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FORM 10-QSB
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 September 30, 2000
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
September 30, 2000
0-12716
Novitron International, Inc.
Delaware
04-2573920
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
One Gateway Center, Suite 411, Newton, MA 02458
(Address of principal executive offices)
Issuer'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 November 8, 2000 is 1,445,227.
Transitional Small Business Disclosure Format: Yes ___ No X
Novitron International, Inc.
AND SUBSIDIARIESFORM 10-QSB
Index
Page |
||
Part I: FINANCIAL INFORMATION |
||
Item 1: |
Consolidated Financial Statements |
|
Unaudited consolidated balance sheets at September 30, 2000 and March 31, 2000 |
3 |
|
Unaudited consolidated statements of operations for the three and six months ended September 30, 2000 and 1999 |
5 |
|
Consolidated statements of stockholders investment for the years ended March 31, 1999 and 2000 and the six months ended September 30, 2000 (unaudited) |
6 |
|
Unaudited consolidated statements of cash flows for the six months ended September 30, 2000 and 1999 |
7 |
|
Notes to unaudited consolidated financial statements |
8 |
|
Item 2: |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
12 |
Item 3: |
Quantitative and Qualitative Disclosure about Market Risk |
14 |
Part II: OTHER INFORMATION |
14 |
|
SIGNATURE |
15 |
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
September
30, 2000 |
March 31, 2000 |
|
CURRENT ASSETS: |
||
Cash and cash equivalents |
$ 1,061,413 |
$1,326,513 |
Accounts receivable, less reserves of $95,000 and $99,000 at September 30 and March 31, 2000, respectively |
2,523,794 |
2,601,814 |
Inventories |
2,022,141 |
2,360,177 |
Prepaid expenses |
204,176 |
276,911 |
Other current assets |
58,007 |
127,653 |
Total current assets |
5,869,531 |
6,693,068 |
EQUIPMENT, at cost: |
||
Manufacturing and computer equipment |
2,269,373 |
2,356,535 |
Leasehold improvements |
351,926 |
371,538 |
Furniture and fixtures |
352,405 |
352,399 |
Vehicles |
57,792 |
61,896 |
3,031,496 |
3,142,368 |
|
Less: Accumulated depreciation and amortization |
2,195,570 |
2,226,638 |
835,926 |
915,730 |
|
OTHER ASSETS, net |
580,982 |
670,618 |
$ 7,286,439 |
$ 8,279,416 |
The accompanying notes are an integral part of these consolidated financial statements.
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS INVESTMENT
(Continued)
September 30, 2000 |
March 31, 2000 |
|
CURRENT LIABILITIES: |
||
Short-term notes payable
and current portion of |
$ 16,731 |
$ 16,825 |
Accounts payable |
1,640,711 |
2,425,514 |
Accrued expenses |
1,326,463 |
1,573,527 |
Customer advances |
102,976 |
65,886 |
Accrued income taxes |
159,285 |
56,457 |
Total current liabilities |
3,246,166 |
4,138,209 |
MINORITY INTEREST |
37,020 |
17,463 |
DEFERRED TAXES |
151,766 |
124,774 |
STOCKHOLDERS INVESTMENT: |
||
Preferred stock, $.01 par
value, |
- |
- |
Common stock, $.01 par
value, |
14,452 |
14,452 |
Capital in excess of par value |
4,862,481 |
4,862,481 |
Treasury stock at cost, 2,500 and 0 shares, at September 30, and March 31, 2000, respectively |
(6,969) |
- |
Cumulative translation adjustment |
(844,759) |
(548,100) |
Retained deficit |
(173,718) |
(329,863) |
Total stockholders investment |
3,851,487 |
3,998,970 |
$ 7,286,439 |
$ 8,279,416 |
The accompanying notes are an integral part of these consolidated financial statements.
