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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
For the fiscal year ended December 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14617
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Rheometric Scientific, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 61-0708419
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Possumtown Road, Piscataway, N.J. 08854
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (732) 560-8550
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Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value per share American Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: None
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
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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. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 18, 2002: $20,640,693 (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, 2002 was 24,926,411.
DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE: Portions of the
registrant's definitive Proxy Statement to be filed on or before April 30, 2002
in connection with the registrant's Annual Meeting of Stockholders scheduled to
be held on May 16, 2002, are incorporated by reference into Part III of this
report.
The Exhibit Index appears on page: 37
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Page 1 of 40
Part I
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(Items either not applicable or not material have been excluded)
Item I. Business
Background
General
Rheometric Scientific, Inc. 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. With two
recent acquisitions, we have complemented and extended our physical properties
measurement capability beyond rheology, viscosity and thermal analysis into the
life sciences instrumentation areas of particle sizing and biomolecular
characterization. Our product offerings, most of which are proprietary or
patented, consist of rheological, viscosity, thermal analytical, spectrometers
and light scattering 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. All systems combine special sampling
technologies and multiple sensor technologies to provide various measurements
for research, development and product quality. We have developed a proprietary
software product that operates most of our instruments and develops
sophisticated reporting for our customers. We sell our products worldwide,
primarily to Fortune 500 and other leading international corporations, as well
as independent research laboratories and educational and governmental
institutions. Our corporate executive offices are located in Piscataway, New
Jersey. Our manufacturing operations are located in Piscataway and Lakewood, New
Jersey and High Wycombe, UK. Sales offices are located in England, France,
Germany, Italy and Japan.
History
In 1970, we were co-founded by Dr. Joseph M. Starita and Dr. Chris Macosko and
incorporated in Kentucky under the name Rheometrics, Inc. In 1981, we
reincorporated in New Jersey. In 1985, following completion of a $7 million
stock offering, we became a public company. Through a series of transactions
between 1991 and 1994, Axess Corporation acquired 76.6% of our common stock. We
changed our name to Rheometric Scientific, Inc. in November 1994.
In 1994, we acquired the Polymer Laboratories Thermal Sciences Business through
a series of transactions involving Axess Corporation. In 1995, we acquired from
Mettler-Toledo AG the exclusive, worldwide rights for two rheological test
instruments, the RM180 and RM260, that serve the coatings, paints, biological
fluids, cosmetics and lubricants industries. Effective May 10, 1999, we revised
our original agreement with Mettler dated December 21, 1994 whereby we agreed to
commence production of the RM180 and RM260 products within 30 days.
Andlinger Capital XXVI. On March 6, 2000, pursuant to a Securities Purchase
Agreement dated as of February 17, 2000, by and between our company, Axess
Corporation and Andlinger Capital XXVI LLC, as amended and certain related
agreements, Andlinger Capital XXVI acquired control of our company by purchasing
(i) 10,606,000 newly issued shares of our common stock and (ii) warrants to
purchase (x) an additional 2,000,000 shares of our common
Page 2 of 40
stock at an exercise price of $1.00 per share, exercisable at any time prior to
March 6, 2007 and (y) an additional 4,000,000 shares of our common stock at an
exercise price of $3.00 per share, exercisable at any time prior to March 6,
2003, for the aggregate consideration of $1,825,000. Upon consummation of this
transaction Andlinger Capital XXVI acquired the power to vote an aggregate of
16,606,000 shares of our common stock (of which 6,000,000 shares were
attributable to the warrants) representing at that time approximately 74% of our
issued and outstanding common stock (including as outstanding for the purposes
of determining such percentage the 6,000,000 shares then issuable upon exercise
of the warrants). Based on reports filed with the SEC, as of March 30, 2002,
Andlinger Capital XXVI was the beneficial owner of 16,606,000 shares of our
common stock, representing approximately 59.4% of our issued and outstanding
common stock (including as outstanding for purposes of determining such
percentage 5,000,000 shares issuable upon exercise of the remaining warrants
held by Andlinger Capital XXVI).
Credit Facility. On March 6, 2000, in connection with the transactions under the
Securities Purchase Agreement and with the support and assistance of Andlinger
Capital XXVI, we made a final payment under our then existing working capital
revolving credit facility and terminated such facility and obtained a new credit
facility with PNC Bank, National Association. The new Revolving Credit, Term
Loan and Security Agreement, which provides for a total facility of $14,500,000
is more fully described in Note 3 of Notes to Consolidated Financial Statements.
Our current liquidity position is more fully described under the heading
"Financing, Liquidity and Capital Resources" in the "Management's Discussion and
Analysis of Financial Condition and Results of Operation" section of this
document.
On March 6, 2000, in conjunction with the Andlinger Capital XXVI transaction,
the Mettler debt was settled for the amount of $1,212,296. This payment
satisfied the entire debt to Mettler including the amount related to inventory.
