beginning of period 322,000 6,049,000
----------- -----------
Cash and cash equivalents at end of period $ 4,608,000 $1,468,000
=========== ===========
Cash paid for interest and income taxes for the nine months ended March 31, 1995 and 1994 is as follows:
1995 1994
---- ----
Interest $342,000 $286,000
Income taxes $41,000 $72,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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FERROFLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Ferrofluidics
Corporation and its subsidiaries have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results of operations of any interim period are subject to year-end audit and
adjustments, and are not necessarily indicative of the results of operations
for the fiscal year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended June 30, 1994.
The Company has reclassified the presentation of certain prior year
information to conform with the current presentation format.
B. INVENTORIES
<TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are comprised of the following elements at March 31, 1995
and June 30, 1994:
<CAPTION>
Mar. 31, 1995 June 30, 1994
------------- -------------
<S> <C> <C>
Raw materials and purchased parts $ 5,838,000 $ 4,278,000
Work-in-process 2,337,000 2,513,000
Finished goods 2,766,000 3,378,000
----------- -----------
$10,941,000 $10,169,000
=========== ===========
</TABLE>
C. NOTES RECEIVABLE
In June 1990, the Company sold its manufacturing subsidiary in the
United Kingdom, AF Technologies, to Rumpack, Ltd. ("Rumpack") for $3,380,000
in cash and a note. In August 1994, the Company received $350,000 in final
settlement of the note.
5
<PAGE> 8
D. DEBT OBLIGATIONS
On June 30, 1994, the Company entered into a new credit facility with
a new bank. Under the new credit facility, the Company is provided with total
credit of approximately $7,900,000, including approximately $5,400,000 in the
form of a stand-by letter of credit for the Company's $5,000,000 1984 Series
Industrial Revenue Bonds (the "IRB"), and a $2,500,000 revolving line of credit
for working capital purposes. The stand-by letter of credit has a term of five
years with a fee of 1% per year and the revolving line of credit is priced at
the prime rate plus 1% with a fee of 1/8% on the unused portion. The Company
also is required to make annual principal reduction payments equal to 5% of the
total credit facility. The credit facility is collateralized by substantially
all of the assets of the Company. Additionally, the Business Finance Authority
of the State of New Hampshire (the "BFA") has provided a guarantee of 60% of
the entire credit facility. At March 31, 1995, $600,000 was outstanding
against the revolving line of credit at an interest rate of 10.0%.
As of June 30, 1994 and March 31, 1995, the Company had incurred
specific events of default with regard to certain covenants under its domestic
bank credit facility. In recognition of the existing events of default, the
Company has obtained a waiver from its bank. Accordingly, the Company does not
expect noncompliance with the financial covenants of the facility to cause a
default during fiscal 1995.
E. INVESTMENT IN AFFILIATES
On June 30, 1993, Ferrofluidics consummated a series of new license
and other agreements ending all litigation between Ferrofluidics and NFC, its
former Japanese subsidiary and licensee. Due to uncertainties with respect to
the license and other related agreements that existed at June 30, 1993, the
transaction was accounted for in the first quarter of fiscal 1994. Pursuant to
these agreements, in August 1993, Ferrofluidics received one billion Japanese
Yen (approximately $9.5 million), in settlement of all claims against NFC
including all future royalties owing to the Company under the new and a
previous license agreement, any past due royalties owing under the previous
agreement, and reimbursement of expenses incurred by Ferrofluidics in
connection with the litigation. The one billion Yen (approximately $9.5
million) was remitted to the Company net of $815,000 in Japanese withholding
tax on that portion of the settlement representing royalty payments. Also
pursuant to the agreements, Ferrofluidics acquired 125,000 shares of NFC's
common stock, approximately 16% of NFC's outstanding stock, for one billion
Japanese Yen, and was given a seat on NFC's board of directors.
Given that the transactions involved an exchange of identical amounts,
it was treated as a nonmonetary transaction and, therefore, the value assigned
to the settlement is equivalent to the fair market value of the NFC shares
acquired. Ferrofluidics engaged an independent firm to ascertain the fair
market value of its investment in NFC as of August 1993 and June 1994 for
purposes of recording the transaction. As a result of the valuation, the
Company recorded the estimated fair market value of the NFC shares as of August
1993 of $4,245,000 as an investment in affiliate in the first quarter of fiscal
1994. In addition, the Company recorded a gain on settlement with licensee of
$4,145,000 in the first quarter representing the value of the shares received
less related expenses. In recognition of NFC losses during its fiscal year
ended March 31, 1994, the Company established a reserve against the valuation
of this investment in the amount of $600,000 in the fourth quarter of 1994.