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For
Three Months |
For the
Six Months |
|||
2000 |
1999 |
2000 |
1999 |
|
REVENUES |
$ 3,914,225 |
$ 3,556,031 |
$ 6,854,929 |
$ 6,612,967 |
COST OF REVENUES |
2,744,484 |
2,306,813 |
4,601,841 |
4,389,411 |
Gross profit |
1,169,741 |
1,249,218 |
2,253,088 |
2,223,556 |
OPERATING EXPENSES: |
||||
Sales and marketing |
260,925 |
163,112 |
523,533 |
336,919 |
Research and development |
383,398 |
512,062 |
868,201 |
1,028,582 |
General and administrative |
472,285 |
543,884 |
855,800 |
928,965 |
Restructuring |
- |
38,059 |
- |
76,411 |
1,116,608 |
1,257,117 |
2,247,534 |
2,370,877 |
|
Income (loss) from operations |
53,133 |
(7,899) |
5,554 |
(147,321) |
Interest expense |
(13,150) |
(2,782) |
(14,025) |
(4,115) |
Interest income |
9,309 |
3,223 |
15,982 |
5,773 |
Other income (expense) |
91,363 |
23,068 |
330,891 |
51,340 |
140,655 |
15,610 |
338,402 |
(94,323) |
|
Provision for income taxes |
56,627 |
10,023 |
166,053 |
6,914 |
84,028 |
5,587 |
172,349 |
(101,237) |
|
Minority interest |
(1,647) |
(3,678) |
(16,204) |
(4,366) |
Net income (loss) |
$ 82,381 |
$ 1,909 |
$ 156,145 |
$ (105,603) |
Basic net income (loss) per share |
$ 0.06 |
$ 0.00 |
$ 0.11 |
$ (0.07) |
Diluted net income (loss) per share |
$ 0.05 |
$ 0.00 |
$ 0.10 |
$ (0.07) |
Basic Weighted Average
Common Shares |
1,444,385 |
1,444,403 |
1,445,015 |
1,442,220 |
Diluted Weighted Average Common Shares Outstanding |
1,533,157 |
1,534,237 |
1,533,787 |
1,442,220 |
The accompanying notes are an integral part of these consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS INVESTMENT FOR THE YEARS
ENDED MARCH 31, 1999, AND 2000 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
Common Stock |
|||||||
Number of Shares |
Par Value |
Capital in Excess Of Par Value |
Treasury Stock |
Retained Earnings (Deficit) |
Accumulated Comprehensive Income (Loss) |
Other Comprehensive Income (Loss) |
|
BALANCE at March 31, 1998 |
1,454,211 |
$ 14,542 |
$ 4,881,068 |
$ - |
$ 32,712 |
$ (287,384) |
|
Further issuance of common stock in connection with a 10% stockdividend of March 27, 1998 |
214 |
2 |
(2) |
- |
- |
- |
- |
Purchase of treasury stock |
- |
- |
- |
(10,177) |
- |
- |
- |
Translation adjustment |
- |
- |
- |
- |
- |
139,648 |
139,648 |
Net loss |
- |
- |
- |
- |
(470,154) |
- |
(470,154) |
Total comprehensive loss |
$(330,506) |
||||||
BALANCE at March 31, 1999 |
1,454,425 |
14,544 |
4,881,066 |
(10,177) |
(437,442) |
(147,736) |
|
Further issuance of common stock in connection with a 10% stockdividend of March 27, 1998 |
302 |
3 |
(3) |
- |
- |
- |
- |
Sale of common stock |
5,000 |
50 |
3,126 |
- |
- |
- |
- |
Purchase of treasury stock |
- |
- |
- |
(11,676) |
- |
- |
- |
Retirement of treasury stock |
(14,500) |
(145) |
(21,708) |
21,853 |
- |
- |
- |
Translation adjustment |
- |
- |
- |
- |
- |
(400,364) |
(400,364) |
Net income |
- |
- |
- |
- |
107,579 |
- |
107,579 |
Total Comprehensive Loss |
$ (292,785) |
||||||
BALANCE at March 31, 2000 |
1,445,227 |
14,452 |
4,862,481 |
- |
(329,863) |
(548,100) |
|
Purchase of treasury stock |
- |
- |
- |
(6,969) |
- |
- |
- |
Translation adjustment |
- |
- |
- |
- |
- |
(296,659) |
(296,659) |
Net income |
- |
- |
- |
- |
156,145 |
- |
156,145 |
Total Comprehensive Loss |
$(140,514) |
||||||
BALANCE at September 30, 2000 (unaudited) |
1,445,227 |
$ 14,452 |
$ 4,862,481 |
$ (6,969) |
$ (173,718) |
$ (844,759) |
The accompanying notes are an integral part of these consolidated financial statements.
