FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended Commission File Number
December 31, 1996 0-12716
Novitron International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-2573920
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
One Gateway Center, Suite 411, Newton, MA. 02158
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (617) 527-9933
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or 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 __
The number of shares of common stock outstanding as of January 31, 1997 is
1,323,480.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
FORM 10-Q
Index
Page
Part I:FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
Unaudited consolidated balance sheets at December
31, 1996 and March 31, 1996 3
Unaudited consolidated statements of operations for the
three and nine months ended December 31, 1996 and 1995 5
Unaudited consolidated statements of stockholders'
investment for the years ended March 31, 1995 and 1996 and
the nine months ended December 31, 1996 6
Unaudited consolidated statements of cash flows for
the nine months ended December 31, 1996 and 1995 7
Notes to unaudited consolidated financial statements 9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II:OTHER INFORMATION 16
SIGNATURE 17
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
UNAUDITED CONSOLIDATED BALANCE SHEETS ASSETS
<CAPTION>
ASSETS
December 31,1996 March 31,1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,187,045 $ 1,018,501
Marketable securities 174,288 349,043
Accounts receivable, less
reserves of $138,000 at
December 31,1996 and $119,000
at March 31, 1996, respectively 2,636,682 4,760,880
Inventories 3,032,038 4,615,179
Prepaid expenses 323,119 186,530
Other current assets 123,147 142,073
Total current assets 8,476,319 11,072,206
EQUIPMENT, at cost:
Manufacturing and computer
Equipment 2,957,345 2,999,413
Furniture and fixtures 838,000 866,606
Leasehold improvements 248,500 261,565
Vehicles 131,363 109,854
4,175,208 4,237,438
Less - Accumulated depreciation
and amortization 3,475,450 3,387,058
699,758 850,380
OTHER ASSETS, net 1,051,166 371,380
$ 10,227,243 $ 12,293,966
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
UNAUDITED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<CAPTION>
December 31,1996 March 31,1996
<S> <C> <C>
CURRENT LIABILITIES:
Short-term notes payable
And current portion of
long-term debt $ 693,426 $ 589,410
Accounts payable 1,801,578 3,068,839
Accrued expenses 1,210,796 1,566,139
Customer advances 209,094 220,115
Accrued income taxes 540,977 350,820
Total current liabilities 4,455,871 5,795,323
LONG-TERM DEBT,
net of current portion 60,514 53,563
MINORITY INTEREST 247,708 252,935
COMMITMENTS AND CONTINGENCIES
(Note 4)
STOCKHOLDERS' INVESTMENT:
Preferred stock,$.01 par value,
Authorized--1,000,000 shares
Issued and outstanding-none
Common stock, $.01 par value,
Authorized--6,000,000 shares
Issued--1,323,480 shares at
December 31, and March 31, 1996 13,235 13,235
Capital in excess of par value 4,882,375 4,882,375
Cumulative translation adjustment 586,916 785,223
Retained earnings (19,376) 511,312
Total stockholders' investment 5,463,150 6,192,145
$ 10,227,243 $ 12,293,966
<FN>
The accompanying notes are an integral part of these consolidated
financial statements
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For Three Months For the Nine Months
Ended December 31, Ended December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES $3,211,250 $4,920,022 $10,602,204 $12,761,842
COST OF REVENUES 2,456,635 3,543,266 7,943,684 9,029,030
Gross profit 754,615 1,376,756 2,658,520 3,732,812
OPERATING EXPENSES:
Sales & marketing 275,129 319,069 853,973 953,733
Research & development (122,759) 350,821 644,716 996,917
General and administrative 588,838 584,479 1,605,303 1,678,136
741,208 1,254,369 3,103,992 3,628,786
Income(loss)from operations 13,407 122,387 (445,472) 104,026
Interest Expense (2,165) (35,436) (29,252) (79,491)
Interest Income 9,285 13,815 33,457 53,755
Other Income (Expense) (13,747) 42,898 106,979) (38,730)
6,780 143,664 (548,246) 39,560
Provision for(Benefit
from)Income Taxes 52,572 67,170 (12,331) 140,016
(45,792) 76,494 (535,915) (100,456)
Minority Interest (5,200) (16,608) 5,227 (20,067)
Net income (loss) $ (50,992) $ 59,886 $ (530,688) $ (120,523)
Net income(loss) per share $ (0.04) $ 0.05 $ (0.40) $ (0.09)
Weighted Average Common
Shares Outstanding 1,323,480 1,323,480 1,323,480 1,323,480
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'INVESTMENT
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
AND THE NINE MONTHS ENDED DECEMBER 31, 1996 (unaudited)
<CAPTION>
Common Stock Capital Treasury T
Number Excess of Translation Stock, Retained
of Shares Par Value Par Value Adjustment at Cost Earnings
<S> <C> <C> <C> <C> <C>
BALANCE at March 31, 1994 1,343,180 $13,431 $ 5,140,615 $ (28,595) $(330,550) $ 2,245,180
