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 June 30, 1997
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
June 30, 1997 0-12716
Novitron International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-2573920
(State of incorporation) (IRS Employer 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 August 8, 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
Consolidated balance sheets at June 30, 1997 and March 31, 1997 1
Unaudited consolidated statements of operations
for the three months ended June 30, 1997 and 1996 3
Consolidated statements of stockholders' investment
for the years ended March 31, 1996, and 1997 and the
three months ended June 30, 1997 (unaudited) 4
Unaudited consolidated statements of cash flows for
the three months ended June 30, 1997 and 1996 5
Notes to unaudited consolidated financial statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II: OTHER INFORMATION 12
SIGNATURE 13
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
June 30,1997 March 31,1997
CURRENT ASSETS:
Cash and cash equivalents $ 2,025,697 $ 1,634,270
Marketable securities 74,542 99,472
Accounts receivable, less
reserves of $89,000 at June 30,
1997 and $102,000 at March 31,
1997, respectively 2,449,695 2,546,221
Inventories 2,442,806 2,526,389
Prepaid expenses 285,867 280,915
Other current assets 35,444 83,257
Total current assets 7,314,051 7,170,524
EQUIPMENT, at cost:
Manufacturing and computer
equipment 1,881,948 1,896,433
Furniture and fixtures 389,643 403,882
Leasehold improvements 223,075 232,237
Vehicles 98,225 101,818
2,592,891 2,634,370
Less - Accumulated depreciation
and amortization 2,048,536 2,053,108
544,355 581,262
OTHER ASSETS, net 829,627 816,047
$ 8,688,033 $ 8,567,833
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<S> <C> <C>
June 30,1997 March 31,1997
CURRENT LIABILITIES:
Short-term notes payable and cur-
rent portion of long-term debt $ 85,397 $ 54,375
Accounts payable 1,877,992 1,464,128
Accrued expenses 1,371,074 1,219,551
Customer advances 186,137 193,572
Accrued income taxes 27,907 33,287
Total current liabilities 3,548,507 2,964,913
LONG-TERM DEBT, net of current
portion 37,845 41,029
DEFERRED TAXES 251,392 347,993
MINORITY INTEREST 235,495 240,830
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
June 30, and March 31, 1997 13,235 13,235
Capital in excess of par value 4,882,375 4,882,375
Cumulative translation
adjustment (30,996) 148,696
Retained deficit (249,820) (71,238)
Total stockholders' investment 4,614,794 4,973,068
$8,688,034 $8,567,833
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
<S> <C> <C>
1997 1996
REVENUES $2,871,308 $4,655,552
COST OF REVENUES 2,164,589 3,479,990
Gross profit 706,719 1,175,562
OPERATING EXPENSES:
Sales and marketing 239,468 307,294
Research and
development 298,323 349,131
General and
administrative 415,288 453,919
953,079 1,110,344
Income (loss) from
operations (246,360) 65,218
Interest expense (14,059) (27,705)
Interest income 14,312 11,426
Other income 8,369 3,270
(237,738) 52,209
Provision for (benefit
from) income taxes (53,821) 96,019
(183,917) (43,810)
Minority interest 5,335 (6,009)
Net loss $ (178,582) $ (49,819)
Net loss per share $ (0.13) $ (0.04)
Weighted average common
shares outstanding 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>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED MARCH 31, 1996, AND 1997
AND FOR THE THREE MONTHS ENDED JUNE 30, 1997
<S> <C> <C> <C> <C> <C>
Common Stock Capital in Cumulative
Number Excess of Translation Retained
of Shares Par Value Par Value Adjustment Earnings
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 4,822,375 785,223 511,312
Translation
adjustment - - - (636,527) -
Net loss - - - - (582,550)
BALANCE at March
31, 1997 1,323,480 13,235 4,822,375 148,696 (71,238)
Translation
adjustment - - - (179,692) -
Net loss - - - - (178,582)
BALANCE at June
30, 1997 1,323,480 $13,235 $4,882,375 $ (30,996)$ (249,820)
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30,
<S> <C> <C>
1997 1996
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (178,582) $ (49,819)
Adjustments to
reconcile net loss
to net cash provided
by (used in)
operating activities-
Depreciation and
amortization 104,780 75,418
Minority interest (5,335) 6,009
Accounts receivable (3,286) 127,043
Inventories (15,688) 863,969
Prepaid expenses (16,095) (15,821)
Other current assets 45,413 20,362
Accounts payable 480,337 (845,501)
Accrued expenses 199,457 (786)
Customer advances 152 420
Accrued income taxes (1,600) 28,551
Accrued income taxes (84,573) 23,446
Net cash provided by
operating activities 524,980 233,291
CASH FLOWS FROM
INVESTING ACTIVITIES:
Marketable securities 24,930 99,645
Other assets (57,665) 227
Purchases of equipment (55,800) (1,896)
Sale of equipment 790 -
Other, including foreign
exchange effects on cash (77,995) (60,109)
Net cash provided by
(used in) investing
activities $(165,740) $ 37,867
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30,
(Continued)
<S> <C> <C>
1997 1996
