<PAGE>
To Our Shareholders:
Vitronics Corporation experienced record sales and earnings for the year
ended December 31, 1995. We thank all our customers, stockholders, employees
and vendors for their cooperation and efforts in making 1995 a very successful
year. We expect to continue to enhance shareholder value by continuing the
growth and profitability trend that we have experienced in the past two years.
Our 1995 sales picture improved by 36% over 1994. Our 1995 bookings
picture also improved 34% over 1994. Again, recaptured market share accounted
for a significant portion of this increase. Our 1995 gross margin percentage
improved to 41% from 36% in 1994. Again, controlling expenses and aggressive
material cost reduction were the focus of our attention during 1995 and will
continue to be in 1996.
In late February 1996, at the Nepcon West show, a major trade show for our
industry, we introduced the SELECTSeries/TM/ a new line of reflow ovens.
These new systems will offer improved functionality and performance which
strengthens Vitronics' leadership position in the surface mount industry. The
new family of ovens, which include MagnaTherm/TM/, AcroTherm/TM/,
RadianTherm/TM/, and IsoTherm/TM/, have been designed with our expertise in
modularity and will provide our customers with unequaled opportunity to match
technical requirements with system size, configuration, capability and cost.
Sales for the year ended December 31, 1995 were $23,525,000 compared to
$17,346,000 for 1994, an increase of 36%. Bookings for the year ended December
31, 1995 were $23,783,000 compared to $17,802,000 for 1994 an increase of 34%.
Backlog at December 31, 1995 was $2,847,000 compared to $2,589,000 at
December 31, 1994.
Vitronics has positioned itself to be the reflow soldering leader for the
surface mount industry. We have presented many technical papers at a variety of
trade shows, technical meetings and seminars during 1995. We continue to
recapture market share by presenting technical information to key customers and
actively working with them to improve their reflow capabilities. Our philosophy
of quality and service continue to be the dominant theme that we carry forward
to our customers.
<PAGE>
Our financial growth in 1995 was financed through internally generated
funds. Our cash balance of $2,825,000 increased significantly during the year
and is the direct result of collection of our receivables and continued emphasis
on inventory flow into the company. We also arranged a $500,000 working capital
line of credit with First National Bank of Portsmouth.
Our Balance Sheet has improved significantly during 1995. The Subordinated
Convertible Debenture of $1,200,000 was converted into 2,400,000 shares of
common stock in August 1995, and 1,920,000 of the newly issued shares were
immediately distributed to the public through an underwritten secondary public
offering completed on August 17, 1995. Costs of $249,000 relating to the S-3
Registration Statement and conversion of the Subordinated Convertible Debenture
were written off during 1995.
Patent litigation costs of $308,000 were incurred in our patent lawsuit
against Conceptronic during 1995. The jury found in favor of the defendant. We
have filed an appeal and if successful, will review our options with regard to
continuing the lawsuit to the next step. The process will take approximately
1-1 1/2 years.
As we progress into the second half of the 90's, we feel confident in the
direction of Vitronics. We thank all of our stockholders, employees, customers
and vendors for your support and appreciate your continued support as we
approach the new millennium.
James J. Manfield, Jr. Ronald W. Lawler
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ending December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 0-13715
VITRONICS CORPORATION
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF MASSACHUSETTS 04-2726873
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 FORBES ROAD, NEWMARKET, NH 03857
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 659-6550
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment of this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 21, 1996 was $23,201,692.
Number of shares outstanding of the registrant's Common Stock, $.01 par value
as of March 21, 1996: 10,311,863 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for the 1996 Annual
Meeting of Shareholders are incorporated by reference into Part III.
<PAGE>
VITRONICS CORPORATION
PART I
Item 1. Business
Vitronics Corporation (the "Company") was incorporated in Massachusetts on
April 21, 1981. The Company is engaged in designing, engineering, manufacturing
and marketing state-of-the-art thermal processing systems for soldering surface
mount devices to printed circuit boards and cleaning of the finished assembly.
The Company's customers are captive and contract manufacturers of medium to high
reliability printed circuit boards.
Current Products:
The Company produces several lines of solder reflow ovens used primarily in
the final step of attachment of surface mounted devices to printed circuit
boards. Using similar technology, the Company has also produced systems for
attaching hybrid circuits to ceramic substrates and for curing epoxies and
adhesives used in bonding applications by the electronics industries.
The solder reflow products fall into five broad categories, each available in
a range of sizes and price levels to accommodate the throughput and space
requirements of the circuit board manufacturer.
--The SMR UNITHERM reflow series--high production rate, fully featured,
infrared/forced convection reflow ovens.
--The SMR IsoTherm reflow series--low to medium production rate,
infrared/forced convection reflow ovens with basic features.
--The SMD reflow series--high production rate, infrared, natural convection
reflow ovens.
--The GP/MP series--low volume, benchtop, infrared, natural convection
reflow ovens.
--The SELECTSeries--high production rate, fully featured, infrared/forced
convection reflow ovens.
In the first quarter of 1996, the Company introduced its SELECTSeries line of
surface mount reflow ovens. Over the next six months Vitronics plans to
produce three new families of ovens. Building upon Vitronics' expertise in
modularity, MagnaTherm, AcroTherm and RadianTherm have been designed to provide
customers with the unequaled opportunity to match technical requirements with
system size, configuration, capability and cost. Available in air, nitrogen or
field-retrofittable nitrogen models, management believes the SELECTSeries will
establish a new benchmark in surface mount reflow. Although Vitronics already
offers the broadest choice of ovens available, these three new oven families,
combined with UNITHERM and IsoTherm, will give the customer an even wider
selection.
Soldering remains the preferred method of permanently attaching hybrid and
semiconductor packages, microprocessors, resistors, capacitors and other common
electronic components to the surfaces of printed circuit boards. Substrate/
component assemblies treated with a coating of solder paste are placed onto the
conveyer system, which transports them at a constant rate through a heated
tunnel consisting of one or more individually heated and controlled zones. Heat
is transferred at a precisely controlled rate to the assemblies by means of
convection and radiation until the solder melts and flows between the component
leads and the circuit board. Rapid cooling ensures the formation of the desired
solder joints. This thermal process is also applicable to the production of a
variety of electronic component packages, including ceramic hybrids,
semiconductors, Ball Grid Array and glass/epoxy circuits.
2
<PAGE>
The Company's SMR series reflow soldering systems incorporate a heater and
cell design with the benefits of high efficiency, forced-convection heat
transfer, in addition to a background of infrared radiation. A unique feature
of this cell is the individual zone exhaust which removes solder paste fumes as
they are generated. Patent applications are pending worldwide covering the
unique features of the SMR series reflow soldering systems. The UNITHERM
version incorporates multiple heating cells both above and below the conveyor.
The economical IsoTherm version, introduced in 1994, employs heater cells only
above the conveyor. In both versions, product heating is accomplished with high
velocity heated gas that is distributed with optimal flow uniformity across the
entire heating area supported by a background of infrared emission from the
heated surfaces. A second generation UNITHERM series introduced in 1994, offers
advanced features including controlled exhaust heater, auto chain lubrication,
variable tunnel aperture, and fume capture, for full automation. The Company
continues to produce its original SMD reflow systems for selected customers and
applications.
In addition to reflow ovens, the Company markets a line of aqueous and semi-
aqueous circuit board cleaners. These cleaners offer the printed circuit board
industry environmentally safe, yet cost effective, cleaning methods. The semi-
aqueous cleaners are designed to remove both rosin-based and water soluble
organic fluxes using non-CFC (chlorofluorocarbon) biodegradable solvents for
environmental safety. The systems will operate both on-line or off-line with a
variable speed conveyor system facilitating the interface with any in-line
soldering system. The first model, introduced by the Company in 1990, is known
as the ENVIROCLEAN 3000, a semi-aqueous cleaning system which incorporates an
integrated emulsion module with a decanter/separator and enhanced cleaning and
drying capabilities. The Company's Aquapro product is an aqueous cleaning
system designed to clean high density surface mount assemblies.
Product Applications:
Printed Circuit Board Systems--The trend in the printed circuit board (PCB)
segment of the electronics industry is the attachment of surface mount
electronic components and devices to PCBs. The Company's solder reflow systems
are well suited to this task because of unique forced convection/infrared
heating cells and process gas management systems. The wide range of oven sizes
and features helps to accommodate the satisfaction of virtually all market
requirements. The Company's cleaning systems used for the removal of flux
residues from finished assemblies are not harmful to the environment due to the
use of non-CFC (chlorofluorocarbon) solvents. Specifically, the ENVIROCLEAN and
AQUAPRO cleaning products use either semi-aqueous or aqueous cleaning
technology. In both cases, the residues from the cleaning process may be
disposed of in the environment with no substantial long- term harm. The aqueous
cleaner uses only water or water with a small amount of common saponifier.
Furthermore, the semi-aqueous terpenes are biodegradable. This is in direct
contrast to previous cleaning technologies that utilize organic solvents known
commonly as CFCs. CFCs are both toxic and ozone depleting.
Product Options and Enhancements:
Nitrogen Atmosphere--This option gives an inert atmosphere with tight control
of oxygen levels (below 20 parts per million), which gives the process engineer
the ability to accommodate new assembly materials and processes.
Controlled Convection/Infrared--This option allows the process engineer
increased thermal stability and uniformity throughout the reflow cycle, thus
increasing production yields.
32 Loop Controller--A 32 loop proportional controller with integral and
differential control has been developed and integrated into the SMD and UNITHERM
series ovens. The 32 loop reduces cost on the larger ovens and adds versatility
of control.
