-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H9V2kLDhnXOjEMhTgQj45rhTlEzIAz+u8E29nMxHRVhtOJEgYUmDRr7nYVcB+pHp KamW4WUsJLIc1J5wW+Yzig== 0000912057-97-010643.txt : 19970329 0000912057-97-010643.hdr.sgml : 19970329 ACCESSION NUMBER: 0000912057-97-010643 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VITRONICS CORP CENTRAL INDEX KEY: 0000712036 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 042726873 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10246 FILM NUMBER: 97566517 BUSINESS ADDRESS: STREET 1: 1 FORBES RD STREET 2: NEWMARKET INDUSTRIAL PARK CITY: NEWMARKET STATE: NH ZIP: 03857 BUSINESS PHONE: 6036596550 MAIL ADDRESS: STREET 1: 4 FORBES ROAD STREET 2: 4 FORBES ROAD CITY: NEWMARKET STATE: NH ZIP: 03857 10-K405 1 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K /x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ending December 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission File No. 0-13715 VITRONICS CORPORATION (Exact name of registrant as specified in its charter) COMMONWEALTH OF MASSACHUSETTS 04-2726873) (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1 FORBES ROAD, NEWMARKET, NH 03857 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (603) 659-6550 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ------------------------------------------ Common Stock, $.01 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE (Title of Class) 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 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment of this Form 10-K. /x/ The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 21, 1997 was $9,856,572. Number of shares outstanding of the registrant's Common Stock, $.01 par value as of December 31, 1996: 9,856,572. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive proxy statement for the 1997 Annual Meeting of Shareholders are incorporated by reference into Part III. VITRONICS CORPORATION PART I ITEM 1. BUSINESS Vitronics Corporation (the "Company") was incorporated in Massachusetts on April 21, 1981. The Company is engaged in designing, engineering, manufacturing and marketing state-of-the-art thermal processing systems for soldering surface mount devices to printed circuit boards and cleaning of the finished assembly. The Company's customers are captive and contract manufacturers of medium to high reliability printed circuit boards. Current Products: The Company produces several lines of solder reflow ovens used primarily in the final step of attachment of surface mounted devices to printed circuit boards. Using similar technology, the Company has also produced systems for attaching hybrid circuits to ceramic substrates and for curing epoxies and adhesives used in bonding applications by the electronics industries. The solder reflow products fall into four broad categories, each available in a range of sizes and price levels to accommodate the throughput and space requirements of the circuit board manufacturer. --The SELECTSeries--high production rate, fully featured, infrared/forced convection reflow ovens --The SMR UNITHERM reflow series--high production rate, fully featured, infrared/forced convection reflow ovens. --The SMR IsoTherm reflow series--low to medium production rate, infrared/forced convection reflow ovens with basic features. --The GP/MP series--low volume, benchtop, infrared, natural convection reflow ovens. The Company's cleaning product is utilized to clean printed circuit boards and components in medium to high volume applications. The aqueous cleaning system product is the Aquapro which has been designed to provide a very high quality cleaning capability. The Company introduced its SELECTSeries line of surface mount reflow ovens in 1996. Building upon Vitronics' expertise in modularity, the MagnaTherm, AcroTherm and RadianTherm systems have been designed to provide customers with the opportunity to match technical requirements with system size, configuration, capability and cost. Available in air, nitrogen or field-retrofittable nitrogen models, management believes the SELECTSeries will establish a new benchmark in surface mount reflow. Although Vitronics already offers the broadest choice of ovens available, these three new oven families, combined with the UNITHERM and IsoTherm products, gives the customer an even wider selection. Soldering remains the preferred method of permanently attaching hybrid and semiconductor packages, microprocessors, resistors, capacitors and other common electronic components to the surfaces of printed circuit boards. Substrate/component assemblies treated with a coating of solder paste are placed onto the conveyer system which transports them at a constant rate through a heated tunnel consisting of one or more individually heated and controlled zones. Heat is transferred at a precisely controlled rate to the assemblies by means of convection and radiation until the solder melts and flows between the component leads and the circuit board. Rapid cooling ensures the formation of the desired solder joints. This thermal process is also applicable to the production of a variety of electronic component packages, including ceramic hybrids, semiconductors, Ball Grid Array and glass/epoxy circuits. 2 The Company's SMR series reflow soldering systems incorporate a heater and cell design with the benefits of high efficiency, forced-convection heat transfer, in addition to a background of infrared radiation. A unique feature of this cell is the individual zone exhaust which removes solder paste fumes as they are generated. Both U.S. and foreign patent applications are pending covering the unique features of the SMR series reflow soldering systems. The UNITHERM version along with the SELECTSeries incorporates multiple heating cells both above and below the conveyor. The economical IsoTherm version, introduced in 1994, employs heater cells only above the conveyor. In both versions, product heating is accomplished with high velocity heated gas that is distributed with optimal flow uniformity across the entire heating area supported by a background of infrared emission from the heated surfaces. A second generation UNITHERM series introduced in 1994, offers advanced features including controlled exhaust heater, auto chain lubrication, variable tunnel aperture, and fume capture, for full automation. The Company continues to produce its original SMD reflow systems for selected customers and applications. In addition to reflow ovens, the Company markets a line of aqueous circuit board cleaners. These cleaners offer the printed circuit board industry environmentally safe, yet cost effective, cleaning methods. The Company's Aquapro product is an aqueous cleaning system designed to clean high density surface mount assemblies. The Company has identified a key industry trend in the component manufacturing marketplace which is called Ball Grid Array ( BGA ) technology. In this technology integrated reflow and soldering equipment is utilized to reflow and clean these components. Product Applications: Printed Circuit Board Systems--The trend in the printed circuit board (PCB) segment of the electronics industry is the attachment of surface mount electronic components and devices to PCBs. The Company's solder reflow systems are well suited to this task because of unique forced convection/infrared heating cells and process gas management systems. The Company's wide range of oven sizes and features helps to accommodate the needs of virtually all market requirements. The Company's cleaning systems used for the removal of flux residues from finished assemblies are not harmful to the environment due to the use of non-CFC (chlorofluorocarbon) solvents. The AquaPro cleaning product uses aqueous cleaning technology. In both cases, the residues from the cleaning process may be disposed of in the environment with no substantial long- term harm. The aqueous cleaner uses only water or water with a small amount of common saponifier. This is in direct contrast to previous cleaning technologies that utilize organic solvents known commonly as CFCs. CFCs are both toxic and ozone depleting. Ball Grid Array (BGA) Systems The company has an excellent position to service this market through its ability to supply both reflow and cleaning systems. The company has installed numerous systems in the United States, Korea and the Philippines. This segment of the component assembly industry is projected to be a significant growth market. Product Options and Enhancements: Nitrogen Atmosphere--This option gives an inert atmosphere with tight control of oxygen levels (below 20 parts per million), which gives the process engineer the ability to accommodate new assembly materials and processes. An integral part of our system design has been developed to meet industry demand for lower nitrogen consumption. The Company has engineered nitrogen reduction apertures and computer controlled AutoPurge for minimal time to process ready. Controlled Convection/Infrared--This option allows the process engineer increased thermal stability and uniformity throughout the reflow cycle, thus increasing production yields. 32 Loop Controller--A 32 loop proportional controller with integral and differential control has been developed and integrated into the UNITHERM and SELECTSeries ovens. The 32 loop reduces cost on the larger ovens and adds versatility of control. 3 Rail/Chain Conveyor Transport System--This option allows routine double-sided surface mount soldering without the necessity of fixturing as is necessary with standard belt conveyors. This is made possible by allowing two edges of a board to rest on pins which protrude from two moving chains that ride through adjustable rails. A key benefit of this edge rail system is the 10 to 30 percent increase in processing speed relative to the belt system. Enhanced Cooling--This option provides additional cooling capacity within the process tunnel to reduce both solder liquidous times and finished product temperatures for product handling requirements. Polar Cooling -- A self contained closed loop liquid cooling system, which provides the distinct benefits of enhanced cooling, nitrogen savings and reduced maintenance. Products and Processes Under Development: Thermal Process Management--The Company continues to research methods and products that improve the process integrity, automation and efficiency of its thermal methodology. Product Range--The Company continues to modify its product range to address emerging segments of the printed circuit market. Research and Development: During the year ending December 31, 1996, the Company expended $1,635,000 or 7% of its net sales on research and development. Such expenditures were $1,363,000 or 6% of net sales in 1995 and $1,010,000 or 6% of net sales in 1994. All of the Company's existing products have been designed and developed by the Company or its subsidiaries. Markets: The primary market for the Company's products is the electronics industry, where the systems are used in the production of printed circuit boards, ceramic hybrids, semiconductor packages, and glass/epoxy circuits. Additional applications of the Company's products within the electronics industry include circuit board drying, BGA fabrication, epoxy curing, hybrid solder reflow, polymer curing, and thick film drying. Segments of the electronics industry served by the Company's products are: computers and peripheral office equipment, test and measurement equipment, telecommunications equipment, automotive electronics, consumer electronics, medical electronics, and contract assembly. Materials: The Company continues to produce in-house all of its thermal source emitters and cells. The Company currently has one source for the microprocessor which is used to interface the onboard computer with the machine in the Command Control system. Management believes that this microprocessor could be produced in-house or obtained from another