Sale of common stock 5,067 51 17,313 - - -
Issuance of common
Stock in connection with
the acquisition of
additional interest in NovaChem 3,667 37 56,213 - - -
in NovaChem
Retirement of treasury stock (28,334) (283) (330,267) - 330,550 -
Retirement of common stock (100) (1) (1,499) - - -
Translation adjustment - - - 1,097,085 - -
Net loss - - - - - (228,235)
BALANCE at March 31, 1995 1,323,480 13,235 4,882,375 1,068,490 - 2,016,945
Translation adjustment - - - - (283,267) - -
Net loss - - - - - (1,505,633)
BALANCE at March 31, 1996 1,323,480 13,235 4,882,375 785,223 - 511,312
Translation adjustment - - - (198,307) -
Net loss - - - - - - (530,688)
BALANCE at December 31, 1996 1,323,480 $13,235 $ 4,882,375 $ 586,916 - $ (19,376)
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31,
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) $ (530,688) $ (120,523)
Adjustments to reconcile
net income (loss) to net
cash provided by
(used in) operating activities -
Depreciation and amortization 304,444 430,280
Minority interest (5,227) 20,067
Accounts receivable 1,921,802 (1,039,542)
Inventories 1,374,568 (419,633)
Prepaid expenses (149,875) 305,769
Other current assets 11,736 3,993
Accounts payable (990,215) (694,401)
Accrued expenses (284,405) (292,412)
Customer advances 602 15,907
Accrued income taxes 217,460 (336,197)
Net cash provided by
(used in) operating activities 1,870,202 (2,126,692)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Marketable securities 174,755 (399,259)
Other assets (750,893) 816
Purchase of equipment (180,768) (151,996)
Sales of equipment 24,694 11,403
Other, including foreign
exchange effects on cash (118,087) 108,263
Net cash (used in) investing activities (850,299) (430,773)
<FN>
Continues on next page
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31,
(Continued)
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from short-term debt $ 138,611 $ 1,011,385
Proceeds from long-term debt 10,030 1,397
Net cash provided by
financing activities 148,641 1,012,782
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,168,544 (1,544,683)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 1,018,501 2,508,345
CASH AND CASH EQUIVALENTS
AT December 31, 1996 and 1995 $ 2,187,045 $ 963,662
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Basis of Presentation
The consolidated financial statements included herein
were prepared by Novitron International, Inc. ("the Company") pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information normally included in footnote disclosures in
financial statements prepared in accordance with generally accepted
accounting principles was condensed or omitted pursuant to such rules and
regulations. In management's opinion, the consolidated financial statements
and footnotes reflect all adjustments necessary to disclose adequately
the Company's financial position at December 31, 1996 and December 31,
1995. Management suggests these condensed consolidated financial
statements be read in conjunction with the financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996.
(1) Operations and Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its subsidiaries: Clinical Data BV, Clinical Data
(Australia), Pty. Ltd., NovaChem BV, Spectronetics NV, and Vital
Scientific NV (94% owned subsidiary). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(b) Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which
approximates market, and consist of cash and marketable financial
instruments with original maturities of 90 days or less. Cash
and cash equivalents consist of the following at December 31, and
March 31, 1996.
<TABLE>
<CAPTION>
December 31, 1996 March 31, 1996
<S> <C> <C>
Cash and money market investments $ 2,183,350 $ 914,874
Certificate of deposit - 100,000
Time deposits 3,695 3,627
$ 2,187,045 $ 1,018,501
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(c) Marketable Securities
The Company accounts for marketable securities under
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"). Under SFAS
No. 115, marketable securities which the Company has the ability and
positive intent to hold to maturity are recorded at
amortized cost and classified as "held to maturity" securities. For the
periods ending December 31, and March 31, 1996, marketable securities
consisted of United States Treasury securities and were stated at cost,
which approximated market value.
(d) Inventories
Inventories are stated at the lower of cost (firstin, first-out)
or market, include material, labor and manufacturing overhead, and consist
of the following at December 31, and March 31, 1996:
<TABLE>
<CAPTION>
December 31, 1996 March 31, 1996
<S> <C> <C>
Raw materials $ 688,236 $ 686,723
Work-in-process 1,360,033 2,536,392
Finished goods 983,769 1,392,064
$ 3,032,038 $ 4,615,179
</TABLE>
(e) Revenue Recognition
The Company recognizes revenue from the sale of products and
supplies at the time of shipment.