Rail/Chain Conveyor Transport System--This option allows routine double-sided
surface mount soldering without the necessity of fixturing as is necessary with
standard belt conveyors. This is made possible by allowing two edges
3
<PAGE>
of a board to rest on pins which protrude from two moving chains that ride
through adjustable rails. A key benefit of this edge rail system is the 10 to 30
percent increase in processing speed relative to the belt system.
Enhanced Cooling--This option provides additional cooling capacity within the
process tunnel to reduce both solder liquidous times and finished product
temperatures for product handling requirements.
Products and Processes Under Development:
Thermal Process Management--The Company continues to research methods and
products that improve the process integrity, automation and efficiency of its
thermal methodology.
Product Range--The Company continues to broaden its product range to address
even larger segments of the printed circuit market.
Research and Development:
During the year ending December 31, 1995, the Company expended $1,363,000 or
6% of its net sales on research and development. Such expenditures were
$1,010,000 or 6% of net sales in 1994 and $860,000 or 7% of net sales in 1993.
All of the Company's existing products have been designed and developed by the
Company or its subsidiaries.
Markets:
The primary market for the Company's products is the electronics industry,
where the systems are used in the production of printed circuit boards, ceramic
hybrids, semiconductor packages, and glass/epoxy circuits. Additional
applications of the Company's products within the electronics industry include:
circuit board drying, BGA fabrication, epoxy curing, hybrid solder reflow,
polymer curing, and thick film drying.
Segments of the electronics industry served by the Company's products are:
computers and peripheral office equipment, test and measurement equipment,
telecommunications equipment, automotive electronics, consumer electronics,
medical electronics, and contract assembly.
Materials:
The Company continues to produce in-house all of its thermal source emitters
and cells. The Company currently has one source for its microprocessor which is
used to interface the onboard computer with the machine in the Command Control
system. Management believes that this microprocessor could be produced in-house
or obtained from another source. The Company has developed a new microprocessor
for its IsoTherm machines. Work is currently being done to upgrade the
microprocessor for use on the UNITHERM product line. This new microprocessor
will enable the Company to develop an alternative source for its microprocessor.
The other components being used in the assembly of systems produced by the
Company are purchased from original equipment manufacturers, electronic supply
firms and others. The Company has no reason to believe that it cannot continue
to obtain such components, or suitable substitutes, as required.
Patents and Trademarks:
The Company was issued a United States patent in January 1986 covering the
multi-zone thermal processing systems produced by the Company. A second patent
was issued in July 1986, on the source emitter panel produced by the Company.
Other patents cover the process for mounting surface mount devices to printed
circuit boards
4
<PAGE>
through the use of solder reflow, and an improved source emitter panel. The
Company has also filed foreign patent applications corresponding to the
foregoing United States patents where it has been deemed advisable. Several of
these foreign applications have been granted. The Company believes that the
patents on the ENVIROCLEAN product line and UNITHERM product line theoretically
strengthen its competitive position by enhancing marketability of these product
lines, and by serving as a barrier to new competitors in the field who could
otherwise develop similar technology.
With respect to the ENVIROCLEAN product line, the Company utilizes semi-
aqueous cleaning agents known as hydrocarbons. These compounds have a low flash
point which may create a hazard with hot circuit boards. The Company has a
patent on a fire-retardant system and on various interlock systems which reduce
the risk of fire/heat damage and enable safer utilization of the hydrocarbons in
the Company's cleaning systems. The Company also has a patent on a unique
oscillating spray nozzle system that is devised for the water systems. The
Company has three issued U.S. Patents and several pending applications worldwide
covering various aspects of the semi-aqueous and aqueous cleaning systems.
With respect to the UNITHERM product line, the patents cover both the heater
technology and the individual zone exhausts. The Company has an issued U.S.
Patent, as well as additional pending patent applications in the U.S. and
worldwide, covering its UNITHERM product line.
The Company at present does not license any of its technology to any
competitors or other non-affiliated entities.
The Company has U.S. and foreign trademark registrations for the trademark
VITRONICS, as well as a U.S. trademark registration for the VITRONICS LOGO,
UNITHERM and ENVIROCLEAN. The Company also uses unregistered trademarks for
IsoTherm, VITROSENSE, Natural Convection/Infrared, Controlled
Convection/Infrared, VITRO-FOIL, VITRO-CLEAN, AcroTherm, RadianTherm,
MagnaTherm, Tops, Polar Cooling and SELECTSeries.
Customers and Marketing:
The Company is involved in surface mount solder reflow with its patented
convection/infrared thermal technology. The Company has systems operating
successfully in most of the major contract and captive electronics companies
throughout the world. Such customers include:
Allied-Signal GM (Delco Div.) Raytheon
AT&T GTE SCI Systems
Avex Electronics Hughes Aircraft Scientific Atlanta
Bose IBM TRW
Chrysler Intergraph US Assemblies
Compaq Lockheed Martin Varian
Cray Research Motorola Xerox
DuPont Northern Telecom Zenith
General Electric Qualcomm
International customers of the Company include:
Compaq Lucas Phillips
L.M. Ericsson Mitsubishi Rank Xerox
Fujitsu Motorola Samsung
General Motors NEC Siemens
Goldstar Olivetti Texas Instruments
Hitachi Olympus Toshiba
5
<PAGE>
The Company's marketing and sales program includes: paid advertising, new
product announcements in industrial and commercial publications, direct mail
campaigns, technical articles, trade show exhibits, personal contacts and
trained sales representatives in the U.S., Canada, Southeast Asia, Europe, South
America, India and Israel.
The Company has 10 persons employed in its sales and marketing department,
including one person in both the West Coast and Central Regions, and two persons
in its U.K. direct sales organization. The Company also utilizes 22 independent
sales representative organizations located in the United States and Canada, and
25 independent distributor organizations overseas.
During 1995, one of the Company's customers accounted for 12% of net sales
($2,886,000) while another customer accounted for 10% ($2,451,000). During
1994, one of the Company's customers accounted for 15% of net sales
($2,544,000). None of the Company's customers accounted for 10% or more of its
net sales in 1993. The Company has no contracts that are subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of any government agency or unit. The Company's business is not
seasonal in any material respect.
OEM Supply Relationships--The Company has formed supply relationships with a
number of "Pick and Place" original equipment manufacturers. "Pick and place"
is the term used to describe the automated technology used to place components
on PCBs prior to attachment and soldering. In each of these relationships, the
Company's solder reflow systems are purchased by the OEM and resold as a package
with pick and place equipment as part of an in-line assembly system.
Backlog:
On December 31, 1995, the Company had purchase orders reflecting a backlog of
$2,847,000 as compared to a December 31, 1994 backlog of $2,589,000. The
backlog has increased as a result of the increased bookings activity seen during
the year. All of the backlog at December 31, 1995 is expected to be shipped
within the next six months. At present, most of its customers pay the Company
within 40 to 60 days of billing.
Competition:
Solder Reflow Systems--Both domestically and internationally, the Company
confronts competition from three primary competitors in the solder reflow
systems market. In addition, there are three lesser competitors selling systems
primarily in the United States' domestic market. In Europe, the Company
competes with companies based in Germany, France and the United Kingdom. The
Japanese market is dominated by three Japanese manufacturers that have focused
almost exclusively on that market. Asia (excluding Japan) has a mix of
competitors, none of which have significant market share on a worldwide basis.
Management of the Company believes that product performance, reliability and
cost of operation are the chief competitive factors in the market for solder
reflow products. The Company believes that its UNITHERM product line permits
the Company to retain a substantial market share in the solder reflow
marketplace.
The Company's solder reflow systems may also face competition from the
development of electrically conductive adhesives designed to eliminate the need
to solder components to PCBs. At this point in the development of conductive
adhesives, management believes that even if the adhesives are technologically
successful, they will require heat treatment or curing, and therefore they will
continue to represent a market for the Company's solder reflow technology. The
potential impact on the Company's semi-aqueous system business is uncertain, and
this business could be jeopardized.
Semi-Aqueous Cleaning Systems--The Company is in strong competition with three
primary competitors that manufacture semi-aqueous cleaning systems. Competition
is based on both price and performance consideration. Due to the relatively
large base of potential customers who have previously purchased the Company's
solder reflow systems, and the fact that the Company's semi-aqueous system was
the first such system to gain market acceptance,
6
<PAGE>
the Company believes it is favorably positioned to take advantage of any
potential rise in demand for environmentally friendly semi-aqueous cleaning
systems.
The Company's semi-aqueous cleaning technology, unlike the technology employed
by its three main competitors, utilizes a spray technique as opposed to an
immersion process. The Company believes that its spray technique is more
advanced and also gives the Company a cost advantage over its competitors.
The Company's semi-aqueous cleaning systems, which have been fully developed,
also face competition from the growing acceptance and utilization of "no clean"
solder pastes which produce minimal flux residue, thus reducing and potentially
eliminating the need for post-assembly PCB cleaning, and the emergence of
electrically-conductive adhesives. There can be no assurance that the
technology necessary to make and effectively use "no clean" solder pastes which
meet high reliability standards will not be developed. In this event, the
market for semi-aqueous cleaning systems could be substantially reduced.
Environmental Compliance:
Due to the nature of the Company's products, it has not been materially
affected by environmental laws. Management does not expect its capital
expenditures, earnings or competitive position to be materially affected in the
future.
Employees:
As of December 31, 1995, the Company employed 128 full-time persons.
