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: September 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
RHEOMETRIC SCIENTIFIC, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 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 November 13, 2000
------------------------- ------------------------------------
Common Stock, no par value 21,236,491
<PAGE>
Rheometric Scientific, Inc.
Index to Form 10-Q
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations
for the nine and three months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of Comprehensive Income (Loss)
for the nine and three months ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 11
PART II - OTHER INFORMATION
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
(a) Exhibits
(b) Reports on Form 8-K
2
<PAGE>
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September December
ASSETS 30, 2000 31, 1999
------ --------- --------
Current Assets
Cash $ 215 $ 265
Accounts receivable, net 9,021 10,340
Inventories, net
Finished goods 1,245 1,596
Work in process 1,133 773
Assembled components, materials, and parts 3,458 4,172
5,836 6,541
------ ------
Prepaid expenses and other assets 923 705
------ ------
Total current assets 15,995 17,851
------ ------
Property, plant, and equipment 15,769 15,638
Less accumulated depreciation and amortization 10,591 10,051
------ ------
Property, plant, and equipment, net 5,178 5,587
Other assets and deferred financing costs 607 545
------ ------
Total Assets $ 21,780 $ 23,983
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Short-term bank borrowings $ 6,097 $ 4,789
Current maturity of long-term debt 490 190
Accounts payable 2,779 1,980
Borrowings against accounts receivable 52 1,064
Accrued liabilities 3,361 4,397
------ ------
Total current liabilities 12,779 12,420
------ ------
Long-term debt 5,555 4,525
Long-term debt - affiliate 1,000 8,206
Payable to affiliate - 1,020
Long-term liability - Mettler - 696
Other long-term liabilities 99 103
------ ------
Total liabilities 19,433 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 (28,974) (28,829)
Treasury stock, at cost, 2,800 shares in 2000 - -
Accumulated other comprehensive loss/income (4) 139
------ ------
Total shareholders' equity (deficiency) 1,347 (2,987)
------ ------
Total Liabilities & Shareholders' Equity $ 21,780 $ 23,983
======== ========
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 6,619 $ 6,939 $21,046 $20,630
Cost of sales 3,441 4,065 11,049 11,381
----- ----- ------ ------
Gross profit 3,178 2,874 9,997 9,249
----- ----- ----- -----
General and administrative expenses 216 562 1,449 1,579
Marketing and selling expenses 1,982 2,173 5,892 6,202
Research and development expenses 436 526 1,453 1,603
----- ----- ----- -----
Total operating expenses 2,634 3,261 8,794 9,384
----- ----- ----- -----
Operating income/(loss) 544 (387) 1,203 (135)
Interest expense (340) (285) (962) (789)
Interest expense - Affiliate - (261) - (752)
Foreign currency(loss)/gain (200) 228 (383) (69)
----- ----- ----- -----
Income/(loss) before income taxes 4 (705) (142) (1,745)
Income taxes - (1) (3) (3)
----- ----- ----- -----
Net income/(loss) $ 4 $(706) $ (145) $(1,748)
===== ===== ====== =======
Net income/(loss) per share
Basic $0.00 $(0.05) $(0.01) $(0.13)
Diluted $0.00 $(0.05) $(0.01) $(0.13)
Average number of shares Outstanding
Basic 21,236 13,162 17,892 3,162
====== ====== ====== =====
Diluted 26,142 13,162 17,892 13,162
====== ====== ====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
RHEOMETRIC SCIENTIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2000 1999
---- ----
Cash Flows from Operating Activities:
Net loss $ (145) $ (1,748)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization of plant and Equipment 618 492
Amortization of intangibles 121 138
Provision for inventory reserves 132 502
Unrealized currency loss 392 (15)
Loss on sale/retirement of plant and equipment - 4
Changes in assets and liabilities:
Accounts receivable 845 111
Inventories 411 575
Prepaid expenses and other current assets (340) 296
Payable to affiliate - 752
Accounts payable and accrued liabilities 498 (137)
Other assets (200) (212)
Other non-current liabilities ( 4) (202)
----- ----
Net cash provided by operating activities 2,328 556
----- ----
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment (115) (69)
----- ----
Net cash used in investing activities (115) (69)
----- ----
Cash Flows from Financing Activities:
Net borrowings/(repayments) under line of credit
agreements 1,316 (73)
Net repayments against accounts receivables (960) (145)
Proceeds from long-term debt 1,500 -
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 (293) (193)
------ ----
Net cash used in financing activities (2,253) (411)
------ ----
Effect of exchange rate changes on cash (10) 64
------ ----
Net (decrease)/increase in cash (50) 140
Cash at beginning of period 265 488
------ ----
Cash at end of period $ 215 $ 628
======== ========
Cash payments for interest $ 956 $ 1,003
======== ========
Cash payments for income taxes $ 190 $ 188
======== ========
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
Net income/(loss) $ 4 $ (706) $ (145) $ (1,748)
Other comprehensive (loss)/income
Foreign currency translation
adjustments (113) 9 (143) 121
---- - ---- ---
Comprehensive loss $ (109) $ (697) $ (288) $ (1,627)
====== ====== ======= ========
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
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) as of the date of
acquisition. 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. These transactions have been reflected in
the accompanying 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 year ended December
31, 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 Company's financial statements as a result of
adopting SAB No. 101.