source. The Company has developed a new microprocessor for its IsoTherm machines. Work is currently being done to upgrade the microprocessor for use on the UNITHERM, MagnaTherm, RadianTherm, and AcroTherm product lines. This new microprocessor will enable the Company to develop an alternative source for its microprocessor. The other components being used in the assembly of systems produced by the Company are purchased from original equipment manufacturers, electronic supply firms and others. The Company has no reason to believe that it cannot continue to obtain such components, or suitable substitutes, as required. Patents and Trademarks: The Company was issued a United States patent in January 1986 covering the multi-zone thermal processing systems produced by the Company. A second patent was issued in July 1986, on the source emitter panel produced 4 by the Company. Other patents cover the Company's process for mounting surface mount devices to printed circuit boards through the use of solder reflow, and an improved source emitter panel. The Company has also filed foreign patent applications corresponding to the foregoing United States patents where it has been deemed advisable. Several of these foreign applications have been granted. The Company believes that the patents on the ENVIROCLEAN product line and UNITHERM product line theoretically strengthen its competitive position by enhancing marketability of these product lines, and by serving as a barrier to new competitors in the field who could otherwise develop similar technology. Several of these patents extend to the SELECTSeries product line. With respect to the UNITHERM product line, patents cover both the heater technology and the individual zone exhausts. The Company has an issued U.S. Patent, as well as additional pending patent applications in the U.S. and certain foreign countries, covering its UNITHERM product line. The Company at present does not license any of its technology to any competitors or other non-affiliated entities. The Company has U.S. and foreign trademark registrations for the trademark VITRONICS, as well as U.S. trademark registrations for VITRONICS, UNITHERM and ENVIROCLEAN. The Company also uses common law trademarks for IsoTherm, VITROSENSE, Natural Convection/Infrared, Controlled Convection/Infrared, VITRO-FOIL, VITRO-CLEAN, AcroTherm, RadianTherm, MagnaTherm, Tops, Polar Cooling, SELECTSeries, AutoPurge and BGA Solutions. Customers and Marketing: The Company is involved in surface mount solder reflow with its patented convection/infrared thermal technology. The Company's systems are operating successfully in most of the major contract and captive electronics companies throughout the world. Such customers include: Allied-Signal GM (Delco Div.) Raytheon AT&T GTE SCI Systems Avex Electronics Hughes Aircraft Scientific Atlanta Bose IBM TRW Chrysler Intergraph US Assemblies Compaq Lockheed Martin Varian Cray Research Motorola Xerox DuPont Northern Telecom Zenith General Electric Qualcomm International customers of the Company include: Compaq Lucas Phillips L.M. Ericsson Mitsubishi Rank Xerox Fujitsu Motorola Samsung General Motors NEC Siemens Goldstar Olivetti Texas Instruments Hitachi Olympus Toshiba The Company's marketing and sales program includes: paid advertising, new product announcements in industrial and commercial publications, direct mail campaigns, technical articles, trade show exhibits, personal contacts and the use of trained sales representatives in the U.S., Canada, Southeast Asia, Europe, South America, India and Israel. The Company has 12 persons employed in its sales and marketing department, including one person in each of the East Coast, West Coast and Central Regions, and two persons in its U.K. direct sales organization. The 5 Company also utilizes 22 independent sales representative organizations located in the United States and Canada, and 25 independent distributor organizations overseas. During 1996, none of the Company's customers accounted for more than 10% of net sales. During 1995, one of the Company's customers accounted for 12% of net sales ($2,886,000) while another customer accounted for 10% ($2,451,000). During 1994, one of the Company's customers accounted for 15% of net sales ($2,544,000). The Company has no contracts that are subject to renegotiation of profits or termination of contracts or subcontracts at the election of any government agency or unit. The Company's business is not seasonal in any material respect. OEM Supply Relationships--The Company has formed supply relationships with a number of "Pick and Place" original equipment manufacturers. "Pick and place" is the term used to describe the automated technology used to place components on PCBs prior to attachment and soldering. In each of these relationships, the Company's solder reflow systems are purchased by the OEM and resold as a package with pick and place equipment as part of an in-line assembly system. Backlog: On December 31, 1996, the Company had purchase orders reflecting a backlog of $1,984,000 as compared to a December 31, 1995 backlog of $2,847,000. All of the backlog at December 31, 1996 is expected to be shipped within the next six months. At present, most of the Company's customers pay the Company within 40 to 60 days of billing. Competition: Solder Reflow Systems--Both domestically and internationally, the Company confronts competition from three primary competitors in the solder reflow systems market. In addition, there are three lesser competitors selling systems primarily in the United States' domestic market. In Europe, the Company competes with companies based in Germany, France and the United Kingdom. The Japanese market is dominated by three Japanese manufacturers that have focused almost exclusively on that market. Asia (excluding Japan) has a mix of competitors, none of which has significant market share on a worldwide basis. Management of the Company believes that price and delivery time are the chief competitive factors in the market for solder reflow products. Performance, reliability and cost of operations also influence customers' purchasing decisions. The Company believes that its UNITHERM and SELECTSeries product lines permit the Company to retain a substantial market share in the solder reflow marketplace. The Company's solder reflow systems may also face competition from the development of electrically conductive adhesives designed to eliminate the need to solder components to PCBs. At this point in the development of conductive adhesives, management believes that even if the adhesives are technologically successful, they will require heat treatment or curing, and therefore they will continue to represent a market for the Company's solder reflow technology. Environmental Compliance: Due to the nature of the Company's products, it has not been materially affected by environmental laws. Management does not expect its capital expenditures, earnings or competitive position to be materially affected in the future. Employees: As of December 31, 1996, the Company employed 132 full-time persons. 6 Financial Information About Foreign and Domestic Operations and Export Sales: During the year ended December 31, 1996, approximately $12,622,000 or 56% of the Company's sales were foreign sales, primarily to European and Southeast Asian companies. During the year ending December 31, 1995, approximately $11,902,000 or 51% of the Company's sales were foreign and during the year ending December 31, 1994, approximately $7,912,000 or 46% of the Company's sales were foreign sales. Other information concerning foreign sales for the last three fiscal years is presented in Note M to the Consolidated Financial Statements. ITEM 2. PROPERTIES The executive offices and principal place of business of the Company are located at 1 Forbes Road, Newmarket Industrial Park, Newmarket, New Hampshire. The Company leases two buildings, one 23,990 square foot facility for administration and manufacturing, and one 9,400 square foot facility used exclusively as a stockroom. The 23,990 square foot facility has a lease which expires in February 1999. The 9,400 square foot facility is rented on a month to month basis. The Company has the option to purchase the 23,990 square foot property at the end of the lease period for $1,100,000. The interior layout and leasehold improvements to the 23,990 square foot facility were constructed to the Company's specifications for its use of the facilities. The Company's wholly-owned subsidiary, Vitronics Europe Limited ("VEL"), leases a 15,000 square foot manufacturing and distribution facility in Plymouth, England. This lease expires in December 1998. The Company believes that its current facilities are adequate for 1997 operations. ITEM 3. LEGAL PROCEEDINGS The Company is currently involved as plaintiff in a patent litigation suit against a competitor, Conceptronic, Inc. The Company commenced the suit in November 1991, seeking an injunction and damages against Conceptronic for infringement of an apparatus patent and a method patent, both of which are owned by the Company and cover certain aspects of its solder reflow systems. The trial regarding this dispute commenced on July 25, 1995 in the United States District Court for the District of New Hampshire. On August 16, 1995, the Court directed a verdict of non-infringement in favor of Conceptronic on the method patent, while the jury rendered a verdict of non-infringement in favor of Conceptronic on the apparatus patent. The Company does not expect the jury's verdict to have a negative impact upon the Company's financial condition or results of operations. The Company appealed the directed verdict on the method patent. In July 1996, the United States Court of Appeals for the Federal Circuit reversed the trial court's judgment of non-infringement by Conceptronic of Claim 1 of U.S. Patent No. 4,654,502 and remanded the case back to the United States District Court for further proceedings. The Company does not anticipate that additional costs relating to this litigation will be significant until the case is returned to the trial court, which is expected to occur in May 1997. The Company is unable to predict the outcome of the new trial, but does not believe that an adverse decision, however unlikely in the Company's view, will have a material effect on the Company's financial condition or results of operation. The Company intends to pursue all of its legal rights and remedies in connection with this litigation, and believes that a favorable outcome may result in certain licensing opportunities for the Company, which could have a positive impact on its financial condition and results of operations in the future. On December 23, 1996, Conceptronic, Inc. filed suit against the Company and its President, James J. Manfield, Jr., in the Superior court of Rockingham County, New Hampshire for malicious prosecution and abuse of legal process (Conceptronic, Inc. v Vitronics Corporation and James J. Manfield, Jr., Docket No. 97-C-18). Conceptronic alleges that the Company knew or should have known that when it filed its patent infringement action (described above) against Conceptronic in 1991 that the case was without merit. Conceptronic's claim is for no less than $1.3 million with additional amounts to be determined. The Company believes the suit is completely without merit, has denied the allegations and has filed a counterclaim against Conceptronic for abuse of process and malicious prosecution in bringing the suit. 7 ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the American Stock Exchange under the trading symbol VTC. At December 31, 1996, there were 9,856,572 shares of common stock issued and outstanding held by 633 stockholders of record. The following table presents high and low sales prices for the Company's Common Stock for each fiscal quarter within the fiscal years ending December 31, 1996 and 1995.
