______________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
__________
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ x ] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
HOLOMETRIX, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other than the
Registrant)
Payment of Filing Fee (Check Appropriate Box)
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
1) Title of each class of securities to which
transaction applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee
was paid previously. Identify the previous filing
by registration statement number, or the Form or
Schedule and the date of its filing.<PAGE>
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
_______________________________________________________________________
HOLOMETRIX, INC.
25 Wiggins Avenue, Bedford, Massachusetts 01730-2323
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On April 28, 1998
Notice is hereby given that a Special Meeting of Stockholders of
Holometrix, Inc. (the "Company" or "Holometrix") will be held on
Tuesday, April 28, 1998, at 10:00 a.m. at the offices of the
Company, 25 Wiggins Avenue, Bedford, Massachusetts, to consider and
act upon the following matters:
1. To consider and act upon an amendment to the
Company's Certificate of Incorporation, as amended, to
increase the number of authorized shares of Common
Stock, $.01 par value, from 30,000,000 to 100,000,000
shares.
2. To consider and act upon an amendment to the
Company's Certificate of Incorporation, as amended,
effective following the reorganization of the Company,
Tytronics Incorporated ("Tytronics") and National Metal
Refining Company ("Nametre") described in the
accompanying Proxy Statement, providing (a) for a
reduction in the number of authorized shares of Common
Stock of the Company from 100,000,000 shares to
2,000,000 shares with $.50 par value (such new shares of
Common Stock to be referred to herein as the "New
Common Stock"); and (b) for a 50 to 1 reverse stock split
of the Company's Common Stock (items (a) and (b) will
be considered one proposal and will be referred to herein
as the "Reverse Stock Split"), all as described more fully
in the accompanying Proxy Statement.
3. To consider and act upon an amendment to the
Company's Certificate of Incorporation, as amended, to
change the name of the Company from Holometrix, Inc.
to Metrisa, Inc.
4. To transact such other business as may properly come
before the meeting or any adjournments of the meeting.
Stockholders of record of the Company as of the close of
business on March 25, 1998 are entitled to notice of and to vote at the
meeting and any adjournment thereof. The text of the proposed
Amendments to the Company's Certificate of Incorporation are set forth
in Exhibit A to the accompanying Proxy Statement. If the matters
proposed to be considered by the stockholders of the Company are
approved at the Special Meeting of Stockholders, the Company intends
to enter into a reorganization (the "Reorganization"), described in the
accompanying Proxy Statement which will result in a reduction in the
percentage of shares of the Company's Common Stock owned by non-
affiliates of the Company from 23% to approximately 13%.
Stockholders of the Company who dissent with respect to the matters to
be acted upon at the Special Meeting of Stockholders are not entitled to
dissenters or appraisal rights with respect to their shares under Delaware
law.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of
Directors
David J. Brown, Secretary
Bedford, Massachusetts
April 1, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING, PLEASE COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED ENVELOPE IN ORDER TO ASSURE
REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE
AFFIXED IF MAILED IN THE UNITED STATES.
HOLOMETRIX, INC.
25 Wiggins Avenue, Bedford, Massachusetts 01730-2323
PROXY STATEMENT
for
Special Meeting of Stockholders to be held April 28, 1998
A Special Meeting of Stockholders of Holometrix, Inc., a
Delaware corporation (the "Company" or "Holometrix"), will be held
Tuesday, April 28, 1998, for the purposes set forth in the
accompanying Notice of Special Meeting. This statement is furnished in
connection with the solicitation of proxies by the Board of Directors to
be used at such meeting and at any and all adjournments thereof and is
first being sent to stockholders on or about April 1, 1998. Any
stockholder executing and returning a proxy in the enclosed form has the
power to revoke such proxy at any time prior to the voting thereof by
written notice to the Company, by executing a later dated proxy or by
appearing and voting at the meeting.
At the Special Meeting, action is to be taken on (a) the
amendment to the Company's Certificate of Incorporation, as amended,
to increase the number of shares of authorized Common Stock from
30,000,000 to 100,000,000 shares, (b) an amendment to the Company's
Certificate of Incorporation, as amended, effective following the
reorganization (the "Reorganization") of the Company, Tytronics
Incorporated ("Tytronics") and National Metal Refining Company
("Nametre") described in this Proxy Statement, providing (i) for a
reduction in the number of authorized shares of Common Stock for the
Company from 100,000,000 shares to 2,000,000 shares with $.50 par
value (such new shares of Common Stock to be referred to herein as the
"New Common Stock"); and (ii) for a 50 to 1 reverse stock split of the
Company's Common Stock (items (i) and (ii) will be considered one
proposal and will be referred to herein as the "Reverse Stock Split"); (c)
the amendment to the Company's Certificate of Incorporation, as
amended, to change the name of the Company from Holometrix, Inc. to
Metrisa, Inc.; and (d) the transaction of such other business as may
properly come before the meeting. The text of the proposed
Amendments to the Company's Certificate of Incorporation are set forth
in Exhibit A to this Proxy Statement.
All shares represented at the meeting by proxies in the
accompanying form will be voted provided that such proxies are
properly signed. In cases where a choice is indicated, the shares
represented will be voted in accordance with the specifications so made.
In cases where no specifications are made, the shares represented will be
voted for the amendments of the Company's Certificate of Incorporation,
as amended, to increase the authorized number of shares of the
Company's Common Stock, to effect the Reverse Stock Split and to
change the name of the Company to Metrisa, Inc.
The Company will pay all costs of soliciting proxies in the
accompanying form. Solicitation will be made by mail, and officers and
regular employees of the Company may also solicit proxies by telephone
or personal interview. The Company expects to request brokers and
nominees who hold stock in their names to furnish this proxy material to
their customers and to solicit proxies from them, and will reimburse
such brokers and nominees for their out-of-pocket and reasonable
clerical expenses in connection therewith.
If the amendments to the Company's Certificate of Incorporation
are approved, the Company intends to enter into a reorganization (the
"Reorganization"), pursuant to which Tytronics and Nametre will be
merged into Holometrix Acquisition Corp. ("Holometrix Acquisition"),
a Delaware corporation and the wholly owned subsidiary of the
Company, with the result that Holometrix Acquisition will be the
surviving entity. Following the Reorganization, Holometrix Acquisition
will be merged into the Company. The stockholders of the Company should
be aware that the Company is not required to seek, and is not seeking,
approval of the stockholders of the Company for the Reorganization under
Delaware law. The Company is, however, asking stockholders to approve an
increase in the number of shares of the Company's authorized Common Stock
which is required in order for the Company to complete the Reorganization.
In connection with the Reorganization, each issued and outstanding share of
Tytronics Preferred Stock and Common Stock will be exchanged for 254.542
and 231.402 shares, respectively, of the Common Stock of Holometrix (rounded
up to the nearest whole share), for a total of approximately 39,000,000
shares of Holometrix Common Stock. In addition, each issued and outstanding
share of Nametre Common Stock, currently approximately 76,000 shares
(excluding shares owned by Holometrix) will be exchanged for 79.807
shares of Holometrix Common Stock (rounded up to the nearest whole
share) for a total of approximately 6,065,000 shares. Based on the value
of the equity of the Company, Tytronics and Nametre determined by the
Company's financial advisor, Fechtor, Detwiler & Co., Inc. ("Fechtor
Detwiler"), the aggregate value of the shares of the Company's Common
Stock to be exchanged in connection with the Reorganization will be
approximately $4,680,000. In addition, based on the Fechtor Detwiler
valuation, the equity value of the Company is currently $1.84 Million
and the value of the Company's Common Stock is currently $.082 per
share, the equity value of Tytronics is currently $4.12 Million and the
value of Tytronics Common Stock and Preferred Stock is $24.44 per
share (assuming the conversion of all Preferred Stock to Common
Stock), and the equity value of Nametre is currently $1.43 Million and
the value of Nametre Common Stock is $7.31 per share. There is
currently no active trading market for either the Company's, Tytronics'
or Nametre's securities. As a result, it is not possible to disclose a
market value for either the Company's, Tytronics' or Nametre's
securities. Stockholders of the Company should be aware that, as a
result of the Reorganization, the percentage of shares of the Company's
Common Stock owned by non-affiliates of the Company will be reduced
from 23% to approximately 13%. The exchange ratios and the
aggregate values of the shares of Holometrix Common Stock to be
exchanged in connection with the Reorganization will change if Fechtor
Detwiler determines there has been a material change in the valuation of
the Company, Tytronics or Nametre during the period from the initial
valuation to the date immediately preceding the special meeting of
stockholders of the Company. The Company will forward revised proxy
materials to the stockholders of the Company prior to the special meeting
of stockholders if there has been a material change in the matters described
in this Proxy Statement, including a material change in the valuations of
the Company, Tytronics or Nametre or the related exchange ratios and
aggregate values of the shares of Holometrix Common Stock to be exchanged
in connection with the Reorganization. Stockholders of the Company should
also be aware that the terms of the Reorganization were not negotiated, but
based entirely on the valuation of the Company, Nametre and Tytronics
determined by Fechtor Detwiler. See "Proposed Reorganization -
Valuation and Opinion". The Company's officers, directors and
affiliates will receive certain benefits resulting from the conversion of
their ownership interests in Tytronics and Nametre into shares of the
Company's Common Stock if the proposal to increase the Company's
authorized capital stock is approved. The Company's officers, directors
and affiliates will not receive any other benefits in connection with the
Reorganization. In addition, the Company's stockholders will
experience ownership dilution as a result of the Reorganization. See
"Effects of the Reorganization on the Company's Unaffiliated
Stockholders" and "Interests of Officers and Directors in Connection
with the Reorganization".
VOTING RIGHTS
The Board of Directors has fixed March 25, 1998 as the record
date for determination of stockholders entitled to vote at the Special
Meeting. At the close of business on March 25, 1998 there were
outstanding and entitled to vote 23,861,878 shares of Common Stock of
the Company. Each share of Common Stock is entitled to one vote. A
majority of the outstanding shares of Common Stock entitled to vote will
constitute a quorum for the transaction of business at the Special
Meeting. The affirmative vote of a majority of the shares of Common
Stock present or represented at the meeting is required for the approval
of the amendments of the Company's Certificate of Incorporation, as
amended, to increase the authorized number of shares of the Company's
Common Stock, to effect the Reverse Stock Split and to change the name
of the Company. Abstentions and broker non-votes will be counted for
purposes of determining whether a quorum is present at the meeting,
however, an abstention from voting or a broker non-vote has no effect
on the votes to amend the Company's Certificate of Incorporation, as
amended or to adopt the Reverse Stock Split. Stockholders of the
Company who dissent with respect to the matters to be acted upon at the
Special Meeting of stockholders are not entitled to dissenters or appraisal
rights with respect to their shares under Delaware law. Holders of the
Company's Common Stock are not entitled to pre-emptive rights. The
stockholders of the Company should also be aware that the Company is
not required to seek and is not seeking stockholder approval for the
Reorganization under Delaware law.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of March 1, 1998, to the knowledge of
the Company, the ownership of the Company's 23,861,878 outstanding
shares of Common Stock by (i) each person who is known by the
Company to own of record or beneficially more than five percent (5%)
of the outstanding shares of the Company's Common Stock, (ii) each of
the Company's Directors and executive officers, and (iii) all Directors
and officers as a group. Except as otherwise indicated, to the knowledge
of the Company, the stockholders listed below have sole voting and
investment power with respect to the shares indicated.
Name and Address Number of Shares Percentage
of Beneficial Owner Beneficially Owned of Class1
Tytronics Incorporated 17,060,2442 69.9%
25 Wiggins Avenue
Bedford, MA 01730-2323
Bantam Group, Inc.3 1,435,000 6.0%
50 Bay Colony Drive
Westwood, MA 02090
John E. Wolfe 200,0004 *
Richard Mannello 300,0004 *
Joaquim S. S. Ribeiro 150,0004 *
Salvatore J. Vinciguerra 150,0004 *
All Officers and Directors 2,235,000 9.4%
as a group (5 persons)
*Less than 1%
______________________________
1 Pursuant to the rules of the Securities and Exchange Commission,
shares of Common Stock which an individual or group has a right to
acquire within 60 days of this statement pursuant to the exercise of
presently exercisable or outstanding options, warrants or conversion
privileges are deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not deemed to
be outstanding for the purpose of computing the percentage ownership of
any other person shown in the table.
2 Includes warrants exercisable by Tytronics Incorporated to
purchase 550,000 shares of the Company's Common Stock at an
exercise price of $.10 per share. Joseph J. Caruso and John E. Wolfe,
Directors of the Company are also Directors of Tytronics Incorporated.
3 Joseph J. Caruso, a Director of the Company, is also President of
Bantam Group, Inc., and has sole voting and investment power with
respect to the 1,435,000 shares of Common Stock owned by Bantam
Group, Inc.
4 Issuable upon the exercise of currently outstanding stock options.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and
persons who own more than 10% of a registered class of the Company's
equity securities, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission (the
"SEC"). Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. All
requirements for officers and directors of the Company to file Section
16(a) reports have been met for the fiscal year ended September 30,
1997. The information set forth above is based solely on the Company's
review of the copies of such forms received by it or written
representations from certain reporting persons.
AMENDMENT OF COMPANY'S CHARTER TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
(PROPOSAL 1)
The Board of Directors of the Company has determined that it is in the
best interests of the Company and its stockholders to increase the
authorized number of shares of Common Stock from 30,000,000 to
100,000,000 shares. The Board recommends that the stockholders
approve the amendment to the Company's Certificate of Incorporation,
as amended (the "Charter") to effect the proposed increase. The
purposes of the amendment are: (1) to authorize additional shares of
Common Stock that can be issued in exchange for the currently
outstanding shares of Common Stock and Preferred Stock of Tytronics
Incorporated, a Massachusetts corporation ("Tytronics"), and National
Metal Refining Company, a New Jersey corporation ("Nametre"), in
connection with the Reorganization (described below); and (2) to
authorize additional shares of Common Stock for issuance upon exercise
of current and future employee stock options, for issuance in connection
with acquisitions, to raise capital for the Company and for other
corporate purposes. The Company has no present intention of
registering the shares of Common Stock reserved for issuance upon
exercise of current and future employee stock options.
PROPOSED REORGANIZATION
Events Leading Up To The Reorganization
During fiscal 1992 and 1993, the Company sustained significant losses
with resultant cash flow problems. In fiscal 1993, the Company
received $220,000 in the form of a 10% demand subordinated note from
two former stockholders. Commencing in fiscal 1993, the Company
made a decision to begin exploring strategic relationships with other
companies as a means of achieving corporate stability. In connection
with this decision, the Company entered into discussions with Tytronics.
In November of 1994, Tytronics acquired all of the Common Stock of
the Company owned by Corning Partners II, L.P., Cornings Partners
III, L.P., Bayard Henry and Edward J. Stewart, III, consisting of an
aggregate of 8,960,244 shares of the Company's Common Stock and
representing 53% of the shares of the Company's outstanding voting
securities. Prior to the purchase of shares of the Company's Common
Stock by Tytronics, all of the Company's indebtedness held by the
former Company stockholders was either converted to Common Stock,
paid in full by the Company or purchased by Tytronics. Following the
purchase, the Company was indebted to Tytronics in an amount totaling
$315,000. In connection with Tytronics' purchase of shares of the
Company's Common Stock, Joseph J. Caruso, Joaquim S. S. Ribeiro
and John E. Wolfe were elected as additional directors of the Company.
In fiscal 1994, the Company achieved improved operating results,
however, in 1995 the Company's operating results deteriorated primarily
as a result of the loss of a significant customer. The resulting decline in
working capital reserves required the Company to obtain short term
working capital advances from Tytronics. During the fiscal year ended
1995 the Company borrowed an aggregate of $111,000 from Tytronics
under these arrangements.
The Company experienced a further decline in net income during the
fiscal year ended September 30, 1996 and during that fiscal year
borrowed an aggregate of $130,000 from Tytronics under its working
capital arrangements. During fiscal 1996, the Company also
restructured its existing debt to Tytronics by extending the due date for
an aggregate of $155,000 of existing debt in exchange for the issuance of
warrants to Tytronics to purchase 1,000,000 and 1,100,000 shares of the
Company's Common Stock at warrant exercise prices of $.05 and $.10
per share, respectively. Effective September 30, 1996, in response to
the Company's continued efforts to return to financial stability, the
Company acquired a majority of the outstanding capital stock of
Nametre. The Company raised the funds to acquire the shares from
Nametre by issuing 6,000,000 shares of the Company's Common Stock
to Tytronics at a purchase price of $.05 per share. To reduce overhead
costs, the Company and Tytronics share operating facilities at 25
Wiggins Avenue, Bedford, Massachusetts and allocate rental expense
based on the square footage occupied by each company. The Company
and Tytronics also share other operating and administrative costs on an
estimated usage basis. The Company's financial results continued to
deteriorate during fiscal 1997 and the Company experienced a cumulative net
loss of $211,771 during the fiscal year ended September 30, 1997. In an
effort to increase the borrowing base of the Company (by combining assets for
borrowing purposes), the Company, Tytronics and Nametre entered into a
$1,000,000 line of credit agreement and a $500,000 term loan agreement with
Silicon Valley Bank in July of 1997.
In response to continuing marginal financial performance, the Company,
in connection with the development of a strategic plan for the future
operation of the Company, appointed a committee at its November 7,
1996 Board of Directors meeting consisting of John E. Wolfe, Joaquim
S. S. Ribeiro and an advisor to the Company, Louis P. Valente, to
review the Company's operations and organizational and management
structure and make a recommendation to the Board of Directors
concerning any desirable changes. In response to the committee's
report, the Board of Directors concluded that the Company's continued
viability depended upon cost savings associated with combining
operations, distribution of products and financing with other instrument
companies in the test industry. The Company had preliminary
conversations or held informal discussions with two instrument
companies in the Fall of 1996 and the Summer of 1997 (Anter Corp. and
Lasercorp.), and three thermal testing companies in the Spring and
Summer of 1997 (Cincinnati Testing Labs, Precision Measurement &
Instrument Co. and Research Opportunities, Inc.). The Company also
attempted to obtain institutional and venture capital financing during
1996 and 1997. The Company's discussions with potential strategic
partners were not successful and did not result in an offer for the
Company primarily as a result of the size of the Company, its lack of
sufficient and sustained profitability and the perception that its market
did not offer significant growth opportunities. Institutional and venture
capital financing sources rejected the Company's financing proposals,
largely as a result of limited growth prospects, lack of profitability and a
perception that the Company's ownership structure with Nametre and
Tytronics was confusing and a hinderance to its long term growth. As a
result of these discussions, the Directors concluded that attracting
unaffiliated acquisition targets and joint venture prospects and raising
additional financing on acceptable terms would not be possible without
reorganizing the Company's, Tytronics' and Nametre's operations into a
single operating entity. The Board of Directors considered the
Company's marginal financial performance, including a significant
operating loss for the fiscal period ended June 30, 1997, the inability of
the Company to attract strategic partners on favorable financial terms,
the limited size of the Company's markets and the strategic synergy
between the Company, Nametre and Tytronics in terms of operations,
products and distribution channels and deciding to pursue a
reorganization with Nametre and Tytronics. As a result of this analysis,
the Directors proposed to reorganize the Company's organizational
structure to bring Tytronics, the Company and Nametre into a single
operating entity. Except as described above, the Board of Directors did
not consider any other alternatives to the Reorganization or any other
factors in deciding to approve the Reorganization. The Company
engaged Fechtor Detwiler at its June 26, 1997 Board of Directors
meeting to ensure fairness to all stockholders of the Company in
connection with the Reorganization by conducting a full valuation of the
business of the Company, Tytronics and Nametre. At the June 26th
meeting the Board of Directors of the Company also approved the
appointment of a committee consisting of representatives of each of the
Company, Tytronics and Nametre to meet with Fechtor Detwiler to
provide full disclosure of all financial information and operational data
necessary for the Fechtor Detwiler valuation. The members of the
committee met with Fechtor Detwiler during the summer of 1997 and
furnished Fechtor Detwiler information concerning the Company,
Tytronics and Nametre, including historical financial data and operating
budgets through fiscal 1997 and fiscal year forecasts through September
2002. The Company considered appointing an independent committee
concerning the Reorganization, but determined that there were not
sufficient members of the Company's Board of Directors who were
unaffiliated with either Nametre or Tytronics to establish such a
committee. As a result, the Company determined that the best course of
action was to appoint a representative to a committee chaired by an
outside advisor and consisting of representatives of each of the
Company, Tytronics and Nametre to provide information to the
Company's financial advisor, Fechtor Detwiler, who would
independently determine the relative valuations of each of the constituent
companies and calculate the exchange ratios to be used in connection
with the Reorganization. Following the receipt of the Fechtor Detwiler
valuation opinion dated August 28, 1997, the Board of Directors, at a
meeting held on August 28, 1997, unanimously approved (with the
abstention of those Directors who were also Directors of Tytronics or
Nametre) the Reorganization and the Fechtor Detwiler valuation and
exchange ratios.
Terms of the Proposed Reorganization
On August 28, 1997, the Boards of Directors of the Company, Tytronics
and Nametre approved a reorganization (the "Reorganization") of the
Company pursuant to which Tytronics, the majority owner of the
Company, and Nametre, the majority owned subsidiary of the Company,
will be merged into Holometrix Acquisition Corp. ("Holometrix
Acquisition"), a Delaware corporation and the wholly-owned subsidiary
of the Company, with the result that Holometrix Acquisition will be the
surviving entity. Following the Reorganization, Holometrix Acquisition
will be merged into the Company. In connection with the
Reorganization, each issued and outstanding share of Preferred Stock
and Common Stock of Tytronics, approximately 16,800 shares and
150,000 shares, respectively, will be exchanged for 254.542 and
231.402 shares, respectively, of the Common Stock of Holometrix
(rounded up to the nearest whole share), for a total of approximately
39,000,000 shares of Holometrix Common Stock. In addition, each
issued and outstanding share of Nametre Common Stock, currently
approximately 76,000 shares (excluding shares owned by Holometrix),
will be exchanged for 79.807 shares of Holometrix Common Stock
(rounded up to the nearest whole share) for a total of approximately
6,065,000 shares. In addition, in connection with the Reorganization,
all of the outstanding options and warrants to purchase Nametre and
Tytronics capital stock will be converted into options and warrants to
purchase approximately 27,000,000 shares of Holometrix Common
Stock at exercise prices ranging from $.026 to $.097 with an average
exercise price of $.07 per share. As a result, following the
Reorganization, there will be approximately 52,000,000 issued and
outstanding shares of Holometrix Common Stock of which
approximately 45,000,000 shares (or 87%) will be owned of record by
former Tytronics and Nametre stockholders. The number of shares of
Tytronics and Nametre Common Stock proposed to be exchanged for
shares of the Company's Common Stock is based upon a valuation
opinion of the Company, Tytronics and Nametre by Fechtor Detwiler
dated as of August 28, 1997. The actual number of shares to be
exchanged in connection with the Reorganization will change if Fechtor
Detwiler determines that the valuations of Nametre, Tytronics or the
Company have materially changed from the initial valuation date to the
date immediately preceding the special meeting of the Company's
stockholders. The Company will forward revised proxy materials to the
stockholders of the Company prior to the special meeting of stockholders
if there has been a material change in the matters described in this Proxy
Statement, including a material change in the valuations of the Company,
Tytronics or Nametre or the related exchange ratios and aggregate values of
the shares of Holometrix Common Stock to be exchanged in connection with the
Reorganization. Based on the relative values of Tytronics, Nametre and
the Company determined by Fechtor Detwiler, the value of the aggregate
consideration to be paid by the Company in shares of the Company's
Common Stock in connection with the Reorganization will be
approximately $4,680,000. In addition, based on the Fechtor Detwiler
valuation, the value of the Company's Common Stock is currently $.082
per share, the value of Tytronics Common Stock and Preferred Stock is
$24.44 per share (assuming the conversion of all preferred Stock to
Common Stock), and the value of Nametre Common Stock is $7.31 per
share. The Company expects to enter into a Reorganization Agreement
in connection with the Reorganization which is attached hereto as Exhibit
D and incorporated herein by reference.
The stockholders should be aware that the Company, Tytronics, and
Nametre agreed to accept the valuations determined by Fechtor Detwiler,
subject to the condition that the Fechtor Detwiler valuation would be
updated immediately prior to the consideration of the charter
amendments by the stockholders of the Company. The terms of the
Reorganization were not negotiated, but based entirely on the valuation
of the Company, Nametre and Tytronics determined by Fechtor
Detwiler. The stockholders of the Company should also be aware that
the Company is not required to seek and is not seeking approval of the
stockholders of the Company for the Reorganization under Delaware
law.
The following diagram illustrates the current ownership structure of the
Company and the proposed reorganization:
Current Ownership Structure
Tytronics Incorporated (owns)
69.9% (of)
Holometrix, Inc. (owns)
61% (of)
Nametre
Proposed Reorganization
Tytronics Incorporated
and
Nametre
merged into
Holometrix Acquisition merged into Holometrix, Inc.
Corp. name changed to
Metrisa, Inc.
The following table sets forth the number of shares of the Company's
Common Stock which will be received by a holder of 1,000 shares of
Tytronics and Nametre stock in connection with the Reorganization
based upon the current Fechtor Detwiler valuation and exchange ratios.
No. of Shares
of Holometrix
Name of Number Common Stock
Company of Shares to be Issued
Shares to be to be Exchange in Connection
Exchanged Exchanged(1) Ratio w/the Reorg.
Tytronics 1,000 231.402 231,402
Nametre 1,000 79.807 79,807
______________________
(1) As of March 1, 1998 there were 23,861,878 shares of the
Company's Common Stock issued and outstanding, approximately
76,000 shares (excluding shares owned by Holometrix) of Nametre
Common Stock issued and outstanding and an aggregate of
approximately 166,800 shares of Tytronics Common Stock and Preferred
Stock issued and outstanding.
Valuation and Opinion
The investment banking firm of Fechtor, Detwiler & Co., Inc. ("Fechtor
Detwiler") was retained by Holometrix for purposes of determining the
fair market value of the equity of the Company, Tytronics and Nametre
and to opine on the fairness of the exchange ratios of the capital stock of
the Company, Tytronics and Nametre to be used in connection with the
Reorganization. A committee, chaired by an outside advisor and also
consisting of a member of each of the Boards of Directors of
Holometrix, Tytronics and Nametre was appointed to work with
representatives of Fechtor Detwiler to insure that Fechtor Detwiler had
sufficient information to determine the relative valuations of Holometrix,
Tytronics and Nametre. Fechtor Detwiler is a Boston-based investment
banking firm which has been in existence for over thirty years and
specializes in private placements, public offerings, mergers and
acquisitions and corporate valuations. Fechtor Detwiler was chosen by
Holometrix to undertake the valuations as a result of the Company's
previous valuation engagement of Fechtor Detwiler in connection with a
September 1996 sale of shares of Holometrix Common Stock to
Tytronics. Fechtor Detwiler was paid approximately $15,000 for its
previous engagement by Holometrix and was reimbursed for its related
expenses. Fechtor Detwiler's valuations in connection with the
Reorganization were based on a discounted cash flow analysis and the
average market capitalization of certain comparable companies. Fechtor
Detwiler determined that the fair market value of the consolidated equity
of Tytronics, Holometrix and Nametre was $4,124,000, $1,839,000 and
$1,432,000, respectively. It was also Fechtor Detwiler's opinion that an
exchange ratio of Holometrix Common Stock for Nametre Common
Stock of 79.807, an exchange ratio of Holometrix Common Stock for
Tytronics Common Stock of 231.402 and an exchange ratio of
Holometrix Common Stock for Tytronics Preferred Stock of 254.542
were fair from a financial point of view. The Fechtor Detwiler opinion
letter is attached to this Proxy Statement as Exhibit C.
Fechtor Detwiler has agreed to update its valuation opinion as of the day
immediately preceding the date of the stockholders meeting and if
Fechtor Detwiler determines that the valuations of any of the Company,
Nametre or Tytronics has materially changed from the date of its initial
valuation opinion dated August 28, 1997, the exchange ratios will be
adjusted to reflect such updated valuation report.
In rendering its opinion in regard to the Reorganization, Fechtor
Detwiler (1) reviewed historical financial and business information about
Holometrix, Tytronics and Nametre, (2) visited the Bedford,
Massachusetts facilities of Holometrix and Tytronics, (3) visited the
Metuchen, New Jersey facilities of Nametre (4) met with the
management of Holometrix, Tytronics and Nametre to discuss their
operations, financial condition and future prospects, (5) compared the
market valuations, financial condition and performance of Tytronics and
Nametre with those of other publicly traded comparable companies (the
"Comparable Companies"), (6) conducted discounted future cash flow
analyses of Tytronics and Nametre, (7) reviewed a valuation of
Holometrix as of June 1996, which was conducted by Fechtor Detwiler
in conjunction with the acquisition by Tytronics of six million shares of
Holometrix common stock, and (8) compared the financial condition and
performance of Holometrix in fiscal 1996 to projected fiscal 1997.
Tytronics owns an equity interest in Holometrix, and Holometrix owns
an equity interest in Nametre. In order to conduct its analysis, Fechtor
Detwiler valued each business on a stand-alone basis before taking into
account any cross ownership. In the following discussion, the stand-
alone businesses of Holometrix and Tytronics are referred to as
"Holometrix S.A." and "Tytronics S.A." The following is a summary
of the financial analyses performed by Fechtor Detwiler in connection
with providing its written opinion to Holometrix dated August 28, 1997.
Comparable Companies Analysis: In preparing its opinion for the
proposed Reorganization, Fechtor Detwiler compared certain financial
information of Tytronics S.A. and Nametre with a group of publicly
traded comparable companies in the analytic instrument industry and
related industries that, in Fechtor Detwiler's judgment, were comparable
to Tytronics S.A. and Nametre in products, markets and size. The
Comparable Companies were chosen by Fechtor Detwiler as companies
which possess general business, operational, and financial characteristics
representative of companies in the industry in which Tytronics S.A. and
Nametre operate, although Fechtor Detwiler recognized that each of the
Comparable Companies differs from Tytronics S.A. and Nametre in
certain respects. The Comparable Companies consist of Dionex
Corporation, Engineering Measurements Company, Instron Corporation,
Newport Corporation, and Zygo Corporation. The Comparable
Companies design, develop and market analytical instruments. Dionex
Corporation designs, manufactures, markets and services analytical
instrumentation and related accessories and chemicals. Engineering
Measurements designs, manufactures, and markets electronic and
electro-mechanical instruments (flowmeters) for measuring the flow of
liquids, steam and gases. Instron Corporation designs, develops,
manufactures, markets, and services materials testing systems, software,
and accessories. Newport Corporation designs, manufactures and
markets components, instruments and integrated systems to fiber optic
communications, semiconductor equipment, computer peripherals and
scientific research markets. Zygo Corporation designs, develops,
manufactures and markets high performance noncontact electro-optical
measuring instruments and systems, automation systems, and
components. All of the Comparable Companies have annual revenues of
less than $200 million. One of the Comparable Companies, Engineering
Measurements, has annual revenues of less than $10 million. All of the
comparable companies have greater revenues than Tytronics S.A. or
Nametre. No company utilized as a comparison in the comparable
companies analysis is identical to Tytronics S.A. or Nametre.
The financial information Fechtor Detwiler considered was the most
recent information available to it as of the date of the opinion. The
financial measures considered the harmonic mean and the median values
for each of these measures for the Comparable Companies were as
follows: the multiple of enterprise value to revenues (1.59 harmonic
mean, 1.60 median), the multiple of enterprise value to earnings before
interest and taxes (16 harmonic mean, 15 median), and the multiple of
stock price to trailing twelve months earnings per share (25 harmonic
mean, 23 median). The harmonic mean is the reciprocal of the
arithmetic mean of a
specified set of numbers. The harmonic mean is used to discount
outlying data points when calculating the central tendency of a
population.
