<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter ended: June 30, 1996 Commission File Number: 0-19589
------------- -------
CONCEPTRONIC, INC.
---------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 02-0413153
----------------------------------- -------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
6 Post Road, Portsmouth, New Hampshire 03801
- --------------------------------------------- -------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 603-431-6262
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(a) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
--- ---
As of June 30, 1996, there were 1,700,000 shares of
Common Stock of the Registrant outstanding.
<PAGE> 2
CONCEPTRONIC, INC.
INDEX
Part I - Financial Statements:
Item 1 - Financial Statements
Condensed Balance Sheets -
June 30, 1996 (Unaudited) and December 31, 1995 3
Condensed Statements of Operations (Unaudited) -
Three Months and Six Months Ended June 30, 1996 and
July 2, 1995 4
Condensed Statements of Cash Flows (Unaudited)-
Six Months Ended June 30, 1996 and July 2, 1995 5
Notes to Condensed Financial Statements
(unaudited) 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II - Other Information
Items 1 through 6 9
Signatures 10
2
<PAGE> 3
CONCEPTRONIC, INC.
<TABLE>
Condensed Balance Sheets
<CAPTION>
June 30, 1996 Dec. 31,1995*
------------- -------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 10,945 $ 10,101
Accounts receivable, net 2,735,217 2,830,146
Inventories 4,201,404 3,240,066
Other assets, current 208,856 135,950
----------- -----------
Total current assets 7,156,422 6,216,263
Property, plant and equipment, net 1,444,139 1,521,915
Purchased software costs and other assets 35,831 76,611
----------- -----------
$ 8,636,392 $ 7,814,789
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion long-term debt $ 45,000 $ 43,000
Short-term borrowings 953,525 844,605
Accounts payable 2,268,655 1,167,875
Accrued expenses and other liabilities 801,610 906,569
----------- -----------
Total current liabilities 4,068,790 2,962,049
----------- -----------
Long-term debt, excluding current portion 1,063,451 1,086,850
----------- -----------
Stockholders' equity:
Common stock $.01 par value 17,000 17,000
Additional paid-in capital 5,199,747 5,199,747
Retained earnings (accumulated deficit) (1,712,596) (1,450,857)
----------- -----------
Total stockholders' equity 3,504,151 3,765,890
----------- -----------
$ 8,636,392 $ 7,814,789
=========== ===========
<FN>
* Condensed from audited financial statements.
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
CONCEPTRONIC, INC.
<TABLE>
Condensed Statement of Operations
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $3,629,586 $3,738,584 $7,560,262 $6,994,416
Cost of goods sold 2,804,613 2,495,737 5,604,367 4,827,362
---------- ---------- ---------- ----------
Gross profit 824,973 1,242,847 1,955,895 2,167,054
Selling, general and administrative expenses 906,267 880,553 1,821,529 1,593,561
Research and development expense 162,933 89,237 224,645 157,306
---------- ---------- ---------- ----------
Income (loss) from operations (244,227) 273,057 (90,279) 416,187
Other expense:
Legal costs 30,335 151,817 80,439 219,846
Interest expense, net 45,972 33,797 91,021 56,608
---------- ---------- ---------- ----------
Income (loss) before income tax expense (320,534) 87,443 (261,739) 139,733
Income tax expense - - - -
---------- ---------- ---------- ----------
Net income (loss) $ (320,534) $ 87,443 $ (261,739) $ 139,733
========== ========== ========== ==========
Net income (loss) per share $ (.19) $ .05 $ (.15) $ .08
========== ========== ========== ==========
Weighted average number of shares
outstanding 1,700,000 1,700,000 1,700,000 1,700,000
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
CONCEPTRONIC, INC.
<TABLE>
Condensed Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended
June 30, 1996 July 2, 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ (261,739) 139,733
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 168,708 177,034
Changes in assets and liabilities:
Accounts receivable 94,929 167,266
Inventories (961,338) (615,929)
Refundable income taxes and other assets (72,906) (52,354)
Accounts payable 1,100,780 (704,116)
Accrued expenses and other liabilities (104,959) 16,264
---------- ---------
Net cash provided by (used for) operating activities (36,525) (872,102)
---------- ---------
Cash flows used for investing activities:
Additions to property, plant and equipment (50,152) (6,544)
---------- ---------
Cash flows used for financing activities:
Proceeds from line of credit, net 108,920 831,539
Net repayments of current note payable (21,399) (15,484)
---------- ---------
Net cash provided by (used for) financing activities 87,521 816,055
Net increase (decrease) in cash 844 (62,591)
Cash at beginning of period 10,101 73,062
---------- ---------
Cash at end of period $ 10,945 $ 10,471
========== =========
</TABLE>
The accompanying notes are an integral part of these financial state
5
<PAGE> 6
CONCEPTRONIC, INC.