COMMON STOCK ------------------------------------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER -------------------- ------------------- -------------------- --------------------- HIGH LOW HIGH LOW HIGH LOW HIGH LOW --------- --------- --------- --------- --------- --------- --------- --------- 1995..... 2 3/16 1 5/16 1 11/16 1 3/16 3 7/16 1 1/2 3 2 3/16 1996..... 2 7/8 1 15/16 2 9/16 1 13/16 2 1 3/8 1 5/8 1
On March 21, 1997, the closing price for the Company's Common Stock was $1.00. Dividends are payable only when, and if, declared by the Board of Directors from funds legally available and are dependent upon earnings, the general financial status of the Company, and various other factors. The Company has paid no dividends on its Common Stock and has no intention of doing so in the near future. ITEM 6. SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) OPERATING DATA--YEAR ENDED DECEMBER 31 Net sales.................................................. $ 22,708 $ 23,525 $ 17,346 $ 12,778 $ 12,373 Income (loss) from continuing operations................... 802 2,775 602 (1,357) (2,965) Income (loss) per common share: Primary.................................................. .08 .30 .08 (.18) (.70) Fully diluted............................................ .08 .27 .07 (.18) (.70) Backlog.................................................... 1,984 2,847 2,589 2,133 3,018 Weighted average number of common shares outstanding: Primary.................................................. 10,579 9,168 7,739 7,379 4,216 Fully diluted............................................ 10,588 10,688 10,190 7,379 4,216 BALANCE SHEET DATA AT DECEMBER 31 Working capital............................................ $ 5,585 $ 5,505 $ 2,676 $ 2,096 $ 1,729 Total assets............................................... 9,763 10,246 6,052 4,796 6,755 Long-term liabilities...................................... 104 246 1,323 1,605 54 Stockholders' equity....................................... 6,175 5,904 1,728 999 2,382
No dividends have been paid or declared by the Company. 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: The following table provides percentage comparisons of the components of net income (loss) as presented in the Consolidated Statements of Operations included elsewhere herein for the last three fiscal years.
% INCREASE (DECREASE) % OF NET SALES ---------------------- YEARS ENDING DECEMBER 31, 1996 1995 ------------------------------------- COMPARED TO COMPARED TO 1996 1995 1994 1995 1994 ----- ----- ----- ----------- ------------ Net Sales.......................... 100% 100% 100% (3)% 36% Gross Profit........................ 38 41 36 (10) 53 Selling, General & Administrative... 25 23 23 2 36 Research & Development.............. 7 6 6 20 35 Patent Litigation................... -- 1 2 (82) (7)
Sales were $22,708,000 in 1996, a decrease of 3% from $23,525,000 in 1995. Sales were $17,346,000 in 1994. Bookings for 1996 decreased 8% to $21,845,000 from $23,783,000 in 1995. Bookings for 1994 were $17,802,000. The Company's backlog was $1,984,000 at December 31, 1996 versus 2,847,000 at December 31, 1995. The decline in revenues is attributable to the slowdown in bookings, primarily in Europe. This was a result of a slowdown in the overall European economy and market for the Company's products. In early 1997, the Company has begun to see the European market regaining some of its strength. The Company also saw an increase in demand during 1996 for its aqueous cleaner which increased to 6% of revenues for the year. In 1996, gross profit percentage decreased to 38% from 41% in 1995. The decrease is a result of start-up costs associated with the introduction of the SELECTSeries systems. The labor and material on the first shipments were greater than the UNITHERM systems. It is not expected that these costs will remain at that level on a going forward basis. Gross profit percentage in 1994 was 36%. The Company increased its inventory reserves from $367,000 at the end of 1994 to $760,000 at the end of 1995, and $791,000 as of the end of 1996. Such increases were principally related to the changes in the Company's production process and product line. Selling, general and administrative expenses increased in 1996 to $5,627,000 from $5,525,000 in 1995, an increase of 2%. As a percentage of sales, selling, general administrative expenses were 25% in 1996 up from 23% in 1995. Selling, general and administrative expenses were $4,072,000, or 23% of net sales in 1994. The increase in actual spending is a result of higher marketing expenses and increased staffing levels. The Company also incurred costs of approximately $249,000 relating to a Registration Statement filed on Form S-3 and conversion of the Subordinated Convertible Debenture during 1995. The Company incurred advertising costs of $272,000 in 1996, $219,000 in 1995, and $176,000 in 1994. Research and development expenses increased 20% to $1,635,000 in 1996 from $1,363,000 in 1995. The increase was a result of increased headcount as the Company accelerated the introduction of new products and enhanced features during the year. Research and development expenses were $1,010,000 in 1994. Costs relating to the Company's patent infringement lawsuit against Conceptronic were $54,000 for 1996, $308,000 for 1995, and $330,000 for 1994. The Company does not anticipate that additional costs relating to this litigation will be significant until the case is returned to the trial court which is expected to occur in May 1997. See Item 3, Legal Proceedings. 9 The Company had net non-operating income of $101,000 in 1996, compared to net non-operating expenses of $132,000 in 1995 and $171,000 in 1994. The Company incurred cash discounts of $9,000 in 1996 versus $39,000 in 1995, and $61,000 in 1994. The Company incurred interest expense of $40,000 in 1996, compared to $118,000 in 1995 and $189,000 in 1994. The decrease in 1996 and 1995 is primarily attributable to the conversion of the Subordinated Convertible Debenture in August 1995. The Company had interest income of $86,000 in 1996 compared to $58,000 in 1995 and $10,000 in 1994. This increase was a result of the Company's higher cash balances during 1996 versus 1995 and 1994. During 1996, the Company had tax expense of $535,000. This reflects the Company's effective tax rate of 40%. The Company had a net tax benefit during 1995 of $573,000 as compared to tax expense of $25,000 during 1994. The tax benefit was a result of a change in the Company's valuation allowance reserve, after current year utilization of $723,000. This tax benefit was offset by a current year tax expense of $150,000. The Company reduced its valuation allowance reserve because it was more likely than not that their favorable tax attributes will be realized. Liquidity and Capital Resources: During 1996, cash decreased $700,000, primarily due to the stock buyback. Without the stock buyback, cash would have decreased by $35,000. On February 8, 1996, the Company announced that its Board of Directors authorized the repurchase of up to five percent of its common stock, or approximately 500,000 shares. In September 1996, the Company repurchased 475,000 shares of its common stock at a cost of approximately $665,000. These shares were retired after their repurchase. Presently, the Company has no plans to repurchase additional shares, but will evaluate business conditions, stock market conditions, price per share and other factors to determine if additional shares should be repurchased. During the last three fiscal years, the Company has financed its operations with internally generated funds, capital leases and a $1,200,000 Subordinated Convertible Debenture in 1993. The Subordinated Convertible Debenture was converted into 2,400,000 shares of common stock in August 1995. In addition, during January 1994, the Company pledged receivables and received a $350,000 loan from New England Growth Fund I, L.P. This loan was repaid in full on March 31, 1994. During 1995, cash increased by $2,154,000 as a result of the improved operation of the Company. In 1994, cash increased by $499,000 as a result of the improved operation of the Company. During 1994, the Company reduced its long-term debt by approximately $447,000. During 1996 and 1995, there were no short-term borrowings. The Company has reviewed its capital spending budget for 1997 and expects to finance its 1997 capital equipment acquisitions through lease financing. The Company continues to monitor its operational spending levels very closely in order to conserve cash. In March 1995, the Company obtained a $500,000 revolving line of credit with First National Bank of Portsmouth. To date, the Company has not utilized this line of credit. The Company believes that its current cash balances and cash from operations will be adequate to meet the Company's working capital requirements during the next year. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's financial statements, together with the reports of the Company's independent auditors, Coopers & Lybrand L.L.P., are contained on pages 14 through 31 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE 10 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The response to this item is incorporated herein by reference to the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 1, 1997. ITEM 11. EXECUTIVE COMPENSATION The response to this item is incorporated herein by reference to the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 1, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The response to this item is incorporated herein by reference to the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 1, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The response to this item is incorporated herein by reference to the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 1, 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Page No. -------- (a.) 1. The following consolidated financial statements are filed as part of this report: Report of Coopers & Lybrand L.L.P., Independent Auditors, dated February 21, 1997 14 Consolidated Balance Sheets at December 31, 1996 and 1995 16 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1996 17 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1996 18 Consolidated Statements of Cash Flow for each of the three years in the period ended December 31, 1996 19 Notes to Consolidated Financial Statements for each of the three years in the period ended December 31, 1996 20 11 2. The following financial statement schedule is filed with this report: Schedule II-Valuation and Qualifying Accounts All other schedules have been omitted because they are not applicable, not required under the instructions, or the information is contained in the financial statements or the notes thereto. 3. The following exhibits required by Item 601 Regulation S-K are filed with this report: EXHIBITS INDEX 3.1 Articles of Organization, as amended to date (1) 3.2 By-Laws, as amended to date (11) 4.1 Specimen Common Stock Certificate (2) *10.1 Incentive Stock Option Plan of 1983 (3) *10.2 Incentive Stock Option Plan of 1983-II (3) *10.3 Form of Incentive Stock Option Agreement for 1983 Plan and the 1983-II Plan (3) 10.4 Lease of Real Property from Susan J. Conway, Trustee of Forbes Realty Trust (2) *10.5 1987 Stock Option Plan (5) 10.6 Form of Non-Qualified Stock Option Agreement (5) 10.7 Building Agreement and Lease of Premises at Bush Park, Estover, Plymouth from The Counsel of the City of Plymouth (5) 10.8 Lloyd's Bank Loan Agreement (5) 10.9 Department of Trade and Industry Grant (5) 10.10 Lease of Real Property from Susan J. Conway, Trustee of Afton Realty Trust (6) *10.11 Lease Amendments of Real Property from Susan J. Conway, Trustee of Forbes Realty Trust (7) *10.12 Employment Agreement with James J. Manfield, Jr. (9) (As Amended) (15) *10.13 Employment Agreement with Albert J. Chanasyk (9) 10.14 Employment Agreement by and between Peter D. Spilling and Vitronics Europe Limited (8) *10.15 Employment Agreement with Ronald W. Lawler (10) (As Amended) (15) 10.16 Amendment to Lease between Forbes Realty Trust and Vitronics Corporation (11) 10.17 $350,000 Demand Promissory Note of the Company issued to NEGF dated January 13, 1994 (11) 10.18 Loan Agreement between the Company and NEGF dated January 13, 1994 (11) 10.19 Security Agreement between the Company and NEGF dated January 13, 1994 (11) *10.20 1995 Key Employees Stock Option Plan (12) 10.21 Business Loan Agreement between the Company and First National Bank of Portsmouth dated March 22, 1995 (13) 10.22 Promissory Note of the Company to First National Bank of Portsmouth dated March 22, 1995 (13) 10.23 Commercial Security Agreement between the Company and First National Bank of Portsmouth dated March 22, 1995 (13) 11.1 Calculation of Net Income Per Common Share 32 21.1 Subsidiaries of the registrant 33 27 Financial Data Schedule (Edgar filing only) 34 99.1 Directors and Officers Liability Policy and Company reimbursement (4) 99.2 Complaint regarding Conceptronic Patent Litigation (9) 99.3 Conceptronic's response to the Complaint (9) 99.4 Conceptronic's Counterclaim (9) 99.5 Vitronics' response to Conceptronic's Counterclaim (9) 99.6 Order of the United States District Court concerning Conceptronic Patent Litigation (8) 12 99.7 Correspondence concerning the Vitronics Europe Limited lease (8) 99.8 Conceptronic's Counterclaim Summary Judgment (11) 99.9 Jury verdict in favor of Conceptronic Inc. (14) 99.10 Complaint of December 1996 35
