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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-14617
Rheometric Scientific, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 61-0708419
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Possumtown Road, Piscataway, N.J. 08854
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 560-8550
(Former name, former address, and former fiscal year if changed since last
report.)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, No Par Value
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [X ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 18, 1996: $4,562,261.
(For purposes of this filing only, all executive officers and directors have
been classified as affiliates.)
The number of shares of the registrant's Common Stock outstanding as of March
18, 1996 was 13,161,739.
DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE: None
The Exhibit Index appears on page: 34
Part I
(Items either not applicable or not material have been excluded)
Item I. Business
Background
General
Rheometric Scientific, Inc., and subsidiaries (referred to as "Rheometric" or
the "Company"), was incorporated in New Jersey in 1981. The Company's
corporate executive offices and principal manufacturing operation is located
in Piscataway, New Jersey. Sales offices are located in England (also
manufacturing), France, Germany , and Japan.
History
The Company was co-founded under the name Rheometrics, Inc. in 1970 by Dr.
Joseph M. Starita and Dr. Chris Macosko. In 1985, following completion of a
$7 million stock offering, Rheometrics became a public company. Through a
series of transactions beginning in 1991, briefly described below, Axess
Corporation ("Axess") owns 76.6% of the common stock of the Company. The
Company changed its name to Rheometric Scientific, Inc. in November 1994.
In 1991 and 1992 the Company and Axess executed a $1,500,000 principal amount
Subordinated Convertible Debenture convertible into 551,471 newly-issued
shares of Common Stock and a $1,300,000 principal amount Subordinated
Convertible Debenture convertible into 1,221,919 newly-issued shares of
Common Stock, respectively.
In 1993, the Company and Axess signed an Option Agreement whereby the Company
granted Axess an irrevocable option to purchase 1,630,897 newly-issued shares
of Common Stock for $1,000,000. Axess exercised the Option Agreement and
converted the aforementioned Subordinated Convertible Debentures into
1,773,390 newly-issued shares of Common Stock in 1993.
In 1994, the Company acquired the Polymer Laboratories Thermal Sciences
Business (the "PL Thermal Sciences Business") through a series of
transactions involving Axess. See Note 2 of Notes to Consolidated Financial
Statements.
In 1995, the Company acquired from Mettler-Toledo AG ("Mettler") the
exclusive, worldwide rights for two rheological test instruments, the RM180
and RM260, that serve the coatings, paints, biological fluids, cosmetics, and
lubricants industries. See Note 12 of Notes to Consolidated Financial
Statements.
Recent Developments
On February 23, 1996, Rheometric consummated a sale/leaseback arrangement
wherein for $6,300,000 the Company sold, and then leased back, the 19 acres
of real property on which is located its corporate headquarters and main
manufacturing in Piscataway, New Jersey. Simultaneously with the consummation
of the sale/leaseback arrangement, the Company entered into a Loan and
Security Agreement providing for a working capital revolving credit facility
in the amount of $11,500,000 (the "Loan Agreement"). See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and Note 14 of Notes to
Consolidated Financial Statements
David Beehler, a Director of the Company, resigned from the Board of
Directors effective February 5, 1996. The Company has no plans to fill the
vacancy created by his resignation at this time.
DESCRIPTION OF BUSINESS
Financial Information About Industry Segments
The Company operates in one industry segment. Information regarding this
segment is below. Commencing January 1, 1993, the Company changed its fiscal
year end from June 30 to December 31.
Narrative
The Company designs, manufactures, markets, and services computer-controlled
materials test systems used to make physical property measurements, such as
viscosity, elasticity, and thermal analysis behavior, on various materials
including, plastics, composites, petrochemicals, rubber, chemicals, paints,
coatings, pharmaceuticals, cosmetics, and foods. The Company's product
offering, most of which is proprietary or patented, consists of rheological
and thermal analytical laboratory instruments used for research and product
development; on-line rheological sensors for controlling and assuring product
quality in various manufacturing processes; and integrated systems for direct
on-line control of manufacturing processes. These integrated systems combine
special sampling technologies and multiple sensor technologies to provide
various real-time measures of product quality. The Company sells its
products worldwide, primarily to Fortune 500 and other leading international
corporations, as well as independent research laboratories and educational
and governmental institutions.
Customers. The Company's customers fall generally into three major
categories based on the nature of their products and the processes by which
their products are developed: (1) materials manufacturers, (2) product
manufacturers, and (3) independent and nonprofit research laboratories and
governmental and educational institutions. The Company does not have any
customer that accounts for more than 10 percent of the Company's sales.
Technologies. Each instrument system consists of components, some of which
include actuators, which manipulate or impart force upon a sample, while
others thermally activate samples using controlled furnaces; sensors, which
measure the results of such activities upon the sample; and microprocessors
which analyze such results. The design and manufacture of these components
requires expertise in several disparate technologies, including electronics,
software, mechanics, machining, and environmental control. Most of the
Company's instrument systems contain a microcomputer system developed and
manufactured by the Company, which incorporates proprietary expertise in
microprocessor applications, data acquisition and analysis, control feedback,
and systems development software, including assembly language programming.
The Company's laboratory instruments can control motion with high precision,
some to within two-millionths of an inch.
The testing of materials ranging from low viscosity water-like fluids to
tough steel-like composites requires the precise measurement of forces over a
wide dynamic range. The Company has combined its engineering resources to
develop sophisticated sensors capable of measuring forces as small as 10
milligrams to as large as 5,000 pounds.
Raw Material & Components. The Company's products consist of mechanical and
electronic assemblies. A number of raw materials, primarily stainless steel
and aluminum, are used to fabricate the Company's mechanical assemblies, and
electronic components are used to build its electronic assemblies. The
Company depends upon, and will continue to depend upon, a number of outside
suppliers for the components it uses. The Company believes that the raw
materials and component parts it uses are available from alternate suppliers
and does not believe it is dependent upon any one supplier.
Patents & Trademarks. The Company currently has patents for the design and
manufacture of certain of its instruments and systems. Due to the rapidly
changing technology relative to the Company's product lines, the Company does
not believe that technological patent protection is presently significant as
a competitive factor. The Company's name and its logo are protected under
Federal trademark laws and the Company believes that there is significant
value associated with the Company's name.
Seasonal Operations & Backlog. Historically, the Company's sales, earnings
(loss) before income taxes, and net earnings (loss) have been cyclical.
Typically the quarters ending June and December outperform the quarters
ending March and September. This cyclicality is primarily attributable to the
capital goods budgeting cycle. Many customers place their orders in the
first calendar quarter (after capital budgets have been approved) with
delivery in the second calendar quarter due to three or four month average
delivery times. Moreover, as the fourth calendar quarter approaches, many
customers review their annual budgets and determine that they are able to
place an order for delivery by the end of December.
Competition. The Company believes that its principal competitors are several
domestic and foreign manufacturers, some with greater financial and marketing
resources than the Company. The Company competes with these companies and
others by offering products of high performance, quality and reliability,
backed by service capabilities. The Company believes that technological
requirements and high initial capital expenditures represent significant
barriers to entry. However, there can be no assurance that a larger company
with greater financial resources than the Company will not enter this market
at a later date, and that such entry would not have a material adverse impact
on the operations of the Company.
The Company believes that it is well-positioned in the field of engineering
and technology to remain competitive in the face of technological changes
that may occur in the marketplace. There can be no assurance, however, that
technology superior to the Company's will not be developed which would have a
material adverse effect on the Company's operations.
Product Research & Development. The Company's research and development
activities primarily focus on the development of new products and new
applications and enhancements for existing products. In its development and
testing of new products and applications, the Company consults with
professionals at universities and in the industry worldwide. The Company
believes that its research and development activities are necessary to
maintain competitiveness and to better serve its customers.
Employees. At December 31, 1995, the Company had approximately 244 full-time
employees worldwide, none of whom is party to a collective bargaining
agreement.
Financial Information About Foreign and Domestic Operations and Export Sales
See Note 10 of Notes to Consolidated Financial Statements.
Item 2. Properties
At December 31, 1995, the Company owned a 100,000 square foot building on 19
acres of land in Piscataway, New Jersey. On February 23, 1996, the Company
sold, and then leased back this property. This facility presently
accommodates the Company's manufacturing, marketing, research and
development, and general administrative activities. The Company expects
this facility to accommodate its needs for the foreseeable future. See Note
14 of Notes to Consolidated Financial Statements.
The Company also leases space for use as sales and service centers in various
locations overseas. The Company leases an aggregate of approximately 25,000
square feet of space in Epsom and Loughborough, England; Bensheim, Germany;
Marne La Vallee, France; and Tokyo, Japan.
Item 3. Legal Proceedings
There are no known material pending legal proceedings involving the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1995
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters
Common Stock Market Prices and Dividends
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "RHEM." The table below presents the high and low sales prices for
each quarter for the years ended December 31, 1995 and 1994.
Since its initial public offering in December 1985, the Company has not paid
any cash dividends. The Company's current borrowing arrangements prohibit
the payment of cash dividends. At March 15, 1996, there were approximately
191 holders of record of the Company's Common Stock. In addition, there are
approximately 900 beneficial holders of Common Stock held in street name.
12 Months Ended December 31,
1995 1994
QUARTER ENDEDHigh Low High Low
March 31 $1.50 $1.25 $2.00 $1.03
June 30 1.75 1.38 2.00 1.25
September 30 3.88 1.38 1.88 1.25
December 31 2.63 1.38 1.88 1.13
Item 6. Selected Financial Data
(In thousands of dollars, except per share data)
12 Months Ended December 31,
1995 1994 1993 1992
(Unauited)
Sales $41,244 $34,571 $26,881 $26,013
Restructuring expense -- (98) 1,400 --
Net Income (loss) 391 (1,463) (4,550) (2,480)
Earnings (loss) per
share 0.03 (0.12) (0.73) (0.61)
Total assets 40,093 35,110 27,235 28,927
Long-term debt 10,973 9,403 7,622 9,761
Six Months Ended December 31, 12 Months Ended June 30,
1992 1991 1992 1991
(Unaudited)
Sales $11,146 $8,512 $23,379 $26,066
Restructuring expense -- -- -- --
Net (loss) income (2,701) (3,829) (3,608) (3,490)
(Loss) income per share (0.62) (1.18) (1.01) (1.13)
Total assets 28,927 29,288 31,013 33,690
Long-term debt 9,761 9,159 9,896 7,975
The PL Thermal Science Business acquisition has been included as of March 3,
1994.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
12 Months Ended December 31, 1995 vs. 12 Months Ended December 31, 1994
In the year ended December 31, 1995, the Company achieved sales of
$41,244,000 compared to $34,571,000 for the year ended December 31, 1994.
