<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 25, 1997
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 1-4737
------
HIGH VOLTAGE ENGINEERING CORP.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of incorporation)
04-2035796
(I.R.S. Employer Identification No.)
401 Edgewater Place, Suite 680, Wakefield, MA 01880
Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (781) 224-1001
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 No X
Number of Common Shares outstanding at December 12, 1997: 1,082.7429 shares.
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CONTENTS
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PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
Consolidated Balance Sheets October 25, 1997 (unaudited) and
April 26, 1997................................................................................... 3
Consolidated Statements of Operations for the Three and Six Months ended
October 25, 1997 (unaudited) and October 26, 1996 (unaudited).................................... 4
Consolidated Statements of Cash Flows Six Months ended
October 25, 1997 (unaudited) and October 26, 1996 (unaudited).................................... 5
Notes to Consolidated Financial Statements....................................................... 6
ITEM 2. - MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 9
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS.......................................................................... 13
ITEM 2. - CHANGES IN SECURITIES...................................................................... 13
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES............................................................ 13
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES.............................................. 13
ITEM 5. - OTHER INFORMATION.......................................................................... 13
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K........................................................... 14
SIGNATURES................................................................................................ 15
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
HIGH VOLTAGE ENGINEERING CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 26, OCTOBER 25,
1997 1997
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(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,542 $ 12,853
Restricted cash 2,210 3,503
Accounts receivable - net 33,333 46,297
Refundable income taxes - 2,157
Inventories 22,334 39,320
Prepaid expenses and other current assets 1,164 1,920
-------- --------
Total current assets 60,583 106,050
PROPERTY, PLANT AND EQUIPMENT 30,966 49,320
INVESTMENT IN JOINT VENTURE - 1,843
ASSETS HELD FOR SALE 5,248 5,205
OTHER ASSETS - Net 7,432 16,571
COST IN EXCESS OF NET ASSETS ACQUIRED 9,358 20,550
-------- --------
$113,587 $199,539
======== ========
LIABILITIES AND STOCKHOLDERS DEFICIENCY
CURRENT LIABILITIES:
Current maturities of long-term debt obligations $ 2,609 $ 1,380
Foreign credit line 2,284 2,342
Accounts payable 17,199 17,777
Accrued interest 8,394 3,366
Accrued liabilities 12,000 21,803
Advance payments by customers 5,294 11,147
Federal, foreign and state income taxes payable 1,261 (32)
Deferred income taxes 2,171 2,160
-------- --------
Total current liabilities 51,212 59,943
REDEEMABLE PUT WARRANTS 2,800 2,500
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES 80,508 153,184
DEFERRED INCOME TAXES 1,834 7,604
OTHER LIABILITIES 2,495 3,465
COMMITMENT AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK 11,474 29,472
STOCKHOLDERS DEFICIENCY
Common stock 1 1
Paid-in-capital 17,326 19,527
Accumulated deficit (54,104) (78,167)
Common stock warrants - 2,200
Cumulative foreign currency translation adjustment 41 (190)
-------- --------
Total stockholders deficiency (36,736) (56,629)
-------- --------
$113,587 $199,539
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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HIGH VOLTAGE ENGINEERING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
OCTOBER 26, OCTOBER 25, OCTOBER 26, OCTOBER 25,
1996 1997 1996 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Net sales $42,299 $ 59,393 $ 82,680 $ 104,065
Cost of sales 28,293 38,743 54,708 67,505
------- ----------- -------- -----------
Gross profit 14,006 20,650 27,972 36,560
Administrative and selling expenses 8,914 14,138 18,069 24,648
Research and development expenses 2,307 10,504 4,519 12,852
Reimbursed environmental and litigation
costs - net - 275 - 320
Other 654 55 646 (43)
------- ----------- -------- -----------
Income (loss) from operations 2,131 (4,322) 4,738 (1,217)
Interest expense 2,875 4,092 5,519 9,917
Interest income (88) (173) (142) (213)
------- ----------- -------- -----------
Loss from operations before income
taxes and extraordinary item (656) (8,241) (639) (10,921)
Income taxes (credit) (749) 1,503 (742) 1,773
------- ----------- -------- -----------
Income (loss) from operations before
extraordinary item 93 (9,744) 103 (12,694)
Extraordinary loss, net of income taxes - (7,861) (259) (7,861)
------- ----------- -------- -----------
NET INCOME (LOSS) 93 (17,605) (156) (20,555)
Preferred dividends (119) (900) (237) (1,028)
Accretion of redeemable preferred stock - (80) - (80)
------- ----------- -------- -----------
Net loss applicable to common stockholders $ (26) $ (18,585) $ (393) $ (21,663)
======= =========== ======== ===========
Net loss per common share:
Operations (22.75) (8,761.44) (117.24) (11,666.95)
Extraordinary item - (6,422.39) (226.60) (6,644.97)
Net loss applicable to common stockholders $(22.75) $(15,183.82) $(343.83) $(18,311.92)
======= =========== ======== ===========
Weighted average common stock and dilutive
equivalents outstanding 1,143 1,224 1,143 1,183
======= =========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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HIGH VOLTAGE ENGINEERING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
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<CAPTION>
SIX MONTHS ENDED
--------------------------
OCTOBER 26, OCTOBER 25,
1996 1997
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(Unaudited) (Unaudited)
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Increase (decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net loss $ (156) $(20,555)
Adjustments to reconcile net loss to net cash used
in operating activities:
Extraordinary item, net of income taxes - 1,574
Depreciation and amortization 2,185 3,695
Write-off of purchased research and development - 5,800
Non-cash interest 879 2,970
Deferred income taxes (313) (3,603)
Undistributed earnings of affiliate (74) (84)
Other (247) -
Change in assets and liabilities, net of effects of
business acquisitions:
Accounts receivable (810) 2,645