(1) Articles of Amendment filed on August 17, 1987 are hereby incorporated by reference from Exhibits to Annual Report on Form 10-K (File No. 0-13715) filed by the Company with the Securities and Exchange Commission on March 31, 1988. The balance of Exhibit 3.1 is hereby incorporated by reference from Exhibits to Amendment No. 1 to Form S-18 Registration Statement (File No. 2-90042) filed by the Company with the Securities and Exchange Commission on August 1, 1984. (2) Exhibits 4.1 and 10.4 are incorporated by reference from Exhibits to Annual Report on Form 10-K (File No. 2-90042) filed by the Company with the Securities and Exchange Commission on April 1, 1985. (3) Exhibits 10.1, 10.2 and 10.3 are hereby incorporated by reference from Exhibits to Form S-18 Registration Statement (File No. 2-90042) filed by the Company with the Securities and Exchange Commission on March 20, 1984. (4) Exhibit 99.1 is hereby incorporated by reference from Exhibits to Post-Effective Amendment No. 1 to Form S-18 Registration Statement (File No. 2-90042) filed by the Company with the Securities and Exchange Commission on May 10, 1985. (5) Exhibits 10.5, 10.6, 10.7, 10.8 and 10.9 are hereby incorporated by reference from Exhibits to Annual Report on Form 10-K (File No. 0-13715) filed by the Company with Securities and Exchange Commission on March 31, 1988. (6) Exhibit 10.10 is hereby incorporated by reference from Exhibits to Annual Reports on Form 10-K (File No. 0-13715) filed by the Company with the Securities and Exchange Commission on March 24, 1989. (7) Exhibit 10.11 is hereby incorporated by reference from Exhibits to Annual Report on Form 10-K (File No. 0-13715) filed by the Company with the Securities and Exchange Commission on April 2, 1990. (8) Exhibits 10.14, 99.6 and 99.7 are hereby incorporated by reference to Exhibits to Form S-2 Registration Statement (File No. 33-50928) filed by the Company with the Securities and Exchange Commission on August 17, 1992. (9) Exhibits 10.12, 10.13, 99.2, 99.3, 99.4 and 99.5 are hereby incorporated by reference from Exhibits to Annual Report on Form 10-K (File No. 0-13715) filed by the Company with the Securities and Exchange Commission on March 27, 1992. (10) Exhibit 10.15 is hereby incorporated by reference from Exhibits to Annual Report on Form 10-K (File No. 0-13715) filed by the Company with the Securities and Exchange Commission on March 26, 1993. (11) Exhibits 3.2, 10.16, 10.17, 10.18, 10.19 and 99.8 are hereby incorporated by reference from Exhibits to Annual Report on Form 10-K (File No. 0-13715) filed by the Company with the Securities and Exchange Commission on April 13, 1994. (12) Exhibit 10.20 is hereby incorporated by reference to the Company's Proxy Statement for the 1995 Annual Meeting of Stockholders dated April 3, 1995. (13) Exhibits 10.21, 10.22, 10.23 are hereby incorporated by reference from Exhibits to Quarterly Report on Form 10-Q (File No. 0-13715) for the quarterly period ended April 1, 1995. (14) Exhibit 99.9 is hereby incorporated by reference from Exhibits to the Company's Form 8-K dated August 11, 1995. (15) Exhibit 10.12 and 10.15 are hereby incorporated by reference from Exhibits to Annual Report on Form 10-K (File No. 0-13715) filed by the Company with the Securities and Exchange Commission on April 1, 1996. * Management compensatory plan or arrangement. (b) Reports on Form 8-K The Company filed a Form 8-K dated October 15, 1996, to report the following event: The repurchase of 475,000 shares of stock from New England Growth Fund. The stock was acquired in a single transaction at a price of $1 3/8. 13 Coopers & Lybrand REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Vitronics Corporation and Subsidiaries: We have audited the consolidated financial statements and financial statement schedule of Vitronics Corporation and Subsidiaries listed as Items 14(a) (1) and (2) of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vitronics Corporation and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Boston, Massachusetts February 21, 1997 14 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. VITRONICS CORPORATION DATE: MARCH 21, 1997 BY: /S/ JAMES J. MANFIELD, JR. -------------------------------------- JAMES J. MANFIELD, JR. CHAIRMAN OF THE BOARD, PRESIDENT AND 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 and in the capacities and on the dates indicated. DATE: March 21, 1997 By: /S/ JAMES J. MANFIELD, JR. ---------------------------------- JAMES J. MANFIELD, JR. Chairman of the Board, President, Chief Executive Officer Chief Financial Officer and Treasurer Date: March 21, 1997 By: /S/ DANIEL J. SULLIVAN --------------------------------------- DANIEL J. SULLIVAN Vice President, Corporate Controller and Principal Accounting Officer Board of Directors Date ------------------ ---- /S/ JAMES J. MANFIELD, JR. March 21, 1997 ------------------------------- JAMES J. MANFIELD, JR. /S/ DR. ALLEN H. KEOUGH March 21, 1997 -------------------------------- DR. ALLEN H. KEOUGH /S/ DAVID R.A. STEADMAN March 21, 1997 --------------------------------- DAVID R.A. STEADMAN /S/ JAMES R. KANELY March 21, 1997 ---------------------------------- JAMES R. KANELY 15 VITRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands except share amounts)
1996 1995 ----------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents............................................. $ 2,125 $ 2,825 Accounts receivable--less allowance for doubtful accounts of $147 and $128................................................................ 3,177 3,384 Inventories........................................................... 2,989 2,650 Deferred taxes........................................................ 553 548 Other current assets.................................................. 225 194 ----------- --------- TOTAL CURRENT ASSETS............................................... 9,069 9,601 PROPERTY AND EQUIPMENT, NET.............................................. 437 402 DEFERRED TAXES........................................................... 183 175 OTHER ASSETS............................................................. 74 68 ----------- --------- $ 9,763 $ 10,246 ----------- --------- ----------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable...................................................... $ 1,341 $ 1,978 Income taxes payable.................................................. 176 69 Other current liabilities............................................. 1,753 1,899 Current maturities of long-term liabilities........................... 214 150 ----------- --------- TOTAL CURRENT LIABILITIES.......................................... 3,484 4,096 ----------- --------- LONG TERM LIABILITIES--net of current maturities......................... 104 246 COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY: Common Stock, $.01 par value: Authorized 20,000,000 shares; issued and outstanding 9,856,572 and 10,311,863........................................................ 99 103 Additional paid-in capital............................................... 6,145 6,793 Foreign currency translation adjustment.................................. (81) (202) Retained earnings/deficit................................................ 12 (790) ----------- --------- 6,175 5,904 ----------- --------- $ 9,763 $ 10,246 ----------- --------- ----------- ---------
The accompanying notes are an integral part of the consolidated financial statements. 16 VITRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands except share amounts)
1996 1995 1994 ------------ ------------ ------------ Net sales............................................................... $ 22,708 $ 23,525 $ 17,346 Costs of goods sold..................................................... 14,156 13,995 11,136 ------------ ------------ ------------ Gross profit......................................................... 8,552 9,530 6,210 Selling, general and administrative expenses............................ 5,627 5,525 4,072 Research and development costs.......................................... 1,635 1,363 1,010 Patent litigation....................................................... 54 308 330 ------------ ------------ ------------ 7,316 7,196 5,412 ------------ ------------ ------------ Income (loss) from operations........................................... 1,236 2,334 798 Non-operating income (expense)--net..................................... 101 (132) (171) ------------ ------------ ------------ Income (loss) before taxes.............................................. 1,337 2,202 627 Income taxes (credit)................................................... 535 (573) 25 ------------ ------------ ------------ Net income (loss)....................................................... $ 802 $ 2,775 $ 602 ------------ ------------ ------------ ------------ ------------ ------------ Income (loss) per common share: Primary.............................................................. $ .08 $ .30 $ .08 ------------ ------------ ------------ ------------ ------------ ------------ Fully diluted........................................................ $ .08 $ .27 $ .07 ------------ ------------ ------------ ------------ ------------ ------------ Weighted average number of common and common equivalent shares used in calculation of earnings per common share: Primary.............................................................. 10,579,000 9,168,000 7,739,000 ------------ ------------ ------------ ------------ ------------ ------------ Fully diluted........................................................ 10,588,000 10,688,000 10,190,000 ------------ ------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the consolidated financial statements. 17 VITRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands)
FOREIGN COMMON STOCK ADDITIONAL CURRENCY -------------------------------------- PAID-IN TRANSLATION RETAINED SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS TOTAL ------------- ----------- ----------- ----------- --------- --------- Balances, December 31, 1993... 7,378,538 $ 74 $ 5,311 $ (219) $ (4,167) $ 999 Exercise of stock options..... 30,000 1 20 -- -- 21 Conversion of debt to 142,000 equity...................... 1 70 -- -- 71 Foreign currency translation -- adjustment.................. -- -- 35 -- 35 Net income.................... -- -- -- -- 602 602 ----------- ----- ----------- ----- --------- --------- Balances, December 31, 1994... 7,550,538 $ 76 $ 5,401 $ (184) $ (3,565) $ 1,728 Exercise of stock options..... 15,100 -- 11 -- -- 11 Conversion of Debenture....... 2,400,000 24 1,176 -- -- 1,200 Foreign currency translation adjustment.................. -- -- -- (18) -- (18) Exercise of stock warrants.... 346,225 3 205 -- -- 208 Net income.................... -- -- -- -- 2,775 2,775 ----------- ----- ----------- ----- --------- --------- Balances, December 31, 1995... 10,311,863 $ 103 $ 6,793 $ (202) $ (790) $ 5,904 Exercise of stock options..... 22,800 -- 13 -- -- 13 Retirement of Common Stock.... (478,091) (4) (661) -- -- (665) Foreign currency translation -- adjustment.................. -- -- 121 -- 121 Net income.................... -- -- -- -- 802 802 ----------- ----- ----------- ----- --------- --------- 9,856,572 $ 99 $ 6,145 $ (81) $ 12 $ 6,175 ----------- ----- ----------- ----- --------- --------- ----------- ----- ----------- ----- --------- ---------