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
2000 |
1999 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
||
Net income (loss) |
$ 156,145 |
$ (105,603) |
Adjustments to reconcile
net income (loss) to net cash provided |
||
Depreciation and amortization |
177,940 |
199,437 |
Minority interest |
16,204 |
11,607 |
Deferred income taxes |
39,114 |
(15,231) |
Loss on disposal of fixed assets |
- |
18,848 |
Changes in Current Assets and Liabilities- |
||
Accounts receivable |
(142,641) |
(69,295) |
Inventories |
151,252 |
239,777 |
Prepaid expenses |
52,761 |
26,346 |
Other current assets |
62,115 |
(14,002) |
Accounts payable |
(615,535) |
(971,147) |
Accrued expenses |
(131,284) |
(323,584) |
Customer advances |
44,635 |
(112,759) |
Accrued income taxes |
112,409 |
18,734 |
Net cash used in operating activities |
$ (76,885) |
$ (1,096,872) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
||
Other assets |
$ 3,412 |
$ 42,736 |
Purchases of equipment |
(133,532) |
(146,643) |
Sale of minority interest |
3,354 |
7,324 |
Other, including foreign exchange effects on cash |
(55,833) |
1,397 |
Net cash used in investing activities |
$ (182,599) |
$ (95,186) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
||
Proceeds from short-term debt |
$ 1,353 |
$ 58,838 |
Payments on long-term debt |
- |
(2,526) |
Purchase of treasury stock |
(6,969) |
(11,677) |
Net cash (used in) provided by financing activities |
$ (5,616) |
$ 44,635 |
NET DECREASE IN CASH AND CASH EQUIVALENTS |
$ (265,100) |
$ (1,147,423) |
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR |
1,326,513 |
1,287,073 |
CASH AND CASH EQUIVALENTS AT September 30, 2000 and 1999 |
$ 1,061,413 |
$ 139,650 |
The accompanying notes are an integral part of these consolidated financial statements.
Novitron International, Inc.
AND SUBSIDIARIESNOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(1) Operations and Accounting Policies
Novitron International, Inc. ("the Company") prepared the consolidated financial statements included herein 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 managements opinion, the consolidated financial statements and footnotes reflect all adjustments necessary to disclose adequately the Companys financial position at September 30, 2000 and September 30, 1999. Management suggests these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Companys Annual Report of Form 10-K for the fiscal year ended March 31, 2000.
(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. (92.5% owned subsidiary see Note 3), NovaChem BV, Spectronetics NV, and Vital Scientific NV. 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.
(c) 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 September 30, and March 31, 2000:
September 30, 2000 |
March 31, 2000 |
|
Raw materials |
$1,108,543 |
$1,290,048 |
Work-in-process |
321,133 |
335,875 |
Finished goods |
592,465 |
734,254 |
$2,022,141 |
$2,360,177 |
(d) Revenue Recognition
The Company generally recognizes revenue from the sale of products and supplies at the time of shipment.
