SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended June 30, 2000 Commission File No. 0-6994
------
NEW BRUNSWICK SCIENTIFIC CO., INC.
State of Incorporation - New Jersey E. I. #22-1630072
-----------
44 Talmadge Road, Edison, N.J. 08818-4005
Registrant's Telephone Number: 732-287-1200
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve (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 ninety (90) days.
Yes X No
---
There are 6,068,755 Common shares outstanding as of August 3, 2000.
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NEW BRUNSWICK SCIENTIFIC CO., INC.
Index
<TABLE>
<CAPTION>
PAGE NO.
-----------------------------
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999 5
Consolidated Statements of Comprehensive Loss -
Three and Six Months Ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Results
of Operations and Financial Condition 11
PART II. OTHER INFORMATION 16
</TABLE>
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NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ -------------
Current Assets (Unaudited)
--------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 2,313 $ 2,111
Accounts receivable, net 10,539 13,769
Refundable income taxes 259 28
Deferred income taxes 85 85
Inventories:
Raw materials and sub-assemblies 8,394 6,397
Work-in-process 3,481 3,669
Finished goods 5,889 4,931
------------ -------------
Total inventories 17,764 14,997
Prepaid expenses and other current assets 865 719
------------ -------------
Total current assets 31,825 31,709
------------ -------------
Property, plant and equipment, net 6,511 7,023
Excess of cost over net assets acquired, net 4,579 4,751
Deferred income taxes 153 153
Other assets 1,633 2,390
------------ -------------
$ 44,701 $ 46,026
============ =============
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Current Liabilities
--------------------------------------------------
<S> <C> <C>
Current installments of long-term debt $ 242 $ 236
Advance payments from customers 1,693 462
Accounts payable and accrued expenses 7,497 7,831
-------- --------
Total current liabilities 9,432 8,529
-------- --------
Long-term debt, net of current installments 8,179 7,347
-------- --------
Other liabilities 316 380
Shareholders' equity:
Common stock, $0.0625 par value per share,
authorized 25,000,000 shares; outstanding, 2000
- 6,068,755; 1999 - 5,344,000 net of shares held
in treasury, 2000 - 520,375 and 1999 - 473,069 380 334
Capital in excess of par 36,758 32,907
Accumulated deficit (8,541) (2,107)
Accumulated other comprehensive loss (1,761) (1,032)
Notes receivable from exercise of stock options (62) (332)
-------- --------
Total shareholders' equity 26,774 29,770
-------- --------
$44,701 $46,026
======== ========
</TABLE>
See notes to consolidated financial statements.
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NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
2000 1999 2000 1999
-------------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C>
Net sales $ 11,811 $ 14,591 $ 22,196 $ 26,345
Operating costs and expenses:
Cost of sales 6,963 8,396 12,826 16,111
Selling, general and administrative
Expenses 4,019 3,949 8,028 7,619
Research, development and engineering
Expenses 1,877 1,522 3,653 2,893
-------------------- ------------------ ----------- ----------
Total operating costs and expenses 12,859 13,867 24,507 26,623
-------------------- ------------------ ----------- ----------
Income (loss) from operations (1,048) 724 (2,311) (278)
Other income (expense):
Interest income 9 10 21 24
Interest expense (153) (13) (302) (15)
Other income (expense), net (19) (23) (23) (16)
Writedown of investment (800) - (800) -
Equity in loss in joint venture company (3) (6) (6) (18)
-------------------- ------------------ ----------- ----------
(966) (32) (1,110) (25)
-------------------- ------------------ ----------- ----------
Income (loss) before income taxes (2,014) 692 (3,421) (303)
Income tax benefit (64) - (93) -
-------------------- ------------------ ----------- ----------
Net income (loss) $ (1,950) $ 692 $ (3,328) $ (303)
==================== ================== =========== ==========
Basic earnings (loss) per share $ (.32) $ .12 $ (.56) $ (.05)
==================== ================== =========== ==========
Diluted earnings (loss) per share $ (.32) $ .11 $ (.56) $ (.05)
==================== ================== =========== ==========
Basic weighted average number of
shares outstanding 6,054 5,837 5,993 5,814
==================== ================== =========== ==========
Diluted weighted average number of
shares outstanding 6,054 6,034 5,993 5,814
==================== ================== =========== ==========
</TABLE>
See notes to consolidated financial statements.