Protein Solutions Acquisition. Effective November 17, 2000, we acquired all of
the issued and outstanding capital stock of PSI Holding Corporation, a Virginia
corporation, and its wholly-owned subsidiaries, when PSI Holding Corporation
merged with and into PSI Acquisition Corp., our wholly-owned subsidiary,
pursuant to a Merger Agreement, dated as of November 20, 2000. PSI Holding
Corporation includes Protein Solutions, Inc., a Virginia corporation and its
affiliate Protein Solutions Ltd., a corporation organized under the laws of
England and Wales. PSI Holding Corporation was acquired for approximately
$525,000 cash and approximately 680,000 shares of our common stock. Upon
consummation of the merger, PSI Acquisition Corp. changed its name to Protein
Solutions Holdings, Inc. The acquisition was accounted for using the purchase
method of accounting. Accordingly, the net assets were allocated based upon
their fair values at the acquisition's effective date of November 17, 2000. Our
consolidated statements of operations do not include the revenues and expenses
of Protein Solutions prior to this date. The excess of the purchase price over
the fair value of the net assets acquired (goodwill) of approximately $2,452,000
was amortized on a 40-year straight-line basis through December 31, 2001.
Commencing January 1, 2002, goodwill will no longer be amortized, but will be
reviewed for impairment.
In conjunction with this acquisition, Andlinger Capital XXVI, exercised warrants
for the purchase of one million shares of our common stock at an exercise price
of $1.00 per share. These warrants were acquired by Andlinger Capital XXVI in
March 2000 in connection with its majority equity investment in our company. A
portion of the one million dollars received upon exercise was applied to the
cash portion of the purchase price of Protein Solutions. We used the remaining
portion of such proceeds for general working capital purposes.
Page 3 of 40
Aviv Acquisition. Effective May 31, 2001, through our wholly-owned subsidiary,
Tel Acquisition Corp., a Delaware corporation, we acquired all of the issued and
outstanding capital stock of Aviv Instruments, Inc., a New Jersey corporation
and Aviv Associates, Inc., a New Jersey corporation, pursuant to a Merger
Agreement, dated as of May 31, 2001, pursuant to which the Aviv companies merged
with and into Tel Acquisition Corp. In exchange for all of the issued and
outstanding capital stock of the Aviv companies, we issued to the stockholders
of the Aviv companies 805,882 shares of our common stock. Upon consummation of
the merger, Tel Acquisition Corp. changed its name to Aviv Instruments, Inc. In
addition, our company and Aviv Instruments made cash payments aggregating
approximately $1,221,000 to pay off existing indebtedness of the Aviv companies,
approximately $1,145,000 of which was owed to the stockholders of the Aviv
companies and their affiliates. The acquisition was accounted for using the
purchase method of accounting. Accordingly, the net assets were allocated based
upon their fair values at the acquisition's effective date of May 31, 2001. Our
consolidated statements of operations do not include the revenues and expenses
of Aviv prior to the acquisition date. The excess of the purchase price over the
fair value of the net assets acquired (goodwill) was approximately $3,020,000
and was amortized on a 40-year straight-line basis through December 31, 2001.
Commencing January 1, 2002, goodwill will no longer be amortized, but will be
reviewed for impairment.
The acquisitions of Protein Solutions and Aviv Instruments complement and extend
our physical properties measurement capability beyond rheology, viscosity and
thermal analysis into the life sciences instrumentation areas of particle sizing
and biomolecular characterization which address complementary market segments.
Together, Aviv and Protein Solutions comprise our Protein Solutions Group.
Restructuring of Operations. In the fourth quarter of 2001, we recorded a
restructuring provision totaling $1,496,000 for the restructuring of certain
Domestic and European operations and the write down on inventories related to
specific products we will no longer sell. Key initiatives of the restructuring
program include: (a) outsourcing the European service function, (b) centralizing
the European sales function at European headquarters, (c) centralizing shared
services including order processing, cash collections, and cash application at
European headquarters, and (d) streamlining certain domestic functions. The
charges consist of approximately $702,000 relating to the inventory write down,
and approximately $566,000 for the termination of 28 U.S. and European
employees. The $566,000 includes severance pay as per company policy, payroll
taxes, accrued vacation for those employees under contract and for the U.S.
employees the cost of medical benefits for the severance period. A provision of
$228,000 was made for the closing and consolidation of certain European offices.
This includes $96,000 related to lease termination costs and any impairment on
fixed assets in those locations, $67,000 for the elimination of certain European
legal entities, and $65,000 for the cost of lease terminations on automobiles
for the European service people. All charges for inventory and fixed assets have
been recorded net of any expected salvage value. The restructuring program is
expected to yield annualized savings of approximately $1,200,000 related to
reduced wages, facility related costs, and depreciation and will be reflected in
cost of sales, general and administrative expenses, selling expenses and
research and development expenses. The restructuring reserve of $794,000 is
classified as accrued restructuring in the Consolidated Balance Sheet while
$702,000 is included in inventory.
DESCRIPTION OF BUSINESS
Financial Information about Industry Segments
Our three reportable segments are: Domestic, Europe and Japan. The accounting
policies of the reportable segments are the same as those described in the
Summary of Significant Accounting
Page 4 of 40
Policies. We evaluate the performance of our operating segments based on revenue
performance and operating results. Summarized financial information concerning
our reportable segments is shown in Note 9 of Notes to the Consolidated
Financial Statements.
Narrative
Products. We design, manufacture, market, and service 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. With two recent acquisitions, we
have complemented and extended our physical properties measurement capability
beyond rheology, viscosity and thermal analysis into the life sciences
instrumentation areas of particle sizing and biomolecular characterization. Our
product offerings, most of which are proprietary or patented, consist of
rheological, viscosity, thermal analytical, spectrometers and light scattering
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. All systems combine special sampling technologies and
multiple sensor technologies to provide various measurements for research,
development and product quality. We have developed a proprietary software
product that operates most of our instruments and develops sophisticated
reporting for our customers. We sell our products worldwide, primarily to
Fortune 500 and other leading international corporations, as well as educational
and governmental institutions and independent research laboratories.
o Rheometers. Rheometry measures rheological character in terms of a
material's elasticity and viscosity. Understanding these rheological
properties helps users predict how a material will process as well as
perform in its end use. We have been the leading supplier of rheometers for
over 30 years, and we offer a full line of instruments to suit any need.