In connection with the change in executive management in the fall of
1993, the new management determined that the Company's investment no longer
served a strategic purpose and, accordingly, in the fall of 1994 began
discussions with NFC to find a buyer for the 125,000 shares. With the
assistance of NFC, in March 1995 the Company completed the sale of its 125,000
shares of NFC common stock
6
<PAGE> 9
to several Japanese financial institutions for an aggregate price of
Y.362,500,000 (approximately $4.0 million) in cash. The sale generated a gain
of approximately $300,000, principally the result of currency translation,
which has been included in other income in the consolidated statement of
operations for the three and nine months ended March 31, 1995.
F. COMMON STOCK
Pursuant to the terms of the settlement of the shareholder class
action lawsuit against the Company, which became final on September 23, 1994,
the Company agreed to issue 600,000 shares of its common stock. The Company
has valued these shares at $3,150,000, which approximates the fair market value
of the shares on the date of settlement, and established a noncurrent liability
for this amount as of June 30, 1994. In October 1994 and May 1995, the Company
issued 180,000 and 420,000 shares, respectively, and accordingly, the entire
$3,150,000 has been added to stockholders' equity as of March 31, 1995. The
600,000 shares are classified as issued and outstanding shares as of March 31,
1995.
H. DISPOSAL OF AUSTRIAN SUBSIDIARY
In September 1994, management decided to discontinue the operations of
VSE, its majority owned subsidiary in Austria, due to prolonged operating
losses and its inability to compete effectively in the standard vacuum-valve
industry. In the process of liquidating the subsidiary, VSE went into
technical receivership and, in October, the minority owner acquired the
business out of receivership and assumed all of its liabilities. The net
impact to the Company was a one-time gain on the abandonment of VSE of $61,000
which has been classified as nonrecurring operating income in the second
quarter of fiscal 1995. The loss from operations of VSE up until the date of
abandonment of $(205,000) has been presented on the Consolidated Statement of
Operations for the periods presented as nonrecurring operating charges. The
results of operations of VSE for the three and nine months ended March 31, 1994
of $$(133,000) and $(283,000), respectively, have been reclassified on the
accompanying consolidated statements of operations as nonrecurring operating
charges to be consistent with the current year's presentation.
In November 1994, the Company entered into a fifteen year agreement
with a Swiss vacuum-valve manufacturer pursuant to which the manufacturer has
been granted exclusive right to utilize certain rotary feedthrough sealing
technology of the Company in exchange for $1,300,000 in cash, with an
additional payment of $200,000 by June 30, 1996 contingent upon the occurrence
of certain events by that date. During October and November 1994, the Company
received an aggregate of $1,300,000 in cash payments pursuant to this
arrangement and has recorded the payments as miscellaneous income in the
quarter ended December 31, 1994.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL POSITION
The following discussion provides information to assist in the
understanding of Ferrofluidics' results of operations and financial condition.
It should be read in conjunction with the consolidated financial statements and
notes thereto that appear elsewhere herein.
RESULTS OF OPERATIONS
Nine Month Periods Ended March 31, 1994 and 1993:
In the nine months ended March 31, 1994, the Company generated net
income from operations of $198,000, or $.04 per share, as compared to a net
loss in the first nine months of fiscal 1994 of $(7,543,000), or $(1.41) per
share. Included in the results of operations for the prior year was $5,896,000
of legal and other nonrecurring operating charges and a nonrecurring gain of
$4,165,000 resulting from the settlement of litigation pertaining to royalties
withheld by NFC, the Company's former Japanese licensee.
<TABLE>
Net sales for the nine months ended March 31, 1995 totaled $23,977,000
as compared to $17,281,000 of product sales in the same period of the prior
year. A detail comparison of the revenues by major product line for the nine
month periods ended March is as follows:
<CAPTION>
1995 1993
---- ----
<S> <C> <C>
Seals $8,286,000 $6,639,000
Air bearings 604,000 355,000
Fluid 1,764,000 1,470,000
Crystal growing systems 8,016,000 4,258,000
Other 5,307,000 4,559,000
----------- -----------
Total net product sales $23,977,000 $17,281,000
=========== ===========
</TABLE>
Consolidated gross margins for the first three quarters of fiscal 1995
amounted to 40.9% of product sales compared to 39.0% of product sales in the
comparable period of the prior year. The improved gross margin in the current
period compared to the prior year is due principally to the mix of product
lines and sales volume.
Consolidated backlog at March 31, 1995 was $43,076,000 compared to
$16,997,000 at March 31, 1994 and $14,613,000 at June 30, 1994. Backlog for
the Company's crystal growing system business at March 31, 1995 was $35,600,000
compared to $11,728,000 at March 31, 1994. The Company expects to commence
shipment of this systems backlog by the beginning of the fiscal 1996. Backlog
of all other products increased nearly 42% from $5,269,000 at March 31, 1994 to
$7,476,000 at March 31, 1995, reflecting the increased rate of new order
booking in the current year. In addition to recorded backlog, the Company has
entered into various multi-year, sole supplier contracts with certain
industrial, semiconductor and defense contractors valued at over $5.0 million.