Refundable income taxes - 2,157
Inventories (1,168) (1,743)
Prepaid expenses and other current assets 44 74
Other assets (270) 107
Accounts payable, accrued interest and accrued
liabilities 559 (6,108)
Advance payments by customers (348) 1,755
Federal, foreign and state income taxes payable (1,691) (2,485)
-------- --------
Net cash used in operating activities (1,410) (13,801)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,914) (2,145)
Proceeds from sales of assets, net of expenses 138 -
Acquisition of Physical Electronics, net of cash acquired - (54,272)
Other 49 (166)
-------- --------
Net cash used in investing activities (1,727) (56,583)
-------- --------
Cash flows from financing activities:
Cash overdraft (2,255) 137
Proceeds from the issuance of long-term
obligations, net of issuance costs 62,725 129,672
Proceeds from the issuance of preferred stock,
net of issuance costs - 29,392
Proceeds from the issuance of common stock - 2,200
Proceeds from the issuance of redeemable put
warrants and common stock warrants 2,413 2,200
Net proceeds from foreign credit line 666 58
Net (increase) decrease in restricted cash 1,355 (1,293)
Net proceeds/(payments) under senior credit agreement 186 (7,702)
Distribution to fund Letita Common Stock repurchase - (2,250)
Redemption of redeemable put warrants - (2,500)
Redemption of redeemable preferred stock - (11,621)
Principal payments on long-term obligations (63,339) (56,258)
-------- --------
Net cash provided by financing activities 1,751 82,035
-------- --------
Effect of foreign exchange rate changes on cash 65 (340)
-------- --------
Net (decrease) increase in cash and cash equivalents (1,321) 11,311
Cash and cash equivalents, beginning of the period 2,107 1,542
-------- --------
Cash and cash equivalents, end of the period $ 786 $ 12,853
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest $ 3,981 $ 12,013
Income taxes 668 1,212
Supplemental Schedule of Non-cash Investing and Financing
Activities:
Preferred stock dividends-in-kind and issuable preferred
stock dividends-in-kind $ 237 $ 1,028
Leased asset additions 99 196
Transfer from property, plant and equipment to assets held
for sale, net 1,178 -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
HIGH VOLTAGE ENGINEERING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements of High Voltage Engineering
Corporation and Subsidiaries (the "Company" or "HVE") include accounts of the
Company and its direct and indirect subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. The condensed
consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of management include all adjustments, which are of a normal and
recurring nature, necessary to fairly present the financial position for the
interim periods presented.
The condensed consolidated financial statements do not contain all
disclosures normally included in financial statements normally prepared in
accordance with generally accepted accounting principles pursuant to SEC rules
and regulations. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements of the Company as
of and for the fiscal year ended April 26, 1997, as filed with the SEC on
November 10, 1997, and are not necessarily indicative of the results that may be
expected for the year ending April 25, 1998.
NOTE 2 - INVENTORIES
Inventories consisted of the following as of:
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April 26, October 25,
1997 1997
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Raw materials $14,912 $13,470
Work-in-process 3,977 22,815
Finished goods 3,445 3,035
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Total $22,334 $39,320
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</TABLE>
NOTE 3 - ACQUISITION AND OTHER TRANSACTIONS
On August 8, 1997, the Company closed a Purchase and Sale Agreement
("Agreement") among the Company, PHI Acquisition Holdings, Inc. ("PHI") and
Chase Venture Capital Associates, L.P., the principal shareholder of PHI
Acquisition Holdings, Inc., whereby, the Company acquired PHI through a merger,
accounted for as a purchase transaction, of a wholly-owned subsidiary of the
Company with and into PHI Acquisition Holdings, Inc. Under the Agreement, the
current shareholders of PHI received in exchange for their stock an aggregate of
$54.5 million plus an amount of income tax refunds, if any, the Company receives
after the closing of the Merger of taxes paid by PHI for periods prior to the
closing of the Merger. The $54.5 million was reduced by the payment of PHI's
debt, certain transaction costs, and contractual payments to the current and
former Chief Executive Officers of PHI. Based on management's preliminary
estimate of the fair value of assets and liabilities purchased, the Company
charged historical earnings $5.8 million for purchased research and development
and $1.0 million from the shipments of purchased finished goods inventory which
had been revalued.
In connection with the acquisition described above, the Company completed a
Rule 144A offering in the amount of $170.2 million consisting of $135.0 million
of Senior Notes, due in 2004 and $35.2 million representing 33,000 units
consisting of 33,000 shares of Series A Senior Redeemable Preferred Stock,
warrants to purchase 82.7429 shares of common stock of the Company and 82.7429
shares of common stock of the Company. The Company also entered into a $25.0
million revolving credit facility. Both of these financings closed
simultaneously with the acquisition, and were used to finance the acquisition,
repay certain indebtedness and all existing redeemable Preferred Stock,
repurchase certain existing put warrants, make distributions to Letitia,
extinguish BBC CIP Agreement, pay fees and for general corporate purposes.
Upon consummation of the Rule 144A offering, the Company recorded an
extraordinary loss of $7.9 million, net of income taxes of $4.8 million, for
premiums, prepayment penalties and the write-off of deferred financing costs
related to the retired indebtedness. In connection with the offering, the
Company repurchased Subordinated Notes Warrants entitling the holders thereof to
purchase 71.43 shares of the Company's Common Stock for $2.5 million. As a
result, the Company charged historical earnings $2.2 million to adjust the
carrying value of the Subordinated Notes Warrants. Under the terms of the CIP
Agreements, the consent of the CIP holder was required for consummation of
certain transactions. By agreement, dated July 26, 1997, the Company, Letitia
and BancBoston Capital, Inc. ("BBC"), a CIP holder, effective on the closing of
the Rule 144A offering agreed to extinguish the CIP Agreement for a cash payment
of $6.8 million. As a result of the Agreement, the Company recorded interest
expense of approximately $951 during the six months ended October 25, 1997.