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NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
2000 1999
------------------ ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,328) $ (303)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 678 495
Writedown of investment 800 -
Tax benefit related to exercise of stock options - 27
Change in related balance sheet accounts:
Accounts receivable 2,894 (2,087)
Refundable income taxes (231) 97
Inventories (2,894) 198
Prepaid expenses and other current assets (170) 153
Accounts payable and accrued expenses 213 (1,272)
Advance payments from customers 1,245 (1,260)
Other assets (380) -
Other liabilities (64) -
------------------ ---------
Net cash used in operating activities (1,237) (3,952)
------------------ ---------
Cash flows from investing activities:
Additions to property, plant and equipment (225) (717)
Sale of equipment
Increase in excess of cost over net assets acquired 3 25
related to acquisition costs (211) -
------------------ ---------
Net cash used in investing activities (433) (692)
------------------ ---------
Cash flows from financing activities:
Repayment of long-term debt (110) (10)
Borrowings under revolving credit facility 1,000 1,250
Proceeds from issue of common stock under
stock purchase and option plans 791 378
Payments on notes receivable related to
exercised stock options 270 26
------------------ ---------
Net cash provided by financing activities 1,951 1,644
------------------ ---------
Net effect of exchange rate changes on cash (79) (106)
------------------ ---------
Net increase (decrease) in cash and cash equivalents 202 (3,106)
Cash and cash equivalents at beginning of period 2,111 3,793
------------------ ---------
Cash and cash equivalents at end of period $ 2,313 $ 687
================== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 303 $ 19
Income taxes 238 75
</TABLE>
See notes to consolidated financial statements.
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NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
2000 1999 2000 1999
-------------------- ------------------ -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ (1,950) $ 692 $(3,328) $ (303)
Other comprehensive loss:
Foreign currency translation adjustment (294) (348) (729) (818)
-------------------- ------------------ -------- --------
Net comprehensive income (loss) $ (2,244) $ 344 $(4,057) $(1,121)
==================== ================== ======== ========
</TABLE>
See notes to consolidated financial statements.
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NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(Unaudited)
Note 1 - Interim results:
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly, its financial position as of June 30,
2000 and the results of its operations and cash flows for the three and six
months ended June 30, 2000. Interim results may not be indicative of the
results that may be expected for the year.
Note 2 - Segment Information as of and for the three and six months ended June
30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------------------- ------------------
Laboratory Drug Laboratory Drug
Research Lead Total Research Lead Total
Equipment Discovery Segments Equipment Discovery Segments
----------------------------------- ------------------ ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
2000
------------------
Net sales $ 11,694 $ 117 $ 11,811 $ 21,961 $ 235 $22,196
Percentage of sales 99.0% 1.0% 100% 98.9% 1.1% 100%
Loss from operations (223) (825) (1,048) (751) (1,560) (2,311)
Total assets (1) - - - 44,324 377 44,701
Capital expenditures 86 - 86 225 - 225
Depreciation and amortization (1) 439 - 439 678 - 678
1999
------------------
Net sales $ 12,991 $ 1,600 $ 14,591 $ 24,745 $ 1,600 $26,345
Percentage of sales 89.0% 11.0% 100% 93.9% 6.1% 100%
Income (loss) from operations (104) 828 724 (466) 188 (278)
Total assets (1) - - - 35,333 1,764 37,097
Capital expenditures 303 - 303 717 - 717
Depreciation and amortization (1) 236 - 236 495 - 495
<FN>
(1) Fixed assets and depreciation related to the Drug Lead Discovery segment are not allocated to the segment as
the assets are owned directly by New Brunswick Scientific Co., Inc. and are included in the Laboratory Research
Equipment Segment. However, rental expense in lieu of depreciation expense is charged to the Drug Lead Discovery
segment which is comprised of DGI BioTechnologies, the Company's drug lead discovery operation.