Based upon the harmonic mean of the multiples for the Comparable
Companies, Fechtor Detwiler determined a range of fair market values
for the equity of Tytronics S.A. and Nametre, and when appropriate, the
enterprise value, which is the sum of the equity value and the face
amount of debt outstanding. Fechtor Detwiler discounted the harmonic
mean of the multiples by 35 percent to reflect the lack of liquidity for
Tytronics S.A. and Nametre shareholders. Fechtor Detwiler calculated
values based upon multiples of estimated revenues, estimated earnings
before interest and taxes and estimated net income for the fiscal year
ending September 30, 1997. For Tytronics S.A., Fechtor Detwiler
calculated the following values: (1) based upon a multiple of 1.03 times
revenues, enterprise value was $3.54 million and equity value was $3.22
million, (2) based upon a multiple of 10.69 times earnings before
interest and taxes, enterprise value was $3.23 million and equity value
was $2.91 million, and (3) based upon a multiple of 16 times trailing
twelve months net income, equity value was $3.33 million. Fechtor
Detwiler calculated the harmonic mean of the equity values of Tytronics
S.A. as $3.14 million.
For Nametre, Fechtor Detwiler calculated the following values: (1)
based upon a multiple of 0.68 times revenues, enterprise value was
$1.66 million and equity value was $1.54 million, (2) based upon a
multiple of 10.69 times earnings before interest and taxes, enterprise
value was $1.36 million and equity value as $1.23 million, and (3) based
upon a multiple of 16 times trailing twelve months net income, equity
value was $1.52 million. Fechtor Detwiler applied a lower multiple of
revenues to Nametre than to Tytronics S.A. to reflect the consideration
that Nametre had a lower estimated operating profit margin than
Tytronics S.A. in the fiscal year ending September 30, 1997 (5 percent
for Nametre versus 9 percent for Tytronics). Fechtor Detwiler
compared the multiple of revenues for the Comparable Companies to
their respective operating margins and used regression analysis to
determine the appropriate multiple of revenues for Nametre. Fechtor
Detwiler calculated the harmonic mean of the equity values of Nametre
as $1.41 million.
Discounted Cash Flow Analysis: For Holometrix, Tytronics and
Nametre, Fechtor Detwiler examined the gross margin and operating
margin as a percent of revenues, the percent change in revenues on an
annual and quarterly basis, the percent change in net income on an
annual and quarterly basis, the current ratio, the quick ratio, the average
turns of accounts receivable, inventory and accounts payable, the ratio of
liabilities to equity, the total asset turns, and the ratio of operating
earnings to assets. In addition, Fechtor Detwiler performed an analysis
which takes into account the following ratios: working capital divided by
total assets, retained earnings divided by total assets, operating income
divided by total assets, equity divided by total debt, and total revenue
divided by total assets. For Tytronics and Nametre, Fechtor Detwiler
also examined depreciation as a percentage of revenues, net working
capital as a percentage of revenues and capital expenditures as a
percentage of revenues.
Fechtor Detwiler chose a valuation methodology which assumes that the
value of a company's assets is reflected in the earnings and cash flow
those assets generate. To determine the value of these assets, Fechtor
Detwiler capitalized earnings based on multiples provided by the
publicly traded comparable companies. In addition, Fechtor Detwiler
valued the companies using a discounted cash flow analysis which takes
into account projected growth rates. Neither Holometrix, Tytronics or
Nametre pays dividends. The discounted cash flow analysis values
future cash flows, which could be retained as earnings or paid out to
shareholders as dividends.
The management of Tytronics and Nametre provided Fechtor Detwiler
with annual forecasts of revenues and earnings before interest and taxes
through fiscal 2002. Fechtor Detwiler calculated projected annual cash
flows by adding depreciation and subtracting capital
expenditures and changes in working capital from management's
projections of earnings before interest and taxes. Based upon its review
of Tytronics S.A.'s financial results in 1994, 1995 and 1996, Fechtor
Detwiler estimated the cash flow adjustments as follows: depreciation as
1.7 percent of projected revenues, changes in working capital as 1.3
percent of projected revenues and capital expenditures as 2.0 percent of
projected revenues. Based upon its review of Nametre's financial results
in 1994, 1995 and 1996, Fechtor Detwiler estimated the cash flow
adjustments as follows: depreciation as 1.0 percent of projected
revenues, changes in working capital as 0.5 percent of projected
revenues and capital expenditures as 0.7 percent of projected revenues.
Fechtor Detwiler used a discount rate of 22.54 percent to calculate the
present value of projected cash flows for Tytronics S.A. and Nametre.
This discount rate was based upon a risk free (30 year Treasury) rate of
6.54 percent plus a 16 percent risk premium. Fechtor Detwiler chose a
risk premium which, in Fechtor Detwiler's opinion, reflected the
competitiveness of the industry, the depth of management of Tytronics
and Nametre and the past financial performance of both companies.
Based upon its discounted cash flow analysis, Fechtor Detwiler
calculated the following values for Tytronics S.A. and Nametre:
Tytronics S.A. enterprise value was $2.97 million, Tytronics S.A.
equity value was $2.65 million, Nametre enterprise value was $1.58
million, and Nametre equity value was $1.45 million.
Range of values: Fechtor Detwiler determined equity values for
Tytronics S.A. of $3.14 million based upon the Comparable Companies
and $2.65 million based upon a discounted cash flow analysis. Fechtor
Detwiler determined equity values for Nametre of $1.41 million based
upon the Comparable Companies and $1.45 million based upon a
discounted cash flow analysis. Fechtor Detwiler calculated the average
equity values as $2.89 million for Tytronics S.A. and $1.43 million for
Nametre.
Valuation of Holometrix S.A.: In June 1996, Tytronics acquired 6
million shares of Holometrix in a transaction (the "Tytronics
Investment") which valued the equity of Holometrix after the Tytronics
Investment at $1.07 million. In September 1996, Fechtor Detwiler
provided a fairness opinion to Holometrix in conjunction with the
Tytronics Investment. Fechtor Detwiler's opinion was based upon a
review of publicly traded comparable companies (Instron Corporation,
Newport Corporation, Zygo Corporation, Dionex Corporation and
National Technical Systems, Inc.) and a discounted cash flow analysis.
Based upon Holometrix S.A.'s financial performance and condition in
fiscal 1997, it was Fechtor Detwiler's opinion that the Tytronics
Investment provided a more meaningful estimate of value in 1997 than
the multiples of the Comparable Companies or a discounted cash flow
analysis. Fechtor Detwiler concluded that the public market for
Holometrix stock was too thinly traded to provide an accurate measure
of value. Fechtor Detwiler took into consideration the number of market
makers in Holometrix stock, the historical trading volume, and the
variability in prices at which sales occurred. Fechtor Detwiler noted that
in June 1997, Holometrix S.A. reported negative earnings before interest
and taxes, negative net income, negative net working capital and
negative retained earnings. In Fechtor Detwiler's opinion, the value of
Holometrix S.A. declined approximately 10 percent in 1997 to $963
thousand from the value confirmed in Fechtor Detwiler's 1996 fairness
opinion to Holometrix.
Exchange Ratios: Based upon its opinion of the fair market values of the
equity of Holometrix S.A., Tytronics S.A. and Nametre, Fechtor
Detwiler calculated the value of each company as the sum of (a) its value
as a stand-alone business plus (b) the value of its equity interest in
another company, if any.
Fechtor Detwiler calculated the equity value of Holometrix ($1.84
million) as the equity value of Holometrix S.A. ($963 thousand) plus the
product of the equity value of Nametre ($1.43 million) times
Holometrix's diluted equity interest in Nametre (61.2 percent). Fechtor
Detwiler calculated the equity value of Tytronics ($4.12 million) as the
equity value of Tytronics S.A. ($2.89 million) plus the product of the
equity value of Holometrix ($1.84 million) times Tytronics' diluted
equity interest in Holometrix (66.9 percent). Nametre does not own
interests in Holometrix or Tytronics. Fechtor Detwiler calculated the
equity value of Nametre as $1.43 million.
Fechtor Detwiler calculated the primary values per share of Holometrix,
Tytronics and Nametre as $0.082, $24.44 and $7.31 respectively.
Fechtor Detwiler determined the diluted shares outstanding for each
entity by comparing the exercise price of options and warrants to the
primary value per share and adding in-the-money options and warrants to
the primary shares outstanding. Fechtor Detwiler calculated the diluted
values per share of Holometrix, Tytronics and Nametre as $0.077,
$17.72, and $6.11 respectively. In the case of Tytronics, Fechtor
Detwiler adjusted the number of primary and diluted shares outstanding
to reflect a private placement by Tytronics in September 1997 which
raised $687 thousand.
Fechtor Detwiler determined the exchange ratios on the basis of the
diluted value per share of Holometrix relative to the diluted values per
share of Nametre and Tytronics. In its determination of the exchange
ratio for Tytronics Preferred Stock, Fechtor Detwiler assigned a 10
percent premium to the value of preferred stock which has a liquidation
preference over the common stock. Fechtor Detwiler determined the
following exchange ratios: Holometrix common for Tytronics common
(231.402), Holometrix common for Tytronics preferred (254.542), and
Holometrix common for Nametre common (79.807).
Board of Directors Determination
During fiscal 1992 and 1993, the Company sustained significant losses
with resultant cash flow problems. As a result, the Company made a
decision to begin exploring strategic relationships with other companies
as a means of achieving corporate stability. In connection with this
decision, the Company entered into discussions with Tytronics. In
November 1994, Tytronics acquired approximately 53% of the shares of
the Company's outstanding voting securities from former Company
stockholders. In response to the Company's continued efforts to return
to financial stability, the Company, effective September 30, 1996,
acquired a majority of the outstanding capital stock of Nametre. The
Company raised the funds to acquire the shares from Nametre by issuing
6,000,000 shares of the Company's Common Stock to Tytronics at a
purchase price of $.05 per share. In connection with the development of
a strategic plan for the future operation of the Company, the Company's
Board of Directors appointed a committee at its November 7, 1996
meeting to review the Company's operations and organizational and
management structure and make recommendations to the Board of
Directors concerning any desirable changes. In response to the
committee's report, the Board of Directors concluded that the
Company's continued viability depended upon cost savings associated
with combining operations, distribution of products and financing with
other instrument companies in the test industry. The Company had
preliminary conversations or held informal discussions with two
instrument companies in the Fall of 1996 and the Summer of 1997
(Anter Corp. and Lasercorp.), and three thermal testing companies in the
Spring and Summer of 1997 (Cincinnati Testing Labs, Precision
Measurement & Instrument Co. and Research Opportunities, Inc.). The
Company also attempted to obtain institutional and venture capital
financing during 1996 and 1997. The Company's discussions with
potential strategic partners were not successful primarily as a result of
the size of the Company, its lack of sufficient and sustained profitability
and the perception that its market did not offer significant growth
opportunities. Institutional and venture capital financing sources rejected
the Company's financing proposals, largely as a result of limited growth
prospects, lack of profitability and a perception that the Company's
ownership structure with Nametre and Tytronics was confusing and a
hinderance to its long term growth. As a result of these discussions, the
Board of Directors considered the Company's marginal financial
performance, including a significant operating loss for the fiscal period
ended June 30, 1997, the inability of the Company to attract strategic
partners on favorable financial terms, the limited size of the Company's
markets and the strategic synergy between the Company, Nametre and
Tytronics in terms of operations, products and distribution channels in
deciding to pursue a reorganization with Nametre and Tytronics. The
Board of Directors also considered possible benefits from remaining
independent of Nametre and Tytronics as well as other entities, but
determined that it was not feasible for the Company to remain financially
viable without pursuing the strategic benefits inherent in the
Reorganization. The Board of Directors also discussed the effect of the
Reorganization on the non-affiliated stockholders of the Company. It
was noted that the post Reorganization ownership structure of the
Company would result in ownership dilution to the non-affiliated
stockholders. It was noted, however, that the current ownership
structure provided insignificant control to the non-affiliated stockholders
of the Company. The Board of Directors did not consider any other
disadvantages to the Reorganization and, except as described above, the
Board of Directors did not consider any other alternative to the
Reorganization or any other factors in deciding to approve the
Reorganization. The Company engaged Fechtor Detwiler at its June 26,
1997 Board of Directors meeting to ensure fairness to all stockholders of
the Company in connection with the Reorganization by conducting a full
valuation of the business of the Company, Tytronics and Nametre. At
the June 26th meeting, the Board of Directors of the Company also
approved the appointment of a committee consisting of a representative
of each of the Company, Tytronics and Nametre to meet with Fechtor
Detwiler to provide full disclosure of all financial information and
operational data necessary for the Fechtor Detwiler valuation. Members
of the committee met with Fechtor Detwiler during the summer of 1997
and furnished Fechtor Detwiler information concerning the Company,
Tytronics and Nametre, including historical financial data and operating
budgets through fiscal 1997 and fiscal year forecasts through September
2002. Following the receipt of the Fechtor Detwiler valuation opinion
dated August 28, 1997, the Board of Directors, at a meeting held on
August 28, 1997, unanimously approved (with the abstention of those
directors who were also directors of Tytronics or Nametre) the
Reorganization and the Fechtor Detwiler valuation and exchange ratios.
The Board of Directors did not give any special consideration to the
officers, directors and affiliates of the Company in connection with the
Reorganization transaction. The Board of Directors also determined that
the consideration to be paid by the Company in connection with the
Reorganization is fair to the unaffiliated stockholders of the Company.
See "Events Leading up to the Reorganization".
The Board of Directors determined that based on the entirety of the
factors considered, the Reorganization was in the best interest of the
Company.
Reasons for the Reorganization
The Board of Directors believes that the Reorganization of Holometrix,
its majority owned subsidiary Nametre, and its majority owner Tytronics
will lead to greater economies of scale and to increased management and
operating efficiencies by combining certain operating and management
functions previously conducted separately. In particular, the Board of
Directors believes that the Reorganization will lead to expansion of
distribution capabilities and a reduction in the costs of marketing, sales
and service as a percentage of sales through increased volume and
operational consolidation. The Company expects to expand its
distribution capabilities and decrease its sales and marketing costs as a
percentage of sales by consolidating its distribution network into a single
network for distribution of the products of each of the companies. The
Company believes that this will increase the combined companies'
importance to each distributor, thus giving them greater incentive to
increase sales. The Company also expects to consolidate sales and
distribution under a single management team to further reduce
sales and marketing costs as a percentage of sales. The Company
believes that it can achieve a further reduction in costs through
operational consolidation of finance, administration and purchasing. The
consolidation of finance and administration will allow a reduction in
such costs as property insurance, telecommunication expenses and
auditing costs. Consolidation of purchasing should also allow the
Company to achieve further cost reductions through volume purchases
and the consolidation of suppliers, including the purchase of parts
needed for the manufacture and assembly of its instrumentation products.
Finally, the Company believes that the Reorganization may lead to
greater recognition by the Company's customers and the business
community and provide the Company with greater financial stability by
combining with companies which have greater financial resources than
that of the Company.
Accounting Treatment
For accounting purposes, Tytronics is deemed to be the acquiring entity.
Prior to the Reorganization, Tytronics controlled Holometrix by holding
a majority ownership interest in Holometrix. After the Reorganization,
Tytronics stockholders will continue to hold a majority interest in the
surviving entity, therefore, the accounting for the Reorganization is
similar to the accounting for the acquisition of a minority interest.
Accordingly, the Reorganization will be accounted for as a
recapitalization of Tytronics and the acquisition by Tytronics of the
minority interests of Holometrix and Nametre under the purchase
method of accounting in accordance with Accounting Principles Board
Opinion No. 16 Business Combinations. At the closing date, the
financial statements will reflect the acquisition by Tytronics of the
minority interests of Holometrix and Nametre through the issuance of
approximately 45,000,000 common shares based on an independent
valuation of Tytronics, Nametre and Holometrix by Fechtor Detwiler
investment bankers.
Representatives of the Company's principal accountants, BDO Seidman,
LLP are not expected to be present at the Stockholders' meeting.
Certain Federal Income Tax Consequences.
The Reorganization will have no federal income tax consequences for the
Company's Stockholders. The Company has been advised by its legal
counsel that there will be no material adverse tax consequences to the
Company resulting from the Reorganization. The Company, however,
has not obtained a written legal opinion concerning the tax consequences
of the Reorganization.
Regulatory Requirements
There are no federal or state regulatory requirements or approvals which
must be obtained by the Company, Nametre or Tytronics in connection
with the proposed Reorganization.
Risk Factors
The following factors, in addition to those discussed elsewhere, should
be carefully considered in evaluating the proposal to increase the number
of shares of the Company's authorized Common Stock and the
operations of the combined companies after the Reorganization.
Minimal Revenues and Lack of Profits. The Company had revenues of
$2,105,000, $2,201,000 and $4,529,000 (consolidated with Nametre)
and net income (losses) of $12,000, $4,000 and $(212,000) respectively,
for fiscal years ended September 30, 1995, 1996 and 1997. Tytronics
had revenues of $2,775,000, $3,413,000 and $3,448,000 and net income
of $142,000, $120,000 and $245,000, respectively, for fiscal years
ended September 30, 1995, 1996 and 1997 and Nametre had revenues of
$2,452,000 and net income of $95,000 for fiscal year ended
September 30, 1997. There can be no assurance that economies
anticipated to occur because of the Reorganization will be achieved, that
future revenues of Holometrix from product sales following the
Reorganization will increase, or that Holometrix will be profitable. See
"The Reorganization - Reasons for the Reorganization."
Technological Obsolescence. The technological fields in which the
Company, Tytronics and Nametre operate are evolving and are expected
to continue to undergo rapid and significant change. Many corporations
and other entities, some with considerably more resources than the
Company, Tytronics and Nametre are expected to have, have exerted
and are expected to continue to exert extensive research and development
efforts which are likely to yield discoveries and result in the introduction
of new products. There can be no assurance that the discoveries and the
products introduced by others will not render the Company's, Nametre's
or Tytronics' programs superfluous or its products uneconomical or
obsolete.
Risks Associated with Acquisitions. The Company's future growth will
depend in large part on its ability to manage expansion, control costs in
its operations and consolidate future acquisitions into the Company's
operational structure. This strategy will entail reviewing and potentially
reorganizing possible acquisition candidates. Unforeseen expenses,
difficulties, complications and delays frequently encountered in
connection with the rapid expansion of operations could inhibit the
Company's growth. There can be no assurance that the Company will
identify appropriate acquisition candidates that would result in the most
successful combinations or that acquisitions will be able to be
consummated on acceptable terms. The magnitude, timing and nature of
future acquisitions will depend upon various factors including the
availability of suitable acquisition candidates, negotiation of acceptable
terms, the Company's financial capabilities, the ability of skilled
employees to manage the acquired companies and general economic and
business conditions.
Capital Requirements. The Company will require substantial additional
capital in order to implement its acquisition strategy. Such capital might
be raised through public or private financings as well as from
borrowings and other sources. The Company does not have any
commitments with respect to acquisition financing, and there can be no
assurance that additional or sufficient financing will be available, or if
available, that it will be available on acceptable terms.
Dependence on Key Personnel. The Company believes that its success
will depend, to a significant extent, on the efforts and abilities of the
executive management of the Company. The loss of the services of one
or more of these key employees would have a material adverse effect on
the Company. The Company's business will also be dependant upon its
ability to continue to attract and retain qualified personnel, including key
management, in connection with future acquisitions.
Competition. The test instrument manufacturing and contract test
services businesses are highly competitive with respect to price and
service. The Company competes with numerous competitors, many of
which have large and significant financial and marketing resources.
Control by Affiliates. Upon consummation of the Reorganization, the
officers, directors and affiliates of the Company will own approximately
87% of the outstanding Common Stock of the Company. As a result,
such persons will have the ability to control the Company and direct its
affairs and business and could have the effect of delaying or preventing a
change in control of the Company.
Shares Eligible for Future Sale. Following the effectiveness of the
Reorganization and the reverse stock split, the Company will have
outstanding approximately 1,040,000 shares of Common Stock and will
have reserved approximately 543,000 shares of Common Stock for
issuance upon exercise of then outstanding options and warrants. Of the
1,040,000 shares of then outstanding Common Stock, 135,000 shares
will be available for sale in the public market without restriction and the
remaining shares will become eligible for sale under Rule 144 at various
dates thereafter as the holding periods of Rule 144 are satisfied. Sales of
substantial amounts of Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices of the
Common Stock.
No Current Market for the Common Stock. There is presently no
established public market for securities of the Company. There can be
no assurance that an active public market for the Common Stock will be
developed or be sustained after the Reorganization and the Reverse Stock
split.
Risk of Low Price; "Penny Stock" Regulations. The Company's securities are
currently subject to Rule 15g-9 under the Securities Exchange Act of 1934
(the "Exchange Act"), which imposes additional sales practice requirements
and broker-dealers that sell these securities, except in transactions
exempted by Rule 15g-9, including transactions meeting the requirements of
Rules 505 or 506 of Regulation D under the Securities Act, and transactions
in which the purchaser is an institutional accredited investor (as defined)
or an established customer (as defined) of the broker-dealer. For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, this rule
may affect the ability and/or willingness of broker-dealers to sell the
Company's securities and may affect the ability of the recipients of the
Company's securities in connection with the Reorganization to sell any of the
securities acquired in the secondary market.
The Commission has also adopted regulations which define a "penny stock" to
be any equity security that has a market price (as therein defined) of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exemptions. Unless exempt, the rules require the
delivery, prior to any transactions in a penny stock, of a disclosure
schedule prepared by the Commission relating to the penny stock market.
Disclosure has to be made about commissions payable to both the broker-dealer
and the registered representative and about current quotations for the
securities. Finally, monthly statements have to be sent, disclosing recent
price information for the penny stock held in the account and information on
the limited market in penny stocks. The foregoing penny stock restrictions
will not apply to the Company's securities if those securities are listed on
the Nasdaq Small Cap(TM) market and have certain price and volume information
provided on a current and continuing basis or if the Company meets certain
minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company were exempt from these
restrictions, it would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the Commission the authority to prohibit any person that is
engaged in unlawful conduct while participating in a distribution of penny
stock from associating with a broker-dealer or participating in a distribution
of penny stock, if the Commission finds that a restriction would be in the
public interest. If the Company's securities were subject to the rules on
penny stocks, the price of and market liquidity for the Company's securities
would be severely adversely affected.
Interests of Officers and Directors in Connection With the
Reorganization
John E. Wolfe and Joseph J. Caruso, Directors of the Company are also
Directors of Nametre. Mr. Wolfe is also President of the Company and
Tytronics. In addition, Edward J. Stewart, a former Director of the
Company, and Messrs. Caruso and Wolfe are Directors of Tytronics.
Mr. Caruso, as President of Bantam Group, Inc. ("Bantam") has sole
voting and investment power with respect to the 1,435,000 shares of
Common Stock of the Company and the 17,500 shares of Common
Stock of Nametre beneficially owned by Bantam and is the beneficial
owner of 16,000 shares of the Common Stock of Tytronics. Joaquim
S.S. Ribeiro, a Director of the Company, is the beneficial owner of
1,708 shares of Tytronics Preferred Stock and 6,000 shares
of Common Stock. Mr. Wolfe has an option to purchase 200,000 shares
of the Company's Common Stock at an exercise price of $.03 per share
and is the beneficial owner of 34,814 shares of the Common Stock and
1,708 shares of the Preferred Stock of Tytronics. Mr. Stewart is the
beneficial owner of 26,500 shares of Tytronics Common Stock. As
indicated in the tables below, the Company's directors, officers and 5%
stockholders will receive certain benefits in connection with the
Reorganization resulting from the conversion of their Tytronics and
Nametre capital stock and their options and warrants to purchase capital
stock in Tytronics and Nametre into shares of, and options and warrants
to purchase shares of, the Company's Common Stock. The Company's
officers, directors and affiliates will not receive any other benefits in
connection with the Reorganization. No options or warrants were
granted in anticipation of the Reorganization by either Nametre or
Tytronics and all currently outstanding options and warrants will
continue to vest on the same terms and conditions following the
effectiveness of the Reorganization.
The following table sets forth as of March 1, 1998 the beneficial
ownership of outstanding shares of Tytronics Preferred Stock and
Common Stock and Nametre Common Stock (excluding options and
warrants to purchase such capital stock) by each person who is known by
the Company to own of record or beneficially more than 5% of the
outstanding shares of the Company's Common Stock and each of the
Company's directors and executive officers and the number of shares of
Holometrix Common Stock to be received by each such holder in
connection with the Reorganization.
Shares Shares Shares
Tytronics Nametre Holometrix
Name of Beneficially Beneficially to be Rec'd
Beneficial Owned Prior Owned Prior in connection
Owner to Reorg.1 to Reorg.2 w/Reorg.
John E. Wolf 30,208 0 7,029,715
Joaquim Ribeiro 4,708 0 1,128,964
Joseph J. Caruso 5,000 2,500 1,356,527
___________________________
1 Excludes shares subject to options and
warrants to purchase Tytronics Preferred and Common Stock which are
listed in the table below.
2 Excludes options and warrants to purchase
shares of Nametre Common Stock which is described below.
The following table sets forth as of March 1, 1998 the number of
options and warrants to purchase Tytronics Preferred Stock and
Common Stock owned by each person who is known by the Company to
own of record or beneficially more than 5% of the outstanding shares of
the Company's Common Stock, and each of the Company's directors
and executive officers and the number of options and warrants to
purchase shares of the Company's Common Stock and the related
exercise prices which will be received by each such holder in connection
with the Reorganization.
Number of
Holometrix
Options and
Number of Exercise Warrants to Exercise
Name of Tytronics Price be Rec'd in Price
Beneficial Options or Pre- Connection Post-
Owner Warrants Reorg. w/Reorg. Reorg.
John E. Wolf 1,800 $ 7.50 416,523 $0.032
1,200 $ 8.25 277,682 $0.036
314 $17.27 72,660 $0.075
3,000 $22.50 694,206 $0.097
Joaquim Ribeiro 3,000 $22.50 694,206 $0.097
Joseph J. Caruso 3,000 $22.50 694,206 $0.097
4,000 $ 6.00 925,607 $0.026
4,000 $ 8.25 925,607 $0.036
Joseph J. Caruso is also the beneficial owner of warrants to purchase
10,000 and 5,000 shares of Nametre Common Stock at exercise prices of
$3.00 and $6.00 per share, respectively, which will be converted into
warrants to purchase 798,067 shares and 399,033 shares of the
Company's Common Stock at exercise prices of $.038 and $.075
respectively in connection with the Reorganization. None of the
Company's other directors, executive officers or 5% stockholders holds
options or warrants to purchase shares of Nametre's capital stock.
Effects of the Reorganization on the Company's Unaffiliated
Stockholders
Following the Reorganization, the shares of the Company's Common
Stock owned by stockholders who are not directors, officers or affiliates
of the Company will be reduced from approximately 23% to
approximately 13%. As a result, following the Reorganization, the
Company's unaffiliated stockholders will experience dilution of their
ownership of the Company's capital stock and will, as a result, have less
voting control over the operations of the Company. The stockholders of
the Company should also be aware that if the proposal to increase the
authorized shares of the Company's Common Stock is approved,
additional shares of the Company's Common Stock will be available to
the Board of Directors without further stockholder approval for general
corporate purposes, including as consideration for acquisitions by the
Company, for use in raising additional equity capital and for reservation
for issuance upon exercise of current and future employee stock options.
The Company has no present intention of registering the shares of
Common Stock reserved for issuance upon exercise of current and future
employee stock options.
Existing Agreements and Arrangements between the Company,
Tytronics and Nametre
Effective September 30, 1996, the Company acquired 120,000 shares of
Nametre Common Stock for cash of $225,000, notes payable of $75,000
and acquisition costs. The Company raised the funds necessary to
acquire its interest in Nametre by issuing 6,000,000 shares of the
Company's Common Stock to Tytronics at a purchase price of $.05 per
share.
The Company and Tytronics share operating facilities at 25 Wiggins
Avenue, Bedford, Massachusetts. The Company and Tytronics allocate
rental expense associated with the facility based on the square footage
occupied by each company. This arrangement currently results in the
payment by Tytronics to the Company of approximately $3,000 per
month for the occupancy by Tytronics of a portion of the Company's
leased facilities. The Company and
Tytronics also share operating and administrative costs based on
estimated usage. During the fiscal years ended September 30, 1996 and
1995 and for the nine month period ended June 30, 1997, this informal
agreement resulted in the payment of approximately $80,000, $68,000
and $43,000, respectively, by the Company to Tytronics for such
operating and administrative costs.
During the current fiscal year and the fiscal year ended September 30,
1997, the Company and Tytronics were also parties to various informal
working capital agreements pursuant to which Tytronics provided
working capital financing to the Company on a short-term basis. These
advances are payable on demand with 10% interest. As of September
30, 1997, $100,000 was due to Tytronics by the Company under these
arrangements. During fiscal year 1996 and 1995, the Company
borrowed an aggregate of $130,000 and $111,000, including interest,
from Tytronics under these arrangements. Also during fiscal year 1996,
the Company restructured its existing debt to Tytronics by extending the
due date for an aggregate of $155,000 of existing debt in exchange for
the issuance of warrants to Tytronics to purchase 1,000,000 and
1,100,000 shares of the Company's Common Stock at warrant exercise
price of $.10 and $.05 per share, respectively.
In July of 1997, Tytronics entered into a $1,000,000 Line of Credit
Agreement and a $500,000 Term Loan Agreement with Silicon Valley
Bank secured by substantially all of the assets of the Company, Nametre
and Tytronics. As of June 30, 1997, Tytronics' borrowings under its
prior loan agreements with Silicon Valley Bank were $284,000.00.
Effective Date
The effective date for the Reorganization, assuming the approval of the
Nametre and Tytronics stockholders and the approval of the proposed
amendment to the Company's Certificate of Incorporation, as amended,
will be April 30, 1998.
Other Corporate Purposes
The Board of Directors also recommends increasing the number of
authorized shares of Common Stock to 100,000,000 to provide
additional shares for other corporate purposes in addition to those shares
which will be issued in connection with the Reorganization. These
additional shares would be available for issuance at the discretion of the
Board of Directors in connection with acquisitions, efforts to raise
capital for the Company, employee stock options and other corporate
purposes. The Company has no present intention of registering the
shares of Common Stock reserved for issuance upon exercise of current
and future employee stock options. Increasing the number of authorized
shares will provide the Company with additional flexibility to pursue
acquisitions which the Board believes provide the potential for growth
and scale without the delay and uncertainties occasioned by the need to
obtain stockholder approval prior to the consummation of the
transaction. Although the Board has no current plans to effect such
actions, the additional authorized shares also would be available to raise
cash assets through sales of stock to public and private investors.
Furthermore, having such additional shares authorized and available for
issuance or reservation will provide the Company with greater flexibility
in implementing potential future actions involving the issuance of stock.
The ability to issue shares, as deemed in the best interests of the
Company by the Board, will also permit the Company to avoid the
expenses which are incurred in holding special stockholders' meetings in
the future. Increasing the number of authorized shares will not
materially affect any substantive rights, powers or privileges of current
Company stockholders. Additional shares of Common Stock will be
issued only upon a determination of the Board of Directors that a
proposed issuance is in the best interests of the Company.
BUSINESS OF THE COMPANY
Holometrix, Inc. (the "Company") is a product development,
manufacturing and contract test services company which specializes in
manufacturing instruments and providing contract test services for
measuring the thermophysical properties of a wide variety of materials.
The Company's Instruments Division currently designs, manufactures
and distributes five product lines, containing sixteen models, which
measure thermophysical (temperature) properties. The Company's
Testing Services Division provides contract test and engineering services
to evaluate a number of temperature-related performance factors of
virtually any material. The Testing Services Division also performs
mechanical and physical properties testing. The Company's principal
offices are located at 25 Wiggins Avenue, Bedford, Massachusetts
01730-2323; its telephone number is (781) 275-3300 and its facsimile
number is (781) 275-3705. The Company is a Delaware corporation
which was incorporated on October 23, 1985.