Notes to Financial Statements
(Unaudited)
A) Name of Business
----------------
Conceptronic, Inc. (the "Company") manufactures and sells equipment used in
the assembly and repair of printed circuit boards.
B) Basis for Presentation
----------------------
As permitted by the rules of the Securities and Exchange Commission (the
"Commission") applicable to quarterly reports on Form 10-QSB, these notes are
condensed and do not contain all disclosures required by generally accepted
accounting principles. Reference should be made to the financial statements and
related notes included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995, filed with the Commission on March 29, 1996.
At December 31, 1995, operating loss carry forwards of approximately
$719,000 were available to offset future taxable income for income tax purposes.
In the opinion of management of Conceptronic, Inc. (the "Company"), the
accompanying unaudited financial statements contain all adjustments considered
necessary to present fairly the financial position of the Company as of June 30,
1996 and the results of operations and cash flows for the periods presented. The
Company prepares its interim financial information using the same accounting
principles as it does for its annual financial statements.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
C) Earnings per Share
------------------
Earnings per share is computed based on the weighted average number of
common shares outstanding adjusted, when dilutive, for the number of shares
issuable upon assumed exercise of stock options after the assumed repurchase of
shares with the related proceeds.
D) Litigation
----------
On December 13, 1991, the Company was served with a complaint from
Vitronics Corporation ("Vitronics"), one of the Company's competitors, alleging
patent infringement involving its reflow soldering ovens. Vitronics stated that
it sought an injunction, together with unspecified damages and costs. The claim
was filed in the United States Federal District Court, District of New
Hampshire.
In August 1995, the presiding U.S. District Court judge issued a directed
verdict of non-infringement in Conceptronic's favor regarding method patent
#4,654,502. Additionally, a favorable decision was reached on the apparatus
patent #4,833,301 by a jury which found non-infringement on all past and current
Conceptronic ovens. Vitronics' has appealed the non-infringement finding of
patent #4,654,502. The United States Court of Appeals has subsequently reversed
the trial court's judgment of non-infringement of claim 1 of patent #4,654,502
and remanded the case for further proceedings.
In a related action, in July 1996, the United States Patent Office granted
Conceptronic's request for a reexamination of Vitronics' patent #4,654,502 claim
1 and 2.
In the opinion of counsel, the ultimate outcome of this litigation cannot
presently be determined; however, management of the Company believes the claim
is without merit and that the Company will prevail. Accordingly, no provision
has been made in the accompanying financial statements for any potential
liability that might result.
6
<PAGE> 7
CONCEPTRONIC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JULY 2, 1995.
The Company had a net loss of approximately $321,000 for the three months ended
June 30, 1996 compared to a profit of $87,000 for the three months ended July 2,
1995. Second quarter 1996 loss was due to lower margins and higher research and
development expenses compared to the second quarter for 1995.
Net sales in the second quarter of 1996 were approximately $3,630,000 compared
to approximately $3,739,000 for the second quarter of 1995, a decrease of
approximately 3%. Sales for the second quarter of 1996 were marginally impacted
by the slowdown in bookings.
Bookings in the second quarter of 1996 were approximately $3,610,000, compared
to approximately $4,344,000 in the second quarter of 1995, a decrease of
approximately 17%. The Company experienced a sharp slowdown in bookings for its
reflow oven line. However, management believes this slowdown was temporary with
early third quarter bookings on the rise.
Gross profit margin was 23% of sales in the second quarter of 1996 compared to
33% for the second quarter of 1995. The Company is experiencing increasing
competitive pressures brought on by over-capacity in the industry and the higher
manufacturing costs required to meet customer expectations in product
performance and reliability. However, management believes that the Company's
position as a product leader will provide opportunities to increase margins.
Selling, general and administrative expenses for the second quarter of 1996 were
$906,000 compared to $881,000 for the second quarter of 1995. The increase was
largely due to product promotion expenditures and the expansion of the Company's
sales and service organization.
