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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-19589
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CONCEPTRONIC, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 02-0413153
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
</TABLE>
ONE CHURCH STREET,
SUITE 302,
ROCKVILLE, MARYLAND
(Address of Principal executive offices)
20850
(Zip Code)
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(301) 315 - 0027
(Registrant's telephone number including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
Title of Class
COMMON STOCK, $.01 PAR VALUE
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 as amended, 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 __
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
State issuer's revenues for its most recent fiscal year. $15,653,000
As of March 19, 1997, 3,271,326 shares of Common Stock, $ .01 par value per
share and 4,000,000 shares of Class A Common Stock, $ .01 par value per share,
were outstanding. The aggregate market value of the shares of Common Stock, held
by non-affiliates, based upon the closing price for such stock on March 19, 1997
was approximately $8,542,856.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement for its Annual Meeting of
Stockholders to be held May 9, 1997 is incorporated by reference into Part III
hereof.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Conceptronic, Inc. (the Registrant or the Company), was organized as a
Delaware corporation on June 1, 1987. Conceptronic designs, manufactures and
markets specialized, computer-controlled capital equipment used in the surface
mount electronics circuit assembly industry.
The Company's conveyorized forced convection ovens are used for initial
attachment of surface mount electronic components to printed circuit boards
(PCB's) with epoxy or solder materials. The Company's rework systems are used to
replace singularly failed components or their associated attachment sites. The
Company's cleaning equipment is used for the removal of solder paste residues
from stencils and bare circuit assemblies. This equipment is "batch" in nature
(i.e., it does not include a conveyor). In addition, all cleaner products
function without the use of CFC (chlorofluorocarbon) solvents. Instead, a
special alcohol and water solvent is used.
The Company's equipment is not intended for the "insertable component"
manufacturing process (called "through-hole" manufacturing). The Company has
specifically targeted the rapidly growing surface mount technology (SMT)
manufacturing industry. In comparison to traditional through-hole manufacturing,
SMT component mounting affords far greater electronic functionality with a
significant reduction in size and weight of the PCB. Furthermore, this process
improves overall PCB reliability and lowers manufacturing costs. SMT
manufacturing is expanding rapidly in the automotive, computer,
telecommunications, aerospace and medical electronic markets and the Company has
a strong customer base in these areas. Furthermore, since the SMT manufacturing
process differs greatly from the through-hole process, significant capital
equipment purchases are required for its implementation.
SMT manufacturing involves a PCB substrate, SMT components, an
electronically-conductive attachment media (such as tin/lead solder paste) and a
production line consisting of specific types of manufacturing equipment. In
simplest terms, SMT component leads are mounted and attached onto one, or both
sides of a circuit assembly (typically a PCB) so that the finished "circuit
assembly" can be used for its intended computerized function.
In the first step of the SMT manufacturing process solder "paste" is
deposited onto metalized areas of the PCB using an automated stencil printer.
The open areas of the stencil eventually clog with dried paste and must be
cleaned. The Company's batch cleaners are used for this process. After stencil
printing, SMT components and their leads are robotically placed onto the surface
of the PCB. Next, a process must be performed to semi-permanently attach
component terminations to the PCB for electrical continuity, long life and
proper circuit function. This process is called mass reflow soldering. In this
process, the solder paste and the circuit assembly are heated and cooled, under
strict thermal conditions, to form solder "joints". The Company's
computer-controlled, forced convection ovens are used for this part of the
process. Finally, the components and solder joints are electrically tested. If a
component and/or solder joint failure is indicated a rework step must be taken.
The Company's computer-controlled rework/repair products are used for this part
of the process.
In 1987, the Company introduced its first line of computer-controlled
rework systems. Initial versions were designed to operate using carefully
directed forced convection heating. In 1991, the Company introduced a line of
computer-controlled rework systems which operated utilizing pattern-specific
(i.e., focused) infrared energy. In early 1994 the Company introduced its
Freedom Series rework systems designed to process new DCA (direct chip attach)
components such as BGA (ball grid array) and flip chip components in addition to
standard SMT packages.
In 1990, the Company's first line of technologically advanced conveyorized
forced convection SMT processing ovens were developed and introduced. This line
of ovens, known as the Discovery "Mark" Series, was designed to provide greater
operating flexibility and heating efficiency than traditional infrared-based
reflow ovens. In 1991, the Company introduced the capability to operate these
ovens using a nitrogen-enriched
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atmosphere. This enabled the product line to penetrate an additional segment of
the SMT soldering market. In late 1992, the Company introduced a new line of
high velocity forced convection ovens - the HVC Series. These ovens were
developed to further improve operating performance and to re-position the
Company in the worldwide oven market. Reflow ovens are currently the Company's
largest revenue generator. In early 1994, the company introduced a new low
volume production/low cost forced convection oven called the J Series 60. In
early 1995 a re-designed version of the J Series 60 was introduced (the Concept
60) to establish a new standard in thermal performance, operating reliability,
cost and floor space requirements.
During 1992, 1993 and 1994 the Company expanded the capabilities of its
existing batch cleaning product line. Additional "modules" were added to the
Atlantis Series, the Company's batch cleaning line, in order to address the
post-soldered PCB cleaning market. All Atlantis cleaners are unique in that they
use a water/bio-generated alcohol solvent blend.. Bio-generated alcohols are
naturally derived from organic materials, clean equal to, or better than CFC's,
are non-combustible in the cleaning system and emit very low levels of volatile
organic compounds (VOC's).
The Company attributes its growth to several factors: the continued drive
to miniaturize PCB's for a wide range of products in the electronics industry;
the establishment of strategic partnerships with customers, effective
positioning of product lines in relation to the competition, significant
repeat-order business and a growing worldwide distribution network of OEM and
sales agents.
SERVICES, PRODUCTS AND THEIR MARKETS
The Company's three principal product lines are:
- CONVEYORIZED FORCED CONVECTION OVENS. Sophisticated,
computer-controlled ovens used to mass reflow solder or epoxy attach
electronic components onto printed circuit board surfaces under tightly
controlled processing conditions.
- REWORK SYSTEMS. Sophisticated, computer-controlled stations used in
the removal and/or replacement of failed surface mounted components and/or
individual solder joints on printed circuit boards and/or for the
prototyping of new SMT printed circuit board designs.
- BATCH CLEANERS. Low volume, PLC (programmable logic controller)
controlled spray-based systems used to remove residual solder flux from
PCB's before the soldering process and to remove residual solder paste from
metal stencils.
The Company believes that its product lines complement one another. In
addition, all three product lines are marketed and sold through the same network
of sales agents.