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from short-
term notes payable $ 33,794 $ 6,009
Proceeds from (payments
on)long-term debt (1,607) 5,794
Net cash provided by
financing activities 32,187 11,803
NET INCREASE IN CASH AND
CASH EQUIVALENTS 391,427 282,961
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 1,634,270 485,029
CASH AND CASH EQUIVALENTS,
AT June 30, 1997 and 1996 $ 2,025,697 $ 767,990
<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
June 30, 1997
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 June
30, 1997 and June 30, 1996. 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, 1997.
(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 June 30, and March 31, 1997.
<TABLE>
<S> <C> <C>
June 30,1997 March 31,1997
Cash and money market investments $ 2,022,192 $ 1,630,638
Time deposits 3,632 3,505
$ 2,025,697 $ 1,634,270
</TABLE>
(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 ended June 30, and March 31, 1997,
marketable securities consisted of United States Treasury securities and
were stated at cost, which approximated market value.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Continued)
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market, include material, labor and manufacturing overhead, and consist of
the following at June 30, and March 31, 1997:
<TABLE>
<S> <C> <C>
June 30,1997 March 31,1997
Raw materials $ 516,323 $ 496,248
Work-in-process 1,125,166 1,252,249
Finished goods 801,317 777,892
$2,442,806 $2,526,389
</TABLE>
(e) Revenue Recognition
The Company recognizes revenue from the sale of products and supplies at
the time of shipment.
(f) Net Loss per Share
Net loss per share for the three month periods ended June 30, 1997 and 1996
is based on the weighted average number of common shares outstanding during
the respective fiscal period. Effective for all reporting periods ending
after December 15, 1997, the Company is required to adopt Statement of
Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS No.
128"). SFAS No. 128 has new guidelines about the calculation of earnings
per share and requires the restatement of previously stated earnings per
share for comparability purposes. The Company does not believe that the
adoption of SFAS No. 128 will have a material impact on the Company's
historical earnings per share.
(g) Financial Instruments
The estimated fair value of the Company's financial instruments, which
include cash equivalents, marketable securities, accounts receivable and
long-term 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 Clinical Data BV, Vital Scientific NV and
Spectronetics NV is the Dutch guilder. During fiscal 1997, the functional
currency of Clinical Data Australia became the Australian dollar in
recognition of the shift of its operations to a more domestic focus. Also
in fiscal 1997, NovaChem BV changed its functional currency to the United
States dollar because the majority of its operations are now based in the
United States. Gains and losses from translating asset and liability
accounts which are denominated in currencies other than the respective
functional currency and foreign currency transaction gains and losses are
included in other expense in the consolidated statements of operation. The
translation adjustment required to report those subsidiaries whose
functional currency is other than the United States dollar into 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.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Continued)
(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 June 30, and March 31, 1997, 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) Postretirement Benefits
The Company has no obligations for post retirement benefits.
(l) Management's Use 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
disclosure 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.
(m) Warranty Policy
The Company provides for a warranty reserve on its manufactured products
for one year which covers parts and materials.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Continued)
(n) Software Development Costs
In connection with the development of software included as a significant
component of a new analysis product, the Company has applied the provisions
of Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS
No. 86"). 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 once technological feasibility has been established
up to the time at which the product is available for sale to the customer.
These capitalized costs are subject to an ongoing assessment of the
recoverability based on 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.
During the period ended June 30, 1997 and March 31, 1997, the Company
capitalized $566,685 and $502,331, respectively, under SFAS No. 86,
included as a component of other assets in the accompanying consolidated
balance sheets. The Company has not recorded any amortization for the year
then ended, as the capitalized costs pertain to a product that is not yet
available for general release.