Japanese and European sales increased by 50% and 25% respectively, while
domestic sales decreased by 1%. In addition to strong demand for the
Company's products, both Japanese and European sales were impacted favorably
by the devaluation of the dollar. European and domestic sales also benefited
from a full 12 months of the PL Thermal Science Business as opposed to 10
months in the prior year. International and export sales, as a percentage of
total sales, increased to 66% of consolidated sales from 59% in 1994.
Gross profit for the year ended December 31, 1995 was 46.3% of sales, up from
45.1% for the same period in 1994. Strong Japanese sales and favorable
currency trends contributed to this increase in margin.
Operating expenses of $16,641,000 increased by $767,000 for the period ended
December 31, 1995, compared to the corresponding period in 1994. This
increase can be attributed to adverse currency trends and a full 12 months of
the PL Thermal Science Business offset by the capitalization of $306,000
software development costs.
Interest expense remained virtually unchanged in 1995 when compared to 1994,
decreasing $7,000. Higher loan balances throughout the period were offset by
lower interest rates.
Net income for the year ended December 31, 1995 was $391,000 as compared to a
net loss of $1,463,000 incurred in 1994. In 1995, the Company utilized net
operating loss carryforwards of approximately $145,000. Net income in 1995
was adversely affected by foreign exchange rates in 1995. Foreign currency
transaction and translation losses amounted to $307,000 compared to gains of
$584,000 in 1994. Currency transactions are attributable principally to the
exchange of foreign currency for U.S. dollars in connection with payments
made by foreign subsidiaries for purchases from the domestic parent company.
Currency translation is attributable principally to the conversion of the
foreign subsidiaries intercompany liability accounts into U.S. dollars.
Backlog as of December 31, 1995 and 1994 was $2,073,500 and $3,750,300,
respectively. The Company expects that all of the items in its backlog will
be delivered in the current calendar year.
Inherent in the Company's business is the potential for inventory
obsolescence for older products as the Company develops new products.
Obsolescence has historically related to parts inventory. The Company
continually monitors its exposure relating to excess and obsolete inventory
and establishes appropriate valuation reserves. The Company's development
efforts generally enhance existing products or relate to new markets for
existing technology and, therefore, existing products are generally not
rendered obsolete.
The Financial Accounting Standards Board issued Statement of Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" ("FAS 121") in March 1995. FAS 121
requires companies to review their long-lived assets and certain identifiable
intangibles (collectively, "Long-Lived Assets") for impairment whenever
events or changes in circumstances indicate that the carrying value of a Long-
Lived asset may not be recoverable. Impairment is measured using the lower
of a Long-Lived Asset's book value or fair value, as defined. Management
believes that the future adoption of FAS 121 will not have a material impact
on the Company's financial position or results of operations.
12 Months Ended December 31, 1994 vs. 12 Months Ended December 31, 1993
In the year ended December 31, 1994, the Company achieved sales of
$34,571,000 compared to $26,881,000 for the year ended December 31, 1993.
These results include 10 months of sales amounting to $8,792,000 resulting
from the acquisition of the PL Thermal Sciences Business (the "Acquisition")
effective March 3, 1994. Excluding the Acquisition, sales were $25,779,000.
European, Japanese, and domestic sales increased by 87%, 10% and 10%,
respectively. Excluding the Acquisition, European and domestic sales
declined by 17% and 5% respectively, while Japanese sales increased by 10%.
A general softening in the marketplace along with some organizational changes
caused the majority of the decline, both domestically and in Europe. The
increase in Japan can be attributed to the steady devaluation of the dollar
throughout the year. International and export sales, as a percentage of
total sales increased to 59% of consolidated sales. Excluding the
Acquisition, international and export sales, as a percentage of total sales,
decreased slightly to 53% of consolidated sales compared to 54% in 1993.
Gross profit for the year ended December 31, 1994, was 45.1% of sales, down
from 45.7% for the same period in 1993. Excluding the Acquisition, gross
profit was 49.8%. Ongoing cost control programs helped to increase gross
profit along with favorable currency trends.
Operating expenses of $15,874,000 increased by $801,000 for the period ended
December 31, 1994, compared to the corresponding 1993 period. These results
include $3,433,000 incurred in the Acquisition as well as $309,000
representing the current year's portion of goodwill amortization. The
goodwill period is seven years and the annual amortization of goodwill will
be $370,000. Excluding the Acquisition, operating expenses were $12,132,000
as compared to $15,084,000 for the same period in 1993. This reduction in
operating expenses was primarily achieved as a result of a restructuring
program begun in the fourth quarter of 1993. The reduction of operating
expenses was adversely affected by currency trends.
Net interest expenses for the fiscal year 1994 increased by $117,000. The
increase was due to higher outstanding borrowing of the Company compared to
1993. Excluding the Acquisition, interest expense declined by $53,000.
The net loss for the year ended December 31, 1994 was $1,463,000 as compared
to a net loss of $4,550,000 in 1993. The 1994 results included a net loss of
$1,014,000 relating to the Acquisition, that included various costs
associated with integrating the PL Thermal Sciences Business as well as
goodwill amortization. Excluding the Acquisition, the loss was $449,000.
The loss was affected favorably by foreign exchange rates. Foreign currency
transaction and translation gains amounted to $584,000 compared to losses of
$151,000 in 1993. Currency transactions are attributable principally, to the
exchange of foreign currency for U.S. dollars in connection with payments
made by foreign subsidiaries for purchases from the domestic parent company.
Currency translation is attributable principally to the conversion of the
foreign subsidiaries intercompany liability accounts into U.S. dollars.
Inherent in the Company's business is the potential for inventory
obsolescence for older products as the Company develops new products.
Obsolescence has historically related to parts inventory. The Company
continually monitors its exposure relating to excess and obsolete inventory
and establishes appropriate valuation reserves. The Company's development
efforts generally enhance existing products or relate to new markets for
existing technology and, therefore, existing products are generally not
rendered obsolete.
Liquidity and Capital Resources
Management believes that the cash generated from operations, Axess' debt
financing and funds available under its current loan agreement, should be
sufficient to meet the Company's working capital needs for the next year. On
February 23, 1996 the Company entered into a three-year Loan and Security
Agreement. The agreement provides a working capital revolving credit
facility with a maximum available credit of $11,500,000. The amount of
available credit is determined by the level of certain eligible receivables
and inventories. Adequacy of cash flows generated beyond 1996 will depend
upon and the Company's ability to achieve expected sales volumes to support
profitable operations.
Cash Flows from Operations
Net cash used in operating activities in the fiscal years ended December 31,
1995, 1994, and 1993 was $590,000, $581,000, and $1,195,000, respectively.
The negative cash flow from operations in 1995 was comprised primarily of an
increase in accounts receivable of $4,515,000. This increase reflects both
the higher sales volume achieved by the Company as well as the timing of
those sales. The increase in accounts receivable was offset by the
following: $391,000 in net income, non-cash depreciation and amortization
charges of $1,610,000, a decrease in inventory of $956,000, unrealized
currency loss of $456,000 and an increase in accounts payable of $439,000.
Cash Flows from Investing
Net cash used in investing activities in the fiscal years ended December 31,
1995, 1994, and 1993 was $373,000, $212,000, and $322,000, respectively.
During 1995, the Company made capital expenditures of $373,000.
Cash Flows from Financing
Net cash provided by financing activities in the fiscal years ended December
31, 1995, 1994, and 1993, were $1,927,000, $1,173,000, and $1,365,000,
respectively. During 1995 the Company's external debt payments of $473,000
were offset by $2,400,000 in additional working capital provided by Axess in
the form of subordinated debt.
The Company and Axess executed various subordinated term loans during the
years ended December 31, 1993, 1994 and 1995 aggregating $5,740,000. On
February 23, 1996, Axess and the Company consolidated all of the outstanding
notes and deferred interest amounting to $517,972 into a new subordinated
note for an aggregate amount of $6,257,972. The new note bears interest at
12% payable monthly and is due February 28, 1999.
On March 7 and 25, 1994, Axess and the Company's UK subsidiary, executed
subordinated term notes of $150,000 and $225,000, respectively, due January
1, 1996, bearing interest at a rate equal to the British Prime Rate plus 1.5%
(7.75% and 8.25% at December 31, 1995 and 1994, respectively). On March 6,
1996, these subordinated term notes were paid in full, including interest of
$27,417, for an aggregate amount of $402,417.
The Company had working capital lines of credit with certain domestic and
foreign banks aggregating $6,922,000 of which approximately $498,000 was
available at December 31, 1995.
Financing
On April 26, 1995, the Company and the domestic banks revised and extended
the existing line of credit agreements and letters of credit to April 30,
1996. On December 31, 1995, the Company was in violation of certain
covenants. The violations were cured on February 23, 1996 when the Company
repaid the mortgage indebtedness and the existing line of credit.
The Company's mortgage loans, lines and letters of credit are subject to
acceleration in the event that there is a material and adverse change in the
condition or affairs, financial or otherwise, of the Company which in the
reasonable opinion of the lender impairs the lender's collateral or increases
its risk so as to jeopardize the repayment of the obligations.
On February 23, 1996, the Company entered into a sale/leaseback arrangement
which is recorded as a financing whereby the Company sold the Company's
corporate headquarters and main manufacturing facility, and the 19 acres of
real property on which the facility is located (the facility and the real
estate being referred to herein as the "Facility") for $6,300,000.