From research, to product development, to quality assurance, our instruments
can be found in diverse applications, from studying the texture and flow of
foods to measuring the stiffness and stability of high-strength composites.
Our rheometer product line includes the Advanced Rheometric Expansion System
(ARES), RDA III, RFS III, SR5, RME and our solids analyzer the RSA III.
o Thermal Analysis Instruments. Thermal analysis measures the effects of
thermal changes on materials. Three key methods are differential scanning
calorimetry (DSC), thermogravimetric analysis (TGA), and dynamic mechanical
thermal analysis (DMTA). We offer a range of thermal analyzers, including
the STA, which combines simultaneous DSC and TGA on a single sample. We also
offer a complete selection of accessories and consumables such as DSC pans,
and calibration standards.
o Viscometers. Viscosity is one of the most widely used material
characterization techniques. To meet both the needs of the analytical lab
and the process engineer, we offer two models of viscometers. Our popular
RM180 can be used as either a portable viscometer or bench-top unit, and
comes with a complete set of concentric cylinder geometries and a
rechargeable battery pack for making measurements outside of the lab. The
RM265 is a bench-top viscometer, and in addition to concentric cylinder
geometries has the added ability of making measurements in either parallel
plate or cone and plate geometries.
o Surface Chemistry Instrumentation. Surface science describes the study of
interfaces which may be liquid/gas, liquid/liquid, liquid/gas/solid or
liquid/liquid/solid and involves measurements such as interfacial tension,
contact angle and interfacial rheology. Interfacial tension plays an
important part in wetting and emulsification processes, contact angle
describes the wetting and adhesive characteristics of a liquid on a solid
and interfacial
Page 5 of 40
rheology measures the mechanical strength of foams and emulsions, a key
factor in the stability mechanism of these systems. Rheometric Scientific is
the exclusive world distributor for Camtel Ltd.'s range of surface chemistry
instrumentation, which includes a series of force balance tensiometers and
contact angle meters and the world's leading interfacial shear rheometer,
CIR-100.
o Process Control Rheometers (PCR). Controlling polymeric processes requires a
robust instrument with great flexibility, and the PCR product line was
designed specifically to meet this need. The PCR can be configured with
different size metering pumps, slit dies, and the capability to inspect the
melt with optical analyzers. The PCR utilizes a "return-to-stream" system in
which a sample of the melt is drawn continuously from the process line via a
capillary, through a valve block and a metering pump into a slit die. From
there another metering pump transports the melt back to the process line
through the valve block and an exit capillary, returning the sample to the
melt stream. This results in a system that permits measurement of the sample
without any waste or cleanup. PCRs are in use around the world helping
companies to produce higher quality polymers while saving money and reducing
scrap. Our PCR-620 and the new PCR-630 Series offers flexibility for
controlling polymeric processes.
o Software. We differentiate our instruments with our software which provides
our customers with advanced analysis packages. RSI Orchestrator, our
proprietary software package, runs our laboratory instruments. Plug-in
modules offer the ability to customize RSI Orchestrator and provide the
latest analysis tools. Process control software written specifically for the
PCR provides operators with a simple control panel providing all of the
critical information in an intuitive format.
Our Protein Solutions Group designs, manufactures, markets and services
instruments for biomolecular characterization, including:
o Dynamic Light Scattering (DLS). DLS systems are used to determine the size
of molecules. The instruments in which Protein Solutions specializes are
designed specifically for protein molecules, which place them at the very
small end of the size spectrum (1 nm up to ~ 1(mu)m).
o Circular Dichroism Spectrometers (CD). CDs determine secondary protein
structure and can predict how a protein will react under different
conditions.
o Automated Titrating Differential / Ratio Spectrofluorometers. These
instruments use florescence to determine protein behavior.
o Spectrophotometers. Spectrophotometers measure how light is absorbed by a
protein and can determine size and conformation of the protein.
Raw Material & Components. Our products consist of mechanical and electronic
assemblies. A number of raw materials, primarily stainless steel and aluminum,
are used to fabricate our mechanical assemblies, and electronic components are
used to build our electronic assemblies. We depend upon, and will continue to
depend upon, a number of outside suppliers for the components we use in our
analytical instrumentation. We also believe that the raw materials and component
parts that are used are available from alternate suppliers and do not believe we
are dependent upon any one supplier.
Sales, Marketing, Distribution, and Support. Our direct sales force consists of
field engineers and systems engineers the majority of whom hold advanced degrees
and who have in-depth knowledge of the customers' business and technology needs.
Some of our field engineers are account managers for our large accounts, and
enhance our understanding of the future needs of these customers. Our systems
engineers provide a combination of consulting, systems integration and
application and software engineering services, and are instrumental in all
stages of the sale, implementation and support of our complex systems and
Page 6 of 40
solutions. We have approximately 40 sales, service and support engineers located
throughout the world. To help support our sales engineers and our customers, we
have regional sales and customer support centers in Germany, Japan and the
United States. We believe that the global presence of our direct sales force is
an important competitive advantage. We also use value-added resellers to address
specific market segments.