</TABLE>
Note 3 - Earnings (loss) per Common share:
Basic earnings (loss) per share is calculated by dividing net income (loss) by
the weighted average number of shares outstanding. Diluted earnings (loss) per
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share is calculated by dividing net income (loss) by the sum of the weighted
average number of shares outstanding plus the dilutive effect, if any, of stock
options which have been issued by the Company.
Note 4 - Long-term debt and credit agreement:
On April 16, 1999, the Company entered into an agreement (the Bank Agreement)
with First Union National Bank for a three year, $31 million secured line of
credit. The Bank Agreement provides the Company with a $5 million revolving
credit facility for both working capital and for letters of credit, a $1 million
Revolving Line of Credit for equipment acquisition purposes, a $15 million
credit line for acquisitions and a $10 million foreign exchange facility. There
are no compensating balance requirements and any borrowings under the Bank
Agreement bear interest at various rates based upon a function of the bank's
prime rate or Libor at the discretion of the Company. All of the Company's
domestic assets, which are not otherwise subject to lien have been pledged as
security for any borrowings under the Bank Agreement. The Bank Agreement
contains various business and financial covenants including among other things,
a debt service coverage ratio, a net worth covenant, and a ratio of total
liabilities to tangible net worth. The Bank Agreement was amended in November
1999 in connection with the acquisition of the DJM Cryo-Research Group. The
Company was not in compliance with certain covenants at June 30, 2000, however,
on August 3, 2000, the Company and the bank entered into an amendment to the
Bank Agreement which waived such noncompliance at June 30, 2000, and amended
certain financial covenants prospectively based upon certain financial
information provided by the Company. At June 30, 2000, $7,652,000 was
outstanding under the Bank Agreement.
In November 1999, the Company issued notes in the amount of 250,000 ($392,500
at the date of acquisition) in connection with the acquisition of the DJM
Cryo-Research Group. The notes bear interest at 6% which are payable annually
and principal is payable in five equal annual installments commencing November
2004. At June 30, 2000 the balance of the notes was $379,000.
Note 5 - Consolidated statements of shareholders' equity:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
2000 1999
------------------ --------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 29,770 $30,447
Net loss (3,328) (303)
Other comprehensive loss (729) (818)
Issuance of shares under stock purchase plan 52 49
Issuance of shares under stock option plans 739 329
Issuance of shares under stock option plans - 27
Tax benefit related to exercise of stock options
stock options 270 26
------------------ --------
Balance at end of period $ 26,774 $29,757
================== ========
</TABLE>
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Note 6 - Stock dividend
On February 28, 2000, the Company declared a 10% stock dividend, payable May 15,
2000 to shareholders of record as of April 14, 2000. Upon distribution of the
stock dividend, the weighted average number of shares outstanding for the three
and six months ended June 30, 1999 was retroactively restated.
Note 7 - Investment in Organica, Inc.
Since November 1994, the Company has invested $950,000 (less than a
twenty-percent interest) in Organica, Inc. (Organica) which was formed in 1993
to develop and commercialize various "environmentally friendly" products
produced via fermentation processes. Organica isolates and cultures naturally
occurring microorganisms and fungi and blends them with various nutrient sources
and carriers to create its products, which are offered as alternatives to
various hazardous products. Organica has focused primarily on natural turf
products, compost accelerators, hydrocarbon remediation products and non-caustic
drain openers.
As previously described in the Company's Annual Report on Form 10-K and
quarterly reports, the Chief Executive Officer of Organica, Inc. left in the
Spring of 1999, after which operations were consolidated at its Pennsylvania
production facility. There are continuing uncertainties as to the future
direction of Organica and it has continued to generate net losses. As a result
of recent developments, Organica has lost one of its key employees and part of
its customer base and faces the possible departure of another key employee.