(e) Depreciation and Amortization of Equipment and Intangibles
The Company provides for depreciation and amortization using the straight-line method by charges to operations in amounts that allocate the cost of equipment and intangibles over their estimated useful lives. The estimated useful lives, by asset classification, are as follows:
Asset Classification |
Useful Lives |
Manufacturing and computer equipment |
3-7 years |
Furniture and fixtures |
3-7 years |
Leasehold improvements |
Life of lease |
Vehicles |
3-5 years |
Goodwill |
7-20 years |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Continued)
(1) Operations and Accounting Policies (continued)
(e) Depreciation and Amortization of Equipment and Intangibles (continued)
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," requires the Company to continually evaluate whether events and circumstances have occurred which 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 these 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. If the gross cash flows are less than the carrying value, the assets are written down to the estimated fair value of the asset. At September 30 and March 31, 2000, the Companys remaining goodwill relates to its investment in Vital Scientific NV. Based on an analysis of other assets at September 30, 2000, the Company does not believe impairment exists.
(f) Net Income (Loss) Per Share
The Company applies the provisions of SFAS No. 128, "Earnings per Share," for computing and presenting earnings per share. Basic net income (loss) per share is determined by dividing net income (loss) by the weighted average shares of common stock outstanding during the year. Diluted earnings per share is determined by dividing net income by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as common stock options and warrants based on the treasury stock method. For the six months ended September 30, 1999, 89,834 weighted average potentially dilutive shares were not included in the diluted weighted average shares outstanding, as they were antidilutive.
The calculations of basic and diluted weighted average shares outstanding are as follows:
Three Months Ended: Six Months Ended:
September 30, 2000 |
September 30, 1999 |
September 30, 2000 |
September 30, 1999 |
|
Basic weighted average common shares outstanding |
1,444,385 |
1,444,403 |
1,445,015 |
1,442,220 |
Weighted average potential common shares |
88,772 |
89,834 |
88,772 |
- |
Diluted weighted average shares outstanding |
1,533,157 |
1,534,237 |
1,533,787 |
1,442,220 |
(g) 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. The functional currency of Clinical Data (Australia) is the Australian dollar and NovaChem BV uses the United States dollar as its functional currency. Gains and losses from translating assets and liabilities that are denominated in currencies other than the respective functional currency are included in other expense in the consolidated statements of operations. 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. Foreign currency transaction gains and losses are included in other expense in the consolidated statements of operations.
(h) Managements 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.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2000(1) Operations and Accounting Policies (continued)
(i) 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 SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." 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. The Company began to amortize the software costs capitalized during fiscal years 1998 and 1997 over the sales ratio method during the year ended March 31, 1998. During fiscal year 1999, the Company began to amortize the software costs capitalized during 1999 over three years using the straight-line method. Total amortization recorded during the three months ended September 30, 2000 and 1999, was approximately $20,500, and $34,700, respectively, which is included in cost of revenues in the accompanying consolidated statements of operations.
(j) Comprehensive Income
Effective April 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires disclosure of all components of comprehensive income on an annual and interim basis. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.
(k) Segment Information
Effective for the year ended March 31, 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The requirements of this standard are presented in Note 4 of the Notes to Unaudited Consolidated Financial Statements.
(l) New Pronouncements
In March 2000, the Financial Accounting Standards Board (FASB) issued interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation an Interpretation of APB Opinion No. 25." The interpretation clarifies the application of the Accounting Principles Board (APB) Opinion No. 25 in specified events, as defined. The interpretation is effective July 1, 2000, but covers certain events occurring during the period after December 15, 1998, but before the effective date. To the extent that events covered by this interpretation occur during the period after December 15, 1998, but before the effective date, the effects of applying this interpretation would be recognized on a prospective basis from the effective date. Accordingly, upon initial application of the final interpretation, (a) no adjustments would be made to the financial statements for the periods before the effective date and (b) no expense would be recognized for any additional compensation cost measured that is attributable to periods before the effective date. The adoption of this interpretation did not have a material effect on the accompanying financial statements.