FORCED CONVECTION OVENS
In reflow soldering, tens of thousands of connections can be formed
simultaneously between surface mount component leads and the PCB surface. This
operation must be performed under tightly controlled thermal conditions to avoid
damage to the components and the PCB. As the PCB and components move on a
conveyor system through the heating chamber of the oven, thermal energy is
precisely delivered in controlled stages using heated forced gas convection.
Forced convection is used due to its ability to transfer heat rapidly and
uniformly with low required operating temperatures. Unlike traditional
infared-dominant soldering ovens, this technique also protects sensitive devices
from overheating.
The Company's ovens utilize proprietary computer-control technology which
incorporates Windows(TM) operating software, high velocity turbulent gas
impingement and several patent pending methods for gas/flux management to
maintain consistent flow levels (thermal performance) while in the presence of
highly contaminating, flux by-products. The consistent thermal efficiency of
these systems enables the processing of a wide range of PCB assemblies with
minimal required oven parameter changes. These systems can be optionally
operated with nitrogen gas at low oxygen levels within the heat chamber. The
Company's forced convection ovens are easily integrated with other automated
processing equipment used in the PCB assembly process, such as robotics
component placement and in-line cleaning systems.
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The Company's conveyorized forced convection ovens also possess the
following:
- Dual track edge rail and belt transport conveyors. This feature
enables the end-user to double processing throughput while minimizing the
use of production space.
- High velocity gas impingement for low required heating temperatures,
greater safety fr om the possibility of PCB/component thermal damage,
better cooling efficiency and reduced heater setting adjustments regardless
of product mass.
- Precise computerized monitoring and control of operating parameters
for maximum circuit reliability and process control.
- CIM (Computerized Intergrated Manufacturing) capability with other
production equipment.
- Nitrogen-rich processing atmosphere for reduced metal oxidation,
solder ball reduction, improved solder wetting and reduced solder flux
residues on PCB's.
- Superior product cooling performance and low required maintenance in
conjunction with the use of the Company's new gas-to-gas heat exchange/flux
management options (patents pending).
The Company currently offers four different oven models to address low,
medium and high volume production users. Selling prices range from approximately
$25,000 to $180,000 depending upon heat chamber length and options selected.
REWORK SYSTEMS
The Company introduced its first rework system in 1987. These rework
systems serve two basic tasks: the removal and subsequent replacement of
defective or improperly attached components and/or to enable the user to
prototype new circuit assemblies on a limited production basis. Although heating
is localized in all rework applications, the computer-control technology
utilized is similar to that which is used in the Company's reflow soldering
ovens. For example, as in the Company's reflow ovens, all rework systems include
a computerized PCB product profiling system that allows the end-user to heat
product according to their unique processing guidelines.
The Company offers a wide range of computer-controlled rework systems.
Low-end systems are tabletop systems which heat component leads and PCB pads
(i.e., solder connection areas) using localized forced convection or infrared
energy. High-end systems incorporate semi-automatic component placement and
removal capability. All models incorporate vision location/alignment capability.
A video monitor included on the systems provides the operator with an accurate,
magnified view of the component and associated attachment points to the PCB.
High-end models are free-standing and are capable of handling very large
PCB's and surface mount component packages which have minimal spacing between
soldering areas. In 1994, the Company introduced a rework system called the
Freedom HGR 2000. This system can solder and de-solder both traditional SMT
components as well as the latest "flip chip" and "micro-BGA" packaging
technologies. These new components utilize far less space, weigh less and
provide increased functionality over traditional components. Standard rework
systems are not able to process such devices.
The Company makes an effort to work closely with key manufacturers so that
technical enhancements or new products can be identified and instituted rapidly.
The Company sells its rework systems at prices ranging from approximately
$20,000 to $80,000 depending on component type, dimensions, PCB size and options
selected.
NON-CFC BATCH CLEANING SYSTEMS
In 1991, the Company commercially introduced its Atlantis Series of batch
stencil cleaners. Initial systems were designed to clean solder paste residues
from stencils used in the screen printing of solder paste onto PCB's. Stenciling
of solder paste is a required step prior to SMT reflow soldering so that during
the reflow soldering process, the addition of heat will cause solder joints to
form only in designated areas. In addition, to
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maintain proper deposition of solder paste, stencils must be cleaned regularly
to remove hardened residues on the stencil walls. The proprietary design
features of Atlantis Series cleaners reduce waste generation and VOC emissions
in comparison to competitive cleaner designs. In 1995, an advanced computerized
control system was added to the Atlantis Series.
MANAGEMENT CHANGE
In October 1996, Rainer H. Bosselmann joined the Company as Chairman of the
Company's Board of Directors and Chief Executive Officer. Mr. Bosselmann
replaced Garry A. Prime, who continues to be Vice Chairman of the Board of
Directors and a director of the Company. Reference is made to Part III of this
Form 10-KSB, incorporated herein by reference, for further information with
respect to Mr. Bosselmann.
RECENT DEVELOPMENTS
The Company is currently pursuing a strategic plan involving the
diversification of its business through business acquisitions and/or other
investments. Management of the Company believes that this diversification
strategy will provide the potential for growth and profit. In this connection,
on March 5, 1997, a wholly-owned subsidiary of the Company was merged with and
into White Mountain Cable Construction Corp. ("White Mountain"). White Mountain
is engaged in the construction, reconstruction, maintenance, repair and
expansion of communications systems, cable television and data systems,
including providing aerial construction and splicing of both fiber optic and
coaxial cable to major telecommunications customers. White Mountain will be
operated as a wholly-owned subsidiary of the Company.
In connection with the Company's diversification plans, the Company's
management has had under review the possible advantages and disadvantages of
pursuing an internal restructuring of the functions and operations of the
Company. In pursuit of this strategy, and as discussed above, the Company
effectuated the acquisition of White Mountain through a wholly-owned subsidiary
of the Company, and the operations of White Mountain are now conducted by this
wholly-owned subsidiary. The Company owns all of the outstanding capital stock
of the subsidiary but presently operates its Conceptronic operating assets
directly. In keeping with this strategy of internal restructuring, the Company
has determined that it would be in the best interests of the Company and its
stockholders for the Company to transfer all or substantially all of its
Conceptronic, Inc. operating assets to a wholly-owned subsidiary which would
also assume all of the liabilities of the Company. The Company would then change
its name to "Arguss Holdings, Inc.", following which the newly-created
wholly-owned subsidiary of the Company would adopt the name "Conceptronic, Inc."
The Company believes that the new holding company structure would permit
greater flexibility in the management and financing of new and existing business
operations and would also facilitate the Company's entry into new businesses,
the disposition of existing businesses and the formation of joint ventures or
other business combinations with third parties. The Company currently
contemplates that upon the consummation of any additional acquisitions or other
investments, the acquired operations would also be placed into one or more
corporate entities in exchange for the issuance and sale to the holding company
of capital stock constituting all of the outstanding capital stock of each newly
formed subsidiary. Each new subsidiary would consequently become a wholly-owned
subsidiary of the holding company. The holding company's operations would then
be conducted entirely by the newly formed wholly-owned subsidiaries.