The accompanying notes are an integral part of the consolidated statements. 18 VITRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) 1996 1995 1994 ------- --------- --------- Cash Flow From Operating Activities: Net income................................. $ 802 $ 2,775 $ 602 --------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............. 192 282 192 Provision for excess and obsolescence...... 328 565 297 Provision for bad debts.................... 19 59 1 Changes in current assets and liabilities: Accounts receivable........................ 188 (720) (1,028) Inventories................................ (667) (1,121) (232) Other current assets....................... (31) (5) 52 Accounts payable........................... (637) 227 725 Income taxes............................... 107 69 20 Deferred taxes............................. (13) (723) -- Other current liabilities.................. (146) 954 249 --------- --------- --------- Total adjustments.......................... (660) (413) 276 --------- --------- --------- Net cash provided by operating activities.. 142 2,362 878 --------- --------- --------- Cash Flows Used For Investing Activities: Additions to property and equipment........ (104) (115) (32) Disposals of property and equipment........ 1 6 2 Additions to other assets.................. (42) (68) (29) --------- --------- --------- Net cash (used for) investing activities... (145) (177) (59) --------- --------- --------- Cash Flows Used For Financing Activities: Issuance of Common Stock................... 13 219 21 Repurchase of Common Stock................. (665) -- -- Principal payments under long-term debt and capital lease obligations................ (166) (232) (376) --------- --------- --------- Net cash used for financing activities..... (818) (13) (355) Foreign currency translation adjustment.... 121 (18) 35 --------- --------- --------- Cash and Cash Equivalents: Net increase (decrease).................... (700) 2,154 499 Balance, beginning of year................. 2,825 671 172 --------- --------- --------- Balance, end of year....................... $ 2,125 $ 2,825 $ 671 --------- --------- --------- --------- --------- --------- Supplemental Disclosure of Non-Cash Investing and Financing Activities: Conversion of debt to equity............... $ -- $ 1,200 $ 71 Capital lease obligations.................. 88 200 -- Supplemental Disclosures of Cash Supplemental Disclosure of Cash Flow Information: Cash paid during the periods for: Interest................................. $ 40 $ 118 $ 189 Income taxes............................... 440 97 25 The accompanying notes are an integral part of the consolidated financial statements. 19 VITRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three Years Ended December 31, 1996 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company is engaged in designing, engineering, manufacturing and marketing state-of-the-art thermal processing systems for soldering surface mount devices to printed circuit boards and cleaning of the finished assembly. The Company's customers are captive and contract manufacturers of medium to high reliability printed circuit boards. The primary market for the Company's products is the electronics industry, where the systems are used in the production of printed circuit boards, ceramic hybrid semiconductor packages and glass/epoxy circuits. Segments of the electronics industry served by the Company's products are: computer and peripheral office equipment, test and measurement equipment, telecommunications equipment, medical electronics and contract assembly. The Company sells and markets its products on a worldwide basis, with approximately 50% of its revenue from foreign countries, primarily Europe and Southeast Asia. The significant accounting policies employed are as follows: Principles of Consolidation-- The consolidated financial statements include the accounts of the Company and its wholly-owned foreign subsidiaries, Vitronics Europe Ltd., located in the United Kingdom and Vitronics Foreign Sales Corporation located in Barbados. All significant intercompany balances, transactions and profits have been eliminated. Cash Equivalents-- The Company considers all highly-liquid debt instruments with a maturity of three months or less, at the time of purchase, to be cash equivalents. At December 31, 1996 and December 31, 1995, the Company had approximately $1,802,000 and $1,886,000 respectively, on deposit at one bank. Inventories-- Inventories are stated at the lower of cost (first-in, first-out method) or market. Provision is made for excess or obsolete inventory in the period in which such matters are identified. The Company classifies its demo machines as finished goods and amortizes the cost over three years. This amortization is included in inventory reserves. Property and Equipment-- Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the applicable assets. Expenditures for maintenance and repairs are charged to expense as incurred, whereas expenditures for renewals and betterments are capitalized. Upon sale or other disposition of assets, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income. The estimated useful lives used to compute depreciation are as follows:
DESCRIPTION YEARS ----------- ----- Machinery and equipment.............. 3-8 Furniture and fixtures............... 5-8
20 Other Assets-- Included in other assets are patents and debenture costs associated with the issuance of long-term debt. Patents and debenture costs are being amortized on the straight-line method over their estimated useful lives ranging from three to seven years. Foreign Currency Translation-- All assets and liabilities of the Company's United Kingdom subsidiary are translated at exchange rates in effect at each respective balance sheet date (December 31, 1996 and December 31, 1995). Income and expenses are translated at average rates for the year. The resulting differences, due to changing exchange rates, are charged or credited to the cumulative translation adjustment included as part of Stockholders' Equity. Gains and losses from foreign currency transactions are included in earnings. Included in other expenses were gains of $26,000 in 1996 and losses of $13,000 during 1995. Revenue Recognition-- Revenue is recorded upon shipment to the customer. Research and Development Costs-- All research and development costs are charged to operations as incurred. Warranties-- The Company's products are generally under warranty against defects in material and workmanship for a one year period. Estimated warranty costs are accrued in the same period as products are shipped. Income taxes-- The Company has adopted the liability method of accounting for income taxes, as set forth in Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than future enactments of changes in the tax law or rates. Deferred tax assets are recognized, net of any valuation allowance, for deductible temporary differences and operating loss and credit carryforwards. Deferred tax expense represents the change in the deferred tax assets and liabilities. Stock Options-- Effective January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation. The statement encourages, but does not require, a fair value based method of accounting for stock based compensation plans. SFAS No. 123 allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method prescribed by Accounting Principles Board ("APB") Opinion No. 25. For those entities electing to use the intrinsic value based method, SFAS No. 123 requires pro forma disclosure of net income and earnings per share computed as if the fair value based method had been applied. The Company has elected to continue to account for stock-based compensation costs under APB Opinion No. 25. Options and warrants issued by the Company are covered by APB No. 25, and no compensation cost has been recognized by the Company since the exercise price for the options and warrants equals the fair market value of the stock at the date of grant. 21 Income (Loss) Per Common Share-- The income (loss) per share is based on the weighted average number of common and common equivalent shares (where dilutive) outstanding during the year. During 1997, the Financial Accounting Standards Board issued FASB Statement No. 128, "Earnings Per Share". This standard is designed to improve the Earnings Per Share ("EPS") information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements, and increasing the comparability of EPS data on an international basis. The Company will implement the new standard in its fiscal year ending December 31, 1997. The impact of the implementation of this standard has not yet been determined. Pervasiveness of Estimates-- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassification-- Certain 1995 and 1994 balances have been reclassified in order to conform to the 1996 presentation. B. SUBSEQUENT EVENT On February 16, 1997, the Company's President and Chief Operating Officer, Ronald W. Lawler, resigned to pursue other interests. C. STOCK REPURCHASE On February 8, 1996, the Company announced that its Board of Directors authorized the repurchase of up to five percent of its common stock, or approximately 500,000 shares. In September 1996, the Company repurchased 475,000 shares of its common stock at a cost of approximately $665,000. These shares were retired after their repurchase. Presently, the Company has no plans to repurchase additional shares, but will evaluate business conditions, stock market conditions, price per share and other factors to determine if additional shares should be repurchased. D. INVENTORIES Inventories consisted of (in thousands):
DECEMBER 31 -------------------- 1996 1995 --------- --------- Finished goods............................................................. $ 833 $ 498 Work in process............................................................ 663 926 Raw material............................................................... 1,493 1,226 --------- --------- $ 2,989 $ 2,650 --------- --------- --------- ---------
The above amounts are net of inventory reserves amounting to $791,000 and $760,000 at December 31, 1996 and 1995, respectively. 22 E. PROPERTY AND EQUIPMENT Property and equipment consisted of (in thousands):
DECEMBER 31 -------------------- 1996 1995 --------- --------- Machinery and equipment.................................................... $ 946 $ 936 Machinery and equipment under capital lease................................ 279 200 Furniture and fixtures..................................................... 454 412 Leaseholds................................................................. 465 455 --------- --------- $ 2,144 $ 2,003 Less accumulated depreciation and amortization............................. 1,707 1,601 --------- --------- $ 437 $ 402 --------- --------- --------- ---------
F. OTHER ASSETS Other assets consisted of (in thousands):
DECEMBER 31 -------------------- 1996 1995 --------- --------- Patents....................................................................... $ 338 $ 296 Less accumulated amortization................................................. 264 228 --------- --------- $ 74 $ 68 --------- --------- --------- ---------
The Company capitalized additional patent expenses of $42,000 during 1996 and $68,000 during 1995. These costs relate to patents applied for on the Company's line of solder reflow ovens. G. OTHER CURRENT LIABILITIES Other current liabilities consisted of (in thousands):
DECEMBER 31 -------------------- 1996 1995 --------- --------- Accrued sales commissions.................................................. $ 721 $ 485 Accrued payroll and related taxes.......................................... 355 551 Accrued warranty costs..................................................... 193 197 Customer deposits.......................................................... 95 283 Other...................................................................... 389 383 --------- --------- $ 1,753 $ 1,899 --------- --------- --------- ---------
23 H. INDEBTEDNESS Long-term liabilities consisted of (in thousands):
DECEMBER 31 -------------------- 1996 1995 --------- --------- U.K. term loan, interest at bank base rate plus 3%............................ $ 120 $ 163 Notes payable, primarily to vendors, interest ranging from 0%-12%............. -- 47 Capital lease obligation interest rate ranging from 8.5% to 22%............... 198 186 --------- --------- 318 396 Less current maturities....................................................... 214 150 Total long-term liabilities--net of current maturities........................ $ 104 $ 246 --------- --------- --------- ---------
