SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 10-KSB/A
_____________
X Annual Report Pursuant To Section 15(d) Of The Securities Exchange
Act Of 1934 For the fiscal year ended September 30, 1998
Transition Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934 For the transition period from __________ to
__________
Commission file number 0-16152
Metrisa, Inc.
(Name of Registrant as Specified in Its Charter)
_____________
Delaware (781) 275-3300 04-2891557
(State or Other Jurisdiction (Registrant's Telephone (I.R.S. Employer
Incorporation or Organization) Number, Including Area Code) Identification No.)
25 Wiggins Avenue, Bedford, Massachusetts 01730
(Address of Principal Executive Offices) (Zip Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange on
Title of Each Class Which Registered
None Not applicable
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.50 par value
(Title of Class)
Check whether the Registrant: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such other shorter period that the Registrant
was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
The Registrant's consolidated revenues for its fiscal year ended
September 30, 1998 were $8,252,450 The aggregate market
value of shares of the Common Stock held by non-affiliates,
based upon the average of the bid and ask prices for such stock
on December 1, 1998 was approximately $330,998. As of
December 1, 1998, 1,022,911 shares of Common Stock were
outstanding.
Transitional Small Business Disclosure Format Yes No X
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
SELECTED FINANCIAL DATA:
1998 1997
STATEMENT OF INCOME DATA
Net sales $8,252,450 $7,974,919
Net income $ 220,584 $ 103,071
Net income per Common share-basic and diluted $ 0.22 $ .12
Weighted average Common shares outstanding-
basic and diluted 1,022,911 862,070
CONSOLIDATED BALANCE SHEET DATA
Working capital $3,263,552 $1,460,041
Total assets $8,207,908 $5,046,695
Long-term obligations, excluding current $2,833,777 $ 937,249
Portion
Minority Interest 0 $ 232,206
Stockholders' Equity $2,778,539 $1,211,781
OVERVIEW
On May 1,1998, the Company (formerly Holometrix, Inc.)
completed a reorganization ("Reorganization") pursuant to which
Tytronics Incorporated ("Tytronics"), the majority owner of the Company,
and National Metal Refining Company ("Nametre"), the majority owned
subsidiary of the Company, were merged into the wholly-owned
subsidiary of the Company, Holometrix Acquisition Corp., which was
followed by the merger of Holometrix Acquisition Corp. into the
Company. As part of this Reorganization, Holometrix changed its name to
Metrisa, Inc., and effected a 50:1 reverse stock split of its issued and
outstanding capital stock. On February 13, 1998, Tytronics acquired the
assets of Micromet Instruments Inc. ("Micromet"), and thus Micromet was
also merged into Holometrix Acquisition Corp., but as part of Tytronics.
Although Metrisa is the surviving corporation, because the
shareholders of Tytronics obtained a majority of voting rights in Metrisa,
Tytronics is deemed to be the acquiring entity for accounting purposes.
Accordingly, the Reorganization has been accounted for as a
recapitalization of Tytronics and the acquisition by Tytronics of the
minority interests of Metrisa (formerly Holometrix) and Nametre under
the purchase method of accounting in accordance with Accounting
Principles Board Opinion No. 16, Business Combinations. The
accompanying financial statements reflect at the closing date, the
acquisition by Tytronics of the minority interest of Metrisa and Nametre
based on an independent valuation of Tytronics, Nametre, and Metrisa by
Fechtor Detwiler & Co., investment bankers.
A 50 to 1 reverse stock split was effected in May 1998 in
connection with the Company's Reorganization and resulting
recapitalization. In addition, the Company's Certificate of Incorporation
was amended to change its authorized common stock and par value to
2,000,000 shares with a $.50 par value. All net income per share
information and common stock information presented in the
accompanying consolidated financial statements and notes to the financial
statements have been retroactively restated to reflect the stock split and
recapitalization.
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting principles.
They include the accounts of Tytronics, and subsidiaries for the periods
ended September 30, 1997 and the accounts of Metrisa, Inc. including the
effects of the Reorganization from the closing date on, for the period
ended September 30, 1998.
Results of Operations
Year Ended September 30, 1998 as compared to Year Ended September 30, 1997
Net sales for the 1998 fiscal year totaled $8,252,450 as compared to
$7,974,919 in the comparable period of 1997, an increase of $277,531.
This approximately 4% increase is primarily due to the inclusion of the
sales of Micromet, substantially all of whose assets were acquired by
Tytronics in the second quarter of fiscal 1998, offset by a decrease in sales
of the Company's other divisions due to reduced sales to the Asian
countries.
Cost of sales decreased by $60,839, or 2% from $3,781,854 (47% of sales)
in fiscal 1997 to $3,721,015 (45% of sales) in the same period of fiscal
1998. This percentage decrease of 2% was a result of the change in mix of
product sales plus the inclusion of Micromet, whose instruments have
relatively low costs.
Selling, general and administrative expenses increased by $60,503, or 2%,
from $3,342,571 (42% of sales) to $3,403,074 (41% of sales). This
increase is primarily due to the amortization of the expenses of the
Reorganization as well as the inclusion of Micromet's selling, general and
administrative expenses, offset by reductions in other divisions.
Research and Development increased by $36,452, or 6%, from $626,654
(8% of sales) to $663,106 (also 8% of sales) as a result of the inclusion of
Micromet.
