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 30,2000
------------
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
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RHEOMETRIC SCIENTIFIC, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 61-0708419
---------- ----------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
One Possumtown Road, Piscataway, NJ 08854-2103
--------------------------------------- -----------
(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 5, 2000
------------------------- -----------------------------
Common Stock, no par value 21,236,491
<PAGE>
Rheometric Scientific, Inc.
Index to Form 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations
for the six and three months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the six and three months
ended June 30, 2000 and 1999 5
Condensed Consolidated Statements of Comprehension Income (Loss)
for the six and three months ended June 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
Results of Operations and Financial Condition 11
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of security holders 14
Item 6. Exhibits and Reports on Form 8-K 15
(a) Exhibits
(b) Reports on Form 8-K
</TABLE>
Page 2
<PAGE>
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June December
30, 2000 31, 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 844 $ 265
Accounts receivable, net 8,936 10,340
Inventories, net
Finished goods 2,061 1,596
Work in process 487 773
Assembled components, materials, and parts 2,951 4,172
---------- ----------
5,499 6,541
Prepaid expenses and other assets 1,005 705
---------- ----------
Total current assets 16,284 17,851
---------- ----------
Property, plant, and equipment 15,771 15,638
Less accumulated depreciation and amortization 10,421 10,051
---------- ----------
Property, plant, and equipment, net 5,350 5,587
Other assets and deferred financing costs 703 545
---------- ----------
Total Assets $ 22,337 $ 23,983
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Short-term bank borrowings $ 5,578 $ 4,789
Current maturity of long-term debt 490 190
Accounts payable 3,021 1,980
Borrowings against accounts receivable 372 1,064
Accrued liabilities 3,642 4,397
---------- ---------
Total current liabilities 13,103 12,420
---------- ---------
Long-term debt 5,680 4,525
Long-term debt - affiliate 1,000 8,206
Payable to affiliate - 1,020
Long-term liability - Mettler - 696
Other long-term liabilities 98 103
---------- ---------
Total liabilities 19,881 26,970
---------- ---------
Commitments and Contingencies
Convertible Redeemable Preferred Stock 1,000 -
---------- ---------
Shareholders' Equity (Deficiency)
Common stock, stated value of $.001, Authorized 49,000
shares; issued and outstanding 21,236 shares in 2000
and 13,162 in 1999 21 13
Additional paid-in capital 30,304 25,690
Accumulated deficit (28,978) (28,829)
Treasury Stock, at cost, 2,800 shares in 2000 - -
Accumulated other comprehensive income 109 139
---------- ---------
Total shareholders' equity (deficiency) 1,456 (2,987)
---------- ---------
Total Liabilities & Shareholders' Equity $ 22,337 $ 23,983
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Page 3
<PAGE>
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,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $7,807 $6,689 $14,427 $13,691
Cost of sales 4,068 3,510 7,608 7,316
------ ------ ------- -------
Gross profit 3,739 3,179 6,819 6,375
------ ------ ------- -------
General and administrative expenses 569 500 1,233 1017
Marketing and selling expenses 2,083 2,154 3,910 4,029
Research and development expenses 532 571 1,017 1,077
------ ------ ------- -------
Total Operating Expenses 3,184 3,225 6,160 6,123
------ ------ ------- -------
Operating income/(loss) 555 (46) 659 252
Interest expense (342) (217) (622) (504)
Interest expense - Affiliate - (250) - (491)
Foreign currency gain/(loss) 41 (118) (183) (297)
------ ------ ------- -------
Income /(loss) before income taxes 254 (631) (146) (1,040)
Income taxes - 1 (3) (2)
Net income/ (loss) $ 254 $(630) $ (149) $(1,042)
====== ====== ======== ========