Holometrix Instruments Division
The Company engages in the development, production and distribution
of instruments under the tradename "Thermatest". The Instruments
Division currently designs, manufactures and markets instruments that
measure the thermophysical properties of a broad range of materials for
research, product development and quality-control applications.
Information about thermophysical properties is used to quantify the
performance, quality, and/or composition of various materials such as
insulation, composites, plastics, and ceramics. In addition to their
importance in advanced materials development, the Company's
instruments are used as research tools to address worldwide
environmental issues, including energy conservation, plastics recycling
and nuclear waste disposal.
Holometrix has over 30 years of experience in thermophysical
(temperature) properties testing. The basic technology underlying the
Company's Thermatest instruments is the application of heat energy to a
material under test and the measurement of the results of such an
application. The precise measurements and the containment of heat,
combined with equally precise temperature measurement and control, are
key elements in the design of nearly all of the Division's products.
Many instruments encompass microprocessor-controlled data collection
and analysis, resulting in the fully automated calculation of material
properties, such as thermal conductivity and specific heat. The nature of
heat transfer through a material, resulting from the application of
energy, varies depending on the material's type and composition.
Therefore, a different methodology is required to test different types of
material. The Company manufactures various instruments incorporating
these different methodologies.
The five Thermatest product lines consist of sixteen instrument models,
plus Holometrix' proprietary Q-Lab automation software. Ongoing
development efforts have resulted in new instrument products that are
fully automated, incorporating either PC interface, or internal
microprocessors. Revenues are also derived from service and spare
parts. No single instrument manufactured by the Holometrix
Instruments Division currently accounts for more than 25% of total
revenues.
Holometrix Products
Heat Flow Meters (Lambda 2000 Series, Rapid-k VT-400)
The Heat Flow Meter technique is an easy and
rapid method for testing the thermal
conductivity and thermal resistance (R-value) of
insulation. This type of instrument is widely
used in both the quality control testing and the
development of insulation products. Industry-
wide acceptance of this technique as a reliable
and accurate procedure has made it the most
commonly used test method for both research
and
- 25 -<PAGE>
development and quality control applications.
Federal trade rules require insulation
manufacturers to measure the thermal resistance
(R Value) by the heat flow meter method, or
similar techniques, as part of the procedure for
labeling their products. Cellular foam
insulation manufacturers, who are required to
eliminate ozone depleting chlorinated
fluorocarbons from their products, use these
instruments to evaluate the effectiveness of
replacement blowing agents. In 1996
Holometrix introduced the new Lambda 2000
Series of heat flow meter products. These
instruments contain an advanced
instrumentation and control concept for which a
patent is pending.
Guarded Heat Flow Meters (TCA-200, TCA-
200-LT and TCA-300)
The Guarded Heat Flow meter method permits
the testing of moderate conductivity materials.
Customers use these instruments to establish
safe operating temperatures and thermal
efficiency of products ranging from electronic
and semiconductor components to adhesives,
and for heat transfer modeling of many
industrial processes, including injection molding
of polymers. Thermal conductivity data from
these instruments is important to the plastics,
electronics, automotive, aerospace and food
processing industries. The instruments can test
solid and thin film materials and special test
cells are available for testing polymers and
highly viscous fluids through the melt. Test
materials include rubber, plastic, composites,
epoxy, ceramics, paper products, greases and
pastes.
Guarded Hot Plates (GBP-200, GBP-300, GBP-
450 and GBP-600)
These instruments are used primarily as
research tools to measure thermal conductivity
in porous and solid materials over a wide range
of temperatures, environmental conditions and
material types. This technique is used to
measure materials from cryogenic (very cold) to
very high temperatures. The measuring process
is reliable, simple and accurate and requires no
pre-test calibration by the user. Varying
degrees of automation are available to meet a
range of budgets and provide for unattended
operation.
Comparative Instrument (COM-800)
The comparative technique utilizes known
properties of reference materials to measure
heat flow. It is a convenient, flexible system
which measures the thermal conductivity of a
variety of solid materials over a broad range of
temperatures and environmental conditions.
Materials which can be tested include ceramics,
composites, metals, metal alloys, filled plastics
and epoxies, geological materials, and carbon
products. A special sample holder is also
available for testing liquids and pastes.
Laserflash Instruments (Thermaflash 2200,
1100 and Microflash, 300)
These instruments utilize a sophisticated, high-
performance Laser Flash Thermal Diffusivity
(speed of heat through material) (LFTD)
technique to measure both thermal diffusivity
and specific heat from -170 C to 2000 C. Test
samples are illuminated uniformly on one
surface by a laser beam pulse, and the
temperature rise of the opposite surface is
measured and used to calculate thermal
diffusivity. Data from these instruments are
used by customers to determine safe operating
temperatures, quality assurance, design and
process control for composition, molding,
heating or cooling rates, and thermal
performance analysis. The laserflash technique
not only provides important information on
transient heat flow, but also allows testing of
small samples at high temperatures. Typical
test materials include ceramics, coatings,
composites, polymers, metals and alloys.
- 26 -<PAGE>
The Thermaflash 2200 and 1100 operate up to
2000 C and 1100 C, respectively. The
Microflash, is used for applications with a
lower temperature requirement and for
customers with limited capital equipment
budgets. Typical applications include the
characterization of materials for electronic and
semiconductor material design and
manufacturing.
Holometrix Testing Services Division
The Testing Services Division maintains a thermophysics laboratory,
which provides contract test and engineering services to evaluate various
temperature-related performance factors of virtually any material.
Testing is generally performed to ASTM (American Society of Testing
and Materials) standards. In addition, insulation testing is provided
under NVLAP accreditation. NVLAP (the National Voluntary
Laboratory Accreditation Program) is supported by the National Institute
of Standards and Technology. The Division also demonstrates the
capabilities of Thermatest instruments to potential customers, provides
significant input to outside technology steering groups which establish
the standards for industry instrument utilization, and provides valuable
technical and marketing input for product development. The Division's
experience and capabilities cover a broad scope of temperature range,
environmental conditions, sample size and property magnitude.
The Division's testing capabilities complement customer research and
product development activities. Thermophysical testing of materials is
not a routine capability and competence for most material development
departments. Thus, testing service customers tend to be repeat
customers who use the Division as a complement to their capabilities.
In addition to thermophysical testing of materials, the Division also
offers selected mechanical and moisture testing of materials. The
Division also maintains the capability to test entire wall sections built to
specification in support of the building and construction industry. This
type of testing helps evaluate the performance, under simulated
environmental conditions, of advanced construction techniques, and new
insulating and moisture barrier materials.
The end result of most Division projects is a technical report, usually
containing experimental data resulting from work carried out in a
laboratory setting. Projects lacking a large engineering component are
termed standard testing programs when the work can be performed on
existing equipment using established techniques. Non-standard testing
programs (in some cases more appropriately termed engineering
development programs) differ in that they may involve the creation of a
special apparatus, modification of existing equipment, or development of
new procedures. The majority of programs conducted in the Division
are standard testing programs.
Research and development programs, on the other hand, go beyond the
generation of data to analyze results, draw conclusions and make
recommendations. Alternately, they may involve literature searches,
material assessments, engineering studies or special instrument design.
These programs are generally higher value and run longer than testing
programs. As an example, Holometrix has provided testing services to
the Department of Energy (DOE) for a number of years for the purpose
of evaluating the thermal characteristics of Yucca Mountain, a proposed
nuclear waste repository.
Holometrix' Markets
Holometrix' thermophysical instruments are sold primarily to materials
laboratories engaged in the development and testing of insulations,
building materials, advanced engineered materials, plastics and
packaging manufacturers, aerospace manufacturers and government
laboratories. A number of instruments are also sold to insulation
manufacturing facilities. Management believes
- 27 -<PAGE>
(based on its internal calculations of the sales of companies that it has
identified as competitors) that current markets for thermal conductivity
instruments and testing services total approximately $10 - $15 million
annually. The Company has identified engineered materials, electronics
and specialty plastics industries as promising markets for the
instruments. The Company markets its products and services in the U.S.
and internationally through the combination of a direct sales force and a
network of independent distributors and sales agents. The Company
actively advertises its products in industry trade journals and also attends
various U.S. and international trade shows to promote its products and
services.
Current products and test services are sold in North America directly
from the Company's offices in Bedford, Massachusetts. Domestic sales
amounted to 69% of total revenue for fiscal year 1997. Domestic sales
and marketing are handled in-house by a staff of two professionals and
an administrator. Overseas sales (primarily to Europe and the Far East)
are made through independent distributors and sales agents. In addition
to the internal sales force, testing services are sold by individual project
managers responsible for specific testing areas. Product visibility is
maintained through active participation in national and international trade
organizations, including the American Society of Testing and Materials
(ASTM). Additional visibility is maintained through advertising,
exhibitions, informational mailings, technical application notes and
customer demonstrations.
In fiscal 1997, overseas sales accounted for approximately 31% of total
sales, compared to 29% in fiscal 1996.
In order to expand its market presence and build revenue, the Company
is exploring a variety of alternatives, falling into four primary
categories:
1.) Enhanced Marketing and Sales Efforts. The
Company is investing additional resources,
including new personnel, to expand its
worldwide marketing and selling effectiveness.
Specific examples include improved sales and
marketing materials, broader trade show and
symposium participation, and expanded
geographic coverage.
2.) Product Development. The Company is
continuing to invest in the development of new
products, and in upgrading its existing products
to have more competitive features, be easier to
manufacture, and have improved margins.
3.) Corporate Synergy. Holometrix, Nametre and
Tytronics Incorporated (majority owner of
Holometrix) serve many common markets and
customers including the polymer, petro-
chemical, paints and coatings, and food
markets. Complementary marketing and
distribution activities have begun.
4.) Strategic Relationships. These include
companies and/or product lines which the
Company might acquire, companies that might
have an interest in licensing technology to the
Company, and companies that might have an
interest in investing in the Company.
Holometrix Patents and Proprietary Technology
The Company develops proprietary information and technology,
including software programs, in the course of its research and
development activities. Management believes that patent and copyright
protection are important, but less significant than the technical
competence and creative skills of the Company's personnel, the
performance and reliability of the Company's products and competitive
marketing, pricing and customer service.
The Company has filed for a patent which describes the unique control
of its new Lambda 2000 Series heat flow meter product line. No
determination has been made to date by the US Patent Office as to the
validity of this application.
The Company owns eight trademarks. Three of the trademarks are
registered, and the registrations expire in various years through 1998.
These three trademarks are for the R-Matic, k-Matic, and C-Matic
(currently called the TCA) instruments. The Company does not believe
these trademarks are material to the conduct of the business.
Holometrix Customers
During fiscal 1997, the Company had total consolidated revenues of
approximately $4,529,000, compared to $2,201,000 in fiscal 1996. No
customer accounted for more than 10% of sales in fiscal 1997.
Holometrix Backlog
As of September 30, 1997, the Company's backlog for products and
services totaled $131,000, as compared to $333,000 in backlog as of
September 30, 1996. The fiscal 1997 backlog consisted of $26,000 for
the Instruments Division and $105,000 for the Testing Services Division.
All backlog at September 30, 1997 is expected to be delivered before
September 30, 1998.
Holometrix Competition
The Company's competitive advantage lies in its ability to develop and
produce a broad spectrum of products in several different market niches.
The Company's Instruments Division experiences direct competition for
its heat flow meters from Anter Corporation and LaserComp Inc.
Thermaflash has strong competition from Sinku Riko in the Far East,
Netzsch GmbH, Theta Industries and Anter Inc. in Europe and North
America. Competitive factors include product performance, quality and
reliability, ease of use, marketing capability, service and support, and
name recognition. Management believes the Company competes
favorably in each of these areas. The Company can give no assurance
that its current products will remain competitive in these areas or that its
future products will be competitive in these areas.
The market for scientific measuring instrumentation is also characterized
by extensive research and development and rapid technological change.
Development by others of new or improved products or technologies
may make the Company's products or proposed products obsolete or less
competitive. The Company may be required to devote substantial efforts
and financial resources to increase its existing product lines by
developing new products and services.
The Testing Services Division competes as a broad-capability
independent laboratory performing thermal property studies. There are
no other known companies or laboratories that encompass the Division's
entire capabilities. However, many laboratories offer a subset of the
Division's services. Competitive contracts are awarded based on price,
testing capability and credibility of the test results. The following
sample laboratories compete in the market sectors indicated: Engineered
Materials - Thermophysical Properties Research Laboratory Inc., Anter
Laboratories, Inc., The Edward Orton Jr. Ceramic Foundation, Southern
Research Institute, and Virginia Polytechnic Institute; Insulations -
Southern Research Institute, Sparrell Engineering Research Corporation,
and The Center for Applied Engineering; Government - Oak Ridge
National Laboratory and National Institute of Standards and Technology.
Holometrix Research and Development
The Company expended approximately $365,000 on a consolidated
basis, or 8% of sales and $154,000 or 7% of sales in fiscal 1997 and
fiscal 1996, respectively, on research and development. The Company
expects that in fiscal 1998 its research and development expenditures will
remain close to 5% of sales.
Governmental Regulations
There is presently no material government regulation with respect to the
Company's businesses and its development of products. However, the
extent to which future governmental regulations may regulate the
Company's activities cannot be predicted, and the Company may be
subject to restrictions on allowable costs and profits on U.S. government
contracts and the export of the technology to other countries as it seeks
to expand further into foreign markets.
Holometrix Employees
As of September 30, 1997, the Company had 22 employees, 17 of whom
are employed full-time. Most of the Company's employees are highly
skilled and the Company's continued success will depend, in part, upon
its ability to attract and retain such skilled employees. The Company has
never experienced a work stoppage, none of its employees are
represented by a labor organization, and the Company considers its
relations with its employees to be good.
Holometrix Description of Properties
The Company occupies approximately 15,200 square feet of production,
research and development, engineering, administrative and service
facilities at 25 Wiggins Avenue in Bedford, Massachusetts. The
Company occupies this facility under a lease which expires September
30, 1999. Approximately 30% of this space is sublet to Tytronics
Incorporated, majority owner of Holometrix. The Company's
consolidated rental expense for fiscal 1997 was approximately $99,000,
net of approximately $41,000 of rental income from Tytronics
Incorporated.
The Company considers these facilities to be reasonably insured and
adequate for its foreseeable needs and believes that similar facilities are
available in the Boston metropolitan area at comparable rental rates.
Substantially all of the machinery and equipment used by the Company
in its operations is owned by the Company and management considers
this equipment to be in good condition. All of the machinery and
equipment owned by the Company is subject to a security interest in
favor of Tytronics Incorporated and is subject to a senior security
interest in favor of Silicon Valley Bank, to which Tytronics' interest is
subordinated.
Legal Proceedings
There are no material pending legal proceedings to which the Company
is a party or to which any of its properties is subject.
BUSINESS OF NATIONAL METAL REFINING COMPANY
In 1996, the Company purchased a majority of the issued and
outstanding capital stock of National Metal Refining Company
("Nametre"). Nametre is a product development and manufacturing
company that specializes in manufacturing in-line and laboratory
viscosity analyzers. These analyzers are used to measure the viscosity
(thickness and density) and
viscoelasticity (pliability) of a wide range of material and are sold into
the polymer manufacturing, petrochemical, food, paints and coatings and
pulp and paper markets. Nametre is a New Jersey corporation which
was organized in 1956. Nametre is located at 101 Liberty Street,
Metuchen, NJ 08840; its telephone number is (908) 494-2422 and its
facsimile number is (908) 494-8916.
Nametre Products
Nametre engages in the development, production and distribution of
viscosity analyzers under the trade names, "Viscoliner " and
"Rheoliner ". The analyzers measure the viscosity and viscoelasticity of
a wide range of materials. Products are developed and manufactured for
both on-line process monitoring and control, and laboratory use. The
vast majority of analyzers sold are for in-line process control. Such
analyzers are used to provide manufacturers with viscosity information,
which is often critical to ensuring proper material formulation and
material production. Applications and markets that routinely use
viscosity analyzers include the polymer, petrochemical, food, paints and
coatings, and pulp and paper industries.
Nametre has over thirty years experience in the viscosity measurement
business. The basic technology underlying the Nametre analyzers is the
use of an oscillating sensor that is inserted into a stream of material in a
process line (pipe or vessel). The sensor oscillates at a constant
amplitude. The viscosity of a product is then determined on the basis of
the electrical power needed to maintain the oscillation amplitude in the
presence of the viscous material. The principles of measurement of the
Viscoliner product are currently covered by U.S. patents.
The Viscoliner product line consists of three different models: the 1810
for in-line process monitoring and control, the 300 for paints and
coatings and the 1710 for laboratory analysis. The 1810 is an on-line
viscometer that is applicable to a wide range of materials and
applications. It is microprocessor controlled. The model 1810 is
typically utilized in the polymer market. Ongoing developments include
PC based software, "Viscontrol" for analyzer control, data acquisition
and interface to factory control systems.
The Viscoliner model 300 is also an on-line analyzer. It is similar to the
model 1810 in its concept of operation; however, it is configured
primarily for paint, ink and coatings applications.
The Viscoliner model 1710 is a laboratory version of the model 1810.
This instrument is used primarily for research, product development and
quality assurance. Applications include the full range of markets that
Nametre serves.
Nametre's Markets
Nametre's analyzers are sold primarily to product and material
manufacturers engaged in the production and use of plastics, chemical,
foods, paints, inks or coatings and paper and pulp. A number of
analyzers are also sold to government laboratories and universities.
Management believes (based on its internal calculations of the sales of
companies that it has identified as competitors) that the current market
for process viscosity totals approximately $20-25 million annually.
Nametre Patents and Proprietary Technology
Nametre develops proprietary information and technology, including
software programs, in the course of its research and development
activities. Certain aspects of its product are patented; however,
management believes that patent and copyright protection are important,
but less significant than the technical competence and creative skills of
Nametre's personnel, the
performance and reliability of Nametre's products, and competitive
marketing, pricing and customer service.
Nametre owns nine patents, including patents that cover the basic
transducer and electronics for viscosity measurement, the method and
apparatus for viscoelastic measurements, and the transducer for high
viscosity measurements in extruders. The patents expire in various years
from 1998 to 2011.
Nametre owns or has applied for four trademarks. Three trademarks are
Viscoliner , Rheoliner , and the Nametre's logo, Absolute Eta in a
circle. These trademarks expire in various years, from 1999 to 2005.
Nametre has also applied for a trademark on VisControl.
Nametre Customers
On September 30, 1996, the Company acquired approximately 61.23%
of the outstanding shares of Nametre. The consolidated statements of
operations and cash flows of Holometrix and subsidiary exclude any
activity of Nametre prior to the date of acquisition. During fiscal 1997
Nametre had total revenues of approximately $2,452,000. During fiscal
1996, which was a nine month year to allow Nametre to change its fiscal
year to coincide with the Company's fiscal year, Nametre had total
revenues of approximately $1,776,000. For comparison purposes, for
the period to September 30, 1995 to December 31, 1995, Nametre had
total revenues of $783,000. One customer accounted for approximately
17% of Nametre's sales in fiscal 1997.
Nametre Backlog
As of September 30, 1997, Nametre's backlog for products and services
totaled $687,000, as compared to $343,000 as of September 30, 1996.
All backlog at September 30, 1997 is expected to be delivered before
September 30, 1998.
Nametre Competition
Nametre's competitive advantage lies in its ability to develop and
produce custom transducers, covering a wide range of viscosities,
designed for mounting directly into the customer's process. Nametre's
major competitors are Brookfield Engineering Laboratories, Solatron
Transducers, MicroMotion Division of Fisher Rosemount, Norcross
Corporation and Dynatrol Division of Automation Products, Inc.
Competitive factors include price, wide product lines, performance,
quality and reliability, ease of use, marketing capability, service and
support and name recognition. Management believes Nametre competes
favorably in most of these areas. Price and wide product line competition
is generally overcome by the instruments' performance and installed
cost.
The market for scientific measuring instrumentation is also characterized
by extensive research and development and rapid technological change.
Development by others of new or improved products or technologies
may make Nametre's products or proposed products obsolete or less
competitive. Nametre may be required to devote substantial efforts and
financial resources to increase its existing product lines by developing
new products and services.
Nametre Research and Development
Nametre expended approximately $195,000, or 8% of sales and
$299,131, or 17% of sales in fiscal 1997 and fiscal 1996, respectively,
on research and development. Nametre expects that in fiscal 1998 its
research and development expenditures will be approximately 7% of
sales.
Governmental Regulations
There is presently no material government regulation with respect to
Nametre's businesses and its development of products. However, the
extent to which future governmental regulations may regulate Nametre's
activities cannot be predicted, and Nametre may be subject to restrictions
on allowable costs and profits on U.S. government contracts and the
export of the technology to other countries as it seeks to expand further
into foreign markets.
Nametre Employees
As of September 30, 1997, Nametre had 14 employees, 13 of whom are
employed full-time. Most of Nametre's employees are highly skilled
and Nametre's continued success will depend, in part, upon its ability to
attract and retain such skilled employees. Nametre has never
experienced a work stoppage, none of its employees are represented by a
labor organization, and Nametre considers its relations with its
employees to be good.
Nametre Description of Properties
Nametre leases approximately 4,000 square feet of production, research
and development, engineering, administrative and service facilities at
101 Liberty Street, Metuchen, New Jersey. Nametre occupies this
facility on a month to month basis under an operating lease.
Nametre considers these facilities to be reasonably insured and adequate
for its foreseeable needs and believes that similar facilities are available
in the immediate area at comparable rental rates. All of the machinery
and equipment owned by Nametre is subject to a senior security interest
in favor of Silicon Valley Bank.
Legal Proceedings
There are no material pending legal proceedings to which Nametre is a
party or to which any of its properties is subject.
BUSINESS OF TYTRONICS INCORPORATED
Tytronics Incorporated ("Tytronics") designs, manufactures and markets
on-line liquid and gas chemical analyzers for specific applications in
worldwide process and environmental markets. These devices measure
the concentrations of specific chemicals and are used in both process
control and environmental monitoring. Examples are the measurement
of acid and iron in steel pickling (preparation) lines, the measurement of
caustic concentration in gas scrubbers, the measurement of aluminum
and iron in potable water treatment and the measurement of ammonia
and nitrate in waste water treatment. Using the detection technologies of
titration (neutralization reaction), colorimetry (a color change or color
intensity differentiation) and spectrophotometry (a change measured in
the ultraviolet or infrared regions), Tytronics focuses on providing
simple, reliable and cost-effective analytical instrumentation to its
markets worldwide. Tytronics is a Massachusetts corporation which was
incorporated on May 18, 1984. In late 1994, Tytronics acquired a
majority interest in Holometrix. Tytronics' principal offices are located
along with those of Holometrix at 25 Wiggins Avenue, Bedford,
Massachusetts 01730-2323; Tytronics' telephone number is (781) 275-
9660 and its facsimile number is (781) 275-9665.
Tytronics' Instruments
Tytronics' analyzers are available to monitor many liquids and some
gasses, all done on-line. Typical constituents measured are aluminum,
ammonia, chlorine, chromium, copper, cyanide,
fluoride, iron, phosphate, manganese, nitrite, nitrate and zinc. Lower
limits of measurement are at ppb levels, and upper limits are often at
percent levels. Methods are based upon published literature methods and
are adapted for use on Tytronics' family of analyzers. Over 1400
analyzers have been sold for a wide variety of applications. They
operate in a wide variety of difficult, and sometimes hazardous, process
and environmental conditions.
Tytronics' products deliver on-line analysis for process and
environmental monitoring reliably, simply and cost-effectively. On-line
analysis is readily justified; benefits include improved yield, reduced
chemical consumption, reduced labor and increased sensitivity to
environmental concerns. The equipment provides accurate readings even
with background interference of sample color and turbidity. Little or no
filtering is used for most applications and the equipment measures both
low and high concentrations of chemicals. The interface is user-
friendly, with menu-driven software, and the units may be PC-linked to
communicate with a host computer.
Tytronics' family of analyzers employs a patented methodology to
capture samples. This methodology is similar to use of an overflow cup,
except that siphon action drains the sample to a final repeatable level
(volume). This sampling method uses the reaction cell to both capture
the sample and accomplish the appropriate chemical reaction, a
significant reduction in complexity. Only a single highly reliable Teflon
valve connects to the process stream. Analyses are fully automatic in all
cases. Through menu-driven programming, the user can easily change
the frequency of analysis and calibration, and the outputs, as well as
most default values.
Tytronics' Products
Ion Selective Electrode Analyzers (FPA 200)
The FPA 200 Series delivers reliable
measurements of selective ions. Ion selective
electrodes, which are the sensing technology
employed, are measurement devices sensitive to
the presence of a particular ion. The FPA 200
employes a patented sampling method which
uses the reaction cell to capture the sample, thus
reducing complexity. After the sample is
captured, the instrument automatically adds a
reagent to condition the sample to avoid
interferences or to adjust the ionic strength of
the sample. The analyzers utilize software
which provides for two analytical methods,
direct measurement and known addition
(addition of a known standard for which
accurate measurements exist). The first is the
simplest and fastest, but the accuracy of this
method is more dependent upon the electrode.
Periodic, automatic calibration is used to
determine, calculate and automatically adjust
the parameters of the electrode to keep the
measurement correct. The second method is the
known addition measurement technique. This
provides more consistent results than direct
electrode measurement; with this method,
instrument results are not affected by erratic
electrode performance. The on-board computer
operates the components, takes readings from
the sensor, calculates and transmits sample
concentration over any of a variety of analog
and digital outputs (e.g., 4-20mA, RS-232).
Titrators (FPA 300 and FPA 400)
The FPA 300 series delivers reliable on-line
titration. The FPA 300 series titrates using a
variety of electrodes, which sense the maximum
rate of microvoltage change in a particular
chemical reaction. The FPA 400 series adds
the capacity to titrate to a color endpoint,
sensing the maximum rate of change of color in
a chemical solution. The colorimetric endpoint
(maximum color change) is sensed with light
which is carried from and returned to the
source/detector by fiber optics. Colorimetric
titration offers on-line
analytical capability at trace levels in
applications such as monitoring plant effluent
and municipal water, and environmental
analysis in general. Both series of instruments
capture a fresh sample, condition it and titrate
to a fixed endpoint. Siphon action drains the
sample to a final repeatable level (volume).
The on-board computer operates the
components, takes readings from the sensor,
and calculates and transmits sample
concentration over any of a variety of analog
and digital outputs (e.g., 4-20mA, RS-232).
Colorimeters (FPA 800)
The FPA 800 series delivers reliable on-line
colorimetric analysis. These analyzers are
configured to make precise reagent additions
which, in combination with the chemical being
measured, develop a characteristic color. The
color is developed by reaction following well-
established techniques. Direct colorimetry
offers on-line analytical capability at trace
levels in applications such as monitoring plant
effluent and municipal water, and
environmental analysis in general. Color is
measured using a light source and detectors,
coupled with fiber-optics, to transmit and
receive a beam to and from the sample in the
reaction cell. The concentration of the solution
being measured is proportional to the color
developed, and thus the amount of light
absorbed. The instrument has a simple and
patented liquids handling and sample capture
system, coupled with a fiber-optics probe. The
on-board computer operates the components,
takes readings from the sensor, calculates and
transmits sample concentration over any of a
variety of analog and digital outputs (e.g., 4-
20mA, RS-232).
Spectrophotometers (FPA 1000 and FPA 1100)
The FPA 1000 and 1100 series delivers reliable
on-line photometric (light source) analysis,
offering on-line analytical capability at both
trace and higher levels. These
spectrophotometers are applicable to both
process and environmental applications, and use
well-established spectrophotometric techniques
of analysis. With the FPA 1000, a light source
in the visible, and very-near-infrared region is
passed through the sample, then through optical
filters; the absorbance of the returning energy is
measured at the selected wavelengths. The
concentration of the solution is proportional to
the absorbance measured. The technique used
is a dual-wavelength technique, which
compensates for sample turbidity and color,
allowing a true measurement of the constituent
in question. With the FPA 1100, a similar dual-
wavelength approach is employed in the
ultraviolet range, using stabilized arc sources.
This provides a reliable measurement for lower
detection levels and greater analytical stability.
The instruments can use fiber-optics to remotely
sense concentrations in a pipeline cell;
depending on the sample pipe diameter, the
non-intrusive measurement is made with a cell
installed directly into the line. Alternatively, a
bypass line of selected pipe diameter can be
installed to select the diameter for a more
appropriate pathlength. Conventional liquid
and gas cells are also available. Once again,
the on-board computer operates the
components, takes readings from the sensor,
and calculates and transmits sample
concentration over any of a variety of analog
and digital outputs (e.g., 4-20mA, RS-232).
Tytronics' Sentinel
The Tytronics' Sentinel series delivers simple,
reliable and cost-effective on-line colorimetric
analysis, directed primarily at the potable and
waste water markets. Colorimetric analyzers
are configured to make precision reagent
additions to develop a characteristic color.
Color is developed by reaction following well-
established techniques. The colorimetric system
uses dual wavelength optical configuration
features
that provide stable, accurate and reproducible
measurements even at concentrations below 50
ppb, and in the presence of sample background
color and turbidity. The instrument is highly
tolerant of solids and particulates, using wide
bore tubing (0.25") for sample intake and
transport. In many applications, it can be used
without any further external filtering, a
significant advantage. Tytronics' Sentinel
offers multi-streaming; analyzers can be
expanded to analyze up to 6 separate sample
streams. Industrial enclosures and modular
design of the fluidic and electronic components
provide high reliability and ease of
maintenance. The on-board computer operates
the components, takes readings from the sensor,
and calculates and transmits sample
concentration over any of a variety of analog
and digital outputs (e.g., 4-20mA, RS-232).
Tytronics' Markets
Tytronics' chemical analyzers are primarily sold to two major markets.
The first is the chemical/petrochemical/refinery industry; within this
industry, Tytronics' instruments are used for both process control and
effluent monitoring. The second major market is the water treatment
industry; in this case, Tytronics' products are used for the control and
monitoring of both potable water and waste water treatment. A number
of instruments are also sold to the food, beverage and textile industries.
Management believes (based on a market study entitled Process Analyzer
Market, 1994-1999, by PAI Partners, Leonia, New Jersey, May 1995)
that current markets for process chemical analyzers total approximately
one billion dollars annually.
Tytronics markets its products in the U.S. and internationally through
the combination of direct sales force and a network of independent
manufacturer's representatives and distributors. Tytronics actively
advertises its products in industry trade journals, attends various U.S.
and international trade shows and maintains a home page on the World
Wide Web to promote its products and services.
Current products are sold in North America directly from the company's
offices in Bedford, Massachusetts. Domestic sales amounted to
approximately 39% of total revenue for fiscal year 1997, with
international sales accounting for the balance of 61%. Domestic sales
and marketing are handled in-house by a staff of three professionals,
supporting independent manufacturers' representatives. Overseas sales
(primarily to Africa, Europe, the Far East and Latin America) are made
through independent distributors and sales agents, managed by two sales
and marketing professionals. In addition to the in-house sales managers,
a Director and Assistant Director of Sales and Marketing for Tytronics
and Nametre are responsible for the sales and marketing activities of
both companies. Product visibility is maintained through active
participation in regional, national and international trade organizations
including Instrument Society of America, American Water Works,
Water Environment Federation and the New England Water Works
Association.
Tytronics Patents and Proprietary Technology
Tytronics develops proprietary information and technology, including
software programs, in the course of its research and development
activities. Management believes that patent and copyright protection are
important, but less significant than the technical competence and creative
skills of Tytronics' personnel, the performance and reliability of the
Tytronics' products and competitive marketing, pricing and customer
service. Tytronics holds three patents, two in the area of sample capture
methodologies, and one for a particular form of spectrophotometric
calibration. Tytronics holds a broad variety of worldwide trademarks,
and has copyrighted certain selected information.