Research and development expenditures for the second quarter of 1996 were
$163,000 compared to $89,000 in the second quarter of 1995. The Company
continues to spend the majority of its development dollars on its reflow solder
oven line and Freedom series rework stations.
Legal costs for the second quarter of 1996 were $30,000 compared to $152,000 for
the same period in 1995. These costs were primarily incurred in the Company's
defense of the patent infringement appeal by Vitronics.
Net interest expense for the second quarter of 1996 was $46,000 compared to
$34,000 for the second quarter of 1995. The interest expense represents the
mortgage interest on the Company's manufacturing and office facility and the
Company's credit line. The increase in expense for the second quarter 1996
compared to 1995 is attributed to increased amounts outstanding under the credit
line due to the need to fund working capital requirements.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JULY 2, 1995.
The Company had a net loss of approximately $262,000 for the first half of 1996
compared to a net profit of $140,000 in the first half of 1995. Lower margins
and higher research and development expenses contributed to the first half 1996
loss.
Net sales for the first half of 1996 were approximately $7,560,000 compared to
$6,994,000 for the first half of 1995, an increase of 8%. The increase is
primarily due to sales of the Company's Freedom HGR 2000 series rework station.
7
<PAGE> 8
Bookings in the first half of 1996 were approximately $7,800,000 compared to
$7,162,000 in the first half of 1995, a 9% increase. A large portion of the
increase is due to the increasing demand for the Company's Freedom HGR 2000
rework station. Backlog as of June 30, 1996 was approximately $1,613,000
compared to approximately $2,416,000 as of July 2, 1995. Bookings decreased by
$700,000 or 17% from second quarter 1995 compared to second quarter 1996 which
affected the June 30, 1996 backlog.
Gross profit margin was 26% for the six months ended June 30, 1996 compared to
31% for the same period in 1995. The Company experienced a decline in second
quarter 1996 margins due to increasing competitive pressures brought on by
over-capacity in the industry and the higher manufacturing costs required to
meet customer expectations in product performance and reliability.
Selling, general and administrative expenses for the six months ended June 30,
1995 were $1,822,000 compared to $1,594,000 for the same period in 1995. The
increase is largely due to product promotion expenditures and the expansion of
the Company's sales and service organization.
Research and development expenditures for the first half of 1996 were $225,000
compared to $157,000 in the first half of 1995. The Company continues to spend
the majority of its development dollars on its reflow solder oven line and
Freedom series rework stations.
Legal costs for the first half of 1996 were $80,000 compared to $220,000 for the
first half of 1995. These costs were primarily incurred in the Company's defense
of the patent infringement appeal by Vitronics.
Net interest expense for the first half of 1996 was $91,000 compared to $57,000
for the first half of 1995. The interest expense represents the mortgage
interest on the Company's manufacturing and office facility and the Company's
credit line. The increase in expense for the first half of 1996 compared to 1995
is attributed to increased amounts outstanding under the credit line due to the
need to fund working capital requirements.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operations for the period ending June 30, 1996 was $37,000
compared to $872,000 for the period ending July 2, 1995. The change in cash from
operations is due to the second quarter 1996 loss of $320,000, an increase in
inventories to support on-time reflow oven deliveries and an increasing bookings
rate for the Freedom HGR 2000 rework station. This use of cash flows was offset
by higher vendor trade payables. Net cash used for investing activities for the
first half of 1996 was $50,000 compared to $7,000 in the first half of 1995,
1996 additions include $30,000 for electrical service upgrades. Net cash flows
provided by financing activities was $87,000 for the six months ended June 30,
1996 compared to net cash flows provided by financing activities of $816,000 for
the same period in 1995. The decrease reflects changes in proceeds from the
Company's working capital credit line.
The Company had a $1,000,000 demand line of credit with the First National Bank
of Boston of which $954,000 was drawn down as of June 30, 1996. As of July 16,
1996, First National Bank of Boston increased the demand line to $1,500,000.
The Company believes it has sufficient cash flows from operations, cash on hand,
and its credit line to finance its business for the balance of the fiscal year.
This release contains forward-looking statements based on current expectations
that involve a number of risks and uncertainties. The factors that could cause
actual results to differ materially include the following: general economic
conditions and growth rates in the SMT circuit manufacturing industry and
related industries, including but not limited to the printed circuit board
industry; competitive factors and pricing pressures; changes in product mix;
changes in the seasonality of demand patterns; the timely development and
acceptance of new products; inventory risks due to shifts in market demand;
component constraints and shortages; risks of nonpayment of accounts receivable;
ramp up and expansion of manufacturing capacity; and the risks described from
time to time in the Company's SEC reports.