Net income/(loss) per share
Basic $ 0.01 $(0.05) $ (0.01) $ (0.08)
Diluted $ 0.01 $(0.05) $ (0.01) $ (0.08)
Average number of shares Outstanding
Basic 18,280 13,162 16,201 13,162
====== ====== ======== ========
Diluted 23,865 13,162 16,201 13,162
====== ====== ======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
Page 4
<PAGE>
RHEOMETRIC SCIENTIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (149) $ (1,042)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization of plant and Equipment 412 330
Amortization of goodwill and intangibles 79 100
Provision for inventory reserves 201 233
Unrealized currency loss 250 304
Loss on sale/retirement of plant and equipment - 4
Changes in assets and liabilities:
Accounts receivable 1,130 381
Inventories 767 406
Prepaid expenses and other current assets (389) 134
Payable to affiliate - 491
Accounts payable and accrued liabilities 913 (667)
Other assets (248) (183)
Other non-current liabilities ( 4) (102)
-------- ---------
Net cash provided by operating activities 2,962 389
-------- ---------
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment (68) (47)
-------- ---------
Net cash used in investing activities (68) (47)
-------- ---------
Cash Flows from Financing Activities:
Net borrowings/(repayments) under line of credit
agreements 796 (52)
Net repayments against accounts receivables (651) (40)
Net borrowings long-term debt 1,425 -
Repayment of long-term debt affiliate (3,500) -
Repayment Mettler (1,212) -
Proceeds from issuance of common stock net of Issuance
costs 896 -
Repayment of long-term debt/lease obligation (93) (126)
-------- ---------
Net cash used in financing activities (2,339) (218)
-------- ---------
Effect of exchange rate changes on cash 24 (10)
-------- ---------
Net increase in cash 579 114
Cash at beginning of period 265 488
-------- ---------
Cash at end of period $ 844 $ 602
======== =========
Cash payments for interest $ 622 $ 625
=========== =========
Cash payments for income taxes $ 190 $ 185
=========== =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
Page 5
<PAGE>
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
Net (loss) / income $ 254 $ (630) $ (149) $ (1,042)
Other comprehensive loss
Foreign currency translation
Adjustments (51) 71 (30) 112
-------- -------- -------- ---------
Comprehensive income/ (loss) $ 203 $ (559) $ (179) $ (930)
======== ======== ======== =========
See Notes to Condensed Consolidated Financial Statements.
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.
On March 6, 2000, pursuant to a Securities Purchase Agreement, dated as
of February 17, 2000, by and between Rheometric Scientific, Inc. (the
"Company"), Axess Corporation ("Axess"), and Andlinger Capital XXVI LLC
("Andlinger Capital XXVI") , as amended (the "Purchase Agreement") and
certain related agreements, Andlinger Capital XXVI purchased (i)
10,606,000 shares of newly issued common stock of the Company (the
"Investor Shares") and (ii) warrants to purchase (x) an additional
2,000,000 shares of common stock of the Company at an exercise price of
$1.00 per share, exercisable at any time prior to March 6, 2007 (the
"Investor A Warrants") and (y) an additional 4,000,000 shares of common
stock of the Company at an exercise price of $3.00 per share,
exercisable at any time prior to March 6, 2003 (the "Investor B
Warrants," and collectively with the Investor A Warrants, the "Investor
Warrants"), for the aggregate consideration of $1,825,000 (the
"Purchase Price"). Andlinger Capital XXVI acquired
Page 6
<PAGE>
the power to vote an aggregate of 16,606,000 shares of the Company's
common stock (of which 6,000,000 shares are attributable to the
Investor Warrants) representing approximately 74% of the issued and
outstanding common stock of the Company (including as outstanding for
the purposes of determining such percentage the 6,000,000 shares
issuable upon exercise of the Investor Warrants). Prior to the purchase
by Andlinger Capital XXVI of the Investor Shares and the Investor
Warrants, Axess agreed to contribute 2,800,000 shares of common stock
to the Company.