The transfer by the Company of all or substantially all of its
Conceptronic, Inc. operating assets to a wholly-owned subsidiary and the change
of the Company's corporate name are subject to the requisite approval of the
Company's stockholders. The Company plans to seek such approvals at its Annual
Meeting of Stockholders to be held on May 9, 1997.
PRODUCT DEVELOPMENT
In 1996 the Company introduced its latest version Freedom rework system as
well as its initial version of the Genesis, a gas-to-gas heat exchange cooling
system for the Company's forced convection solder reflow ovens.
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The latest iteration of Freedom Series rework systems incorporate an
enhanced vision and alignment capability. The Freedom system has the capability
of processing the latest flip chip, micro-BGA, BGA and CGA, ("ball grid
array"and "column grid array") components as well as standard SMT components.
This system represents a complete design departure from previous rework
products.
The Company's new cooling system, Genesis, was designed to exceed the
product cooling and flux management capabilities of all other air/nitrogen
cooling systems while eliminating the need for water/propylene glycol chilled
water heat exchange. Genesis cooling systems eliminate the need for hazardous
waste handling and are able to maintain consistent cooling performance through
its unique ability to resist flux clogging while improving solder joint
reliability.
AVAILABILITY OF RAW MATERIAL
The Company believes that all raw materials and components used in its
manufacturing operations are readily available. The Company has not experienced
any difficulty or delays in obtaining these items.
PATENTED AND PROPRIETARY TECHNOLOGY
The Company relies primarily upon trade secrets, unpatented proprietary
know-how and continuing technological innovation to develop and maintain its
competitive position. The Company has secured one patent for forced air rework
technology and has patents pending in connection with the cooling and flux
management technology used in its reflow soldering ovens.
SEASONALITY
The Company has not experienced material seasonality in its business.
MARKETING AND SALES
The Company targets its marketing efforts primarily to the computer,
automotive, military/aerospace, telecommunications and SMT contract
manufacturing industries. Traditionally, these industry segments utilize the
most advanced SMT manufacturing techniques and capital equipment in order to
remain competitive.
The Company believes that it has established a reputation for providing
innovative and reliable products that are well suited to advanced SMT
manufacturing requirements. The Company seeks to maintain this reputation by
continuing close relationships with key manufacturers and maintaining research
and development activities which the Company believes allows it to respond
quickly to important technological changes in the form of new or advanced
products.
For the year ended December 31, 1996, some of the Company's larger
customers are Celestica, Inc., Chrysler Corporation, Ford Motor Company,
Motorola, Inc., Philips Electronics Instruments Company, Sun Microsystems
Computer Corp., and US Robotics Access Corp. No customer accounted for more than
10% of the Company's total revenue in 1996.
For the year ended December 31, 1996 and 1995 international sales accounted
for approximately 35% and 28% of the Company's net sales respectively. Although
the Company has not experienced any significant problems from its international
sales, the Company could encounter greater delays or costs in enforcing
contracts with customers outside the United States should disputes arise, and
the ability of the Company to offer competitively priced products outside the
United States may be affected by currency fluctuations.
The Company's principal marketing and promotional activities include
attendance at industry trade shows, space advertising in various trade
publications, publication of various technical articles in trade journals and
proceedings and product-related presentations and demonstrations at the factory
and in the field. The Company utilizes 17 independent sales representative
organizations for North America and 14 independent distributors and
representatives in other countries. In 1996 the Company opened an Asian Regional
Sales office in Malaysia.
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BACKLOG
On December 31, 1996, the Company had purchase orders reflecting a backlog
of $1,200,000, compared to a December 31, 1995 backlog of $1,400,000. All of the
backlog at December 31, 1996 is expected to be shipped within the next twelve
months. At present, most of the Company's customers pay within 50 to 60 days of
billing.
COMPETITION
Competition in the printed circuit board assembly equipment market is
substantial, particularly in the area of convection ovens. The Company believes
that the technological superiority of its products, together with its
manufacturing philosophy and expertise, gives it a competitive advantage in the
SMT assembly equipment industry. In addition, the Company believes it is a
leading supplier of automatic and semi-automatic rework systems in the United
States. However, there can be no assurance that the Company will be able to
compete effectively against its competitors in the future.
The Company believes that its primary competitors include BTU
International, Electrovert USA Corporation, Vitronics Corporation and Heller
Industries, Inc., in the conveyorized oven market. In the rework station market,
the Company's primary competitors are Air-Vac Engineering, Co., Inc., SRT, Inc.
Advanced Techniques, Inc. and A.P.E., Inc. In the batch cleaning market its
competitors are Austin American Technology, EMC Global Technologies, Westek and
Smart Sonic.
The principal competitive factors in the PCB assembly equipment market are
product performance, price, reliability and the ability to meet customer's
delivery schedules. The Company believes that it competes favorably with respect
to each of these factors.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1996 and 1995, the Company expended
approximately $385,000 and $442,000 respectively, or approximately 2.5% and 2.9%
of its net sales for each respective year on research and product development.
In 1995, expenditures involved development work on the Freedom HGR 2000,
the new Concept 60 oven and other enhancements to the Company's reflow oven
product line. In 1996, expenditures primarily involved work on the
vision/alignment system of the Freedom Series systems, two new, patent pending,
product cooling/flux management systems for the Company's reflow ovens, further
enhancements to the dual-track conveyor systems and a new cable based, PCB
center support system.
GOVERNMENT REGULATION
There are presently no significant government regulations with respect to
the Company's business.
EMPLOYEES
As of December 31, 1996, the Company had 110 full-time employees and 3
part-time employees. Of these 113 employees, 5 are executive officers of the
Company; 18 are involved in marketing and sales; 70 are involved in
manufacturing operations; 3 are involved in research and product development; 2
are involved in purchasing; 10 are involved in engineering and 5 are employed in
general and administrative activities. None of the Company's employees are
represented by labor organizations and the Company is not aware of any
activities seeking organization. The Company considers its relationship with its
employees to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
FACILITIES
The Company currently owns and maintains a manufacturing facility in
Portsmouth, New Hampshire. This building, purchased by the Company in May 1992,
has approximately 42,800 square feet of manufacturing and office space.
Management expects this facility to provide adequate manufacturing capability
for the
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foreseeable future. As of January 1, 1997, the Company leases and maintains its
principal offices in Rockville, Maryland consisting of approximately 1,683
square feet of office space.
ITEM 3. LEGAL PROCEEDINGS
The company is involved in the following action(s):
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 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 U.S. District Court issued a directed verdict of
non-infringement in the Company's favor regarding method patent #4,654,502.