Consequently, management has concluded that a significant writedown of the
Company's investment in Organica was warranted. Accordingly, in the second
quarter, the Company recorded an $800,000 writedown to reduce its minority
investment to a book value of $150,000. Organica is involved in evaluating
certain strategic alternatives which, based on the information presently
available, management believes will enable the Company to recover its remaining
investment.
Note 8 - Acquisition
On November 23, 1999, the Company acquired all of the outstanding common stock
of DJM Cryo Research Limited and the net assets of DJM Fabrications
(collectively, "DJM Cryo Research Group"), a United Kingdom Corporation and
Partnership under common control, respectively, located in Tollesbury, England
(the Acquisition). The purchase price consisted of 3.5 million ($5.5 million)
in cash, and 250,000 ($392,500) in term notes payable in annual installments
over a five year period beginning in November 2004 with 6.00% interest payable
annually. The source of the cash consideration paid was the Company's line of
credit for acquisition purposes provided by First Union National Bank, payable
in monthly installments of $52,513 with 8.14% fixed interest. DJM Cryo Research
Group is in the business of designing, developing, and manufacturing ultra-low
temperature freezers for laboratories. The acquisition has been accounted for
by the purchase method and, accordingly, the results of operations of DJM Cryo
Research Group have been included in the Company's consolidated financial
statements from November 23, 1999. The excess of the purchase price over the
fair value of net identifiable assets acquired has been recorded as goodwill and
is being amortized on a straight-line basis over 25 years. The allocation of
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the purchase price is preliminary and will be completed in the fourth quarter
after appraisals are finalized.
The following unaudited pro forma financial information presents the combined
results of operations of the Company and DJM Cryo Research Group as if the
acquisition had occurred on January 1, 1999, after giving effect to certain
adjustments, including amortization of goodwill, additional depreciation
expense, increased interest expense on debt related to the acquisition, and
related income tax effects. The unaudited pro forma financial information does
not necessarily reflect the results of operations that would have occurred had
the Company and DJM Cryo Research Group constituted a single entity during such
period.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1999 June 30, 1999
------------------ -----------------
(in thousands, except per share amounts)
----------------------------------------
<S> <C> <C>
Net sales $ 14,625 $26,413
Net income (loss) $ 635 $ (417)
Income (loss) per diluted share $ .11 $ (.07)
</TABLE>
Note 9 - Reclassifications:
Certain balance sheet reclassifications have been made to the prior year's
presentation to conform to the 2000 presentation.
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NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Forward-looking statements, within the meaning of Section 21E of the Securities
Exchange Act of 1934, are made throughout this Management's Discussion and
Analysis of Financial Condition and Results of Operations. For this purpose,
any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the results of the Company to
differ materially from those indicated by such forward-looking statements.
The following is Management's discussion and analysis of significant factors
that have affected the Company's operating results and financial condition
during the quarter and six months ended June 30, 2000.
Results of Operations
---------------------
Quarter Ended June 30, 2000 vs. Quarter Ended June 30, 1999.
----------------------------------------------------------------------
For the quarter ended June 30, 2000, net sales were $11,811,000 compared with
net sales of $14,591,000 for the quarter ended June 30, 1999, a decrease of
19.1%. The net loss for the 2000 quarter of $1,950,000 or $.32 per diluted
share compared with net income of $692,000 or $.11 per diluted share for the
second quarter of 1999.
The decrease in net sales for the quarter ended June 30, 2000 resulted primarily
from the inclusion of $1,600,000 of DGI revenues in the 1999 quarter compared
with $117,000 of DGI revenues in the 2000 quarter and a significant downturn in
shipments by the Company's European subsidiaries as a result of what appears to
be a short-term weakening in the European market. In addition, the sale of a
custom bioprocess system in Europe in the amount of $800,000 was reflected in
the 1999 period with no comparable sale in 2000. However, orders were strong,
especially for custom bioprocess equipment as the order backlog increased to
$13,096,000 from $10,327,000 at March 31, 2000. Excluding DGI revenues from the
2000 and 1999 quarters, gross margins increased to 40.5% from 35.4% in the
second quarter of 1999 primarily as a result of the Company's acquisition of DJM
Cryo-Research Limited (DJM) in November 1999, which prior to the acquisition was
a supplier to the Company, as well as a more profitable mix of products sold in
the 2000 quarter.