Income from operations was $465,255 for fiscal 1998, compared with
$223,840 for fiscal 1997, an increase of 108%. The increased income was
primarily a result of the return to profitability of the Holometrix division
from its fiscal 1997 loss, and the inclusion of Micromet's results.
Net income was $220,584 for fiscal 1998 compared to $103,071 for fiscal
1997, an increase of 114%. This increase in net income was a direct result
of the increase in income from operations offset by increased taxes in 1998
and a favorable minority interest from Holometrix in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Total assets at September 30, 1998 increased to $8,207,908 from
$5,046,695, an increase of $3,161,213 or 63%. This increase was due to
the combination of an increase in cash as a result of obtaining
subordinated debt financing of $2,000,000 from Sirrom Investments, Inc.
("Sirrom"), the acquisition of the assets of Micromet of $358,000, and the
addition of goodwill associated with the Reorganization. Cash increased
by $1,533,336 primarily due to the subordinated debt financing of
$2,000,000 offset by the acquisition of Micromet, for an initial payment of
$150,000, and the expenses associated with the Reorganization. Accounts
receivable increased by $236,989 primarily due to increased sales for the
year, particularly those of fourth quarter. Inventories increased by
$110,655 reflecting the acquisition of Micromet for an initial payment of
$150,000, offset by inventory reductions in all other divisions. Other
current assets decreased by $103,336, and equipment and fixtures, net,
decreased by $70,339. Other assets increased by $1,497,908, resulting
from the goodwill associated with the Reorganization and the inclusion of
costs associated with the subordinated debt financing of $2,000,000.
Total liabilities at September 30, 1998 increased to $5,429,369 from
$3,834,914 on September 30, 1997, an increase of $1,594,455 or 42%.
This increase was primarily due to an increase in long-term debt of
$1,896,528, resulting from the $2,000,000 subordinated debt financing, an
increase in the current portion of long-term debt of $262,106, offset by a
decrease in accounts payable of $405,623. Accounts payable decreased
from $1,718,396 at September 30, 1997 to $1,312,773 at September 30,
1998 due to a combination of payments of extended payables present at
September 30, 1997, as well as a reclassification of certain accounts
payable to the current portion of long-term debt. The current portion of
long-term debt increased from $299,335 at September 30, 1997 to
$561,441 at September 30, 1998 due to the acquisition of Micromet and
the reclassification of certain accounts payable.
Operating cash flows were positive in fiscal 1998 amounting to $154,480,
as compared to $307,628 in fiscal 1997. Operating cash flows equals the
sum of net income of $220,584 plus deferred income taxes of $44,000 and
depreciation and amortization $308,177, plus decreases in inventory of
$247,345, and other current assets of $3,336, offset by increases in
accounts receivable of $236,989 and decreases of accounts payable and
accrued expenses of $431,973.
The Company funded increases of equipment and fixtures of $95,115
along with increases of other assets of $143,043. The increase in long-
term debt of $1,950,634 was due primarily to the Sirrom subordinated debt
financing of $2,000,000.
The net affect of these transactions was an increase in cash of $1,533,336,
providing cash at fiscal 1998 year-end of $2,469,053.
Notes Payable Line of Credit, Subordinated Debt Loan
As of September 30, 1997, the Company was a party to a Silicon Valley
Bank combined line credit and term loan of $1,500,000 secured by
substantially all of the assets of the Company. As of September 23,1998,
this line was increased to $1,750,000. Advances under this line cannot
exceed 75% of the Company's eligible accounts receivable plus 20% of
inventory, as defined. All 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, 1998,
the Company was in compliance with all covenants and ratios on this line
of credit .
As of September 29,1998, the Company was party to a $2,000,000
subordinated debt financing agreement with Sirrom secured by
substantially all of the assets of the Company, but subordinated to the
Silicon Valley Bank financing. This loan is due in full September 30,
2003, with interest-only payments for the first two years.
Effect of Reorganization and Other Company Initiatives
The Company expects to continue to invest in enhanced sales and
marketing efforts, new product development, and the development of
strategic relationships, including licensing, acquisitions, mergers, or OEM
agreements. Management believes that operating capital and the line of
credit from Silicon Valley Bank, and the $2,000,000 subordinated debt
financing from Sirrom, will provide sufficient capital to maintain stable
Company operations throughout fiscal 1999. As of May 1, 1998, the
Company completed the Reorganization previously discussed, pursuant to
which Tytronics, Micromet and Nametre were merged into the wholly-
owned subsidiary of the Company, Holometrix Acquisition Corp., which
was followed by the merger of Holometrix Acquisition Corp. into the
Company. As part of the Reorganization, Holometrix changed its name to
Metrisa, Inc., and effected a 50 to 1 reverse stock split of its issued and
outstanding capital stock. Management believes that the Reorganization
will result in increased efficiencies for the Company and provide for more
stable Company operations. However, there can be no assurance that
additional or adequate profitability and operating funds will be generated
as a result of revenue increases or the Reorganization, or that strategic
relationships will materialize, or that additional funding, if required, can
be obtained on acceptable terms.
New Accounting Pronouncements
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. Management is evaluating the
impact these standards may have on the Company's financial statement.