Prior to the closing under the Purchase Agreement, the Company had been
indebted to Axess in the principal amount of $8,205,907, plus interest
thereon from January 1, 1999 (all indebtedness of the Company due Axess
is referred to herein as the "Axess Debt"). Upon the closing, Axess
cancelled the Axess Debt in exchange for (x) the payment by the Company
to Axess of $3,500,000 in cash; (y) the issuance to Axess of a
promissory note in the principal amount of $1,000,000 payable upon the
sale of one of the Company's product lines and (z) the issuance to
Axess, of a warrant (the "Preferred Stock Warrant" and collectively
with the Investor Warrants, the "Warrants") to purchase 1,000 shares of
the Company's non-voting convertible redeemable preferred stock to be
issued, subject to Stockholder Approval, pursuant to an amendment to
the certificate of incorporation of the Company. Stockholder approval
was received at the May 31, 2000 Annual Shareholders' Meeting. In order
to effect the intent of the parties to the Purchase Agreement that the
Company issue the Investor Shares on the Closing Date, at the closing
of the Purchase Agreement Axess contributed 4,400,000 shares of common
stock to the Company, in exchange for the Company's agreement to
reissue to Axess 4,400,000 shares of common stock (the "Axess Reissue
Shares") subject to the Stockholder Approval, and Reincorporation and
amendment of the Company's certificate of incorporation to authorize
the issuance of such shares. As of June 30, 2000 these transactions
have been reflected the financial statements of the Company.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities," for
fiscal years beginning after June 15, 2000. The provisions of SFAS No.
133 require all derivatives to be recognized in the statement of
financial position as either assets or liabilities and measured at fair
value. In addition, all hedging relationships must be designated,
reassessed and documented pursuant to the provisions of SFAS 133. At
present time the Company is reviewing the potential impact of this
standard.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB No. 101") Revenue Recognition
in Financial Statements, which is effective for the quarter ended June
30, 2000. The SAB summarizes certain of the staff's view in applying
generally accepted accounting principles to revenue recognition.
Effective June 30, 2000 the Company adopted SAB No. 101. There is no
material impact on the Companys' financial statements as a result of
adopting SAB No. 101.
Page 7
<PAGE>
2. Income/Loss Per Share
In February 1997, FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS 128
establishes standards for computing and presenting earnings per share
("EPS") and supersedes APB Opinion No. 15, "Earnings per Share"
("Opinion 15"). SFAS 128 replaces the presentation of primary EPS with
a presentation of basic EPS which excludes dilution and is computed by
dividing income available to common stockholders by the
weighted-average number of common shares outstanding during the period.
Dilution reflects the potential dilution that could occur if
outstanding options and warrants were exercised.
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------------------------
(dollars in thousands except per share data) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) available to common
Shareholders 254 (630) (149) (1,042)
--------------------------------------------------------------------------------------------------------
Denominator for basic earnings (loss) per share:
Weighted average:
Common shares outstanding 18,280 13,162 16,201 13,162
Effect of dilutive securities:
Preferred Stock 1,000 - - -
Stock options 371 - - -
Warrants 4,214 - - -
----------------------------------------------------
Denominator for diluted earnings (loss) per share 23,865 13,162 16,201 13,162
-----------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ 0.01 $ (0.05) $ (0.01) $ (0.08)
-----------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ 0.01 $ (0.05) $ (0.01) $ (0.08)
-----------------------------------------------------------------------------------------------------------
</TABLE>
Page 8
<PAGE>
3. Long-term Debt and Short-term Borrowings
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Obligation under sale/leaseback payable
through February 2011, with interest
imputed at a weighted-average rate of
13.9% for 2000 and 1999, respectively $4,745,000 $4,715,000
Term loan payable through March 2003. Loan
bears interest at prime plus 1.5%(11.0% at
June 30, 2000) 1,425,000 -
---------- ----------
6,170,000 4,715,000
Less current maturities 490,000 190,000
---------- ----------
$5,680,000 $4,525,000
========== ==========
</TABLE>
On March 6, 2000 in connection with the transactions under the Purchase
Agreement and with the support and assistance of Andlinger Capital
XXVI, the Company made a final payment under a loan and security
agreement with a previous lender and terminated such agreement and
obtained a credit facility with PNC Bank, National Association ("PNC
Bank"). The new Revolving Credit, Term Loan and Security Agreement (the
"Loan Agreement") provides for a total facility of $14,500,000 of which
$13,000,000 is a working capital revolving credit facility with an
initial three-year term expiring on March 6, 2003. The amount of
available credit is determined by the level of certain eligible
receivables and inventories. The line of credit bears interest at the
prime rate. Additionally the Loan Agreement contains various covenants
including a financial covenant that generally requires the Company to
maintain a fixed charge coverage ratio (as defined in the Loan
Agreement) of .7 to 1 for the three-month period ending June 30, 2000
and 1.1 to 1 thereafter. At June 30, 2000 the Company was in compliance
with the required covenants. The Loan Agreement also includes a term
loan with PNC Bank in the amount of $1,500,000 to be repaid in 4
quarterly installments of $75,000 commencing June 6, 2000; 23 monthly
installments of $25,000 commencing April 6, 2001 and a final balance
due of $625,000 at maturity on March 6, 2003. This loan bears interest
at prime plus 1.5 percent. The Loan Agreement is subject to customary
event of default and acceleration provisions and is collateralized by
substantially all of the Company's assets.