Simultaneously with the sale to the Landlord, the Company entered into a long-
term lease of the Facility from the Landlord. The initial term of the lease
is 15 years, subject to automatic five-year extensions through 2026. Under
the terms of the lease, the Company has certain rights of first refusal to
purchase the Facility and the right to acquire up to 11 acres of undeveloped
real estate constituting a portion of the facility (the "Excess Land") under
certain circumstances. See Note 14 of Notes to Consolidated Financial
Statements.
Simultaneously with the consummation of the sale/leaseback arrangement, the
Company entered into a Loan and Security Agreement providing for a working
capital revolving credit facility in the amount of $11,500,000. The amount
of available credit is determined by the level of certain eligible
receivables and inventory. The Company's obligations under the Loan
Agreement are collateralized by substantially all of the Company's assets.
The Landlord financed the acquisition of the Facility in part through a
$3,300,000 mortgage loan. The Company purchased a participating interest in
the Landlord's mortgage loan (the "Mortgage Loan") in the amount of $861,000.
The Company's interest in the Mortgage Loan will be repaid with yearly
interest of 9.625% upon the maturity of the Mortgage Loan in five years or
upon refinancing.
Further, in connection with the sale/leaseback arrangement, the Company
issued the following three warrants to acquire shares of its Common Stock,
all having an exercise price of $2.00 per share: (1) a warrant to the
Landlord to purchase 132,617 shares of Common Stock of the Company,
exercisable during the term of the lease; (2) a conditional warrant to the
Landlord to purchase 331,543 shares of Common Stock of the Company which
shall only be exercisable if the indebtedness owed by Landlord under the
Mortgage Loan is repaid prior to February 23, 1997; or if the Landlord is
unable to refinance the indebtedness owed under the Mortgage Loan prior to
February 23, 1997, solely as a result of environmental contamination relating
to the 11 acres of undeveloped real estate constituting a portion of the
facility (the "Excess Land"); and (3) a conditional warrant to the Landlord's
Lender (the "Lender") to purchase 331,543 shares of Common Stock which shall
only be exercisable if the indebtedness owed under the Mortgage Loan by
Landlord to Lender is not refinanced prior to February 23, 1997.
A portion of the proceeds from the sale of the Facility and the Loan
Agreement were used to provide the funds necessary to repay the Company's
mortgage indebtedness of approximately $5,700,000 and existing line of credit
of approximately $3,000,000.
As a result of the sale of the Facility, the Company expects to recognize a
loss on its income statement in the first quarter of 1996, anticipated to be
in the range of $2,500,000 to $3,000,000, because the proceeds of the sale
are less than the costs of the Facility, as carried on the Company's balance
sheets.
The Loan Agreement is for a term of three years. Under this agreement the
most restrictive financial covenants are (a) maintain, on a consolidated
basis, working capital not less than $6,000,000 through December 31, 1996,
$6,500,000 through December 31, 1997and $7,000,000 after January 1, 1998; (b)
the maintenance of minimum adjusted tangible net worth, as defined of at
least $8,750,000 through May 31, 1996, $9,000,000 through December 31, 1996,
$9,500,000 through December 31, 1997 and $10,000,000 after January 1, 1998;
(c) achieve domestic cash flow, as defined, of not less than ($750,000) for
the three months ending March 31, 1996, ($250,000) for the six months ending
June 30, 1996, ($1,000,000) for the nine months ending September 30, 1996,
and $0 for the 12 months ending December 31, 1996 and for the 12 months
ending on the last day of each subsequent month; (d) achieve consolidated
cash flow, as defined, of not less than ($850,000) for the three months
ended March 31, 1996, $250,000 for the six months ended June 30, 1996,
$500,000 for the nine months ended September 30, 1996 and $750,000 for the 12
months ending December 31, 1996 and for the 12 months ending on the last day
of each subsequent month.
The Loan Agreement also provides certain letters of credit facilities for
operations of the Company's foreign subsidiaries.
The Company's lines and letters of credit are subject to acceleration in the
event that there is a material and adverse change in the condition or
affairs, financial or otherwise, of the Company which in the reasonable
opinion of the lender impairs the lender's collateral or increases its risk
so as to jeopardize the repayment of the obligations.
See Statement of Cash Flows for further details of the Company's cash flows.
See Notes 4 and 5 of the Notes to Consolidated Financial Statements for
additional information.
Item 8. Financial Statements and Supplementary Data
Independent Auditor's Report
The Shareholders and Board of Directors
Rheometric Scientific, Inc.:
We have audited the consolidated balance sheets of Rheometric Scientific,
Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. 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 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 provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Rheometric
Scientific, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Wayne, Pennsylvania
April 15, 1996
Rheometric Scientific, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
December 31,
1995 1994
Assets
Current Assets
Cash $ 1,364 $ 747
Receivables - less allowance for
doubtful accounts of $398 in
December 1995 and $231 in December 1994 14,492 10,106
Inventories
Finished goods 2,071 2,952
Work in process 1,366 2,247
Assembled components, materials, and parts 5,142 4,607
8,579 9,806
Prepaid expenses and other assets 1,564 687
Total current assets 25,999 21,346
Property, Plant, and Equipment 21,348 21,311
Less, accumulated depreciation and
amortization 11,505 10,827
Net property, plant, and equipment 9,843 10,484
Goodwill, net 2,074 2,283
Other Assets 2,177 997
Total Assets
Liabilities and Shareholders' Equity $40,093 $35,110
Current Liabilities
Short-term bank borrowings $ 6,424 $ 6,429
Short-term debt - Affiliate 375 --
Current maturities of long-term debt 497 595
Accounts payable 3,780 3,648
Restructuring reserve -- 132
Payable to affiliate 818 150
Accrued liabilities 4,975 4,200
Total current liabilities 16,869 15,154
Long-term debt 5,233 5,688
Long-term debt - Affiliate 5,740 3,715
Other long-term liabilities 1,363 --
Total liabilities
Commitments and Contingencies 29,205 24,557
Shareholders' Equity
Common Stock, stated value of $.001,
authorized 20,000 shares; issued and
outstanding 13,162 shares at December 31,
1995 and 1994 13 13
Additional paid-in capital 24,759 24,759
Accumulated deficit (13,871) (14,262)
Cumulative translation adjustment (13) 43
Total shareholders' equity 10,888 10,553
Total Liabilities & Shareholders' Equity $40,093 $35,110
See Notes to Consolidated Financial Statements
Rheometric Scientific, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per 12 Months Ended December 31,
share amounts) 1995 1994 1993
Sales $41,244 $34,571 $26,881
Cost of sales 22,137 18,974 14,587
Gross profit 19,107 15,597 12,294
Marketing and selling expenses 10,240 9,560 8,974
Research and development expenses 2,705 2,480 2,316
General and administrative expenses3,115 3,623 2,394
Restructuring expense -- (98) 1,400
Goodwill amortization 327 309 --
Intangible amortization 254 -- --
16,641 15,874 15,084
Operating income (loss) 2,466 (277) (2,790)
Interest expense - Banks (1,037) (1,164) (1,212)
Interest expense - Affiliate (666) (551) (378)
Interest income 10 15 8
Foreign currency (loss) gain (307) 584 (151)
Earnings (loss) before income taxes 466 (1,393) (4,523)
Income tax expense 75 70 27
Net earnings (loss) $ 391 $(1,463) $(4,550)
Net earnings (loss) per share $ 0.03 $ (0.12) $ (0.73)
Average number of shares
outstanding 13,162 12,284 6,224
See Notes to Consolidated Financial Statements
Rheometric Scientific, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands) 12 Months Ended December 31
1995 1994 1993
Cash Flows from Operating Activities
Net income (loss) $ 391 $(1,463) $(4,550)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization of
plant and equipment 1,029 992 1,006
Amortization of debt costs -- -- 231
Amortization of goodwill 327 309 --
Provision for slow moving inventory 267 517 414
Amortization of intangibles 254 -- --
Loss on sale/retirement of property, plant,
and equipment 93 5 52
Unrealized currency (gain) loss 456 (513) 6
Changes in assets and liabilities:
Receivables (4,515) 217 (390)
Inventories 956 118 784
Prepaid expenses and other assets (866) 469 (729)
Accounts payable and accrued liabilities 439 (455) 383
Payable to affiliate 668 150 --
Other assets (13) (104) 546
Restructuring reserve -- (823) 1,052
Other non-current liabilities
Net cash used in operating activities (76) -- --
(590) (581) (1,195)
Cash Flows from Investing Activities
Purchases of property, plant, and equipment (373) (230) (322)
Proceeds from sale of equipment -- 18 --
Net cash used in investing activities (373) (212) (322)
Cash Flows from Financing Activities
Net borrowings under line of credit agreements 80 (184) (379)
Repayment of long-term debt (553) (678) (676)
Proceeds from short-term debt - Affiliate -- -- 1,490
Proceeds from long-term debt - Affiliate 2,400 2,035 --
Proceeds from issuance of capital stock (net
of issuance costs) -- -- 930
Net cash provided by financing activities 1,927 1,173 1,365
Effect of Exchange Rate Changes on Cash (347) (34) 12
Net increase (decrease) in cash 617 346 (140)
Cash at beginning of period 747 401 541
Cash at end of period $1,364 $ 747 $ 401
See Notes to Consolidated Financial Statements
Rheometric Scientific, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Additional Cumulative
Total
(In thousands) Common Stock Paid-in (Accumulated Translation
Shareholders'
Shares Amount Capital Deficit) Adjustment
Equity
Balance at December 31, 1992 4,507 $ 5 $14,123 $(8,249) $(170) $ 5,709
Issuance of Common Stock 3,405 3 3,495 -- -- 3,498
Net loss -- -- -- (4,550) -- (4,550)
Translation adjustment -- -- -- -- 101 101
Balance at December 31, 1993 7,912 8 17,618 (12,799) (69) 4,758
Issuance of Common Stock 5,250 5 7,141 -- -- 7,146
Net loss -- -- -- (1,463) -- (1,463)
Translation adjustment -- -- -- -- 112 112
Balance at December 31, 1994 13,162 13 24,759 (14,262) 43 10,553
Net Income -- -- -- 391 -- 391
Translation adjustment -- -- -- -- (56) (56)
Balance at December 31, 1995 13,162 $13 $24,759 $(13,871) $ (13) $10,888
See Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation and Operations
The consolidated financial statements include the accounts of Rheometric
Scientific, Inc., and its wholly-owned subsidiaries (referred to as
"Rheometric" or the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation. Axess Corporation
("Axess" or the "Affiliate") owns 76.6% of the outstanding shares of the
Company's Common Stock as of December 31, 1995.