<PAGE> 7
The following unaudited pro forma financial data illustrates the estimated
effects as if the acquisition of PHI and the Rule 144A offering had been
completed as of the beginning of the periods presented, after including the
impact of certain adjustments, such as amortization, depreciation, interest
expense, and certain purchase accounting adjustments. The effects of certain
nonrecurring charges to historical earnings, resulting from the transactions,
have been reversed. The pro forma earnings from operations before extraordinary
item and the pro forma net loss applicable to the common stockholders, for the
purpose of calculating pro forma loss per share, is net of pro forma
preferred stock dividends of $1,061 and $1,061 and the accretion of redeemable
preferred stock of $94 and $94 for the three months ended October 26, 1996 and
October 25, 1997, respectively. The pro forma earnings from operations before
extraordinary item and the pro forma net loss applicable to the common
stockholders, for the purpose of calculating pro forma loss per share, is net of
pro forma preferred stock dividends of $2,121 and $2,121 and the accretion of
redeemable preferred stock of $188 and $188 for the six months ended October 26,
1996 and October 25, 1997, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- ---------------------------
October 26, October 25, October 26, October 25,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 56,916 $ 59,393 $ 111,791 $ 127,287
Loss from operations before
extraordinary item (960) (630) (2,601) (3,937)
Extraordinary item, net of income
taxes -- -- (259) --
Net loss applicable to common
stockholders (2,115) (1,785) (5,169) (6,246)
Net loss per share from operations
before extraordinary item (1,850.39) (1,458.33) (4,295.71) (5,279.80)
Net loss per share from extraordinary
item, net of income taxes -- -- (226.60) --
Net loss per share applicable to
common stockholders $(1,850.39) $(1,458.33) $(4,522.31) $(5,279.80)
Weighted average common stock
and dilutive equivalents
outstanding 1,143 1,224 1,143 1,183
</TABLE>
The pro forma results are not necessarily indicative of the actual results
as if the transactions had been in effect for the entire periods presented. In
addition, they are not intended to be a projection of future results.
NOTE 4 - LITIGATION, CLAIMS AND ENVIRONMENTAL MATTERS
The Company is obligated to clean-up three sites relating to former
manufacturing facilities and has accrued the estimated costs of remediation.
Estimated costs are determined by external and internal environmental
remediation experts. The estimated costs of remediation of one site is based on
its estimated present value. The discount rate used was 6%. There are no
assurances that additional costs will not be incurred or that significant
changes in estimates or changes in environmental laws will not require
additional amounts to be accrued. The Company believes that it can continue to
meet these environmental standards without material adverse effect on its
financial condition. The completion of the clean-up relating to these sites is
estimated at 10 years. The expected future payments for the environmental
liabilities is $985 in fiscal year 1997, $303 in fiscal year 1998, $259 in
fiscal year 1999 through fiscal 2001 and $1,469 thereafter. In connection with
these matters, the Company has posted financial assurances that the remediation
will be completed in the form of $2,250 letters of credit and a lien of $1,250
on certain real property held for sale.
The nature of the Company's business is such that it is regularly involved
in legal proceedings incidental to its business. Although the Company believes
that none of these proceedings is material, the Company, along with six others,
is a defendant in an action commenced in November 1996 by Chicago-Dubuque
Foundry Corporation ("Chicago-Dubuque") and its property insurer, Employers
Mutual Casualty Co. in Iowa state court. The suit concerns a May 1, 1996 fire
that destroyed a Chicago-Dubuque facility located in East Dubuque, Illinois.
According to the complaint, defective products sold by one or more defendants
(including, it is alleged, the Company's Anderson division) to Chicago-Dubuque,
or incorporated in products sold by others to Chicago-Dubuque, caused or
contributed to the casualty. Chicago-Dubuque has not yet quantified the amount
of damages sought, but
<PAGE> 8
its property insurer has stated that damages for property damage will be in
excess of $11 million. No estimate of economic losses caused by business
interruption has been made by any plaintiff. At the present time, the Company is
not aware of any personal injuries or deaths caused by the fire and the Company
has been informed that the State Fire Marshall who investigated the fire has, to
date, not been able to render an opinion as to the cause of the fire. The
Company has placed it's insurers on notice of the claim and at least one insurer
has retained legal counsel to defend the Company. In light of the preliminary
stage of the proceedings, the Company is unable to assess the likelihood of
liability in this action, the amount of any damages that may be assessed against
the Company, and the extent to which any assessed liability will be covered by
the Company's insurance.
Natvar received a sixty (60) day notice of intent to sue on December 11,
1996 from a California citizens group regarding alleged violations of notice and
labeling requirements under California Proposition 65, a "right to know"
provision intended to give consumers clear and reasonable warnings of the
presence of certain potentially hazardous substances in products. Natvar and the
citizens group have signed an agreement delaying the deadline for filing any
lawsuit. The relevant, regulations provide that violations of Proposition 65 are
subject to civil penalties of up to $2,500 per day retroactive to the beginning
of an alleged violation of Proposition 65. The substance contained in Natvar's
products and implicated in the notice of intent to sue has been listed under
Proposition 65 since 1988, and Natvar has sold products containing this
substance in California since that time. The Company is currently conducting
fact-finding to determine whether it believes a violation of Proposition 65 has
occurred. If a lawsuit is filed, the Company intends to defend it vigorously;
however, the Company believes, based on results in similar cases and a
preliminary review of the relevant facts, that any such suit could be settled
for substantially less than the maximum penalty available under the statute. The
Company does not believe that it is likely that it will incur material liability
as a result of any lawsuit arising in connection with this matter.