The Company will adopt these new standards for the fiscal year ending
September 30, 1999.
In June 1998, The Financial Accounting Standard board issued
SFAS No. 133, "Accounting of Derivative Instruments and Hedging
Activities." SFAS No. 133 provides a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. The new standard requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. The Company
will adopt the new standard for the fiscal year ending September 30, 2000.
Management is evaluating the impact of SFAS No. 133 may have on the
Company's financial statements.
Year 2000 ("Y2K")
The Company is aware of the issues related to the approach of the
Year 2000 and has assessed and investigated what steps must be taken to
ensure that its critical systems and equipment will function appropriately
after the turn of the century. The assessments included a review of what
systems and equipment need to be changed or replaced in order to function
correctly.
With the exception of remediation and implementation
consequences not known to the Company at this time, the Company
believes that all systems should be fully implemented by the end of the
fourth quarter of fiscal 1999.
As part of the Company's assessment of Y2K issues, consideration
was given to the possible impact upon the Company from using purchased
software, suppliers and outside service providers. The Company's efforts
with regard to Y2K issues are dependent in part upon information received
from such suppliers and vendors upon which the Company has reasonably
relied. While it is not possible for the Company to predict all future
outcomes and eventualities, the Company is not aware, at this time, of any
Y2K non-compliant situations with regard to any of its purchased software
or its use of suppliers and outside service providers.
The Company estimates that it will spend approximately $100,000
to fully implement its Y2K compliance program. All Y2K costs have
been and will continue to be funded from operations.
The Company has formulated a contingency plan to deal with Y2K
issues. However, due to the complexity and widespread nature of such
issues, the contingency planning process of necessity must be an ongoing
one requiring possible further modification as more information becomes
known regarding (1) the Company's own systems and facilities, and (2)
the status and changes therein of the Y2K compliance efforts of outside
suppliers and vendors. As significant Y2K uncertainties remain outside
the control of the Company, at this time the Company is unable to
determine a most reasonably likely worst case scenario.
ITEM 7. FINANCIAL STATEMENTS.
The Company's consolidated financial statements and the related
auditors' report are presented on pages F-1 through F-20. The financial
statements filed in this Item 7 are as follows:
Item Page
Reports of Independent Accountants F1
Consolidated Balance Sheets - September 30, 1998 and 1997 F5
Consolidated Statements of Income for the years ended F6
September 30, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the years ended F7
September 30, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended F8
September 30, 1998 and 1997
Notes to Consolidated Financial Statements F9
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits: The following exhibits are filed as a part of this
Annual Report on Form 10-KSB or incorporated by reference.
3.01 Certificate of Incorporation, as amended, including Certificates of
Designation for the terms of the Series A and Series B Preferred Stock
(filed as exhibit 3.01 to Form 10-K dated December 27, 1991 and
incorporated by reference).
3.02 Bylaws (filed as Exhibit 3d to Registration Statement No. 33-13027-
B on Form S-18 and incorporated by reference).
10.01 1987 Stock Option Plan (filed as Exhibit 10f to Registration
Statement No. 33-13027-B on Form S-18 and incorporated by reference).
10.02 1991 Stock Plan, as amended (filed as exhibit 10.02 to Form 10-K
dated December 27, 1991 and incorporated by reference).
10.03 Form of Incentive Stock Option Agreement under 1991 Stock Plan
(filed as exhibit 10.03 to Form 10-K dated December 27, 1991 and
incorporated by reference).
10.04 Form of Non-qualified Stock Option Agreement under 1991 Stock
Plan (filed as exhibit 10.04 to Form 10-K dated December 27, 1991 and
incorporated by reference).
10.05 Lease dated October 1, 1991 between Holometrix, Inc. and
Springfield Institute for Savings (the "Lease") for the premises at 25
Wiggins Avenue, Bedford, Massachusetts (filed as exhibit 10.11 to Form
10-K dated December 27, 1991 and incorporated by reference).
10.06 First amendment of Lease dated August 19, 1993 between
Holometrix, Inc. and Opta Food Ingredients, Inc. (the successor in interest
to Springfield Institution for Savings), for the premises at 25 Wiggins
Avenue, Bedford, Massachusetts (filed as exhibit 10.12 to Form 10-KSB
dated December 27, 1995 and incorporated by reference).
10.07 Consulting Agreement between Holometrix, Inc., Corning Partners
II, L.P., Corning Partners III, L.P., and Bantam, dated June 7, 1993 (filed
as exhibit 10.21 to Form 10-KSB dated September 8, 1994 and
incorporated by reference).
10.08 Letter Agreement between Silicon Valley Bank and Holometrix,
Inc. dated December 22, 1994 (filed as exhibit 10.33 to Form 10-KSB
dated December 27, 1995, and incorporated herein by reference).
10.09 Promissory Note dated December 22, 1994 in the original principal
amount of $350,000 executed by Holometrix, Inc. (filed as exhibit 10.34
to Form 10-KSB dated December 27, 1995, and incorporated herein by
reference).
10.10 Loan Modification Agreement dated August 14, 1995 between
Holometrix, Inc. and Silicon Valley Bank (filed as exhibit 10.35 to Form
10-KSB dated December 27, 1995, and incorporated herein by reference).