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, the disclosure of
contingent assets and liabilities at the date of the financial statements,
and revenues and expenses during the reporting period. Actual results could
differ from those estimates.
The Company designs, manufactures, markets, and services computer-controlled
material testing systems for use in material and product research and
development, on-line process monitoring, and quality control.
Liquidity
Management believes that the cash generated from operations, Axess' debt
financing and funds available under its current loan agreement, should be
sufficient to meet the Company's working capital needs for the next year. On
February 23, 1996 the Company entered into a three-year Loan and Security
Agreement (the "Loan Agreement"). This agreement provides a working capital
revolving credit facility with a maximum credit amount of $11,500,000. The
amount of available credit is determined by the level of certain eligible
receivables and inventories. Adequacy of cash flows generated beyond 1996
will depend upon the Company's ability to achieve expected sales volumes to
support profitable operations.
Revenue Recognition
Product sales are recorded upon shipment. Service revenues are recorded as
services are performed. Maintenance agreement revenues are recorded on a
straight-line basis over the terms of the respective agreements. Service
revenues for the years ended December 31, 1995, 1994, and 1993, were
$3,706,000, $3,623,400, and $2,329,000, respectively. Deferred revenue
relating to maintenance agreements amounted to $1,073,000 and $867,000 at
December 31, 1995 and 1994, respectively, and is included in accrued
liabilities in the accompanying consolidated balance sheets.
Inventories
Inventories, consisting of purchased materials, direct labor, and
manufacturing overhead, are stated at the lower of cost (determined on the
first-in, first-out method) or market. As of December 31, 1995 and 1994 the
Company had a reserve of approximately $969,000 and $1,572,000, respectively,
for excess and obsolete inventory.
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Depreciation and
amortization of plant and equipment are computed based on the estimated
service lives of the assets or lease terms, if shorter, using the straight-
line method. Betterments and major renewals are capitalized, while repairs,
maintenance and minor renewals are expensed. When assets are disposed of,
the assets and related allowances for depreciation are eliminated from the
accounts and any resulting gain or loss is reflected in operations.
The estimated useful lives for each class of fixed assets are as follows:
Buildings 30 years Transportation equipment 3 years
Machinery and equipment 8 years Leasehold improvements 5 years
Office equipment 5-8 years Assets under capital lease 5 years
Income Taxes
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities. The effect on deferred taxes of
a change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable for the period plus the change during the period
in deferred tax assets and liabilities.
No provision has been made for U.S. income taxes which would be payable if
undistributed earnings of approximately $615,000 as of December 31, 1995 of
foreign subsidiaries were distributed to the Company in the form of
dividends, since it is management's intention to permanently reinvest such
earnings in the related foreign operations.
Goodwill
Goodwill is amortized using the straight-line method over seven years. The
Company evaluates annually whether there has been a permanent impairment in
the value of goodwill. Any impairments would be recognized when the expected
undiscounted future operating cash flows derived from such intangible asset
is less than its carrying value.
Translation of Foreign Currencies
Assets and liabilities of foreign subsidiaries are translated at current
exchange rates and the effects of these translation adjustments are reported
as a separate component of shareholders' equity. Realized gains and losses
from foreign currency transactions are included in the consolidated
statements of operations, as are unrealized gains and losses arising from the
translation of the foreign subsidiaries' intercompany liability accounts into
U.S. dollars.
Research and Development Costs
Research and development costs, including costs of software development, are
charged to expense as incurred. In 1995, the Company capitalized
approximately $306,000 of software development costs which will be amortized
using the straight-line method over three years.
Earnings (Loss) per Share
Earnings (loss) per share is computed based on the weighted-average number of
common shares outstanding during each year. The earnings (loss) per share
calculation does not include shares reserved for outstanding stock options or
shares issuable under the Company's 1993 convertible debenture, since the
effects are anti-dilutive or immaterial.
Cash Flow Information
Foreign currency cash flows have been converted to U.S. dollars at an
appropriately weighted-average exchange rate or the exchange rates in effect
at the time of the cash flows, where determinable.
Net cash provided by (used in) operating activities for the years ended
December 31, 1995, 1994, and 1993, respectively, reflects cash payments for
interest of $1,165,700, $1,823,700, and $1,354,400, and income taxes of
$44,300, $38,000, and $0, respectively.
In 1993, Axess Corporation exercised its option to convert $2,800,000 of
subordinated convertible debentures into 1,773,390 shares of the Company's
Common Stock (see Note 7). Upon conversion of the subordinated convertible
debentures, $232,000 of related unamortized deferred financing costs were
charged to additional paid-in capital.
Also see Note 2 for additional non-cash disclosures.
Fair Value of Financial Instruments
The estimated fair value of the Company's debt instruments as of December 31,
1995 approximates the carrying amount. The fair value of the debt
instruments is estimated based on the discounted future cash flows using
currently available interest rates. The Company's letter of credit
instrument is not recognized in the Company's consolidated balance sheet and
a reasonable estimate of fair value could not be made.
Concentration of Credit Risk
The Company's products are sold worldwide, principally to large corporations,
and research, educational, and governmental institutes. The Company does not
require collateral from its customers. The accounts receivable are spread
among a number of customers and are geographically dispersed such that in
management's opinion credit risk is minimized.
Accounting for the Impairment of Long-Lived Assets
The Financial Accounting Standards Board issued Statement of Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" ("FAS 121") in March 1995. FAS 121
requires companies to review their long-lived assets and certain identifiable
intangibles (collectively, "Long-Lived Assets") for impairment whenever
events or changes in circumstances indicate that the carrying value of a Long-
Lived asset may not be recoverable. Impairment is measured using the lower
of a Long-Lived Asset's book value or fair value, as defined. Management
believes that the future adoption of FAS 121 will not have a material impact
on the Company's financial position or results of operations.
2. Acquisition
Axess acquired the Polymer Laboratories Thermal Sciences Business (the "PL
Thermal Sciences Business") on March 3, 1994 pursuant to the Agreement For
Purchase of A Business and Shares (the "PL Purchase Agreement") for an
aggregate payment equal to $6,919,000. Additionally, Axess incurred
approximately $227,000 of transaction expenses in connection with the
negotiation and completion of the PL Purchase Agreement. Axess formed two
wholly-owned subsidiary companies, Axess Thermal Sciences Limited, a U.K.
company ("ATS UK") and Axess Thermal Sciences, Inc., a Delaware corporation
("ATS US"), through which the PL Thermal Sciences Business was purchased.
Axess's purchase of the PL Thermal Sciences Business was executed in
contemplation of contributing such business to the Company upon the approval
of the contribution by the Company's shareholders.
On April 20, 1994, the Company acquired from ATS US the accounts receivable,
inventories, and certain other assets and liabilities of the United States
operations of the Thermal Sciences Division of Polymer Laboratories Ltd.
purchased by Axess in March 1994. In exchange for the assets acquired, Axess
and the Company executed a $1,339,000 convertible subordinated revolving
credit promissory note (the "Convertible Note") due November 1995, bearing
interest at 12% per annum.
On November 10, 1994, at the Annual Meeting of Shareholders, the shareholders
approved the issuance by Rheometric of 4,226,348 shares of Rheometric's
Common Stock to Axess in exchange for the contribution by Axess of all the
outstanding capital stock of two wholly-owned subsidiaries of Axess, ATS US
and ATS UK. Shareholders also approved the issuance of 1,023,652 shares of
Rheometric's Common Stock to Axess in connection with the exercise by Axess
of the Convertible Note in the principal amount of $1,339,000. These
transactions represent the transfer by Axess to Rheometric of all of the PL
Thermal Sciences Business previously acquired by Axess.
The acquisition of the PL Thermal Sciences Business by Axess was accounted
for as a purchase for accounting and financial reporting purposes and the
subsequent acquisition of the PL Thermal Sciences Business by Rheometric was
accounted for as a transfer and exchange between companies under common
control in a manner similar to a pooling of interests. The Company's
consolidated financial statements reflect the assets and the liabilities so
transferred at historical cost (representing Axess' cost of the PL Thermal
Sciences Business). The transfer from Axess to Rheometric indicated above
principally consisted of accounts receivable of $2,576,000, inventory of
$3,159,000, certain other assets of $495,000, certain accounts payable and
other liabilities of $1,676,000 and goodwill of $2,592,000. The Company's
consolidated financial statements reflect the acquisition from March 3, 1994,
since at that date both the Company and the PL Thermal Sciences Business were
under the common control of Axess.
3. Property, Plant and Equipment
Property, plant and equipment as of December 31 consisted of the following:
1995 1994
Land $ 945,000 $ 945,000
Buildings 11,167,000 11,167,000
Machinery and equipment 2,433,000 2,407,000
Office equipment 5,232,000 5,439,000
Transportation equipment 281,000 195,000
Leasehold improvements 437,000 305,000
Assets under capital lease 853,000 853,000
$21,348,000 $21,311,000
Assets under capital lease consist primarily of computer equipment. The
accumulated depreciation on this equipment at December 31, 1995 and 1994 was
$853,000 and $703,000, respectively. The Company's property, plant and
equipment are pledged as collateral under the existing lines of credit and
long-term debt agreements (see Note 4).