4. Convertible Redeemable Preferred Stock
In conjunction with the March 6, 2000 Purchase Agreement, the Company
issued 1,000 shares of Convertible Redeemable Preferred Stock with a
$1,000 per share liquidation preference, redeemable over a five year
period.
Page 9
<PAGE>
Each such Preferred Share, is subject to mandatory redemption at $1,000
per share, or convertible at the holder's option into 1000 shares of
Rheometric Scientific, Inc. Common Stock.
The mandatory redemption dates are as follows:
No of Shares of
Date Preferred Stock Price/Share Total
------------------------------------------------------------------------------
March 6, 2001 200 $1,000 $200,000
March 6, 2002 200 $1,000 $200,000
March 6, 2003 200 $1,000 $200,000
March 6, 2004 200 $1,000 $200,000
March 6, 2005 200 $1,000 $200,000
------ -----------
1,000 $1,000,000
5. Operating Segments/Foreign Operations and Geographic Information
The Company has three reportable segments: Domestic, Europe, and the
Far East. The accounting policies of the reportable segments are the
same as those described in the Summary of Significant Accounting
Policies. The Company evaluates the performance of its operating
segments based on revenue performance and operating income. Summarized
financial information concerning the Company's reportable segments is
shown below:
<TABLE>
<CAPTION>
(In thousands) Domestic Europe Japan Consolidated
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trade Sales:
6/30/00 8,717 3,120 2,590 14,427
6/30/99 6,402 3,521 3,768 13,691
Intercompany Sales:
6/30/00 2,656 634 0 -
6/30/99 3,362 234 0 -
Operating Income:
6/30/00 1,041 (372) (10) 659
6/30/99 108 (346) 490 252
Identifiable Assets:
6/30/00 14,723 3,972 3,642 22,337
6/30/99 17,350 4,432 4,774 26,556
Depreciation and Amortization (including Intangibles):
6/30/00 411 71 9 491
6/30/99 381 38 11 430
</TABLE>
Sales between geographic areas are priced on a basis that yields an
appropriate rate of return based on assets employed, risk and other
factors.
Page 10
<PAGE>
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, 2000 increased
$1,118,000 and $736,000 (or 16.7% and 5.4%), respectively, as compared to the
corresponding periods in 1999. These figures include a negative impact of
$162,000 and $187,000 on sales for the three and six months ended June 30, 2000
due to unfavorable currency rates in effect compared to last year. The increase
in revenue for the six-month period resulted from an increase in the Americas of
$2,316,000, offset by a decrease in Europe and Japan of $402,000 and $1,178,000
respectively. The increase in revenue for the three-month period represents an
increase in the Americas and Europe of $1,369,000 and $119,000 respectively,
offset by a decrease in Japan of $370,000. The gross profit percentages for the
three and six months ended June 30, 2000 were 47.9% and 47.3% respectively, an
improvement over the same periods in the prior year which were (47.5% and 46.6%)
respectively. The Company's changes in manufacturing, scheduling and having a
strategic focus on inventory and costs helped to achieve the margin improvement
in 2000.