In February 1997, the Company commenced litigation in Massachusetts federal
court against TVM Group, Inc., ("TVM") of Fremont, California, and TVM's
principal stockholder, Mr. T. Lyn Morris, seeking damages on account of breach
by TVM and Mr. Morris of a December 1996 agreement pursuant to which a
subsidiary of the Company was to acquire TVM. In April 1997, TVM and Mr. Morris
filed a counterclaim alleging breaches by the Company and its subsidiary of that
agreement and seeking damages. In September 1997, TVM and Mr. Morris moved to
amend their counter claim to add, inter alia, a claim for fraudulent inducement.
TVM and Mr. Morris are seeking actual damages in an amount of $350,000 plus an
unspecified amount of acquisition costs, punitive and consequential damages. In
light of the preliminary stage of the proceedings, the Company is unable to
assess the likelihood of liability in this action. However, the Company believes
the counterclaim to be without merit.
Certain other claims, suits and complaints have been filed or are pending
against the Company. In the opinion of the Company, all such matters are without
merit or are of such kind, or involve such amounts, as would not have a material
effect on the consolidated financial position or the results of operations of
the Company if disposed of unfavorably. If estimates change, there is no
assurances these items will not require additional accruals by the Company.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS
Earnings per Share
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which changes the calculation of earnings per share to be more
consistent with countries outside the United States. In general, the statement
requires two calculations of earnings per share to be disclosed, basic EPS and
diluted EPS. Basic EPS is to be computed using only weighted average shares
outstanding, while diluted EPS is computed considering the dilution of options
and warrants. This statement will be adopted by the Company in its January 24,
1998 consolidated financial statements with all prior, interim and annual
periods restated. Had the Company adopted SFAS No. 128 diluted EPS would not
have been materially impacted. Basic EPS would have been as follows.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
October 26, October 25, October 26, October 25,
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss per share from operations
before extraordinary item (26.00) (10,003.73) (134.00) (13,335.27)
Net loss per share from extraordinary
item, net of income taxes -- (7,333.02) (259.00) (7,595.17)
Net loss per share applicable to
common stockholders $(26.00) $(17,336.75) $ (393.00) $(20,930.43)
Weighted average common stock
outstanding 1,000 1,072 1,000 1,035
</TABLE>
<PAGE> 9
Other Pronouncements
During 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for the reporting and display of
comprehensive income and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", which introduces a new model for segment
reporting. The Company does not believe adoption will change its financial
statement disclosures.
NOTE 6 - SUBSEQUENT EVENTS
On November 10, 1997, the Company filed amended registrations statements
with the SEC covering the 10-1/2% Senior Notes due 2004 ("Existing Notes") and
the 12-1/2% Series A Redeemable Preferred Stock ("Series A Preferred Stock").
The registration statements relating to these securities became effect on
November 18, 1997. The holders of the Existing Notes and Series A Preferred
Stock are entitled to exchange these securities for the New Notes and Exchange
Preferred Stock having terms substantially identical to the Exiting Notes and
Series A Preferred Stock. This offer will expire on the 30th day after the
effective date of the respective registrations. The holders of the Existing
Securities and the Series A Preferred Stock which are not tendered will continue
to hold such securities. The holders of the securities will be subject to the
existing restrictions upon transfer thereof. The Company will have no further
obligation to such holders to provide for the registration under the Securities
Act of the Existing Notes or Series A Preferred Stock held by them.
ITEM 2. - MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report may make forward-looking statements regarding future events or
the future financial performance of the Company. We caution you that these
statements are only predictions and that actual events or results may differ
materially. We refer you to documents the Company files from time to time with
the SEC, and specifically the latest "Risk Factors" section, in the Registration
Statement on Form S-4 on file. This document identifies and describes important
factors that can cause the after-results to differ materially from those
contained in any forward-looking statements we may make.
Results of Operations
Three Months Ended October 25, 1997 Compared to Three Months Ended October 26,
1996
Net sales increased $17.1 million, or 40.4%, from $42.3 million in the
second quarter of Fiscal 1997 to $59.4 million in second quarter of Fiscal 1998.
This increase was primarily attributable to: (i) $11.3`million in revenues due
to the acquisition of Physical Electronics on August 8, 1997, (ii) a $4.7
million, or 24.0%, increase in sales at Robicon primarily due to the continued
growth in sales of medium voltage VFDs, (iii) an increase of $1.2 million, or
15.6%, at Datcon due to higher shipments in both the U.S. and Europe, (iv) an
increase of $0.6 million, or 9.7%, at Anderson due to continued growth in the
uninterruptible power supply markets as well as telecommunications and
networking equipment markets in North America, (iv) an increase of $0.5 million,
or 12.0%, at Natvar due to increased medical shipments compared to a weak year
ago period, (v) an increase of $400,000, or 13.9%, at General Eastern for which
approximately $170,000 was attributable to the acquisition of certain assets of
a small competitor near the end of the first quarter of Fiscal 1998, and (vi)
offset by a reduction of $1.6 million in sales to $1.1 million at HVE/Europa
attributable to no particle accelerator systems for research shipped during the
quarter compared to one system shipped in the year ago quarter due to the timing
of customer requested delivery dates.
Gross profit increased $6.6 million, or 47.4%, from $14.0 million in the
second quarter of Fiscal 1997 to $20.6 million in second quarter of Fiscal 1998.