4. Long-term Debt and Short-term Borrowings
Long-term debt as of December 31 consisted of the following:
1995 1994
Mortgage loans payable through
November 1997, with variable interest
at prime plus 1/2% (9.0% at
December 31, 1995 and 1994)
and fixed interest at 9.6% $ 5,730,000 $ 6,185,000
Obligation under capital lease, with
interest imputed at a weighted-
average rate of 12% 98,000
5,730,000 6,283,000
Less current maturities 497,000 595,000
$ 5,233,000 $ 5,688,000
Short-term Borrowings
The Company has working capital lines of credit with certain domestic and
foreign banks aggregating $6,922,000 of which approximately $498,000 was
available at December 31, 1995. Borrowings at December 31, 1995 amounted to
$3,320,000 with domestic banks and $3,104,000 with foreign banks. The
domestic line of credit bears interest at prime plus 1% (9.5% at December 31,
1995 and 1994). Interest rates on the foreign lines of credit range between
1.9% and 3.0% in Japan and between 7.0% and 11.3% in Europe as of December
31, 1995 and between 3.5% and 4.0% in Japan and between 10.75% and 11.0% in
Europe at December 31, 1994. The weighted average interest rate on short-
term debt outstanding was 6.5% and 7.3% as of December 31, 1995 and 1994,
respectively. On April 26, 1995, the Company and the domestic banks revised
and extended the existing line of credit agreements and letters of credit to
April 30, 1996. On December 31, 1995, the Company was in violation of certain
covenants. The violations were cured on February 23, 1996 when the Company
repaid the mortgage indebtedness and the existing line of credit (see Note
14).
The long-term and short-term borrowings with domestic banks are cross-
collateralized by the Company's assets. The borrowings with foreign banks
are partially collateralized by letters of credit issued by a domestic bank
($2,400,000) and a lease deposit held by a foreign bank. Under the terms of
the letters of credit, the Company must maintain a cash collateral account on
behalf of the domestic bank. As of December 31, 1995 and 1994, this
restricted cash was approximately $1,000,000 and $47,000, respectively and is
included in prepaid expenses and other current assets. Under the revised
agreements (including the mortgage loans payable), the most restrictive
financial covenants as of December 31, 1995 are: the maintenance of minimum
tangible net worth $6,720,000; the maintenance of a maximum debt to tangible
net worth ratio, of 3.66 to 1; the maintenance of a current ratio of 1.13 to
1; (d) the limitation of annual capital expenditures; (e) the prohibition of
cash dividends or cash distributions to shareholders; and (f) a limitation on
intercompany loans and advances shall not in the aggregate exceed $6,000,000.
The Company's mortgage loans, lines and letters of credit are subject to
acceleration in the event that there is a material and adverse change in the
condition or affairs, financial or otherwise, of the Company which in the
reasonable opinion of the lender impairs the lender's collateral or increases
its risk so as to jeopardize the repayment of the obligations.
5. Long-term Debt and Short-term Debt - Affiliate
Long-term debt - affiliate as of December 31 consisted of the following:
1995 1994
Two subordinated term notes with
interest equal to the British Prime
plus 1.5% (7.75% and 8.25% at December
31, 1995 and 1994, respectively) due
April 30, 1996 $375,000 $ 375,000
Various subordinated term notes due
February 28, 1999 with interest at 12%
per annum 5,740,000 3,340,000
6,115,000 3,715,000
Less current maturities 375,000 --
$ 5,740,000 $ 3,715,000
On March 7, and 25, 1994, Axess and the Company's UK subsidiary, executed
subordinated term notes of $150,000 and $225,000, respectively, due January
1, 1996, bearing interest at a rate equal to the British Prime Rate plus
1.5%.
In 1993, Axess and the Company consolidated all of the outstanding term loans
into a subordinated term loan of $1,340,000, due November 1, 1995, bearing
interest at 12% per year.
Also in 1993, Axess and the Company executed a short-term capital loan of
$340,000, which note bore interest at 12% per annum. The term of the note was
subsequently extended to November 1, 1995.
On April 20, 1994, Axess and the Company executed a subordinated term loan of
$500,000 due November 1, 1995, bearing interest at 12% per annum.
On September 23, 1994, Axess and the Company executed a $160,000 short-term
loan; on October 7 and 21, 1994, Axess and the Company executed $300,000 and
$400,000 of short-term loans, respectively; and on November 11, 1994, Axess
and the Company executed a $300,000 short-term loan. These short-term loans
bore interest at 12% per annum and were due November 1, 1995.
On April 17, 1995, Axess provided $2,400,000 in additional working capital to
the Company in the form of subordinated debt. The subordinated debt was to
mature on April 30, 1996 and bore interest at 12% payable monthly. In
addition, Axess agreed that it would extend the maturities on all debt
obligations ($3,715,000 at December 31, 1994) of the Company to Axess until
April 30, 1996. Axess also agreed to defer interest payments on all debt
obligations through September 30, 1995. On September 30, 1995, Axess agreed
that it would continue the deferral of interest on all debt obligations,
including the notes with the UK subsidiary, totaling $6,115,000 through
December 31, 1995 (see Note 14).
6. Income Taxes
The components of deferred tax assets and (liabilities) as of December 31
consisted of the following:
1995 1994
Inventory reserves, inventory
capitalization, and
intercompany profit in
inventory $ 858,000 $ 961,000
Other 985,000 751,000
Net operating loss carryforwards 4,730,000 4,097,000
Research and development and other
tax credit carryforwards 1,015,000 974,000
Gross deferred tax assets 7,588,000 6,783,000
Gross deferred tax liabilities (475,000) (3,000)
Net deferred tax asset before
valuation allowance 7,113,000 6,780,000
Valuation allowance on deferred
tax assets (7,113,000) (6,780,000)
Net deferred tax asset $ -- $ --
A valuation allowance is established when it is more likely than not that a
portion or all of the deferred tax assets will not be realized.
At December 31, 1995, the Company had domestic net operating loss
carryforwards for income tax purposes of approximately $9,147,000 which
expire in 2005 through 2009 and foreign loss carryforwards of approximately
$3,578,000, a portion of which may be carried forward indefinitely. The
Company also has other tax credit carryforwards aggregating approximately
$991,000 at December 31, 1995, which expire in 1998 through 2009.
The change in ownership resulting from the August 21, 1992 sale of Common
Stock and a subordinated convertible debenture (see Notes 5 and 7) will
result in a limitation on future annual utilization of domestic tax credits
and net operating losses, pursuant to Internal Revenue Code Sections 382 and
383.
Income (loss) before income taxes as of December 31 consisted of the
following:
1995 1994 1993
Domestic $ 34,000 $(1,022,000) $(3,236,000)
Foreign 432,000 (371,000) (1,287,000)
$466,000 $(1,393,000) $(4,523,000)
The components of income tax expense (benefit) for the years ended December
31 consisted of the following
1995 1994 1993
Federal:
Current $ -- $ -- $ --
Deferred -- -- --
-- -- --
Foreign:
Current 72,000 63,000 27,000
Deferred -- -- --
72,000 63,000 27,000
State:
Current 3,000 7,000 --
Deferred -- -- --
3,000 7,000 --
$ 75,000 $ 70,000 $ 27,000
The Company's effective tax rate varies from the statutory federal tax rate
as of December 31 as a result of the following:
1995 1994 1993
Computed statutory income
tax benefit (provision) $158,000 $(474,000) $(1,538,000)
State income taxes, net Federal
tax benefit 2,000 5,000 --
Foreign taxes 9,000 36,000 --
Utilization of net operating
losses (146,000) -- --
Effect of loss carryforwards not
recognized 42,000 340,000 $1,575,000
Goodwill and other nondeductible
acquisition costs 2,000 146,000 --
Other 8,000 17,000 (10,000)
$ 75,000 $ 70,000 $ 27,000
7. Capital Stock and Stock Option and Incentive Plans
In 1991 and 1992, the Company and Axess executed a $1,500,000 principal
amount Subordinated Convertible Debenture convertible into 551,471 newly-
issued shares of Common Stock and a $1,300,000 principal amount Subordinated
Convertible Debenture convertible into 1,221,919 newly-issued shares of
Common Stock, respectively.
In 1993, the Company and Axess signed an Option Agreement whereby the Company
granted Axess an irrevocable option to purchase 1,630,897 newly-issued shares
of Common Stock of the Company for $1,000,000. On June 30, 1993, Axess
exercised the Option and the Company sold 1,630,897 shares of newly-issued
Common Stock for $1,000,000. In addition, Axess also converted $2,800,000 of
Debentures into 1,773,390 newly-issued shares of Common Stock
On November 10, 1994, at the Annual Meeting of Shareholders, the shareholders
approved the amendment to Rheometric's Certificate of Incorporation to
increase the number of authorized shares from 10,000,000 shares to 20,000,000
shares. Additionally, the shareholders approved the issuance by Rheometric
of 4,226,348 shares of Rheometric's Common Stock to Axess in exchange for the
contribution by Axess of all the outstanding capital stock of two wholly-
owned subsidiaries of Axess. Shareholders also approved the issuance of
1,023,652 shares of Rheometric's Common Stock to Axess in connection with the
exercise by Axess of a convertible subordinated promissory note in the
principal amount of $1,339,000. These transactions represent the transfer by
Axess to Rheometric of all of the thermal sciences business recently acquired
by Axess.
The 1986 Incentive and Non-Qualified Stock Option Plan (the Plan) provides
for the issuance of a maximum of 110,000 shares of Common Stock as either
"Incentive Stock Options" or "Non-Qualified Stock Options." Incentive Stock
Options are exercisable at not less than 100% of the market value of the
Common Stock on the date the option is granted. Non-Qualified Stock Options,
exercisable at a price specified by the Stock Option and Compensation
Committee of the Board of Directors, may not be less than the greater of the
par value of the Common Stock or 50% of the market value of the Common Stock
on the date the option is granted. No options under the Plan have been
exercised. On October 25, 1995, all outstanding Options under the Plan
expired. Under the Plan, no Options may be granted after September 12, 1996.
On February 5, 1996, the Board of Directors terminated the Plan and approved
a proposal to issue a maximum of 250,000 shares under a new employee
incentive stock option. Shareholder approval for the new plan will be
requested at the next annual meeting.