10.11 Third Amendment of Lease between Opta Food Ingredients, Inc.
and Holometrix, dated September 30, 1996 (filed as exhibit 10.36 to Form
10-KSB dated December 29, 1996, and incorporated herein by reference).
10.12 Unconditional Guaranty dated July 24, 1997 issued by the
Company to Silicon Valley Bank (filed as Exhibit 10.37 to Form 10-KSB
dated December 29, 1997, and incorporated herein by reference).
10.13 Loan Agreement dated September 30, 1998 between Sirrom
Investments, Inc. and the Company (filed herewith).
10.14 Secured Promissory Note issued by the Company to Sirrom
Investments, Inc. dated September 30, 1998 (filed herewith).
10.15 Stock Purchase Warrant issued by the Company to Sirrom
Investments, Inc. dated September 30, 1998 (filed herewith).
10.16 Loan Modification and Assumption Agreement between the
Company and Silicon Valley Bank dated July 23, 1998 (filed herewith).
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K. The Company filed one Report on Form 8-K
dated September 24, 1998, during the Company's fiscal quarter ended
September 30, 1998, relating to a change in the Company's independent
accountants.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized:
METRISA, INC.
By: //JOHN A. HANNA, JR.// Date: January 11, 1999
John A. Hanna, Jr.,
Treasurer and Chief
Financial Officer
(Principal financial and accounting officer)
Report of Independent Accountants
To the Board of Directors and
Shareholders of Metrisa, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Metrisa,
Inc. and its subsidiaries at September 30, 1998, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted accounting
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
December 3, 1998
Report of Independent Auditors
We have audited the consolidated balance sheet of Tytronics Incorporated
(now known as Metrisa, Inc., as more fully discussed in Note 1) as of
September 30, 1997 and the related consolidated statements of income,
shareholders' equity, and cash flows for the year 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 did not audit the financial statements of Holometrix,
Inc., a majority-owned subsidiary, which statements reflect total assets of
$2,710, 505 as of September 30, 1997 and total revenues of $4,528,631 for
the year then ended. 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 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 statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Tytronics
Incorporated at September 30, 1997 and the consolidated results of its
operations and its cash flows for the period then ended, in conformity with
generally accepted accounting principles.
Ernst & Young, LLP
Boston, Massachusetts
December 12, 1997
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Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Holometrix, Inc.
Bedford, Massachusetts
We have audited the consolidated balance sheet of Holometrix, Inc. and
subsidiary as of September 30, 1997, and the related consolidated statements
of operations, stockholders' equity, and cash flows (not presented separately
herein) for the year 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 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 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 fee 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 audit and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements (not presented separately herein) referred to
above present fairly, in all material respects, the financial position of
Holometrix, Inc. and subsidiary at September 30, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
Boston, Massachusetts
November 26, 1997
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To the Stockholders and Directors of
National Metal Refining (Nametre) Company, Inc.
We have audited the accompanying balance sheet of National Metal Refining
(Nametre) Company, Inc. as of September 30, 1997 and the related statements
of changes in stockholders' equity, revenues and expenses, and cash flows for
the year 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, 1997 and the results of its
operations and cash flows for the year then ended in conformity with g
enerally accepted accounting principles.
WILKIN & GUTTENPLAN, P.C.
Certified Public Accountants
East Brunswick, New Jersey
November 20, 1997
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Metrisa, Inc.
Consolidated Balance Sheets
September 30
1998 1997
Assets
Current assets:
Cash and cash equivalents $ 2,469,053 $ 935,717
Accounts receivable, less allowance for
doubtful accounts of $78,500 and $65,000
in 1998 and 1997, respectively 1,926,602 1,689,613
Inventories:
Raw materials 858,241 577,207
Work-in-process 263,213 262,319
Finished goods 249,006 420,279
_________ _________
1,370,460 1,259,805
Prepaid expenses 65,481 90,365
Deferred taxes 6,000 50,000
Notes receivable 21,548 100,000
_________ _________
Total current assets 5,859,144 4,125,500
Equipment and fixtures, net 377,783 448,122
Other assets, net of accumulated amortization
of $332,541 and $189,818 in 1998 and 1997,
respectively 1,970,981 473,073
_________ ________
Total assets $8,207,908 $5,046,695
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to bank $ 213,059 $ 113,059
Accounts payable 1,312,773 1,718,396
Accrued expenses & other 508,319 534,669
Current portion of long-term debt 561,441 299,335
_________ _________
Total current liabilities 2,595,592 2,665,459
_________ _________
Long-term debt, less current portion 2,833,777 937,249
Minority interest in subsidiary - 232,206
Commitments
Stockholders' equity:
Preferred stock $1.00 par value, 10,000,000
shares authorized, 29,327 shares issued and
outstanding at September 30, 1997 - 29,327
Common stock, $.50 par value, 2,000,000 shares
authorized, 1,022,911 and 862,070 shares
issued at September 30, 1998
and 1997, respectively 511,456 431,035
Additional paid-in capital 2,455,069 1,085,727
Retained earnings 242,276 21,692
_________ __________
3,208,801 1,567,781
Less treasury stock, at cost, 238,312 and
224,460 shares held at September 30,
1998 and 1997, respectively (430,262) (356,000)
_________ _________
Total stockholders' equity 2,778,539 1,211,781
_________ _________
Total liabilities and stockholders' equity $8,207,908 $5,046,695
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Metrisa, Inc.