8
<PAGE> 9
CONCEPTRONIC, INC.
PART II
Other Information
Item 1: Legal Proceedings.
The Company is involved in the following action:
1. VITRONICS CORPORATION V. CONCEPTRONIC, INC. On December 13, 1991,
the Company was served with a complaint from Vitronics Corporation
("Vitronics"), one of the Company's competitors, alleging patent infringement
involving its reflow soldering ovens. Vitronics stated that it sought an
injunction, together with unspecified damages and costs. The claim was filed in
the United States Federal District Court, District of New Hampshire.
In August 1995, the presiding U.S. District Court judge issued a
directed verdict of non-infringement in Conceptronic's favor regarding method
patent #4,654,502. Additionally, a favorable decision was reached on the
apparatus patent #4,833,301 by a jury which found non-infringement on all past
and current Conceptronic ovens. Vitronics' has appealed the non-infringement
finding of patent #4,654,502. The United States Court of Appeals has
subsequently reversed the trial court's judgment of non-infringement of claim 1
of patent #4,654,502 and remanded the case for further proceedings.
In a related action, in July 1996, the United States Patent Office
granted Conceptronic's request for a reexamination of Vitronics' patent
#4,654,502 claim 1 and 2.
In the opinion of counsel, the ultimate outcome of this litigation
cannot presently be determined; however, management of the Company believes the
claim is without merit and that the Company will prevail. Accordingly, no
provision has been made in the accompanying financial statements for any
potential liability that might result.
Items 2 and 3: Not Applicable
Item 4: Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Stockholders, held June 25, 1996, the
Company's Stockholders elected William Barker, James Gerson, Daniel McCarthy,
Richard Perkins, Jr., Garry Prime and John Rolls as Directors of the Company by
the following vote: 1,486,031 voting for and 6,000 shares withheld. The
Stockholders ratified the selection of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending December 31, 1996, by the
following vote: 1,478,031 voting for, 3,000 shares voting against and 11,000
shares abstaining.
Item 5: Not Applicable
Item 6: Exhibits and Reports on form 8-K
(a) 11a Statement Regarding Computation of Per Share Earnings
(b) Reports on Form 8-K
none
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements 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.
Conceptronic, Inc.
August 12, 1996 By: \\ Garry A. Prime
---------------------------------
Garry A. Prime
Chief Executive Officer
August 12, 1996 By: \\ William D. Gray
---------------------------------
William D. Gray
Chief Financial Officer
10
<PAGE> 11
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
11 a Statement Regarding Computation of Per Share Earnings
<PAGE> 1
EXHIBIT 11 a
CONCEPTRONIC, INC.
<TABLE>
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Six Months Ended
June 30, 1996 July 2,1995
<S> <C> <C>
NET INCOME (LOSS) $ (261,739) $ 139,733
---------- ----------
PRIMARY EARNINGS PER SHARE
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 1,700,000 1,700,000
STOCK OPTIONS - -
OTHER - -
---------- ----------
1,700,000 1,700,000
NET INCOME (LOSS) PER SHARE $ (.15) $ .08
---------- ----------
FULLY DILUTED EARNINGS PER SHARE:
WEIGHTED AVERAGED COMMON SHARES OUTSTANDING 1,700,000 1,700,000
STOCK OPTIONS - -
OTHER - -
- -
---------- ----------
1,700,000 1,700,000
NET INCOME (LOSS) PER SHARE $ (.15) $ .08
---------- ----------
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND CONDENSED BALANCE SHEETS (UNAUDITED) AT JUNE 30, 1996 IN FORM 10-Q.
</LEGEND>
<CIK> 0000879986
<NAME> CONCEPTRONIC, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 10,945
<SECURITIES> 0
<RECEIVABLES> 2,735,217
<ALLOWANCES> 0
<INVENTORY> 4,201,404
<CURRENT-ASSETS> 7,156,422
<PP&E> 1,444,139
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,636,392
<CURRENT-LIABILITIES> 4,068,790
<BONDS> 0
<COMMON> 17,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,636,392
<SALES> 7,560,262
<TOTAL-REVENUES> 7,560,262
<CGS> 5,604,367
<TOTAL-COSTS> 5,604,367
<OTHER-EXPENSES> 80,439
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,021
<INCOME-PRETAX> (261,739)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (261,739)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