Partial orders under these contracts are booked into the Company's backlog as
releases are received from the customer against the blanket purchase orders.
Of the consolidated order backlog for the Company at March 31, 1995,
approximately 15% is expected to be shipped during the current fiscal year.
Selling, general and administrative expenses for the quarter ended
March 31, 1995 totaled $7,646,000, down 1,050,000, or 12%, from the first nine
months of the prior year. The reduction is due principally to cost cutting
measures implemented by new management beginning in the second quarter of
fiscal 1994. The reductions were principally in the areas of corporate
management, and advertising and promotional expenditures associated with the
Company's core product lines.
8
<PAGE> 11
Nonrecurring operating and legal expenses in the nine-month period
ended March 31, 1994 of $6,179,000 included principally: (i) $3,300,000
representing the valuation of the shares contributed in the settlement of the
shareholder class action lawsuit; (ii) a reserve for all costs associated with
the October 1, 1993 retirement of the Company's former CEO, including $725,000
associated with his termination agreement; (iii) legal expenses and other
reserves of $1,300,000 associated with the private investigation by the SEC and
the shareholder class action lawsuits filed against the Company which were
initiated in August and September 1993; (iv) a reserve of $475,000 relating to
payments to an affiliated company, which the Company has written off as
relating to undeveloped technology; and (v) $100,000 in other general
restructuring charges. Also included in nonrecurring operating charges is the
operating loss of VSE of $(283,000) for the nine months ended March 31, 1994
(See Note H to the consolidating financial statements).
As of March 31, 1995 the Company has in excess of $30,000,000 in net
operating loss carryforwards for federal and state income tax purposes.
Accordingly, the results of operations for the nine months ended March 31, 1995
contains only a small provision for state and foreign income taxes. The
$881,000 income tax provision in the first nine months of the prior year
includes approximately $815,000 of Japanese withholding tax paid by the Company
in connection with the settlement of its litigation with NFC on that portion of
the settlement representing royalties. Although the Company may receive a tax
credit for these amount on its Federal tax returns, the amount was charged off
to income tax expense as there is no assurance that there will be sufficient
future foreign source income to ensure that the credit will be realized.
Three Months Ended March 31, 1995 and 1994:
In the quarter ended March 31, 1995, the Company had net income of
$50,000, or $.01 per share, as compared to a net loss in the third quarter of
fiscal 1994 of $(4,412,000), or $(.82) per share. Included in the results of
operations for the prior year was $3,699,000 of nonrecurring operating and
legal expenses.
<TABLE>
Net product sales for the third quarter of fiscal 1995 totaled
$8,491,000 as compared to $4,273,000 of product sales in the same period of the
prior year. A detail comparison of the revenues by major product line for the
third quarter ended March 31 is as follows:
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Seals $2,975,000 $2,211,000
Air bearings 268,000 92,000
Fluid 686,000 552,000
Crystal growing systems 3,105,000 199,000
Other 1,457,000 1,219,000
---------- ----------
Total net sales and revenues $8,491,000 $4,273,000
========== ==========
</TABLE>
Consolidated gross margins for the third quarter of fiscal 1995
amounted to 40.8% of product sales compared to 48.3% of product sales in the
prior years' third quarter. The lower gross margin in the current quarter
compared to the same period of the prior year is due principally to the mix of
product lines, with approximately 37% of consolidated net sales in the current
year's third quarter attributable to the Company's crystal growing systems,
which generate lower gross margins.
Selling, general and administrative expenses for the quarter ended
March 31, 1995 totaled $2,661,000 compared to $2,105,000 in the third quarter
of the prior year. The increase in SG&A in the current year is due principally
to the general increase in the level of business.
9
<PAGE> 12
Nonrecurring operating and legal expenses in the three months ended
March 31, 1994 of $3,699,000 included principally the $3,300,000 reserve
representing the valuation of the shares contributed in the settlement of the
shareholder class action lawsuit and other miscellaneous charges. Also
included in nonrecurring operating charges is the operating loss of VSE of
$(133,000) for the three months ended March 31, 1994 (See Note H to the
consolidating financial statements).