Financial Information About Foreign and Domestic Operations and Export Sales:
During the year ended December 31, 1995, approximately $11,902,000 or 51% of
the Company's sales were foreign sales, primarily to European and Southeast
Asian companies. During the year ending December 31, 1994, approximately
$7,912,000 or 46% of the Company's sales were foreign sales, and $7,436,000 or
58% for the year ending December 31, 1993, were foreign sales. Other
information concerning foreign sales for the last three fiscal years is
presented in Note L to the Consolidated Financial Statements.
Item 2. Properties
The executive offices and principal place of business of the Company are
located at 1 Forbes Road, Newmarket Industrial Park, Newmarket, New Hampshire.
The Company leases two buildings, one 23,990 square foot facility for
administration and manufacturing, and one 9,400 square foot facility used
exclusively as a stockroom. The 23,990 square foot facility has a lease which
expires in February 1999, and the 9,400 square foot facility has a lease which
expires in January 1997. The Company has the option to purchase the 23,990
square foot property at the end of the lease period for $1,100,000. The
interior layout and leasehold improvements to the 23,990 square foot facility
were constructed to the Company's specifications for its use of the facilities.
The Company's wholly-owned subsidiary, Vitronics Europe Limited ("VEL"),
leases a 15,000 square foot manufacturing and distribution facility in Plymouth,
England. This lease expires in December 1998.
The Company believes that its current facilities are adequate for 1996
operations.
7
<PAGE>
Item 3. Legal Proceedings
The Company is currently involved in a patent litigation suit against a
competitor, Conceptronic, Inc. The Company commenced the suit in November 1991,
seeking an injunction and damages against Conceptronic for infringement of an
apparatus patent and a method patent, both of which are owned by the Company and
cover certain aspects of its solder reflow systems. The trial regarding this
dispute commenced on July 25, 1995 in the United States District Court for the
District of New Hampshire. On August 16, 1995, the Court directed a verdict of
non-infringement in favor of Conceptronic on the method patent, while the jury
rendered a verdict of non-infringement in favor of Conceptronic on the apparatus
patent. The Company does not expect the jury's verdict to have a negative
impact upon the Company's financial condition or results of operations. The
Company has appealed the directed verdict on the method patent. The Company is
unable to predict the outcome of this appeal process, but does not believe that
an adverse decision, however unlikely in the Company's view, will have a
material effect on the Company's financial condition or results of operation.
The Company intends to pursue all of its legal rights and remedies in connection
with this litigation, and believes that a favorable outcome may result in
certain licensing opportunities for the Company which could have a positive
impact on its financial condition and results of operations in the future.
Item 4. Submissions of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders through the solicitation of proxies
or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on the American Stock Exchange under the
trading symbol VTC. As of December 31, 1995, there were 10,311,863 shares of
common stock issued and outstanding held by 657 stockholders of record.
The following table presents high and low sales prices for the Company's
Common Stock for each fiscal quarter within the fiscal years ending December 31,
1995 and 1994.
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-------------------------- --------------------------- ------------------------- ---------------------------
High Low High Low High Low High Low
------------ ------------ ------------- ------------ ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1 3/16 5/8 15/16 5/8 1 5/8 1 13/16 11/16
1995 2 3/16 1 5/16 1 11/16 1 3/16 3 7/16 1 1/2 3 2 3/16
</TABLE>
As of March 21, 1996, the closing price for the Company's Common Stock was
2 1/4. Dividends are payable only when, and if, declared by the Board of
Directors from funds legally available and are dependent upon earnings, the
general financial status of the Company, and various other factors. The Company
has paid no dividends on its Common Stock and has no intention of doing so in
the near future.
8
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands except share amounts)
OPERATING DATA - YEAR ENDED
DECEMBER 31
Net sales $23,525 $17,346 $12,778 $12,373 $14,312
Income (loss) from continuing operations 2,775 602 (1,357) (2,965) (2,252)
Income (loss) per common share:
Primary .30 .08 (.18) (.70) (.57)
Fully diluted .27 .07 (.18) (.70) (.57)
Backlog 2,847 2,589 2,133 3,018 1,282
Weighted average number of common shares
outstanding:
Primary 9,168 7,739 7,379 4,216 3,929
Fully diluted 10,688 10,190 7,379 4,216 3,929
BALANCE SHEET DATA AT DECEMBER 31
Working capital $ 5,505 $ 2,676 $ 2,096 $ 1,729 $ 2,635
Total assets 10,246 6,052 4,796 6,755 9,620
Long-term liabilities 246 1,323 1,605 54 124
Stockholders' equity 5,904 1,728 999 2,382 4,265
</TABLE>
No dividends have been paid or declared by the Company.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations:
The following table provides percentage comparisons of the components of net
income (loss) as presented in the Consolidated Statements of Operations included
elsewhere herein for the last three fiscal years.
<TABLE>
<CAPTION>
% of Net Sales % Increase (Decrease)
---------------------------- --------------------------
Years Ending December 31, 1995 1994
---------------------------- Compared to Compared to
1995 1994 1993 1994 1993
-------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales 100% 100% 100% 36% 36%
Gross Profit 41 36 28 53 76
Selling, General & Administrative 23 23 26 36 22
Research & Development 6 6 7 35 17
Non-Recurring Charges - - 3 - -
Patent Litigation 1 2 1 (7) 160
</TABLE>
9
<PAGE>
Sales were $23,525,000 in 1995, an increase of 36% from $17,346,000 in 1994,
and $12,778,000 in 1993. Bookings for 1995 increased 34% to $23,783,000 from
$17,802,000 in 1994. Bookings for 1993 were $11,893,000. The Company's backlog
was $2,847,000 at December 31, 1995 versus $2,589,000 at December 31, 1994. The
increase was a result of a turnaround in the electronics industry, an increased
demand for the Company's products, and a recapture of market share lost in 1991
through 1993. During 1994, sales of semi-aqueous cleaners were very slow, while
sales of aqueous cleaners had slightly more activity. Despite the total
elimination of CFC production in 1995, the expected increased revenue from these
products has not yet materialized as expected and there can be no assurance that
these revenues will materialize.
Revenues from Asia decreased in 1994 by approximately $1 million, as compared
to 1993, due principally to the introduction of the UNITHERM product in Asia in
the first quarter of 1993. The product was scheduled for introduction in 1992,
and the resulting delay led to higher sales in 1993.
In 1995, gross profit percentage increased to 41% from 36% in 1994, primarily
due to significantly higher volume of sales, decreased material costs and
increased labor productivity, which was partially offset by increased
discounting. Steps were taken in the fourth quarter of 1993 to consolidate
manufacturing operations into one building in New Hampshire. This resulted in
substantial savings in 1994. Gross profit percentage in 1993 was 28%. The
Company increased its inventory reserves from $367,000 at the end of 1994 to
$760,000 at the end of 1995. Such increases were principally related to the
Company's production process and product line changes. As the Company made
changes in designs and processes, certain existing inventories were affected.
This change necessitated the rework of certain inventory items and the
obsolescence of other items. The Company increased its reserves for
obsolescence in recognition of these events.
Selling, general and administrative expenses increased in 1995 to $5,525,000
from $4,072,000 in 1994, an increase of 36%. However, as a percentage of sales,
selling, general administrative expenses remained at 23% in 1995 from 23% in
1994. Selling, general and administrative expenses were $3,338,000, or 26% of
net sales in 1993. The increase in actual spending is partially a result of the
increased sales volume which resulted in higher commission and marketing
expenses and increased staffing levels. The Company also incurred costs of
approximately $249,000 relating to the Registration Statement filed on Form S-3
and conversion of the Subordinated Convertible Debenture. The Company also
incurred approximately $109,000 of due diligence expenses relating to a
potential acquisition. After completion of the due diligence, the Board of
Directors decided not to pursue this acquisition. The Company incurred
advertising costs of $219,000 in 1995, $176,000 in 1994, and $147,000 in 1993.
Research and development expenses increased 35% to $1,363,000 in 1995 from
$1,010,000 in 1994. The increase was a result of increased headcount as the
Company accelerated the introduction of new products and enhanced features
during the year. Research and development expenses were $860,000 in 1993.
In 1993, the Company incurred $420,000 of non-recurring charges. The Company
wrote off restructuring charges of $290,000 relating to the consolidation of
manufacturing from two buildings into one building and the payment of severance
costs. The Company wrote off $130,000 of goodwill relating to the Gram
Corporation acquisition in 1988. During 1993 the Company's revenues from the
product line were diminishing and as such the asset had no value. Revenues from
the Gram product line were approximately $1,700,000 in 1992 and had decreased to
approximately $500,000 in 1993. The Company also believed that future sales of
this product would continue to decrease. The Company also wrote off $90,000
relating to a prior year foreign tax credit which was determined to be
unrealizable by the Company. This credit was for the Company's United Kingdom
subsidiary, which had losses in 1991, 1992 and 1993.
Costs relating to the Company's patent infringement lawsuit against
Conceptronic were $308,000 for 1995, $330,000 for 1994, and $127,000 for 1993.
With the conclusion of the Conceptronic trial in August 1995, and a verdict
rendered for the defendant, the Company does not anticipate that additional
costs relating to the appeal process will be significant until such time as an
appeal may be granted, which will be approximately 1 - 1 1/2 years from the
date the appeal was filed.
10
<PAGE>
The Company had net non-operating expenses of $132,000 in 1995 compared to
$171,000 in 1994 and $105,000 for 1993. The Company, as part of a planned
program to generate cash, sold a number of its demo machines, in either
inventory or fixed assets, and realized a gain of $85,000 in 1994, versus
$42,000 in 1993. The Company also incurred $39,000 of cash discounts in 1995
versus $61,000 in 1994, and $86,000 in 1993. The Company incurred interest
expense of $118,000 in 1995 compared to $189,000 in 1994 and $114,000 in 1993.