(f) Net Income (Loss) per Share
The net income per share for the three month
period ended December 31, 1995 and the net loss per share for the
three and nine month periods ended December 31, 1996 and for the nine
month period ended December 31, 1995 is based on the weighted average
number of common shares outstanding during the respective fiscal
period. Common stock equivalents are not used in the computation of net
income per share for the three month period ended December 31, 1995 as
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(f) Net Income (Loss) per Share (continued)
the resulting dilution is less than 3%. The net income (loss) per share
also reflects a 1 for 3 reverse stock split of the Common Stock declared by
the Company on November 12, 1996. (See Note 2)
(g) Financial Instruments
The estimated fair value of the Company's
financial instruments, which include cash equivalents, marketable
securities, accounts receivable and longterm debt, approximates their
carrying value.
(h) Foreign Currency Translation
The Company accounts for foreign currency
transaction and translation gains and losses in accordance with
SFAS No. 52, "Foreign Currency
Translation." The functional currency of the Company's foreign
subsidiaries is the Dutch Guilder. The translation adjustment
required to report these subsidiaries' financial statements in U.S.
dollars is credited or charged to cumulative translation
adjustment, included as a separate component of stockholders'
investment in the accompanying consolidated balance sheets. Gains
and losses resulting from translating asset and liability accounts which
are denominated in currencies other than the functional currency are
included in other income. Foreign currency transaction gains and losses
are included in other income in the consolidated statements of
operations.
(i) Depreciation and Amortization of Equipment and Intangibles
The Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of," ("SFAS No.
121"), effective April 1, 1995. SFAS No. 121 requires the Company
to continually evaluate whether events and circumstances have
occurred that indicate that the estimated
remaining useful life of long-lived assets and such intangibles as
goodwill may warrant revision or that the carrying value of those assets
may be impaired. To compute whether assets have been impaired,
the estimated gross cash flows for the estimated remaining useful life of
the asset are compared to the carrying value. To the extent that the gross
cash flows are less than the carrying value, the assets are written down to
the estimated fair value of the of the asset. At
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(i) Depreciation and Amortization of Equipment and Intangibles
(continued)
March 31, 1996, the Company's remaining goodwill relates to its
investment in Vital Scientific, NV.
(j) Concentration of Credit Risk
Statement of Financial Accounting Standards No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance
Sheet Risk and Financial Instruments with Concentrations of Credit Risk,"
requires disclosure of any
significant off-balance sheet and credit risk concentrations. The Company
has no significant off-balance sheet credit risk such as foreign exchange
contracts, option contracts or other foreign hedging arrangements. The
Company maintains the majority of its cash balances with
financial institutions.
(k) Computer Software Costs
The Company has adopted Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed," ("SFAS No. 86"), effective April 1,
1996. SFAS No. 86 requires the Company to capitalize those
costs incurred for the development of computer software that will
be sold, leased or otherwise marketed when technological feasibility
has been established. These capitalized costs are subject to an ongoing
assessment of the recoverability based upon anticipated future revenues
and changes in hardware and software technologies.
Amortization of the capitalized software
development costs begins when the product is available for general
release. Amortization is provided on a product-by-product basis on
either the straight-line method over periods not exceeding five years
or the sales ratio method. Unamortized capitalized software
development costs determined to be in excess of net realizable value
of the product are expensed immediately.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Continued)
(2) Stockholders' Equity
On November 12, 1996, the Company declared a 1 for 3 reverse
stock split of the Common Stock payable on December 4, 1996 to the
stockholders of record on November 25, 1996. No fractional
shares were distributed and the Common Stock issued to each
stockholder was rounded up to the nearest whole number of shares. All
share and per share amounts for all periods presented have been adjusted
to reflect this reverse stock split. The number of shares issued and
outstanding pursuant to the reverse stock split
decreased by 2,642,460.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Third Quarter ended December 31, 1996 compared to the Third Quarter ended
December 31, 1995
Revenue for the three and nine month periods ending December 31, 1996 have
decreased 35.0% and 17.0%, respectively, as compared with the same periods
one year ago. The decreases are principally due to the default of a major
customer, E. Merck, as required by contractual obligation.
The gross profit margins decreased from 28.0% to 23.5% for the three
month period and from 29.0% to 25.0% for the year-to-date. This was
primarily the result of a reduced absorption of manufacturing overhead
expenses related to the decrease in turnover. This result is also due to
continued pricing pressure at Vital Scientific.
Sales and marketing expenses have decreased 10.5% for the nine month
comparatives and have decreased 14.0% on a quarterly basis reflecting a
decrease in sales commissions on export sales by Clinical Data (Australia)
and to a reduction in the sales expenses at NovaChem BV.
In conjunction with (i) certain new special programs available in the
Netherlands which provide support for research and development; and (ii)
the attainment of technological feasibility on a major development program
at Vital Scientific, the Company has adopted Statement of Financial
Accounting Standards Number 86 to account for new projects. As a
consequence, research and development contributed to the operating income
for the quarter and research and development expenses decreased for the
quarter and the year-to-date comparatives.