Customers. Our customers fall generally into three major categories based on the
nature of their products and the processes by which their products are
developed:
o materials manufacturers;
o product manufacturers; and
o independent and nonprofit research laboratories and governmental and
educational institutions.
We do not have any customer that accounts for more than 10 percent of our sales.
International Operations. For years ending December 31, 2001, 2000, and 1999,
our net revenue originating outside the United States, as a percentage of our
total net revenue, was approximately 37%, 44% and 47% respectively, the majority
of which was from customers other than foreign governments.
Our international business is subject to risks customarily encountered in
foreign operations, including changes in a specific country's or region's
political or economic conditions, trade protection measures, import or export
licensing requirements, the overlap of different tax structures, unexpected
changes in regulatory requirements and natural disasters. We are also exposed to
foreign currency exchange rate risk inherent in our sales commitments,
anticipated sales and assets and liabilities denominated in currencies other
than the U. S. Dollar and may also become subject to interest rate risk inherent
in any debt, investment and finance receivable portfolios we incur.
We believe that our international diversification provides stability to our
worldwide operations and reduces the impact on us of adverse economic changes in
any single country.
Competition. The market for test and measurement instruments is highly
competitive, and we expect this competition to increase. We believe that the
principal factors of competition are:
o speed, accuracy and cost of instruments;
o breadth of product offerings;
o scalability and flexibility of products;
o ease of product use;
o ability to upgrade product platform;
o time to market of new technologies;
o adherence to industry standards;
Page 7 of 40
o ability to support emerging industry protocols; and
o ability to provide localized service and support on a worldwide basis.
We believe we compete favorably with respect to many of these factors and have
gained significant market share in many of our targeted markets as a result. We
believe our success has been driven by technology leadership, our ability to
generate customer loyalty and our track record at anticipating market trends.
We believe that our principal competitors are several domestic and foreign
manufacturers, some with greater financial and marketing resources than we. Our
competitors include among others: Bohlin Instruments, Mettler Toledo,
PerkinElmer Instruments, Shamitsu, TA Instruments and Thermo Haake. To compete
with these companies, we offer products of high performance, quality and
reliability, backed by service capabilities. We believe that technological
requirements and high initial capital expenditures represent significant
barriers to entry to this market. However, there can be no assurance that a
larger company with greater financial resources will not enter this market at a
later date, and that such entry would not have a material adverse impact on our
business and operations.
While we are 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 that technology superior to ours will not
be developed that would have a material adverse effect on our operations.
Patents & Trademarks. We currently have patents for the design and manufacture
of certain of our instruments and systems. Due to the rapidly changing
technology relative to our product lines, we do not believe that technological
patent protection is significant as a competitive factor. Our name and logo are
protected under federal trademark laws and we believe that there is significant
value associated with our name.
Product Research & Development. Our research and development activities
primarily focus on the development of new products and new applications and
enhancements for existing products. In our development and testing of new
products and applications, we consult with professionals at universities and in
the industry worldwide. We believe that our research and development activities
are necessary to maintain competitiveness and to better serve our customers.
Employees. At December 31, 2001, we had approximately 220 employees worldwide,
216 of whom work on a full-time basis, and 104 of whom are located at our
principal office at Piscataway, New Jersey. We consider our relations with our
employees to be good. None of our employees is covered by a collective
bargaining agreement.
Environmental Matters. Our research and development and manufacturing operations
involve the use of hazardous substances and are regulated under international,
federal, state and local laws governing health and safety and the environment.
We apply strict standards for protection of the environment and worker health
and safety to sites inside and outside the United States, even if not subject to
regulation imposed by foreign governments. We believe that our properties and
operations at our facilities comply in all material respects with applicable
environmental laws; however, the risk of environmental liabilities cannot be
completely eliminated and there can be no assurance that the application of
environmental and health and safety laws to our company may not require our
company to incur substantial expenditures.
Page 8 of 40
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 our instrument systems contain a
microcomputer system developed and manufactured by us, which incorporates
proprietary expertise in microprocessor applications, data acquisition and
analysis, control feedback, and systems development software, including assembly
language programming, as well as its own proprietary software and reporting
package "Orchestrator." Our 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. We have combined our engineering resources to develop
sophisticated sensors capable of measuring forces as small as 10 milligrams to
as large as 5,000 pounds.
Seasonal Operations & Backlog. Historically, our sales, (loss) earnings before
income taxes, and net (loss) earnings 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.
Financial Information about Foreign and Domestic Operations and Export Sales See
Note 9 of Notes to Consolidated Financial Statements.
Item 2. Properties
We lease a 100,000 square foot building on 19 acres of land in Piscataway, New
Jersey of which approximately 50,000 square feet is sublet to a third party. We
alo lease a 20,000 square foot building in Lakewood, New Jersey and a 5,000
square foot building in High Wycombe, UK. These facilities accommodate our
manufacturing, marketing, research and development, and general administrative
activities. We expect these facilities to accommodate our needs for the
foreseeable future.
We also lease space for use as sales and service centers in various locations in
the United States and overseas. We lease an aggregate of approximately 17,000
square feet of space in Munchen, Germany; Marne La Vallee, France; and Tokyo,
Japan.
Item 3. Legal Proceedings
There are no known material pending legal proceedings involving our company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of 2001.