Stock Options
Stock Options
Shares Price Range
Balance at December 31, 1992 68,275 $1.75 - $8.53
Canceled - Plan (9,350) $5.00 - $5.23
Expired - Plan (9,900) $6.03
Balance at December 31, 1993 49,025 $1.75 - $5.23
Canceled - Plan (10,250) $1.75 - $5.23
Expired - Plan (20,075) $5.23
Balance at December 31, 1994 18,700 $5.00
Canceled - Plan 0 $5.00
Expired - Plan 18,700 $5.00
Exercisable at December 31, 1995 0
Additionally, during 1994 the Company granted an option to purchase 300,000
shares of Common Stock to an employee, at an option price of $1.03 per share
(fair value at date of grant). On June 14, 1994, 200,000 shares were
canceled upon termination of employment. The employee's vested shares of
100,000 are outstanding and expire in 2001.
8. Employee Benefit Plans
The Company has a 401(k) Savings and Investment Retirement Plan (the "401(k)
Plan") under which the Company matches a portion of the employees' salary
deduction contributions. Substantially all domestic employees are eligible
to participate in the 401(k) Plan. Contributions by the Company were
$129,000, $124,000, and $123,000 for the years ended December 31, 1995,
1994, and 1993, respectively. The Company's foreign subsidiaries also
sponsor employee retirement plans. The expense recorded by the Company for
such plans was insignificant for the years ended December 31, 1995, 1994, and
1993. The Company does not sponsor any post-retirement health, life
insurance, or related benefit plans, nor any significant post-employment
benefit plans.
9. Commitments and Contingencies
The Company and its subsidiaries are parties to various operating leases
relating to office facilities, transportation vehicles, and certain other
equipment, principally data processing. Real estate taxes, insurance, and
maintenance expenses are normally obligations of the Company. All leasing
arrangements contain normal leasing terms without unusual purchase options or
escalation clauses. It is expected that, in the normal course of business,
the leases will be
renewed or replaced by similar leases. Rent expense was $857,000,
$1,105,000 and $883,000 for the years ended December 31, 1995, 1994, and
1993, respectively.
Minimum rental commitments under noncancelable leases as of December 31,
1995, are as follows: 1996 - $768,000; 1997 - $603,000; 1998 - $305,000, 1999
- - $305,000, and 2000 - $218,000.
On February 23, 1996, the Company entered into a sale/leaseback arrangement
which is recorded as a financing on its facility in Piscataway, New Jersey.
As a result of this transaction, the Company is committed to a 15-year lease
with an initial annual payment of $1,180,000 payable quarterly. The lease is
subject to an annual CPI adjustment which is capped at 3% per year.
At December 31, 1995 and 1994, the Company was contingently liable with
respect to certain trade receivables of foreign subsidiaries amounting to
approximately $1,155,000 and $622,000, respectively, which have been sold,
with recourse, to banks. During the fiscal years ended December 31, 1995,
1994, and 1993, approximately $5,276,000, $5,039,000, and $3,562,000,
respectively, of trade receivables were sold, with recourse, to banks.
In May 1992, the Company entered into employment agreements with certain key
management executives. The contracts expired June 30, 1994 and have been
renewed on a yearly basis. The minimum obligation under these contracts
aggregates approximately $265,000 per year. Additionally, the Company has
entered into consulting agreements. The minimum obligation under the terms
of the consultancy agreements is $45,000. The Company entered into a 15-year
royalty agreement in August 1991 for the Elongational Rheometer Products.
This royalty agreement is based on sales of the product which is estimated to
be approximately $90,000 in 1996.
In the ordinary conduct of its business, the Company may be party to
litigation. At December 31, 1995, in the opinion of management, there are no
matters pending or threatened which would have a material adverse effect on
the consolidated financial position or results of operations of the Company.
10. Foreign Operations and Geographic Information
Information concerning sales, operating income (loss), and identifiable
assets by geographic area and foreign operations for the years ended December
31 are presented below (in $'000s):
1995 1994 1993
Sales:
Domestic $ 14,782 $ 14,878 $ 13,475
Europe 15,029 12,055 6,445
Japan 11,433 7,638 6,961
Consolidated $ 41,244 $ 34,571 $ 26,881
Operating income (loss):
Domestic $ 1,604 $ 80 $ (2,036)
Europe 281 (585) (867)
Japan 581 228 113
Consolidated $ 2,466 $ (277) $ (2,790)
Identifiable assets:
Domestic $ 29,035 $ 24,739 $ 24,028
Europe 6,066 6,774 81
Japan 4,992 3,597 3,126
Consolidated $ 40,093 $ 35,110 $ 27,235
Sales from domestic operations to foreign subsidiaries amounted to
$9,428,000, $7,574,000, and $7,039,000 for the years ended December 31, 1995,
1994, and 1993, respectively. Such sales between geographic areas are priced
on a basis that yields an appropriate rate of return based on assets
employed, risk, and other factors. Included in domestic sales are export
sales of $555,000, $628,000, and $831,000 for the years ended December 31,
1995, 1994, and 1993, respectively.
11. Restructuring of Operations
In 1993, restructuring provisions totaling $1,400,000 were recorded for the
consolidation of certain administrative, manufacturing, and marketing
functions and the write-down of certain inventories directly related to a
discontinued product line. The restructuring charge consists of
approximately $850,000 for compensation under employment agreements beyond
the date of termination, severance costs and relocation expenses; $250,000
for inventories impaired as a result of the decision to discontinue a certain
product line; $160,000 for costs associated with the relocation of the
Company's German branch office and a lease for office space beyond the date
of abandonment; and $140,000 for various costs related to the consolidation.
During 1994, the Company identified and reversed $98,000 of excess accruals
relating to its restructuring reserve.
12. Property Rights Acquisition
On January 1, 1995, the Company acquired from Mettler-Toledo AG ("Mettler")
the exclusive, worldwide rights for two rheological test instruments, the
RM180 and RM260, that serve the coatings, paints, biological fluids,
cosmetics, and lubricants industries.
The Company, in coordination with Mettler, has begun the transition of the
acquired rights and distribution network. Mettler will continue to
manufacture the two instruments and to maintain necessary levels of spare
parts. After completion of the transition phase, which is anticipated to be
approximately two to three years, the Company will assume responsibility for
the manufacturing, sales, and service of the two products.
The Company recorded an intangible asset of $1,525,000, included in other
assets, related to the property rights acquired. The intangible asset is
amortized using the straight-line method over six years. The Company
evaluates annually whether there has been a permanent impairment in the value
of the intangible asset. Any impairment would be recognized when the
expected undiscounted future operating cash flows derived from such
intangible asset is less than its carrying value.
During the transition phase, the Company will pay Mettler for manufacturing
the products plus a 10% royalty payment on sales. After the Company assumes
manufacturing, Mettler will receive quarterly royalty payments based upon a
percentage of sales or a minimum payment formula. The Company anticipates
total payments, denominated in Swiss Francs, to be approximately $2,225,000,
which will be paid over a six-year period.
13. Related Parties
Mr. Robert E. Davis became president and CEO of the Company on September 20,
1993. He was compensated by Axess Corporation through December 31, 1993.
Effective January 1, 1994, the Company and Axess verbally agreed that the
Company will pay to Axess a management fee, equal to $150,000 per year for
Mr. Davis's services paid by Axess. The amount included in payable to
affiliate at December 31, 1995 and 1994 for said services is $300,000 and
$150,000, respectively.
14. Subsequent Events
On February 23, 1996, the Company entered into a sale/leaseback arrangement
which is recorded as a financing whereby the Company sold the Company's
corporate headquarters and main manufacturing facility, and the 19 acres of
real property on which the facility is located (the facility and the real
estate being referred to herein as the "Facility") for $6,300,000.
Simultaneously with the sale to the Landlord, the Company entered into a long-
term lease of the Facility from the Landlord. The initial term of the lease
is 15 years, subject to five-year extensions through 2026. Under the terms
of the lease, the Company has certain rights of first refusal to purchase the
Facility and the right to acquire up to 11 acres of undeveloped real estate
constituting a portion of the facility (the "Excess Land") under certain
circumstances.
Simultaneously with the consummation of the sale/leaseback arrangement, the
Company entered into a Loan and Security Agreement providing for a working
capital revolving credit facility in the amount of $11,500,000 with an
initial three-year term, expiring on February 23, 1999. The Company's
obligations under the Loan Agreement are collateralized by substantially all
of the Company's assets.
A portion of the proceeds from the sale of the Facility and the Loan
Agreement used to provide the funds necessary to repay the Company's mortgage
indebtedness of approximately $5,700,000 and a portion of the existing line
of credit of approximately $3,000,000 (see Note 4).
The Loan Agreement is for a term of three years. Under this agreement the
most restrictive financial covenants are (a) maintenance of working capital
not less than $6,000,000 through December 31, 1996, $6,500,000 through
December 31, 1997 and $7,000,000 after January 1, 1998; (b) the maintenance
of minimum adjusted tangible net worth, as defined of at least $8,750,000
through May 31, 1996, $9,000,000 through December 31, 1996, $9,500,000
through December 31, 1997 and $10,000,000 after January 1, 1998; (c) achieve
cash flow, as defined, of not less than ($750,000) for the three months
ending March 31, 1996, ($250,000) for the six months ending June 30, 1996,
($1,000,000) for the nine months ending September 30, 1996, and $0 for the
twelve months ending December 31, 1996 and for the twelve months ending on
the last day of each subsequent month; (d) achieve consolidated cash flow, as
defined, of not less than ($850,000) for the three months ended March 31,
1996, $250,000 for the six months ended June 30, 1996, $500,000 for the nine
months ended September 30, 1996 and $750,000 for the twelve months ending
December 31, 1996 and for the twelve months ending on the last day of each
subsequent month.
The Loan Agreement provides certain letters of credit facilities for
operations of the Company's foreign subsidiaries.
The Landlord financed the acquisition of the Facility in part through a
$3,300,000 mortgage loan. The Company purchased a participating interest in
the Landlord's mortgage loan (the "Mortgage Loan") in the amount of $861,000.
The Company's interest in the Mortgage Loan will be repaid with yearly
interest of 9.625% upon the maturity of the Mortgage Loan in five years or
upon refinancing.