The increase included $3.4 million due to the acquisition of Physical
Electronics which included a $1.0 million charge to cost of sales resulting from
the shipments of finished goods inventory which had been revalued in accordance
with purchase accounting procedures. The remaining increase of $3.2 million was
primarily attributable to higher shipments at all operating units except for
HVE/Europa as well as an improved gross margin rate at all operating units
except General Eastern and HVE/Europa. The gross margin rate increased 1.7%,
from 33.1% to 34.8%, as a result of the higher shipments discussed above, as
well as productivity improvements at Robicon, Datcon, Anderson and Natvar
compared to the year ago period.
Administrative and selling expenses at the Company increased $5.2 million
over the year ago quarter, or 58.6%, including $2.9 million from the inclusion
of Physical Electronics, $1.7 million at Robicon primarily due to a step level
increase in information technology and other administrative costs to support the
significantly increasing sales levels, as well as $0.6 million due to higher
sales/marketing expenses on a consolidated basis including commissions due to
higher sales. Administrative and selling expenses increased as a percent of
sales from 21.1% to 23.8% during the periods compared, as a result of the
factors discussed above.
Engineering, research and development expenses increased $8.2 million, from
$2.3 million to $10.5 million which was primarily attributable to $7.8 million
at the newly acquired Physical electronics, including $5.8 million of purchased
research and development as allocated from the purchase price which was expensed
during the second quarter in accordance with purchase accounting procedures.
<PAGE> 10
Depreciation and amortization increased by $1.4 million from $1.1 million
this increase includes $1.3 million attributable to Physical Electronics and
continued capital investment in automation at Anderson during Fiscal 1997 and
1998 as well as information technology upgrades at most of our operating units
during the past twelve months.
Other expenses, including reimbursed environmental and litigation costs,
declined from $0.7 million to $330,000. The year ago period included $0.8
million provision to write-off costs associated an aborted acquisition and
related offering costs, offset by a gain on the sale of a small product line at
Robicon. The current year costs include litigation costs associated with that
aborted acquisition as well as a change in estimate on certain environmental
cleanup costs.
As a result of the above items, HVE's income from continuing operations
decreased from income of $2.1 million in the year ago quarter to a loss of $4.3
million in the current quarter.
Interest expense increased $1.2 million, or 42.3%, to $4.1 million in the
second quarter of Fiscal 1998 compared to the year ago period, due to higher
average indebtedness associated with the sale of senior notes on August 8, 1997.
Interest income increased $85,000 to $173,000 due to the higher average cash
balance after the offering.
Income tax provisions increased $2.2 million, from a benefit of $0.7
million in the second quarter of Fiscal 1997 to expense of $1.5 million in the
second quarter of Fiscal 1998 to record income tax expense primarily related to
foreign income.
Income from operations before extraordinary items decreased $9.8 million to
a loss of $9.7 million in the second quarter of Fiscal 1998. Extraordinary
losses on debt extinguishment, net of income taxes, in the amount of $7.9
million was recorded in the second quarter of Fiscal 1998.
The foregoing factors contributed to an increase in net loss of $17.7
million from a $93,000 of income in the second quarter of Fiscal 1997 to a loss
of $17.6 million in the second quarter of Fiscal 1998.
Six Months Ended October 25, 1997 Compared to Six Months Ended October 26, 1996
Net sales increased $21.4 million, or 25.9%, from $82.7 million in the
first half of Fiscal 1997 to $104.1 million in first half of Fiscal 1998. This
increase was primarily attributable to: (i) $11.3 million in revenues due to the
acquisition of Physical Electronics on August 8, 1997, (ii) a $7.2 million, or
18.5%, increase in sales at Robicon primarily due to the continued growth in
sales of medium voltage VFDs, (iii) an increase of $1.7 million, or 11.0%, at
Datcon due to higher shipments in both the U.S. and Europe, (iv) an increase of
$1.4 million, or 13.0%, at Anderson due to continued growth in the
uninterruptible power supply markets as well as telecommunications and
networking equipment markets in North America, (iv) an increase of $0.9 million,
or 12.6%, at Natvar due to increased medical shipments compared to a weak year
ago period, (v) an increase of $0.7 million, or 12.8%, at General Eastern for
which approximately $170,000 was attributable to the acquisition of certain
assets of a small competitor near the end of the first quarter of Fiscal 1998,
and (vi) offset by a reduction of $1.9 million at HVE/Europa attributable to
only one particle accelerator systems for research shipped during the first half
of Fiscal 1998 compared to two systems shipped in the year ago period due to the
timing of customer requested delivery dates.
Gross profit increased $8.6 million, or 30.7%, from $28.0 million in the
first half of Fiscal 1997 to $36.6 million in first half of Fiscal 1998. The
increase included $3.4 million due to the acquisition of Physical Electronics
which included a $1.0 million charge to cost of sales resulting from the
shipments of finished goods inventory which had been revalued in accordance with
purchase accounting procedures. The remaining increase of $5.2 million was
primarily attributable to higher shipments at all operating units except for
HVE/Europa as well as an improved gross margin rate at all operating units
except General Eastern and HVE/Europa. The gross margin rate increased 1.3%,
from 33.8% to 35.1%, as a result of the higher shipments discussed above, as
well as productivity improvements at Robicon, Datcon, Anderson and Natvar
compared to the year ago period.
Administrative and selling expenses at the Company increased $6.6 million
over the year ago quarter, or 36.4%, including $2.9 million from the inclusion
of Physical Electronics, $2.0 million at Robicon primarily due to a step level
increase in information technology and other administrative costs to support the
significantly increasing sales levels, as well as $1.3 million due to higher
sales/marketing expenses on a consolidated basis including commissions due to
higher sales. Administrative and selling expenses increased as a percent of
sales from 21.9% to 23.7% during the periods compared, as a result of the
factors discussed above.