Page 9 of 40
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Common Stock Market Prices and Dividends
Our common stock began trading on the American Stock Exchange on September 5,
2001 under the symbol "RHM." From February 1 to April 14, 1998, our common stock
was traded on the Nasdaq SmallCap Market under the symbol "RHEM." On April 14,
1998, due to the expiration of an exception from the minimum bid price of the
NASDAQ SmallCap Market, our common stock was moved to the OTC Bulletin Board.
From April 14, 1998 to September 4, 2001, our common stock was traded on the OTC
Bulletin Board under the symbol "RHEM." The table below presents the high and
low closing sales prices per share for each quarter for the years ended December
31, 2001and 2000.
12 Months Ended December 31,
----------------------------
2001 2000
Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
March 31 $6.44 $2.44 $12.88 $0.28
June 30 5.40 3.20 9.88 3.81
September 30 7.00 3.95 5.88 3.25
December 31 3.70 1.65 4.63 1.88
Since our initial public offering in December 1985, we have not paid any cash
dividends and we do not anticipate paying any cash dividends in the foreseeable
future. At March 18, 2002, there were approximately 163 shareholders of record
of our common stock. In addition, there were approximately 1,527 beneficial
holders of common stock held in street name.
Item 6. Selected Financial Data
(In thousands of dollars, except per share data)
12 Months Ended December 31,
-------------------------------------------------------
2001 2000 1999 1998 1997
Sales $ 31,313 $29,883 $ 28,363 $ 30,608 $ 37,539
Restructuring expense 1,496 -- -- (198) 940
Net earnings/(loss) (4,993) 91 (5,138) (1,144) (2,329)
Basic and diluted
earnings/(loss)
per
share (0.21) 0.00 (0.39) (0.09) (0.18)
Total assets 29,629 26,792 23,983 28,534 35,434
Long-term debt 5,919 6,395 12,731 10,901 11,055
The 2001 figures above include the following numbers for Aviv, which was
acquired May 31, 2001 (in thousands): Sales of $1,668; Net loss of $256; and
Total assets of $4,778.
Protein Solutions was acquired November 17, 2000. The 2000 figures above include
the following numbers related to Protein Solutions for the short period (in
thousands): Sales of $481; Net income of $15; and Total assets of $3,755. The
2001 figures above include the following
Page 10 of 40
Protein Solutions figures for the full year (in thousands): Sales of $4,062; Net
income of $316; and Total assets of $3,540.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under the heading "Forward Looking Statements" elsewhere in this
report and in our other filings with the SEC. The following discussion should be
read in conjunction with our consolidated financial statements and related notes
thereto included elsewhere in this report.
12 Months Ended December 31, 2001 vs. 12 Months Ended December 31, 2000
Revenues
In the year ended December 31, 2001, we achieved revenues of $31,313,000
compared to $29,883,000 for the same period in 2000. Domestic and Japanese
revenues increased by 16.0% and 6.9%, respectively, while European revenues
decreased by 23.7%. Included in revenues for 2000 is the acquisition (effective
November 17, 2000) of Protein Solutions, which accounted for $481,000 of
domestic revenues. Included in the 2001 domestic revenues number is a full year
of Protein Solutions revenue totaling $4,062,000 and revenue for Aviv (acquired
May 31, 2001) totaling $1,668,000. Revenues for 2001 were unfavorably affected
by $1,040,000 due to less favorable currency rates in effect compared to 2000.
Foreign revenues decreased to 37% of consolidated revenue, compared to 44% in
2000.
Gross Profit
Gross profit for the year ended December 31, 2001 was 41.9% of sales, compared
to 47.4% for 2000. The gross profit percentage decrease was the result of
unfavorable product mix and intensive pricing pressures in our Rheology and
Thermal Business. In addition our gross profit percentage was negatively
affected by lower margins relating to Protein Solutions and Aviv which were not
included in prior periods.
Operating Expenses
Operating expenses increased by $4,086,000 to $16,223,000 for the year ended
December 31, 2001, compared to 2000. This increase includes an increase of
expenses for PSI of $1,197,000 over last year and 7 months of expenses for Aviv
of $656,000. Also included is a restructuring charge of $1,496,000. (See Note 10
of Notes to Consolidated Financial Statements.) Operating expenses have been
favorably affected by $309,000 due to currency rates in effect compared to 2000.
Excluding the currency effect, the restructuring charge, and the expenses
related to the two acquisitions, operating expenses have increased $1,046,000
over the same period last year.
General and Administrative. General and administrative expenses increased to
$3,644,000 for the year ended December 31, 2001 compared to $1,999,000 in the
same period in 2000. Included in the increase of $1,645,000 is approximately
$1,038,000 related to Protein Solutions and Aviv expenses not included in the
prior period. The remaining increase is primarily due to increases in bank fees
of $180,000, legal fees of $109,000, audit fees of $45,000, salaries of $87,000
and cost of $50,000 related to our listing on the American Stock Exchange.
Additionally the general and administrative expenses in 2000 were lower by
$214,000 related to a credit received from our previous health insurance
provider.
Sales and Marketing. Sales and marketing expenses increased to $8,719,000 for
the year ended December 31, 2001 compared to $8,010,000 in the same period in
2000. Included in the
Page 11 of 40
increase of $709,000 is approximately $555,000 related to Protein Solutions
expenses not included in the prior period. The remaining increase of
approximately $154,000 is primarily due to an increase in sales and marketing
expenses for Europe and Domestic of $292,000 and $157,000 respectively offset by
a decrease in Japan of $295,000. During 2001 additional resources were committed
to Europe to support anticipated growth that did not materialize. As a result,
Europe was restructured in December 2001. (See Note 10 of Notes to Consolidated
Financial Statements). The increase on Domestic is primarily related to changes
in the management structure of the sales organization as well as the recruiting
of new field sales representatives. Japan's decrease in expenses was the result
of the currency rates in effect in 2001 compared to 2000 since expenses in local
currency were relatively flat.