The decrease in 1995 is primarily attributable to the conversion of the
Subordinated Convertible Debenture in August 1995. The Company had interest
income of $58,000 in 1995 compared to $10,000 in 1994 and $6,000 in 1993. This
increase was a result of the Company's higher cash balances during 1995 versus
1994 and 1993.
The Company had a net tax benefit during 1995 of $573,000 as compared to tax
expense of $25,000 and $37,000 during 1994 and 1993, respectively. The tax
benefit was a result of a change in the Company's valuation allowance reserve,
after current year utilization, of $723,000. This tax benefit was offset by
current year tax payable of $150,000. The Company reduced its valuation
allowance reserve because it is more likely than not that their favorable tax
attributes will be realized.
Liquidity and Capital Resources:
During the last three fiscal years, the Company has financed its operations
with internally generated funds, capital leases and a $1,200,000 Subordinated
Convertible Loan in 1993. The Subordinated Convertible Debenture was converted
into 2,400,000 shares of common stock in August 1995. In addition, during
January 1994, the Company pledged receivables and received a $350,000 loan from
New England Growth Fund I, L.P. This loan was repaid in full on March 31, 1994.
During 1995, cash increased by $2,154,000 as a result of the improved operation
of the Company. In 1994, cash increased by $499,000 as a result of the improved
operation of the Company. During 1994, the Company reduced its long-term debt
by approximately $447,000. During 1993, cash decreased by $1,084,000 as the
Company paid off its bank loan by approximately $684,000 and reduced its accrued
liabilities by $600,000. During 1995 and 1993, there were no short-term
borrowings.
The Company has reviewed its capital spending budget for 1996 and expects to
finance its 1996 capital equipment acquisitions through lease financing. The
Company continues to monitor its operational spending levels very closely in
order to conserve cash. In March 1995, the Company obtained a $500,000
revolving line of credit with First National Bank of Portsmouth. To date, the
Company has not utilized this line of credit. The Company believes that its
current cash balances and cash from operations will be adequate to meet the
Company's working capital requirements during the next year.
On February 8, 1996, the Company announced that its Board of Directors
authorized the repurchase of up to five percent of its common stock, or
approximately 500,000 shares. Depending on business conditions, stock market
conditions, price per share and other factors, the Company will repurchase
shares in open market transactions. If the Company were to repurchase the
entire 500,000 shares at current prices per share, the cost of the repurchase
could be $1,250,000 and would be funded through the Company's cash balances. As
of March 21, 1996, the Company has not repurchased any shares.
Item 8. Financial Statements and Supplementary Data
The Company's financial statements, together with the reports of the Company's
independent auditors, Coopers & Lybrand L.L.P., are contained on pages 16
through 33 of the 1995 Form 10-K.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None
11
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The response to this item is incorporated herein by reference to the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be held on
May 2, 1996.
Item 11. Executive Compensation
The response to this item is incorporated herein by reference to the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be held on
May 2, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The response to this item is incorporated herein by reference to the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be held on
May 2, 1996.
Item 13. Certain Relationships and Related Transactions
The response to this item is incorporated herein by reference to the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be held on
May 2, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page No.
--------
(a.) 1. The following consolidated financial statements are
filed as part of this report:
Report of Coopers & Lybrand L.L.P., Independent Auditors,
dated February 22, 1996 16
Consolidated Balance Sheets at December 31, 1995 and 1994 17
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1995 18
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended December 31, 1995 19
Consolidated Statements of Cash Flow for each of the
three years in the period ended December 31, 1995 20
Notes to Consolidated Financial Statements for each of
the three years in the period ended December 31, 1995 21
12
<PAGE>
2. THE FOLLOWING FINANCIAL STATEMENT SCHEDULE IS FILED WITH THIS REPORT:
Schedule II-Valuation and Qualifying Accounts
All other schedules have been omitted because they are not
applicable, not required under the instructions, or the
information is contained in the financial statements or the
notes thereto.
3. THE FOLLOWING EXHIBITS REQUIRED BY ITEM 601 REGULATION S-K ARE FILED
WITH THIS REPORT:
<TABLE>
<CAPTION>
Exhibit Index Page No.
------------- --------
<S> <C> <C>
3.1 Articles of Organization, as amended to date (1)
3.2 By-Laws, as amended to date (11)
4.1 Specimen Common Stock Certificate (2)
*10.1 Incentive Stock Option Plan of 1983 (3)
*10.2 Incentive Stock Option Plan of 1983-II (3)
*10.3 Form of Incentive Stock Option Agreement for 1983 Plan and the 1983-II Plan (3)
10.4 Lease of Real Property from Susan J. Conway, Trustee of Forbes Realty Trust (2)
*10.5 1987 Stock Option Plan (5)
10.6 Form of Non-Qualified Stock Option Agreement (5)
10.7 Building Agreement and Lease of Premises at Bush Park, Estover, Plymouth from The Counsel
of the City of Plymouth (5)
10.8 Lloyd's Bank Loan Agreement (5)
10.9 Department of Trade and Industry Grant (5)
10.10 Lease of Real Property from Susan J. Conway, Trustee of Afton Realty Trust (6)
*10.11 Lease Amendments of Real Property from Susan J. Conway, Trustee of Forbes Realty Trust (7)
*10.12 Employment Agreement with James J. Manfield, Jr. (9) (As Amended) 35
*10.13 Employment Agreement with Albert J. Chanasyk (9)
10.14 Employment Agreement by and between Peter D. Spilling and Vitronics Europe Limited (8)
*10.15 Employment Agreement with Ronald W. Lawler (10) (As Amended) 38
10.16 Amendment to Lease between Forbes Realty Trust and Vitronics Corporation (11)
10.17 $350,000 Demand Promissory Note of the Company issued to NEGF dated January 13, 1994 (11)
10.18 Loan Agreement between the Company and NEGF dated January 13, 1994 (11)
10.19 Security Agreement between the Company and NEGF dated January 13, 1994 (11)
*10.20 1995 Key Employees Stock Option Plan (12)
10.21 Business Loan Agreement between the Company and First National Bank of Portsmouth dated
March 22, 1995 (13)
10.22 Promissory Note of the Company to First National Bank of Portsmouth dated March 22, 1995 (13)
10.23 Commercial Security Agreement between the Company and First National Bank of Portsmouth
dated March 22, 1995 (13)
11.1 Calculation of Net Income Per Common Share 33
21.1 Subsidiaries of the registrant 34
23.1 Consent of Coopers & Lybrand L.L.P.
99.1 Directors and Officers Liability Policy and Company reimbursement (4)
99.2 Complaint regarding Conceptronic Patent Litigation (9)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index Page No.
------------- --------
<S> <C> <C>
99.3 Conceptronic's response to the Complaint (9)
99.4 Conceptronic's Counterclaim (9)
99.5 Vitronics' response to Conceptronic's Counterclaim (9)
99.6 Order of the United States District Court concerning Conceptronic Patent Litigation (8)
99.7 Correspondence concerning the Vitronics Europe Limited lease (8)
99.8 Conceptronic's Counterclaim Summary Judgment (11)
99.9 Jury verdict in favor of Conceptronic Inc. (14)
</TABLE>
(1) Articles of Amendment filed on August 17, 1987 are hereby incorporated by
reference from Exhibits to Annual Report on Form 10-K (File No. 0-13715)
filed by the Company with the Securities and Exchange Commission on
March 31, 1988. The balance of Exhibit 3.1 is hereby incorporated by
reference from Exhibits to Amendment No. 1 to Form S-18 Registration
Statement (File No. 2-90042) filed by the Company with the Securities and
Exchange Commission on August 1, 1984.
(2) Exhibits 4.1 and 10.4 are incorporated by reference from Exhibits to
Annual Report on Form 10-K (File No. 2-90042) filed by the Company with
the Securities and Exchange Commission on April 1, 1985.
(3) Exhibits 10.1, 10.2 and 10.3 are hereby incorporated by reference from
Exhibits to Form S-18 Registration Statement (File No. 2-90042) filed by
the Company with the Securities and Exchange Commission on March 20,
1984.
(4) Exhibit 99.1 is hereby incorporated by reference from Exhibits to Post-
Effective Amendment No. 1 to Form S-18 Registration Statement (File No.
2-90042) filed by the Company with the Securities and Exchange
Commission on May 10, 1985.
(5) Exhibits 10.5, 10.6, 10.7, 10.8 and 10.9 are hereby incorporated by
reference from Exhibits to Annual Report on Form 10-K (File No. 0-13715)
filed by the Company with Securities and Exchange Commission on March 31,
1988.
(6) Exhibit 10.10 is hereby incorporated by reference from Exhibits to Annual
Reports on Form 10-K (File No. 0-13715) filed by the Company with the
Securities and Exchange Commission on March 24, 1989.
(7) Exhibit 10.11 is hereby incorporated by reference from Exhibits to Annual
Report on Form 10-K (File No. 0-13715) filed by the Company with the
Securities and Exchange Commission on April 2, 1990.
(8) Exhibits 10.14, 99.6 and 99.7 are hereby incorporated by reference to
Exhibits to Form S-2 Registration Statement (File No. 33-50928) filed by
the Company with the Securities and Exchange Commission on August 17,
1992.
(9) Exhibits 10.12, 10.13, 99.2, 99.3, 99.4 and 99.5 are hereby incorporated
by reference from Exhibits to Annual Report on Form 10-K (File No.