Additionally, a 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 appealed the directed verdict on patent #4,654,502 and the United
States Court of Appeals subsequently reversed and remanded the case for further
proceeding. A trial on the #4,654,502 patent is scheduled for May 1997.
In related actions, in July 1996, the United States Patent Office granted
the Company's request for a reexamination of Vitronics' patent #4,654,502 claim
1. In December 1996, the Company named Vitronics and its Chairman and CEO, James
Manfield in a lawsuit, filed in Superior Court of the State of New Hampshire,
citing malicious prosecution and abuse of process. The suit claims that
Vitronics, when it initiated the 1991 patent infringement case against
Conceptronic, knew or should have known that the suit was without merit and that
claim 1 of U.S. Patent #4,883,301 was invalid, unenforceable and that the patent
not infringed.
In the opinion of counsel, the ultimate outcome of this litigation cannot
presently be determined; however, management of the Company believes Vitronics'
claims are without merit and that the Company will ultimately prevail.
Accordingly, no provision has been made in the accompanying financial statements
for any potential liability that might result.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Stockholders of the Company, held on November 15,
1996, the stockholders of the Company approved an amendment to the Company's
Certificate of Incorporation increasing the number of authorized shares of the
Company's Common Stock, $.01 par value per share from 4,000,000 to 15,000,000 by
the following vote: 1,642,440 voting for, 8,375 against, 5,700 abstaining and
43,485 shares not voted. The Stockholders also approved an amendment to the
Conceptronic, Inc. 1991 Stock Option Plan to increase the number of shares of
the Company's Common Stock issuable thereunder from 225,000 to 625,000 by the
following vote: 1,247,763 voting for, 7,825 against, 5,700 abstaining and
384,777 represented broker non-votes.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $ .01 par value per share, trades on The Nasdaq
SmallCap Market tier of The Nasdaq Stock Market under the symbol CNCP. For the
periods reported below, the following sets forth the high and low sales price
information for the Common Stock as reported by the National Association of
Securities Dealers Automated Quotation System (NASDAQ).
The Company has not paid dividends to its stockholders since its inception
and does not plan to pay dividends on its Common Stock in the foreseeable
future. The Company intends to retain any earnings to finance growth.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
1996 Common Stock
First Quarter.............. $7.25 $5.25
Second Quarter............. $7.00 $3.6875
Third Quarter.............. $5.00 $3.00
Fourth Quarter............. $6.75 $3.75
<CAPTION>
HIGH LOW
----- -------
<S> <C> <C>
1995 Common
Stock First Quarter........ $2.375 $1.00
Second Quarter............. $3.125 $1.75
Third Quarter.............. $4.00 $2.50
Fourth Quarter............. $6.00 $3.375
</TABLE>
The closing price on NASDAQ on December 31, 1996 was $6.3125 per share of
Common Stock. As of December 31, 1996, the Company had approximately 42
stockholders of record for its Common Stock.
On November 25, 1996, the Company issued and sold 4,000,000 shares of its
Class A Common Stock, $ .01 par value per share (the Class A Common Stock), at a
price of $3.00 per share of Class A Common Stock in a private placement
transaction. There is no public trading market for the Class A Common Stock. At
December 31, 1996, the Company had approximately 103 stockholders of record for
its Class A Common Stock. The shares of Class A Common Stock are subject to
mandatory conversion by the Company, no later than July 25, 1997, into shares of
the Company's Common Stock at the rate of one share of Common Stock for each
outstanding share of Class A Common Stock.
There are approximately 600 beneficial stockholders for the Company's
Common and Class A Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements of the Company (including the Notes thereto) included elsewhere in
this document.
GENERAL
In 1996, the Company continued to invest in the areas of engineering, sales
and marketing and product development to promote continued growth of the
Company's two major product lines, reflow ovens and rework stations. In October
1996, Rainer H. Bosselmann joined the Company as Chairman of the Company's Board
of Directors and Chief Executive Officer. Mr. Bosselmann replaced Garry A.
Prime, who continues to be Vice Chairman of the Board of Directors and a
director of the Company. In November 1996, the Company completed a private
placement of its Class A Common Stock in which the Company received net proceeds
of approximately $11,730,000. A portion of the proceeds were used by the Company
in connection with the March 1997 acquisition of White Mountain Cable
Construction Corp. and the remaining proceeds are to be used to finance
potential business acquisitions and/or investments and for other corporate
purposes.
RESULTS OF OPERATIONS
1996 Compared to 1995
The Company had net income of approximately $88,000 for the year ended
December 31, 1996 ("Fiscal 1996") compared to net income of approximately
$412,000 for the year ended December 31, 1995 ("Fiscal 1995"). The decrease is
due to lower gross margins and higher selling expenses partially offset by a
reduction in legal costs.
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Net sales in Fiscal 1996 were approximately $15,653,000 compared to
approximately $15,028,000 in Fiscal 1995, an increase of approximately 4%. The
increase in net sales is primarily attributable to increased market share in
domestic and foreign rework systems partially offset by a reduction in cleaner
system sales.
Gross profit margin for Fiscal 1996 was approximately 28% of net sales
compared to approximately 32% for Fiscal 1995. The reduction is due to higher
material costs associated with improvements required to meet customer
expectations in product performance and reliability. In addition, the Company
increased its engineering staff by 25% with an associated increase in payroll
related expenditures. In response to these higher costs, the Company initiated a
fourth quarter 1996 price increase which management expects will improve
margins. While no assurance can be given, the Company believes that its gross
profit margin should improve if the Company continues to improve operating
efficiency and gain market share.
Selling, general and administrative expenses for Fiscal 1996 were
approximately $3,628,000 compared to approximately $3,222,000 for Fiscal 1995,
an increase of 13%. The increase is attributed to increased expenditures for
advertising, product promotions, the opening of a new Asian Regional Sales
office in Malaysia and a 28% increase in the sales and marketing staff.
Research and development expenses for Fiscal 1996 were approximately
$385,000 compared to approximately $442,000 in Fiscal 1995, a decrease of
approximately 13%. The decrease is primarily attributable to the completion of
development work on the Company's Concept 60 reflow oven.
Legal costs for Fiscal 1996 were $98,000 compared to $535,000 for Fiscal
1995. These costs were incurred in the Company's defense of the patent
infringement lawsuit. The Company incurred significantly higher costs in Fiscal
1995 related to the trial in U.S. District Court in August 1995.
Interest income for Fiscal 1996 was approximately $57,000 compared to
$6,000 for Fiscal 1995. The increase represents one month's interest income on
the proceeds received from the November 1996 private offering of Class A Common
Stock. Interest expense for Fiscal 1996 was approximately $237,000 compared to
approximately $152,000 for Fiscal 1995, an increase of approximately 56%. The
interest expense represents the mortgage interest on the Company's manufacturing
and office facility and the Company's credit line. The increase in interest
expense for Fiscal 1996 is attributed to increased amounts outstanding under the
Company's credit line due to the need to fund working capital requirements. As
of December 31, 1996, the Company had no borrowings against the line of credit.