Engineering. Engineering expenses increased to $2,218,000 for the year ended
December 31, 2001 compared to $1,958,000 in the same period in 2000. This
increase of $260,000 is the result of the inclusion of Aviv expenses in 2001.
For 2001, we expensed approximately $350,000 related to the development of new
products that will contribute to 2002 revenue.
Interest Expense
Interest expense increased $70,000 for the period ended December 31, 2001
compared to 2000. This increase is due to $47,000 of affiliate interest due to
Axess as well as carrying larger loan balances offset by lower interest rates.
Foreign Currency
The foreign currency adjustment for year ended December 31, 2001 was a loss of
$518,000 compared to a loss of $620,000 for the same period last year. The loss
was primarily due to transaction losses of $534,000 resulting from the French
Franc, Japanese Yen, and German Mark against the U.S. Dollar. These were offset
by a gain of $16,000 resulting from the British Pound against the U.S. Dollar.
Net Loss/Income
Net loss for the period ended December 31, 2001 was $4,993,000, compared to net
income of $91,000 for the same period in 2000. While sales increased $1,430,000
in 2001, cost of sales increased by $2,464,000. This decline in gross margin was
the result of unfavorable product mix and intensive pricing pressures in our
Rheology and Thermal Business. In addition, our margins were negatively affected
by lower margins relating to Protein Solutions and Aviv which were not included
in prior periods. Also contributing to the higher loss was an increase in
operating expenses of $4,086,000, an increase in interest expense of $70,000, a
decrease in tax expense of $4,000, and a decrease in the currency loss of
$102,000 as compared to the same period last year.
Backlog
Backlog as of December 31, 2001 and 2000 was $2,400,000 and $1,500,000,
respectively. We expect that all of the items in our backlog at December 31,
2001 will be delivered in the current calendar year.
Inherent in our business is the potential for inventory obsolescence for older
products as we develop new products. Our development efforts generally enhance
existing products or relate to new markets for existing technology. We do
however continuously monitor our exposure relating to excess and obsolete
inventory and establish reserves for any exposure.
Page 12 of 40
12 Months Ended December 31, 2000 vs. 12 Months Ended December 31, 1999
Revenues
In the year ended December 31, 2000, we achieved revenues of $29,883,000
compared to $28,363,000 for the same period in 1999. Domestic and European
revenues increased by 11.9% and 9.8%, respectively, while Japanese revenues
decreased by 13.4%. Included in the 2000 revenues is the acquisition (effective
November 17, 2000) of Protein Solutions, which accounted for $481,000 of
domestic revenues. Revenues for 2000 were unfavorably affected by foreign
exchange of $1,076,000 compared to 1999. Foreign revenues decreased to 44% of
consolidated revenues, compared to 47% in 1999.
Gross Profit
Gross profit for the year ended December 31, 2000 was 47.4% of revenue, compared
to 38.5% for 1999. Gross profit in 1999 includes a charge for obsolete and slow
moving product lines of $1,840,000. The charge in 1999 relates primarily to our
decision to scrap certain inventories based on the continued decline in the
utilization of certain inventories related to our thermal business. Without this
charge, gross profit in 1999 would have been 45.0%. The balance of the increase
in gross profit versus 1999 (adjusted) relates to sales volume increases and
product mix changes.
Operating Expenses
Operating expenses decreased by $1,445,000 to $12,137,000 for the year ended
December 31, 2000, compared to 1999. Our continued effort to maximize the
efficiency of each department contributed to a reduction in operating expenses
in all areas. Exchange difference in 2000 versus 1999 on foreign expenses
accounted for approximately $272,000 of the decrease.
Interest Expense
Interest expense decreased $800,000 for the period ended December 31, 2000
compared to 1999. This decrease is due to the elimination of affiliated interest
expense, $1,020,000 in 1999, offset by increased bank interest of $220,000
versus 1999, due to carrying larger outstanding balances.
Backlog
Backlog as of December 31, 2000 and 1999 was $1,500,000 and $2,000,000,
respectively.
Net Income/Loss
Net Income for the period ended December 31, 2000 was $91,000 compared to a loss
of $5,138,000 in 1999. Included in the 1999 loss was a $1,840,000 charge to
obsolescence, $285,000 of bank charges, and $1,020,000 of affiliate interest
expense.
Financing, Liquidity and Capital Resources
The Revolving Credit, Term Loan and Security Agreement, dated as of March 6,
2000, between our company and PNC Bank, National Association provides for a
total credit facility of $14,500,000, of which $13,000,000 is a working capital
revolving credit facility with an initial three-year term expiring on March 6,
2003. The amount of available credit is determined by the level of certain
eligible receivables and inventories. The line of credit bears interest at the
prime rate, 4.75% at December 31, 2001. Additionally, the Revolving Credit, Term
Loan and Security
Page 13 of 40
Agreement contains various covenants including a financial covenant that
generally requires us to maintain a fixed charge coverage ratio (as defined in
the agreement) of .7 to 1 for the period ending June 30, 2000 and 1.1 to 1
thereafter. As of December 31, 2001, we were in violation of this covenant. On
March 29, 2002, PNC Bank issued a waiver with respect to December 31, 2001 and
amended the financial covenant for 2002 based on our 2002 budget. The PNC Bank
waiver includes a condition requiring a cash infusion of at least $1,000,000 in
the form of equity within 120 days after March 29, 2002, the date of the waiver.