General and administrative expenses have increased 1.0% on a quarterly
basis and decreased 4.0% for the nine month comparatives. The increase is
primarily attributable to a one-time expense for ISO 9000 certification at
Vital Scientific offset by a 7.0% strengthening of the United States Dollar
against the Dutch Guilder.
Interest income decreased 33.0% for the quarter ended December 31 and
decreased by 38.0% for the year-to-date because fewer funds were available
for investment. Interest expense decreased 94.0% for the quarter and 63.0%
for the nine month period because of less reliance on borrowed funds during
fiscal year 1997 as compared to fiscal year 1996. Other income and expense
consisted primarily of the effect of foreign currency transaction gains and
losses on the results of operations.
As a result of the recording of a provision for income tax associated
to the adoption of SFAS No. 86, there is an income tax expense for the
quarter greater than income before taxes.
For the quarters ended December 31, 1995 and 1994, minority interest
was attributable to the 6.0% of Vital Scientific NV not held by the
Company.
<PAGE>
Financial Condition and Liquidity
The decrease in working capital since the
Company's fiscal year ended March 31, 1996 was
primarily accounted for by (i) a decrease in accounts receivable, (ii) a
decrease in marketable securities, (iii) a decrease in inventory levels,
(iv) an increase in taxes payable, and (v) an increase in short-term
borrowings offset by (i) an increase in cash, (ii) a decrease in
accounts payable and (iii) a decrease in accrued liabilities.
The Company believes that its available funds will continue to
provide for working capital requirements. Approximately $135,000 of the
$2.2 million of cash and cash equivalents and marketable securities
is denominated in U.S. Dollars. The effect of translation into U.S.
Dollars is reflected as a separate component of stockholders' investment
in the balance sheet. The cumulative translation exchange adjustment
in stockholders' investment is $586,916 at December 31, 1996 and $785,223
at March 31, 1996. Any impact on the Company's liquidity is largely
dependent on the exchange rates in effect at the time the functional
currency (Dutch Guilder) is translated to U.S. Dollars. The effects of
currency exchange rates on future quarterly or fiscal periods on the results
of operations and liquidity are difficult to estimate.
In light of the continued losses that the Company has reported,
a bank, which provides secured overdraft protection under an agreement
with the Company's subsidiary, has notified the Company that it is withdrawing,
for the time being, the overdraft facility, even though as of
December 31, 1996, to the best of the
Company's knowledge, the Company was not in default of the capital
covenants required under the agreement. At December 31, 1996, on a
consolidated basis, the credit line was not utilized due to
offsetting balances between the Company's subsidiaries, although the use
of this available credit has been reflected in the Company's financial
statements. The Company is presently reviewing a new proposal from this
bank for a two (2.0) million Dutch Guilder credit line secured by
accounts receivable. There can be no assurances, however, that a new bank
agreement will be effected.
There are no formal hedging procedures employed by the Company. The
primary risk is to monetary assets and liabilities denominated in
currencies other than the U.S. Dollar. Approximately $8.3 million of
the $8.5 million of current assets reside in the Company's foreign
subsidiaries.
<PAGE>
Part II. OTHER INFORMATION
Items 1-4:
None
Item 5: Other Information:
The Company has retained German and U.S. counsel to
advise the Company on certain defaults in a series of agreements between
our Dutch subsidiary and its major customer, E. Merck. The Company
believes that its claims are meritorious and that, as a result of such
defaults, the damages to the Company are considerable. The Company
is presently in negotiation with this customer to settle amicably all
outstanding issues. There can be no assurances, however, that such
discussions will result in a solution favorable to the Company. The
Company, therefore, intends to pursue all available remedies advised by counsel.
Item 6:
None
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Novitron International, Inc.
(Registrant)
Israel M. Stein, MD
Date: January 31, 1997 Israel M. Stein, MD
President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-START> Apr-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 2187
<SECURITIES> 174
<RECEIVABLES> 2775
<ALLOWANCES> 138
<INVENTORY> 3032
<CURRENT-ASSETS> 8476
<PP&E> 4175
<DEPRECIATION> 3475
<TOTAL-ASSETS> 10227
<CURRENT-LIABILITIES> 4456
<BONDS> 60
<COMMON> 13
0
0
<OTHER-SE> 5450
<TOTAL-LIABILITY-AND-EQUITY> 10227
<SALES> 10602
<TOTAL-REVENUES> 10602
<CGS> 7944
<TOTAL-COSTS> 7944
<OTHER-EXPENSES> 3104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> (548)
<INCOME-TAX> (12)
<INCOME-CONTINUING> (536)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (531)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