LIQUIDITY AND CAPITAL RESOURCES
In 1995 the Company entered into an agreement with The First National Bank
of Boston for a $1,000,000 demand line of credit for working capital
requirements. The agreement was subsequently amended in July 1996 to $1,500,000.
In November 1996, the Company completed a private placement of the Company's
Class A Common Stock in which the Company received net proceeds of approximately
$11,730,000. A portion of the proceeds were used by the Company in connection
with the March 1997 acquisition of White Mountain Cable Construction Corp. and
the remaining proceeds are to be used to finance potential business acquisitions
and/or investments and for other corporate purposes.
Net cash flows used by operations for Fiscal 1996 was approximately
$438,000 compared to approximately $860,000 for Fiscal 1995. The largest use of
cash was $893,000 for inventory and $203,000 for other current assets. The
higher inventory levels cover long lead time parts, thereby supporting critical
on-time delivery of the Company's products to its customers. Uses of cash flows
for other current assets include prepaid amounts for new manufacturing software,
trade show expenses and insurance premiums. Offsetting amounts for the use of
cash flows were increases in accounts payable for new manufacturing software and
inventory purchases, earnings of $88,000 and depreciation and amortization of
$295,000.
Net cash used by investing activities was approximately $96,000 for Fiscal
1996 compared with net cash flows used by investing activities of approximately
$14,000 for Fiscal 1995. The increase is due to 1996 additions for major
electrical upgrades, production equipment and computer hardware.
10
<PAGE> 11
Net cash flows provided by financing activities was approximately
$10,842,000 for Fiscal 1996 compared to approximately $811,000 for Fiscal 1995.
The increase is primarily due to approximately $11,730,000 received from the
November 1996 private placement of the Company's Class A Common Stock offset by
$845,000 repayment of the line of credit. As of December 31, 1996, the Company
had no borrowings against the line of credit.
The Company believes it has sufficient cash flows from operations, cash on
hand, and availability under its credit line to finance its business for the
foreseeable future.
ITEM 7. FINANCIAL STATEMENTS
See Item 13 and the Index therein for a listing of the financial statements
included as a part of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Items 9 to 12 are incorporated herein by reference to the Company's
definitive proxy statement, for its 1997 Annual Meeting of Stockholders to be
held May 9, 1997, to be filed with the Securities and Exchange Commission.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The following is a list of the financial statements that are filed
herewith:
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report.....................................
Balance Sheets at December 31, 1996 and 1995..................... 15
Statements of Operations for the years ended December 31, 1996
and 1995....................................................... 16
Statements of Stockholders' Equity for the years ended December
31, 1996 and 1995.............................................. 17
Statements of Cash Flows for the years ended December 31, 1996
and 1995....................................................... 18
Notes to Financial Statements.................................... 19 to 26
</TABLE>
(A)(2) EXHIBITS
The following exhibits required to be filed herewith are incorporated by
reference to the filings previously made by the Corporation as noted below:
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ------------ -------------------------------------------------------------------------------
<S> <C>
3(a) Certificate of Incorporation, as amended, incorporated by reference as an
Exhibit to the Company's Registration Statement on Form S-18 (No. 33-36142-B).
3(a)(i) Certificate of Designation Establishing Class A Common Stock, incorporated by
reference to Exhibit 4(a) to the Company's Registration Statement on Form S-8
(No. 333-19277).
3(b) Bylaws, as amended, incorporated by reference as an Exhibit to the Company's
Registration Statement Form S-18 (No. 33-36142-B).
10(g) Equipment Lease between the Company and Eaton Financial Corporation
incorporated by reference as an Exhibit to the Company's Registration Statement
on Form S-18 (No. 33-36142-B).
10(p) Line of Credit Agreement dated May 1, 1995 between Company and The First
National Bank of Boston incorporated by reference as an Exhibit to the
Company's Form 10-KSB for 1995.
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ------------ -------------------------------------------------------------------------------
<S> <C>
10(q) Agreement and Plan of Merger, dated February 26, 1997, by and between Dennis A.
Nolin, David Pouliotte, White Mountain Cable Construction Corp., Conceptronic,
Inc. and White Mountain Acquisition Company, Inc. incorporated by reference to
Exhibit 2 to the Company's Current Report on Form 8-K, dated March 5, 1997.
10(r) Guarantee Agreement, dated March 5, 1997, by Conceptronic, Inc. in favor of
Citizens Bank New Hampshire incorporated by reference to Exhibit 10 to the
Company's Current Report on Form 8-K, dated March 5, 1997.
11 Statement regarding computation of per share earnings.
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
</TABLE>
(A)(3) REPORTS ON FORM 8-K
In a Report on Form 8-K, dated October 20, 1996, the Company reported under
Item 1, "Changes in Control of the Registrant", the issuance and sale by the
Company of 4,000,000 shares of its Class A Common Stock and the election of
Rainer H. Bosselmann as the Company's Chairman of the Board and Chief Executive
Officer.
In a Report on Form 8-K, dated March 5, 1997, the Company reported under
Item 2, "Acquisition or Disposition of Assets", the acquisition by the Company,
through a wholly-owned subsidiary, of White Mountain Cable Construction Corp.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONCEPTRONIC, INC
BY: /s/ RAINER H. BOSSELMANN
-----------------------------------
Rainer H. Bosselmann
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------- ---------------
<C> <C> <S>
/s/ RAINER H. BOSSELMANN President Executive Officer and March 25, 1997
- ---------------------------------------- Director
Rainer H. Bosselmann
/s/ GARRY A. PRIME Director March 25, 1997
- ----------------------------------------
Garry A. Prime
/s/ WILLIAM A. BARKER Director March 25, 1997
- ----------------------------------------
William A. Barker
/s/ JAMES D. GERSON Director March 25, 1997
- ----------------------------------------
James D. Gerson
/s/ RICHARD S. PERKINS, JR. Director March 25, 1997
- ----------------------------------------
Richard S. Perkins, Jr.