While we have commenced discussions with a number of potential investors, we
have not received any commitments for additional equity financing and there can
be no assurance that we will be successful in securing such financing on
acceptable terms or at all. The Revolving Credit, Term Loan and Security
Agreement also includes a term loan in the amount of $1,500,000 to be repaid in
4 equal quarterly installments of $75,000, 23 monthly installments of $25,000
and a final payment of $625,000 due at maturity on March 6, 2003. The term loan
bears interest at the prime rate plus 1.5 percent which is due monthly (6.25% at
December 31, 2001). The outstanding balance of the term loan obligation was
$975,000 at December 31, 2001. The Revolving Credit, Term Loan and Security
Agreement is subject to customary event of default and acceleration provisions
and is collateralized by substantially all of our assets
At December 31, 2001 total borrowings under our working capital credit facility
was $8,919,000, with remaining availability of approximately $595,000.
On June 1, 2001, in connection with the Aviv acquisition, we amended the
Revolving Credit, Term Loan and Security Agreement with PNC Bank to provide for
a second term loan in the amount of $300,000. This second term loan is repayable
in 48 monthly installments of $6,250 and bears interest at the prime rate plus
1.5% (6.25% at December 31, 2001).
The current negative economic environment in our markets have adversely impacted
our liquidity through, among other things, reduced sales and inventory buildup.
We have revised our sales forecast and business plan in light of our view of
current economic conditions and the anticipated results of our restructuring
plan, and believe that cash generated from operations and funds available under
our Revolving Credit, Term Loan and Security Agreement should be sufficient to
meet our working capital needs through December 31, 2002. There can be no
assurance, however, that a continued slowdown in the economy or other factors
will not result in our company's failure to meet our revised forecast, or
otherwise result in liquidity concerns. Additionally, our current Revolving
Credit, Term Loan and Security Agreement expires March 6, 2003, and, as noted
above, includes a condition requiring a cash infusion of at least $1,000,000 in
the form of equity within 120 days after March 29, 2002. In the event that the
agreement is not extended, or in the event we are not able to obtain the
additional equity financing required by the PNC Bank waiver, and that condition
is not waived by PNC Bank, there is no assurance that we will be able to secure
a new credit facility on comparable terms, or at all. An inability to extend or
replace our existing credit facility on favorable terms could have a material
adverse effect on our financial condition and operations.
Cash Flows from Operations
Net cash used in operating activities in the fiscal year ended December 31, 2001
was $2,229,000. This compares to net cash provided by operating activities of
$1,682,000 and $828,000 in 2000 and 1999 respectively. This is a decrease of
$3,911,000 over the same period last year. The negative cash flow in 2001 was
comprised primarily of an increase in inventories of $2,103,000 and a decrease
in accounts payable and accrued expenses, and other non current liabilities of
$434,000 and $40,000 respectively. The loss for the year was $4,993,000. These
outflows were offset by a decrease in accounts receivable, prepaid expenses and
other current assets, and other assets of $1,414,000, $348,000, and $94,000,
respectively as well as an increase in accrued restructuring of $1,496,000. This
was accompanied by non-cash depreciation and amortization charges of $980,000, a
provision for inventory reserves of $452,000, a loss on retirement of assets of
$27,000, amortization of options issued as compensation of $10,000 and an
unrealized currency loss of $520,000.
Cash Flows from Investing
We made capital expenditures of $186,000 during the twelve months ended December
31, 2001 as compared to $201,000 and $115,000 in 2000 and 1999 respectively.
Aviv acquisition costs in
Page 14 of 40
excess of cash acquired totaled $177,000 while additional acquisition costs for
PSI totaled $50,000.
Cash Flows from Financing
Net cash provided by financing activities for the twelve months ended December
31, 2001 was $2,626,000. This compares to net cash used in financing activities
of $575,000 and $1,034,000 in 2000 and 1999 respectively. During the period, our
borrowings against accounts receivables and long term debt increased by $631,000
and $300,000 respectively. Our borrowings under line of credit agreements
increased $2,290,000 and there were proceeds from issuance of common stock of
$96,000. Offsetting these inflows was the repayment of long term debt and lease
obligations totaling $641,000 and repayment of affiliate debt of $50,000.
Contractual Obligations and Commercial Commitments
Our Company and our subsidiaries are parties to various leases relating to
office facilities, transportation vehicles, and certain other equipment,
principally data processing. We are also obligated to make payments related to
our long term borrowing. (See Notes 3, 4 and 8 of Notes to Consolidated
Financial Statements.)