The increase of 23.3% in research, development and engineering expenses is
primarily attributable to increased spending by DGI BioTechnologies, the
Company's drug lead discovery operation and expenses of DJM which was acquired
in November 1999 and consequently was not included in the Company's results of
operations for the 1999 quarter.
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Interest expense increased to $153,000 in the 2000 quarter compared with $13,000
for the 1999 quarter as a result of borrowings under the Company's line of
credit for the acquisition of DJM and for working capital purposes.
The writedown in investment during the 2000 quarter is a result of the Company's
writedown of its investment in Organica, Inc. (See Other Matters - Investment
in Organica, Inc.)
No tax benefit was taken during the quarter for the losses incurred by the
Company's U.S. operations, however, a tax benefit was provided for the losses of
the Company's European subsidiaries due to those subsidiaries ability to
carryback such losses if necessary.
Six Months Ended June 30, 2000 vs. Six Months Ended June 30, 1999
-----------------------------------------------------------------------------
For the six months ended June 30, 2000, net sales were $22,196,000 compared with
net sales of $26,345,000 for the six months ended June 30, 1999, a decrease of
15.7%. The net loss for the 2000 period of $3,328,000 or $.56 per diluted share
compared with a net loss of $303,000 or $.05 per diluted share for the
comparable 1999 period.
The decrease in net sales for the first six months of 2000 resulted primarily
from the inclusion of $1,600,000 of DGI revenues in the 1999 period compared
with $235,000 of DGI revenues for the first half of 2000 and a significant
downturn in shipments by the Company's European subsidiaries as a result of what
appears to be a short-term weakening in the European market. In addition, the
sale of a custom bioprocess system in Europe in the amount of $800,000 was
reflected in the 1999 period with no comparable sale in 2000. During the period
the order backlog increased to $13,096,000 from $8,569,000 at December 31, 1999
primarily as a result of orders for custom bioprocess equipment which require
six months or more to complete. The majority of the backlog is expected to be
shipped during the second half of 2000.
Excluding DGI revenues from the 2000 and 1999 periods, gross margins increased
to 41.6% from 34.9% in the first half of 1999 primarily as a result of the
Company's acquisition of DJM in November 1999, which prior to the acquisition
was a supplier to the Company, as well as a more profitable mix of products sold
in the 2000 period.
The increase of 26.3% in research, development and engineering expenses is
primarily attributable to increased spending by DGI BioTechnologies, the
Company's drug lead discovery operation, expenses of DJM which was acquired in
November 1999 and consequently not included in the Company's results of
operations for the first six months of 1999 and a strengthening of the Company's
engineering staff.
Interest expense increased to $302,000 in the 2000 period compared with $15,000
for the first half of 1999 as a result of borrowings under the Company's line of
credit for the acquisition of DJM and for working capital purposes.
The writedown in investment during the 2000 period is a result of the Company's
writedown of its investment in Organica, Inc. (See Other Matters - Investment in
Organica, Inc.)
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<PAGE>
No tax benefit was taken during the period for the losses incurred by the
Company's U.S. operations, however, a tax benefit was provided for the losses of
the Company's European subsidiaries due to those subsidiaries' ability to
carryback such losses if necessary.
Financial Condition
-------------------
Liquidity and Capital Resources
----------------------------------
Working capital decreased from $23,180,000 at December 31, 1999 to $22,393,000
at June 30, 2000 and cash and cash equivalents increased from $2,111,000 at
December 31, 1999 to $2,313,000 at June 30, 2000. During the period ended June
30, 2000, accounts receivable decreased to $10,539,000 from $13,769,000 at
December 31, 1999 due to the lower level of net sales in the June quarter
compared with the quarter ended December 31, 1999. The cash proceeds related to
the decrease in accounts receivable was partially offset by an increase in
inventories to $17,764,000 at June 30, 2000 compared with $14,997,000 at
December 31, 1999. The increase in inventories resulted from lower than planned
shipments during the period in conjunction with a build cycle anticipated to
meet a higher inflow of orders of standard products.