7
<PAGE>
2. Income/Loss Per Share
In February 1997, the 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>
Three Months Nine Months
Ended September 30, Ended September 30,
<S> <C> <C> <C> <C>
(dollars in thousands except per share data) 2000 1999 2000 1999
-------------------------------------------- ---- ---- ---- ----
Net income/(loss) available to common
Shareholders 4 (706) (145) (1,748)
--------------------------------------------------------------------------------------------------------
Denominator for basic earnings/(loss) per share:
Weighted average:
Common shares outstanding 21,236 13,162 17,892 13,162
Effect of dilutive securities:
Preferred Stock 1,000 - - -
Stock options 355 - - -
Warrants 3,551 - - -
------------------------------------------------------
Denominator for diluted earnings/(loss) per share 26,142 13,162 17,892 13,162
------------------------------------------------------------------------------------------------------------
Basic earnings/(loss) per share $ 0.00 $ (0.05) $ (0.01) $ (0.13)
------------------------------------------------------------------------------------------------------------
Diluted earnings/(loss) per share $ 0.00 $ (0.05) $ (0.01) $ (0.13)
------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
3. Long-term Debt and Short-term Borrowings
Long-term debt consists of the following:
September 30, 2000 December 31, 1999
------------------ -----------------
Obligation under sale/leaseback payable
through February 2011, with interest
imputed at a weighted-average rate of
13.9% for 2000 and 1999, respectively $4,695,000 $4,715,000
Term loan payable through March 2003.
Loan bears interest at prime plus 1.5%
(11.0% at September 30, 2000) 1,350,000 -
----- --- ---- --------- ---------
6,045,000 4,715,000
Less current maturities 490,000 190,000
--------- ---------
$5,555,000 $4,525,000
========== ==========
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, 9.5% at September 30, 2000. 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 September 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. 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.
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.
9
<PAGE>
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 (includes Americas
and Pac-Rim excluding Japan), Europe, and Japan. 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:
(In thousands) Domestic Europe Japan Consolidated
--------------------------------------------------------------------------------
Trade Sales:
9/30/00 12,616 4,600 3,830 21,046
9/30/99 10,756 4,777 5,097 20,630
Intercompany Sales:
9/30/00 3,904 892 0 --
9/30/99 4,381 837 0 --
Operating Income:
9/30/00 1,614 (506) 95 1,203
9/30/99 366 (934) 433 (135)
Identifiable Assets:
9/30/00 13,940 3,670 4,170 21,780
9/30/99 17,929 4,229 4,806 26,964
Depreciation and Amortization
(including Intangibles):
9/30/00 617 108 14 739
9/30/99 558 55 17 630
Sales between geographic areas are priced on a basis that yields an
appropriate rate of return based on assets employed, risk and other
factors.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
---------------------
Sales for the three- and nine-month periods ended September 30, 2000 decreased
$320,000, or 4.6%, and increased $416,000, or 2%, respectively, as compared to
the corresponding periods in 1999. Sales for the three and nine month period
were adversely affected by $226,000 and $413,000 respectively due to unfavorable
currency rates in effect compared to last year. The increase in revenue for the
nine-month period resulted from an increase in Domestic of $1,860, 000, offset
by a decrease in Europe and Japan of $177,000 and $1,267,000 respectively. The
decrease in revenue for the three-month period represents a decrease in Domestic
and Japan of $456,000 and $89,000 respectively, offset by an increase in Europe
of $225,000. The gross profit percentages for the three and nine months ended
September 30, 2000 were 48% and 47.5% respectively versus 41.4% and 44.8% over
the same period in the prior year. This improvement relates to the Company's
changes in manufacturing and scheduling, as well as a reduction in the
obsolescence provision as a result of better inventory management.