Operating expenses for the three and six months ended June 30, 2000 were down
$41,000 and up $37,000 respectively compared to the corresponding periods in the
prior year. However, 2000 year to date expenses include $150,000 in one time
consulting charges. For both the three- and six-month periods, operating
expenses were unfavorably affected by foreign currency trends of $56,000 and
$32,000 respectively.
Net interest expense for the three and six months ended June 30, 2000 decreased
$125,000 and $373,000 respectively, compared to the corresponding period in the
prior year. For the six months ended June 30, 2000 bank interest increased
$118,000 as a result of carrying higher loan balances. However, this was offset
by a decrease in affiliate debt of $491,000.
The foreign currency adjustments for the three and six months ended June 30,
2000 was income of $41,000 and a loss of $183,000, respectively. The
year-to-date adjustment was primarily due to transaction losses of $254,000
resulting from the French Franc, Japanese Yen, and British Pound against the
U.S. Dollar. These were offset by a gain of $72,000 resulting from the German
Mark against the U.S. Dollar.
Net income for the second quarter was $254,000 compared to a net loss of
$630,000 in 1999. This improvement was the result of an increase in sales of
$1,118,000, a $41,000 decrease in operating expenses, a $125,000 decrease in
interest expense, and a currency gain of $159,000.
Net loss in the first half of 2000 was $149,000, compared to a net loss of
$1,042,000 in 1999. This improvement was achieved as a result of an increase in
sales of $736,000, as well as lower interest costs and an improvement in gross
margin. In the first six months of 2000, management concentrated on developing
and refining the Company's strategic plan. This plan is designed to reposition
the Company as a provider of technologically advanced scientific instruments.
The plan includes an increased focus on allocation of resources and expenses and
the initial implementation of a new supply chain management process. As part of
this plan global sales organizations have been divided into specific
areas/countries to provide increase sales territory coverage.
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 a reserve for
such account. The Company's development efforts generally enhance existing
products or relate to new markets for existing technology and therefore,
existing products are generally not rendered obsolete.
Page 11
<PAGE>
Financing, Liquidity, and Capital Resources
-------------------------------------------
On March 6, 2000 (the "Closing Date"), pursuant to a Securities Purchase
Agreement, dated as of February 17, 2000, by and between the Company, Axess, and
Andlinger Capital XXVI LLC ("Andlinger Capital XXVI"), as amended (the "Purchase
Agreement") and certain related agreements, Andlinger Capital XXVI purchased (i)
10,606,000 shares of newly issued common stock of the Company (the "Investor
Shares") and (ii) warrants to purchase (x) an additional 2,000,000 shares of
common stock of the Company at an exercise price of $1.00 per share, exercisable
at any time prior to March 6, 2007 (the "Investor A Warrants") and (y) an
additional 4,000,000 shares of common stock of the Company at an exercise price
of $3.00 per share, exercisable at any time prior to March 6, 2003 (the
"Investor B Warrants," and collectively with the Investor A Warrants, the
"Investor Warrants"), for the aggregate consideration of $1,825,000 (the
"Purchase Price"). Upon consummation of this transaction Andlinger Capital XXVI
acquired beneficial ownership (as determined under the rules of the Securities
and Exchange Commission) of an aggregate of 16,606,000 shares of the Company's
common stock (of which 6,000,000 shares are attributable to the Investor
Warrants) representing approximately 74% of the issued and outstanding common
stock of the Company (including as outstanding for the purposes of determining
such percentage the 6,000,000 shares issuable upon exercise of the Investor
Warrants). Prior to the purchase by Andlinger Capital XXVI of the Investor
Shares and the Investor Warrants, Axess agreed to contribute 2,800,000 shares of
common stock to the Company.