The Securities and Exchange Commission issued SAB No. 101, "Revenue Recognition," in December 1999. The Company is required to adopt this new accounting guidance through a cumulative charge to operations, in accordance with APB No. 20, "Accounting Changes," no later than the third quarter of fiscal 2001. The Company believes that the adoption of the guidance provided in SAB No. 101 will not have a material impact on future operating results.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2000(Continued)
(2) Restructuring
In the fourth quarter of fiscal 1999, the Company began implementation of a restructuring plan at its Vital Scientific subsidiary. As of September 30,1999, the Company had notified all affected employees about termination under the restructuring. At March 31, 2000, a total of $126,000 has been charged against earnings and paid out. Of this amount, $75,000 was charged during fiscal year 2000. All cash payments under the plan were paid during fiscal year 2000.
(3) Clinical Data (Australia) Pty. Ltd.
The Company, as part of an incentive program, entered into a restricted stock purchase agreement whereby a Company officer may purchase up to 7.5% (16,575 shares of common stock) of the Companys wholly-owned subsidiary, Clinical Data (Australia). The sale of such shares is at par value. On May 19, 1999, the officer purchased 7.5% of Clinical Data (Australia), of which 5% vested on such date. The minority interest as shown in the financial statements for fiscal year 2000 reflects such vested equity. The officer vested in the remaining 2.5% of Clinical Data (Australia) as of April 1, 2000.
(4) Segment Data
Effective for the fiscal year ended March 31, 1999, the Company has adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS No. 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions how to allocate resources and assess performance. The Companys chief decision-maker, as defined under SFAS No. 131, is the Chief Executive Officer. To date, the Company has viewed its operations and manages its business as principally three operating segments: the manufacture and sale of scientific instrumentation (Vital Scientific), the design and marketing of process monitoring instrumentation (NovaChem) and the sale of instruments and consumables in Australia (Clinical Data (Australia)). The Company evaluates the performance of its operating segments based on income before income taxes, accounting changes, and nonrecurring items. Intersegment sales and transfers are not significant. The "All Other" column includes corporate related items, results of insignificant operations and, as it relates to segment profit (loss), income and expense not allocated to reportable segments.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on the sales, operating costs, net income and total assets. Revenues are attributed to the subsidiary from which derived. Segment information for the six months ended September 30, 2000 and 1999 is as follows:
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2000(4) Segment Data (continued)
Instrument |
Sales |
Process |
All |
Consolidated |
|
Sales |
|||||
September 30, 2000 |
$ 5,561,295 |
$ 1,232,983 |
$ 60,651 |
$ - |
$ 6,854,929 |
September 30, 1999 |
5,420,972 |
1,117,577 |
74,418 |
- |
6,612,967 |
Operating Costs |
|||||
September 30, 2000 |
$ 5,516,698 |
$ 1,135,430 |
$ 89,746 |
$ 107,501 |
$ 6,849,375 |
September 30, 1999 |
5,621,426 |
984,804 |
84,549 |
69,509 |
6,760,288 |
Net Income (Loss) |
|||||
September 30, 2000 |
$ 100,949 |
$ 199,846 |
$ (76,836) |
$ (67,814) |
$ 156,145 |
September 30, 1999 |
(147,264) |
121,810 |
(89,896) |
9,747 |
(105,603) |
Total Assets |
|||||
September 30, 2000 |
$ 6,131,025 |
$ 842,517 |
$ 108,833 |
$ 204,064 |
$ 7,286,439 |
March 31, 2000 |
7,231,455 |
810,469 |
33,487 |
204,005 |
8,279,416 |
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements, within the meaning of the Securities Exchange Act of 1934 (Section 21E), may be made throughout this Discussion and Analysis. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, such words as, "anticipates," "plans," "expects," "believes," "estimates," and similar expressions are intended to identify such forward-looking statements. Such statements involve risk and uncertainties, including but not limited to competitive, governmental, economic, and technological factors that may affect the Companys operations, products, markets, and services. Actual results could differ materially from those expressed in such statements and readers are referred to the Companys other SEC reports and filings.