Consolidated Statements of Income
Year ended September 30
1998 1997
Net sales $8,252,450 $7,974,919
Cost of sales 3,721,015 3,781,854
_________ _________
Gross profit 4,531,435 4,193,065
Operating expenses:
Selling, general and administrative 3,403,074 3,342,571
Research and development 663,106 626,654
_________ _________
4,066,180 3,969,225
_________ _________
Income from operations 465,255 223,840
Other income (expense):
Other income 25,806 14,776
Interest income 10,631 17,164
Interest expense (162,919) (144,480)
________ ________
(126,482) (112,540)
Income before income taxes and ________ ________
minority interest 338,773 111,300
Income taxes 100,844 41,000
________ ________
Income before minority interest 237,929 70,300
Minority interest in subsidiary 17,345 (32,771)
________ ________
Net income $ 220,584 $ 103,071
======== =========
Net income per common share-basic
and diluted $0.22 $0.12
Shares outstanding-basic and diluted 1,022,911 862,070
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
METRISA INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<CAPTION> Retained Total
Preferred Stock Common Stock Additional Earnings Stock
Par Value Par Value Paid-In (Accumulated Treasury Stock holders'
Shares Amount Shares Amount Capital Deficit) Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996 29,327 $29,327 680,322 $340,161 $518,642 ($81,379) (224,460) ($356,000) $ 450,751
Sale of common stock - - 181,748 90,874 567,085 657,959
Net income for year - - - - - 103,071 103,071
______ ______ _______ _______ _________ _______ ________ ________
Balance, September 30, 1997 29,327 29,327 862,070 431,035 1,085,727 21,692 (224,460) (356,000) 1,211,781
Exchange preferred for common(29,327)(29,327) 149,276 74,638 1,119,502 - - - 1,164,813
Exercise of stock options 11,565 5,783 9,798 15,581
Repurchase of common stock (13,852) (74,262) (74,262)
Warrants issued 240,042 240,042
Net income for year 220,584 220,584
_______ _________
Balance, September 30, 1998 $1,022,911 $511,456 $2,455,069 $242,276 $(238,312)$(430,262) $2,778,539
========= ======= ========= ======= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Metrisa, Inc.
Consolidated Statements of Cash Flows
Year ended September 30
1998 1997
Operating activities
Net income $ 220,584 $ 103,071
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes 44,000 -
Depreciation and amortization 308,177 271,452
Minority interest - (32,771)
Gain on sale of equipment - (16,000)
Changes in operating assets and liabilities, net
of effects of purchase of subsidiaries:
Accounts receivable (236,989) 59,157
Notes receivable - (100,000)
Inventories 247,345 (92,646)
Other current assets 3,336 (70,067)
Accounts payable and accrued expenses (431,973) 185,432
________ ________
Net cash provided by operating activities 154,480 307,628
Investing activities
Additions to equipment and fixtures (95,115) (202,836)
Proceeds from sale of equipment - 16,000
Increase in other assets (143,043) (101,168)
Cash paid for Micromet acquisition (150,000) -
_________ ________
Net cash used in investing activities (388,158) (288,004)
Financing activities
Net increase (repayment) of line of credit
agreement 100,000 (170,941)
Proceeds from long-term debt 2,000,000 411,941
Principal payments on long-term debt (49,366) (107,478)
Net proceeds from sale of common stock 15,785 659,009
Expenses incurred for Reorganization (225,143)
Purchase of treasury stock (74,262) -
_________ _______
Net cash provided by financing activities 1,767,014 792,531
Net increase in cash and cash equivalents 1,533,336 812,155
Cash and cash equivalents at beginning of year 935,717 123,562
_________ _______
Cash and cash equivalents at end of year $ 2,469,053 $ 935,717
========= =======
The accompanying notes are an integral part of these consolidated financial
statements.
1. Nature of Business
Business
Metrisa, Inc. (the "Company") was incorporated in Delaware on October
1985, with principal offices located at 25 Wiggins Avenue, Bedford, MA
01730. Metrisa is comprised of three divisions, two located in Bedford, MA,
and one located in Metuchen, NJ. These divisions serve two broad markets,
the process/environmental markets, and the materials characterization market.
Tytronics manufactures and markets on-line liquid chemical analyzers to the
process and environmental industries; Nametre manufactures and markets on-
line viscosity analyzers to the process industries. Holometrix-Micromet
provides instrumentation and testing services for the measurement of thermal
properties and cure monitoring of composites for the automotive, aerospace,
and electronics packaging industries.
Reorganization
On May 1, 1998, the Company (formerly Holometrix, Inc.) completed the
reorganization ("Reorganization") pursuant to which Tytronics Incorporated
("Tytronics"), the majority owner of the Company, and National Metal
Refining Company ("Nametre"), the majority owned subsidiary of the
Company, were merged into the wholly-owned subsidiary of the Company,
Holometrix Acquisition Corp., followed by the merger of Holometrix
Acquisition Corp. into the Company. As part of the Reorganization,
Holometrix changed its name to Metrisa, Inc. and effected a 50:1 reverse stock
split of its issued and outstanding capital stock.