0-13715) filed by the Company with the Securities and Exchange Commission
on March 27, 1992.
(10) Exhibit 10.15 is hereby incorporated by reference from Exhibits to Annual
Report on Form 10-K (File No. 0-13715) filed by the Company with the
Securities and Exchange Commission on March 26, 1993.
(11) Exhibits 3.2, 10.16, 10.17, 10.18, 10.19 and 99.8 are hereby incorporated
by reference from Exhibits to Annual Report on Form 10-K (File No.
0-13715) filed by the Company with the Securities and Exchange Commission
on April 13, 1994.
(12) Exhibit 10.20 is hereby incorporated by reference to the Company's Proxy
Statement for the 1995 Annual Meeting of Stockholders dated April 3,
1995.
(13) Exhibits 10.21, 10.22, 10.23 are hereby incorporated by reference from
Exhibits to Quarterly Report on Form 10-Q (File No. 0-13715) for the
quarterly period ended April 1, 1995.
(14) Exhibit 99.9 is hereby incorporated by reference from Exhibits to the
Company's Form 8-K dated August 11, 1995.
* Management compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K
No Reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
14
<PAGE>
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.
(REGISTRANT) VITRONICS CORPORATION
Date: March 25, 1996 By: /S/ JAMES J. MANFIELD, JR.
---------------------------------
JAMES J. MANFIELD, JR.
Chairman of the Board and
Chief Executive Officer
Date: March 25, 1996 By: /S/ RONALD W. LAWLER
---------------------------------
RONALD W. LAWLER
President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 25, 1996 By: /S/ JAMES J. MANFIELD, JR.
----------------------------------
JAMES J. MANFIELD, JR.
Chairman of the Board and
Chief Executive Officer
Chief Financial Officer and Treasurer
Date: March 25, 1996 By: /S/ DANIEL J. SULLIVAN
---------------------------------
DANIEL J. SULLIVAN
Vice President, Corporate Controller
and Principal Accounting Officer
Signatures Date
---------- -----
/S/ JAMES J. MANFIELD, JR. March 25, 1996
- ----------------------------------
JAMES J. MANFIELD, JR.
/S/ RONALD W. LAWLER March 25, 1996
- ----------------------------------
RONALD W. LAWLER
/S/ DR. ALLEN H. KEOUGH March 25, 1996
- ----------------------------------
DR. ALLEN H. KEOUGH
/S/ DAVID R.A. STEADMAN March 25, 1996
- ----------------------------------
DAVID R.A. STEADMAN
/S/ JAMES R. KANELY March 25, 1996
- ----------------------------------
JAMES R. KANELY
15
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Vitronics Corporation and Subsidiary:
We have audited the consolidated financial statements and the financial
statement schedule of Vitronics Corporation and Subsidiary listed in Items
14(a)(1) and (2) of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Vitronics
Corporation and Subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 22, 1996
16
<PAGE>
VITRONICS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
December 31
------------------
ASSETS 1995 1994
-------- --------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,825 $ 671
Accounts receivable - less allowance for
doubtful accounts of $128 and $100 3,384 2,723
Inventories 2,650 2,094
Deferred taxes 548 --
Other current assets 194 189
--------- --------
TOTAL CURRENT ASSETS 9,601 5,677
PROPERTY AND EQUIPMENT 402 223
DEFERRED TAXES 175 --
OTHER ASSETS 68 152
--------- --------
$10,246 $ 6,052
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,978 $ 1,751
Income taxes payable 69 --
Other current liabilities 1,899 945
Current maturities of long-term liabilities 150 305
--------- --------
TOTAL CURRENT LIABILITIES 4,096 3,001
--------- --------
LONG TERM LIABILITIES - net of current maturities 246 1,323
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common Stock, $.01 par value:
Authorized 20,000,000 shares; issued and
outstanding 10,311,863 and 7,550,538 103 76
Additional paid-in capital 6,793 5,401
Foreign currency translation adjustment (202) (184)
Accumulated deficit (790) (3,565)
--------- --------
5,904 1,728
--------- --------
$10,246 $ 6,052
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
VITRONICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 23,525 $ 17,346 $ 12,778
Costs of goods sold 13,995 11,136 9,248
---------- ---------- ----------
Gross profit 9,530 6,210 3,530
---------- ---------- ----------
Selling, general and administrative 5,525 4,072 3,338
expenses
Research and development costs 1,363 1,010 860
Non-recurring charges -- -- 429
Patent litigation 308 330 127
---------- ---------- ----------
7,196 5,412 4,745
---------- ---------- ----------
Income (loss) from operations 2,334 798 1,215
Non-operating expense - net 132 171 105
---------- ---------- ----------
Income (loss) before taxes 2,202 627 (1,320)
Income taxes (credit) (573) 25 37
---------- ---------- ----------
Net income (loss) $ 2,775 $ 602 $ (1,357)
========== ========== ==========
Income (loss) per common share:
Primary $ .30 $ .08 $ (.18)
========== ========== ==========
Fully diluted $ .27 $ .07 $ (.18)
========== ========== ==========
Weighted average number of common and common equivalent
shares used in calculation of earnings per common share:
Primary 9,168,000 7,739,000 7,379,000
========== ========== ==========
Fully diluted 10,688,000 10,190,000 7,379,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
VITRONICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Foreign
Common Stock Additional currency
paid-in translation Retained
Shares Amount capital adjustment earnings Total
------ ------ ----------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, Dec 31, 1992 7,378,538 $ 74 $5,329 $(211) $(2,810) $ 2,382
Foreign currency translation
adjustment -- -- -- (8) -- (8)
Additional cost related to rights
offering -- -- (18) -- -- (18)
Net loss -- -- -- -- (1,357) (1,357)
------------------------------------------------------------------------
Balances, December 31, 1993 7,378,538 74 5,311 (219) (4,167) 999
Exercise of stock options 30,000 1 20 -- -- 21
Conversion of debt to equity 142,000 1 70 -- -- 71
Foreign currency translation
adjustment -- -- -- 35 -- 35
Net income -- -- -- -- 602 602
------------------------------------------------------------------------
Balances, December 31, 1994 7,550,538 $ 76 $5,401 $(184) $(3,565) $ 1,728
Exercise of stock options 15,100 -- 11 -- -- 11
Conversion of Debenture (see note F) 2,400,000 24 1,176 -- -- 1,200
Foreign currency translation
adjustment -- -- -- (18) -- (18)
Exercise of stock warrants 346,225 3 205 -- -- 208
Net income -- -- -- -- 2,775 2,775
------------------------------------------------------------------------
10,311,863 $103 $6,793 $(202) $ (790) $ 5,904
=======================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated statements.
19
<PAGE>
VITRONICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash Flow From Operating Activities:
Net income(loss) $ 2,775 $ 602 $(1,357)
------- ------- -------
Adjustments to reconcile net loss to
net cash provided by (used for)
operating activities:
Depreciation and amortization 282 192 279
Gain on sale of assets -- -- (42)
Provision for excess and obsolescence 565 297 48
Provision for bad debts 59 1 12
Writedown of non-current marketable
equity securities -- -- 130
Changes in current assets and
liabilities:
Accounts receivable (720) (1,028) 282
Inventories (1,121) (232) 49
Other current assets (5) 52 96
Accounts payable 227 725 (90)
Income taxes 69 20 189
Deferred taxes (723) -- --
Other current liabilities 954 249 (614)
------- ------- -------
Total adjustments (413) 276 339
------- ------- -------
Net cash provided by (used for)
operating activities 2,362 878 (1,018)
------- ------- -------
Cash Flows From Investing Activities:
Additions to property and equipment (115) (32) (65)
Disposals of property and equipment 6 2 74
Additions to other assets (68) (29) (177)
------- ------- -------
Net cash (used for) investing activities (177) (59) (168)
------- ------- -------
Cash Flows From Financing Activities:
Long-term borrowing -- -- 1,200
Issuance of common stock 219 21 --
Principal payments under long-term debt
and capital lease obligations (232) (376) (1,072)
Rights offering -- -- (18)
------- ------- -------
Net cash provided by (used for)
financing activities (13) (355) 110
Foreign currency translation adjustment (18) 35 (8)
------- ------- -------
Cash and Cash Equivalents:
Net increase (decrease) 2,154 499 (1,084)
Balance, beginning of year 671 172 1,256
------- ------- -------
Balance, end of year $ 2,825 $ 671 $ 172
======= ======= =======
Supplemental Disclosure of Non-Cash
Investing and Financing Activities:
Conversion of debt to equity $ 1,200 $ 71 --
Capital lease obligations 200 -- --
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the periods for:
Interest $ 118 $ 189 $ 114
Income taxes 97 25 37
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
VITRONICS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is engaged in designing, engineering, manufacturing and marketing
state-of-the-art thermal processing systems for soldering surface mount devices
to printed circuit boards and cleaning of the finished assembly. The Company's
customers are captive and contract manufacturers of medium to high reliability
printed circuit boards. The primary market for the Company's products is the
electronics industry, where the systems are used in the production of printed
circuit boards, ceramic hybrid semiconductor packages and glass/epoxy circuits.
Segments of the electronics industry served by the Company's products are:
computer and peripheral office equipment, test and measurement equipment,
telecommunications equipment, medical electronics and contract assembly. The
Company sells and markets its products on a worldwide basis, with approximately
50% of its revenue being to foreign countries, primarily Europe and Southeast
Asia. The significant accounting policies employed are as follows:
Principles of Consolidation--
The consolidated financial statements include the accounts of the Company and
its wholly-owned foreign subsidiary, Vitronics Europe Ltd., located in the
United Kingdom. All significant intercompany balances, transactions and profits
have been eliminated.