Tytronics Customers
During fiscal 1997, Tytronics' consolidated revenues were
approximately $7,975,000, compared to $5,613,000 in fiscal 1996. No
customer accounted for more than 10% of consolidated sales in fiscal
1997.
Tytronics Backlog
As of September 30, 1997, Tytronics' consolidated backlog for products
and services approximated $1,050,000, as compared to approximately
$1,254,000 in backlog as of September 30, 1996. Included in the
September 30, 1997 backlog is $687,000 of Nametre's products. All
backlog at September 30, 1997 is expected to be delivered before
September 30, 1998.
Tytronics Competition
Tytronics' competitive advantage lies in its ability to develop and
produce simple, reliable and cost-effective instrumentation that can be
used to measure a wide variety of constituents in a broad spectrum of
industries. However, competition is intense. Tytronics' process
analyzers experience direct competition from Applicon Instruments BV,
FPM Analytics Inc., Ionics Inc., Polymetron and Seres. Tytronics'
potable water and waste water analyzers experience direct competition
from ABB Kent-Taylor Ltd., Aztec, Bran & Luebbe Inc., Dr. Bruno
Lange GmbH, Hach Company, pHox, Polymetron, Skalar Inc. and
Seres.
Tytronics Research and Development
Tytronics' consolidated research and development expenditures were
approximately $627,000, or 8% of sales, and $456,000, or 8% of sales,
in fiscal 1997 and fiscal 1996, respectively. Tytronics expects that, in
fiscal 1997, its research and development expenditures will be
approximately 7% of sales.
Governmental Regulations
There is presently no material government regulation with respect to
Tytronics' businesses and its development of products. However, the
extent to which future governmental regulations may regulate Tytronics'
activities cannot be predicted, and Tytronics' may be subject to
restrictions on allowable costs and profits on U.S. government contracts
and the export of the technology to other countries as it seeks to expand
further into foreign markets.
Tytronics Employees
As of September 30, 1997, Tytronics had 20 employees, 12 of whom are
employed full-time. Most of Tytronics' employees are highly skilled
and Tytronics' continued success will depend, in part, upon its ability to
attract and retain such skilled employees. Tytronics has never
experienced a work stoppage, none of its employees are represented by a
labor organization, and Tytronics considers its relations with its
employees to be good.
Tytronics Description of Properties
Tytronics occupies approximately 30% of 15,200 square feet of
production, research and development, engineering, administrative and
service facilities from the Company (see above). Tytronics considers
these facilities to be reasonably insured and adequate for its foreseeable
needs and believes that similar facilities are available in the Boston
metropolitan area at comparable rental rates.
Substantially all of the machinery and equipment used by Tytronics in its
operations is owned by Tytronics and management considers this
equipment to be in good condition. All of the machinery and equipment
owned by Tytronics is subject to a senior security interest in favor of
Silicon Valley Bank.
Legal Proceedings
There are no material pending legal proceedings to which Tytronics is a
party or to which any of its properties is subject.
Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock is no longer quoted in the over-the-
counter market. There currently does not exist an active trading market
for the Company's securities. The following table sets forth the range of
high and low bid quotations for the Company's Common Stock as
reported by the National Quotation Bureau of New Jersey.
Fiscal Year 1996 Low High
First Quarter Ended December 31, 1995 $0.001 $0.002
Second Quarter Ended March 31, 1996 0.002 0.005
Third Quarter Ended June 30, 1996 0.005 0.005
Fourth Quarter Ended September 30, 1996 0.002 0.005
Fiscal Year 1997 Low High
First Quarter Ended December 31, 1996 $0.002 $0.002
Second Quarter Ended March 31, 1997 0.002 0.04
Third Quarter Ended June 30, 1997 0.005 0.02
Fourth Quarter Ended September 30, 1997 0.002 0.005
Fiscal Year 1998
First Quarter Ended December 31, 1997 $0.002 $0.01
These quotations represent prices between dealers and do not include
retail markups, markdowns or commissions and may not necessarily
represent actual transactions. There were 483 holders of record of the
Company's outstanding capital stock as of March 1, 1998.
Since its organization, the Company has not paid any cash dividends on
its capital stock. The Board of Directors does not contemplate declaring
any dividends in the near future. Any declarations of dividends will be
determined by the Board of Directors in light of the conditions then
existing, including the Company's earnings, its financial condition and
working capital needs, any agreements restricting the payment of
dividends, and other factors. Certain agreements with the Company's
financing sources include covenants which currently restrict the
Company from paying any cash dividends.
Financial Information
A copy of the following financial statements and information of the
Company (consolidated with Nametre) and Tytronics is included with
this proxy statement as Exhibit B:
Holometrix
1. Management's discussion and analysis for the three months ended
December 31, 1997 and 1996.
2. Consolidated condensed financial statements for the three months
ended December 31, 1997 and 1996.
3. Management's discussion and analysis for the years ended
September 30, 1997 and 1996.
4. Consolidated financial statements for the years ended September
30, 1997 and 1996.
Nametre
1. Financial statements for the year ended September 30, 1996.
Tytronics
1. Management's discussion and analysis for the three months ended
December 31, 1997 and 1996.
2. Consolidated condensed financial statements for the three months
ended December 31, 1997 and 1996.
3. Management's discussion and analysis for the years ended
September 30, 1997 and 1996.
4. Consolidated financial statements for the years ended
September 30, 1997 and 1996.
Pro Forma Financial Information
1. Pro forma combined condensed balance sheet as of December 31, 1997.
2. Pro forma combined condensed statement of operations for the three
months ended December 31, 1997.
3. Pro forma combined condensed balance sheet as of
September 30, 1997.
4. Pro forma combined condensed statement of operations for the
year ended September 30, 1997.
Votes Required
Approval of the amendment to the Charter to increase the authorized
number of shares of the Company's Common Stock will require the
affirmative vote of the holders of a majority of the outstanding shares of
the Company's Common Stock. Tytronics is the record holder of
approximately 70% of the Company's outstanding Common Stock and
Joseph J. Caruso, a director of the Company, is the beneficial owner of
approximately 6% of the Company's outstanding Common Stock.
Tytronics and Mr. Caruso have indicated their intention to vote for the
proposal to amend the Company's Charter to increase the authorized
number of shares of the Company's Common Stock. Abstentions and
broker non-votes will be equivalent to a vote against the amendment.
Board of Directors Recommendations
The Board of Directors has unanimously recommended (with the
exception of those directors of the Company who are also directors of
Tytronics or Nametre, who abstained from voting) that you vote FOR
the amendment to the Company's Certificate of Incorporation to increase
the authorized number of shares of the Company's Common Stock.
THE REVERSE STOCK SPLIT (PROPOSAL 2)
General
The Board of Directors has determined that it would be advisable to
amend the Company's Certificate of Incorporation effective following
the Reorganization to effect a 1 for 50 reverse stock split (the "Reverse
Stock Split") of the Company's Common Stock. A copy of the proposed
amendment to the Certificate of Incorporation is attached hereto as
Exhibit A. If the Reverse Stock Split is approved by the shareholders,
each 50 shares of the Company's Common Stock (the "Old Common
Stock") outstanding on the effective date of the Reverse Stock Split will
be converted automatically into 1 share of New Common Stock, par
value $.50 per share (the "New Common Stock"). To avoid the
existence of fractional shares of New Common Stock, shareholders who
would otherwise be entitled to receive fractional
shares of New Common Stock shall receive one additional whole share
of Common Stock. See "Exchange of Stock Certificates". The effective
date of the Reverse Stock Split will be the date on which the amendment
to the Company's Certificate of Incorporation is filed with the Secretary
of State of the State of Delaware, which is anticipated to be as soon as
practicable following the effectiveness of the Reorganization.
Background and Reasons for the Reverse Stock Split
The Reverse Stock Split would reduce the number of outstanding shares
of Common Stock to approximately 2,000,000 shares following the
Reorganization, or approximately 2% the number of shares outstanding
prior to the Reverse Stock Split. The Reverse Stock Split would also
proportionally reduce the number of shares of Common Stock reserved
for issuance pursuant to options and warrants of the Company
outstanding as of the effective date of the Reverse Stock Split. The
Reverse Stock Split will not affect any stockholder's proportionate equity
interest in the Company, subject to the provisions for the elimination of
fractional shares and rounding up to the nearest whole share in every
instance. If the proposal for amendment of the Company's Certificate of
Incorporation to effect the Reverse Stock Split is approved, each
outstanding share of Common Stock will be entitled to one vote at each
meeting of stockholders, as is the case with each presently outstanding
share. While a reduced number of outstanding shares of Common Stock
could adversely affect the liquidity of the Common Stock, management
of the Company does not believe this is likely to happen. Because the
par value of the Common Stock will be increased, to $.50 per share
from $0.01 per share, by the same proportion that the number of
outstanding shares will be decreased, there will be no change in the
stockholders' equity, stated capital or paid-in capital of the Company, or
the amount that could lawfully be distributed to stockholders. The
Reverse Stock Split is not intended as an anti-takeover device and is not
expected to function unintentionally as one.
The Company's Common Stock is not quoted in the over-the-counter
market and there currently exists no active trading market in the
Company's securities. Information reported by the National Quotation
Bureau of New Jersey, indicates that the high and low bid quotations for
the Company's Common Stock for the three month period ended
December 31, 1997 were $.01 and $.002, respectively. The Board of
Directors of the Company believes that the low bid quotations for the
Company's Common Stock has impaired the acceptability of the
Company's Common Stock by the financial community and the investing
public.
The Board of Directors believes that the decrease in the number of
shares of the Company's Common Stock outstanding as a consequence
of the Reverse Stock Split and the resulting anticipated corresponding
increased price level will result in greater interest in the Company's
Common Stock by the financial community and the investing public than
if the Reverse Stock Split were not effected.
There can be no assurance, however, that the foregoing will occur or
that the market prices of the Company's Common Stock immediately
after implementation of the Reverse Stock Split will increase, and if they
increase, there can be no assurance that such increases can be maintained
for any period of time, or that such market prices will approximate 50
times the market prices before the Reverse Stock Split.
Exchange of Stock Certificates; No Fractional Share Interests
The Reverse Stock Split will be effective on the effective date (the
"Effective Date") of the filing with the Secretary of State of Delaware of
the Certificate of Amendment with respect to this proposal which is
expected to take place immediately following the Reorganization.
Stockholders of the Company on and as of the Effective Date will then
be furnished the
necessary materials and instructions to effect the exchange of their
certificates representing Old Common Stock for new certificates
representing the New Common Stock of the Company outstanding after
the Reverse Stock Split. Certificates representing Old Common Stock
presented for transfer subsequent to the Effective Date may be
transferred by the Company's Transfer Agent, but certificates
representing the reissued shares will represent only the number of New
Common Stock to which the holder of the shares of Old Common Stock
presented for transfer was entitled on and as of the Effective Date.
STOCKHOLDERS SHOULD NOT SUBMIT ANY CERTIFICATES
FOR EXCHANGE UNTIL AFTER THE EFFECTIVE DATE AND
RECEIPT OF NOTIFICATION AND INSTRUCTIONS FROM THE
COMPANY.
No fractional shares will be issued and all fractional shares, no matter
how small, will be rounded up to the nearest whole share. Accordingly,
no stockholder will receive less than one share as a result of this
proposal.
Federal Income Tax Consequences
This discussion is for general information only and does not discuss
consequences which may apply to special classes of taxpayers as, for
example, non-resident aliens, broker-dealers or insurance companies.
Stockholders are urged to consult their own tax advisors to determine the
particular consequences to them of the Reverse Stock Split.
The exchange of Old Common Stock for New Common Stock should not
result in recognition of gain or loss for federal income tax purposes.
Provided that a stockholder held the Old Common Stock as a capital
asset, the New Common Stock received in exchange therefor will also be
held as a capital asset and the holding period of the New Common Stock
will include the stockholder's holding period for the Old Common
Stock. The tax basis of the New Common Stock will be the same as the
tax basis of the Old Common Stock exchanged therefor.
Although not free from doubt, the above treatment should also apply
with respect to additional shares received for fractional shares.
However, it is possible that the receipt of additional shares could be
wholly or partly taxable. Holders should consult with their own tax
advisors.
No Dissenter's Rights
Under Delaware law, stockholders are not entitled to dissenter's rights of
appraisal with respect to the Reverse Stock Split.
Votes Required
Amendment of the Company's Certificate of Incorporation to provide for
the Reverse Stock Split requires the favorable vote of a majority of the
outstanding shares of Common Stock of the Company, pursuant to the
requirements of the Delaware General Corporation Law. If the proposed
amendment is approved by the Stockholders, the amendment will
become effective the date of its filing with the Secretary of State of
Delaware.
Board of Directors Recommendation
The Board of Directors unanimously recommends a vote FOR
amendment of the Company's Certificate of Incorporation to effect the
Reverse Stock Split.
AMENDMENT OF COMPANY'S CHARTER TO CHANGE THE
NAME OF THE COMPANY FROM HOLOMETRIX, INC. TO
METRISA, INC. (PROPOSAL 3)
The Board of Directors of the Company has determined that it is in the
best interests of the Company and its stockholders to change the name of
the Company from Holometrix, Inc. to Metrisa, Inc. The Board
recommends that the stockholders approve the amendment to the
Company's Charter to effect the proposed name change. The Board of
Directors believes that the name of the Company should be changed
following the Reorganization to better describe the business which will
be conducted by the Company following the Reorganization.
Votes Required
Approval of the amendment to the Charter to change the name of the
Company will require the affirmative vote of the holders of a majority of
the outstanding shares of the Company's Common Stock. Abstentions
and broker non-votes will be equivalent to a vote against the amendment.
Board of Directors Recommendation
The Board of Directors unanimously recommends that you vote FOR the
amendment to the Company's Certificate of Incorporation to change the
name of the Company.
OTHER MATTERS
The Board of Directors does not know of any other matters which may
come before the meeting. However, if any other matters are properly
presented to the meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise to act, in accordance with
their judgment on such matters.
Proposals of Stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company at its
principal office in Bedford, Massachusetts, not later than November 5,
1998, for inclusion in the proxy statement for that meeting.
ADDITIONAL INFORMATION
The following additional information is attached to this Proxy Statement:
Exhibit A: Proposed Amendments to the Company's Certificate
of Incorporation, as amended.
Exhibit B: Financial Information
Holometrix
1. Management's discussion and analysis for the three months
ended December 31, 1997 and 1996.
2. Consolidated condensed financial statements for the three
months ended December 31, 1997 and 1996.
3. Management's discussion and analysis for the years ended
September 30, 1997 and 1996.
4. Consolidated financial statements for the years ended
September 30, 1997 and 1996.
Nametre
1. Financial statements for the year ended September 30,
1996.
Tytronics
1. Management's discussion and analysis for the three months
ended December 31, 1997 and 1996.
2. Consolidated condensed financial statements for the three
months ended December 31, 1997 and 1996.
3. Management's discussion and analysis for the years ended
September 30, 1997 and 1996.
4. Consolidated financial statements for the years ended
September 30, 1997 and 1996.
Pro Forma Financial Information
1. Pro forma combined condensed balance sheet as of
December 31, 1997.
2. Pro forma combined condensed statement of operations
for the three months ended December 31, 1997.
3. Pro forma combined condensed balance sheet as of
September 30, 1997.
4. Pro forma combined condensed statement of operations
for the year ended September 30, 1997.
Exhibit C Valuation Opinion of Fechtor, Detwiler & Co., Inc. dated
August 28, 1997
Exhibit D Reorganization Agreement
HOLOMETRIX, INC.
25 WIGGINS AVENUE, BEDFORD, MA 01730-2323
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HOLOMETRIX, INC.
The undersigned stockholder of Holometrix, Inc. (the "Company")
hereby appoints John E. Wolfe and David J. Brown, and each of
them, with full power of substitution, proxies for the undersigned
and authorizes them to represent and vote, as designated, all of
the shares of stock of the Company which the undersigned may be
entitled to vote at the special meeting of the stockholders of the
Company to be held at the offices of the Company, 25 Wiggins
Avenue, Bedford, Massachusetts on Tuesday, April 28, 1998, and
at any adjournment or postponement of such meeting, for the
following purposes and with discretionary authority as to any
other matter that may properly come before the meeting, all in
accordance with and as described in the Notice and accompanying
Proxy Statement. If no direction is given, this proxy will be
voted FOR proposals 1, 2 and 3.
Proposal (1): To approve an amendment to the Company's
Certificate of Incorporation, as amended,
to increase the number of authorized
shares of Common Stock, $.01 par value,
from 30,000,000 to 100,000,000 shares.
FOR ___ AGAINST ___ ABSTAIN ___
Proposal (2): To approve an amendment to the Company's
Certificate of Incorporation, as amended,
to be effective following the
reorganization of the Company, Tytronics
Incorporated and National Metal Refining
Company, Inc., to reduce the number of
authorized shares of Common Stock of the
Company from 100,000,000 to 2,000,000
with $.50 par value; and to effect a
reverse stock split of the Company's
Common Stock (such split to combine fifty
outstanding shares of Common Stock into
one share of Common Stock).
FOR ___ AGAINST ___ ABSTAIN ___
Proposal (3): To approve an amendment to the Company's
Certificate of Incorporation, as amended,
to change the name of the Company from
Holometrix, Inc. to Metrisa, Inc.
FOR ___ AGAINST ___ ABSTAIN ___
Date:_____________________________, 1998
________________________________________
________________________________________
(Signature of Stockholder)
Please sign exactly as your name appears.
If acting as attorney, executor, trustee
or in other representative capacity, sign
name and title.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
of
Holometrix, Inc.
Holometrix, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by
unanimous vote of the Board of Directors taken at a meeting of the
Board of Directors held on August 28, 1997, in accordance with the
provisions of the General Corporation Law of the State of Delaware
and the By-laws of the Corporation, duly adopted the following
resolution authorizing a proposed amendment to the Certificate of
Incorporation of said Corporation declaring said amendment to be
advisable and recommending said amendment to the stockholders of
the Corporation for approval thereby:
RESOLVED: That the Corporation amend its Certificate of
Incorporation to increase the number of authorized
shares of Common Stock, $.01 par value, from
30,000,000 to 100,000,000.
SECOND: That the stockholders of said Corporation at a
Special Meeting of Stockholders held on October 28, 1997, in
accordance with the provisions of Sections 211 and 222 of the
General Corporation Law of the State of Delaware, duly adopted the
aforementioned amendment.
THIRD: That the aforementioned amendment was duly adopted
in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
FOURTH: That in accordance with the aforementioned
resolution, the Certificate of Incorporation of this Corporation
is hereby amended by deleting the first paragraph of Article 4
thereof in its entirety and replacing it with a new paragraph so
that, as amended, the first paragraph of Article 4 shall read as
follows:
"4. The total number of shares of stock which the
Corporation shall have authority to issue is one
hundred ten million (110,000,000) shares, of which
one hundred million (100,000,000) shares shall be
common stock, with a par value of one cent ($.01)
per share (the "Common Stock") and ten million
(10,000,000) shares shall be preferred stock, with
a par value of one cent ($.01) per share (the
"Preferred Stock")."
IN WITNESS WHEREOF, Holometrix, Inc., has caused this
Certificate to be signed by John E. Wolfe, President, and attested
by David J. Brown, Secretary, this ____ day of October, 1997.
Attest HOLOMETRIX, INC.
____________________________ ____________________________
David J. Brown John E. Wolfe
Its Secretary Its President
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
of
Holometrix, Inc.
Holometrix, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by
unanimous vote of the Board of Directors taken at a meeting of the
Board of Directors held on August 28, 1997, in accordance with the
provisions of the General Corporation Law of the State of Delaware
and the By-laws of the Corporation, duly adopted the following
resolution authorizing a proposed amendment to the Certificate of
Incorporation, said Corporation, declaring said amendment to be
advisable and recommending said amendment to the stockholders of
the Corporation for approval thereby:
RESOLVED: That the Corporation amend its Certificate of
Incorporation to effect a one for fifty reverse
stock split of the Corporation's issued and
outstanding common stock, $.01 par value,
decreasing the number of authorized shares of
common stock, $.01 par value, from 100,000,000
shares to 2,000,000 shares and increasing the par
value of the Corporation's Common Stock to $.50 per
share.
SECOND: That the stockholders of said Corporation, at a
Special Meeting of Stockholders held on October 28, 1997, in
accordance with the provisions of Sections 211 and 212 of the
General Corporation Law of the State of Delaware, duly adopted the
aforementioned amendment.
THIRD: That the aforementioned amendment was duly adopted
in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
FOURTH: That in accordance with the aforementioned
resolution, the Certificate of Incorporation of this Corporation
is hereby amended by deleting the first paragraph of Article 4
thereof in its entirety and replacing it with a new paragraph so
that, as amended, the first paragraph of Article 4 shall read as
follows:
"4. The total number of shares of stock which the
Corporation shall have authority to issue is twelve
million (12,000,000) shares, of which two million
(2,000,000) shares shall be common stock, with a
par value of fifty cents ($.50) per share (the
"Common Stock"), and ten million (10,000,000)
shares shall be preferred stock, with a par value
of one cent ($.01) per share (the "Preferred
Stock")."
FIFTH: That the Board of Directors of the Corporation, by
unanimous vote of the Board of Directors taken at a meeting of the
Board of Directors held on August 28, 1997, in accordance with the
provisions of the General Corporation Law of the State of Delaware
and the By-laws of the Corporation, duly adopted the following
resolution authorizing a proposed amendment to the Certificate of
Incorporation of the Corporation, declaring the amendment to be
advisable and recommending said amendment to the stockholders of
the Corporation for approval thereby:
RESOLVED: That the Corporation amend its Certificate of
Incorporation to change its name from
Holometrix, Inc. to Metrisa, Inc.
SIXTH: That the stockholders of the Corporation, at a
Special Meeting of Stockholders held on October 28, 1997, in
accordance with the provisions of Sections 211 and 222 of the
General Corporation Law of the State of Delaware, duly adopted the
aforementioned amendment.
SEVENTH: That the aforementioned amendment was duly adopted
in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
EIGHTH: That in accordance with the aforementioned
resolution, the Certificate of Incorporation of this Corporation
is hereby amended by deleting Article 1 thereof in its entirety
and replacing it with a new Article 1 so that, as amended
Article 1 shall read as follows:
"1. The name of the Corporation is
Metrisa, Inc."
IN WITNESS WHEREOF, Holometrix, Inc., has caused this
Certificate to be signed by John E. Wolfe, President and attested
by David J. Brown, Secretary this ____ day of October, 1997.
Attest HOLOMETRIX, INC.
____________________________ ____________________________
David J. Brown John E. Wolfe
Its Secretary Its President
TABLE
Fiscal Year Ended Three Months Ended
September 30, 1997 December 31, 1997
------------------ ------------------
Holometrix Tytronics Holometrix Tytronics
---------- --------- ----------- ---------
Book Value
Per Share $0.03 $6.51 $0.02 $5.01
Cash
Dividends 0 0 0 0
Income (Loss)
Per Share ($0.01) $.55 ($0.00) ($1.56)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three-Month Period Ended December 31, 1997, as Compared With the
Three-Month Period Ended December 31, 1996
Revenues in the first quarter of fiscal 1998 totaled
$1,119,000 as compared to $1,083,000 in the comparable quarter of
1997, an increase of $36,000. This 3% increase is primarily due
to an increase in National Metal Refining Company, Inc.,
(Nametre) sales. The revenues for Nametre alone totaled
$612,000, a 6% increase over the comparable quarter of fiscal
1997; revenues for Holometrix alone totaled $507,000, equal to
revenues for the comparable quarter of fiscal 1997.
Cost of sales decreased by $9000, or 2%, from $569,000 (53%
of sales) in the first quarter of fiscal 1997 to $560,000 (50% of
sales) in the same period of fiscal 1998. This 2% decrease is
attributable primarily to Nametre. Cost of sales for Holometrix
alone totaled $342,000, a 5% increase, and for Nametre alone
totaled $218,000, a 10% decrease. Management attributes this to
improved operating efficiencies at Nametre.
Selling, general and administrative expenses increased by
$37,000, or 8%, from $463,000 (43% of sales) to $500,000 (45% of
sales). Holometrix' expenses alone totaled $193,000, an increase
of 9%, and for Nametre alone totaled $307,000, an increase of 8%.
The increase was primarily due to increased marketing and sales
activities.
Research and development increased $4000 from $75,000 (7% of
sales) to $79,000 (also 7% of sales). Holometrix' R&D alone
increased $5000, an increase of 15% resulting from ongoing
product development.
Loss from operations was $21,000 in the first quarter of
fiscal 1998, compared with a loss of $24,000 in the comparable
period of fiscal 1997. Holometrix' loss from operations alone
was $70,000. Consolidated Net loss was $49,000 in the first
quarter of 1998. Holometrix' net loss alone was $77,000 compared
with a net loss of $40,000 in the comparable period of fiscal
1997. These losses are due to increased selling and
administrative costs, partially offset by improved cost of goods
sold, and income derived from the consolidation of Nametre.
Total Assets decreased by $244,000 (9%) in the first
quarter, from $2,711,000 to $2,467,000. Cash increased by
$17,000 and, due to increased collections activity, accounts
receivable decreased by $216,000 in the first quarter.
Inventories decreased by $22,000. Other assets decreased by
$7,000 and equipment and furniture and fixtures and other current
assets decreased by $23,000, both due primarily to depreciation
and amortization.
Total Liabilities decreased by $212,000, primarily due to a
decrease of $271,000 in accounts payable, decrease of $145,000 in
accrued payroll and other expenses, and $25,000 in current
maturities of long-term debt, offset by an increase of $230,000
due to stockholders. Accounts payable decreased by $271,000,
from $1,267,000 at September 30, 1997, to $996,000 at December
31, 1997, primarily due to payment of extended payables present
at September 30,1997, to conserve cash. Accrued payroll and
other expenses decreased by $145,000, from $267,000 at September
30,1997, to $122,000 at December 31,1997, primarily because of
payment of commission due to manufacturers representatives and
internal employees. Current liabilities due to stockholder
increased by $248,000 from $52,000 at Sept. 30, 1997, to $300,000
at December 31,1997, due to increased borrowings. Notes payable
stockholder decreased by $18,000 from $210,000 at September
30,1997, to $192,000 at December 31,1997, due to payment of debt
obligations.
As of December 31,1997, the Company had an outstanding order
backlog for products and services of approximately $646,000 as
compared to a backlog of $801,000 at December 31,1996. The
Company believes the $646,000 backlog will be realized in fiscal
1998. The outstanding backlog for Holometrix alone was
approximately $174,000, a decrease of $260,000 (60%). The
backlog for Nametre alone at December 31,1997, was $472,000, an
increase of $105,000 (29%).
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Operating cash flows were negative in the first quarter of
fiscal 1998, amounting to ($172,813) as compared to $27,647 in
the comparable quarter of fiscal 1997. Operating cash flows
approximated the sum of net loss plus depreciation and
amortization, with decreases in accounts receivable of $216,480
and inventories of $21,825 being offset by a decrease in accounts
payable and accrued expense of $416,164.
The Company funded increases in equipment and fixtures of
$14,294. Notes Payable to stockholder increased by $230,127.
The net affect of these transactions was in increase in cash
of $16,733, providing cash at end of the first quarter 1998 of
$201,156.
Notes Payable Line of Credit
As of June 30, 1997, the Company, in concert with its
subsidiary Nametre and its parent company Tytronics obtained new
terms from Silicon Valley Bank for a combined line of credit and
term loan of $1,500,000, secured by substantially all assets of
the Company, its subsidiary Nametre and Tytronics. This new line
was in effect on July 24, 1997. Advances under this line through
September 1, 1997, can not exceed the lesser of 70% of the
Company's eligible accounts receivable, as defined, or the
consolidated Tangible Net Worth, as defined, plus the minority
interest. Thereafter, borrowings can not exceed the lesser of
70% of the Company's eligible accounts receivable, as defined, or
110% of the consolidated Tangible Net Worth, as defined. These
outstanding amounts are payable on demand and advances are
contingent upon maintaining certain covenants relative to
profitability, liquidity and tangible net worth. As of December
31, 1997, the Company was not in compliance with all covenants
and ratios of the new line of credit. The Company obtained a
waiver from Silicon Valley Bank for these violations.
In the second half of fiscal 1996 the Company introduced a
new instrument product line, namely the Lambda 2000 Series. The
Company will continue to invest in enhanced sales and marketing
efforts, new product development, and the development of
strategic relationships, including licensing, acquisition, or
mergers. Management believes that operating capital and the line
of credit from Silicon Valley Bank will provide sufficient
capital to maintain stable Company operations throughout fiscal
1998. As previously indicated, the Company has proposed to enter
into a reorganization ("Reorganization") pursuant to which
Tytronics and Nametre will be merged into the wholly-owned
subsidiary of the Company, Holometrix Acquisition Corp., with the
result that Holometrix Acquisition Corp. will be the surviving
entity. Following the Reorganization, Holometrix Acquisition
Corp. will be merged into the Company. Management believes that
the Reorganization will result in increased operating capital for
the Company and more stable Company operations since Tytronics
and Nametre have a recent history of profitable operations.
However, there can be no guarantees that adequate operating funds
will be generated as a result of the Reorganization or through
revenue increases, or that strategic relationships will
materialize, or that additional funding can be obtained on
acceptable terms.
HOLOMETRIX, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
December 31, September 30,
1997 1997
(*)
CURRENT ASSETS:
Cash and cash equivalents $201,156 $ 184,423
Accounts receivable, less allowance
for doubtful accounts of $35,000 713,000 929,480
Inventories 823,431 845,256
Other current assets 49,381 50,958
TOTAL CURRENT ASSETS 1,786,968 2,010,117
EQUIPMENT AND FIXTURES - net 381,502 394,993
OTHER ASSETS - net 298,083 305,395
TOTAL ASSETS $2,466,553 $2,710,505
See notes to condensed consolidated financial statements.
(*)Balance sheet at September 30, 1997 has been taken from the
audited financial statements at that date. All other financial
statements are unaudited.
HOLOMETRIX, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS - Continued
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
December 31, September 30,
1997 1997
(*)
CURRENT LIABILITIES:
Notes payable - stockholders$ 72,015 $ 72,015
Accounts payable 995,519 1,266,795
Accrued payroll and related expenses 32,875 107,850
Accrued other expenses 88,803 158,716
Due to stockholder 299,707 51,576
Current maturities of
long-term obligations 68,967 93,967
TOTAL CURRENT LIABILITIES 1,557,886 1,750,919
LONG-TERM DEBT,
Notes payable-stockholders,
less current maturities 192,039 210,043
Long term obligations,
less current maturities 13,344 14,631
TOTAL LIABILITIES 1,763,269 1,975,593
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 120,963 103,536
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
30,000,000 shares authorized;
issued 28,098,157 280,982 280,982
outstanding 23,861,878
Additional paid-in capital 2,544,409 2,544,409
Accumulated deficit 2,139,070 2,090,015
686,321 735,376
Less: Treasury stock (at cost) 104,000 104,000
TOTAL STOCKHOLDERS'
EQUITY 582,321 631,376
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,466,553 $2,710,505
See notes to condensed consolidated financial statements.
(*)Balance sheet at September 30, 1997 has been taken from the
audited financial statements at that date. All other financial
statements are unaudited.
HOLOMETRIX, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
Three-Month Period Ended December 31,
1997 1996
NET REVENUES $1,118,882 $1,082,622
COST OF SALES 560,256 568,539
GROSS PROFIT 558,626 514,083
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 500,346 463,272
RESEARCH AND DEVELOPMENT 79,104 74,965
TOTAL OPERATING EXPENSE 579,450 538,237
`
LOSS FROM OPERATIONS (20,824) (24,154)
INTEREST EXPENSE - net (10,804) (6,237)
LOSS BEFORE MINORITY INTEREST (31,628) (30,391)
MINORITY INTEREST IN NET INCOME OF
CONSOLIDATED SUBSIDIARY (17,427) (3,611)
NET LOSS ( $49,055) ( $34,002)
NET LOSS PER COMMON SHARE:
BASIC ($0.00) ($0.00)
ASSUMING DILUTION ($0.00) ($0.00)
See notes to condensed consolidated financial statements.
HOLOMETRIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three-Month Period Ended December 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($49,055) ($34,002)
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities:
Depreciation and amortization 35,097 36,430
Minority interest 17,427 3,611
Changes in operating assets and liabilities:
Accounts receivable 216,480 130,483
Inventories 21,825 (53,698)
Other current assets 1,577 14,621
Accounts payable and
accrued expenses (416,164) (69,798)
Net cash provided by (used for)
operating activities (172,813) 27,647
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment and fixtures additions (14,294) (8,487)
Net cash used for
investing activities (14,294) (8,487)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable (25,000) (20,000)
Due to stockholders, net 230,127 (68,495)
Subscription receivable payments - 10,000
Borrowings under notes
payable-line of credit - 75,000
Decrease in long-term obligations (1,287) (26,204)
Net cash provided by (used for)
financing activities 203,840 (29,699)
Net increase (decrease)
in cash and cash equivalents 16,733 (10,539)
Cash and cash equivalents,
beginning of period 184,423 27,495
Cash and cash equivalents,
end of period $ 201,156 $ 16,956
See notes to condensed consolidated financial statements.
HOLOMETRIX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-QSB. Accordingly, they do not
include all information and footnotes required by generally
accepted accounting principles for complete financial statement
presentation. For further information refer to the financial
statements and notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended September 30, 1997.
The results of operations for the three month period reported
are not necessarily indicative of those that may be expected for
the full year. The accompanying financial information is
unaudited; however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary to
a fair presentation of the operating results of the period have
been included.
Note B - Net Loss Per Share
In the first quarter of fiscal 1998, the Company adopted
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings Per Share". SFAS 128 requires the presentation of both
basic and diluted earnings per share and replaces the previously
required standards for computing and presenting earnings per
share. Net loss per share amounts for all periods have been
presented and where appropriate restated to conform to the
requirements of SFAS 128. The following is a reconciliation of
the denominator (number of shares) used in the computation of net
loss per share. The numerator (net income) is the same for the
basic and diluted computations.
Three Month Period
Ended December 31,
1997 1996
Basic shares 23,861,878 22,296,878
Effect of dilutive -- --
securities
Dilutive shares 23,861,878 22,296,878
The following table summarizes securities that were outstanding
as of December 31, 1997 and 1996, but not included in the
calculation of diluted net loss per share because such shares are
antidilutive:
Three Month Period
Ended December 31,
1997 1996
Options 1,094,000 833,000
Warrants 550,000 2,100,000
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
SELECTED FINANCIAL DATA:
1997 1996
STATEMENT OF OPERATIONS DATA
Net revenues $4,528,636 $2,200,603
Net income (loss) ($211,771) $4,041
Net income (loss) per
Common share ($.01) $0.00
Weighted average Common
shares outstanding 22,309,316 16,313,316
CONSOLIDATED BALANCE SHEET DATA
Working capital $ 259,198 $ 298,315
Total assets $ 2,710,505 $ 2,548,723
Long-term obligations,
excluding current
portion $ 224,674 $ 213,539
Minority Interest $ 103,536 $ 66,634
Stockholders' Equity $ 631,376 $ 682,097
OVERVIEW
The Company's revenues are derived from the sale of thermal
analytical instruments and testing services. These two business
segments complement each other because testing services are
frequently purchased by companies that cannot yet afford the purchase
of their own instruments. Conversely, there are instrument customers
who frequently have testing needs beyond what their instrumentation
can handle, or have need of an independent laboratory to certify
their own results.
During fiscal 1992 and 1993, the Company sustained significant
losses with resultant cash flow problems. In late fiscal 1993, the
Board of Directors appointed Joseph J. Caruso as Acting President.
Mr. Caruso initiated a 33% cut in the workforce, placed payments to
creditors on hold, and assigned new responsibilities to existing
management, in order to concentrate on stabilizing operations and
generating revenue. In fiscal 1994, the Company was profitable,
achieving net income of $89,617 on sales of $2,499,008. However, the
balance sheet remained weak. A working capital deficit of $421,135
was present at the end of fiscal 1994 and the deficit in
stockholders' equity was $494,388.
Commencing in fiscal year 1993, the Company made a decision to
begin exploring strategic relationships with other companies as a
means of creating shareholder value and achieving corporate stability
through reaching a critical mass in revenue. In connection with this
decision, the Company entered into discussions with Tytronics
Incorporated ("Tytronics"), which designs and manufactures on-line
analyzers for process control and environmental compliance
monitoring. As a result of these discussions, on November 29, 1994,
Tytronics acquired approximately 55% of the Company's outstanding
Common Stock from existing stockholders, and entered into other
transactions with the Company described below.
On September 30, 1996, the Company acquired a majority of the
issued and outstanding capital stock of the National Metal Refining
Company ("Nametre"). Nametre, located in Metuchen, NJ, is a product
development and manufacturing company that specializes in
manufacturing in-line and laboratory viscosity analyzers. Since
Nametre was acquired on the last business day of the Company's fiscal
year, no revenues or expenses of Nametre are included in the
Company's fiscal 1996 statement of operations; however, Nametre's
balance sheet is consolidated into that of the Company as of
September 30, 1996.
During fiscal 1996, as a result of continuing profitability,
additional sales of common stock to Tytronics increasing its
ownership to approximately 67%, and the investment in Nametre, the
balance sheet improved significantly, as compared to fiscal 1995. At
the end of fiscal 1996, the Company's working capital amounted to
$298,315, a positive change of $95,854. Stockholders' Equity
amounted to $682,097 at September 30, 1996, a positive change of
$244,041 from the previous year end.
During fiscal 1997, as a result of losses at Holometrix, the
balance sheet deteriorated slightly as compared to fiscal 1996. At
the end of fiscal 1997, the Company's working capital amounted to
$259,198, a decrease of $39,117. Stockholders' equity amounted to
$631,376 at September 30, 1997, a
decrease of $50,721 from the previous year. This decrease included
the exercise of 1,550,000 warrants by Tytronics for an aggregate
exercise price of $100,000 through the extinguishment of debt.
The Company expects that it will continue to explore additional
business opportunities through enhanced sales and marketing efforts,
new product development, and the development of strategic
relationships, including licensing, acquisition, or merger with
related businesses. However, there can be no guarantee that such
activities will materialize or result in sustained profitability. In
this regard, the Company has proposed to enter into a Reorganization
pursuant to which Tytronics and Nametre will be merged into the
wholly-owned subsidiary of the Company, Holometrix Acquisition Corp.,
with the result that Holometrix Acquisition Corp. will be the
surviving entity. Following the Reorganization, Holometrix
Acquisition Corp. will be merged into the Company. See Item 1.
Description of Business - Business of Holometrix, Inc.
Year Ended September 30, 1997 As Compared To Year Ended September 30,
1996.
Revenues for the 1997 fiscal year totaled $4,528,636 as
compared to $2,200,603 in the comparable period of 1996, an increase
of $2,328,033. This 106% increase is primarily due to the
acquisition of a majority ownership in Nametre at the end of fiscal
year 1996. The revenues for Nametre alone totaled $2,451,575 and
revenues for Holometrix alone totaled $2,077,061, a 6% decrease over
the comparable period of fiscal 1996, due primarily to decreased
instrument sales.
Cost of sales increased by $998,394, or 75%, from $1,338,466
(61% of sales) for fiscal 1996 to $2,336,860 (52% of sales) in the
same period of fiscal 1997. This 75% increase is primarily due to
the Nametre acquisition. Cost of sales for Holometrix alone totaled
$1,391,392, a 4% increase. This increase is primarily due to the
higher costs associated with the introduction of the newly developed
Lambda instrument.
Selling, general and administrative expenses increased by
$1,250,664, or 187%, from $668,902 (30% of sales) to $1,919,566 (42%
of sales). The difference was primarily the result of the
acquisition of Nametre. Holometrix expenses alone totaled $736,629,
an increase of 10%. The Holometrix increase was primarily due to
increased legal and audit expenses incurred in connection with the
consolidation and reporting of Nametre.
Research and development increased $211,348, from $153,984 (7%
of sales) to $365,332 (8% of sales). The increase was again due to
the acquisition of Nametre. Holometrix R&D alone increased $16,396,
an increase of 11%. This increase was due to the addition of a
development engineer and ongoing development of new instrument
products.
Loss from operations was $93,122 for fiscal 1997, compared with
income of $39,251 in fiscal 1996. Holometrix' loss from operations
alone was $221,340. Consolidated Net loss was $211,771 for fiscal
1997. Holometrix net loss alone was $270,050 compared with a net
income of $4,041 for fiscal 1996. These losses are primarily due to
increased manufacturing, selling and administrative costs, partially
offset by income derived from the consolidation of Nametre.
Total Assets at September 30, 1997 increased to $2,710,505 from
$2,548,723 on September 30, 1996, an increase of $161,782 or 6%.
Cash increased by $156,928 primarily as a result of increased
borrowing from the Company's bank line of credit and to increased
collections activity, resulting in a decrease in accounts receivable
of $232,668 for the year. Inventories increased by $182,933 due to
manufacturing plans for increased sales volume and the introduction
of a new product. Equipment and fixtures increased by $43,337, net
of depreciation, due to purchase of additional equipment.
Total Liabilities at September 30, 1997 increased to $1,975,593
from $1,799,992 on September 30, 1996, an increase of $175,601, or
10%. This increase was primarily due to an increase of $52,015 due
to a stockholder and an increase of $233,112 in accounts payable and
accrued expenses, and an increase in long-term notes payable to a
stockholder of $110,043. This was offset by a decrease of $84,000 in
the Company's line of credit debt and a decrease of $98,908 in other
long-term obligations and a decrease of $11,033 in current maturities
of long-term obligations. Accounts payable increased to $1,266,795
at September 30, 1997 from $1,204,028 on September 30, 1996, an
increase of $62,767 primarily due to increase in operational
expenditures and sales commissions.
As of September 30, 1997, the Company had an outstanding order
backlog for products and services of approximately $818,000 as
compared to a backlog of $676,000 at September 30, 1996. The Company
believes the $818,000 backlog will largely be realized in fiscal
1998. The outstanding backlog for Holometrix alone at September 30,
1997, was approximately $131,000, a decrease of $202,000 (66%). This
decrease is due primarily to the decrease of revenue from a
government contract and a decline in certain instruments sales.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Operating cash flows were positive, amounting to $255,663
during fiscal 1997 compared to $136,043 during fiscal 1996.
Operating cash flows approximated the sum of net loss plus
depreciation and amortization, with decreases in accounts receivable
of $232,668 and an increase in accounts payable and other accrued
expenses of $233,112 being offset by an increase in inventory of
$182,933.
The Company funded increases in equipment and fixtures of
$178,396 and patents of $31,082. In conjunction with the rewriting
of the Silicon Valley line of credit to Tytronics, the bank debt was
eliminated resulting in an increase of Notes Payable to Stockholder
along with the exercise of $100,000 of warrants by Tytronics.
The net affect of these transactions was an increase in cash of
$156,928 providing cash at the end of fiscal 1997 of $184,423. The
combination of operating cash flows plus the Company's line of credit
should be adequate for immediate needs.
Acquisition & Debt Conversion
On September 30, 1996, the Company acquired approximately
61.23% of the outstanding shares of Nametre, a developer of
instruments for the measurement of viscous properties of materials,
for $225,000 in cash, and $75,000 in notes payable, plus acquisition
costs. The purchase also provided for the acquisition by the Company
of warrants to purchase an additional 13,334 shares at $3 per share
and 10,000 shares at $6 per share. The Company raised the funds to
acquire Nametre by issuing 6,000,000 shares of the Company's common
stock to Tytronics, at a purchase price of $.05 per share. At the
time of this sale of shares, the Company entered into a debt
restructuring agreement with Tytronics; in conjunction with that
agreement, the Company also issued warrants to Tytronics to purchase
one million, one hundred thousand (1,100,000) shares of Common Stock
at an exercise price of $0.05 per share and one million (1,000,000)
shares of Common Stock at an exercise price of $0.10 per share,
expiring February 1, 2006. On September 29, 1997 Tytronics exercised
warrants for 1,550,000 shares in exchange for debt of $100,000.
Notes Payable to Stockholders
As of December 31, 1995, the Company was in default on the then
current $55,000 installment payment due on the original $165,000 term
note to Tytronics. However, Tytronics had expressed its agreement
not to accelerate payment on this term note. Subsequently, as of
September 30, 1996, in connection with additional common stock sold
to Tytronics, $65,000 of the note was converted to equity as payment
and the note was re-written for $100,000 payable in two installments
due in November 1997 and November 1998. As of September 29, 1997,
this debt was extinguished with the exercise of the 1,550,000
warrants noted above.
Notes Payable Line of Credit
As of June 30, 1997, the Company, in concert with its
subsidiary Nametre and its parent company Tytronics obtained new
terms from Silicon Valley Bank for a combined line of credit and term
loan of $1,500,000, secured by substantially all assets of the
Company, its subsidiary Nametre and Tytronics. This new line was in
effect on July 24, 1997. Advances under this line through September
1, 1997, can not exceed the lesser of 70% of the Company's eligible
accounts receivable, as defined, or the consolidated Tangible Net
Worth, as defined, plus the minority interest. Thereafter,
borrowings can not exceed the lesser of 70% of the Company's eligible
accounts receivable, as defined, or 110% of the consolidated Tangible
Net Worth, as defined. These outstanding amounts are payable on
demand and advances are contingent upon maintaining certain covenants
relative to profitability, liquidity and tangible net worth. As of
September 30, 1997, the Company was in compliance with all covenants
and ratios of the new line of credit.
In the second half of fiscal 1996 the Company introduced a new
instrument product line, namely the Lambda 2000 Series. The Company
will continue to invest in enhanced sales and marketing efforts, new
product development, and the development of strategic relationships,
including licensing, acquisition, or mergers. Management believes
that operating
capital and the line of credit from Silicon Valley Bank will provide
sufficient capital to maintain stable Company operations throughout
fiscal 1998. As indicated, the Company has proposed to enter into a
Reorganization pursuant to which Tytronics and Nametre will be merged
into the wholly-owned subsidiary of the Company, Holometrix
Acquisition Corp., with the result that Holometrix Acquisition Corp.
will be the surviving entity. Following the Reorganization,
Holometrix Acquisition Corp. will be merged into the Company.
Management believes that the Reorganization will result in increased
operating capital for the Company and more stable Company operations
since Tytronics and Nametre have a recent history of profitable
operations. See Item 1. Description of Business - Business of
Holometrix, Inc. However, there can be no guarantees that adequate
operating funds will be generated as a result of the Reorganization
or through revenue increases, or that strategic relationships will
materialize, or that additional funding can be obtained on acceptable
terms.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 128 ("SFAS
128") "Earnings Per Share", issued by the Financial Standards Board
is effective for financial statements for fiscal years ending after
December 15, 1997. The new standard establishes standards for
computing and presenting earnings per share. The effect of adopting
SFAS 128 is not expected to be material. The Company is required to
adopt the disclosure requirements of SFAS 128 during the year ending
September 30, 1998.
In June 1997, the Financial Accounting Standards Board issued
two new disclosure standards. Results of operations and financial
position will be unaffected by implementation of these new standards.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), establishes standards for
reporting and display of comprehensive income, its components, and
accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," establishes
standards for the way that public enterprises report information
about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic
areas, and major customers. SFAS No. 131 defines operating segments
as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
Both of these new standards are effective for financial statements
for periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Due to the recent
issuance of these standards, management has been unable to fully
evaluate the impact, if any, they may have on future financial
statement disclosures.
Consolidated Financial Statements
September 30, 1997 and 1996
Holometrix, Inc. and Subsidiary
Contents
Reports of independent certified accountants F-1 to F-2
Consolidated financial statements:
Consolidated balance sheets F-3 to F-4
Consolidated statements of operations F-5
Consolidated statements of stockholders' equity F-6
Consolidated statements of cash flows F-7
Notes to consolidated financial statements F-8 to F-25
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Holometrix, Inc.
Bedford, Massachusetts
We have audited the accompanying consolidated balance sheets of
Holometrix, Inc. and subsidiary as of September 30, 1997 and
1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
did not audit the 1997 financial statements of National Metal
Refining Company, Inc. ("Nametre"), which statements reflect
total assets of $1,245,027 as of September 30, 1997 and total
revenues of $2,451,575 for the year ended September 30, 1997.
Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to
the 1997 amounts included for such subsidiary, is based solely
on the report of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Holometrix, Inc. and subsidiary at September 30,
1997 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Boston, Massachusetts
November 26, 1997
Holometrix, Inc. and Subsidiary
Consolidated Balance Sheets
September 30, 1997 1996
Assets (Notes G and H)
Current:
Cash and cash equivalents $ 184 423 $ 27 495
Accounts receivable, less allowance for doubtful
accounts of $35,000 in 1997 and 1996 929 480 1 162 148
Inventories (Note D) 845 256 662 323
Other current assets 50 958 32 802
--------------------------------------------------------------------
Total current assets 2 010 117 1 884 768
Equipment and fixtures, net (Note E) 394 993 351 656
Other assets, net (Note F) 305 395 312 299
- ---------------------------------------------------------------------
Total assets $2 710 505 $2 548 723
See accompanying notes to consolidated financial statements.
Holometrix, Inc. and Subsidiary
Consolidated Balance Sheets
(Continued)
September 30, 1997 1996
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable - stockholder (Note G) $ 72 015 $ 20 000
Notes payable - line of credit (Note G) - 84 000
Accounts payable 1 266 795 1 204 028
Accrued payroll and related expenses 107 850 37 086
Accrued expenses - other 158 716 59 135
Due to stockholder (Note M) 51 576 77 204
Current maturities of long-term obligations
(Note H) 93 967 105 000
- ----------------------------------------------------------------
Total current liabilities 1 750 919 1 586 453
Long-term obligations:
Notes payable - stockholder, less current
maturities (Note G) 210 043 100 000
Long-term obligations, less current
maturities (Note H) 14 631 113 539
Minority interest in consolidated subsidiary
(Note B) 103 536 66 634
Commitments and contingencies
(Notes C, G, H, J, K and M)
Stockholders' equity (Notes B and K):
Common stock, $.01 par value, 30,000,000
shares authorized; issued 28,098,157 in 1997
and 26,533,157 in 1996; outstanding
23,861,878 in 1997 and 22,296,878 in 1996 280 982 265 332
Additional paid-in capital 2 544 409 2 459 009
Accumulated deficit (2 090 015)(1 878 244)
- ----------------------------------------------------------------
735 376 846 097
Less: Treasury stock, at cost (104 000) (104 000)
Subscriptions receivable - (60 000)
- ----------------------------------------------------------------
Total stockholders' equity 631 376 682 097
- ----------------------------------------------------------------
Total liabilities and
stockholders' equity $2 710 505 $2 548 723
See accompanying notes to consolidated financial statements.
Holometrix, Inc. and Subsidiary
Consolidated Statements of Operations
September 30, 1997 1996
- -----------------------------------------------------------------
Net revenues (Note L) $4 528 636 $2 200 603
Cost of revenues 2 336 860 1 338 466
- -----------------------------------------------------------------
Gross profit 2 191 776 862 137
- -----------------------------------------------------------------
Selling, general and administrative expenses 1 919 566 668 902
Research and development expenses 365 332 153 984
- -----------------------------------------------------------------
Total operating expenses 2 284 898 822 886
- -----------------------------------------------------------------
Income (loss) from operations (93 122) 39 251
Interest expense 56 747 35 210
- -----------------------------------------------------------------
Income (loss) before taxes on income
and minority interest (149 869) 4 041
Taxes on income (Note I) 25 000 -
Income (loss) before minority interest (174 869) 4 041
Minority interest in net income of subsidiary 36 902 -
- -----------------------------------------------------------------
Net income (loss) $ (211 771) $ 4 041
- -----------------------------------------------------------------
Net income (loss) per common share $ (0.01) $ 0.00
- -----------------------------------------------------------------
Weighted average number of common and
common equivalent shares used in calculation
of income (loss) per common share
(Note C) 22 309 316 16 313 316
See accompanying notes to consolidated financial statements.
<TABLE>
Holometrix, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
<CAPTION>
Preferred
Stock
Series B Common Stock Additional Total
For the years ended Par Value $.01 Par Value $.01 Paid-in Accumulated Treasury Stock Subscriptions Stockholders'
September 30, 1997 Shares Amount Shares Amount Capital Deficit Shares Amount Receivable Equity
and 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1995 - $ - 20 533 157 $205 332 $2 219 009 $(1 882 285) 4 236 279 $(104 000) $ - $ 438 056
Common shares issued
(Note B) - - 6 000 000 60 000 240 000 - - - (60 000) 240 000
Net income for year - - - - - 4 041 - - - 4 041
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1996 - - 26 533 157 265 332 2 459 009 (1 878 244) 4 236 279 (104 000) (60 000) 682 097
Payments received on
subscriptions receivable - - - - - - - - 60 000 60 000
Common shares issued
(Notes B and G) - - 1 550 000 15 500 84 500 - - - - 100 000
Issuance of common stock
to employees 15 000 150 900 - - - - 1 050
Net loss for year - - - - - (211 771) - - - (211 771)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1997 - $ - 28 098 157 $280 982 $2 544 409 $(2 090 015) 4 236 279 $(104 000) $ - $ 631 376
See accompanying notes to consolidated financial statements.
</TABLE>
Holometrix, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Note N)
Years ended September 30, 1997 1996
Cash flows from operating activities:
Net income (loss) $(211 771) $ 4 041
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 164 791 125 125
Issuance of common stock to employees 1 050 -
Minority interest 36 902 -
Changes in operating assets and liabilities,
net of effects of acquisition in 1996:
Accounts receivable 232 668 (335 934)
Inventories (182 933) 16 921
Other current assets (18 156) 10 970
Accounts payable 62 767 328 019
Accrued expenses 170 345 (13 099)
- ------------------------------------------------------------------------
Net cash provided by operating activities 255 663 136 043
- ------------------------------------------------------------------------
Cash flows from investing activities:
Equipment and fixtures additions (178 396) (80 468)
Purchase of Nametre, net of cash acquired - (266 514)
Increase in other assets (22 828) (17 956)
- -------------------------------------------------------------------------
Net cash used for investing activities (201 224) (364 938)
- -------------------------------------------------------------------------
Cash flows from financing activities:
Due to stockholder, net (25 628) 86 350
Borrowings - stockholder & others 262 058 -
Proceeds from subscriptions receivable 60 000 -
Proceeds from issuance of common stock - 175 000
Net repayments on line of credit (84 000) (41 000)
Repayments on long-term obligations (109 941) (4 667)
- -------------------------------------------------------------------------
Net cash provided by financing activities 102 489 215 683
- -------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 156 928 (13 212)
Cash and cash equivalents, beginning of year 27 495 40 707
- -------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 184 423 $ 27 495
See accompanying notes to consolidated financial statements.
Holometrix, Inc. and Subsidiary
Notes to Consolidated Financial Statements
A. Business Organization
Holometrix, Inc. ("Holometrix"), a Delaware corporation
incorporated on October 23, 1985, is a product development,
manufacturing, and contract test services company which
specializes in manufacturing instruments and providing contract
test services for measuring the thermophysical properties of a
wide variety of materials. Holometrix's Instruments Division
currently designs, manufactures, and distributes five product
lines containing a total of sixteen instrument models which
measure thermophysical properties for research and quality
control applications. Holometrix's Testing Services Division
provides contract test and engineering services to evaluate
various temperature-related performance factors of virtually any
material. The Testing Services Division also performs mechanical
and physical properties testing. Holometrix is located in
Bedford, MA.
In 1996, Holometrix purchased a majority of the issued and
outstanding capital stock of National Metal Refining Company,
Inc. ("Nametre" or "Subsidiary"). Nametre is a product
development and manufacturing company that specializes in
manufacturing in-line and laboratory viscosity analyzers. These
analyzers are used to measure the viscosity and viscoelasticity
of a wide range of materials that are sold to the polymer
manufacturing, petrochemical, food, paints and coatings, and pulp
and paper markets. Nametre is located in Metuchen, NJ.
B. Acquisition
On September 30, 1996, Holometrix acquired approximately
61.23% of the outstanding shares of National Metal Refining
Company, Inc., a developer of instruments for the measurement of
viscous properties of materials, for $225,000 in cash and $75,000
in notes payable, plus acquisition costs. The acquisition has
been accounted for under the purchase method of accounting,
resulting in the cost of the acquisition being allocated on the
basis of the estimated fair value of the assets acquired and
liabilities assumed. This allocation resulted in goodwill of
approximately $245,000 which is being amortized over 15 years.
The purchase also provided for the acquisition by Holometrix of
warrants to purchase an additional 13,334 shares at $3 per share
and 10,000 shares at $6 per share. Holometrix raised the funds
to acquire Nametre by issuing 6,000,000 shares of its' common
stock to Tytronics, Incorporated ("Tytronics"), at a purchase
price of $.05 per share. At the time of this
B. Acquisition (Continued)
sale of shares, Holometrix entered into a debt restructuring
agreement with Tytronics. In conjunction with that agreement,
Holometrix also issued warrants to Tytronics to purchase one
million, one hundred thousand (1,100,000) shares of Common Stock
at an exercise price of $0.05 per share and one million
(1,000,000) shares of Common Stock at an exercise price of $0.10
per share, expiring February 1, 2006. Joseph J. Caruso, a
director of Holometrix, is also a director of Nametre. In
addition, Mr. Caruso is the president of Bantam Group, Inc.,
which is a stockholder of Holometrix and Nametre and has entered
into consulting agreements with Holometrix and Nametre. The
purchase did not have a material effect on the Consolidated
Statement of Operation for the year ended September 30, 1996.
During 1997, Tytronics exercised 1,100,000 shares at $.05 per
share and 450,000 shares at $.10 per share.
The unaudited pro forma consolidated results of Holometrix and
Nametre for the year ended September 30, 1996, assuming that the
acquisition had occurred at October 1, 1995, and after giving
effect to certain pro forma adjustments, is as follows:
September 30, 1996
(Unaudited)
Revenue $4 803 389
Net loss $ (27 010)
Net loss per share $ (0.00)
C. Summary of
Significant
Accounting
Policies
Basis of Presentation
The consolidated financial statements include the accounts of
Holometrix and Nametre, its majority-owned subsidiary (the
"Company"). All intercompany accounts and transactions have been
eliminated. As discussed in Note B, Holometrix acquired a
majority interest in Nametre at September 30, 1996. Accordingly,
the Consolidated Statements of Income and Consolidated Statements
of Cash Flows for the year ended September 30, 1996, exclude any
activity of Nametre prior to the date of acquisition.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with maturities of three months or less to be cash
equivalents.
Concentration of Credit Risk
Concentration of credit risk consists principally of trade
receivables. This risk is limited due to the large number of
customers comprising the Company's customer bases, and their
dispersion across different businesses and geographic regions.
Ongoing credit reviews of customers' financial condition are
performed, and collateral is not required. The Company maintains
reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations.
Inventories
Inventories are valued at the lower of cost or market using
the first-in, first-out (FIFO) method.
Equipment and Fixtures
Equipment and fixtures are stated at cost. Depreciation is
computed using straight-line and accelerated methods over the
estimated useful lives, ranging between 5 and 10 years, of the
related asset. Leasehold improvements are amortized over the
life of the lease including expected renewal periods not to
exceed the maximum useful lives of the assets.
C. Summary of
Significant
Accounting
Policies
(Continued)
Goodwill
Goodwill resulting from the excess of cost over fair value of net
assets acquired is being amortized on a straight-line basis over
15 years. The Company evaluates the recoverability and remaining
life of its goodwill and determines whether the goodwill should
be completely or partially written-off or the amortization period
accelerated. The Company will recognize an impairment of
goodwill if undiscounted estimated future operating cash flows of
the acquired business are determined to be less than the carrying
amount of the goodwill. If the Company determines that the
goodwill has been impaired, the measurement of the impairment
will be equal to the excess of the carrying amount of the
goodwill over the amount of the undiscounted estimated future
operating cash flows. If an impairment of goodwill were to
occur, the Company would reflect the impairment through a
reduction in the carrying value of goodwill.
Other Assets
Other assets include goodwill, a licensing agreement, patent
costs, and various deposits for office equipment and utilities.
Costs related to the licensing agreement are amortized using the
straight-line method over the life of the agreement. Patent
costs are amortized over 8 years.
Revenue Recognition
Revenue for instruments sales is recognized when instruments
are shipped. Revenue for testing services is recognized as
services are performed.
Research and Development
Research and development costs are charged to expense as
incurred.
Income taxes
The Company utilizes the liability method of accounting for
income taxes, as set forth in Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under
SFAS No. 109, deferred tax liabilities or assets are recognized
for the estimated tax effects of temporary differences between
financial reporting and income tax bases of assets and
liabilities and for loss carryforwards based on enacted tax laws
and rates.
C. Summary of
Significant
Accounting
Policies
(Continued)
Net Income (Loss) Per Share
Net income (loss) per common share is computed using the
weighted average number of common and common equivalent shares
outstanding during the year. Common shares issuable upon
exercise of outstanding warrants and options, when dilutive, are
included in the computation of shares outstanding.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Financial Instruments
The estimated fair value of the Company's financial instruments,
which include accounts receivable, accounts payable, notes
payable, and long-term debt, approximate their carrying value.
New Accounting Standards
Effective October 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation." The Company has elected to
continue to account for stock options at their intrinsic value
with disclosure of the effects of fair value accounting on net
earnings (loss) and earnings (loss) per share on a pro forma
basis.
Statement of Financial Accounting Standards No. 128, "Earnings
per Share," ("SFAS No. 128") issued by the Financial Accounting
Standards Board is effective for financial statements for fiscal
years ending after December 15, 1997. The new standard
establishes standards for computing and presenting earnings per
share.
C. Summary of
Significant
Accounting
Policies
(Continued)
New Accounting
Standards (Continued)
The effect of adopting Statement of Financial Accounting
Standards No. 128 is not expected to be material. The Company is
required to adopt the disclosure requirements of SFAS No. 128
during the year ended September 30, 1998.
In June 1997, the Financial Accounting Standards Board issued
two new disclosure standards. Results of operations and
financial position will be unaffected by implementation of these
new standards.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("SFAS No. 130") establishes standards for
reporting and display of comprehensive income, its components,
and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements.
SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," establishes
standards for the way that public enterprises report information
about operating segments in annual financial statements and
requires reporting of selected information about operating
segments in interim financial statements issued to the public.
It also establishes standards for disclosures regarding products
and services, geographic areas, and major customers. SFAS No.
131 defines operating segments as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
C. Summary of
Significant
Accounting
Policies
(Continued)
New Accounting
Standards (Continued)
Both of these new standards are effective for
financial statements for periods beginning after
December 15, 1997 and require comparative
information for earlier years to be restated.
Due to the recent issuance of these standards,
management has been unable to fully evaluate the
impact, if any, they may have on future financial
statement disclosures.