On April 16, 1999, the Company entered into an agreement (the Bank Agreement)
with First Union National Bank for a three year, $31 million secured line of
credit. The Bank Agreement provides the Company with a $5 million revolving
credit facility for both working capital and for letters of credit, a $1 million
Revolving Line of Credit for equipment acquisition purposes, a $15 million
credit line for acquisitions and a $10 million foreign exchange facility. There
are no compensating balance requirements and any borrowings under the Bank
Agreement bear interest at various rates based upon a function of the bank's
prime rate or Libor at the discretion of the Company. All of the Company's
domestic assets, which are not otherwise subject to lien have been pledged as
security for any borrowings under this Bank Agreement. The Bank Agreement
contains various business and financial covenants including among other things,
a debt service coverage ratio, a net worth covenant, and a ratio of total
liabilities to tangible net worth. The Bank Agreement was amended in November
1999 in connection with the acquisition of DJM Cryo-Research Group. The Company
was not in compliance with certain covenants at June 30, 2000, however, on
August 3, 2000, the Company and the bank entered into an amendment to the Bank
Agreement which waived such noncompliance at June 30, 2000, and amended certain
financial covenants prospectively based upon certain financial information
provided by the Company. Management believes that the Company will be in
compliance with all covenants through December 31, 2000.
In November 1999, the Company issued notes in the amount of 250,000 ($392,500
at the date of acquisition) in connection with the acquisition of the DJM
Cryo-Research Group. The notes bear interest at 6% which are payable annually
and principal is payable in five equal annual installments commencing November
2004. At June 30, 2000 the balance of the notes was $379,000.
Cash Flows from Operating Activities
----------------------------------------
During the six months ended June 30, 2000 and 1999 net cash used in operating
activities amounted to $2,037,000 and $3,952,000, respectively. The primary
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reasons for the $1,915,000 net change from 1999 to 2000 were a decrease in
accounts receivable in 2000 of $2,894,000 vs. an increase of $2,087,000 in 1999
an increase in accounts payable and accrued expenses of $213,000 in 2000 vs. a
decrease of $1,245,000 in 1999 and an increase in advance payments from
customers of $1,245,000 in 2000 vs. a decrease of $1,260,000 in 1999 partially
offset by (i) a net loss in 2000 of $3,328,000 compared with a net loss of
$303,000 in 1999, (ii) an increase in refundable income taxes of $231,000 in
2000 vs. a decrease of $97,000 in 1999, (iii) an increase in inventories of
$2,894,000 in 2000 vs. a decrease of $198,000 in 1999 and (iv) an increase in
prepaid expenses and other current assets of $170,000 in 2000 vs. decrease of
$153,000 in 1999. During the six months ended June 30, 2000, the Company wrote
down its minority investment in Organica, Inc. by $800,000 to a book value of
$150,000.
Cash Flows from Investing Activities
----------------------------------------
Net cash provided by investing activities amounted to $367,000 in 2000 vs. cash
used of $692,000 in 1999. The 2000 period consisted of expenditures for
property, plant and equipment and additional goodwill related to additional
acquisition costs of DJM Cryo-Research. The 1999 period consisted primarily of
expenditures for property, plant and equipment.
Cash Flows from Financing Activities
----------------------------------------
Net cash provided by financing activities amounted to $1,951,000 in 2000 vs.
$1,644,000 in 1999. The 2000 and the 1999 periods include $791,000 and
$378,000, respectively, from the issuance of Common stock under stock purchase
and option plans and $1,000,000 and $1,250,000, respectively, from borrowings
under the Company's revolving credit facility. The 2000 period also includes
$270,000 of repayments on notes receivable related to exercised stock options.