Cash Equivalents--
The Company considers all highly-liquid debt instruments with a maturity of
three months or less, at the time of purchase, to be cash equivalents. At
December 31, 1995 and December 31, 1994, the Company had approximately
$1,886,000 and $623,000 respectively, on deposit at one bank.
Inventories--
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Provision is made for excess or obsolete inventory and other inventory
valuation concerns in the period in which such matters are identified. The
Company classifies its demo machines as finished goods and amortizes the cost
over three years. This amortization is included in inventory reserves.
Property and Equipment--
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the applicable
assets. Expenditures for maintenance and repairs are charged to expense as
incurred, whereas expenditures for renewals and betterments are capitalized.
Upon sale or other disposition of assets, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in income.
21
<PAGE>
The estimated useful lives used to compute depreciation are as follows:
<TABLE>
<CAPTION>
Description Years
----------- -----
<S> <C>
Machinery and equipment 3-8
Furniture and fixtures 5-8
</TABLE>
Other Assets--
Included in other assets are patents and debenture costs associated with the
issuance of long-term debt. Patents and debenture costs are being amortized on
the straight-line method over their estimated useful lives ranging from three to
seven years.
Foreign Currency Translation--
All assets and liabilities of the Company's United Kingdom subsidiary are
translated at exchange rates in effect at each respective balance sheet date
(December 31, 1995 and December 31, 1994). Income and expenses are translated
at average rates for the year. The resulting differences, due to changing
exchange rates, are charged or credited to the cumulative translation adjustment
included as part of Stockholders' Equity. Gains and losses from foreign
currency transactions are included in earnings. Included in other expenses were
losses of $13,000 and $14,000 for the years ended December 31, 1995 and December
31, 1994 respectively.
Revenue Recognition--
Revenue is recorded upon shipment to the customer.
Research and Development Costs--
All research and development costs are charged to operations as incurred.
Warranties--
The Company's products are generally under warranty against defects in
material and workmanship for a one year period. Estimated warranty costs are
accrued in the same period as products are shipped.
Income taxes--
The Company has adopted the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS 109). SFAS 109 is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences,
SFAS 109 generally considers all expected future events other than future
enactments of changes in the tax law or rates. Deferred tax assets are
recognized, net of any valuation allowance, for deductible temporary differences
and operating loss and credit carryforwards. Deferred tax expense represents
the change in the deferred tax assets and liabilities.
22
<PAGE>
Stock Options--
The Company intends to adopt the disclosure provisions Statement of Financial
Accounting Standards Number 123, Accounting for Stock Based Compensation (SFAS
123) effective January 1, 1996, as allowed by SFAS 123.
Income (Loss) Per Common Share--
The income (loss) per share is based on the weighted average number of
common and common equivalent shares (where dilutive) outstanding during the
year.
Pervasiveness of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification--
Certain 1994 and 1993 balances have been reclassified in order to conform
to the 1995 presentation.
B. SUBSEQUENT EVENT
Treasury Stock Repurchase--
On February 8, 1996, the Board of Directors authorized the repurchase of 5
percent, or approximately 500,000 shares of the Company's Common Stock. As of
March 9, 1996, the Company has not repurchased any shares. The Company may
repurchase shares depending on market price, stock market condition, business
conditions, and other factors.
C. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
December 31
--------------
1995 1994
------ ------
<S> <C> <C>
Finished goods $ 498 $ 224
Work in process 926 369
Raw material 1,226 1,501
------ ------
$2,650 $2,094
====== ======
</TABLE>
The above amounts are net of inventory reserves amounting to $760,000 and
$367,000 at December 31, 1995 and 1994, respectively.
23
<PAGE>
D. PROPERTY AND EQUIPMENT
Property and equipment consisted of (in thousands):
<TABLE>
<CAPTION>
December 31
--------------
1995 1994
------ ------
<S> <C> <C>
Machinery and equipment $ 936 $ 958
Machinery and equipment under capital
lease 200 --
Furniture and fixtures 412 393
Leasehold 455 428
------ ------
$2,003 $1,779
Less accumulated depreciation and
amortization 1,601 1,556
------ ------
$ 402 $ 223
====== ======
</TABLE>
E. OTHER ASSETS
Other assets consisted of (in thousands):
<TABLE>
<CAPTION>
December 31
------------
1995 1994
----- -----
<S> <C> <C>
Patents $ 296 $ 229
Debenture costs -- 155
----- -----
296 384
Less accumulated amortization 228 232
----- -----
$ 68 $ 152
===== =====
</TABLE>
During 1995, the Company expensed the remaining balance of the debenture costs
($97,000) when the Subordinated Convertible Debenture was converted to common
stock.
The Company also capitalized additional patent expenses of $68,000 during the
year. These costs relate to patents applied for on the Company's line of solder
reflow ovens.
F. OTHER CURRENT LIABILITIES
Other current liabilities consisted of (in thousands):
<TABLE>
<CAPTION>
December 31
-------------
1995 1994
------ -----
<S> <C> <C>
Accrued sales commissions $ 485 $ 283
Accrued payroll and related taxes 551 239
Accrued warranty costs 197 155
Customer deposits 283 25
Other 383 243
------ -----
$1,899 $ 945
====== =====
</TABLE>
24
<PAGE>
G. INDEBTEDNESS
Long-term liabilities consisted of (in thousands):
<TABLE>
<CAPTION>
December 31
-------------
1995 1994
----- ------
<S> <C> <C>
U.K. term loan, interest at bank base
rate plus 3% $ 163 $ 220
Notes payable, primarily to vendors,
interest ranging from 0%-12% 47 204
Subordinated Convertible Debenture
interest at 10% -- 1,200
Capital lease obligation interest rate
ranging from 9.9% to 22% 186 --
Unamortized government grants -- 4
----- ------
396 1,628
Less current maturities 150 305
----- ------
Total long-term liabilities--net of
current maturities $ 246 $1,323
===== ======
</TABLE>
On October 1, 1993, the Company received $1,200,000 from an investment fund.
This was a Convertible Subordinated Debenture with an interest rate of 10%
convertible into 2,400,000 shares of Vitronics' common stock. The $1,200,000
Subordinated Convertible Debenture was converted into 2,400,000 shares of the
Company's common stock at a conversion price of $.50 per share on August 11,
1995.
In March 1995, the Company obtained a $500,000 revolving line of credit with
First National Bank of Portsmouth. As of December 31, 1995, nothing had been
drawn against this line. This line of credit is collateralized by the Company's
U.S. receivables and U.S. inventory. The Company is also required to maintain a
minimum debt service coverage of 1.2, a minimum net worth of no less than
$2,550,000, and maintain a ratio of current assets to current liabilities of no
less than 1.7. As of December 31, 1995, the Company was not in violation of any
loan covenants.
Borrowings under the U.K. term loan are collateralized by substantially all of
the assets of VEL, the Company's United Kingdom subsidiary and guaranteed by the
Company. The interest rate was 9.75% at December 31, 1995, and 9% at December
31, 1994. At December 31, 1995 and December 31, 1994, this has been classified
as long-term debt. The final payments on this debt are due in August 1997.
In 1993, approximately $365,000 of accounts payable were converted to long-
term Notes Payable. As of December 31, 1995, approximately $47,000 of such
Notes Payable remain outstanding and are due at the end of 1996.
The Company finances some of its capital equipment acquisitions through lease
financing. During 1995, the Company entered into capital leases totaling
approximately $200,000.
As of December 31, 1995, aggregate maturities of long-term liabilities were as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 $150
1997 159
1998 49
1999 38
----
$396
====
</TABLE>
25
<PAGE>
Based on the borrowing rates currently available to the Company for bank loans
with similar terms and average maturities, the fair value of the Company's U.K.
term loan as of December 31, 1995 and December 31, 1994 approximated carrying
value.
H. INCOME TAXES
The provision (benefit) for income taxes includes federal, state and foreign
income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities.
The provision (benefit) for income taxes consisted of (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994
------ -----
<S> <C> <C>
Currently payable (refundable)
Federal $ 40 $ --
Foreign -- --
State 110 25
------ -----
150 25
------ -----
Deferred (prepaid):
Federal (698) --
Foreign (25) --
State -- --
------ -----
Total Deferred (723) 0
$(573) $ 25
====== =====
</TABLE>
Reconciliation of income taxes at the statutory rate to the effective rate
reflected in the financial statements were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994
----- -----
<S> <C> <C>
Statutory income tax rate 34.0% 34.0%
Net losses without tax benefit -- --
Utilization of prior years tax benefits (32.1%) (34.0%)
Reduction of valuation allowance (32.8%) --
Goodwill amortization -- --
Foreign taxes -- --
State taxes net of Federal benefit 3.6% 2.8%
Other 1.3% 1.4%
----- -----
(26.0%) 4.2%
===== =====
</TABLE>
26
<PAGE>
The 1993 foreign deferred tax provision represents an adjustment of prior year
amounts. The components of the net deferred assets and liabilities were as
follows ( in thousands):
<TABLE>
<CAPTION>
December 31
----------------
1995 1994
----- -------
<S> <C> <C>
Deferred Tax assets:
Inventory reserves $ 242 $ 127
Accounts receivable reserves 43 40
Other liabilities and reserves 79 62
Depreciation and amortization 175 147
Capital loss carryforwards 160 160
Net operating loss carryforwards 109 1,168
Research and development credits 75 155
----- -------
Total deferred tax asset 883 1,859
Valuation allowance (160) (1,859)
----- -------
Net deferred tax assets $ 723 $ --
===== =======
</TABLE>
The Company currently has net operating loss and capital loss carryforwards
for federal and foreign income tax purposes of approximately $320,000 and R&D
credits of approximately $75,000, all expiring in the years 2007 and 2008.