LIQUIDITY AND CAPITAL RESOURCES
As more fully discussed in Note D to the consolidated financial
statements, on June 30, 1994, the Company entered into a new credit facility
with a new bank. Under the new credit facility, the Company is provided with
total credit of approximately $7,900,000, including approximately $5,400,000 in
the form of a stand-by letter of credit for the Company's $5,000,000 1984
Series Industrial Revenue Bonds ("IRB"), and a $2,500,000 revolving line of
credit for working capital purposes. Additionally, the Business Finance
Authority of the State of New Hampshire (the "BFA") has provided a guarantee of
60% of the entire credit facility. At March 31, 1995, $600,000 was outstanding
against the revolving line of credit at an interest rate of 10.0%.
As of June 30, 1994 and March 31, 1995, the Company was in default
under certain covenants of its domestic bank credit facility and is expected to
incur events of default with regard to these and other financial covenants
under this facility during the remainder of fiscal 1995. In recognition of the
existing and expected events of default, the Company has obtained a waiver from
the bank. Accordingly, the Company does not expect noncompliance with the
financial covenants of the facility to cause a default during fiscal 1995.
Additionally, at June 30, 1994 the Company was not in compliance with
a covenant of its $5,000,000 IRB as a result of the existence of a lease of a
small portion of the Company's facility. For unrelated reasons, in October
1994, the bondholder tendered the IRB to the Trustee for purchase, and,
accordingly, the $5,400,000 stand-by letter of credit was drawn upon and the
bondholder was repaid. Pursuant to the terms of the indenture governing the
IRB, the Company remarketed the IRB and in November 1994 placed the bond with a
new bondholder which reinstated the stand-by letter of credit with its bank.
Additionally, in November 1994, the Company obtained consents and waivers with
respect to the default from the Industrial Development Authority of the State
of New Hampshire and the bond trustee. In recognition of the noncompliance
noted above, the $5,000,000 IRB has been classified as a current liability on
the consolidated balance sheet at March 31, 1995.
Exclusive of the classification of the IRB discussed above, working
capital at March 31, 1995 totaled $4,345,000 as compared to a working
$3,848,000 at June 30, 1994. During the first half of fiscal 1995, the
operations of the business used $220,000 in cash, which is principally due to
the significant reduction of trade payables to vendors and accrued expenses
during the period with cash generated by operations and the license agreement
discussed in Note H.
Investing activities during the first nine months of fiscal 1995
provided $3,876,000 of cash. As more fully discussed in Note E, in March 1995
the Company completed the sale of its 125,000 shares of NFC common stock to
several Japanese financial institutions for an aggregate price of Y.362,500,000
($3,994,000) in cash. In September 1994, the Company received $350,000 in
final settlement of a note from Rumpack, Ltd., the purchaser of the Company's
former subsidiary in England, AF Technologies, Ltd. Additionally, the Company
has expended $468,000 of cash in the period for capital expenditures
principally related to building improvements at its Nashua headquarters to
accommodate the anticipated level of crystal growing system business. At March
31, 1995, the
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<PAGE> 13
Company had no material purchase commitments with respect to capital equipment.
As a result of the significant orders received in the current quarter for
multiple crystal growing systems, the Company has entered into purchase
commitments with its vendors for raw materials and component parts exceeding
$5,000,000. The purchase order for these systems provides for the Company to
receive advance payments from the customer to finance the purchase of the
inventory to complete the order. In July 1994, the Company entered into a
capital lease in the amount of $210,000 with a third party lessor for the
purchase of computer software and hardware. The lease has a term of three
years and has an effective interest rate of 9%.
While the Company continues to be heavily reliant upon the receipt of
contractual advance payments from customers in its systems business with regard
to its ability to satisfy that business's obligations in the normal course,
management believes it has sufficient working capital resources to fund its
operations through fiscal 1995 and thereafter.
PART II. OTHER INFORMATION
None
11
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FERROFLUIDICS CORPORATION
(Registrant)
<TABLE>
<S> <C>
Date May 17, 1995 By:________________________________
Stephen P. Morin
Chief Accounting Officer
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF FEROFLUIDICS, INC. FOR THE NINE
MONTHS ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 4,608,000
<SECURITIES> 0
<RECEIVABLES> 5,902,000
<ALLOWANCES> 688,000
<INVENTORY> 10,941,000
<CURRENT-ASSETS> 21,767,000
<PP&E> 16,155,000
<DEPRECIATION> 8,747,000
<TOTAL-ASSETS> 33,442,000
<CURRENT-LIABILITIES> 17,453,000
<BONDS> 0
<COMMON> 24,000
0
0
<OTHER-SE> 15,402,000
<TOTAL-LIABILITY-AND-EQUITY> 33,442,000
<SALES> 23,977,000
<TOTAL-REVENUES> 23,977,000
<CGS> 14,167,000
<TOTAL-COSTS> 10,033,000
<OTHER-EXPENSES> (1,129,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 340,000
<INCOME-PRETAX> 566,000
<INCOME-TAX> 68,000
<INCOME-CONTINUING> 498,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 498,000
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
