FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-14617
RHEOMETRIC SCIENTIFIC, INC.
(Exact name of registrant as specified in its charter)
New Jersey 61-0708419
(State or other jurisdiction of (I.R.S. Employer Identi-
incorporation or organization) fication Number)
One Possumtown Road, Piscataway NJ 08854
(Address of principal executive offices) (Zip Code)
(732) 560-8550
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or 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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at August 1, 1997
Common Stock, no par value 13,161,739
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<PAGE>
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands) (Unaudited)
June December
30, 1997 31, 1996
_______ ________
<S> <C> <C>
ASSETS
Current Assets
Cash $ 900 $ 486
Accounts receivable, net 14,860 15,823
Inventories, net
Finished goods 2,582 2,372
Work in process 1,822 2,006
Assembled components, materials, and parts 6,064 5,040
______ ______
10,468 9,418
Prepaid expenses and other assets 818 764
______ ______
Total current assets 27,046 26,491
______ ______
Property, plant, and equipment 15,951 15,947
Less accumulated depreciation and
amortization 9,170 8,844
______ ______
Property, plant, and equipment, net 6,781 7,103
Goodwill, net 49 100
Other assets 1,387 2,351
______ ______
Total Assets $35,263 $36,045
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank borrowings $ 7,202 $ 7,896
Current maturities of long-term debt 187 110
Accounts payable 3,651 3,750
Borrowings against accounts receivable 1,723 --
Payable to affiliate 933 794
Accrued liabilities 4,151 5,239
______ ______
Total current liabilities 17,847 17,789
______ ______
Long-term note payable 128 246
Long-term debt lease obligation 4,813 4,857
Long-term debt - affiliate 6,258 6,258
Other long-term liabilities 1,279 1,519
______ ______
Total liabilities 30,325 30,669
______ ______
Commitments and Contingencies
Shareholders' Equity
Common stock, stated value of $.001,
authorized 20,000 shares; issued and
outstanding 13,162 shares 13 13
Additional paid-in capital 25,492 25,492
Accumulated deficit (20,569) (20,218)
Cumulative translation adjustment 2 89
Total shareholders' equity 4,938 5,376
______ ______
Total Liabilities & Shareholders' Equity $35,263 $36,045
====== ======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
_____ _____ _____ _____
<S> <C> <C> <C> <C>
Sales $10,391 $10,826 $18,708 $18,822
Cost of sales 5,319 5,424 10,078 9,941
_____ _____ _____ _____
Gross profit 5,072 5,402 8,630 8,881
_____ _____ _____ _____
General and administrative expenses 854 748 1,559 1,336
Marketing and selling expenses 2,364 2,487 4,543 5,151
Research and development expenses 730 707 1,477 1,463
Goodwill and intangible amortization 54 165 134 330
Loss on sale/leaseback -- -- -- 2,368
______ ______ ______ ______
Total Operating Expenses 4,002 4,107 7,713 10,648
______ ______ ______ ______
Operating (loss)/income 1,070 1,295 917 (1,767)
Interest expense (351) (376) (762) (580)
Interest expense - Affiliate (207) (189) (410) (376)
Interest income 3 6 20 6
Foreign currency gain/(loss) 181 15 (108) (77)
______ ______ ______ ______
Income/(loss) before income taxes 696 751 (343) (2,794)
Income tax expense (5) (4) (8) (7)
______ ______ ______ ______
Net income/(loss) $ 691 $ 747 $ (351) $(2,801)
====== ====== ====== ======
Net income/(loss) per share $ 0.05 $ 0.06 $ (0.03) $ (0.21)
====== ====== ====== ======
Average number of shares
Outstanding 13,162 13,162 13,162 13,162
====== ====== ====== ======
See Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
RHEOMETRIC SCIENTIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) (Unaudited) Six Months Ended
June 30,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (351) $ (2,801)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation and amortization of plant and
equipment 392 399
Amortization of goodwill and intangibles 134 330
Provision for slow moving inventory 336 (47)
Loss on sale/leaseback financing -- 2,301
Unrealized currency (gain)/loss (74) 57
Changes in assets and liabilities:
Accounts receivable 551 934
Inventories (1,559) (1,993)
Prepaid expenses and other current
Assets 5 605
Accounts payable and accrued
Liabilities (862) 942
Other assets 12 (264)
Other non-current liabilities 29 (94)
_____ _____
Net cash (used in)/provided by operating activities (1,387) 369
_____ _____
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment (90) (97)
_____ _____
Net cash used in investing activities (90) (97)
____ _____
Cash Flows from Financing Activities:
Net (repayments) borrowings under line of credit
agreements (665) 101
Borrowing against accounts receivable s 1,662 -
Repayment of long-term debt/lease obligation (86) (5,741)
Repayment of short-term debt to affiliate -- (375)
Net proceeds from sale/leaseback arrangement -- 5,734
Mortgage participation 861 (861)
_____ _____
Net cash provided by (used in) financing
activities 1,772 (1,142)
_____ _____
Effect of exchange rate changes on cash 119 18
_____ _____
Net increase/(decrease) in cash 414 (852)
Cash at beginning of period 486 1,364
_____ _____
Cash at end of period $ 900 $ 512
===== =====
Cash payments for interest $1,132 $ 959
===== =====
Cash payments for income taxes $ 36 $ 8
===== =====
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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RHEOMETRIC SCIENTIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
The information included in the foregoing interim financial
statements is unaudited. In the opinion of management, all
adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of financial position and
results of operations for the interim periods presented have
been reflected herein. The results of operations for the
interim periods are not necessarily indicative of the results
to be expected for the entire year.