On October 1, 1993, the Company received $1,200,000 from an investment fund. This was a Convertible Subordinated Debenture with an interest rate of 10% convertible into 2,400,000 shares of Vitronics' common stock. The $1,200,000 Subordinated Convertible Debenture was converted into 2,400,000 shares of the Company's common stock at a conversion price of $.50 per share on August 11, 1995. In March 1995, the Company obtained a $500,000 revolving line of credit with First National Bank of Portsmouth. As of December 31, 1996, nothing had been drawn against this line. This line of credit is collateralized by the Company's U.S. receivables and U.S. inventory. The Company is also required to maintain a minimum debt service coverage of 1.2, a minimum net worth of no less than $2,550,000, and maintain a ratio of current assets to current liabilities of no less than 1.7. As of December 31, 1996, the Company was not in violation of any loan covenants. Borrowings under the U.K. term loan are collateralized by substantially all of the assets of VEL, the Company's United Kingdom subsidiary and guaranteed by the Company. The interest rate was 9.75% at December 31, 1996, and 9.75% at December 31, 1995. The final payments on this debt are due in August 1997. In 1993, approximately $365,000 of accounts payable were converted to long-term Notes Payable. As of December 31, 1995, approximately $47,000 of such Notes Payable remained outstanding and were paid during 1996. The Company finances some of its capital equipment acquisitions through lease financing. During 1996 and 1995, the Company entered into capital leases totaling approximately $88,000 and $200,000, respectively. As of December 31, 1996, aggregate maturities of liabilities were as follows (in thousands): 1997............................................................ $ 214 1998............................................................ 62 1999............................................................ 42 --------- $ 318 --------- ---------
Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of the Company's U.K. term loan as of December 31, 1996 and December 31, 1995 approximated carrying value. 24 I. INCOME TAXES The provision (benefit) for income taxes includes federal, state and foreign income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. The provision (benefit) for income taxes consisted of (in thousands):
YEAR ENDED DECEMBER 31 -------------------- 1996 1995 --------- --------- Currently payable Federal..................................................................... $ 435 $ 40 Foreign..................................................................... -- -- State....................................................................... 113 110 --------- --------- 548 150 --------- --------- Deferred (prepaid): Federal..................................................................... 144 (698) Foreign..................................................................... (138) -- State....................................................................... (19) (25) --------- --------- Total Deferred................................................................ (13) (723) $ 535 $ (573) --------- --------- --------- ---------
Reconciliation of income taxes at the statutory rate to the effective rate reflected in the financial statements were as follows:
YEAR ENDED DECEMBER 31 -------------------- 1996 1995 --------- --------- Statutory income tax rate...................................................... 34.0% 34.0% Utilization of prior years tax benefits........................................ -- (32.1%) Reduction of valuation allowance............................................... -- (32.8%) State taxes, net of Federal benefit............................................ 4.6% 3.6% Other.......................................................................... 1.4% 1.3% --------- --------- 40.0% (26.0%) --------- --------- --------- ---------
The components of the net deferred assets and liabilities were as follows ( in thousands):
DECEMBER 31 -------------------- 1996 1995 --------- --------- Deferred Tax assets: Inventory reserves.......................................................... $ 172 $ 242 Accounts receivable reserves................................................ 43 43 Other liabilities and reserves.............................................. 200 79 Depreciation and amortization............................................... 183 175 Capital loss carryforwards.................................................. 160 160 Net operating loss carryforwards............................................ 138 109 Research and development credits............................................ -- 75 -------- ------- Total deferred tax asset...................................................... 896 883 Valuation allowance........................................................... (160) (160) -------- ------- Net deferred tax assets....................................................... $ 736 $ 723 -------- ------- -------- -------
25 The Company currently has a net operating loss carryforwards for foreign income tax purposes of approximately $419,000 expiring in 2009. Realization is dependent upon generating sufficient taxable income in VEL prior to the expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that all of this deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. There are also capital loss carryforwards of $470,000 which will expire in 1997. The Company has maintained a valuation of $160,000 due to the uncertainty surrounding the ultimate utilization of these losses. J. COMMITMENTS The Company leases its facilities and certain equipment under operating leases ranging up to five years with renewal and purchase options. The leases provide for monthly rental payments, plus, in certain situations, payments for real estate taxes, insurance and maintenance. Rental expense for property, machinery and equipment charged to operations was $463,000, $427,000 and $372,000 for the years ended December 31, 1996, 1995 and 1994, respectively. At December 31, 1996, future minimum payments applicable to non-cancelable operating leases with initial terms of one year or more were as follows (in thousands): 1997................................................................. $ 298 1998................................................................. 244 1999................................................................. 30 2000................................................................. 19 2001................................................................. 9 -------- $ 600 -------- --------
The Company is currently involved in a patent litigation suit against a competitor, Conceptronic, Inc. The Company commenced the suit in November 1991, seeking an injunction and damages against Conceptronic for infringement of an apparatus patent and a method patent, both of which are owned by the Company and cover certain aspects of its solder reflow systems. The trial regarding this dispute commenced on July 25, 1995 in the United States District Court for the District of New Hampshire. On August 16, 1995, the Court directed a verdict of non-infringement in favor of Conceptronic on the method patent, while the jury rendered a verdict of non-infringement in favor of Conceptronic on the apparatus patent. The Company does not expect the jury's verdict to have a negative impact upon the Company's financial condition or results of operations. The Company has appealed the directed verdict on the method patent. In July 1996, the Company received a favorable ruling from the United States Court of Appeals for the Federal Circuit in its appeal. The appellate court reversed the trial court's judgment of non-infringement by Conceptronic Inc. of Claim 1 of U.S. Patent No. 4,654,502 and has remanded the case back to the United States District Court for further proceedings. The Company does not anticipate that additional costs relating to this process will be significant until the case is returned to the trial court which is expected to occur in May 1997. The Company is unable to predict the outcome of the new trial, but does not believe that an adverse decision, however unlikely in the Company's view, will have a material effect on the Company's financial condition or results of operation. The Company intends to pursue all of its legal rights and remedies in connection with this litigation, and believes that a favorable outcome may result in certain licensing opportunities for the Company which could have a positive impact on its financial condition and results of operations in the future. On December 23, 1996, Conceptronic Inc. brought a lawsuit against the Company for malicious prosecution and abuse of the legal process. The suit claims Vitronics Corporation, when it began a 1991 patent infringement case against Conceptronic, knew or should have known that the suit was without merit. Conceptronic said the Patent and Trademark Office rejected a key claim of the patent and jury verdict in 1995 and gave a unanimous non- 26 infringement verdict. Conceptronic is suing for no less than $1.3 million, with additional amounts to be determined. The Company is vigorously defending the lawsuit and feels it is without merit. The Company, in the normal course of business, is involved in various other legal proceedings, that in the opinion of management, will not have a material effect on the Company's financial conditions or results of operations. K. STOCK OPTIONS Stock Option Plans-- The Company has Stock Option Plans for the benefit of employees, officers, directors and consultants under the provisions of both "Incentive Stock Options" and "Non-Qualified Stock Options" may be granted to purchase an aggregate of 1,300,000 shares of the Company's common stock. Options granted under the plans must have an exercise price equal to at least fair market value of a share of common stock on the date the option is granted. The Stock Option Committee may issue options which are exercisable over a period not to exceed ten years and vest from date of issuance up to five years. The following schedule summarizes the stock option activity during the three years ending December 31, 1996:
1996 1995 1994 ---------- ---------- ---------- Outstanding at beginning of year............................................ 1,033,500 922,800 784,600 Granted................................................................ 124,000 179,500 324,000 Exercised.............................................................. (22,800) (15,100) (30,000) Expired................................................................ (50,000) Canceled............................................................... (129,500) (53,700) (155,800) ---------- ---------- --------- Outstanding at end of year.................................................. 955,200 1,033,500 922,800 ---------- ---------- --------- Exercisable at end of year.................................................. 626,700 567,140 409,900 ---------- ---------- --------- Weighted average exercise price of exercisable options...................... $ .89 $ .89 $ .95
1996 1995 1994 ----------------- ----------------- ---------------- Price per share of options: Outstanding From low of.......................................... $.5625 $.5625 $.5625 To high of........................................... 2.375 2.375 1.75 Weighted average price outstanding................... 1.15 1.13 .95 Granted................................................ 1.03 to 2.25 1.5938 to 2.375 .01 to 1.3125 Exercised.............................................. .5625 to 1.3125 .5625 to 1.25 .01 Canceled............................................... .5625 to 2.375 .5625 to 1.875 .5625 to 1.875 Expired................................................ 1.5938 --- ---
Options were exercised during 1996 at a weighted average price of $0.73 per share. The weighted average remaining time to expiration for options outstanding at December 31, 1996 is approximately three years. 27 Options to purchase 172,800 and 247,000 shares were available to be granted under these plans as of December 31, 1996 and 1995, respectively. When options under these plans are canceled, they may be granted again at a later date. Options to purchase 626,700 shares at prices ranging from $.5625 to $2.375 per share were exercisable as of December 31, 1996, and options to purchase 567,140 shares at prices ranging from $.5625 to $2.348 were exercisable as of December 31, 1995. The Company has reserved 1,128,000 and 1,280,500 shares of common stock as of December 31, 1996 and December 31, 1995, respectively, for these plans. In addition, as of December 31, 1994, the Company had 346,225 outstanding stock warrants to purchase the Common Stock of the Company at an exercise price of $.60. During 1995, all 346,225 outstanding stock warrants were exercised. The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option plans, accordingly, no compensation cost has been recognized for these plans. Had compensation cost been determined consistent with SFAS No. 123, as described in footnote A and below, the Company's 1996 net income and EPS would have approximated the proforma amounts noted below.