Further, in connection with the sale/leaseback arrangement, the Company
issued the following three warrants to acquire shares of its Common Stock,
all having an exercise price of $2.00 per share: (1) a warrant to the
Landlord to purchase 132,617 shares of Common Stock of the Company,
exercisable during the term of the lease; (2) a conditional warrant to the
Landlord to purchase 331,543 shares of Common Stock of the Company which
shall only be exercisable if the indebtedness owed by Landlord under the
Mortgage Loan is repaid prior to February 23, 1997; or if the Landlord is
unable to refinance the indebtedness owed under the Mortgage Loan prior to
February 23, 1997, solely as a result of environmental contamination relating
to the 11 acres of undeveloped real estate constituting a portion of the
facility (the "Excess Land"); and (3) a conditional warrant to the Landlord's
Lender (the "Lender") to purchase 331,543 shares of Common Stock which shall
only be exercisable if the indebtedness owed under the Mortgage Loan by
Landlord to Lender is not refinanced prior to February 23, 1997.
As a result of the sale/leaseback arrangement of the Facility, the Company
expects to recognize a loss in the range of $2,500,000 to $3,000,000in the
first quarter of 1996, because the proceeds of the financing are less than
the carrying value of the Facility.
On February 23, 1996, Axess and the Company consolidated all of the
outstanding notes, totaling $5,740,000, along with deferred interest
amounting to $517,972 (which is included in payable to affiliate), into a new
subordinated note for an aggregate amount of $6,257,972. The new note will
bear interest at 12% payable monthly and is due February 28, 1999. On March
6, 1996, the Company paid to Axess $375,000, in payment of the Company's two
UK Subsidiary notes, plus interest in the amount of $27,417, for an aggregate
amount of $402,417 (see Note 5).
PART III
Item 10. Directors and Executive Officers of the Registrant.
Executive Officers. Officers of the Company are appointed to serve, subject
to the discretion of the Company's Board of Directors, until the meeting of
the Board of Directors following the next annual meeting of shareholders and
until their successors have been elected and qualified.
The following is a list of names and ages of all the executive officers of
the Registrant, as of December 31, 1995, indicating all positions and offices
held with the registrant by each such person and each such person's principal
occupations or employment during the past five years.
Name Age as of
March 31, 1995 Offices and Positions Held
Robert E. Davis 64 President and Chief Executive Officer
since September 20, 1993 and a Director
since October 1992. Managing Director of
Axess Corporation since its inception in
1991; prior thereto served as president
and chief operating officer (1983-1991)
of Sequa Corporation, a diversified,
multinational, special chemical,
transportation, aerospace and
various financial services and
manufacturing company formerly known as
Sun Chemical Corporation.
Alan R. Eschbach 49 Executive Vice President, Chief Operating
Officer since November 10, 1994; prior
thereto, Vice President, Domestic &
International Sales & Marketing since
October 1988. Mr. Eschbach has been an
officer of the Company since February
1982.
John C. Fuhrmeister 45 Vice President, Finance & Administration
and Chief Financial Officer since
November 10, 1994 and Assistant Secretary
since November 17, 1993; prior thereto
Vice President of Finance and Controller
from May 3, 1994 to November 10, 1994;
and Controller from October 1989 to May
3, 1994.
Ronald F. Garritano 57 Vice President, Technology since June
1992, Vice President of Engineering since
July 1977.
Matthew Bilt 53 Vice President, Human Resources since
November 10, 1994; prior thereto, Vice
President, Human Resources and
Administration from May 3, 1994 to
November 10, 1994 and Director of Human
Resources from June 2, 1986 to May 3,
1994.
Board of Directors. Directors of the Company are elected to hold office for
one year, until the next annual meeting of shareholders or until their
respective successors have been elected and qualified. The following is a
list of Directors with biographical information.
Principal Occupation or Employment
During the Past Five Years and Office Director
Name Age (if any) Held in the Company Since
Robert E. Davis 64 Chairman of the Board, since June 22, 1992
1995, President and Chief Executive
Officer since September 20, 1993.
Managing Director, Axess Corporation
since its inception in 1991; prior
thereto served as president and chief
operating officer (1983-1991) of Sequa
Corporation, a diversified, multinational,
manufacturing company for- merly known as
Sun Chemical Corporation; and a Director
of USF&G Corp. a surety company, and a
Director of H&R Block Corp., a personal
services company.
David C. Beehler* 56 Vice President, Axess Packaging 1993
Technologies Corporation (1991-1995);
prior thereto Business Director, HERCULES
Incorporated, Packaging Films Group
(1990-1991) and Director of Sales
(1987-1990).
Leonard Bogner 55 President, Bogner Business Consultants, 1995
Inc. since its formation in November
1994; prior thereto, Senior Chemicals
Research Department Analyst, Prudential
Securities Brokerage Firm, from May 1986
to October 1994.
Alexander F. Giacco 76 Managing Director, Axess Corporation since 1993
its inception in 1991; prior thereto
Chairman of the Board of Directors of
HIMONT Incorporated, a plastics manu-
facturing company, since its formation
(1983-1991), and served as CEO (1987-1990);
and a Director of Marvin & Palmer Associates,
Inc., a portfolio management firm. Mr.
Giacco is the father of Richard J. Giacco.
Richard J. Giacco 43 Vice President and General Counsel, Axess 1992
Corporation since its inception in 1991;
prior thereto served as associate general
counsel for Safeguard Scientifics, Inc.,
a computer software and electronics company
since 1985. Mr. Giacco is the son of
Alexander F. Giacco.
R. Michael Hendricks 58 President, Axess Corporation since its 1992
inception in 1991; prior thereto served as
president and chief operating officer of HIMONT
Incorporated, a plastics manufacturing company,
since 1983.
Robert K. Prud'homme 48 Professor of Chemical Engineering at 1981
Princeton University since 1978; Consultant
to FMC, Inc., Dow Chemical Company and
DuPont, Inc.
*David Beehler tendered his resignation from the Rheometric Scientific Board
of Directors effective February 5, 1996 when he accepted employment with a
nonaffiliated corporation.
Item 11. Executive Compensation
The following table sets forth a summary of all compensation paid or accrued
by the Company for services rendered during the 12-month period ended
December 31, 1993, 1994, and 1995, to the Company's chief executive officer
and the four most highly compensated executives of the Company whose
aggregate salary and bonus exceeded $100,000 for the 12-month period ended
December 31, 1995 (the "named executive officers"):
Executive Compensation
Annual Compensation
All other
Name and Salary Compensation
Principal Position Year ($) ($) (1)
Robert E. Davis (2) 1995 150,000 0
Chief Executive Officer 1994 150,000 0
and President 1993 0 0
Alan R. Eschbach 1995 153,948 3,150
Executive Vice President, 1994 140,627 2,728
Chief Operating Officer (3) 1993 120,242 2,648
Ronald F. Garritano 1995 140,658 2,809
Vice President, Technology 1994 137,314 2,731
1993 128,994 2,696
John C. Fuhrmeister 1995 121,047 1,986
Vice President, Finance & 1994 98,434 2,086
Administration (4)
Matthew Bilt 1995 114,423 1,386
Vice President, Human 1994 102,537 1,830
Resources (5)
(1) Company contributions under the Savings and Investment Retirement Plan.
(2) Mr. Davis became president and CEO of the Company on September 20, 1993.
He was compensated by Axess Corporation through December 31, 1993. Effective
January 1, 1994, Rheometric and Axess verbally agreed that Rheometric will
pay to Axess a management fee, equal to $150,000 per year, for said services.
See Item 13. Certain Relationships and Related Transactions.
(3) Mr. Eschbach became Chief Operating Office effective November 10, 1994.
(4) Mr. Fuhrmeister became an officer of the Company on May 3, 1994.
(5) Mr. Bilt became an officer of the Company on May 3, 1994.
Stock Options
The Company currently has a Non-Qualified Stock Option Plan (the "Option
Plan"). The Option Plan was adopted by the Board of Directors in September
1986 and approved by the shareholders in October 1986. No stock options were
granted during the 12-month period ended December 31, 1995.
Option Exercises and Year-End Value
To date, no options under the Option Plan have been exercised. On October
25, 1995, all outstanding options under the Option Plan expired and the
Option Plan was terminated effective February 5, 1996 by the Board of
Directors.
Compensation of Directors. Non-employee directors of the Company are paid an
annual retainer fee of $3,000, plus $1,000 per Board meeting attended and
reimbursement of their travel expenses. No fees are paid for committee
meetings or special telephone meetings. Certain non-employee directors also
provided professional services to the Company from time to time during the
year. See "Item 13. Certain Relationships and Related Transactions."
Employment Agreements. The Company entered into written employment
agreements with Dr. Starita and Messrs. Eschbach, and Garritano as of May 26,
1992. Under these agreements, base annual salary is $250,250 for
Dr. Starita, $132,000 for Mr. Eschbach and $119,840 for Mr. Garritano, all
subject to discretionary increase by the Board of Directors. Dr. Starita's
agreement expired on June 30, 1995. Messrs. Eschbach's, and Garritano's
agreements which originally expired on June 30, 1994 were continued for one
year, and can be continued from year to year thereafter.
Mr. M. Starita, father of Dr. Joseph M. Starita, past Chairman of the Board,
was party to a contract entered into in 1982, which entitled him to be paid
$15,000 per year for a period of 10 years following his retirement. During
fiscal year ended June 30, 1985, Mr. M. Starita received an advance payment
of $45,115 with respect to such post-retirement payments. The amount so
advanced will be deducted from the post-retirement payments to be made to
him. Mr. M. Starita's post-retirement payments commenced during 1994.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to persons known by
the Company, as of March 15, 1996, to be the beneficial owners of more than
5% of outstanding Common Stock.
Unless otherwise indicated, each such person has sole voting and dispositive
power over the shares indicated.
Name and Address No. of Percent
Shares
Dr. Joseph M. Starita
16 Deerfield Court
Basking Ridge, New Jersey 07920 1,573,971* 12.0%
Axess Corporation
3801 Kennett Pike
Greenville, Delaware 19807 10,076,257 76.6%
*Includes 13,500 shares held by members of his family.
Security Ownership of Management
Rheometric Scientific, Inc. Common Stock Ownership
The following table sets forth information as of March 15, 1996 with respect
to shares of Common Stock beneficially owned by each director and named
executive officer (see "Item 11. Executive Compensation") of the Company and
by all directors and executive officers as a group.