2. Earnings/(loss) Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"), designed to improve the
earnings per share ("EPS") information provided in the
financial statement by simplifying the existing computational
guidelines, revising disclosure requirements, and increasing
comparability of EPS data on an international basis. The
statement requires dual presentation of basic and diluted EPS
on the face of the income statement and a reconciliation of
the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
The adoption of this standard is required for the fiscal year
ending December 31, 1997. Management believes that the future
adoption of SFAS No. 128 will not have a material impact on
the Company's results of operation.
3. Long-term Debt and Short-term Borrowings
Long-term debt consists of the following:
June 30, 1997 December 31, 1996
Obligation under sale/leaseback
payable through February 2011,
with interest imputed at a weighted-
average rate of 13.9% and 22.8%
for 1997 and 1996, respectively $4,921,000 $4,967,000
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3. Long-term Debt and Short-term Borrowings (continued)
Long-term debt consists of the following:
June 30, 1997 December 31, 1996
Note payable through November
1999 with interest at 9.54% 207,000 246,000
________ _________
5,128,000 5,213,000
Less current maturities 187,000 110,000
__________ __________
$4,941,000 $5,103,000
========== ==========
The Company purchased a participating interest in the
Landlord's mortgage loan (the "Mortgage Loan") in the
amount of $861,000 in connection with the 1996
sale/leaseback arrangement. On February 20, 1997 the
Landlord refinanced the Mortgage Loan and the Company's
participation in the Mortgage Loan of $861,000 plus
interest of $71,000 was repaid.
On February 20, 1997, as a result of the Landlord
refinancing the mortgage on the property, the Company's
annual lease payment was significantly reduced for the
remaining life of the lease. This resulted in the
reduction of the imputed interest rate to 13.9% from
22.8% in the original lease.
The Company has working capital lines of credit with
certain domestic and foreign banks. The foreign working
capital lines of credit are supported by letters of
credit issued under the Loan Agreement. Total borrowings
were $7,202,000 with remaining availability of
approximately $2,602,000 at June 30, 1997.
The Company's lines and letters of credit are subject to
acceleration in the event that there is a material and
adverse change in the condition or affairs, financial or
otherwise, of the Company which in the reasonable opinion
of the lender impairs the lender's collateral or
increases its risk so as to jeopardize the repayment of
the obligations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Sales for the three- and six-month periods ended June 30,
1997 decreased $435,000 and $114,000 (or 4.0% and 0.6%),
respectively, as compared to the corresponding periods in
1996. These figures include a negative impact of $434,000
and $777,000 on sales for the three and six months ended
June 30, 1997 due to unfavorable currency rates in effect
for the first half of 1997. The decline in revenues for the
six-month period resulted from a decrease
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in Europe and the Americas of $287,000 and $278,000, respectively, offset by
an increase of $451,000 in Japan. The decline in revenues
for the three-month period represents a decrease in Europe
and the Americas of $372,000 and $63,000, respectively. For
the six-month period, total international sales of
$11,135,000 represented 60% of total sales compared to 1996
international sales of $11,732,000, which amounted to 62% of
total sales. For the second quarter international sales
equaled $5,629,000 or 54% of total sales compared to last
year's second quarter sales of $6,632,000 or 61%. The gross
profit percentages for the three- and six-months ended June
30, 1997 were 48.8% and 46.1%, respectively. This compares
to 49.9% and 47.2% for the same periods in the prior year.