Although Metrisa is the surviving corporation, because the shareholders of
Tytronics obtained a majority of voting rights in Metrisa, Tytronics is deemed
to be the acquiring entity for accounting purposes. Accordingly, the
Reorganization has been accounted for as a recapitalization of Tytronics and
the acquisition by Tytronics of the minority interests of Metrisa and Nametre
was completed under the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations." The
accompanying financial statements reflect at the closing date, the acquisition
by Tytronics of the minority interest of Metrisa and Nametre based on an
independent valuation of Tytronics, Nametre and Metrisa by an independent
investment banker .
2. Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Tytronics, and subsidiaries for the period ended September 30, 1997 and the
accounts of Tytronics, and subsidiaries, including the effects of the
Reorganization from the closing date for the period ended September
30,1998. The consolidated financial statements of Tytronics and subsidiaries
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 of which Tytronics owned 69% at September 30,
1997. All intercompany transactions and balances have been eliminated.
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.
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. Furniture and fixtures are depreciated over seven years, leasehold
improvements are thirty one and one half years or the life of the lease,
whichever is shorter, computers over four years and other machinery and
equipment over seven years. Upon retirement or disposition of equipment and
fixtures, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in income.
Equipment and fixtures consist of the following at September 30:
1998 1997
Furniture and fixtures $ 56,376 $ 50,756
Leasehold improvements 67,351 67,351
Machinery and equipment 797,900 708,405
Demonstration equipment 302,897 302,897
_________ _________
1,224,524 1,129,409
Accumulated depreciation (846,741) (681,287)
$ 377,783 $ 448,122
========= ==========
Depreciation expense was $165,454 and $173,357 for fiscal 1998 and 1997,
respectively.
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 through acquisition and
the Reorganization, as well as the inclusion of financing costs associated with
the subordinated debt issuance. 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. Financing costs are amortized using the
straight line method over five years.
Other assets consisted of the following at September 30:
1998 1997
Patents $ 346,470 $ 241,588
Goodwill 1,207,433 244,788
Licensing agreement 41,863 41,863
Trademarks 17,529 17,529
Financing costs 366,480 -
Deposits 323,747 117,123
_________ ________
2,303,522 662,891
Accumulated amortization (332,541) (189,818)
_________ ________
$ 1,970,981 $ 473,073
========= ========
Amortization expense was $142,723 and $69,701 in fiscal 1998 and 1997,
respectively.
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.
Net Income per common share
Net income per common share is based on the weighted average number of
common shares and dilutive common share equivalents outstanding during the
periods presented. Basic earnings per share are calculated by dividing net
income by the weighted average shares outstanding. Diluted earnings per
share reflect the dilutive effect of stock options and warrants and are
presented only if the effect is not anti-dilutive. Had options and warrants
been included in the computation, shares for the diluted computation would
have increased by 638,855 and 471,522 as of September 30, 1998 and 1997,
respectively.
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 11% and 13% of revenues in 1998 and 1997,
respectively. Sales to international customers represented approximately 45%
and 49% of revenues in 1998 and 1997, 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
only provisions 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.
New Accounting Pronouncements
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. Management is evaluating the impact these
standards may have on the Company's financial statement. The Company
will adopt these new standards for the fiscal year ending September 30, 1999.
In June 1998, The Financial Accounting Standard board issued
SFAS No. 133, "Accounting of Derivative Instruments and
Hedging Activities." SFAS No. 133 provides a comprehensive
and consistent standard for the recognition and measurement of
derivatives and hedging activities. The new standard requires that
an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999. The Company will adopt the new standard
for the fiscal year ending September 30, 2000. Management is
evaluating the impact of SFAS No. 133 may have on the
Company's financial statements.
Reclassifications
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
3. Business Combination
In February 1998, Tytronics acquired substantially all of the assets of
Micromet Instruments, Inc., a manufacturer of cure monitoring equipment,
valued at $358,000, plus acquisition costs, for a cash payment of $150,000
and issued a note payable of $208,000. This acquisition was accounted for
under the Purchase Method. No goodwill was recognized in this transaction
4. Notes Payable to Banks
As of September 30,1997, the Company was a party to a combined line of
credit and term loan of $1,500,000 with a bank collaterized by substantially all
of the assets of the Company. As of September 23,1998, this combined line
and term loan was increased to $1,750,000, of which $1,250,000 is for the line
of credit and $500,000 is for the term loan. As of September 30, 1998 and
1997, the combined amounts outstanding under this agreement were $582,058
and $607,058, respectively. Advances under this line cannot exceed 75% of
the company's eligible accounts receivable plus 20% of inventory, 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 30,1998, the Company was
in compliance with all covenants and ratios of this line of credit.
At September 30, 1998 and 1997 the Company had unused line of credit of
$1,036,941 and $886,941, respectively.
5. Long-Term Debt
Long-term debt consisted of the following at September 30:
1998 1997
Notes payable to bank, principal and
interest payable monthly through July 1,
2001, bearing interest at 2% above prime
rate (10.25% at September 30, 1998) $ 368,999 $ 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 75,000 125,000
Promissory note to shareholder, bearing interest
at 10%, principal and interest are paid
quarterly through 1998 - 50,000
Subordinated note payable to Sirrom Capital due
2003 at 13.75% interest per annum 2,000,000 -
Note due to Geo-Centers for acquisition of
Micromet due 2000 bearing interest at 8.5%
per annum 208,166 -
Promissory note due to Amisco bearing interest
at 12%, due at December 1, 1999 139,448 -
153,605 117,585
_________ _________
3,395,218 1,236,584
less current portion 561,441 299,335
_________ _________
$2,833,777 $ 937,249
========= =========
In 1996, the Company extended repayment of a promissory note to a
shareholder to November 23, 1999.