1996 1995 --------- --------- Net income--as reported...................................................... $ 802 $ 2,775 Net income--pro forma........................................................ 764 2,772 Earnings per share--as reported.............................................. .08 .27 Earnings per share--pro forma................................................ .07 .27
In order to compute the pro forma compensation cost as if the Company had adopted SFAS No. 123, the Company used the Black-Scholes option-pricing model to determine the fair value of options granted in 1996 and 1995. The fair value of the options granted in 1996 and 1995 was $0.69 and $1.59, respectively. Value was determined utilizing the following weighted average assumptions: dividend rate of 0%, expected volatility of 70%, risk-free interest rate of 5.9% for 1996, and 5.53% for 1995, and expected lives of 6 years. Under SFAS No. 123, the fair value is determined at grant date using the model and this value is amortized over the vesting period of the options. L. NON-OPERATING EXPENSE (INCOME)--NET Non-operating expense (income)--net consisted of (in thousands):
YEAR ENDED DECEMBER 31 ------------------------------------ 1996 1995 1994 ---------- --------- --------- Interest income................................. (86) (58) (10) Interest expense................................ 40 118 189 Gain on sale of assets.......................... -- -- (85) Other, net...................................... (55) 72 77 ---------- --------- --------- $ (101) $ 132 $ 171 ---------- --------- --------- ---------- --------- ---------
28 M. FOREIGN OPERATIONS The Company operates in one industry segment. Data by geographic area follows (in thousands):
YEAR ENDED DECEMBER 31 ------------------------------- 1996 1995 1994 --------- --------- --------- Foreign revenues: Asia.......................................................................... $ 9,127 $ 6,087 $ 4,974 Europe........................................................................ 3,343 5,154 2,663 --------- --------- --------- Other......................................................................... 152 661 275 --------- --------- --------- --------- --------- --------- $12,622 $11,902 $ 7,912 Revenues by manufacturing operations: United States................................................................. $19,465 $18,946 $14,257 United Kingdom................................................................ 4,048 5,804 3,705 --------- --------- --------- $23,513 $24,750 $17,962 Less intracompany transfers: Net Revenues.................................................................. (805) (1,225) (616) --------- --------- --------- $22,708 $23,525 $17,346 --------- --------- --------- --------- --------- --------- Income (loss) from operations: United States................................................................. $ 1,250 $ 1,615 $ 534 United Kingdom................................................................ (14) 719 264 --------- --------- --------- $ 1,236 $ 2,334 $ 798 --------- --------- --------- --------- --------- --------- Identifiable assets: United States................................................................. $ 7,635 $ 7,559 $ 4,614 United Kingdom................................................................ 2,128 2,687 1,438 --------- --------- --------- $ 9,763 $10,246 $ 6,052 --------- --------- --------- --------- --------- ---------
With respect to foreign revenues, unaffiliated revenues from customers in the United Kingdom were approximately $2,391,000 or 10% of net revenues in 1996, and approximately $3,155,000 or 13% of net revenues in 1995. In addition, unaffiliated revenues from customers in Korea were approximately $4,384,000, or 19% of net revenues in 1996. N. MAJOR CUSTOMERS During 1996, no customer accounted for more than 10% of net sales. During 1995, one customer accounted for 12% of net sales. Accounts receivable from the customer at December 31, 1995 amounted to $729,679. Another customer accounted for 10% of net sales during 1995. This customer accounts receivable balance at December 31, 1995 amounted to $68,619. During 1994, one customer accounted for 15% of net sales. Accounts receivable from this customer at December 31, 1994 amounted to $254,934. O. EMPLOYEE BENEFIT PLANS The Company maintains a 401(k) Plan and a defined Contribution Plan. The 401(k) Plan covers substantially all full-time U.S. employees who have twelve months of service and have attained the age of 21. Employee contributions may range from 2% -15% of compensation with a discretionary matching Company contribution. The Company is currently matching 25% of the employees contribution, up to 1.5% of total compensation. The Company may also make an optional contribution for any plan year at its discretion. The defined Contribution 29 Plan covers all full-time employees in the United Kingdom. Contributions to the Plan are made only by the Company, and at the Company's discretion. The Company has expensed approximately $61,275, $49,196 and $41,438, relating to contributions to the Plans during 1996, 1995 and 1994, respectively. The Company does not currently offer employment benefits subject to the provisions of Statements of Financial Accounting Standards 106 and 112. P. SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED ------------------------------------------ DEC 31 SEPT 28 JUN 29 MAR 30 --------- --------- --------- --------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996: Net sales.............................................................. $4,828 $5,814 $6,207 $5,859 Gross profit........................................................... 1,501 2,421 2,289 2,341 Gross profit %......................................................... 31% 42% 37% 40% Income before taxes.................................................... 123 351 358 505 Taxes.................................................................. 49 141 143 202 Net income............................................................. 74 210 215 303 Net income per common share --Primary.......................................................... $.01 $.02 $.02 $.03 --Fully diluted.................................................... $.01 $.02 $.02 $.03 QUARTER ENDED ------------------------------------------ 1995: DEC 31 SEPT 30 JUL 1 APR 1 --------- --------- --------- ------ Net sales.............................................................. $6,455 $6,450 $5,767 $4,853 Gross profit........................................................... 2,569 2,668 2,422 1,871 Gross profit %......................................................... 40% 41% 42% 39% Income before taxes.................................................... 725 711 539 227 Taxes.................................................................. (625) 36 13 3 Net income............................................................. 1,350 675 526 224 Net income per common share --Primary.......................................................... $.14 $.07 $.06 $.03 --Fully diluted.................................................... $.13 $.06 $.06 $.02
During the fourth quarter of 1995, the Company reduced its tax valuation allowing by a net $723,000 (net of current year utilization) because it was more likely than not that these favorable tax attributes would be realized. 30 VITRONICS CORPORATION AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (000's 0mitted)
ADDITIONS BALANCE CHARGED TO BALANCE BEGINNING COSTS AND DEDUCTIONS(A) END OF OF PERIOD EXPENSES WRITE-OFFS PERIOD ----------- --------------- ----------------- ----------- Allowance for doubtful accounts year ending December 31, 1996 $128 $ 19 $ -- $147 1995 100 59 31 128 1994 120 1 21 100 Inventory reserves year ending December 31, 1996 $760 $328 $297 $791 1995 367 565 172 760 1994 289 297 219 367
(A) Deductions represent amounts determined to be uncollectible and charged against the reserve. 31 EX-11.1 2 EXHIBIT 11.1 Exhibit 11.1 VITRONICS CORPORATION AND SUBSIDIARIES CALCULATION OF NET INCOME PER COMMON SHARE (For the years ended December 31, 1996 and December 31, 1995)
DECEMBER 31, 1996 -------------------------- FULLY PRIMARY DILUTED ------------ ------------ Net income........................................................ $ 802,000 $ 802,000 Weighted average shares outstanding: Common stock.................................................... 10,199,621 10,199,621 Stock options................................................... 379,052 388,475 Weighted averaged shares outstanding............................ 10,578,673 10,588,096 ------------ ------------ Income per share.................................................. $ .08 $ .08
DECEMBER 31, 1995 -------------------------- FULLY PRIMARY DILUTED ------------ ------------ Net income........................................................ $ 2,775,000 $2,848,000 Weighted average shares outstanding: Common stock.................................................... 8,576,217 8,576,217 Convertible debentures.......................................... -- 1,492,603 Warrants........................................................ 139,150 143,253 Stock options................................................... 452,790 475,648 Weighted averaged shares outstanding............................ 9,168,158 10,687,721 ------------ ------------ Income per share.................................................. $ .30 $ .27
32 EX-21.1 3 EXHIBIT 21.1 EXHIBIT 21.1 VITRONICS CORPORATION AND SUBSIDIARIES The following is a list of the Company's subsidiaries:
PERCENTAGE OF VOTING SECURITIES OWNED BY VITRONICS NAME ORGANIZED UNDER LAWS OF CORPORATION AS OF DECEMBER 31, 1996 - -------------------------------------- -------------------------------------- ------------------------------------- Vitronics Europe Limited United Kingdom 100% Vitronics Foreign Sales Corporation Barbados 100%