Financial Condition and Liquidity
The Company used approximately $77,000 of cash in operations during the first six months of fiscal year 2001. The decrease in funds comes from the decrease in accounts payable and accrued expenses and the increase in accounts receivable (as expressed in the Companys functional currency, the Dutch Guilder) offset by an increase in accrued income taxes and a decrease in the Companys inventory levels. During the first half of the year, the Company used $183,000 in investing activities, chiefly for the purchase of equipment. Approximately $6,000 was used in financing activities, primarily for the purchase of treasury stock.
In April 1999, the Company entered a new relationship with a major Dutch bank, which provides for a 4,000,000 Dutch Guilder (approximately $1,587,000) line of credit. Interest on this facility is set at 1.25% above the base rate as reported by the Netherlands Central Bank, presently 4.5%. Trade receivables and inventory of Vital Scientific are provided as security for this facility. The line continues as long as certain capital covenants are met. As of September 30, 2000, the Company is in full compliance with all capital covenants of the credit line and no amounts are outstanding.
In May 1999, Clinical Data (Australia) entered into an agreement for a 450,000 Australian dollar (approximately $244,000) line of credit with an Australian bank. Interest on this facility is set at prime plus 3%; the prime rate is presently 9.75%. Trade receivables and inventory of Clinical Data (Australia) are provided as security for this facility; the line also requires the maintenance of certain covenants. As of September 30, 2000, the Company is in full compliance with all capital covenants of the credit line and no amounts are outstanding.
The Companys sources of cash include cash balances and the aforementioned lines of credit from Dutch and Australian banks. The Company believes that available funds will be sufficient to fund it operations and capital requirements, as currently planned, for at least the next twelve (12) month period.
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 Companys 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 $893,000 of the September 30, 2000 balance of $1,061,000 of cash and cash equivalents is denominated in U.S. dollars. The effect of foreign currency exchange rate fluctuations upon translation into U.S. dollars is included in cumulative translation adjustment that is 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 hedging activities employed by the Company. The primary risk is to the monetary assets and liabilities denominated in currencies other than the U.S. Dollar. Approximately $5.78 million of $5.87 million of current assets reside in the Companys foreign subsidiaries.
Results of Operations
Second Quarter ended September 30, 2000 compared to the Second Quarter ended September 30, 1999
When analyzing the results of operations for the three and six month periods ended September 30, 2000 and 1999, consideration should be given to the decline of the Companys functional currency, the Dutch Guilder, against the U.S. dollar. For the quarter, the Dutch Guilder has weakened against the U.S. dollar by 16.0% and for the year-to-date, the decline is 14.6%.
Consolidated revenues increased 10.1% for the second quarter and 3.7% for the year-to-date when compared to the respective periods in the prior fiscal year. When expressed in the Companys functional currency, the Dutch Guilder, revenues have increased 27.3% in the second quarter and 18.8% for the year-to-date. Sales at Vital Scientific were up 31.5% for the quarter and 17.6% for the year-to-date comparatives, while Clinical Data (Australia) showed a decline in sales of 1.5% for the three months, but a 23.5% increase in sales over the comparable six-month period.
The gross profit margin decreased from 35.1% to 29.9% for the three-month periods ended September 30, 1999 and 2000, respectively, and from 33.6% to 32.9% for the six months then ended. Product mix and volume pricing at Vital Scientific, and an unfavorable exchange rate on imported products distributed by Clinical Data (Australia), contributed to the decline in margins.
Sales and marketing expenses increased 60.0% and 55.4% for the three and six-month comparatives, respectively. The increase for the quarter was primarily attributed to expenses at Vital Scientific associated with the first time attendance at a major United States exhibition and related to intensified international marketing and technical service activities. This was coupled with an unrepresentative base for comparison in fiscal year 2000, where costs were lower because of the restructuring plan described in Note 2 of the Notes to the Unaudited Consolidated Financial Statements.