At the May 31, 2000 Annual Shareholders' Meeting the following proposals that
were contemplated in the Purchase Agreement were approved: (i) reincorporate the
Company from New Jersey to Delaware (the "Reincorporation"); (ii) increase the
authorized number of shares of capital stock to 49,000,000 shares of common
stock and 1,000,000 shares of preferred stock; and (iii) authorize the issuance
of the preferred stock as contemplated in the Purchase Agreement. In order to
effect the intent of the parties to the Purchase Agreement that the Company
issue the Investor Shares on the Closing Date, at the closing of the Purchase
Agreement Axess contributed 4,400,000 shares of common stock to the Company, in
exchange for the Company's agreement to reissue to Axess 4,400,000 shares of
common stock (the "Axess Reissue Shares") subject to the Stockholder Approval,
and Reincorporation and amendment of the Company's certificate of incorporation
to authorize the issuance of such shares. As of June 30, 2000 these transactions
have been reflected the financial statements of the Company.
Page 12
<PAGE>
Prior to the closing under the Purchase Agreement, the Company had been indebted
to Axess in the principal amount of $8,205,907, plus interest thereon from
January 1, 1999 (all indebtedness of the Company due Axess is referred to herein
as the "Axess Debt"). Upon the closing, Axess cancelled the Axess Debt in
exchange for (x) the payment by the Company to Axess of $3,500,000 in cash;
(y)the issuance to Axess of a promissory note in the principal amount of
$1,000,000 payable upon the sale of one of the Company's product lines and (z)
the issuance to Axess, of a warrant (the "Preferred Stock Warrant" and
collectively with the Investor Warrants, the "Warrants") to purchase 1,000
shares of the Company's non-voting convertible redeemable preferred stock to be
issued, subject to Stockholder Approval ( received on May 31, 2000) and pursuant
to an amendment to the certificate of incorporation of the Company.
On March 6, 2000, in connection with the transactions under the Purchase
Agreement and with the support and assistance of Andlinger Capital XXVI, the
Company made a final payment under a loan and security agreement with a previous
lender and terminated such agreement and obtained a credit facility with PNC
Bank. The new Loan Agreement provides for a total facility of $14,500,000 of
which $13,000,000 is a working capital revolving credit facility with an initial
three-year term expiring on March 6, 2003. The amount of available credit is
determined by the level of certain eligible receivables and inventories. The
line of credit bears interest at the prime rate. Additionally the Loan Agreement
contains various covenants including a financial covenant that generally
requires the Company to maintain a fixed charge coverage ratio (as defined in
the Loan Agreement) of .7 to 1 for the three-month period ending June 30, 2000
and 1.1 to 1 thereafter. As of June 30, 2000 the Company was in compliance with
these covenants.
The Loan Agreement also includes a term loan with PNC Bank in the amount of
$1,500,000 to be repaid in 4 quarterly installments of $75,000 commencing June
6, 2000; 23 monthly installments at $25,000 commending April 6, 2001 and a final
balance of $625,000 at maturity on March 6, 2003. This loan bears interest at
prime plus 1.5 percent which is due monthly. The Loan Agreement is subject to
customary event of default and acceleration provisions and is collateralized by
substantially all of the Company's assets.
Management believes that the cash generated from operations and funds available
under its new Loan Agreement should be sufficient to meet the Company's working
capital needs in 2000.
Cash Flows from Operations. Net cash provided by operating activities during the
six months ended June 30, 2000 was $2,962,000, an increase of $2,573,000 over
the same period last year. Net loss for the six months ended June 30, 2000 was
$149,000 compared to $1,042,000 during the same period last year. For the period
ended June 30, 2000, accounts receivable decreased by $1,130,000, as compared to
the period ended December 31, 1999. This decrease reflects the higher sales
volume in December 1999 as compared to June 2000. December is historically the
Company's largest shipping month. Inventories decreased by $767,000 as a result
of the Company's efforts to better manage their inventory levels. Management
continuously monitors inventory levels on a worldwide basis in order to ensure
that excess inventory is kept to a minimum. Other assets and prepaid expenses
increased by $248,000 and $389,000 respectively while accounts payable and
accrued liabilities increased by $913,000.