/s/ JOHN A. ROLLS Director March 25, 1997
- ----------------------------------------
John A. Rolls
/s/ PETER L. WINSLOW Director March 25, 1997
- ----------------------------------------
Peter L. Winslow
/s/ WILLIAM D. GRAY Principal Financial Officer and March 25, 1997
- ---------------------------------------- Principal Accounting Officer
William D. Gray
</TABLE>
13
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Conceptronic, Inc.:
We have audited the accompanying balance sheets of Conceptronic, Inc. as of
December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Conceptronic, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 7, 1997
(except as to note 14, which is as of March 5, 1997)
14
<PAGE> 15
CONCEPTRONIC, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash......................................................... $10,317,822 10,101
Accounts receivable, trade, net of allowance for doubtful
accounts of $50,000 and $75,000 in 1996 and 1995,
respectively (note 13)...................................... 2,917,016 2,830,146
Inventories (note 3)......................................... 4,133,367 3,240,066
Other current assets......................................... 338,834 135,950
----------- ----------
Total current assets.................................... 17,707,039 6,216,263
----------- ----------
Property, plant and equipment (notes 4 and 5)..................... 2,525,386 2,428,917
Less accumulated depreciation................................ 1,132,484 907,002
----------- ----------
Property, plant and equipment, net...................... 1,392,902 1,521,915
----------- ----------
Purchased software costs, net..................................... -- 48,040
Licensing rights, net............................................. 7,381 28,571
----------- ----------
$19,107,322 7,814,789
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 5)................... $ 48,000 43,000
Short-term borrowings (note 6)............................... -- 844,605
Accounts payable............................................. 1,478,734 1,167,875
Accrued expenses and other liabilities....................... 1,771,041 858,081
Deferred income.............................................. -- 48,488
----------- ----------
Total current liabilities............................... 3,297,775 2,962,049
----------- ----------
Long-term debt, excluding current portion (note 5)................ 1,037,937 1,086,850
----------- ----------
Total liabilities....................................... 4,335,712 4,048,899
----------- ----------
Commitments and contingencies (notes 9 and 10)
Stockholders' equity (note 8):
Preferred stock, $.01 par value. Authorized 1,000,000 shares;
no shares issued and outstanding............................ -- --
Common stock, $.01 par value. Authorized 15,000,000 shares... 57,000 17,000
Additional paid-in capital................................... 16,077,467 5,199,747
Accumulated deficit.......................................... (1,362,857) (1,450,857)
----------- ----------
Total stockholders' equity.............................. 14,771,610 3,765,890
----------- ----------
$19,107,322 7,814,789
=========== ==========
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 16
CONCEPTRONIC, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Net sales (note 13)................................................ $15,652,792 15,027,564
Cost of goods sold................................................. 11,258,630 10,269,990
----------- ----------
Gross profit............................................. 4,394,162 4,757,574
Selling, general and administrative expenses....................... 3,627,888 3,221,928
Research and development expenses.................................. 384,979 442,417
----------- ----------
Income from operations................................... 381,295 1,093,229
----------- ----------
Other income (expense):
Legal costs (note 10)......................................... (97,946) (534,660)
Interest income............................................... 56,976 5,514
Interest expense.............................................. (236,909) (152,158)
----------- ----------
(277,879) (681,304)
----------- ----------
Income before tax.................................................. 103,416 411,925
Income taxes....................................................... 15,416 --
----------- ----------
Net income............................................... $ 88,000 411,925
=========== ==========
Earnings per share................................................. $ .04 .24
=========== ==========
Weighted average number of shares outstanding...................... 2,082,266 1,729,921
=========== ==========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 17
CONCEPTRONIC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES CLASS A AMOUNT CAPITAL DEFICIT EQUITY
--------- --------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.... 1,700,000 -- $17,000 $ 5,199,747 $(1,862,782) $ 3,353,965
Net income................. -- -- -- -- 411,925 411,925
--------- --------- ------- ----------- ----------- -----------
Balance at December 31, 1995.... 1,700,000 -- 17,000 5,199,747 (1,450,857) 3,765,890
Issuance of common stock... -- 4,000,000 40,000 10,877,720 -- 10,917,720
Net income................. -- -- -- -- 88,000 88,000
--------- --------- ------- ----------- ----------- -----------
Balance at December 31, 1996.... 1,700,000 4,000,000 $57,000 $16,077,467 $(1,362,857) $14,771,610
========= ========= ======= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 18
CONCEPTRONIC, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 88,000 411,925
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization................................. 294,712 328,857
Changes in assets and liabilities:
Accounts Receivable...................................... (86,870) 63,934
Inventories.............................................. (893,301) (758,893)
Other current assets..................................... (202,884) (30,262)
Accounts payable......................................... 310,859 (827,415)
Accrued expenses and other liabilities................... 100,460 (96,148)
Deferred income.......................................... (48,488) 48,488
----------- --------
Net cash used in operating activities............... (437,512) (859,514)
----------- --------
Cash flows from investing activities:
Additions to property, plant and equipment....................... (96,469) (14,461)
----------- --------
Net cash used by investing activities............... (96,469) (14,461)
----------- --------
Cash flows from financing activities:
Proceeds from (repayment of) line of credit, net................. (844,605) 844,605
Repayments of long-term debt..................................... (43,913) (33,591)
Issuance of common stock......................................... 11,730,220 --
----------- --------
Net cash provided by financing activities........... 10,841,702 811,014
----------- --------
Net increase (decrease) in cash.................................... 10,307,721 (62,961)
Cash, at beginning of year......................................... 10,101 73,062
----------- --------
Cash, at end of year............................................... $10,317,822 10,101
=========== ========
Supplemental disclosure of cash paid for:
Interest......................................................... $ 236,909 152,158
=========== ========
The Company incurred a non-cash reduction of $812,500 against additional paid-in capital with
respect to the granting of various stock options in connection with the issuance of common
stock during 1996.
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 19
CONCEPTRONIC, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) ORGANIZATION
Conceptronic, Inc. (the "Company") manufactures and sells equipment used in
the assembly and repair of printed circuit boards.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
(b) Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets.
For income tax purposes, depreciation of office furniture and fixtures is
calculated on accelerated methods over 5 to 7 years. Building, machinery and
equipment are depreciated and amortized on an accelerated method over 3 to 31.5
years.
The cost of maintenance and repairs is charged to earnings when incurred;
major expenditures for betterments are capitalized and depreciated.
(c) Purchased Software Costs
Purchased software costs are amortized on a straight-line method over three
years.
(d) Licensing Rights
Licensing rights are amortized over the seven year license period on a
straight-line method.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The application of the above has resulted in a net deferred tax asset
before valuation allowance at December 31, 1996 and 1995. Based on the Company's
historical operating results, the Company has fully reserved for these assets at
both balance sheet dates.
(f) 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.
(g) Impairment of Assets
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, on
January 1, 1996. This Statement requires that long-
19
<PAGE> 20
CONCEPTRONIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996 AND 1995
lived assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of the asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations or liquidity.