The proceeds in both periods were partially offset by the repayment of long-term
debt.
Management believes that the resources available to the Company, including its
line of credit are sufficient to meet its near and intermediate-term needs,
including its funding commitments for DGI BioTechnologies.
Other Matters
-------------
Recently Issued Accounting Standards
---------------------------------------
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), was issued to establish standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement was
amended so that it is effective for all quarters of fiscal years beginning after
June 15, 2000. The Company does not believe that this statement will have a
material impact on the consolidated financial statements.
Drug-Lead Discovery Business
------------------------------
In October 1995, the Company entered the drug-lead discovery business by forming
a new company to develop a novel, small molecule drug discovery platform. The
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company, DGI BioTechnologies (DGI), is majority-owned and fully funded by the
Company and occupies specially designed laboratory space at the Company's
headquarters facility in Edison, New Jersey. DGI's operations have had a
significant negative impact on the Company's 2000 and 1999 earnings and will
continue to do so. During the six months ended June 30, 2000 and 1999,
$1,795,000 and $1,412,000, respectively, of research and development expenses
were charged to operations. During the 2000 and 1999 periods DGI also recorded
$235,000 and $1,600,000, respectively, of revenues primarily for services and
licensing fees related to the Research and License Agreement with Novo Nordisk
A/S. Management believes DGI needs to become financially self-sufficient in
2000 and all options are being explored, including pursuing additional alliances
as well as actively seeking strategic partners.
Investment in Organica, Inc.
-------------------------------
Since November 1994, the Company has invested $950,000 (less than a
twenty-percent interest) in Organica, Inc. (Organica) which was formed in 1993
to develop and commercialize various "environmentally friendly" products
produced via fermentation processes. Organica isolates and cultures naturally
occurring microorganisms and fungi and blends them with various nutrient sources
and carriers to create its products, which are offered as alternatives to
various hazardous products. Organica has focused primarily on natural turf
products, compost accelerators, hydrocarbon remediation products and non-caustic
drain openers.
As previously described in the Company's Annual Report on Form 10-K and
quarterly reports, the Chief Executive Officer of Organica, Inc. left in the
Spring of 1999, after which operations were consolidated at its Pennsylvania
production facility. There are continuing uncertainties as to the future
direction of Organica and it has continued to generate net losses. As a result
of recent developments, Organica has lost one of its key employees and part of
its customer base and faces the possible departure of another key employee.
Consequently, Management has concluded that a significant writedown of the
Company's investment in Organica was warranted. Accordingly, in the second
quarter, the Company recorded an $800,000 writedown to reduce its minority
investment to a book value of $150,000. Organica is involved in evaluating
certain strategic alternatives which, based on the information presently
available, Management believes will enable the Company to recover its remaining
investment.
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NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
------------------------------------------------
The exhibits to this report are listed on the Exhibit Index included elsewhere
herein.
No reports on Form 8-K have been filed during the quarter ended June 30, 2000.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW BRUNSWICK SCIENTIFIC CO., INC.
--------------------------------------
(Registrant)
Date: August 11, 2000 /s/ David Freedman
--------------------
David Freedman
Chairman
(Chief Executive Officer)
/s/ Samuel Eichenbaum
-----------------------
Samuel Eichenbaum
Vice President - Finance
(Principal Accounting Officer)
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<TABLE>
<CAPTION>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
EXHIBIT INDEX
---------------------------------------------------
<S> <C> <C>
Exhibit No. Exhibit Page No.
---------- -------- ---------
3 (3ii)(e)* By-Laws of the Company as amended
and restated as of May 30, 2000.
10.24* Indemnification Agreements
with Jerome Birnbaum, Lee Eppstein and
Carol Freedman
10.25* First and Second Amendments to the
Credit Agreement between New
Brunswick Scientific Co., Inc. and
First Union Nation dated
April 1, 1999 and August 3, 2000,
respectively
27 Financial Data Schedule
(Filed electronically with SEC only)
</TABLE>
* Filed herewith.
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