Cash Flows From Investing. Net cash used in investing activities during the six
months ended June 30, 2000 was $68,000 as compared to $47,000 during the same
period in 1999.
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Cash Flows From Financing. Net cash used in financing activities during the
six-month period ended June 30, 2000 was $2,339,000. The Company's borrowing
against its accounts receivable during the six-month period ended June 30, 2000
decreased $651,000 and its borrowing under line of credit agreements increased
$796,000. Repayments of the lease obligation total $93,000 for the period. In
connection with the transactions under the Purchase Agreement, long-term debt
increased $1,425,000 while the Mettler note decreased by $1,212,000. The Axess
debt decreased
$8,226,000 as a result of repayment of $3,500,000, issuance of Preferred Stock
by $1,000,000 and forgiveness of debt of $3,726,000. There were also net
proceeds from issuance of common stock of $896,000.
Year 2000 Issues
----------------
Certain computer systems and programs were designed to identify the year with
two digits. Concern existed prior to 2000 that such systems might read dates in
the year 2000 and thereafter as if those dates represent the year 1900 or
thereafter. As a result, errors would occur because computers would not
distinguish between 1900 and 2000. All mainframe and personal computers, and
related system, application code and process control systems using embedded chip
technology could have been adversely affected by the use of two digit
definitions for the identification of the year component of date information. If
such adverse effects were not successfully remediated before December 31, 1999,
there could have been and interruption in, or failure of, certain normal
business activities or operations with attendant lost revenues and adverse
customer relation impacts.
The Company completed its Year 2000 system updates and did not experience any
interruptions in or failure of normal business activities or operations on
January 1, 2000 or thereafter as a result of Year 2000 issues.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders (the "Meeting") during the
fiscal quarter ended June 30, 2000.
(a) The date of the Meeting was May 31, and June 1, 2000.
(b) At the meeting, the following persons were elected as directors of the
Company.
Robert M. Castello;
Mark F. Callaghan;
David R. Smith;
Merrick G. Andlinger;
Richard J. Giacco; and
Robert K. Prud'homme
(c) The Stockholders also approved proposals to:
(i) increase the authorized number of shares of Common Stock
of the Company to 49,000,000 shares;
(ii) change the state of incorporation of the company from
New Jersey to Delaware;
(iii) authorize 1,000,000 shares of preferred stock;
(iv) approve the Company's 2000 Stock Option Plan; and
(v) ratify the appointment of Mahoney Cohen & Company, CPA,
P.C., as the Company's independent public accountants.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
2.1 Securities Purchase Agreement, dated as of February 17, 2000,
by and between Rheometric Scientific, Inc., Andlinger Capital
XXVI LLC and Axess Corporation, incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K dated
March 21, 2000.
3.1 Certificate of Incorporation of the Registrant, as Amended,
incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31,
1995.
3.2 By-Laws of the Registrant, as Amended, incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
4.1 Specimen Certificate representing Common Stock of the
Registrant, incorporated by reference to the exhibits to the
Company's Registration Statement on Form S-1, File No. 33-807
filed on October 10, 1985.
4.2 Warrant to Purchase 132,617 shares Common Stock of Rheometric
Scientific, Inc. issued to RSI (NJ) QRS 12-13, Inc.,
incorporated by reference to Exhibit 1 to the Company's
Current Report on Form 8-K dated February 23, 1996.
4.3 Warrant to Purchase 331,543 shares of Common Stock of
Rheometric Scientific, Inc. issued to RSI (NJ) QRS 12-13,
Inc., incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K dated February 23, 1996.
*4.4 Rheometric Scientific, Inc. 1996 Stock Option Plan,
incorporated by reference to Exhibit 4.3 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1996.
*10.3 Amended and Restated Employment Agreement between Ronald F.