There are also capital loss carryforwards of $470,000 which will expire in 1997.
The Company has maintained a valuation of $160,000 due to the uncertainty
surrounding the ultimate utilization of these losses. The valuation allowance
reserve has been reduced by a net $723,000 (after current year utilization)
because it is more likely than not that these favorable tax attributes will be
realized.
I. COMMITMENTS
The Company leases its facilities and certain equipment under operating leases
ranging up to five years with renewal and purchase options. The leases provide
for monthly rental payments, plus, in certain situations, payments for real
estate taxes, insurance and maintenance. Rental expense for property, machinery
and equipment charged to operations was $427,000, $372,000 and $463,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
At December 31, 1995, future minimum payments applicable to non-cancelable
operating leases with initial terms of one year or more were as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 $414
1997 281
1998 217
1999 11
----
$923
====
</TABLE>
The Company is currently involved in a patent litigation suit against a
competitor, Conceptronic, Inc. The Company commenced the suit in November 1991,
seeking an injunction and damages against Conceptronic for infringement of an
apparatus patent and a method patent, both of which are owned by the Company and
cover certain aspects of its solder reflow systems. The trial regarding this
dispute commenced on July 25, 1995 in the United States District Court for the
District of New Hampshire. On August 16, 1995, the court directed a verdict of
non-infringement in favor of Conceptronic on the method patent, while the jury
rendered a verdict on non-infringement in favor of Conceptronic on the apparatus
patent. The Company does not expect the jury's verdict to have a negative
impact upon the Company's financial condition or results of operations. The
Company is unable to
27
<PAGE>
predict the outcome of this appeal process, but does not believe that an adverse
decision, however unlikely in the Company's view, will have a material effect on
the Company's financial condition or results of operation. The Company intends
to pursue all of its legal rights and remedies in connection with this
litigation, and believes that a favorable outcome may result in certain
licensing opportunities for the Company which could have a positive impact on
its financial condition and results of operations in the future.
The Company, in the normal course of business, is involved in various other
legal proceedings, that in the opinion of management, will not have a material
effect on the Company's financial conditions or results of operations.
J. STOCK OPTIONS
Stock Option Plans--
The Company has Stock Option Plans which allow for the granting of options to
employees, officers, directors and consultants to purchase an aggregate of
1,300,000 shares of the Company's common stock. The Stock Option Committee may
issue options which are exercisable over a period not to exceed ten years and
vest from date of issuance up to five years. The following schedule summarizes
the stock option activity during the three years ending December 31, 1995:
<TABLE>
<CAPTION>
Number
of Option price
Shares per share
--------- -----------------
<S> <C> <C>
Balance, December 31, 1992 630,450 $ .5625 to $1.875
Granted in 1993 200,500 $.84
Expired/Canceled in 1993 (46,350) $ .5625 to $ 1.75
---------
Balance, December 31, 1993 784,600 $ .5625 to $1.875
---------
Granted in 1994 324,000 $ .01 to $1.3125
Expired/Canceled in 1994 (155,800) $ .5625 to $1.875
Exercised in 1994 (30,000) $.01
---------
Balance, December 31, 1994 922,800 $ .5625 to $1.75
---------
Granted in 1995 179,500 $1.5938 to $2.375
Expired/Canceled in 1995 (53,700) $ .5625 to $1.875
Exercised in 1995 (15,100) $ .5625 to $1.25
---------
Balance, December 31, 1995 1,033,500 $ .5625 to $2.375
=========
</TABLE>
Options to purchase 247,000 shares and 56,500 shares were available to be
granted under these plans as of December 31, 1995 and 1994, respectively. When
options under these plans are canceled, they may be granted again at a later
date. Options to purchase 567,140 shares at prices ranging from $.5625 to
$2.3438 per share were exercisable as of December 31, 1995, and options to
purchase 409,900 shares at prices ranging from $.5625 to $1.75 were exercisable
as of December 31, 1994. The Company has reserved 1,280,500 and 979,300 shares
of common stock as of December 31, 1995 and December 31, 1994, respectively, for
these plans.
In addition, as of December 31, 1994, the Company had 346,225 outstanding
stock warrants to purchase the Common Stock of the Company at an exercise price
of $.60. During 1995, all 346,225 outstanding stock warrants were exercised.
The Company intends to adopt the disclosure provisions of Statement of
Financial Accounting Standards, Number 123, Accounting for Stock Based
Compensation effective January 1, 1996.
28
<PAGE>
K. NON-OPERATING EXPENSE (INCOME)--NET
Non-operating expense (income)--net consisted of (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Interest income (58) (10) (6)
Interest expense 118 189 114
Gain on sale of assets -- (85) (42)
Other, net 72 77 39
----- ----- -----
$ 132 $ 171 $ 105
===== ===== =====
</TABLE>
L. FOREIGN OPERATIONS
The Company operates in one industry segment. Data by geographic area was
as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Foreign revenues:
Asia $ 6,087 $ 4,974 $ 5,895
Europe 5,154 2,663 1,541
Other 661 275 --
------- ------- -------
$11,902 $ 7,912 $ 7,436
======= ======= =======
Revenues by manufacturing operations:
United States $18,946 $14,257 $10,596
United Kingdom 5,804 3,705 2,645
------- ------- -------
24,750 17,962 $13,241
------- ------- -------
Less intracompany transfers:
Net Revenues (1,225) (616) (463)
------- ------- -------
$23,525 $17,346 $12,778
======= ======= =======
Income (loss) from operations:
United States $ 1,615 $ 534 $ (993)
United Kingdom 719 264 (222)
------- ------- -------
2,334 $ 798 $(1,215)
======= ======= =======
Identifiable assets:
United States $ 7,559 $ 4,614 $ 3,758
United Kingdom 2,687 1,438 1,038
------- ------- -------
$10,246 $ 6,052 $ 4,796
======= ======= =======
</TABLE>
With respect to foreign revenues, unaffiliated revenues from customers in the
United Kingdom were approximately $3,155,000 or 13% of net revenues.
29
<PAGE>
M. MAJOR CUSTOMERS
During 1995, one customer accounted for 12% of net sales. Accounts receivable
from the customer at December 31, 1995 amounted to $729,679. Another customer
accounted for 10% of net sales during 1995. This customer accounts receivable
balance at December 31, 1995 amounted to $68,619.
During 1994, one customer accounted for 15% of net sales. Accounts receivable
from this customer at December 31, 1994 amounted to $254,934.
N. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) Plan and a defined Contribution Plan. The
401(k) Plan covers substantially all full-time U.S. employees who have twelve
months of service and have attained the age of 21. Employee contributions may
range from 2%-15% of compensation with a discretionary matching Company
contribution. The Company is currently matching 25% of the employees
contribution, up to 1.5% of total compensation. The Company may also make an
optional contribution for any plan year at its discretion. The defined
Contribution Plan covers all full-time employees in the United Kingdom.
Contributions to the Plan are made only by the Company, and at the Company's
discretion.
The Company has expensed approximately $49,196, $41,438 and $34,328, relating
to contributions to the Plans during 1995, 1994 and 1993, respectively.
The Company does not currently offer employment benefits subject to the
provisions of Statements of Financial Accounting Standards 106 and 112.
30
<PAGE>
O. SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------
Dec 31 Sept 30 Jul 2 Apr 2
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
(Dollars in thousands except per share amounts)
1995:
Net sales $6,455 $6,450 $5,767 $4,853
Gross profit 2,569 2,668 2,422 1,871
Gross profit % 40% 41% 42% 39%
Net income before taxes 725 711 539 227
Taxes (625) 36 13 3
Net income 1,350 675 526 224
Net income per common share
--Primary $ .14 $ .07 $ .06 $ .03
--Fully diluted $ .13 $ .06 $ .06 $ .02
1994:
Net sales $5,360 $4,698 $3,704 $3,584
Gross profit 1,964 1,660 1,360 1,226
Gross profit % 37% 35% 37% 34%
Net income before taxes 313 243 59 12
Taxes 25 -- -- --
Net income 288 243 59 12
Net income per common share
--Primary .04 .03 .01 .00
--Fully diluted .03 .03 .01 .00
</TABLE>
During the fourth quarter of 1995, the Company reduced its tax valuation
allowing by a net $723,000 (net of current year utilization) because it is more
likely than not that these favorable tax attributes will be realized.
31
<PAGE>
VITRONICS CORPORATION AND SUBSIDIARY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(000's 0mitted)
<TABLE>
<CAPTION>
Additions
Balance Charged to Balance
Beginning Costs and Deductions(A) End of
of Period Expenses Write-Offs Period
--------- ---------- ------------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
year ending December 31,
1995 $100 $ 59 $ 31 $128
1994 120 1 21 100
1993 124 12 16 120
Inventory reserves year ending December 31,
1995 $367 $565 $172 $760
1994 289 297 219 367
1993 315 48 74 289
</TABLE>
(A) Deductions represent amounts determined to be uncollectible and charged
against the reserve.
32
<PAGE>
Exhibit 10.12
-------------
(Vitronics Letterhead)
As of March 21, 1995
Mr. James J. Manfield, Jr.