(h) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period, the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(i) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ---------
<S> <C> <C>
Raw materials......................................... $1,830,639 1,601,560
Work in process....................................... 1,022,718 645,739
Finished goods........................................ 1,280,010 992,767
---------- ---------
$4,133,367 3,240,066
========== =========
</TABLE>
20
<PAGE> 21
CONCEPTRONIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996 AND 1995
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- ESTIMATED
1996 1995 USEFUL LIVES
---------- --------- ------------
<S> <C> <C> <C>
Building........................................ $1,265,230 1,265,230 31.5 years
Machinery and equipment......................... 678,420 651,544 3-7 years
Office furniture and fixtures................... 581,736 512,143 4-7 years
---------- ---------
Property, plant and equipment......... $2,525,386 2,428,917
========== =========
</TABLE>
The Company's building was financed principally through mortgages as set
out in note 5.
(5) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Mortgage payable in equal monthly installments of
$7,124, including interest at the prime rate plus
1.5% payable through December 2002. At December 31,
1996, the interest rate was 9.75%.................... $ 577,911 605,414
Subordinated mortgage payable to Granite State
Development Corporation in equal monthly installments
of $4,412, including annual interest at 7.07%,
payable through February 2013........................ 508,026 524,436
---------- ----------
1,085,937 1,129,850
Less current portion................................... 48,000 43,000
---------- ----------
Long-term debt, excluding current portion.... $1,037,937 1,086,850
========== ==========
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1996, are as follows: 1997, $48,000; 1998, $52,479;
1999, $57,283; 2000, $62,536; 2001, $68,285 and thereafter, $797,354.
(6) SHORT TERM BORROWINGS
In 1996, the Company amended its credit line agreement with The First
National Bank of Boston that permits the Company to borrow up to $1,500,000 at
the bank's prime rate. The Company had no borrowings against the line of credit
at December 31, 1996.
21
<PAGE> 22
CONCEPTRONIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996 AND 1995
(7) INCOME TAXES
The actual income tax for the years ended December 31, 1996 and 1995,
differs from the "expected" tax computed by applying the U.S. federal corporate
income tax rate of 34% to earnings before income tax as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Computed "expected" tax................................. $ 35,161 140,055
Reduction in income tax resulting from:
State income taxes, net............................ (3,263) --
Increase in deferred tax valuation allowance and
movement in tax reserves......................... (24,199) (140,055)
Other.............................................. 7,717 --
-------- --------
$ 15,416 --
======== ========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Inventory.............................................. $ 159,966 69,300
Allowance for doubtful accounts........................ 21,000 31,500
Tax loss and credit carryforward....................... 313,803 369,845
Fixed assets........................................... 11,533 22,463
--------- --------
Total net deferred tax assets................ 554,602 493,108
Less valuation allowance............................... (554,602) (493,108)
--------- --------
Net deferred tax asset....................... $ -- --
========= ========
</TABLE>
At December 31, 1996 and 1995, the Company had gross deferred tax assets of
$554,602 and $493,108, respectively. These assets are primarily comprised of
Federal and state net operating loss carryforwards and differences related to
book and tax treatment of certain revenue and expense items. The Company has
established a valuation allowance against the entire asset for both periods.
At December 31, 1996, the Company has available, subject to restrictions
caused by the ownership change discussed below and any subsequent ownership
changes, Federal net operating loss carryforwards of approximately $650,000 and
Federal investment tax credit carryforwards of approximately $85,000. These
carryforwards expire during the years ended December 31, 2004 through 2010 if
not used sooner. During 1996, the Company underwent an ownership change as
defined in Section 382 of the Internal Revenue Code. The Company's tax net
operating losses and credit carryforwards generated prior to the ownership
change will be subject to an annual limitation which could cause utilization of
a portion of the Company's carryforwards to be deferred for a several year
period.
(8) STOCKHOLDERS' EQUITY
The shares of Class A common stock were issued on November 26, 1996 and
shall be entitled to participate on a share-for-share basis with the Company's
common stock in dividends, distributions upon liquidation and all matters
submitted to a vote of the shareholders other than those matters involving (i)
the sale or other disposition of assets of the Company or (ii) the election of
directors of the Company. The shares of Class A common stock shall be converted
into shares of the Company's common stock six months from the date of issuance.
The Company may extend this period by two months if certain product line
divestitures are in process but not consummated. Each share of Class A common
stock shall be converted into shares of common
22
<PAGE> 23
CONCEPTRONIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996 AND 1995
stock of the Company equal to $3.00 divided by the greater of (i) $3.00 or (ii)
the net book value per share (as defined) of the Company as of the last day of
the fiscal quarter preceding the conversion date.
Stock Option Plan
The Company established a stock option plan (the "Plan") in July 1991
pursuant to which the Company's Board of Directors may grant stock options to
officers and key employees. The Plan as amended in October 1996 authorizes the
grant of options up to 625,000 shares of common stock. With the exception of the
options described below all stock options are granted with an exercise price
equal to the stock's fair market value at the date of grant. All stock options
except those described below, have ten year terms and vest and become fully
exercisable one year from the date of grant.
In connection with the consummation of the private placement of the shares
of the Company's Class A common stock in November 1996, the Company granted to
an individual, 150,000 options at $3.00 per share which have a five year term
and vest and became fully exercisable at the date of grant. Also in connection
with the private placement, the Company issued 100,000 options to another
individual at $3.00 per share which have a ten year term and vest and became
fully exercisable at the date of grant. The difference between the exercise
price and the fair market value at the date of the grant of $6.25, multiplied by
the number of options granted, has reduced additional paid in capital by
$812,500. In addition, in November 1996, the Company granted to a certain
director, 40,000 options at $3.00 per share which have a ten year term and vest
and became fully exercisable at the date of grant.
The Company applies APB No. 25 and related interpretations in for its stock
option Plan. Accordingly, the compensation cost charged for the 40,000 options
to a director set out above was $50,000 for 1996 (1995: nil). Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Net income
As reported.......................................... $88,000 411,925
Pro forma............................................ $22,884 386,155
Earnings per share
As reported.......................................... $ .04 .24
Pro forma............................................ $ .01 .22
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options vesting
period and compensation cost for options granted prior to January 1, 1995 is not
considered.
The per share weighted average fair value of stock options granted in 1996
and 1995 was $4.19 and $2.02 on the date of the grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: dividend
yield of 0%; expected volatility of 0.823; risk free interest rate of 6% and
expected life of 2.8 years (1995: 3.5 years).