Garritano and the Company, incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
*10.4 Employment Agreement between Matthew Bilt and the Company,
incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the period ended September
30, 1996.
*10.5 Employment Agreement between Joseph Musanti and the
Company, incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
10.6 Loan and Security Agreement with Fleet Capital Corporation
dated February 23, 1996, incorporated by reference to Exhibit
1 to the Company's Current Report on Form 8-K dated February
23, 1996.
10.7 Lease Agreement by and between RSI (NJ) QRS 12-13, Inc.,
and Rheometric Scientific, Inc. dated as of February 23, 1996,
incorporated by reference to Exhibit 5 to the Company's
Current Report on Form 8-K dated February 23, 1996.
10.8 Revolving Credit Facility Note - Fleet Capital Corporation,
incorporated by reference to Exhibit 6 to the Company's
Current Report on Form 8-K dated February 23, 1996.
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10.9 Subordination Agreement between Axess Corporation and
Fleet Capital Corporation, incorporated by reference to
Exhibit 10.26 to the Company's Annual Report on Form 10-K
dated December 31, 1995.
10.10 Subordination Agreement between Axess Corporation and RSI
(NJ) QRS 12-13, Inc., incorporated by reference to Exhibit
10.27 to the Company's Annual Report on Form 10-K dated
December 31, 1995.
10.11 Amended and Restated Subordinated Unsecured Working Capital
Note - Axess Corporation, incorporated by reference to Exhibit
10.28 to the Company's Annual Report on Form 10-K dated
December 31, 1995.
10.12 First Amendment to Lease Agreement dated June 10, 1996 between
RSI (NJ) QRS 12-13, Inc. and Rheometric Scientific, Inc.
incorporated by reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-K dated December 31, 1996.
10.13 Second Amendment to Lease Agreement dated February 20, 1997
between RSI (NJ) QRS 12-13, Inc. and Rheometric Scientific,
Inc. incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K dated December 31, 1996.
10.14 Amendment Letter dated May 2, 1997 by Fleet Capital
Corporation, amending Sections 9.1(J) and 9.3(D) of the Loan
and Security Agreement dated February 23, 1996, incorporated
by reference to Exhibit 10.14 to the Company's Annual Report
on Form 10-K dated December 31, 1996.
10.15 Amendment Letter dated May 6, 1997 by RSI (NJ) QRS-12-13,
Inc., amending paragraphs 7 and 8 of Exhibit D to the Lease
Agreement dated as of February 23, 1996, incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K dated December 31, 1996.
10.16 Amendment to Loan and Security Agreement with Fleet
Capital Corporation dated March 31, 1998, incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the period ended December 31, 1997.
10.17 Second Amendment to Loan and Security Agreement with Fleet
Capital Corporation dated February 19, 1999, incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
10.18 Third Amendment to Loan and Security Agreement with Fleet
Capital Corporation dated November 12, 1999, incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
10.19 Registration Rights Agreement, dated as of March 6, 2000,
by and between Rheometric Scientific Inc., Andlinger Capital
XXVI and Axess Corporation, incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated
March 21, 2000.
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10.20 Stockholders' Agreement, dated as of March 6, 2000, by and
between Rheometric Scientific Inc., Andlinger Capital XXVI and
Axess Corporation, incorporated by reference to Exhibit 10.2
to the Company's Current Report on Form 8-K dated March 21,
2000.
10.21 Voting Agreement, dated as of February 17, 2000, by and
between Rheometric Scientific Inc., Andlinger Capital XXVI and
Axess Corporation, incorporated by reference to Exhibit 10.3
to the Company's Current Report on Form 8-K dated March 21,
2000.
22 Subsidiaries of the Registrant, incorporated by reference to
Exhibit 22 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
* Management contract or compensatory plan or arrangements
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three
months 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.
RHEOMETRIC SCIENTIFIC, INC.
(Registrant)
August 11, 2000 By /s/ Joseph Musanti
-------------------------------------
Joseph Musanti, Vice President,
Finance and Chief Financial Officer
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