Operating expenses for the three and nine months ended September 30, 2000 were
down $627,000 and $590,000 respectively compared to the corresponding periods in
the prior year. The decrease in expenses for the three month period relate to
various reductions in selling, engineering, and general and administrative
expenses of $377,000. General and administrative expenses were also favorably
affected by $122,000 for a self insurance reserve no longer required and rental
income of $51,000. Additionally, operating expenses were favorably affected by
foreign currency trends of $77,000. For the nine month period the decrease in
expenses related to various reductions in selling, engineering and
administrative expenses of $399,000. General and administrative expenses were
also favorably affected by $260,000 for a self insurance reserve no longer
required and rental income of $110,000. Expenses year to date include a one time
consulting charge of $225,000. Additionally, operating expenses were favorably
affected by foreign currency trends of $109,000.
Net interest expense for the three and nine months ended September 30, 2000
decreased $206, 000 and $579, 000 respectively, compared to the corresponding
period in the prior year. For the nine months ended September 30, 2000, bank
interest increased $173,000 as a result of carrying higher loan balances and the
effects of higher interest rates compared to prior periods. However, this was
offset by a decrease in affiliate interest of $752,000.
The foreign currency adjustments for the three and nine months ended September
30, 2000 were a loss of $200,000 and $383,000, respectively. The year-to-date
adjustment was primarily due to transaction losses resulting from the French
Franc, Japanese Yen, German Mark and British Pound against the U.S. Dollar.
Net income for the third quarter was $4,000 compared to a net loss of $706,000
in 1999. This improvement was the result of a decrease in operating expenses of
$627,000, improvement in the gross margin of $304,000, and a $206,000 decrease
in interest expense. These were offset by an increase in the currency loss of
$428,000.
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<PAGE>
Net loss for the nine months ended September 30, 2000 was $145,000 compared to a
net loss of $1,748,000 in 1999. This improvement was achieved as a result of an
increase in sales of $416,000, as well as lower interest costs, lower operating
expenses, and an improvement in gross margin. In the first nine 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 accounts. 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.
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) as of the Closing Date. 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
12
<PAGE>
the Stockholder Approval, and Reincorporation and amendment of the Company's
certificate of incorporation to authorize the issuance of such shares. These
transactions have been reflected in the accompanying financial statements of 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 (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 prior 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, 9.5% at
September 30, 2000. 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
September 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 commencing 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 OF EXCHANGE EFFECT). Net cash provided by
operating activities during the nine months ended September 30, 2000 was
$2,328,000, an increase of $1,772,000 over the same period last year. Net loss
for the nine months ended September 30, 2000 was $145,000 compared to $1,748,000
during the same period last year. For the period ended September 30, 2000,
accounts receivable decreased by $845,000. This decrease reflects the higher
sales volume in December 1999 as compared to September 2000. December is
historically the Company's largest shipping month. Inventories decreased by
$411,000 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
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inventory is kept to a minimum. Other assets and prepaid expenses increased by
$200,000 and $340,000 respectively while accounts payable and accrued
liabilities increased by $498,000.
CASH FLOWS FROM INVESTING. The Company made capital expenditures of $115,000
during the nine months ended September 30, 2000 as compared to $69,000 during
the same period in 1999.
CASH FLOWS FROM FINANCING. Net cash used in financing activities during the
nine-month period ended September 30, 2000 was $2,253,000. The Company's
borrowing against its accounts receivable during the nine-month period ended
September 30, 2000 decreased $960,000 and its borrowing under line of credit
agreements increased $1,316,000. Repayments of long-term debt and the lease
obligation totaled $293,000 for the period. In connection with the transactions
under the Purchase Agreement, long-term debt increased $1,500,000 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
----------------
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 5. OTHER INFORMATION
On or about October 31, 2000 the Reincorporation, which was approved at the
May 31,2000 Annual Meeting of Shareholders, was consummated, and the Company,
which had been incorporated in New Jersey was reincorporated in Delaware.
Attached as Exhibit 3.1 and 3.2 to this Quarterly Report are, respectively, the
Certificate of Incorporation and Bylaws of the Company, as in effect following
the Reincorporation.
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.
3.2 By-Laws of the Registrant.
4.1 Specimen Certificate representing Common Stock of the Registrant,
incorporated by reference to the exhibits to the Company's
Registration
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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.
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.
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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.
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.
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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 September 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)
November 13, 2000 By /s/ Joseph Musanti
--------------------------------------
Joseph Musanti, Vice President,
Finance and Chief Financial Officer
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