D. Inventories As of September 30, inventories
consist of the following:
1997 1996
Raw materials $494 926 $401 779
Work in process 122 992 109 893
Finished goods 227 338 150 651
-----------------------------------------------
Total $845 256 $662 323
E. Equipment and Fixtures
As of September 30, equipment and fixtures
consist of the following:
1997 1996
Furniture and fixtures $ 80 123 $ 80 795
Leasehold improvements 73 771 70 471
Computer equipment 238 693 212 580
Laboratory and shop
equipment 462 924 313 934
Demo equipment 265 918 265 253
Guarded hot box facility 250 061 250 061
-----------------------------------------------
1 371 490 1 193 094
Less accumulated
depreciation
and amortization 976 497 841 438
-----------------------------------------------
Net $ 394 993 $ 351 656
F. Other Assets As of September 30, other assets
consist of the following:
1997 1996
Goodwill $244 788 $244 788
Licensing agreement 35 450 35 450
Patents 113 561 82 479
Deposits 13 669 21 923
-----------------------------------------------
407 468 384 640
Less accumulated amortization102 073 72 341
-----------------------------------------------
Net $305 395 $312 299
G. Notes Payable -
Stockholder and
Line of Credit
As of September 30, Notes payable -
stockholder and line of credit consist of the
following:
1997 1996
Notes payable - stockholder:
10.5% term loan $282 058 $ -
10% term subordinated note - 100 000
10% demand subordinated note - 20 000
Less current maturities (72 015) (20 000)
---------------------------------------------------
Long-term portion $210 043 $100 000
----------------------------------------------------
Notes payable -
line of credit $ - $ 84 000
G. Notes Payable -
Stockholder and
Line of Credit (Continued)
During 1997, the Company renegotiated its working
capital line of credit. Under the new terms, the
Company and its majority stockholder, Tytronics,
as a consolidated group (the "Group") entered
into a $1,000,000 working capital line of credit
and a $500,000 term loan agreement (the
"Financing"). The Financing is secured by
substantially all assets of the Group and is
guaranteed by Holometrix, Tytronics, and Nametre.
Advances are contingent upon maintaining certain
covenants relative to profitability, liquidity,
and tangible net worth. Advances under the line
of credit after September 1, 1997 are limited to
70% of the Group's eligible accounts receivable,
as defined, or 110% of the Group's consolidated
tangible net worth, as defined. Borrowings are
payable on demand, and bear interest at the
bank's prime rate plus 2% (10.5% at September 30,
1997). The line of credit expires in July 1998.
The term loan is due in July 2001, payable in
monthly installments of $10,417 plus interest at
the bank's prime rate plus 1.25% (9.75% at
September 30, 1997). Advances under the term
loan were made to Tytronics. Total borrowings of
Tytronics outstanding under the Financing at
September 30, 1997 amounted to $607,387.
In connection with the above bank financing,
Tytronics advanced to the Company certain funds
under an informal agreement. At September 30,
1997, $282,058 is payable to Tytronics under the
agreement. The Company has recorded $72,015 as a
current liability based on its informal agreement
with Tytronics. The $210,043 long-term note is payable
over 2 years and 11 months at $6001 per month.
During 1996, in support of the Nametre
acquisition, and in connection with additional
investments by Tytronics of $300,000 in the
Company, Tytronics applied $65,000 of debt to the
purchase of common stock and rewrote the
remaining $100,000 as long term debt, with
payments of $50,000 due November 23, 1997, and
$50,000 due November 23, 1998. During 1997,
Tytronics applied the remaining $100,000 of this
debt to the purchase of common stock by eliminating
this debt through the exercise of 1,550,000 warrants
which were previously issued to Tytronics.
H. Long-Term Obligations
As of September 30, long-term obligations consist
of the following:
1997 1996
10% term note payable -
collateralized $ 50 000 $ 155 000
6% term note payable -
unsecured 19 631 24 572
Note payable - other 38 967 38 967
Less current maturities (93 967) (105 000)
---------------------------------------------------
Long-term portion $ 14 631 $ 113 539
The note payable - collateralized consists of a
10% note payable to the estate of the former
owner of Nametre. Payments are due quarterly and
include principal and interest. The note is
collateralized by substantially all of the assets
of Nametre.
In fiscal 1992, the Company issued a $50,000
Unsecured Promissory Note to a founder of the
Company. Terms of the note required principal
repayment of $25,000 plus accrued interest at 6%
on April 1, 1993 and April 1, 1994. In August,
1994, the note was renegotiated, with the
outstanding debt at $44,000. The new agreement
calls for 68 monthly payments of $500 each,
including interest at 6%, forgives $5,000
principal immediately, and forgives an additional
$5,000 at the end of the payment schedule if all
payments are made on time. At September 30,
1997, the outstanding balance was $19,631, of
which $14,631 is classified as a long-term
liability, and $5,000 is classified as a current
liability.
H. Long-Term
Obligations (Continued)
As of September 30, 1997, the aggregate annual
payments on long-term obligations are as follows:
1998 $ 93 967
1999 5 592
2000 4 039
-------------------------------------------------
Total scheduled payments 103 598
Due fiscal 2000 if payments are late 5 000
-------------------------------------------------
Total $108 598
I. Taxes on Income Years ended September 30, 1997 1996
Current:
Federal $16 200 $ -
State 8 800 -
---------------------------------------------
25 000 -
---------------------------------------------
Deferred:
Federal - -
---------------------------------------------
$25 000 $ -
The Company has net operating loss carryforwards
available for financial reporting and federal
income tax purposes of approximately $1,780,000
expiring through 2012. Because of prior years
transactions with Tytronics and the resulting
"change in ownership," the future use of the
carryforward that existed at the time of the
change is restricted.
I. Taxes on Income (Continued)
Deferred taxes consist of the following:
September 30, 1997 1996
Deferred tax assets:
Net operating loss carryforwards $ 721 000 $ 592 000
Account receivable reserve 14 000 14 000
Other temporary differences 29 000 24 000
Valuation allowance (724 000) (630 000)
------------------------------------------------------------
40 000 -
Deferred tax liability:
Basis difference of property and
equipment 40 000 -
------------------------------------------------------------
Net deferred tax asset $ - $ -
The Company has provided a valuation allowance
equal to 100% of the net deferred tax asset since
it is more likely than not that the deferred tax
asset will not be realized.
A reconciliation of the federal statutory income
tax rate and the effective tax rate as a
percentage of income (loss) before taxes on
income and minority interest for the years ended
September 30 is as follows:
1997 1996
Statutory rate (34.0)% 34.0%
Utilization of federal net
operating loss carryforwards - (34.0)
Operating loss generating no
current tax benefit 34.0 -
Federal and state taxes of
subsidiary not consolidated
for tax purposes 17.0 -
Effective tax rate 17.0% -%
J. Operating Leases
Holometrix conducts its
operations from leased facilities consisting of
office and production space cancelable upon 90
days written notice by either party. Nametre
conducts it operations from leased facilities
consisting of office and production space.
Nametre occupies this facility on a month-to-
month basis under an operating lease. The
Company's total rent expense in fiscal years 1997
and 1996 was approximately $99,000 and $65,000,
respectively, net of rental income from
Tytronics. Rental income from Tytronics in those
same years was approximately $41,000 and $31,000,
respectively.
K. Stock Options
In March 1991, the stockholders
approved the 1991 Stock Plan (the "1991 Plan").
Under this plan, awards of, and options to
purchase, an aggregate of 3,000,000 shares may be
issued to directors, officers, employees, and
consultants of the Company. The exercise price
of incentive stock options (ISOs) granted under
the 1991 Plan may not be less than the fair
market value of the Company's Common Stock on the
date of grant. The exercise price per share of
non-qualified options under the 1991 Plan cannot
be less than the lesser of the book value per
share of Common Stock as of the end of the
preceding fiscal year, or 50% of the fair market
value per share of Common Stock on the date of
grant. On April 20, 1995, the Company issued to
Mr. John E. Wolfe, an officer of the Company, an
ISO under the 1991 Plan to purchase 200,000
shares of common stock at $.03 per common share
exercisable to April 20, 2000. During 1996,
options for 100,000 shares were issued to Mr.
Richard Mannello, who was not then an officer.
During 1997, Mr. Mannello was named an officer of
the Company, and options for an additional
200,000 shares were issued to Mr. Mannello.
K. Stock Options (Continued)
During fiscal year 1996, options to purchase
3,000 shares from the 1991 Plan were cancelled
and returned to its respective Plan.
A summary of stock option activity under the
Plans is as follows:
1991 Plan Non-Qualified
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding at
September 30, 1995 527 000 $0.03 209 000 $0.05
Granted 100 000 0.03 - -
Exercised - - - -
Canceled (3 000) 0.02 - -
---------------------------------------------------------------------
Outstanding at
September 30, 1996 624 000 0.03 209 000 0.05
Granted 470 000 .05 - -
Exercised - - - -
Canceled - - (209 000) .05
-----------------------------------------------------------------------
Outstanding at
September 30,
1997 1 094 000 $0.04 - $ -
K. Stock Options(Continued)
The following tables summarize
information about stock options outstanding at
September 30, 1997:
Options Outstanding
-------------------
Weighted-
Average Weighted-
Range of Number Remaining Average
Exercise Outstanding at Contractual Exercise
Prices September 30, 1997 Life (years) Price
-----------------------------------------------------------
$.05 470 000 9.3 $.05
.03 600 000 5.1 .03
.02 24 000 3.5 .02
----------------------------------------------------------------
$.02 - $.05 1 094 000 6.8 $.04
Options Exercisable
-------------------
Weighted-
Average Weighted-
Range of Number Remaining Average
Exercise Exercisable at Contractual Exercise
Prices September 30, 1997 Life (years) Price
--------------------------------------------------------------
$.05 90 000 9.3 $.05
.03 540 000 4.8 .03
.02 24 000 3.5 .02
---------------------------------------------------------------
$.02 - $.05 654 000 6.2 $.03
K. Stock Options (Continued)
The Company accounts for its stock-based
compensation plan using the intrinsic value
method. Accordingly, no compensation cost has
been recognized for its stock option plan. Had
compensation cost for the Company's stock option
plan been determined based on the fair value at
the grant dates for awards under the plan
consistent with the method of Statement of
Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the
Company's net income (loss) and earnings (loss)
per share would have been adjusted to the pro
forma amounts indicated below:
Years ended September 30, 1997 1996
Net income (loss) As reported $(211 771) $4 041
Pro forma $(217 271) $2 841
Earnings (loss) As reported $ (.01) $ .00
per share Pro forma $ (.01) $ .00
In determining the pro forma amounts above, the
Company estimated the fair value of each option
granted using the Black-Scholes option pricing
model with the following weighted-average
assumptions used for grants in 1997 and 1996:
dividend yield of 0% for both years and expected
volatility of 46.5% for both years, risk-free
rates ranging from 6.07% to 6.92% for 1997 and
6.14% to 6.33% for 1996, and expected lives of 10
years for 1997 and 1996. The weighted average
fair value of options granted in fiscal 1997 and
1996 was $22,500 and $5,000, respectively.
Reserved Common Stock
In connection with the stock option plans and
outstanding warrants (see Note B), the Company
has reserved 5,050,000 shares of Common Stock as
of September 30, 1997.
L. Export SalesExport sales for the years ended
September 30 are as follows:
1997 1996
Europe 10 % 9 %
Asia 12 % 2 %
Other 9 % 18 %
31 % 29 %
M. Related Party
Transactions
(see Notes B, G, H, J and K)
The Company shares space in its operating
facility with Tytronics which is a 69.2%
shareholder of the total outstanding shares of
the Company. The companies allocate rent expense
based on the square footage each occupies. On
this basis, rental payments from Tytronics
amounted to $41,105 in fiscal 1997 and $30,801 in
fiscal 1996. The companies also share other
operating and administrative costs based on
estimated usage. During the fiscal years ended
September 30, 1997 and 1996, this informal
agreement resulted in the payments of
approximately $86,000 and $80,000, respectively,
by the Company to Tytronics for such operating
and administrative costs. At September 30, 1997
and 1996, the Company had net amounts due to
Tytronics of $51,576 and $77,204, respectively.
Holometrix and Bantam Group, Inc. ("Bantam"),
a business advisory organization, are parties to
a consulting agreement which provides for payment
of a consulting fee of $1,500 per month and
continues month-to-month unless terminated by
either party on thirty days' notice. Pursuant to
this agreement, Bantam was issued in December,
1993 800,000 shares of the Company's Common Stock
plus the reimbursement of any tax liability
arising from the issuance of the stock. Mr.
Joseph J. Caruso, Holometrix's Chairman, is also
the president of Bantam. In addition, Bantam has
a consulting arrangement with Nametre, which
continues on a month-to-month basis unless
terminated by either party on thirty days'
notice. Payments under this agreement are $1,250
per month.
N. Supplemental
Disclosure of
Cash Flow
Information
1997 1996
Interest paid during the year $ 62 000 $36 168
Income taxes paid during the year $ 800 $ 600
Supplemental Disclosure of Non-Cash Information:
Conversion of debt and accrued interest
into Common Stock $100 000 $65,000
In September 1996, Holometrix acquired 61.23% of
the outstanding stock of Nametre in an
acquisition (Note B). The estimated fair value
of assets acquired was $1,207,381, including
goodwill of $244,788 with liabilities assumed of
$874,233, less minority interest of $66,634.
O. Proposed Reorganization
On August 28, 1997, the Boards of Directors of
Holometrix, Tytronics, and Nametre approved a
proposed reorganization of Holometrix subject to
shareholder approval pursuant to which Tytronics,
the majority owner of Holometrix, and Nametre,
the majority owned subsidiary of Holometrix will
be merged into Holometrix Acquisition Corp., a
Delaware Corporation and the wholly-owned
subsidiary of Holometrix, with the result that
Holometrix Acquisition will be the surviving
entity. Following the reorganization, Holometrix
Acquisition will be merged into Holometrix. The
Company anticipates that the reorganization will
be approved by the shareholders of each company
and that the proposed mergers will occur in the
second quarter of fiscal 1998.
TO THE STOCKHOLDERS AND DIRECTORS OF
NATIONAL METAL REFINING (NAMETRE) COMPANY, INC.
We have audited the accompanying balance sheets of National
Metal Refining (Nametre) Company, Inc. as of September 30,
1996 and December 31, 1995 and the related statements of
changes in stockholders' equity, revenues and expenses, and
cash flows for the nine months and twelve months then ended.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statements presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
presents fairly, in all material respects, the financial
position of National Metal Refining (Nametre) Company, Inc.
as of September 30, 1996 and December 31, 1995, and the
results of its operations and cash flows for the nine months
and twelve months then ended in conformity with generally
accepted accounting principles.
/s/ Wilkin & Guttenplan
WILKIN & GUTTENPLAN, P.C.
Certified Public Accountants
East Brunswick, New Jersey
December 2, 1996
Page 1
NATIONAL METAL REFINING (NAMETRE) COMPANY, INC.
BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
ASSETS
CURRENT ASSETS
Cash $ 8,510 $ 236,217
Accounts receivable, less allowance
for doubtful accounts of $15,000 418,583 485,467
Inventories - Notes 1 and 2 440,007 402,578
Prepaid expenses 11,278 13,455
Federal income tax refund receivable 17,021 14,281
Note receivable - Note 12 75,000 -
TOTAL CURRENT ASSETS 970,399 1,151,998
PROPERTY AND EQUIPMENT, net of
accumulated depreciation -
Notes 1 and 3 51,763 63,526
PATENTS, at cost, less accumulated amortization
of $49,842 and $45,624,
respectively - Note 1 21,556 22,983
OTHER ASSETS
Deposits 2,384 2,384
TOTAL ASSETS $1,046,102 $1,240,891
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 661,266 $ 343,874
Accrued product claims and warranties 19,000 13,000
Notes payable - current portion -
Notes 4 and 6 100,000 472,135
TOTAL CURRENT LIABILITIES 780,266 829,009
DEBENTURES - Notes 5 and 6 38,967 38,967
NOTES PAYABLE, net of current portion -
Note 4 55,000 130,000
TOTAL LIABILITIES 874,233 997,976
STOCKHOLDERS' EQUITY
Common stock, 770,000 shares authorized,
512,000 shares issued; 193,489 and
73,489, shares outstanding respectively
and 436,011 and 438,511, shares held
in treasury respectively 18,213 16,653
Paid in capital 404,352 108,237
Retained earnings (deficit) (143,508) 229,038
Treasury stock - Note 6 (107,188) (111,013)
TOTAL STOCKHOLDERS' EQUITY 171,869 242,915
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,046,102 $1,240,891
The accompanying notes are an integral
part of these financial statements.
NATIONAL METAL REFINING (NAMETRE) COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
RETAINED
COMMON PAID IN EARNINGS TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTAL
BALANCE AT
DECEMBER 31, 1994 $16,653 $108,237 $ 269,562 $ (69,384) $325,068
NET LOSS FOR THE
YEAR ENDED
DECEMBER 31, 1995 - - (40,524) - (40,524)
TREASURY STOCK
PURCHASE - NOTE 6 - - - (41,629) (41,629)
BALANCE AT
DECEMBER 31, 1995 16,653 108,237 229,038 (111,013) 242,915
NET LOSS FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1996 - - (372,546) - (372,546)
TREASURY STOCK
SOLD - (2,325) - 3,825 1,500
COMMON STOCK
ISSUANCE - NOTE 12 1,560 298,440 - - 300,000
BALANCE AT
SEPTEMBER 30, 1996 $18,213 $404,352 $(143,508) $(107,188) $171,869
The accompanying notes are an integral
part of these financial statements.
NATIONAL METAL REFINING (NAMETRE) COMPANY, INC.
STATEMENTS OF REVENUES AND EXPENSES
FOR THE NINE FOR THE
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
NET SALES $1,776,540 $2,671,019
COSTS OF GOODS SOLD 851,538 1,087,938
GROSS PROFIT 925,002 1,583,081
RESEARCH AND DEVELOPMENT COSTS 299,131 210,295
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,007,534 1,379,142
LOSS FROM OPERATIONS (381,663) (6,356)
OTHER INCOME AND (EXPENSES)
Interest on debentures (7,306) (36,950)
Other interest expense (26,839) (38,915)
Interest and dividend income 3,418 11,853
Royalty income 39,844 39,844
TOTAL OTHER INCOME (EXPENSES) 9,117 (24,168)
INCOME (LOSS) BEFORE PROVISION
FOR (BENEFIT FROM) INCOME TAXES (372,546) (30,524)
PROVISION FOR INCOME TAXES - Note 8 - (10,000)
NET INCOME (LOSS) $ (372,546) $ (40,524)
The accompanying notes are an integral
part of these financial statements.
NATIONAL METAL REFINING (NAMETRE) COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE FOR THE
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(372,546) $(40,524)
Adjustments to reconcile loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 21,122 24,210
Allowance for doubtful accounts - 15,000
Provision for obsolete inventory 1,088 12,199
Increase in debt due to restructuring - 126,388
Accrued product claims and warranties 6,000 13,000
Change in assets and liabilities:
Decrease (increase) in accounts receivable 66,884 (113,796)
(Increase) in inventories (38,518) (85,677)
Decrease in prepaid expenses 2,177 5,580
Decrease (increase) in federal income
tax refund receivable (2,740) 30,719
Increase in accounts payable and
accrued expenses 317,392 121,614
TOTAL ADJUSTMENTS 373,405 149,237
NET CASH PROVIDED BY
OPERATING ACTIVITIES 859 108,713
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of fixed assets and
capitalized patent costs (7,931) (19,949)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (2,607) -
Sale of treasury stock 4,107 -
Payments on notes payable (447,135) -
Proceeds from notes receivable 225,000 -
NET CASH USED IN FINANCING ACTIVITIES (220,635) -
NET INCREASE (DECREASE) IN CASH (227,707) 88,764
CASH - BEGINNING OF PERIOD 236,217 147,453
CASH - END OF PERIOD $ 8,510 $236,217
Cash paid during the year for:
Interest $ 26,839 $ -
Income taxes $ - $ 11,775
See Note 6 for supplemental disclosure of non-cash transactions.
The accompanying notes are an integral
part of these financial statements.
NATIONAL METAL REFINING (NAMETRE) COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business - The Company National Metal Refining
Company (Nametre) was incorporated in 1956 in New Jersey.
Since 1961 the Company has concentrated on the development
of instruments for the measurement of viscous properties of
materials. Nametre's customers are mostly Fortune 500
Companies in the polymer, petro-chemical and petroleum
industry. Nametre's products are widely used in laboratory
and industrial environments. Several of the products are
covered by U.S. patents.
Inventories - Inventories are valued at the lower of cost
(determined on a first-in, first-out basis) or market.
Property - Depreciation is computed on a straight-line and
an accelerated basis over the estimated useful lives of the
assets which range from 5 to 7 years. Leasehold
improvements are amortized over a period of 31.5 years.
Patents - Patents are being amortized over a period of 8
years.
Research and Development Costs - Research and development
costs are charged to operations as incurred.
Provision for Warranty Claims - Estimated warranty costs
are provided at the time of sale of the warranted products.
Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fiscal Year Change - The Board of Directors approved a
change in the Company's fiscal year end from December 31 to
September 30, effective the calendar year beginning January
1, 1996. This change was the result of the sale of the
Company's stock to a publicly traded company (see Note 13)
whose fiscal year end is September 30.
NATIONAL METAL REFINING (NAMETRE) COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 2 - INVENTORIES:
Inventories are comprised of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
Raw materials $220,653 $173,161
Work in process 81,990 107,549
Finished goods 150,651 134,067
453,294 414,777
Less: Provision for
obsolete inventory (13,287) (12,199)
$440,007 $402,578
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
Furniture and fixtures $ 29,803 $ 29,083
Equipment 151,980 153,010
Demo equipment 32,268 32,268
Leasehold improvements 10,342 10,342
224,393 224,703
Less: accumulated depreciation (172,630) (161,177)
$ 51,763 $ 63,526
NATIONAL METAL REFINING (NAMETRE) COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 4 - NOTES PAYABLE:
Notes payable consist of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
6% note payable to Mary Elizabeth
Fitzgerald due September 30, 1996.
Quarterly payments include principal
and interest. The note is collateralized
by a pledge and security agreement. $ - $225,000
10% note payable to the Estate of
J. Vincent Fitzgerald due March 31,
1998. Quarterly payments include
principal and interest. The note is
collateralized by a pledge and security
agreement. 155,000 377,135
TOTAL NOTES PAYABLE 155,000 602,135
Less: Current portion (100,000) (472,135)
Notes payable, net of current portion $ 55,000 $130,000
Principal repayments are as follows:
SEPTEMBER 30,
1997 $100,000
1998 55,000
$155,000
NOTE 5 - DEBENTURES:
The debentures bear interest at 25% per annum payable
semi-annually and mature in 1997. The Company has the
right to repay principal in whole or in part at any time
without premium or penalty.
NATIONAL METAL REFINING (NAMETRE) COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 6 - SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Treasury Stock Acquisition and Refinancing:
On January 29, 1996 the Company entered into a settlement
and redemption agreement with Mary Elizabeth Fitzgerald,
the deceased majority stockholder's spouse who has had a
guardian appointed by the court to control her financial
affairs. The agreement calls for a payment to Mrs.
Fitzgerald in the amount of $225,000 for the (i) purchase
of 385,333 shares of stock of the Company owned by Mrs.
Fitzgerald and (ii) for debentures, where the Company is
the obligor, having a face value of $106,218 plus accrued
interest to date.
On January 29, 1996 the Company entered into a settlement
and redemption agreement with the Estate of J. Vincent
Fitzgerald. The agreement calls for a payment to the
Estate in the amount of $377,135 for the (i) purchase of
7,822 shares of stock of the Company presently owned by the
Estate, (ii) for debentures, where the Company is the
obligor, having a face value of $3,613 plus accrued
interest to date, (iii) notes payable held by the decedent
in the amount of $324,288, plus accrued interest and (iv)
certain reimbursable expenses.
The above agreements are the result of the death of the
majority stockholder on September 27, 1994. Accordingly,
the terms of the agreement have been reflected in the
accompanying financial statements as of December 31, 1995.
The non-cash financing and investing activities are as
follows:
Refinanced debt as of December 31, 1995 as follows:
Note payable to Estate of J. Vincent Fitzgerald $ 377,135
Note payable to Mary E. Fitzgerald 225,000
Subtotal 602,135
Previous debt repaid:
Original loan payable due to Estate of J. Vincent
Fitzgerald (324,288)
Original debenture due to Estate of J. Vincent
Fitzgerald (3,613)
Original debenture due to Mary E. Fitzgerald (106,218)
(434,119)
Subtotal 168,016
Less: Acquisition of treasury stock (41,629)
INCREASE IN DEBT DUE TO RESTRUCTURING $126,387
NATIONAL METAL REFINING (NAMETRE) COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 7 - INCOME TAXES:
The provision for income taxes consists of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
Current provision $ - 9,850
Federal provision _ 150
State provision _ 10,000
The Company has research and development credits totalling
$57,183 which are available to offset future Federal
taxable income and tax liabilities. The credits are due to
expire as follows:
Credits
2005 $15,170
2006 13,526
2007 8,440
2008 13,603
2009 5,863
2010 581
TOTAL $57,183
Total income taxes for 1995 differs from the amount
computed by applying the U.S. federal income tax rate as a
result of the surtax exemption, research and development
tax credits and state taxes.
The State of New Jersey allows the carry forward (but not
carry back) of losses to future years which will offset
future New Jersey State taxable income. As of September
30, 1996 and December 31, 1995, the Company has a net
operating loss carry forwards of approximately $450,000 and
$98,000 respectively, available for New Jersey State tax
purposes.
NATIONAL METAL REFINING (NAMETRE) COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 8 - COMMITMENTS:
EMPLOYMENT AGREEMENT:
During 1996, the Company entered into a one year employment
agreement with the President of the Company. The terms of
the agreement stipulate that, should the Company terminate
the agreement without cause or in case of death, the
severance benefit will be equivalent to the rate of pay in
effect on the date of termination for the period of six
months with one-half the rate of pay for the second six
months if new employment has not been found.
NOTE 9 - CONCENTRATIONS:
Certain components of inventory are supplied by two to
three vendors. Together, the above vendors represent
approximately 54% and 66%, respectively, of the total
purchases for the periods ended September 30, 1996 and
December 31, 1995.
The Company maintained its cash with a few high quality
financial institutions. At December 31, 1995 the Company
had included in one of its cash accounts amounts exceeding
federally insured limits by $132,838.
NOTE 10 - SARSEP PLAN PAYABLE:
The Company has a salary deferral simplified employee
pension plan. Employer contributions are discretionary and
can vary from year to year. For the periods ended
September 30, 1996 and December 31, 1995, the Company has
elected not to contribute to the plan.
NOTE 11 - OPERATING FACILITIES:
The Company leases manufacturing and office space on a
month by month basis under an operating lease. Rental
expenses under the operating lease for the periods ending
September 30, 1996 and December 31, 1995 were $23,808 and
$31,744, respectively.
NATIONAL METAL REFINING (NAMETRE) COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 12 - OTHER MATTERS:
On September 30, 1996 the Company sold approximately 61.23%
of the issued and outstanding shares of common stock to
Holometrix, Inc., a publicly traded company, for a sales
price of $300,000. The terms of the agreement included
warrants to acquire 13,334 shares of common stock at an
exercise price of $3.00, as well as warrants to acquire
10,000 shares of common stock at an exercise price of
$6.00. Proceeds in the amount of $225,000 from the sale of
the stock were used to pay the amount due to Mrs.
Fitzgerald as a result of the settlement and redemption
agreement (see Note 6). The balance of $75,000 is
reflected as a note receivable. The terms of the note
includes interest at 2% above prime with principal due in
two installments as follows:
PAYMENT
DATE AMOUNT
February 28, 1997 $25,000
May 31, 1997 50,000
It is expected that Nametre's business of developing,
manufacturing, marketing and selling certain viscosity
measurement equipment will compliment the thermal property
measuring business activities conducted by Holometrix,
Inc.
TYTRONICS INCORPORATED
SELECTED FINANCIAL DATA FOR THE FISCAL THREE MONTHS ENDING:
December 31, 1997 December 31, 1996
STATEMENT OF OPERATIONS DATA
Net Revenues $1,634,000 $1,850,000
Net income (loss) (291,000) 18,000
CONSOLIDATED BALANCE SHEET DATA
Working capital 1,128,000 574,000
Total assets 4,260,000 3,232,000
Long-term debt, excluding 906,000 693,000
current portion
Minority Interest 235,000 256,000
Stockholders' Equity 933,000 469,000
Three Months Ended December 31, 1997, as Compared to Three Months
Ended December 31, 1996
Revenues for the first three months of the 1998 fiscal year
totaled $1,634,000, as compared to $1,850,000 for the first three
months of the 1997 fiscal year, a decrease of $216,000 or 12%. The
primary source of this decrease is Tytronics, whose revenues in the
first three months of the 1998 fiscal year were $515,000.
Cost of sales totaled $837,000, or 51% of sales in the first
three months of the 1998 fiscal year, as compared to $879,000, or 48%
of sales in the first three months of the 1997 fiscal year, a decrease
of $42,000 or 5%. The primary reason for this decrease is a decrease
in sales. The percentage increase in cost of sales was primarily due
to Holometrix' products, which tend to have higher cost of sales.
Selling, general and administrative expenses increased to
$884,000, or 54% of sales in the first three months of the 1998
fiscal year, from $778,000, or 42% of sales in the first three months
of the 1997 fiscal year, an increase of $106,000, or 14%. The
increase was primarily due to increased marketing and sales
activities.
Research and development increased $30,000, from $143,000 (8% of
sales) to $173,000 (11% of sales). The increase was primarily due
to increased product development at Tytronics.
Loss from operations was $260,000 in the first quarter of fiscal
1998, compared with an income of $10,000 in the comparable period of
fiscal 1997. Tytronic's loss from operations alone was $240,000.
Consolidated net loss was $291,000 in the first quarter of 1998.
These losses are a result of decreased sales and reduced margins
combined with increased operating expenses.
Total assets decreased by $787,000 (16%) in the first quarter,
from $5,047,000 to $4,260,000. Cash decreased by $330,000, and due to
increased collection activity, accounts receivable decreased by
$375,000 in the first quarter. Inventories increased by $13,000 and
other assets increased by $48,000. Equipment and fixtures decreased
by $20,000, and other current assets decreased by $120,000.
Total liabilities decreased by $510,000, primarily due to a
decrease of $359,000 in accounts payable, a decrease of $92,000 in
accrued payroll and other expenses, a decrease of $28,000 in current
portion of long-term debt, and a decrease of $31,000 in long-term debt.
Accounts payable decreased by $359,000, from $1,718,000 at
September 31, 1997, to $1,359,000 at December 31, 1997 primarily due
to payment of extended payables present at September 30, 1997 to
conserve cash. Accrued payroll and other expenses decreased by
$92,000, from $535,000 at September 30, 1997, to $443,000 at December
31, 1997 primarily because of payment of commissions due to
manufacturer's representatives and internal employees. Current
portion of long-term debt decreased by $28,000 from $174,000 at
September 30, 1997, to $146,000 at December 31, 1997, and long-term
debt decreased by $31,000 from $937,000 at September 30, 1997 to
$906,000 at December 31, 1997 due to payment of debt obligation.
As of December 31, 1997, the Company had an outstanding backlog
for products and services of approximately $1,054,000 as compared to a
backlog of $1,409,000 at December 31, 1996. The decrease was
primarily due to a decrease of $206,000 (60%) in outstanding backlog
at Holometrix from $434,000 to $174,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
----------
Operating cash flows were negative in the first quarter of fiscal
1998, amounting to ($330,000) as compared to ($2,000) in the
comparable quarter of fiscal 1997. Operating cash flows approximated
the sum of net loss plus depreciation and amortization, with
decreases in accounts receivable of $375,000 and receipt of notes
receivable of $97,000 being offset by an increase in inventories of
$13,000 and a decrease in accounts payable and accrued expenses of
$449,000.
The Company funded increases in equipment and fixtures of $23,000 and
other assets of $48,000, and repaid debt of $59,000.
The net affect of these transactions with minor changes in
certain other areas was a decrease in cash of $330,000, providing
cash at the end of the first quarter of 1998 of $606,000.