Operating expenses for the three- and six-months ended June
30, 1997 were down $105,000 and $567,000 compared to the
corresponding periods in the prior year, excluding the
$2,368,000 loss on the leaseback in 1996. For both the three-
and six-month periods, operating expenses were favorably
affected by foreign currency trends, and a decrease in both
advertising expense and outside commissions expense. The
Company has taken measures to maintain operating expenses at
its current level. The preceding sentence involves forward-
looking information. Actual results could differ from those
projected in the forward-looking information if the Company
experiences an increase in sales revenues or other internal
growth.
Net interest expense for the three- and six-months ended
June 30, 1997 decreased by $4,000 and increased by $202,000,
respectively, compared to the corresponding periods in the
prior year. The changes can be attributed to approximately
$85,000 of additional interest on the facility obligation in
the first quarter of 1997 and carrying higher loan balances
throughout the year with slightly higher interest rates.
This increase in interest expense has been offset in the
second quarter by savings from the refinanced facility lease
obligation. (See Note 4)
The Company is exposed to foreign currency gains and losses
related to its intercompany payables and payable to Mettler,
which is due in Swiss Francs. The Company's foreign
currency exposure policy is to not enter into foreign
currency derivative instruments.
The foreign currency adjustments for the three- and six-
months ended June 30, 1997 were a gain of $181,000 and a
loss of $108,000, respectively. The year-to-date adjustment
was primarily due to transaction losses of $385,000
resulting from the German Mark, French Franc, Japanese Yen,
and British Pound against the U.S. Dollar, which were offset
by an unrealized gain of $277,000 resulting from the Mettler
payable.
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<PAGE>
Inherent in the Company's business is the potential for
inventory obsolescence for older products as the Company
develops new products. Obsolescence has historically
related to parts inventory. The Company continuously
monitors its exposure relating to excess and obsolete
inventory and establishes appropriate valuation reserves.
Liquidity and Capital Resources
Management believes that cash generated from operations and
funds available under lines of credit should be sufficient
to meet the Company's working capital needs through 1997.
Adequacy of cash flows beyond 1997 will depend upon the
Company's ability to achieve expected sales volumes to
support profitable operations.
Cash Flows from Operations. Net cash used in operating
activities during the six-months ended June 30, 1997 was
$1,387,000, an increase of $1,756,000 over the same period
last year. Net loss for the six-months ended June 30, 1997
was $351,000 compared to $2,801,000 during the same period
last year. The 1996 loss includes a one-time charge of
$2,368,000 resulting from the sale of the Piscataway
facility. During the six months ended June 30, 1997,
accounts receivable decreased by $551,000 reflecting lower
second quarter 1997 sales as compared to the fourth quarter
1996 sales. Inventories increased by $1,559,000. This
increase is consistent with prior year based on the
Company's sales trends. Management continuously monitors
inventory levels on a world-wide basis in order to insure
that excess inventory is kept to a minimum. In addition,
accounts payable and accrued liabilities decreased $862,000
due to a reduction of commissions payable and other
payables.
Cash Flows From Investing. Net cash used in investing
activities during the six-months ended June 30, 1997 was
$90,000 as compared to $97,000 during the same period in
1996.
Cash Flows From Financing. Net cash provided by financing
activities during the six-month period ended June 30, 1997
was $1,772,000. The Company borrowed $1,662,000 against its
accounts receivable during the six-month period ended June
30, 1997. On February 20, 1997 the Landlord refinanced the
mortgage Loan and the Company's participation in the
Mortgage Loan of $861,000 was repaid. The proceeds from the
Company's interest in the Mortgage Loan were applied to its
revolving credit line.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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.
RHEOMETRIC SCIENTIFIC, INC.
(Registrant)
August 14, 1997 By /s/ Joseph Musanti
Joseph Musanti, Vice President,
Finance & Materials and
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 900
<SECURITIES> 0
<RECEIVABLES> 14,860
<ALLOWANCES> 0
<INVENTORY> 10,468
<CURRENT-ASSETS> 27,046
<PP&E> 15,951
<DEPRECIATION> 9,170
<TOTAL-ASSETS> 35,263
<CURRENT-LIABILITIES> 17,847
<BONDS> 4,941
0
0
<COMMON> 13
<OTHER-SE> 4,925
<TOTAL-LIABILITY-AND-EQUITY> 35,263
<SALES> 18,708
<TOTAL-REVENUES> 18,708
<CGS> 10,078
<TOTAL-COSTS> 10,078
<OTHER-EXPENSES> 7,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,152
<INCOME-PRETAX> (343)
<INCOME-TAX> 8
<INCOME-CONTINUING> (351)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (351)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