Research and development expenses decreased 25.1% for the quarter and 15.6% for the year-to-date when compared to the same periods last fiscal year. When expressed in Dutch Guilders, the decrease is 12.8% and 3.2%, respectively. The decline is attributable to the completion of a project which had been compensated by a third party.
General and administrative expenses declined 13.2% and 7.9% for the three and six months, respectively. The decrease is primarily from increased efficiencies and cost containment at Vital Scientific.
As described in Note 2 in the Notes to Unaudited Consolidated Financial Statements, the Company undertook a restructuring program during fiscal years 1999 and 2000. The program was completed during fiscal year 2000.
Interest expense decreased for both the three and six months ended September 30, 2000 when compared to the same periods ended September 30, 1999. This reflects the decreased reliance on borrowed funds. Interest income increased during the same periods because funds were available for investment. Other income for the quarter ended September 30, 2000 is primarily the effect of foreign currency transaction gains and losses on the results of operations. For the year-to-date, the account also includes a payment for the termination of a distribution agreement between AVL Medical Instruments AG and Clinical Data (Australia) and an adjustment of interest payable. During the three and six months ended September 30, 1999, other income was principally composed of the effect of foreign currency transaction gains and losses on the results of operations.
As described in Note 3 of the Notes to Unaudited Consolidated Financial Statements, the minority interest on the September 30, 2000 and 1999 financial statements represents the 7.5% and 5%, respectively, of Clinical Data (Australia) sold to an officer of the Company.
Year 2000
The Company has completed the process of evaluating its product lines and information technology infrastructure to assess its exposure to the "Year 2000 compliance" issue. "Year 2000 compliance" means that the date-based performance and functionality of the product or system so identified will be the same for dates prior to, during, and after the year 2000, including the recognition of the year 2000 as a leap year.
The financial reporting systems currently used by the Company are "Year 2000" compliant. The "Year 2000" issue did not have a material impact on the Companys business operations or financial condition.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Foreign Exchange The accounts of the Companys foreign subsidiaries are translated in accordance with SFAS No. 52, "Foreign Currency Translation". In translating the accounts of the foreign subsidiaries into U.S. dollars, assets and liabilities are translated at the rate of exchange in effect at September 30, 2000, while stockholders equity is translated at historical rates. Revenue and expense accounts are translated using the weighted average exchange rate in effect during the three months ended September 30, 2000. Gains and losses from translating assets and liabilities that are denominated in currencies other than the subsidiaries respective functional currency are included in other income in the consolidated statements of operations. 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 equity in the accompanying consolidated balance sheets. Substantially all of the Companys sales were denominated in foreign currencies during the three-month periods ended September 30, 2000 and 1999. The Company recognized a loss of approximately $845,000 related to such foreign currency transactions and translations as of September 30, 2000, which is included in cumulative translation adjustment in the accompanying consolidated statements of stockholders investment.
Investment Portfolio The Company does not invest in derivative financial investments that meet the high quality standards, as specified in the Companys investment policy guidelines; the policy also limits the amount of credit exposure of any issue, issuer, and type of investment. See Note 1 Summary of Significant Accounting Policies in the Notes to Unaudited Consolidated Financial Statements.
Part II. OTHER INFORMATION
Item 1. Legal proceedings: None
Items 2-3. None
Item 4. Submission of Matters to a Vote of Security Holders:
At the Annual Meeting for the fiscal year ended March 31, 2000, held on September 12, 2000, the following matters were submitted to a vote of the security holders:
(a) Directors elected as follows:
Israel M. Stein
Arthur B. Malman
Alexander Sherman
(b) Matters voted on as follows:
Election of directors:
Arthur B. Malman:
1,369,067 voted for
4,450 withheld authority to vote
Alexander Sherman:
1,369,067 voted for
4,450 withheld authority to vote
Israel M. Stein:
1,369,067 voted for
4,450 withheld authority to vote
Ratification of auditors:
1,370,711 voted for
1,365 voted against
907 abstained
Items 5-6. None
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: November 13, 2000
Israel
M. Stein MD
President
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