23
<PAGE> 24
CONCEPTRONIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996 AND 1995
Stock options activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
NO. OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Balance December 31, 1994........................... 116,000 $ 3.60
Granted........................................ 30,000 3.35
Exercised...................................... -- --
Forfeited...................................... (8,500) 5.00
Expired........................................ -- --
-------
Balance December 31, 1995........................... 137,500 3.46
Granted........................................ 297,500 3.09
Exercised...................................... -- --
Forfeited...................................... -- --
Expired........................................ -- --
-------
Balance at December 31, 1996........................ 435,000 3.21
=======
</TABLE>
At December 31, 1996, the range of exercise prices, the number of options
outstanding and the weighted average remaining contractual life of these options
are as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE NO. OF OPTIONS REMAINING LIFE
- -------------- -------------- ----------------
<C> <C> <C>
$ 2.50 ... 61,500 7.2 years
3.00 ... 290,000 7.4
3.88 ... 18,500 8.7
4.26 ... 50,000 1.7
5.00 ... 7,500 4.7
6.50 ... 7,500 9.2
-------
435,000
=======
</TABLE>
At December 31, 1996 and 1995, the number of options exercisable was
427,500 and 107,500, respectively, and the weighted average exercise price of
those options was $3.15 and $3.50, respectively.
In connection with its December 1991 initial public stock offering ("IPO")
the Company sold to the Underwriter of the IPO, for $.01 per warrant, warrants
to purchase 95,000 shares of common stock. The exercise price is $7.20 per
share, and the warrants are exercisable through December 1997.
(9) COMMITMENTS
The Company leases equipment under various operating leases which expire
through October 1997. Rental expense for the years ended December 31, 1996 and
1995 was $5,073 and $7,861, respectively. Future minimum lease payments under
the operating leases are as follows:
Year ending December 31:
1997...........................................$3,825
======
(10) 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 sought an
injunction, together with unspecified damages and costs. The claim was filed in
the United States Federal District Court, District of New Hampshire.
24
<PAGE> 25
CONCEPTRONIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996 AND 1995
In August 1995, the U.S. District Court issued a directed verdict of
non-infringement in Conceptronic's favor regarding method patent #4,654,502.
Additionally, a 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 appealed the directed verdict on patent #4,654,502 and the United
States Court of Appeals subsequently reversed and remanded the case for further
proceeding. A trial on the #4,654,502 patent is scheduled for May 1997.
In related actions, in July 1996, the United States Patent Office granted
Conceptronic's request for a reexamination of Vitronics' patent #4,654,502 claim
1. In December 1996, the Company named Vitronics Corporation and its Chairman
and CEO, in a lawsuit, filed in Superior Court of the State of New Hampshire,
citing malicious prosecution and abuse of process. The suit claims that
Vitronics, when it initiated the 1991 patent infringement case against
Conceptronic, knew or should have known that the suit was without merit and that
claim of U.S. Patent #4,883,301 was invalid, unenforceable and that the patent
was not infringed.
In the opinion of counsel, the ultimate outcome of this litigation cannot
presently be determined; however, management of the Company believes Vitronics'
claims are without merit and that the Company will ultimately prevail.
Accordingly, no provision has been made in the accompanying financial statements
for any potential liability that might result.
Legal costs of $97,946 (1995 - $534,660) have been expensed during 1996 in
relation to this action.
(11) 401(K) SAVINGS PLAN
The Company has a 401(k) Savings Plan (the "Plan") for all employees over
the age of 21, with three or more months of service. The participants may
contribute up to 15% of their pretax, annual salary, not to exceed the maximum
contribution limits established by the Internal Revenue Service. The Company may
elect to match participant contributions at its discretion. The Company provided
matching contributions amounting to $3,941 to the Plan during the year ended
December 31, 1996. No matching contributions were made during the year ended
December 31, 1995.
The Company also provides for all administrative expenses related to the
Plan. Administrative expenses amounted to $10,602 for the year ended December
31, 1996 (1995: $3,213).
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, short-term borrowings
and accounts payable approximate fair values due to the short maturity of these
instruments. The fair value of long-term debt approximates the carrying value
because there have not been any material changes in market conditions or
specific circumstances since the instruments were recorded.
(13) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of accounts receivable, trade.
Concentrations of credit risk with respect to accounts receivable are limited
due to the number of geographically dispersed customers. Export sales for the
years ended December 31, 1996 and 1995, were approximately 35% and 28% of net
sales, respectively.
The Company's four largest customers accounted for approximately 26% of net
sales for the year ended December 31, 1996.
25
<PAGE> 26
CONCEPTRONIC, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996 AND 1995
(14) POST BALANCE SHEET EVENT
On March 5, 1997, the Company announced the acquisition of White Mountain
Cable Construction Corp. ("WMCC"). WMCC provides aerial construction and
splicing services for both fiber optic and coaxial cable to the
telecommunications industry. The purchase price is approximately $17.2 million
to be satisfied by a combination of cash and the Company's common stock, plus
the assumption of outstanding debt.
The following unaudited pro forma results of operations give effect to the
purchase of WMCC as if it occurred as of January 1, 1995. Such pro forma
information reflects certain adjustments, including amortization of goodwill,
adjustment for imputed interest, elimination of fees paid to an outside
management group, income tax effects and an increase in the weighted average
shares outstanding.
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Total revenue...................................... $30,661,572 $27,554,368
Pro forma net earnings............................. $ 932,841 $ 684,926
Pro forma net earnings per share................... $ .26 $ .21
Weighted average shares outstanding................ 3,653,592 3,301,247
</TABLE>
26
<PAGE> 1
EXHIBIT 11
CONCEPTRONIC, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net Earnings........................................................ $ 88,000 $ 411,925
---------- ----------
Primary Earnings Per Share:
Weighted Average Common Shares Outstanding..................... 2,033,334 1,700,000
Stock Options.................................................. 48,932 29,921
Other.......................................................... -- --
---------- ----------
2,082,266 1,729,921
Net Earnings Per Share.............................................. $ .04 $ .24
========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
a) White Mountain Cable Construction Corp.
<PAGE> 1
EXHIBIT 23
CONSENT OF KPMG PEAT MARWICK LLP
We consent to the incorporation by reference of our report dated February 7,
1997, set forth in the Annual Report on Form 10-KSB of Conceptronic, Inc. (the
"Company") for the fiscal year ended December 31, 1996, in the Company
Registration Statement on Form S-8 (Commission File No. 333-19277).
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000879986
<NAME> CONCEPTRONIC, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 10,317,822
<SECURITIES> 0
<RECEIVABLES> 2,917,016
<ALLOWANCES> 0
<INVENTORY> 4,133,367
<CURRENT-ASSETS> 17,707,039
<PP&E> 2,525,386
<DEPRECIATION> 1,132,484
<TOTAL-ASSETS> 19,107,322
<CURRENT-LIABILITIES> 3,297,775
<BONDS> 0
0
0
<COMMON> 57,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,107,322
<SALES> 15,652,792
<TOTAL-REVENUES> 15,652,792
<CGS> 11,258,630
<TOTAL-COSTS> 11,258,630
<OTHER-EXPENSES> 97,946
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236,909
<INCOME-PRETAX> 103,416
<INCOME-TAX> 15,416
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,000
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