Name and Title No. of Shares
Beneficially Owned Percent
(1)
Robert E. Davis, Chief Executive 5,000 *
Officer, Director
Leonard Bogner -- --
Alexander F. Giacco, Director 35,000 (2) *
Richard J. Giacco, Director 3,000 (3) *
R. Michael Hendricks, Director 3,000 *
Robert K. Prud'homme, Director -- --
Matthew Bilt, Vice President 2,000 *
Human Resources
Alan R. Eschbach, Executive Vice 2,240 *
President
John C. Fuhrmeister, Vice
President, Finance & -- --
Administration
Ronald F. Garritano, Vice *
President, 3,735
Technology
All directors and executive
officers as 53,975 *
a group (10 persons)
* Denotes less than 1% of the outstanding shares of Common Stock.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of
1934 ("1934 Act"), a person is deemed to be the beneficial owner, for
purposes of this table, of any shares of Common Stock (1) over which he or
she has or shares voting or investment power, or (2) of which he or she has
the right to acquire beneficial ownership at any time within 60 days from
March 15, 1996. "Voting power" is the power to vote or direct the voting
of shares and "investment power" is the power to dispose or direct the
disposition of shares. All persons shown in the table above have sole
voting and investment power, except as otherwise indicated.
(2) Includes beneficial ownership of 10,000 shares held as custodian for
grandchildren.
(3) Includes beneficial ownership of 1,000 shares held in an investment
partnership for the benefit of his children and managed by Mr. Giacco.
Axess Corporation Common Stock Ownership
The following table sets forth information as of March 15, 1996 with respect
to shares of Axess Corporation Common Stock beneficially owned by directors
and executive officers of Rheometric Scientific, Inc.:
No. of Shares
Name and Title Beneficially Owned Percent
(1)
Robert E. Davis, Chief Executive 469,565 21.6%
Officer, Director
Alexander F. Giacco, Director 469,565 (2) 21.6%
Richard J. Giacco, Director 46,957 2.6%
R. Michael Hendricks, Director 187,826 (3) 8.6%
(1) Axess Corporation is a privately held Delaware corporation established
in 1991. See note 1 above under "Rheometric Scientific, Inc. Common Stock
Ownership."
(2) 446,087 shares (20.3%) are owned by revocable trust. 23,478 shares
(1.3%) held by a company in which Mr. Giacco has sole voting power.
(3) Owned by revocable trust.
Item 13. Certain Relationships and Related Transactions
In 1994 the Company acquired the Polymer Laboratories Thermal Sciences
Business (the "PL Thermal Sciences Business") through a series of
transactions involving Axess. These transactions were fully described in the
Company's Proxy Statement dated October 26, 1994. As part of the
Acquisition, the Company and Axess entered into a series of term notes to be
used for working capital, and in April 1994, the Company acquired the
accounts receivables and inventory of United States Division of the Thermal
Sciences Division of Polymer Laboratories Ltd. See "Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and Note 5 of Notes to Consolidated
Financial Statements.
In November 1994, the Company closed the transactions whereby it issued stock
to Axess in exchange for the contribution by Axess of all the outstanding
capital stock of its two wholly-owned subsidiaries and the exercise by Axess
of a convertible subordinated promissory note.
See also Note 2 of Notes to Consolidated Financial Statements.
These transactions represent the transfer by Axess to Rheometric of all of
the thermal sciences business recently acquired by Axess from Polymer Labs.
As a result, Axess owns 76.6% of the outstanding shares of the Company's
Common Stock.
On June 14, 1994, the Company, Axess Thermal Sciences Limited and Professor
Raymond E. Wetton (former Chairman of Polymer Labs) agreed to terminate the
Service Agreement which was entered into on March 2, 1994 for an initial 36-
month term between Axess Thermal Sciences Limited, Professor Raymond E.
Wetton, and Rheometrics, Inc. wherein Professor Wetton had agreed to act as
Managing Director of the European operations for a salary of approximately
$172,500. The termination agreement provided for Professor Wetton's
resignation of directorships and payment in lieu of notice in the amount of
$56,400. Contemporaneously, Rheometric Scientific Limited and Professor
Wetton entered into a consulting agreement under which Professor Wetton was
to provide consultancy services to Rheometric commencing July 1, 1994 through
December 31, 1995. Under the terms of the Consultancy Agreement, Rheometric
paid Professor Wetton $108,000 through December 31, 1995.
Additionally, Professor Wetton holds an option to purchase 100,000 shares of
Common Stock, at an option price of $1.03 per share (fair value at date of
grant). The option expires on June 14, 2001.
Mr. Robert E. Davis became president and CEO of the Company on September 20,
1993. He was compensated by Axess Corporation through December 31, 1993.
Effective January 1, 1994, the Company and Axess verbally agreed that the
Company will pay to Axess a management fee, equal to $150,000 per year.
Included in accrued liabilities at December 31, 1995 is $300,000 for said
services.
On March 7, and 25, 1994, Axess and the Company's UK subsidiary, executed
subordinated term notes of $150,000 and $225,000, respectively, due January
1, 1996, bearing interest at a rate equal to the British Prime Rate plus 1.5%
(7.75% at December 31, 1995).
In 1995, Axess provided $2,400,000 in additional working capital to the
Company in the form of subordinated debt. The subordinated debt was to
mature on April 30, 1996 and bore interest at 12% payable monthly. In
addition, Axess agreed that it would extend the maturities on all debt
obligations ($3,715,000 at December 31, 1994) of the Company to Axess until
April 30, 1996. At the same time, Axess also agreed to defer interest
payments on all debt obligations through September 30, 1995.
On September 30, 1995, Axess agreed that it would continue the deferral of
interest on all debt obligations, including the notes with the UK subsidiary,
totaling $6,115,000 through December 31, 1995.
On February 23, 1996, Axess and the Company consolidated all of the
outstanding notes described above, totaling $5,740,000, along with deferred
interest amounting to $517,972, into a new subordinated note for an aggregate
amount of $6,257,972. The new note bears interest at 12% payable monthly and
is due February 28, 1999.
On March 6, 1996, the Company paid to Axess $375,000, in payment of the
Company's two UK Subsidiary notes, plus interest in the amount of $27,417,
for an aggregate amount of $402,417.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this Report.
(1) Financial statements - All financial statements
are set forth under Item 8, pages 12 through 14
Independent auditor's report on consolidated financial
statements
and on schedules is on page 11
(2) Financial statement schedules: none
The required information is inapplicable or the information is
presented in the financial statements or related notes
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-
K).
3.1 Certificate of Incorporation of the Registrant, as Amended (7)
3.2 By-Laws of the Registrant, as Amended (4)
4.1 Specimen Certificate representing Common Stock of the Registrant
(1)
4.2 Common Stock Purchase Agreement between Axess Corporation and
the Company (5)
*4.4 l986 Incentive and Non-qualified Stock Option Plan (2)
4.12 Warrant to Purchase 132,617 shares Common Stock of Rheometric
Scientific, Inc. issued to RSI (NJ) QRS 12-13, Inc. (7)
4.13 Warrant to Purchase 331,543 shares of Common Stock of
Rheometric Scientific, Inc. issued to RSI (NJ) QRS 12-13, Inc. (7)
4.14 Warrant to Purchase 331,543 shares of Common Stock of
Rheometric Scientific, Inc. issued to NatWest Bank, N.A. (7)
*10.16 Employment Agreement between Alan R. Eschbach and the Company (3)
*10.17 Employment Agreement between Ronald F. Garritano and the
Company (3)
10.23 Loan and Security Agreement with Fleet Capital Corporation
dated February 23, 1996 (7)
10.24 Lease Agreement by and between RSI (NJ) QRS 12-13, Inc.,
and Rheometric Scientific, Inc. dated as of February 23, 1996 (7)
10.25 Revolving Credit Facility Note - Fleet Capital Corporation (7)
10.26 Subordination Agreement between Axess Corporation and Fleet
Capital Corporation
10.27 Subordination Agreement between Axess Corporation and RSI (NJ)
QRS 12-13, Inc.
10.28 Amended and Restated Subordinated Unsecured Working Capital Note
- Axess Corporation
10.29 Purchase Agreement NatWest Bank NA and Rheometric Scientific,
Inc.
22 Subsidiaries of the Registrant (6)
24 Consent of Independent Auditors
* Management contract or compensatory plan or arrangements
(1) Incorporated by reference to the exhibits to the Company's
Registration Statement on Form S-1, File No. 33-807 filed
on October 10, 1985.
(2) Incorporated by reference to the exhibits to the Company's
Proxy Statement relating to the l986 Annual Meeting of
Shareholders.
(3) Incorporated by reference to the exhibits to the Company's
Current Report on Form 8-K dated May 26, 1992.
(4) Incorporated by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
(5) Incorporated by reference to the exhibits to the Company's Proxy
Statement relating to the l994 Annual Meeting of Shareholders.
(6) Incorporated by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
(7) Incorporated by reference to the exhibits to the Company's
Current Report on Form 8-K dated February 23, 1996.
(b) No report on Form 8-K was filed during the quarter ended December
31, 1995.
(c) Exhibits to this Form 10-K are attached or incorporated by
reference as stated above.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL
REPORT ON FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED.
RHEOMETRIC SCIENTIFIC, INC.
By: /s/ R. E. Davis
Date: April 15, 1996 Robert E. Davis, Chairman,
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
/s/ R. E. Davis Chairman, President, and April 15, 1996
Robert E. Davis Chief Executive Officer
(principal executive officer)
/s/ J. C. Fuhrmeister Vice President, Finance
John C. Fuhrmeister and Administration; Chief
Financial Officer; and Assistant
Secretary (principal financial and
(principal accounting officer) April 15, 1996
/s/ Leonard Bogner Director April 15, 1996
Leonard Bogner
/s/ Richard Giacco Director April 15, 1996
Richard J. Giacco
/s/ R. M. Hendricks Director April 15, 1996
R. Michael Hendricks
/s/ Robert K. Prud'homme Director April 16, 1996
Robert K. Prud'homme
/s/ A. F. Giacco Director April 15, 1996
Alexander F. Giacco