Engineering, research and development expenses increased $8.4 million, from
$4.5 million to $12.9 million which was primarily attributable to $7.8 million
at the newly acquired Physical Electronics, including $5.8 million of purchased
research and development as allocated from the purchase price which was expensed
during the second quarter in accordance with purchase accounting procedures. The
remaining increases were primarily attributable to increased new product
application development at Datcon.
Depreciation and amortization increased $1.5 million from $2.2 million this
increase includes $1.3 million attributable to Physical Electronics and
continued capital investment in automation at Anderson during Fiscal
<PAGE> 11
1997 and 1998 as well as information technology upgrades at most of our
operating units during the past twelve months.
Other expenses, including reimbursed environmental and litigation costs,
declined from $0.7 million to $277,000. The year ago period included $0.8
million provision to write-off costs associated an aborted acquisition and
related offering costs, offset by a gain on the sale of a small product line at
Robicon. The current year costs include litigation costs associated with that
aborted acquisition as well as a change in estimate on certain environmental
cleanup costs.
As a result of the above items, HVE's income from continuing operations
decreased from income of $4.7 million in the year ago period to a loss of $1.2
million in the first half of Fiscal 1998.
Interest expense increased $4.4 million to $9.9 million in the first half
of Fiscal 1998 compared to $5.5 million in the year ago period due to higher
average indebtedness associated with the sale of senior notes on August 8, 1997
expense, accretion of redeemable put warrants in the amount of $2.2 million
recorded in the first quarter of Fiscal 1998 ,as well as a $1.0 million
provision for contingent interest payments recorded in the first quarter of
Fiscal 1998. Interest income increased $71,000 to $213,000 primarily due to the
higher average cash balance after the offering.
Income tax provisions increased $2.5 million, from a benefit of $0.7
million in the first half of Fiscal 1997 to a provision of $1.8 million in the
first half of Fiscal 1998 to record income tax expense primarily related to
foreign income.
Income from operations before extraordinary items decreased $12.8 million
to a loss of $12.7 million in the first half of Fiscal 1998. Extraordinary
losses on debt extinguishment, net of income taxes, in the amounts of $259,000
and $7.9 million were recorded in the first halves of Fiscal 1997 and 1998,
respectively.
The foregoing factors contributed to an increase in net loss of $20.4
million from a loss of $156,000 in the first half of Fiscal 1997 to a loss of
$20.6 million in the first half of Fiscal 1998.
Liquidity and Capital Resources
The Company's liquidity needs are primarily for working capital and capital
expenditures. The Company's primary sources of liquidity have been funds
provided by operations and proceeds from financing activities.
On May 9, 1996, the Company entered into the Existing Revolving Credit Facility
and the $10.0 million Senior Term Loan and completed a private placement of
$20.00 million of Senior Secured Notes, $7.0 million of Senior Unsecured Notes
and $25.0 million principal amount of Subordinated Notes (issue at 82.086% of
the principal amount thereof), the net proceeds of which were used to refinance
existing indebtedness. A portion of the net proceeds to the Company from the
offerings were used to repay such indebtedness including accrued and unpaid
interest thereon and $10.1 million associated prepayment penalties. In
connection with the issuance of the Subordinated Notes, the Company issued to
the holders thereof warrants (the "Subordinated Notes Warrants") representing
12.5% of the fully-diluted HVE Common Stock. The holders of such warrants have
the right, after May 1, 2000, to require the Company to purchase all or any
portion of such warrants or any sharers of HVE Common Stock issued upon exercise
of such warrants at the greater of (i) a valuation prepared by an independent
financial advisor or (ii) a formula value as defined in the agreement.
On August 8, 1997 the Company consummated a Rule 144A offering in the
amount of $170.2 million consisting of $135.0 million of Senior Notes, due in
2004 and $35.2 million representing 33,000 units consisting of 33,000 shares of
Series A Senior Redeemable Preferred Stock, warrants to purchase 82.7429 shares
of common stock of the Company and 82.7429 shares of common stock of the
Company. The Company also entered into a $25.0 million revolving credit facility
with a $5.0 million sublimit for the issuance of standby letters of credit. In
connection with the offerings, the Company repurchased Subordinated Notes
Warrants representing 6.25% of the fully diluted HVE Common Stock for $2.5
million.
Simultaneous with the offering the Company closed a Purchase and Sale
Agreement ("Agreement") among the Company, PHI Acquisition Holdings, Inc. and
Chase Venture Capital Associates, L.P., the principal shareholder of PHI
Acquisition Holdings, Inc., whereby, the Company acquired Physical Electronics
through a merger of a wholly-owned subsidiary of the Company with and into PHI
Acquisition Holdings, Inc. Under the Agreement, the current shareholders of
Physical Electronics received in exchange for their stock an aggregate of $54.5
million plus an amount of income tax refunds, if any, the Company receives after
the closing of the Merger of taxes paid by Physical Electronics for periods
prior to the closing of the Merger. The $54.5 million was reduced by the payment
of Physical Electronics' debt, certain transaction costs, and contractual
payments to the current and former Chief Executive Officers of Physical
Electronics.
The Company does not anticipate any significant principal payment
obligations under any of its outstanding indebtedness prior to maturity of the
senior notes except with respect to the New Revolving Credit Facility which has
a term of five years. The ability of the Company to satisfy its obligations
under existing indebtedness and preferred stock will be primarily dependent upon
the future financial and operating performance of its operating units and upon
the Company's ability to renew or refinance borrowings or to raise additional
equity capital as necessary.