As of September 30, 1998 and 1997, approximately $21,000 and $41,000,
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, 1998 are as follows:
1999 $ 561,441
2000 684,106
2001 335,671
2002 262,000
2003 and thereafter 1,552,000
_________
$3,395,218
=========
As of September 29,1998, the Company was a party to a $2,000,000
subordinated loan with an investment banking firm collateralized by
substantially all assets of the Company, second to the bank. This loan is due
in five years, with interest-only payments for the first two years. The
interest rate is 13.75%
In connection with the subordinated loan, the Company issued stock warrants
to the investment banking firm to purchase an aggregate of 143,738 shares of
the Company's common stock at an exercise price of $.50 per share. The
warrants will expire on October 31, 2003.
6. Certain Relationships and Related Transactions
The Company and Bantam Group, Inc. are parties to a month -to-month
consulting agreement unless terminated by either party on thirty days' notice.
Pursuant to this agreement, Bantam was paid $5,000 per month for the fiscal
years 1998 and 1997. Mr. Caruso, a director of the Company, is president of
Bantam Group, Inc.
7. Stockholders' Equity
Warrants
The Company granted warrants giving the holders the right to purchase
57,878 shares of common stock at a price of $2.61 per share, with an
expiration date of November 23, 2000. The Company granted additional
warrants giving the shareholders the right to purchase 106,936 shares of
common stock at $3.73 per share. These warrants also expire on November
23, 2000. The Company granted warrants to the president of the Company
giving him the right to purchase 1,453 shares of common stock at a price of
$3.73 per share. These warrants were exercised in November 1997.
Effective September 30, 1997 the Company conducted a private placement
selling 181,748 shares of common stock for $3.78 per share, receiving total
net proceeds of $657,959. In connection with the private placement, the
Company granted warrants to purchase an additional 181,748 shares of
common stock at a price of $4.86 per share. The warrants expire September
30, 2002.
The Company also granted warrants to purchase 6,942 shares of common
stock at a price of $3.78 per share in connection with a refinancing of notes
payable to a bank July 24, 1997. The warrants expire July 24, 2002. The
Company also granted warrants to purchase 23,943 shares of common stock at
a price of $2.51 per share in connection with consultant work on September
30, 1996. The warrants expire September 30, 2004.
Option Agreement
Under the 1991 Stock Plan ( the "1991 Plan") , officers and employees of the
Company may be granted "incentive stock options" (stock) ("ISO" or "ISOs").
Directors, officers, employees and consultants of the Company may be granted
options which do not qualify as ISOs ("Non-Qualified Option" or "Non-
Qualified Options") and, in addition, such persons may be granted awards of
stock in the Company ("Awards") and opportunities to make direct purchases
of stock in the Company ("Purchases").
The stock options are vested over a five year period, with 20% of the options
vested every year.
The exercise price per share of ISOs granted under the 1991 Plan cannot be
less than the fair market value per share of the Common Stock on the date of
grant, or, in the case of ISOs granted to employees holding more than 10% of
the total combined voting power of all classes of stock of the Company, 110%
of the fair market value per share of the Common Stock on the date of grant.
The exercise price per share of Non-Qualified Options granted 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.
The 1991 Plan requires that each option shall expire on the date specified by
the Committee, but not more than ten years from its date of grant in the case
of ISOs and ten years and one day in the case of Non-Qualified Options.
However, in the case of any ISO granted to an employee owning more than
10% of the total combined voting power of all classes of stock of the
Company, such ISO shall expire on the date specified by the Committee, but
not more than five years from its date of grant.
The 1991 Plan authorizes the grant of Stock Rights to acquire 125,000 shares
of Common Stock. Pursuant to the terms of the 1991 Plan, shares subject to
options which for any reason expire or are terminated unexercised as to such
shares may again be the subject of a grant under the 1991 Plan.
No options or rights were granted under the 1991 Plan during the 1998 fiscal
year and no options were canceled during fiscal 1998. As of September 30,
1998, options to purchase 76,018 shares of Common Stock were issued and
unexercised and had been granted under the 1991 plan, and no options
granted under the 1991 Plan had been exercised.
In addition, the Company has outstanding certain options which were
originally granted to former directors and a consultant of Tytronics
Incorporated, the former parent of the Company. These options were
converted into options to purchase shares of the Company's Common Stock in
connection with the Reorganization and are not subject to the 1991 Plan.
These options include an option to purchase 18,512 shares of Common Stock
held by a director of the Company and a former director of Tytronics
Incorporated, and 18,512 shares held by a consulting company, and an option to
purchase 4,628 shares of the Company's Common Stock held by a former director
of Tytronics Incorporated.