27 North Shore Road
Hampton, New Hampshire 03842
Re: Renewal and Modification of Employment Agreement dated
March 2, 1992
Dear Mr. Manfield:
Reference is made to that certain Employment Agreement dated
as of March 2, 1992 by and between the undersigned, Vitronics
Corporation (the "Company"), and you pursuant to which the
Company employed you to serve, on a full-time basis, as the Chief
Executive Officer of the Company, a copy of which is attached
hereto and incorporated herein by reference (the "Agreement").
Capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Agreement.
Pursuant to Paragraph 2 of the Agreement, subject to earlier
termination, the Employment Period was for an initial 24 month
period and continuing thereafter on a quarterly basis. The
Company now desires to amend the Agreement to, among other
things, extend the term thereof for an additional period of one
year commencing effective January 1, 1995 through December 31,
1995, which period shall automatically renew for additional one
year periods unless ninety (90) days' prior written notice is
given prior to the expiration of an annual extension period of
the Company's intention not to renew the Agreement.
Accordingly, the Company hereby agrees with you as follows:
1. That the base salary payable to you pursuant to Section
3.1 of the Agreement shall be S140,000 annually, effective as of
January 1, 1995. Your salary shall be adjusted by the Board of
Directors effective January 1 of each renewal period, if
applicable.
----------------------------------------------------------------------
Forbes Road, Newmarket Industrial Park, Newmarket, New Hampshire 03857
Telephone: (603) 659-6550 Fax: (603) 659-7194
<PAGE>
Mr. James J. Manfield, Jr.
As of March 21, 1995
Page Two
2. That Paragraph 2 entitled "Employment Period" shall be
deleted in its entirety and the following shall be substituted
therefor:
"2. Employment Period. The Employment Period shall
commence as of January 1, 1995 and shall terminate
on December 31, 1995, unless terminated earlier
pursuant to Sections 3.6, 4 or 5 hereof, provided,
however, that the Employment Period shall
automatically renew for additional one year periods
thereafter unless the Company shall provide the
Employee with not less than ninety (90) days' prior
written notice of its intention not to renew prior
to the expiration of the initial Employment Period
or any annual extension thereof. In the event that
the Company shall not renew this Agreement as
provided in the preceding sentence, the Company
shall continue to pay the Employee's salary, at his
then current rate, for a twelve (12) month period
following termination."
3. That Sub-paragraphs 3.7.1 and 3.7.2 of the Agreement
shall be deleted in their entirety and the following shall be
substituted therefor:
"3.7.1 Termination By Company. In the event the
----------------------
Company terminates this Agreement pursuant to Sections 3.6 or 5,
the Company shall continue to pay Employee his Salary, at his
then current rate, for (a) a twelve (12) month period after
termination if termination shall occur prior to a Change in
Control or an Approved Change in Control or subsequent to an
Approved Change in Control (both as hereinafter defined), or (b)
a twenty-four (24) month period after termination if termination
shall occur after a Change in Control. The Company shall also
provide the Employee with executive outplacement assistance if
his employment is terminated pursuant to Section 5.
3.7.2 Termination By Employee For "Good Reason".
-----------------------------------------
(a) After a Change in Control and provided Employee has
Good Reason (as hereinafter defined), Employee may terminate his
employment hereunder upon fifteen (15) days written notice to the
Company and the Company shall continue to pay Employee his same
Salary, at his then current rate, for a twenty-four (24) month
period.
<PAGE>
Mr. James J. Manfield, Jr.
As of March 21, 1995
Page Three
(b) After an Approved Change in Control and provided
Employee has Good Reason, Employee may terminate his employment
hereunder upon fifteen (15) days written notice to the Company
and the Company shall continue to pay Employee his Salary, at his
then current rate, for a six (6) month period and thereafter for
up to a maximum of six (6) additional months, unless the Employee
shall become employed during said time, at which time such
payments shall cease.
4. Except as modified hereby, the Agreement shall remain in
full force and effect and is hereby ratified, confirmed and
approved in all respects.
5. This Agreement constitutes the entire agreement between
the us with respect to the subject matter hereof and may not be
modified except in writing signed by each of us.
6. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
VITRONICS CORPORATION
By: /s/ James J. Manfield, Jr.
------------------------------
Title: Chairman CEO
---------------------------
Agreed to and accepted:
/s/ James J. Manfield, Jr.
- -----------------------------
James J. Manfield, Jr.
Dated: 7/14/95
-----------------------
<PAGE>
Exhibit 10.15
-------------
(Vitronics Letterhead)
As of March 21, 1995
Mr. Ronald W. Lawler
30 Preservation Way
Westford, Massachusetts 01886
Re: Renewal and Modification of Employment Agreement dated
November 13, 1992
Dear Mr. Lawler:
Reference is made to that certain Employment Agreement dated
as of November 13, 1992 by and between the undersigned, Vitronics
Corporation (the "Company"), and you pursuant to which the
Company employed you to serve, on a full-time basis, as the Chief
Operating Officer of the Company, a copy of which is attached
hereto and incorporated herein by reference (the "Agreement").
Capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Agreement.
Pursuant to Paragraph 2 of the Agreement, subject to earlier
termination, the Employment Period was for an initial 24 month
period and continuing thereafter on a quarterly basis. The
Company now desires to amend the Agreement to, among other
things, extend the term thereof for an additional period of one
year commencing effective January l, 1995 through December 31,
1995, which period shall automatically renew for additional one
year periods unless ninety (90) days' prior written notice is
given prior to the expiration of an annual extension period of
the Company's intention not to renew the Agreement.
Accordingly, the Company hereby agrees with you as follows:
1. That the base salary payable to you pursuant to Section
3.1 of the Agreement shall be $140,000 annually, effective as of
January 1, 1995. Your salary shall be adjusted by the Board of
Directors effective January l of each renewal period, if
applicable.
----------------------------------------------------------------------
Forbes Road, Newmarket Industrial Park, Newmarket, New Hampshire 03857
Telephone: (603) 659-6550 Fax: (603) 659-7194
<PAGE>
Mr. Ronald W. Lawler
Page Two
As of March 21, 1995
2. That Paragraph 2 entitled "Employment Period' shall be
deleted in its entirety and the following shall be substituted
therefor:
"2. Employment Period. The Employment Period shall
commence as of January 1, 1995 and shall terminate on December 31,
1995, unless terminated earlier pursuant to Sections 3.9, 4 or 5
hereof, provided, however, that the initial Employment Period shall
automatically renew for additional one year periods thereafter unless
the Company shall provide the Employee with not less than ninety (90)
days' prior written notice of its intention not to renew prior to the
expiration of the initial Employment Period or any annual extension
thereof. In the event that the Company shall not renew this Agreement
as provided in the preceding sentence, the Company shall continue to
pay the Employee's salary, at his then current rate, for a six (6)
month period following termination and thereafter for a maximum of six
(6) additional months unless the Employee shall become employed during
said time, at which time such payments shall cease."
3. Except as modified hereby, the Agreement shall remain in
full force and effect and is hereby ratified, confirmed and
approved in all respects.
4. This Agreement constitutes the entire agreement between
the us with respect to the subject matter hereof and may not be
modified except in writing signed by each of us.
5. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
VITRONICS CORPORATION
By: /s/ James J. Manfield, Jr.
------------------------------
Title: Chairman CEO
---------------------------
Agreed to and accepted:
/s/ Ronald W. Lawler
- -----------------------------
Ronald W. Lawler
Dated: 7/14/95
-----------------------
<PAGE>
Exhibit 11.1
VITRONICS CORPORATION AND SUBSIDIARY
CALCULATION OF NET INCOME PER COMMON SHARE
(For the years ended December 31, 1995 and December 31, 1994)
<TABLE>
<CAPTION>
December 31, 1995
Primary Fully Diluted
---------- -------------
<S> <C> <C>
Net income $2,775,000 $ 2,848,000
Weighted average shares outstanding:
Common stock 8,576,217 8,576,217
Convertible debentures -- 1,492,603
Warrants 139,150 143,253
Stock options 452,790 475,648
---------- ----------
Weighted averaged shares
outstanding 9,168,158 10,687,721
Income per share $ .30 $ .27
December 31, 1994
Primary Fully Diluted
---------- -------------
Net income $ 602,000 $ 722,000
Weighted average shares outstanding:
Common stock 7,496,798 7,496,798
Convertible debentures -- 2,400,000
Warrants 103,125 119,423
Stock options 138,622 174,168
---------- ----------
Weighted averaged shares
outstanding 7,738,545 10,190,389
Income per share $ .03 $ .03
</TABLE>
<PAGE>
Exhibit 21.1
VITRONICS CORPORATION AND SUBSIDIARY
The following is a list of the Company's subsidiary:
<TABLE>
<CAPTION>
Percentage of voting
securities owned by
Vitronics Corporation
Name Organized under Laws of as of December 31, 1995
---- ----------------------- -----------------------
<S> <C> <C>
Vitronics Europe Limited United Kingdom 100%
</TABLE>
<PAGE>
Exhibit 23.1
[LOGO/LETTERHEAD COOPERS & LYBRAND]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Vitronics Corporation on Form S-3 (File No. 33-58811) and Form S-8 (File Nos.
33-78720 and 33-61119) of our report dated February 22, 1996, on our audits of
the consolidated financial statements and financial statement schedule of
Vitronics Corporation as of December 31, 1995 and 1994, and for the years ended
December 31, 1995, 1994, and 1993, which report is included in this Annual
Report on Form 10-K.
Boston, Massachusetts /s/ Coopers & Lybrand L.L.P.
March 29, 1996
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<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
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