Credit Agreements
-----------------
Effective July 24, 1997, Tytronics, in concert with its
subsidiaries, Holometrix and Nametre, obtained new terms from Silicon
Valley Bank for a combined line of credit and term loan of $1,500,000
secured by substantially all assets of Tytronics and its subsidiaries,
Holometrix and Nametre. Advances under this line through September
30, 1997 cannot exceed the lesser of 70% of Tytronics' eligible
accounts receivable as defined, or the consolidated Tangible Net
Worth as defined plus the minority interest.
Thereafter, borrowings cannot exceed the lesser of 70% of
Tytronics' eligible accounts receivable as defined, or 110% of the
consolidated Tangible Net Worth as defined. These outstanding
amounts are payable on demand and advances are contingent upon
maintaining certain covenants relative to profitability, liquidity
and tangible net worth. As of December 31, 1997, Tytronics'
borrowings under its line of credit were $565,000. As of December
31, 1997, the Company was not in compliance with all covenants and
ratios of the new line of credit. The Company obtained a waiver from
Silicon Valley Bank for these violations.
IMPACT OF INFLATION
Although no assurance can be given, increases in inflation rate
are not expected to materially adversely affect the Company's
business.
TYTRONICS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include
all information and footnotes required by generally accepted
accounting principles for complete financial statement presentation.
The results of operations for any interim periods reported are
not necessarily indicative of those that may be expected for the full
year. The accompanying financial information is unaudited; however,
in the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation of the
operating results of the period have been included.
TYTRONICS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31
1997 1996
---- ----
NET SALES $ 1,634,000 $ 1,850,000
COST OF SALES 837,000 879,000
--------- ---------
GROSS PROFIT 797,000 971,000
OPERATING EXPENSES:
SELLING, GENERAL &
ADMINISTRATIVE 884,000 778,000
RESEARCH AND DEVELOPMENT 173,000 143,000
--------- ---------
1,057,000 921,000
--------- ---------
INCOME (LOSS) FROM OPERATIONS (260,000) 50,000
OTHER INCOME (EXPENSE): 28,000 40,000
--------- ---------
INCOME (LOSS) BEFORE MINORITY
INTEREST (288,000) 10,000
MINORITY INTEREST IN
SUBSIDIARY 3,000 (8,000)
--------- ---------
NET INCOME (LOSS) $ (291,000) 18,000
========= =========
TYTRONICS INCORPORATED
CONSOLIDATED BALANCE SHEET
DECEMBER 31
1997
----
ASSETS:
CURRENT ASSETS
CASH & CASH EQUIVALENTS $ 606,000
ACCOUNTS RECEIVABLE 1,315,000
INVENTORIES 1,273,000
PREPAID EXPENSES 120,000
---------
TOTAL CURRENT ASSETS 3,314,000
EQUIPMENT AND FIXTURES - NET 428,000
OTHER ASSETS 518,000
---------
TOTAL ASSETS $ 4,260,000
=========
LIABILITIES & STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
NOTES PAYABLE TO BANKS $ 238,000
ACCOUNTS PAYABLE 1,359,000
ACCRUED EXPENSES 443,000
CURRENT PORTION OF LONG-TERM DEBT 146,000
---------
TOTAL CURRENT LIABILITIES 2,186,000
---------
LONG-TERM DEBT LESS CURRENT
PORTION 906,000
MINORITY INTEREST IN SUBSIDIARY 235,000
STOCKHOLDERS' EQUITY:
PREFERRED STOCK 29,000
COMMON STOCK 2,000
CAPITAL IN EXCESS OF PAR VALUE 1,528,000
ACCUMULATED DEFICIT (270,000)
---------
$ 1,289,000
LESS TREASURY STOCK, AT COST,
13,500 AND 48,500 SHARES HELD IN
1996 AND 1995, RESPECTIVELY 356,000
---------
TOTAL STOCKHOLDERS' EQUITY 933,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 4,260,000
=========
TYTRONICS INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE-MONTH PERIOD ENDED DECEMBER 31
1997 1996
---- ----
NET INCOME (LOSS) $ (291,000) $ 18,000
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:
DEPRECIATION AND AMORT 87,000 85,000
MINORITY INTEREST 3,000 (8,000)
CHANGES IN OPERATING ASSETS AND
LIABILITIES, NET OF EFFECT OF
PURCHASE OF SUBSIDIARIES:
ACCOUNTS RECEIVABLE 375,000 (2,000)
INVENTORIES (13,000) (47,000)
PREPAID EXPENSES (23,000) 21,000
ACCOUNTS PAYABLE (359,000) (67,000)
ACCRUED EXPENSES (90,000) (63,000)
NOTES RECEIVABLE 97,000 (100,000)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (214,000) (163,000)
--------- ---------
INVESTING ACTIVITIES
ADDITIONS TO FIXED ASSETS (23,000) (38,000)
INCREASE IN OTHER ASSETS (48,000) -
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (71,000) (38,000)
--------- ---------
FINANCING ACTIVITIES
NET (REPAYMENT OF) BORROWINGS UNDER
LINE OF CREDIT AGREEMENT (28,000) 253,000
NET (REPAYMENT OF) PROCEEDS FROM
LONG-TERM DEBT (31,000) (54,000)
PROCEEDS OF SALE OF COMMON STOCK 14,000 -
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES (45,000) 199,000
--------- ---------
NET (DECREASE) IN CASH &
CASH EQUIVALENTS (330,000) (2,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE QUARTER 936,000 124,000
--------- ---------
CASH AND CASH EQUIVALENTS AT
END OF QUARTER 606,000 122,000
========= =========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA FOR THE FISCAL YEARS ENDING:
September 30,1997 September 30, 1996
STATEMENT OF OPERATIONS DATA
Net revenues $7,975,000 $5,613,000
Net income (loss) 103,000 168,000
CONSOLIDATED BALANCE SHEET DATA
Working capital 1,460,000 574,000
Total assets 5,047,000 3,998,000
Long-term debt, excluding 937,000 748,000
current portion
Minority Interest 232,000 264,000
Stockholders' Equity 1,212,000 451,000
Year Ended September 30, 1997 As Compared To Year Ended
September 30, 1996
Revenues for the 1997 fiscal year totaled $7,975,000, as compared
to $5,613,000, an increase of $2,362,000, or 42%. The source of this
increase is the acquisition of Nametre, whose revenues in
fiscal year 1997 were $2,452,000.
Cost of sales totaled $3,782,000, or 47% of sales in fiscal 1997,
as compared to $2,784,000, or 50% of sales in fiscal 1996, an increase
of $998,000 or 36%. The primary reason for this increase is the
acquisition of Nametre; Nametre's cost of sales for fiscal 1997 were
$946,000. The percentage reduction in cost of sales was primarily due
to a reduction in the sales of Holometrix' products, which tend to have
higher cost of sales.
Selling, general and administrative expenses totaled $3,343,000,
or 42% of sales in fiscal 1997, as compared to $2,073,000 or 37% of
sales in fiscal 1996, an increase of $1,270,000, or 61%. The increase
was primarily attributable to the acquisition of Nametre, whose selling,
general and administrative expenses for fiscal 1997 were $1,222,000.
Due to the nature of the selling process at both Tytronics and Nametre,
sales and distribution costs are proportionately higher at these
companies.
Research and development expenses totaled $627,000 or 8% of sales
in fiscal 1997, as compared to $456,000, also 8% of sales in fiscal
1996, an increase of $171,000, or 37%. This increase was largely
attributable to the acquisition of Nametre, offset by a reduction in
Tytronics' research and development expenditures due to the completion
of certain Tytronics' programs.
Income from operations totaled $224,000, or 3% of sales in fiscal
1997, as compared to $299,000 or 11% of sales, in fiscal 1996. The
decrease in income from operations is due primarily to a substantial
increase in selling, general and administrative expenses, and research
and development expenses, offset by an increase in gross profit. All
of the operating losses are attributable to Holometrix; Tytronics and
Nametre both had operating profits.
Net income totaled $103,000 or 1% of sales in fiscal 1997 as
compared to 3% of sales in fiscal 1996. The decrease in net income is
due primarily to a substantial increase in selling, general and
administrative expenses, and research and development expenses, offset
by an increase in gross profit. Once more, all of the net losses are
attributable to Holometrix; both Tytronics and Nametre had net incomes.
Minority interest was a loss of $33,000 in fiscal 1997 as compared to a
gain in fiscal 1996 due to the net loss at Holometrix.
Total Assets at September 30, 1997, were $5,047,000 as compared to
$3,998,000 at September 30, 1996, an increase of $1,049,000, or 26%.
The major sources of this increase were additions to cash and increased
inventory.
Cash increased to $936,000 on September 30, 1997 from $124,000 on
September 30, 1996 primarily due to the successful completion of the
sale of 39,271 shares of its common stock for the aggregate amount of
$687,000 and increased collection activity. Accounts receivable
decreased to $1,690,000 on September 30, 1997 from $1,749,000 on
September 30, 1996, primarily due to increased collection activity.
Inventory increased to $1,260,000 on September 30, 1997 from $1,167,000
on September 30, 1996 primarily due to an increased rate of sales.
Other assets, including goodwill, increased to $473,000 on September 30,
1997, from $442,000 on September 30, 1996, primarily due an increase in
patents.
Total Liabilities increased to $5,407,000 on September 30, 1997
from $3,998,000 on September 30, 1996, an increase of
$1,409,000, or 26%, primarily due to increases in notes payable to
banks, and increases in Stockholders' Equity.
Notes payable to banks increased from $284,000 on September 30,
1996 to $607,000 on September 30, 1997, primarily due
to increased drawdowns
on Tytronics' line of credit. Accounts payable increased to $1,718,000
on September 30, 1997 from $1,649,000 on September 30, 1996, primarily
due to an increase in commissions payable and increased inventory.
Accrued expenses increased from $419,000 on September 30, 1996 to
$535,000 on September 30, 1997, largely due to increased reserve
positions.
Stockholders' Equity increased to $1,212,000 on June 30, 1997 from
$451,000 on June 30, 1996, primarily due to the successful completion of
the sale of 39,271 shares of Tytronics Common Stock for $687,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Operating cash flows were positive, amounting to $308,000 during
fiscal 1997, compared to $455,000 during fiscal 1996. Operating cash
flows approximated the sum of net income plus depreciation and
amortization; decreases in accounts receivable and increases in accounts
payable and accrued expenses were primarily offset by increases in
inventory and notes receivable. Accounts receivable decreased by
$59,000, accounts payable increased by $69,000 and accrued expenses
increased by $116,000. Inventories increased by $93,000 and notes
receivable increased by $100,000.
Fixed and other assets increased by $288,000 in fiscal 1997, as
compared to an increase of $183,000 in fiscal 1996. Net borrowings
under Tytronics' line of credit decreased by $171,000.
This was offset by an
increase in long term debt owed to the bank of $494,000 decreased by
the repayment of $190,000 of long term debt associated with the
repurchase of Tytronics equity from major stockholders. Net proceeds
from the sale of common stock increased by $659,000 due to the
successful completion of the sale of 39,271 shares of its common stock.
The net effect of these transactions, with minor changes in certain
other areas was an increase in cash of $812,000, resulting in cash
and cash equivalents of $936,000 on September 30, 1997.
Future cash commitments are moderate, assuming continued
profitability. Tytronics believes the combination of operating cash
flows, plus Tytronics' line of credit, should be adequate for the
foreseeable future. Additional funding would have to be sought for
substantial acquisitions.
Credit agreements
Effective July 24, 1997, Tytronics, in concert with its
subsidiaries, Holometrix and Nametre, obtained new
terms from Silicon Valley Bank for
a combined line of credit and term loan of $1,500,000 secured by
substantially all assets of Tytronics and its subsidiaries, Holometrix
and Nametre. Advances under this line through September 30, 1997 can
not exceed the lesser of 70% of Tytronics' eligible accounts receivable
as defined, or the consolidated Tangible Net Worth as defined plus the
minority interest.
Thereafter, borrowings can not exceed the lesser of 70% of Tytronics'
eligible accounts receivable as defined, or 110% of the consolidated
Tangible Net Worth as defined. These outstanding amounts are payable on
demand and advances are contingent upon maintaining certain covenants
relative to profitability, liquidity and tangible net worth. As of
September 30, 1997, Tytronics' borrowings under its line of credit were
$607,000.
IMPACT OF INFLATION
Although no assurance can be given, increases in the inflation rate
are not expected to materially adversely affect the Company's business.
Consolidated Financial Statements
Tytronics Incorporated
Years ended September 30, 1997 and 1996
Tytronics Incorporated
Consolidated Financial Statements
Years ended September 30, 1997 and 1996
Contents
Report of Independent Auditors 1
Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Report of Independent Auditors
The Board of Directors
Tytronics Incorporated
We have audited the accompanying consolidated balance sheets
of Tytronics Incorporated (the Company) as of September 30,
1997 and 1996, and the related consolidated statements of
income, stockholders' equity, and cash flows for the years
then ended. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the
financial statements of Holometrix, Inc., a majority-owned
subsidiary, which statements reflect total assets of
$2,710,505 and $2,548,723 as of September 30, 1997 and 1996,
respectively, and total revenues of $4,528,631 and
$2,200,603 for the years ended September 30, 1997 and 1996,
respectively. Those statements were audited by other
auditors, whose report has been furnished to us, and our
opinion, insofar as it relates to data included for
Holometrix, Inc., is based solely on the report of other
auditors.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the
report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other
auditors, the consolidated financial statements referred to
above present fairly, in all material respects, the
financial position of Tytronics Incorporated at September
30, 1997 and 1996 and the consolidated results of its
operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
December 12, 1997
Tytronics Incorporated
Consolidated Balance Sheets
September 30
1997 1996
Assets
Current assets:
Cash and cash equivalents $ 935,717 123,562
Accounts receivable, less allowance for
doubtful accounts of $65,000 and $70,000
in 1997 and 1996, respectively 1,689,613 1,748,770
Inventories:
Raw materials 577,207 501,024
Work-in-process 262,319 316,586
Finished goods 420,279 349,549
--------------------
1,259,805 1,167,159
Prepaid expenses 90,365 70,298
Deferred taxes 50,000 -
Notes receivable 100,000 -
--------------------
Total current assets 4,125,500 3,109,789
Equipment and fixtures, net 448,122 447,037
Other assets, net of accumulated
amortization of $189,818 and $120,117
in 1997 and 1996, respectively 473,073 441,606
--------------------
Total assets $5,046,695 $3,998,432
====================
Liabilities and stockholders' equity
Current liabilities:
Notes payable to bank $ 238,059 $ 284,000
Accounts payable 1,718,396 1,648,997
Accrued expenses 534,669 418,636
Current portion of long-term debt 174,335 184,485
--------------------
Total current liabilities 2,665,459 2,536,118
Long-term debt, less current portion 937,249 747,636
Minority interest in subsidiary 232,206 263,927
Stockholders' equity:
Preferred stock, $1.00 par value, 75,000
shares authorized, 29,327 shares issued
and outstanding. 29,327 29,327
Common stock, $.01 par value, 420,000
shares authorized, 186,271 and 147,000
shares issued and outstanding at
December 31, 1997 and 1996,
respectively 1,863 1,470
Capital in excess of par value 1,514,899 857,333
Retained earnings (accumulated deficit) 21,692 (81,379)
--------------------
1,567,781 806,751
Less treasury stock, at cost, 48,500
shares held 356,000 356,000
--------------------
Total stockholders' equity 1,211,781 450,751
--------------------
Total liabilities and stockholders'
equity $5,046,695 $3,998,432
====================
See accompanying notes.
Tytronics Incorporated
Consolidated Statements of Income
Year ended September 30
1997 1996
-----------------------
Net sales $7,974,919 $5,612,887
Cost of sales 3,781,854 2,784,146
-----------------------
Gross profit 4,193,065 2,828,741
Operating expenses:
Selling, general and administrative 3,342,571 2,072,973
Research and development 626,654 456,311
----------------------
3,969,225 2,529,284
Income from operations 223,840 299,457
Other income (expense):
Other income 14,776 8,165
Interest income 17,164 19,946
Interest expense (144,480) (105,637)
--------------------
(112,540) (77,526)
--------------------
Income before income taxes and minority
interest 111,300 221,931
Income taxes 41,000 52,335
--------------------
Income before minority interest 70,300 169,596
Minority interest in subsidiary (32,771) 1,818
---------------------
Net income $ 103,071 167,778
=====================
See accompanying notes.
<TABLE>
Tytronics Incorporated
Consolidated Statements of Stockholders' Equity
<CAPTION>
Preferred Stock Common Stock Stock Held in Treasury
-------------------- ------------------- Retained ----------------------
Issued and Issued and Capital in Earnings Total
Outstanding Amount Outstanding Amount Excess of (Accumulated Shareholders'
Shares Shares Par Value Deficit) Shares Cost Equity
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1995 29,327 $29,327 147,000 $1,470 $ 857,333 $(249,157) (13,500) $ (81,000) $ 557,973
Preferred stock (12,500) (98,214) (98,214)
Repurchase of
common stock (22,500) (176,786) (176,786)
Net income for
1996 167,778 167,778
-------------------------------------------------------------------------------------------------------
Balance at
September 30, 1996 29,327 29,327 147,000 1,470 857,333 (81,379) (48,500) (356,000) 450,751
Sale of Common stock 39,271 393 657,566 657,959
Net income for 1997 103,071 103,071
-------------------------------------------------------------------------------------------------------
Balance at
September 30, 1997 29,327 29,327 186,271 $1,863 $1,514,899 $ 21,692 (48,500) $(356,000) $1,211,781
========================================================================================================
See accompanying notes.
</TABLE>
Tytronics Incorporated
Consolidated Statements of Cash Flows
Year ended September 30
1997 1996
-----------------------
Operating activities
Net income $ 103,071 $ 167,778
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 271,452 226,415
Minority interest (32,771) 1,818
Gain on sale of equipment (16,000) -
Changes in operating assets and
liabilities, net of
effects of purchase of subsidiaries:
Accounts receivable 59,157 (380,457)
Notes receivable (100,000) -
Inventories (92,646) (223,255)
Prepaid expenses (20,067) 13,068
Deferred taxes (50,000) -
Accounts payable 69,399 433,272
Accrued expenses 116,033 216,157
---------------------
Net cash provided by operating activities 307,628 454,796
Investing activities
Additions to equipment and fixtures (202,836) (145,140)
Proceeds from sale of equipment 16,000 -
Increase in other assets (101,168) (37,925)
Purchase of subsidiaries, net of cash
acquired - (266,514)
----------------------
Net cash used in investing activities (288,004) (449,579)
Financing activities
Net repayment of line of credit agreement (170,941) (41,000)
Net proceeds from (repayment of) long-term
debt 304,463 (29,943)
Net proceeds from sale of common stock 659,009 -
Purchase of treasury stock - (100,000)
-----------------------
Net cash provided by (used in) financing
activities 792,531 (170,943)
-------------------------
Net increase (decrease) in cash and cash
equivalents 812,155 (165,726)
Cash and cash equivalents at beginning of
year 123,562 289,288
------------------------
Cash and cash equivalents at end of year $ 935,717 $ 123,562
========================
Supplemental disclosure of cash flow
information
Cash paid during the year for:
Interest $ 143,595 $ 100,278
Income taxes 38,800 1,182
Noncash investing and financing activities
Treasury stock repurchase for note payable - (175,000)
See accompanying notes.
Tytronics Incorporated
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Business
Tytronics Incorporated (Tytronics) is involved in the
design, manufacture and sale of commercial on-line chemical,
liquid and gas analyzers for application in industrial
process and environmental control throughout the world.
Holometrix, Inc. (Holometrix), is a product development,
manufacturing and contract test services company which
specializes in manufacturing instruments and providing
contract test services for measuring thermophysical
properties of a wide variety of materials. National Metal
Refining Company, Inc. (Nametre) is a product development
and manufacturing company specializing in in-line and
laboratory viscosity analyzers.
Principles of Consolidation
The consolidated financial statements include the accounts
of Tytronics and its majority-owned subsidiary, Holometrix,
and Holometrix' majority-owned and consolidated subsidiary
Nametre acquired by Holometrix on September 30, 1996,
(collectively, the Company), of which Tytronics owns 69% at
September 30, 1997. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Revenue Recognition
Revenue for instrument sales is recognized when instruments
are shipped. Revenue for testing services is recognized as
services are performed.
Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method.
1. Significant Accounting Policies (continued)
Equipment and Fixtures
Equipment and fixtures are stated at cost. Depreciation is
computed using straight-line and accelerated methods over
the estimated useful lives of the assets, ranging between
five and ten years.
Equipment and fixtures consist of the following at September 30:
1997 1996
Furniture and fixtures $ 50,756 $ 48,775
Leasehold improvements 67,351 62,185
Machinery and equipment 708,405 541,775
Demonstration equipment 302,897 302,232
------------------------
1,129,409 954,967
Accumulated depreciation and amortization 681,287 507,930
------------------------
$ 448,122 $ 447,037
========================
Other Assets
Other assets include patent costs, trademarks, licensing
agreements, various deposits for office equipment and
utilities and goodwill resulting from the excess of cost
over fair value of net assets acquired by Holometrix. Costs
related to patents and trademarks are amortized using the
straight-line method over 17 years. Costs related to
licensing agreements are amortized using the straight-line
method over the life of the agreements. Costs related to
goodwill are amortized using the straight-line method over
15 years.
1. Significant Accounting Policies (continued)
Other assets consisted of the following at September 30:
1997 1996
Patents $ 241,588 $ 193,262
Goodwill 244,788 244,788
Licensing agreement 41,863 41,863
Trademarks 17,529 17,529
Deposits and other 117,123 64,281
--------------------
662,891 561,723
Accumulated amortization (189,818) (120,117)
---------------------
$ 473,073 $ 441,606
=====================
Accounting Pronouncements
In June of 1997 the Financial Accounting Standards Board
issued Statement No. 130, "Reporting Comprehensive Income"
(FAS 130). FAS 130 establishes standards for reporting and
displaying comprehensive income and its components. FAS 130
is effective for the Company in fiscal year 1999. The
Company does not believe the adoption of this Statement will
have a material effect on the Company's financial
statements.
Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109). Tax provisions and
credits are recorded at statutory rates for taxable items
included in the consolidated statements of income regardless
of the period in which such items are reported for income
tax purposes. Deferred income taxes are recognized for
temporary differences between financial statement and income
tax bases of assets and liabilities and net operating loss
carryforwards for which income tax benefits will be realized
in future years. The Company files its income tax returns
based on a tax year ending April 30. For financial
reporting purposes, deferred tax assets and liabilities are
determined as of September 30.
1. Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results
could differ from those estimates.
Concentrations of Credit Risk
Financial instruments which subject the Company to credit
risk consist of cash equivalents and trade accounts
receivable. The risk with respect to cash equivalents is
minimized by the Company's policies in which investments are
placed with high credit quality financial institutions and
the amount of exposure to any one financial institution is
monitored. The risk with respect to trade accounts
receivable is minimized by the credit worthiness of the
Company's customers, the diversity of its customer base and
their dispersion across a wide geographical area, as well as
the Company's credit and collection policies. The Company
performs periodic credit evaluations of its customers'
financial condition and generally does not require
collateral. Credit losses have been within management's
expectations. One distributor accounted for approximately
13% and 18% of revenues in 1997 and 1996, respectively.
Sales to international customers represented approximately
49% and 53% of revenues in 1997 and 1996, respectively.
Stock-Based Compensation
The Company grants stock options for a fixed number of shares
to employees with an exercise price equal to the fair value of
the shares at the date of the grant. The Company accounts for
stock option grants in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees", which is based on the intrinsic value method of
measuring stock-based compensation. The Company has adopted
the disclosure provisions only of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), which is based on the fair-value
method of measuring stock-based compensation.
Reclassification
Certain amounts in the 1996 financial statements have been
reclassified to conform to the 1997 presentation.
2. Acquisition
On November 29, 1994, Tytronics acquired approximately 55%
of the outstanding capital stock of Holometrix (8,960,244
shares) in exchange for $186,000 of Tytronics common stock
(30,000 shares). In addition, the Company purchased
$220,000 in promissory notes of Holometrix from investors in
Holometrix and agreed to loan Holometrix $150,000 payable on
demand to repay a $150,000 loan held by investors in
Holometrix.
The acquisition has been accounted for using the purchase
method. Accordingly, the purchase price was allocated to
assets acquired based on their estimated fair values. In
connection with the acquisition, Tytronics acquired assets
with a fair value of $1,012,262 and assumed liabilities of
$674,080. This treatment did not result in any costs in
excess of net assets acquired. The results of operations of
Holometrix are included with those of the Company from
November 29, 1994, the date of acquisition.
Effective September 30, 1996, Tytronics purchased an
additional 6,000,000 shares of Holometrix $.01 par value
common stock for $175,000 cash, $60,000 note payable and
contribution of $65,000 of an existing $165,000 note payable
owed to Tytronics from Holometrix. The balance of the note
payable of $100,000 was rewritten as a promissory note with
two installments of $50,000 due in fiscal year 1998 and
1999, respectively. Effective September 30, 1996,
Tytronic's ownership in Holometrix increased from 55% to
67%. In consideration of the debt restructuring, Tytronics
received warrants for the purchase of 1,100,000 and 1,000,000
shares of Holometrix $.01 par value common stock at an exercise
price of $.05 and $.10 per share, respectively. The warrants
expire February 1, 2006.
On September 30, 1996, Holometrix acquired approximately 61%
of the outstanding shares of National Metal Refining
Company, Inc., a developer of instruments for the
measurement of viscous properties of materials, for $225,000
in cash, and $75,000 in notes payable, plus acquisition
costs. The acquisition has been accounted for under the
purchase method. Accordingly, the purchase price was
allocated based on the estimated fair value of the assets
acquired and the liabilities assumed. In connection with
the acquisition, Holometrix acquired assets with a fair
value of $1,046,102 and assumed liabilities of $874,233.
This allocation has resulted in goodwill of approximately
$245,000 which is being amortized over 15 years. The
purchase also provided for the acquisition by Holometrix of
warrants to purchase an additional 13,334 shares at $3 per
share and 10,000 shares at $6 per share.
Effective September 30, 1997, Tytronics converted $100,000
of notes payable due from Holometrix into 1,550,000 shares
of Holometrix common stock by exercising warrants. In
accordance with the warrants, Tytronics acquired 1,100,000
shares for $.05 per share and 450,000 shares for $.10 per
share.
3. Notes Payable to Banks
Effective July 24, 1997, Tytronics agreed with a bank to a
$1,000,000 consolidated revolving line of credit. The line
bears interest at the prime rate plus 1.25% (9.75% at
September 30, 1997). The line is renewable on a yearly
basis and is scheduled to expire July 24, 1998. $113,000
was outstanding and $275,000 was available at September 30,
1997. Under the same agreement Tytronics also agreed to a
$500,000, four year working capital term loan, payable in
forty-eight equal monthly installments through July 24,
2001. The note bears interest at the prime rate plus 2%
(10.5% at September 30, 1997). The note had a balance of
$494,000 at September 30, 1997. The borrowings are secured
by accounts receivable, inventory, equipment and fixtures
and are available based upon certain percentages of
qualified accounts receivable. The borrowings contain
certain covenants that, among other things, require
Tytronics to maintain a minimum current ratio and tangible
capital base, as defined.
At September 30, 1996 Tytronics and Holometrix had
individual lines of credit with a bank. Tytronics and
Holometrix had lines of $500,000 and $350,000, respectively.
Tytronics and Holometrix had $200,000 and $84,000
outstanding and $190,440 and $266,000 available,
respectively.
4. Long-Term Debt
Long-term debt consisted of the following at September 30:
1997 1996
Notes payable to bank, principal and
interest payable monthly through July 1,
2001, bearing interest at 2% above prime
rate (10.5 % at September 30, 1997) $ 493,999 -
Subordinated promissory notes payable to
a shareholder, bearing interest payable
monthly at 10% per annum; principal payable
on November 23, 1999 450,000 $450,000
Promissory note payable to shareholder,
bearing interest at 6% per annum, due in
annual installments through January 2, 1999 125,000 175,000
Promissory note to shareholder, bearing
interest at 10%, principal and interest
are paid quarterly through 1998 50,000 155,000
Other 117,585 152,121
--------------------
1,236,584 932,121
Less current portion 299,335 184,485
---------------------
$ 937,249 $747,636
=====================
In 1996, the Company extended repayment of a promissory note
to a shareholder to November 23, 1999.
As of September 30, 1997 and 1996, approximately $41,000 and
$61,500, respectively, was owed to the estate of a former
shareholder.
The aggregate amounts of required principal payments on the
Company's long-term debt at September 30, 1997 are as
follows:
1998 $ 299,335
1999 234,322
2000 579,039
2001 123,888
2002 -
---------
$1,236,584
=========
5. Related Party
Tytronics shares a facility with Holometrix. The operating
lease is effective through 1999 with base rent of $68,400,
$76,000 and $83,600 in 1997, 1998 and 1999, respectively.
Rent expense is allocated based on the square footage each
occupies. The Company's total rent expense was $142,569 and
$99,341 for the years ended September 30, 1997 and 1996,
respectively, of which $41,105 and $30,801 was allocated to
Tytronics in 1997 and 1996, respectively. The Companies
also share other operating and administrative costs based on
estimate usage. This informal agreement resulted in the
payment of approximately $86,000 and $80,000 in 1997 and
1996, respectively, by Holometrix to Tytronics for such
operating and administrative costs.
6. Stockholders' Equity
Common Stock
In connection with a 1991 financing, the Company granted warrants
giving the holders the right to purchase 12,506 shares of common
stock at a price of $12.07 per share. In connection with the
1995 debt refinancing, the expiration date of these warrants
was extended to November 23, 2000 from November 19, 1997.
In connection with the same refinancing, the Company granted
additional warrants giving the holders the
right to purchase 23,106 shares of common stock at $17.27
per share. These warrants also expire on November 23, 2000.
Further, and in that same regard, the Company granted warrants to
the president of the Company giving him the right to purchase 314
shares of common stock at a price of $17.27 per share. These
warrants were exercised on November 12, 1997, in advance of their
expiration date of November 18, 1997.
Effective September 30, 1997 the Company conducted a private
placement selling 39,271 shares of common stock for $17.50
per share, receiving total net proceeds of $657,959. In
connection with the private placement, the Company granted
warrants to purchase an additional 39,271 shares of common
stock at a price of $22.50 per share. The warrants expire
September 30, 2002.
The Company also granted warrants to purchase 1,500 shares
of common stock at a price of $17.50 per share in connection
with a refinancing of notes payable to a bank July 24, 1997.
The warrants expire July 24, 2002.
7. Stockholders' Equity (continued)
Option Agreement
In December 1992, the Company established an Incentive Stock
Option Agreement whereby employees of the Company will be
granted options to purchase shares of Tytronics common stock
at a price equal to the fair value at the date of grant.
Options become exercisable in five cumulative installments,
each at 20% of the shares covered by the option on the first
anniversary of the vesting reference date set forth in the
agreement. The options normally expire ten years from the
date of grant (five years from the date of grant for
optionees owning more than 10% of the total combined voting
power of all classes of stock of the Company at the date of
grant). Terminated employees' options expire three months
from the date of termination or one year from the date of
the employee's death.
Information regarding the Company's Plan is as follows:
1997 1996
-------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding options at
beginning of year 23,500 $ 7.02 23,500 $7.02
Granted 2,000 17.50 -
Exercised - -
Terminated - -
----------------------------------------------
Outstanding options at end 25,500 $ 7.84 23,500 $7.02
of year
==============================================
Exercisable at end of year 17,100 $ 6.70 13,900 $6.52
==============================================
Available for grant at end
of year 9,500 11,500
==============================================
Weighted average fair value
per share of options granted
during the year $4.54 -
==============================================
7. Stockholders' Equity (continued)
The following table represents weighted average price and
life information about significant option groups outstanding
at September 30, 1997:
Options Outstanding Options Exercisable
-----------------------------------------------------------
Weighted
Average Weighted Weighted
Option Remaining Average Average
Grant Number Contractual Exercise Number Exercisable
Date Outstanding Life (yrs) Price Exercisable Price
1993 15,500 2.5 $6.39 13,900 $6.35
1995 8,000 7 8.25 3,200 8.25
1997 2,000 5 17.50 - -
------- ------
25,500 17,100
======= ======
The pro-forma net income, as if compensation cost for the
Plans had been determined based on the fair value at the
grant date, in accordance with the provisions of FAS 123, is
not materially different from the actual reported net income
for the years ended September 30, 1997 and 1996.