7. Stockholders' Equity (continued)
1998 1997
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
______ _________ ______ _________
Outstanding options at
beginning of year 118,018 $1.69 108,760 $1.52
Granted 4,628 $3.78 9,258 $3.78
Exercised (7,868) $1.30 -
Terminated (17,588) $2.92 -
Options due to Reorganization 20,480 $1.91
_______ _____ ________ _____
Outstanding options at end
of year 117,670 $1.77 118,018 $1.69
====== ======
Exercisable at end of year 84,212 $1.53 79,140 $1.45
====== ==== ======
Available for grant at end
of year 7,330 43,967
====== ======
The following table represents weighted average price and life information
about significant option groups outstanding at September 30, 1998:
Options Outstanding Options Exercisable
_______________________________________________________________
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
$1.30-$2.50 108,414 4.2 $1.60 83,286 $1.51
$3.78 9,256 9.1 $3.78 926 $3.78
_______ ______
117,670 84,212
======= ======
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, 1998 and 1997.
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 1998 and 1997 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.
7. Stockholders' Equity (continued)
Preferred Stock
In conjunction with the Reorganization, 29,327 shares of Series A and Series
B preferred stock (collectively, preferred stock), outstanding at September 30,
1997 were exchanged for 149,276 shares of common stock.
Treasury Stock
At September 30, 1998 and 1997 the Company has 238,312 shares of common
stock and 0 shares of preferred stock held in treasury. As part of the
Reorganization, 17,395 shares were purchased back.
8. Profit-Sharing Plan
The Company sponsors a 401(k) profit-sharing plan ("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.
The Plan also permits the employer to make fully vested discretionary
contributions to the plan allocated to participants' accounts based on their
relative compensation.
Employer contributions were $8,194 and $5,401 in 1998 and 1997, respectively.
9. Income Taxes
The provision for income taxes consisted of the following:
1998 1997
Current income taxes:
Federal $ 12,000 $ 58,000
State 42,000 33,000
______ ______
Total Current 54,000 91,000
______ ______
Deferred income taxes:
Federal 36,000 (50,000)
State 11,000 0
______ _______
Total Deferred 47,000 (50,000)
________ ________
Total Provision $101,000 $41,000
======== =======
At September 30, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $1,722,000 expiring through
2012. As of September 30, 1998, the Company has available research and
development credit carryforwards of approximately $25,500. Under Internal
Revenue Code Section 382, certain substantial changes in the Company's
ownership would result in an annual limitation on the amount of net operating
loss and credit carryforwards which could be utilized.
Deferred income taxes reflect the net effects of temporary differences between
the carrying amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The net deferred tax assets are
attributable to the following temporary differences at September 30:
1998 1997
Deferred tax assets:
Accounts receivable allowances $32,000 $24,800
Depreciation 0 32,300
Inventory 38,000 8,200
Other accruals 36,000 64,700
Tax Credits 26,000 25,500
Net Operating loss carryforwards 586,000 721,000
AMT Credits 79,000 70,000
______ ______
797,000 946,500
Valuation Allowance (785,000) (856,500)
______ ______
12,000 90,000
Deferred tax liability:
Depreciation and amortization (6,000) (40,000)
_______ _______
Net deferred tax asset $ 6,000 $50,000
======= =======
As required by FAS 109, management of the Company has evaluated the positive
and negative evidence bearing upon the realizability of its deferred tax
assets. The Company has recorded a valuation allowance of $785,000 to offset
some of the net deferred tax assets as a result of the uncertainties surrounding
the realization of the assets. The Company reduced its valuation allowance by
$71,000 in 1998 based upon management's estimate of the amount of deferred tax
assets that were more likely than not to be realized.
A reconciliation of the federal statutory income tax rate and the effective
tax rate as a percentage of income (loss) before taxes and minority interest
for the years ended September 30 is as follows:
1998 1997
Federal statutory rate 34.00% 34.00%
State taxes, net of federal benefit 7.91% 7.40%
Intangibles 6.85% -
Other permanent differences 2.02% 6.11%
Change in valuation allowance (21.01%) 36.21%
Non-consolidated net operating losses (52.11%)
Other 5.23%
_____ _____
Effective tax rate 29.77% 36.84%
===== =====
10. Operating Leases
The Company leases its facilities in Bedford under a lease which expires in
October 1999 . The lease can be terminated by giving 90 days notice . The
lease can be extended for an additional three years. The basic rent was
$76,000 and $68,400 in fiscal 1998 and 1997, respectively. Future minimum
lease payments will be $83,600 for fiscal 1999.
11. Cash Flow information
Supplemental disclosure of cash flow information for years ended September 30
is as follows: 1998 1997
Interest paid 157,335 143,595
Income taxes paid 24,200 38,800
Supplemental disclosure of non-cash investing and financing activities
The Company issued warrants with a value of $240,000 to an investment
banking firm in fiscal year 1998.
The Company issued stock with a value of $1,165,000 to acquire the minority
interest of Holometrix and Nametre of $232,206. Goodwill of $1,112,445,was
created during this reorganization of the Company.
The Company purchased all of the assets of Micromet Instruments, Inc.
Information related to this transaction is as follows:
Net assets acquired $358,000
Less note payable 208,000
________
Cash paid for acquisition $150,000
12. Subsequent Events
In October, 1998, in conjunction with the investment of Sirrom Capital
Investment, the note payable of $208,000 for the purchase of Micromet
Instruments was paid.