<PAGE> 12
The Company's working capital was $9.4 and $46.1 at April 26, 1997 and
October 25, 1997, respectively. The $36.7 million increase in working capital is
partially attributable to an $11.4 million increase in cash on hand as a result
of the Rule 144A offering, an increase in accounts receivable of 13.0 million of
which $11.8 is from the acquisition of Physical Electronics, an increase of $2.2
million of refundable income taxes attributable to Physical Electronics, and
increase in inventories of $17.0 million of which Physical Electronics accounted
for $17.4 million of the increase which was partially offset by a decrease of
$400,000 in the other operating units. Another major factor contributing to the
increase in working capital was a decrease of $5.0 million in interest expense
payable related to the $6.8 million payment of the BBC CIP obligation partially
offset by additional accruals. Accounts payable and accrued liabilities
increased $10.4 million of which $10.1 million resulted from the acquisition of
Physical Electronics. Customer Advances increased $5.8 million which consisted
of increases of $3.1 million from Physical Electronics, $1.7 million from
Robicon and $1.0 million from HVE Europa and income taxes payable was down $1.3
million.
Net cash used in operating activities was $1.4 million and $13.8 million
for the six months ended October 26, 1996 and October 25, 1997, respectively.
The decrease in net cash for the six months ended October 26, 1996 was
attributable primarily to an increase in accounts receivable and a decrease of
$500,00 in federal, foreign, and state income taxes payable and deferred income
taxes primarily resulting from tax payments of $700,000 in excess of tax
provisions. The decrease in net cash for the six months ended October 25, 1997
was substantially due to the payment of prepayments fees and penalties of $6.3
million, net of taxes, and the payment of $6.8 million to extinguish the CIP
Agreements resulting from the Rule 144A offering.
Net cash used in investing activities was $1.7 million and $56.6 million
for the six months ended October 26, 1996 and October 25, 1997, respectively.
The decrease in net cash for the six months ended October 26, 1996 consisted
primarily of capital expenditures of $1.9 million which were partially offset by
proceeds from minor asset sales. The decrease in net cash for the six months
ended October 25, 1997 resulted from the acquisition of Physical Electronics for
$54.3 million, net of cash acquired and capital expenditures of $2.1 million.
Net cash provided by financing activities was $1.8 million and $80.0
million for the six months ended October 26, 1996 and October 25, 1997,
respectively. The increase in net cash for the six months ended October 26, 1997
was the result of increased borrowings under the foreign credit line and the May
9, 1996 refinancing. The increase in cash for the six months ended October 25,
1997 was substantially the result of the Rule 144A offering, consummated on
August 8, 1997, which provided $170.2 million of which $80.4 was used to retire
existing preferred stock and indebtedness.
As part of the Rule 144a offering, the Indenture will allow each
Restricted Subsidiary that is an obligor under an Intercompany Note to effect a
Qualified Subsidiary IPO. Upon completion of a Qualified Subsidiary IPO, such
Restricted Subsidiary will become an Unrestricted Subsidiary and the cash flow
of such Unrestricted Subsidiary will no longer be available (i) to service debt
obligations of the Company or its remaining Restricted Subsidiaries or (ii) for
purposes of determining whether the Company or its remaining Restricted
Subsidiaries will be able to incur additional indebtedness, either of which
could affect the liquidity of the Company.
While the Company believes that internally generated funds and amounts
available under the New Revolving Credit Facility will be sufficient to satisfy
its operating requirements and make required interest and principal payments
under the New Revolving Credit Facility, the senior notes and existing capital
leases, IRBs, mortgage notes, notes payable and the foreign credit line and
payments with respect to the redeemable put warrants, there can be no assurance
that such sources will be adequate and that the Company will not require
additional capital from borrowings or securities offerings to satisfy such
requirements. In addition, the Company may require additional capital to fund
future acquisitions. There can be no assurance that such capital will be
available.
Seasonality; Variability of Operating Results
The majority of the Company's operating units have historically recorded
the strongest operating results in the fourth quarter of the fiscal year due in
part to seasonal considerations and other factors, although in recent years,
seasonal fluctuations have been partially mitigated by overall business growth.
The timing of orders placed by the Company's customers have varied with,
among other factors, the introduction of new products, product life cycles,
customer attempts to manage inventory levels, competitive conditions, general
economic conditions and the funding of scientific and educational research. The
variability of the level and timing of orders has, from time to time, resulted
in significant periodic and quarterly fluctuations in the operations of the
Company's operating units. Such variability is particularly evident at HVE
Europa, which ships on average four particle accelerator systems per year. These
systems are typically sold for between $1.0 million and $2.0 million each and
have long lead times. As a result, the timing of HVE Europa's shipments within
any fiscal year can have a material impact on an individual quarter's results.
As a result of the foregoing, the valuation of the Company's redeemable put
warrants could yield a significant adjustment in the fourth quarter of the
fiscal year since it is based on the fair value of the Company.
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
The nature of the Company's business is such that it is regularly involved
in legal proceedings incidental to its business. Although the Company believes
that none of these proceedings is material, the Company, along with six others,
is a defendant in an action commenced in November 1996 by Chicago-Dubuque
Foundry Corporation ("Chicago-Dubuque") and its property insurer, Employers
Mutual Casualty Co. in Iowa state court. The suit concerns a May 1, 1996 fire
that destroyed a Chicago-Dubuque facility located in East Dubuque, Illinois.