The fair value of options at the date of grant were
estimated using the minimum value model with an estimated
weighted average life of six years from the date of grant,
assuming a risk free interest rate of approximately 6%. The
Company does not intend to declare dividends on its common
stock.
The effects on 1997 and 1996 pro forma net income of expensing
the estimated fair value of stock options are not necessarily
representative of the effects on reporting the results of
operations for future years.
Preferred Stock
There are 29,327 shares of Series A and Series B preferred
stock (collectively, preferred stock), outstanding at
September 30, 1997 and 1996.
7. Stockholders' Equity (continued)
The preferred stock has a liquidation preference equal to
$13.38 per share plus all declared and unpaid dividends and
is initially convertible on a one-for-one basis into shares
of common stock at the preference of the stockholder. The
initial conversion price is equal to $16.00 and $12.07 per
share for Series A and Series B preferred stock,
respectively. Each share of preferred stock shall
automatically be converted into shares
of common stock immediately upon a public offering under the
Securities Act of 1933 covering the offer and sale of common
stock at an aggregate gross offering price of not less than
$3,000,000 and a minimum share price of $25.00 or the vote
of holders of a majority of the outstanding shares of
preferred stock. The conversion ratio is adjustable for
changes in the Company's capital structure. The shares of
preferred stock vote together with the shares of common
stock. Each holder of preferred shares is entitled to the
number of votes equal to the whole number of shares of
common stock into which the shares of preferred stock are
convertible at such time.
The preferred stock is noncumulative; however, before
declaration of a common stock dividend, the Company must
declare a preferred stock dividend at an annual rate equal
to
$1.60 and $1.21 for the Series A and Series B Preferred
Stock, respectively.
Certain stockholders have an agreement with the Company in
which the Company agrees not to take certain actions without
the approval of such stockholders. Such actions include
merger or consolidation, payment of dividends, repayment of
debt, making investments (debt or equity) in other
corporations, granting certain liens and mortgages, bulk
sales of assets and making excessive expenditures on leases,
fixed assets or executive compensation.
Treasury Stock
At September 30, 1997 and 1996 the Company has 36,000 shares
of common stock and 12,500 shares of preferred stock held in
treasury.
8. Profit-Sharing Plan
The Company sponsors a 401(k) profit-sharing plan (the plan)
covering all employees of the Company having completed a
minimum of six months of service. The plan permits
participants to make elective contributions up to the
maximum limits allowed by the Internal Revenue Code Section
401(k), with a matching employer contribution. Participants
become fully vested in the Company's matching contributions
in their fifth year of service with the Company.
8. Profit-Sharing Plan (continued)
The plan also permits the employer to make fully vested
discretionary contributions to the plan allocated to
participants' accounts based on their relative compensation.
Total plan expense was $5,401 and $5,217 in 1997 and 1996,
respectively.
9. Income Taxes
The provision for income taxes consisted of the following:
1997 1996
Current income taxes:
State $33,000 $12,335
Federal 58,000 40,000
------ ------
91,000 52,335
------ ------
Deferred income taxes:
Federal (50,000) -
------ ------
(50,000) -
------ ------
$ 41,000 $52,335
====== ======
The federal tax is the result of alternative minimum taxes.
9. Income Taxes (continued)
Deferred income taxes reflect the net effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Tytronics net deferred tax
assets are attributable to the following temporary
differences at September 30:
1997 1996
Deferred tax assets:
Accounts receivable allowances $24,800 $ 22,800
Depreciation 32,300 23,300
Inventory 8,200 6,200
Other accruals 64,700 75,400
Research and development tax credits 25,500 25,500
Net operating loss carryforwards 721,000 663,000
Alternative Minimum Tax loss credits 70,000 -
------- -------
946,500 816,200
Valuation allowance (856,500) (816,200)
------- -------
90,000 -0-
Deferred tax liability:
Basis difference of property and
equipment 40,000 -0-
------- -------
Net deferred tax asset $ 50,000 $ -0-
At September 30, 1997, the Company had a net deferred tax
asset of $50,000. FAS 109 requires that a valuation reserve
be established if it is "more likely than not" that
realization of the tax benefits will not occur. The net
change in the valuation allowance for deferred tax assets
was a decrease of $40,300 in fiscal 1997, related to the use
of previously unbenefitted losses.
The Company does not file a consolidated tax return. As of
September 30, 1997, Tytronics has available research and
development credit carryforwards of approximately $25,500.
The Company has no state or alternative minimum tax net
operating loss carryforwards. The credit carryforwards may
be subject to limitations.
10. Subsequent Events
Holometrix has filed a Proxy Statement and Reorganization
plan with the Securities and Exchange Commission whereby it
intends to enter a reorganization pursuant to which
Tytronics and Nametre will be merged into Holometrix
Acquisition Corporation, a Delaware corporation and wholly
owned subsidiary of Holometrix, with the result that
Holometrix Acquisition Corporation will be the surviving
entity. Following the reorganization Holometrix Acquisition
Corporation will be merged into Holometrix, the surviving
entity will change its name to Metrisa, Inc.
In connection with the reorganization, each issued and
outstanding share of Tytronics' Preferred Stock and Common
Stock will be exchanged for 254.542 and 231.402 shares,
respectively, of the Common Stock of Holometrix, for a total
of approximately 39,000,000 shares of Holometrix Common
Stock. In addition, each issued and outstanding share, of
Nametre Common Stock (currently 76,800 excluding shares
owned by Holometrix) will be exchanged for 79.807 shares of
Holometrix Common Stock for a total of approximately
6,065,000 shares.
In connection with the reorganization Holometrix has filed
and amendment to its Certificate of Incorporation to
increase the number of authorized shares of Common Stock
from 30,000,000 to 100,000,000 shares. Subsequent to the
reorganization Holometrix intends to reduce the number of
Common shares authorized from 100,000,000 to 2,000,000 with
a $.50 par value and conduct a 50 to 1 reverse stock split.
Although Holometrix (Metrisa) is the surviving corporation,
the shareholders of Tytronics will obtain the majority of
voting rights in Holometrix. Tytronics is deemed the
acquiring entity for accounting purposes.
HOLOMETRIX, INC.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma combined condensed financial information
is based on the historical consolidated financial statements of
Tytronics Incorporated ("Tytronics") and reflects the
reorganization of Tytronics, Holometrix, Inc. ("Holometrix") and
National Metal Refining Company, Inc. ("Nametre") and resulting
issuance of additional common shares of Holometrix in connection
with the reorganization.
As a result of the reorganization, Holometrix will be the surviving
entity. Although Holometrix is the surviving corporation, because
the shareholders of Tytronics will obtain a majority of voting rights
in Holmetrix, Tytronics is deemed to be the acquiring entity for
accounting purposes. Accordingly, the reorganization will be accounted
for as a recapitalization of Tytronics and the acquisition by Tytronics
of the minority interests of Holometrix and Nametre under the
purchase method of accounting in accordance with Accounting
Principles Board Opinion No. 16 Business Combinations. In connection
with the reorganization, each issued and outstanding share of
Preferred Stock and Common Stock of Tytronics, approximately 16,800
shares and 150,000 shares, respectively, will be exchanged for 254.542
and 231.40 shares, respectively, of the Common Stock of Holometrix
(rounded up to the nearest whole share), for a total of approximately
39,000,000 shares of Holometrix Common Stock. In addition, each issued
and outstanding share of Nametre Common Stock, currently,
approximately 76,000 shares (excluding shares owned by Holometrix),
will be exchanged for 79.807 shares of Holometrix Common Stock
(rounded up to the nearest whole share) for a total of approximately
6,065,000 shares. At the closing date, the financial statements will
reflect the acquisition by Tytronics of the minority interests of
Holometrix and Nametre through the issuance of Holometrix common shares
valued at $1,165,000 based on an independent valuation of
Tytronics, Nametre and Holometrix by Fechtor, Detwiler & Co., Inc.
("Fector Detwiler") investment bankers. Fector Detwiler determined
that the fair market value of the consolidated equity of Tytronics,
Holometrix and Nametre was $4,124,000, $1,839,000 and $1,432,000,
respectively. Fechtor Detwiler's valuations in connection with the
reorganization were based on discounted cash flow analysis and the
average market capitalization of certain comparable companies. The
minority shareholder values of Holometrix and Nametre amounting to
$609,000 and $556,000, respectively were determined by allocating the
consolidated equity of Holometrix and Nametre to the minority
shareholders based on their percentage ownership interest in each
entity.
Holometrix, Inc.
Pro Forma Combined Condensed Balance Sheet
December 31, 1997
(000 omitted)
(unaudited)
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTED
(TYTRONICS INCORPORATED)
---------------------- ----------- ---------
ASSETS
Current Assets:
Cash & Cash Equivalents $ 606 $ $ 606
Accounts Receivable 1,315 1,315
Inventories 1,273 1,273
Prepaid Expenses and Other 120 120
----- --- -----
Total Current Assets 3,314 3,314
Equipment and Fixtures-Net 428 428
Other assets 518 930 (a) 1,448
----- ----- -----
Total Assets $ 4,260 $ 930 $ 5,190
===== ===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 238 $ $ 238
Accounts Payable 1,359 1,359
Accrued Expenses 443 443
Current Portion,
Long Term Debt 146 146
----- ----- -----
Total Current Liabilities 2,186 2,186
Long-Term Debt, less
current portion 906 906
Minority interest in
subsidiary 235 (235)(a) 0
Stockholders' Equity 933 1,165 (a) 2,098
Total Liabilities and ----- ----- -----
Stockholders' Equity $ 4,260 $ 930 $ 5,190
===== ===== =====
(a) To record the acquisition of the minority interest of
Holometrix and Nametre in exchange for the issuance of stock valued at
$1,165,000. Goodwill represents the excess purchase price over the fair
value of net assets acquired calculated as follows:
Total value of 13,416,000 shares issued (268,320 shares
after the 50 for 1 reverse stock split) in exchange
for minority shareholders interest $ 1,165,000
Minority Interest - Historical Value reflected
by Tytronics Incorporated 235,000
---------
Excess of purchase price over fair value $ 930,000
=========
Goodwill representing the excess purchase price paid for the remaining
interests of Holometrix and Nametre over their fair values will be amortized
over an estimated life of 15 years.
Holometrix, Inc.
Pro Forma Combined Condensed Statement of Operations
Three Months Ended December 31, 1997
($000 omitted)
(unaudited)
HISTORICAL PRO FORMA PRO FORMA
(TYTRONICS INCORPORATED) ADJUSTMENTS ADJUSTED
----------------------- ----------- ---------
Net Sales $ 1,634 $ $ 1,634
Cost of Sales 837 837
----- -----
Gross Profit 797 797
----- -----
Operating Expenses
Selling, general and
administrative 884 16 (b) 900
Research and Development 173 173
----- ----- -----
Total 1,057 16 1,073
----- ----- -----
(Loss) From Operations (260) (16) (276)
Other (Expense) (28) - (28)
----- ----- -----
(Loss) Before Income
Taxes and Minority Interest (288) (16) (304)
Income Taxes 0 - 0
----- ----- -----
(Loss) Before Minority Interest (288) (16) (304)
Minority Interest 3 (3)(a) -
----- ----- -----
Net (Loss) $ (291) $ (13) $ (304)
===== ===== =====
Weighted Average of Common Shares
Outstanding 781,000 268,000 (c) 1,049,000
Net (Loss)
Per Common Share $ (.37) $ (.29)
(a) To eliminate minority interest in Holometrix and Nametre due to
acquisition of remaining interests by Tytronics as a result of the reverse
merger.
(b) To record amortization of goodwill representing the excess purchase
price paid for the remaining interests of Holometrix and Nametre over their
recorded values using an estimated life of 15 years.
(c) To reflect 13,416,000 shares (268,320 shares after the 50 for 1 reverse
stock split) issued as a result of the reverse acquisition assuming the reverse
acquisition occurred at the beginning of the periods presented.
Holometrix, Inc.
Pro Forma Combined Condensed Statement of Operations
Year ended September 30, 1997
($000 omitted)
(unaudited)
HISTORICAL PRO FORMA PRO FORMA
(TYTRONICS INCORPORATED) ADJUSTMENTS ADJUSTED
----------------------- ----------- ---------
Net Sales $ 7,975 $ $ 7,975
Cost of Sales 3,782 3,782
----- -----
Gross Profit 4,193 4,193
----- -----
Operating Expenses
Selling, general and
administrative 3,343 62 (b) 3,405
Research and Development 626 626
----- ----- -----
Total 3,969 62 4,031
----- ----- -----
Income From Operations 224 (62) 162
Other (Expense) (113) - (113)
----- ----- -----
Income Before Income
Taxes and Minority Interest 111 (62) 49
Income Taxes 41 - 41
----- ----- -----
Income Before Minority Interest 70 (62) 8
Minority Interest (33) 33 (a) -
----- ----- -----
Net Income $ 103 $ (95) $ 8
===== ===== =====
Weighted Average of Common Shares
Outstanding 781,000 268,000 (c) 1,049,000
Net Income
Per Common Share $ .13 $ .01
(a) To eliminate minority interest in Holometrix and Nametre due to
acquisition of remaining interests by Tytronics as a result of the reverse
merger.
(b) To record amortization of goodwill representing the excess purchase
price paid for the remaining interests of Holometrix and Nametre over their
recorded values using an estimated life of 15 years.
(c) To reflect 13,416,000 shares (268,320 shares after the 50 for 1 reverse
stock split) issued as a result of the reverse acquisition assuming the reverse
acquisition occurred at the beginning of the periods presented.
PLAN AND AGREEMENT OF MERGER
This Plan and Agreement of Merger (hereinafter called the
"Plan and Agreement") entered into this __ day of April, 1998
between Holometrix Acquisition Corp., a Delaware corporation
(hereinafter sometimes referred to as the "Delaware corporation"),
Tytronics Incorporated, a Massachusetts corporation (hereinafter
sometimes referred to as the "Massachusetts corporation"),
National Metal Refining Company, a New Jersey corporation
(hereinafter sometimes referred to as the "New Jersey
corporation") and Holometrix, Inc., a Delaware corporation
(hereinafter sometimes referred to as "Holometrix"), with the
Delaware corporation, the Massachusetts corporation and the New
Jersey corporation hereinafter sometimes referred to as the
"Constituent Corporations".
W I T N E S S E T H:
WHEREAS, Holometrix has an authorized capital stock
consisting of Ten Million (10,000,000) shares of Preferred Stock,
$.01 par value and Thirty Million (30,000,000) shares of Common
Stock, $1.00 par value, of which 23,861,878 shares of Common Stock
are now issued and outstanding;
WHEREAS, Holometrix has agreed to submit an amendment to its
Certificate of Incorporation to its stockholders for approval to
be effective prior to the Effective Time to increase the number of
authorized shares of its Common Stock to 100,000,000 shares;
WHEREAS, the Massachusetts corporation has an authorized
capital stock consisting of Seventy-Five Thousand (75,000) shares
of Preferred Stock, $1.00 par value, of which Sixteen Thousand
Eight Hundred Twenty-Seven (16,827) shares are issued and
outstanding and Four Hundred Twenty Thousand (420,000) shares of
Common Stock, $.01 par value, of which One Hundred Fifty Thousand
Two Hundred Seventy-One (150,271) are issued and outstanding;
WHEREAS, the New Jersey corporation has an authorized capital
stock consisting of 770,000 shares of Common Stock, $.01-1/3 par
value, of which Seventy-Five Thousand Nine Hundred Eighty-Nine
(75,989) shares, excluding One Hundred Twenty Thousand (120,000)
shares of Common Stock owned by Holometrix, are issued and
outstanding;
WHEREAS, the Board of Directors of the New Jersey corporation
has agreed to submit an amendment of its Certificate of
Incorporation to its stockholders for approval to be effective
prior to the Effective Time to reduce the authorized shares of
Common Stock of the New Jersey corporation to 856 shares and to
affect a nine hundred (900) for one (1) reverse stock split, such
that prior to the Effective Time, approximately 210 shares of
Common Stock of the New Jersey corporation will be issued and
outstanding;
WHEREAS, the Delaware corporation is a wholly-owned
subsidiary of Holometrix, Inc.; and
WHEREAS, the Board of Directors of the Massachusetts
corporation, the New Jersey corporation and of the Delaware
corporation deem it advisable to merge the Massachusetts
corporation and the New Jersey corporation with and into the
Delaware corporation, pursuant to the corporation laws of the
Commonwealth of Massachusetts, and the States of New Jersey and
Delaware.
NOW, THEREFORE, the parties to this Plan and Agreement, in
consideration of the mutual covenants and agreements hereinafter
contained, do hereby prescribe the terms and conditions of said
merger and the mode of carrying the same into effect, as follows:
FIRST: The Massachusetts corporation and the New Jersey
corporation shall be merged into the Delaware corporation on the
Effective Date as hereinafter defined. The Delaware corporation
shall thereafter continue as the Surviving Corporation and as such
is hereinafter sometimes called the "Surviving Corporation".
SECOND: From and after the Effective Date, the
Certificate of Incorporation of the Delaware corporation shall
remain and be the Certificate of Incorporation after the merger
until the same shall be altered or amended as provided by law.
From and after the Effective Date and until amended in accordance
with law, the Certificate of Incorporation, shall be, and may be
certified as, the Certificate of Incorporation of the Surviving
Corporation.
The By-Laws of the Delaware corporation in effect on the
Effective Date shall be the By-Laws of the Surviving Corporation.
THIRD: The shares of the Massachusetts corporation and
the New Jersey corporation shall be exchanged for shares of
Holometrix.
FOURTH: The manner of converting the outstanding shares
of the Massachusetts corporation into shares of Holometrix shall
be as follows:
(a) Each issued and outstanding share of Preferred Stock of
the Massachusetts corporation shall be exchanged and converted
into 254.542 shares of Common Stock of Holometrix (rounded up to
the nearest whole share), which shares shall be deemed fully paid
and nonassessable.
(b) Each issued and outstanding share Common Stock of the
Massachusetts corporation shall be exchanged and converted into
231.402 shares of Common Stock of Holometrix (rounded up to the
nearest whole share), which shares shall be deemed fully paid and
nonassessable.
(c) After the Effective Date, each holder of an outstanding
certificate or certificates representing shares of the
Massachusetts corporation shall surrender the same to Holometrix,
and each holder shall be entitled upon such surrender to receive
the number of shares of capital stock of Holometrix on the basis
provided herein. Until so surrendered, the outstanding shares of
capital stock of the Massachusetts corporation to be converted
into the stock of Holometrix, as provided herein, may be treated
by Holometrix for all corporate purposes as evidencing the
ownership of shares of Holometrix as though said surrender and
exchange had taken place.
(d) After the Effective Date, the outstanding options and
warrants to purchase capital stock of the Massachusetts
corporation, and all rights in respect thereof, shall be converted
to options and warrants to purchase shares of Holometrix Common
Stock that each holder of such option and warrant would have
become entitled to receive on the conversion, as set forth in
subparagraph (c) above, had each such option and warrant been
exercised immediately prior to the Effective Date, and each
substitute option and warrant shall contain, as nearly as
practical, the same terms and conditions as each such original
option and warrant to purchase capital stock of the Massachusetts
corporation.
FIFTH: The manner of converting the outstanding shares
of the New Jersey corporation into shares of Holometrix shall be
as follows:
(a) Each share of Common Stock of the New Jersey corporation
shall be exchanged and converted into 79.807 shares of Holometrix
Common Stock (rounded up to the nearest whole share), which shares
shall be deemed fully paid and nonassessable.
(b) After the Effective Date, each holder of an outstanding
certificate or certificates representing shares of the New Jersey
corporation shall surrender the same to Holometrix, and each
holder shall be entitled upon such surrender to receive the number
of shares of capital stock of Holometrix on the basis provided
herein. Until so surrendered, the outstanding shares of capital
stock of the New Jersey corporation to be converted into the stock
of Holometrix, as provided herein, may be treated by Holometrix
for all corporate purposes as evidencing the ownership of shares
of Holometrix as though said surrender and exchange had taken
place.
(c) After the Effective Date, the outstanding options and
warrants to purchase capital stock of the New Jersey corporation,
and all rights in respect thereof, shall be converted to options
and warrants to purchase shares of Holometrix Common Stock that
each holder of such option and warrant would have become entitled
to receive on the conversion, as set forth in subparagraph (c)
above, had each such option and warrant been exercised immediately
prior to the Effective Date, and each substitute option and
warrant shall contain, as nearly as practical, the same terms and
conditions as each such original option and warrant to purchase
capital stock of the New Jersey corporation.
SIXTH: On the Effective Date:
(1) The Constituent Corporations shall become a single
corporation, which shall be the Delaware corporation, the
Surviving Corporation, and the separate existence of the
Massachusetts corporation and the New Jersey corporation shall
cease.
(2) The Surviving Corporation shall be entitled to all
the rights and assets and be subject to all the duties and
liabilities of the Massachusetts corporation, the New Jersey
corporation and the Delaware Corporation, to the full extent
provided in Section 259 of the General Corporation Law of the
State of Delaware, Section 80 of the Business Corporation Law of
the Commonwealth of Massachusetts and Section 10-6 of the Business
Corporation Act of the State of New Jersey. The officers and
directors of the Massachusetts corporation, the officers and
directors of the New Jersey corporation and the officers and
directors of the Surviving Corporation are fully authorized in the
name of the Massachusetts corporation and the New Jersey
corporation or otherwise to execute and deliver all instruments
and do anything else which the Surviving Corporation may request
in order to perfect the transfer to it of all of the Massachusetts
corporation's and the New Jersey corporation's rights and assets,
or otherwise to carry out the purposes of this Agreement.
(3) The directors and officers of the Surviving
Corporation in office on the Effective Date shall include the
following persons in the following positions:
John E. Wolfe President, Treasurer and
Director
David J. Brown Secretary
and such directors and officers shall constitute the directors and
officers of the Delaware corporation until the next annual meeting
of stockholders and until their successors shall have been elected
and qualified.
SEVENTH: This Plan and Agreement shall be submitted to
the shareholders of each of the Constituent Corporations at
meetings separately called for the purpose, and the merger shall
become effective upon the approval of this Plan and Agreement by
the requisite vote or consent of the shareholders of each of said
corporations and the execution, acknowledgment, filing, issuance,
and recording of such documents as may be required by the
applicable Secretaries of State. The term "Effective Date", as
used in this Plan and Agreement, means the latest point of time at
which the Secretaries of State of Massachusetts, New Jersey and
Delaware accept the Plan and Agreement for filing.
EIGHTH: Anything herein or elsewhere to the contrary
notwithstanding, this Plan and Agreement may be terminated and
abandoned by the Board of Directors of any of the Constituent
Corporations or Holometrix at anytime before the merger shall have
otherwise become effective under the respective laws of such
Constituent Corporation's state of incorporation.
IN WITNESS WHEREOF, the parties to this Plan and
Agreement, pursuant to the approval and authority duly given by
resolutions adopted by their respective Board of Directors, have
caused these presents to be executed by the President and attested
by the Secretary of each party hereto.
(Corporate Seal) HOLOMETRIX ACQUISITION CORP.
(a Delaware corporation)
ATTEST:
By:_____________________
_________________________ John E. Wolfe
David J. Brown President
Secretary
(Corporate Seal) TYTRONICS INCORPORATED
(a Massachusetts corporation)
ATTEST:
By:_____________________
_________________________ John E. Wolfe
President
Clerk
(Corporate Seal) NATIONAL METAL REFINING
COMPANY
(a New Jersey corporation)
ATTEST:
By:_____________________
_________________________ Linda Dousis
President
Secretary
(Corporate Seal) HOLOMETRIX, INC.
(a Delaware corporation)
ATTEST:
By:_____________________
_________________________ John E. Wolfe
President
Secretary
THE ABOVE PLAN AND AGREEMENT OF MERGER having been executed on
behalf of each corporate party thereto, and having been adopted
separately by each corporate party thereto, in accordance with the
provisions of the General Corporation Law of the State of
Delaware, the Business Corporation Law of the Commonwealth of
Massachusetts and the Business Corporation Act of the State of New
Jersey, the President of each corporate party thereto does now
hereby execute the said Plan and Agreement of Merger, and the
Secretary of each corporate party thereto does now hereby attest
the said Plan and Agreement of Merger under the corporate seals of
the respective corporations, by authority of the directors and
stockholders thereof, as the respective act, deed and agreement of
each of said corporations on this __th day of April, 1998.
(Corporate Seal) HOLOMETRIX ACQUISITION CORP.
(a Delaware corporation)
ATTEST:
By:_____________________
_________________________ John E. Wolfe
David J. Brown President
Secretary
(Corporate Seal) TYTRONICS INCORPORATED
(a Massachusetts corporation)
ATTEST:
By:_____________________
_________________________ John E. Wolfe
President
Clerk
(Corporate Seal) NATIONAL METAL REFINING
COMPANY
(a New Jersey corporation)
ATTEST:
By:_____________________
_________________________ Linda Dousis
President
Secretary
(Corporate Seal) HOLOMETRIX, INC.
(a Delaware corporation)
ATTEST:
By:_____________________
_________________________ John E. Wolfe
President
Secretary
CERTIFICATE OF MERGER
I, David J. Brown, Secretary of Holometrix Acquisition Corp.,
a corporation organized and existing under the laws of the State
of Delaware, hereby certify, as such secretary and under the seal
of the said corporation, that a Plan and Agreement of Merger,
after having been first duly signed on behalf of the said
corporation, and having been signed on behalf of Tytronics
Incorporated, a Massachusetts corporation, and having been signed
on behalf of National Metal Refining Company, Inc., a New Jersey
Corporation, was duly adopted pursuant to Section 228 of the
General Corporation Law of the State of Delaware by the unanimous
written consent of the stockholder holding 1,000 shares of the
capital stock of the Delaware corporation, the same being all of
the shares issued and outstanding of the Delaware corporation,
which Plan and Agreement of Merger was thereby adopted as the act
of the sole stockholder of said Holometrix Acquisition Corp., a
Delaware corporation, and the duly adopted agreement and act of
the said corporation. Holometrix Acquisition Corp. is the
surviving corporation, and the certificate of incorporation of
said corporation, without amendment, shall be the certificate of
incorporation of the surviving entity. The executed Plan and
Agreement of Merger is on file at the office of the surviving
corporation, Holometrix Acquisition Corp., located at 25 Wiggins
Avenue, Bedford, Massachusetts. The surviving corporation will
furnish a copy of the Plan and Agreement of Merger to any
stockholder of Holometrix Acquisition Corp., Tytronics
Incorporated or National Metal Refining Company, Inc., upon
request.
WITNESS my hand and the seal of said Holometrix Acquisition
Corp., a Delaware corporation, on this __th day of April, 1998.
(Corporate Seal) __________________________________
David J. Brown
Secretary
August 28, 1997
Confidential
Mr. John E. Wolfe
President
Holometrix, Inc.
25 Wiggins Avenue
Bedford, MA 01730-2323
Dear Mr. Wolfe:
On behalf of Holometrix, Inc. ("Holometrix"), you have requested
Fechtor, Detwiler & Co., Inc. ("Fechtor, Detwiler") to provide an
opinion, from a financial point of view, of the fair market values
as of August 28, 1997 of the equity of Holometrix, Tytronics, Inc.
("Tytronics") and National Metal Refining Company, Inc.
("Nametre") and to opine on the fairness of the exchange ratios to
be applied to the acquisitions of Tytronics and Nametre by
Holometrix.
Fechtor, Detwiler, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their
securities in connection with initial public offerings, mergers
and acquisitions, private placements, and valuations for estate,
corporate and other purposes.
In forming our opinion, we have, among other things:
1) Reviewed Forms 10-KSB for Holometrix for the fiscal
years ending September 30, 1992 through September 30, 1996;
2) Reviewed unaudited income statements and balance sheets
prepared by management for Holometrix as a standalone
business for the seven quarters ending on December 31, 1995
through June 30, 1997;
3) Reviewed the minutes of the board of directors meeting
of Holometrix dated March 13, 1997, which, among other
things, detailed options and common shares authorized by the
board;
4) Reviewed audited financial statements for Tytronics for
the fiscal years ending April 30, 1992 and 1993 and audited
consolidated financial statements for the fiscal years ending
September 30, 1995 and 1996;
5) Reviewed unaudited financial statements for Tytronics
for the fiscal years ending April 30, 1994 and 1995;<PAGE>
John E. Wolfe, President
Holometrix, Inc.
Page 2
6) Reviewed unaudited income statements and balance sheets
prepared by management for Tytronics as a standalone business
for the fiscal year ending April 30, 1995, for the five month
period ending September 30, 1995, and for the fiscal year
ending September 30, 1996;
7) Reviewed schedules of Tytronics and Nametre shares,
warrants and options outstanding, prepared by management;
8) Reviewed audited financial statements for Nametre for
the nine months ending September 30, 1996 and the fiscal year
ending December 31, 1995;
9) Reviewed unaudited financial statements for Nametre for
the fiscal years ending December 31, 1990 through 1994;
10) Reviewed unaudited income statements prepared by
management for the three quarters ending June 30, 1997 for
Holometrix, Tytronics and Nametre;
11) Reviewed unaudited balance sheets prepared by management
as of June 30, 1997 for Holometrix, Tytronics and Nametre;
12) Reviewed forecasted income statement data prepared by
management for the quarter ended September 30, 1997 and the
fiscal years ending September 30, 1998 through 2002 for
Holometrix, Tytronics and Nametre;
13) Incorporated the effects of a $687,000 equity financing
by Tytronics;
14) Visited the facilities of Holometrix, Tytronics and
Nametre and reviewed with management their operations,
financial condition and future prospects;
15) Reviewed other published information, performed certain
financial analyses and considered other factors which we
deemed relevant.
In rendering our opinion, we have assumed and relied upon the
accuracy and completeness of the information provided to us by
Holometrix, Tytronics and Nametre, and we have not assumed any
responsibility for independent verification of such information or
any independent valuation or appraisal of any of the assets of
Holometrix, Tytronics or Nametre.
Subject to the foregoing and on the basis of our experience as
investment bankers and our work described above, it is our opinion
that the fair market values of the equity of Tytronics, Holometrix
and Nametre as of August 28, 1997 are as follows:
Tytronics $4,124,000
Holometrix $1,839,000
Nametre $1,432,000
John E. Wolfe, President
Holometrix, Inc.
Page 3
It is also our opinion that, relating to an acquisition of
Tytronics and Nametre by Holometrix, the following exchange ratios
are fair, from a financial point of view:
Holometrix Common for Nametre Common Stock: 79.807
Holometrix Common for Tytronics Common Stock: 231.402
Holometrix Common for Tytronics Preferred Stock: 254.542
We are pleased to have been of assistance to you in this matter.
Very truly yours,
Fechtor, Detwiler & Co., Inc.
/s/ Joel F. Johnson
Joel F. Johnson
Senior Vice President
November 17, 1997
We hereby consent to the use of our opinion dated August 28, 1997
regarding the proposed reorganization of Holometrix, Inc.,
Tytronics, Inc. and National Metal Refining Company, Inc.
described in the proxy statement for the Special Meeting of
Stockholders to be sent to the Stockholders in November 1997. We
have previously been provided with copies of such proxy materials
as filed by Holometrix, Inc. with the Securities and Exchange
Commission.
Fechtor, Detwiler & Co., Inc.
/s/ Joel F. Johnson
By: Joel F. Johnson
Senior Vice President