(o) Reclassifications
Certain reclassifications have been made to the prior years' presentation
in order to conform to that of the current year.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
First Quarter ended June 30, 1997 compared to the First Quarter ended June
30, 1996
Revenues for the first quarter of fiscal year 1998 decreased thirty-eight
percent (38%) as compared to the prior year as a result of the default of
Vital Scientific's major customer, E. Merck, on a series of agreements and
the eight percent (8%) weakening of the Company's primary functional
currency, the Dutch Guilder, against the U.S. Dollar.
The gross profit margin decreased from 25.2% for the three months ended
June 30, 1996 to 24.6% for the same period in 1997 as a result of a reduced
absorption rate of manufacturing overhead expenses and decreased
intercompany sales.
Sales and marketing expenses decreased by $68,000, or twenty-two percent
(22%) from the same period in fiscal year 1997. The reduction in expense is
principally due reduced sales commissions and a decrease in expenses at
NovaChem BV. The weakening of the Dutch Guilder also contributed to the
decline in selling expenses between years.
Research and development charges, as shown on the June 30, 1997 income
statement, decreased by $51,000 or fourteen and one-half percent (14.5%)
when compared to the three months ended June 30, 1996. However, on a cash
basis, the Company expended an additional $85,700 in research funds which
were capitalized on the consolidated balance sheet pursuant to Statement of
Financial Standards No. 86 (see note 1(n) in the Notes to the Consolidated
Financial Statements). Therefore the Company expended, on a cash basis, a
total of $384,000 during the first quarter of fiscal year 1998 or ten
percent (10%) more than the prior year.
General and administrative expenses decreased $39,000 or eight and one-half
percent (8.5%) for the quarter ended June 30, 1997 versus the same period
in 1996. The decrease is primarily due to the weakening of the Dutch
Guilder against the U.S. Dollar.
On a quarterly comparative, the interest expense decreased because of the
decreased reliance on the standby line of credit. The interest income
increased for the period as there were more funds available for investment.
Other income and expense is predominantly the effect of foreign currency
transaction gains and losses on the results of operations. In addition, the
other income, for the three months ended June 30, 1997, includes the
recovery of a bad debt at NovaChem BV.
The minority interest in fiscal years 1998 and 1997 is attributable to the
six percent (6%) of Vital Scientific not held by the Company.
Financial Condition and Liquidity
The effect of foreign currency transaction exchange on the result of
operations is included in other income and expense and is not material to
the financial statements. Any impact on the Company's liquidity is largely
dependent on the exchange rates in effect at the time the predominant
foreign functional currency, Dutch Guilders, is translated into U.S.
Dollars. Approximately $364,000 of the June 30, 1997 balance of $2,026,000
of cash, 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
effects of currency exchange rates on future quarterly or fiscal periods on
the results of operations are difficult to estimate.
There are no formal hedging procedures employed by the Company. The primary
risk is to the monetary assets and liabilities denominated in currencies
other than the U.S. Dollar. Approximately $7.1 million of $7.3 million of
current assets reside in the Company's foreign subsidiaries.
The Company generated approximately $525,000 of cash from operations during
the three months ended June 30, 1997. The increase in funds comes from the
increase in the levels of accounts payable and accrued expenses offset by a
decrease in prepaid expenses and deferred income taxes. Approximately
$166,000 was used by the Company during the quarter for investing
activities. These included the capitalization of software development
costs, and the purchase of equipment coupled with the effect of foreign
currency exchange. Financing activities have not been material thus far
during fiscal year 1998. The Company's sources of cash include cash
balances and a 2,000,000 Dutch Guilder standby line of credit from a Dutch
bank. The Company believes that available funds will provide it with
sufficient working capital during the remainder of fiscal year 1998.
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal proceedings:
None
Items 2 - 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:August 11, 1997
Israel M. Stein MD
President
<TABLE> <S> <C>
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<PERIOD-END> JUN-30-1997
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<ALLOWANCES> 89
<INVENTORY> 2443
<CURRENT-ASSETS> 7314
<PP&E> 2593
<DEPRECIATION> 2048
<TOTAL-ASSETS> 8688
<CURRENT-LIABILITIES> 3548
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