According to the complaint, defective products sold by one or more defendants
(including, it is alleged, the Company's Anderson division) to Chicago-Dubuque,
or incorporated in products sold by others to Chicago-Dubuque, caused or
contributed to the casualty. Chicago-Dubuque has not yet quantified the amount
of damages sought, but its property insurer has stated that damages for property
damage will be in excess of $11 million. No estimate of economic losses caused
by business interruption has been made by any plaintiff. At the present time,
the Company is not aware of any personal injuries or deaths caused by the fire
and the Company has been informed that the State Fire Marshall who investigated
the fire has, to date, not been able to render an opinion as to the cause of the
fire. The Company has placed it's insurers on notice of the claim and at least
one insurer has retained legal counsel to defend the Company. In light of the
preliminary stage of the proceedings, the Company is unable to assess the
likelihood of liability in this action, the amount of any damages that may be
assessed against the Company, and the extent to which any assessed liability
will be covered by the Company's insurance.
Natvar received a sixty (60) day notice of intent to sue on December 11,
1996 from a California citizens group regarding alleged violations of notice and
labeling requirements under California Proposition 65, a "right to know"
provision intended to give consumers clear and reasonable warnings of the
presence of certain potentially hazardous substances in products. Natvar and the
citizens group have signed an agreement delaying the deadline for filing any
lawsuit. The relevant, regulations provide that violations of Proposition 65 are
subject to civil penalties of up to $2,500 per day retroactive to the beginning
of an alleged violation of Proposition 65. The substance contained in Natvar's
products and implicated in the notice of intent to sue has been listed under
Proposition 65 since 1988, and Natvar has sold products containing this
substance in California since that time. The Company is currently conducting
fact-finding to determine whether it believes a violation of Proposition 65 has
occurred. If a lawsuit is filed, the Company intends to defend it vigorously;
however, the Company believes, based on results in similar cases and a
preliminary review of the relevant facts, that any such suit could be settled
for substantially less than the maximum penalty available under the statute. The
Company does not believe that it is likely that it will incur material liability
as a result of any lawsuit arising in connection with this matter.
In February 1997, the Company commenced litigation in Massachusetts federal
court against TVM Group, Inc., ("TVM") of Fremont, California, and TVM's
principal stockholder, Mr. T. Lyn Morris, seeking damages on account of breach
by TVM and Mr. Morris of a December 1996 agreement pursuant to which a
subsidiary of the Company was to acquire TVM. In April 1997, TVM and Mr. Morris
filed a counterclaim alleging breaches by the Company and its subsidiary of that
agreement and seeking damages. In September 1997, TVM and Mr. Morris moved to
amend their counter claim to add, inter alia, a claim for fraudulent inducement.
TVM and Mr. Morris are seeking actual damages in an amount of $350,000 plus an
unspecified amount of acquisition costs, punitive and consequential damages. In
light of the preliminary stage of the proceedings, the Company is unable to
assess the likelihood of liability in this action. However, the Company believes
the counterclaim to be without merit.
ITEM 2. - CHANGES IN SECURITIES
None.
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. - OTHER INFORMATION
None
<PAGE> 14
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11 Statement of Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dully caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
HIGH VOLTAGE ENGINEERING CORPORATION
Dated: December 12, 1997 By: /s/ Joseph W. McHugh, Jr.
----------------------------------------
Joseph W. McHugh, Jr.
Chief Financial Officer and Principal
Accounting Officer
<PAGE> 1
Exhibit 11
HIGH VOLTAGE ENGINEERING CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
October 26, October 25, October 26, October 25,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income (loss) from operations before
extraordinary item $ 93 $ (9,744) $ 103 $ (12,694)
Extraordinary item, net of income
taxes -- (7,861) (259) (7,861)
Net loss applicable to common
stockholders (26) (18,585) (393) (21,663)
Net loss per share from operations
before extraordinary item (22.75) (8,761.44) (117.24) (11,666.95)
Net loss per share from extraordinary
item, net of income taxes -- (6,422.39) (226.60) (6,644.97)
Net loss per share applicable to
common stockholders $(22.75) $(15,183.82) $(343.83) $(18,311.92)
Weighted average common stock
and dilutive equivalents
outstanding 1,143 1,224 1,143 1,183
</TABLE>
The earning from operations before extraordinary item and the net loss
applicable to the common stockholders, for the purpose of calculating earnings
per share, is net of preferred stock dividends of $119 and $900 and the
accretion of redeemable preferred stock of $0 and $80 for the three months ended
October 26, 1996 and October 25, 1997, respectively. The earning from operations
before extraordinary item and the net loss applicable to the common
stockholders, for the purpose of calculating earnings per share, is net of
preferred stock dividends of $237 and $1,028 and the accretion of redeemable
preferred stock of $0 and $80 for the six months ended October 26, 1996 and
October 25, 1997, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-25-1998
<PERIOD-START> APR-27-1997
<PERIOD-END> OCT-25-1997
<CASH> 16,356
<SECURITIES> 0
<RECEIVABLES> 46,297
<ALLOWANCES> 0
<INVENTORY> 39,320
<CURRENT-ASSETS> 106,050
<PP&E> 49,320
<DEPRECIATION> 0
<TOTAL-ASSETS> 199,539
<CURRENT-LIABILITIES> 59,943
<BONDS> 0
29,472
0
<COMMON> 1
<OTHER-SE> (56,630)
<TOTAL-LIABILITY-AND-EQUITY> 199,539
<SALES> 104,065
<TOTAL-REVENUES> 0
<CGS> 67,505
<TOTAL-COSTS> 37,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,917
<INCOME-PRETAX> (10,921)
<INCOME-TAX> 1,773
<INCOME-CONTINUING> (12,694)
<DISCONTINUED> 0
<EXTRAORDINARY> (7,861)
<CHANGES> 0
<NET-INCOME> (20,555)
<EPS-PRIMARY> 0
<EPS-DILUTED> (18,311.92)
</TABLE>