33 EX-99.10 4 EXHIBIT 99.10 THE STATE OF NEW HAMPSHIRE SUPERIOR COURT ROCKINGHAM COUNTY / / COURT /XX/ JURY WRIT OF SUMMONS Conceptronic, Inc. Vitronics Corporation 6 Post Road 4 Forbes Road Portsmouth, NH 03801 v. New Market, NH 03857 James J. Manfield, Jr. 27 North Shore Road Hampton, NH 03842 The Sheriff or Deputy of any County is ordered to summon each defendant to file a written appearance with the Superior Court at the address listed below by the return day of this writ which is the first Tuesday of February, 1997. MONTH YEAR The PLAINTIFF(S) state(s): See Attached Declaration. A TRUE COPY: ATTEST [illegible] -------------- DEPUTY SHERIFF and the Plaintiff(s) claim(s) damages within the jurisdictional limits of this Court. George R. Moore, Esq. 12/20/96 - ----------------------------- ------------ INDORSER (sign and print name) DATE OF WRIT NOTICE TO THE DEFENDANT The Plaintiff listed above has begun legal action against you. You do not have to physically appear in Court on the return day listed above since there will be no hearing on that day. However, if you intend to contest this matter, you or your attorney must file a written appearance form with the Clerk's Office by that date. (Appearance forms may be obtained from the Clerk's Office.) You will then receive notice from the Court of all proceedings concerning this case. If you fail to file an appearance by the return day, judgment will be entered against you for a sum of money which you will then be obligated to pay. Witness, JOSEPH P. NADEAU, Chief Justice, Superior Court. [illegible] ------------------------------ SIGNATURE OF PLAINTIFF/ATTORNEY /s/ Raymond W. Taylor George R. Moore - ------------------------ ------------------ Raymond W. Taylor, Clerk PRINTED/TYPED NAME NH Superior Court Rockingham County Devine, Millimet & Branch, P.A. Administration and Justice Building 111 Amherst Street Exeter NH 03833 ------------------------------- (603) 772-3714 ADDRESS Manchester, NH 03101 /(603)669-1000 213-003-6 ----------------------------------- PHONE DECLARATION A.THE PARTIES 1. Plaintiff is a Delaware corporation with a principal place of business in Portsmouth, New Hampshire. 2. Defendant Vitronics Corporation ("Vitronics") is a Delaware corporation with a principal place of business in Newmarket, New Hampshire. 3. James J. Manfield, Jr. is an individual and an officer of Vitronics who resides in Rye, New Hampshire and who authorized, controlled, directed and initiated the tortious acts set forth herein. B.JURISDICTION AND VENUE 4. This Court has jurisdiction of this cause in that it is a claim under New Hampshire state law for malicious prosecution and abuse of process. Venue is proper in that Plaintiff and Defendant Vitronics reside and does business in this county and Defendant Manfield resides in this county. C.THE PRIOR LITIGATION 5. Plaintiff and Defendant Vitronics are competitors in the business of manufacturing and selling solder reflow ovens for use in the electronics industry. 6. On or around November 26, 1991, Defendant Vitronics brought suit for patent infringement of U.S. Patent No. 4,833,301 ("the '301 patent") against Plaintiff in the United States District Court for the District of New Hampshire ("the Prior Litigation"). 7. In the Prior Litigation, Defendant Vitronics alleged that Plaintiff infringed claim 1 of the '301 patent. 8. Defendant Manfield authorized, directed, controlled and initiated the decision that caused Defendant Vitronics to bring and maintain the action against Plaintiff in the Prior Litigation. 9. During prosecution of the application for the '301 patent in the United States Patent and Trademark Office ("PTO"), Defendant Vitronics withheld from the PTO a number of Defendant Vitronics' own documents that were material and relevant prior art to the subject matter of one or more claims of the '301 patent. Defendant Vitronics' thereby breached its obligation of full disclosure. 10. Among the prior art Vitronics document withheld from the PTO were the Vitronics Model 1336 Solder Reflow System brochure and the Vitronics IR Source newsletter. 11. As a result of Defendant Vitronics' breach of its obligation of full disclosure to PTO, the application for claim 1 of the '301 patent was granted in error and the patent issued on May 23, 1989. 12. In a subsequent reexamination proceeding brought by Plaintiff in the PTO, claim 1 of the '301 patent was found by the PTO to be unpatentable in view of the prior art that Defendant Vitronics had withheld from the PTO during prosecution of the '301 patent application. 13. Notwithstanding the PTO finding in reexamination that claim 1 of the '301 patent is unpatentable, Defendant Vitronics maintained its action against Plaintiff in the Prior Litigation for infringement of said claim. 14. At the time that Defendant Vitronics filed the complaint 2 in the Prior Litigation, and throughout said proceedings, Defendants knew or should have known that claim 1 of the '301 patent was invalid and/or unenforceable. 15. At the time that Defendant Vitronics filed the complaint in the Prior Litigation, and throughout said proceedings, Defendants knew or should have known that claim 1 of the '301 patent was not infringed by the Mark Series and HVC products of Plaintiff that were the subject of the Prior Litigation. 16. Based upon its assertion of infringement of claim 1 of the '301 patent, and notwithstanding the PTO finding in reexamination that claim 1 of the '301 patent is unpatentable, Defendant Vitronics requested the district court in the Prior Litigation inter alia to issue a permanent injunction against Plaintiff to preclude Plaintiff from manufacturing, using and selling the Mark Series and HVC Series ovens. 17. In spite of Defendants' knowledge that the Mark Series and HVC Series products did not infringe claim 1 of the '301 patent and that claim 1 of the '301 patent is invalid and/or unenforceable, Defendant Vitronics maintained such suit with malice and without probable cause for its own improper and unlawful purposes. 18. On August 16, 1995, the jury returned a unanimous 9-0 verdict that the Mark Series products of Plaintiff do not infringe claim 1 of the '301 patent. 19. On August 16, 1995, the jury returned a unanimous 9-0 verdict that the HVC Series products of Plaintiff do not infringe claim 1 of the '301 patent. 3 20. The jury returned its verdict in the Prior Litigation after less than one hour of deliberation. 21. On or around August 18, 1995, the United States District Court for the District of New Hampshire entered judgment in favor of Plaintiff on Defendant Vitronics' claim for infringement of claim 1 of the '301 patent and said judgment was not appealed and is now final and binding upon Defendant Vitronics. COUNT I 22. The Plaintiff reasserts and realleges paragraphs 1-21 above as if set forth in full herein. 23. This is a count under New Hampshire law for malicious prosecution. 24. The tortious acts of the Defendants set forth above constitute malicious prosecution in that Defendants' actions caused the filing and prosecution of a civil proceeding for infringement of claim 1 of the '301 patent with malice and without probable cause and said proceeding terminated in favor of Plaintiff. 25. Defendants' malicious prosecution of the claim for infringement of claim 1 of the '301 patent in the Prior Litigation has caused harm and damage, reparable and irreparable, to Plaintiff. 26. The monetary damages caused by Defendant Vitronics' malicious prosecution are no less than $1,300,000.00 in expenses and attorney's fees. The tortious acts of Defendants set forth above have caused damage to Plaintiff in that such acts were intended to and did cause a significant loss 4 of sales and revenue to the Plaintiff and thereby diminished Plaintiff's ability to expand such sales and revenues. The remainder of the actual, consequential and/or increased damages are in excess of and therefore satisfy the jurisdictional limits of this Court. COUNT II 27. The Plaintiff reasserts and realleges paragraphs 1-26 above as if set forth in full herein. 28. This is a count under New Hampshire law for abuse of process. 29. The tortious acts of the Defendants set forth above constitute abuse of process in that the Defendants used legal process against Plaintiff primarily to accomplish a purpose for which such process is not designed and such abuse of process caused harm to Plaintiff. 30. The Defendants' abuse of process regarding claim 1 of the '301 patent in the Prior Litigation has caused harm and damage, reparable and irreparable, to Plaintiff. 31. The monetary damages caused by Defendants' abuse of process are no less than $1,300,000.00 in expenses and attorneys' fees. The tortious acts of Defendants set forth above have caused damage to Plaintiff in that such acts were intended to and did cause a significant loss of sales and revenue to the Plaintiff and thereby diminished Plaintiff's ability to expand such sales and 5 revenues. The remainder of the actual, consequential and/or increased damages are in excess of and therefore satisfy the jurisdictional limits of this Court. 6 EX-27.1 5 EXHIBIT 27.1 FDS
5 1,000 12-MOS 12-MOS DEC-31-1996 DEC-31-1995 JAN-01-1996 JAN-01-1995 DEC-31-1996 DEC-31-1995 2,125 2,825 0 0 3,324 3,512 147 128 2,989 2,650 9,069 9,601 2,144 2,003 1,707 1,601 9,763 10,246 3,484 4,096 0 0 0 0 0 0 99 103 6,076 5,801 9,763 10,246 22,708 23,525 22,708 23,525 14,156 13,995 7,297 7,137 (55) 72 19 59 40 118 1,337 2,202 535 (573) 802 2,775 0 0 0 0 0 0 802 2,775 .08 .30 .08 .27
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