The minimum commitments under noncancellable leases consisted of the following
at December 31, 2001:
Direct
Operating Financing Capital
Year Leases Lease Leases
---- ------ --------- --------
2002 $531,000 $ 898,000 127,000
2003 182,000 901,000 53,000
2004 75,000 901,000 53,000
2005 22,000 901,000 53,000
2006 4,000 901,000 19,000
Thereafter 0 3,752,000 0
-------- ---------- --------
Total minimum lease payments $814,000 8,254,000 305,000
Less amounts representing interest ======== 3,683,000 50,000
---------- --------
Total lease obligation 4,571,000 255,000
Less current maturities 270,000 106,000
------- -------
Long-term lease obligation $4,301,000 $149,000
========== ========
The cash flows of principal repayments of long term debt obligations (including
Axess debt) consisted of the following at December 31, 2001:
Long-term
Year Debt
---- ----
2002 $525,000
2003 950,000
2004 275,000
2005 244,000
Page 15 of 40
2006 --
Thereafter --
----------
Total principal payments long-term debt 1,994,000
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), for fiscal years beginning after
June 15, 2000. The provisions of SFAS 133 require all derivatives to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging relationships
must be designated, reassessed and documented pursuant to the provisions of SFAS
133. In June 2000 the FASB issued SFAS 138, which amends certain provisions of
SFAS 133. We adopted these standards in the first quarter of 2001.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), which
must be adopted no later than fourth quarter of 2000. As our accounting policies
are consistent with the provisions of SAB 101, there was no impact on the
financial statements.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" (FAS 141), and
SFAS no. 142, "Goodwill and Other Intangible Assets." (FAS 142) Under these new
Standards the FASB eliminated accounting for any mergers and acquisitions as
poolings of interests, eliminated amortization of goodwill and indefinite life
intangible assets, and established new impairment measurement procedures for
goodwill. FAS 141 is effective for all business combinations initiated after
June 30, 2001 and for all business combinations accounted for by the purchase
method for which the date of acquisition is July 1, 2001 or later. We are
currently determining the impact of adopting "FAS 142" in 2002.
In July 2001, the FASB issued SFAS no. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. We are currently assessing the impact of this new standard.
In July 2001, the FASB issued SFAS no. 144, "Impairment or Disposal of
Long-Lived Assets." which is effective for fiscal years beginning after December
15, 2001. The provisions of this statement provide a single accounting model for
impairment of long-lived assets. We are currently assessing the impact of this
new standard.
Critical Accounting Policies and Estimates
Principles of Consolidation and Operations. Our consolidated financial
statements include the accounts of Rheometric Scientific, Inc. and our
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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.
Page 16 of 40
Revenue Recognition. Product sales are recorded upon shipment. Service revenue
is recorded as services are performed. Maintenance agreement revenue is recorded
on a straight-line basis over the terms of the respective agreements.
Forward-Looking Statements
This report includes "forward-looking statements" within the meaning of Section
27A of the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended. Statements in this report regarding future events or
conditions, including statements regarding industry prospects and our expected
financial position, business and financing plans, are forward-looking
statements. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations are disclosed in this
report and include the risks associated with the expansion of our business, the
possible inability of our company to integrate the Protein Solutions and Aviv
businesses we have acquired, dependence on the capital spending policies of our
customers, as well as factors that affect the materials test systems industry
generally. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as foreign currency exchange and interest rates. We do not
enter into derivatives, or other financial instruments for trading or
speculative purposes. We are exposed to market risk related to changes in
foreign exchange and interest rates.
Page 17 of 40
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
Rheometric Scientific, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets
of Rheometric Scientific, Inc. and Subsidiaries as of December 31, 2001 and
2000, and the consolidated statements of operations, shareholders' equity and
comprehensive income (loss), and cash flows for each of the years in the
three-year period ended December 31, 2001. 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 auditing standards
generally accepted in the United States of America. 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Rheometric Scientific, Inc. and Subsidiaries as of December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
/s/ MAHONEY COHEN & COMPANY, CPA, P.C.
New York, New York
March 19, 2002
Page 18 of 40
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES December 31,
CONSOLIDATED BALANCE SHEETS
Assets (in thousands) 2001 2000
---- ----
Current Assets
Cash $ 696 $ 786
Receivables - less allowance for doubtful accounts of $178 and
$188 at December 31, 2001 and 2000 8,668 9,858
Inventories, net
Finished goods 2,558 1,664
Work-in-process 1,154 1,045
Assembled components, materials and parts 4,455 4,138
----- -----
Total Inventory 8,167 6,847
Prepaid expenses and other current assets 558 882
--- ---
Total current assets 18,089 18,373
------ ------
Property, plant and equipment 16,843 16,062
Less accumulated depreciation and amortization 11,319 10,815
------ ------
Property, plant and equipment, net 5,524 5,247
----- -----
Goodwill 5,358 2,349
Other assets 658 823
--- ---
Total Assets $29,629 $26,792
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
bank borrowings $8,919 $6,553
Current maturities of long-term debt 751 524
Current maturities affiliate debt 150 --
Accounts payable 4,229 3,400
Borrowings against accounts receivable 923 385
Accrued Restructuring 794 --
Accrued liabilities 4,026 3,543
----- -----
Total current liabilities 19,792 14,405
------ ------
Long-term debt 5,319 5,395
Long-term debt - affiliate 600 1,000
Other long-term liabilities 122 151
--- ---
Total liabilities 25,833 20,951
------ ------
Commitments and Contingencies (Note 8)
Convertible Redeemable Preferred Stock -- 1,000
-- -----
Shareholders' Equity
Preferred Stock, par value of $.01,
Authorized 1,000 shares, issued and outstanding 1 share
At December 31, 2000. -- --
Common stock, par value of $.01,
Authorized 49,000 shares; issued 27,715
at December 31, 2001 and 25,716 at December 31,2000 277 257
Additional paid-in capital 37,337 33,248
Treasury Stock, at cost, 2,800 shares at December 31, 2001 and 2000 -- --
Accumulated deficit (33,731) (28,738)
Accumulated other comprehensive income (87) 74
---- --
Total shareholders' equity 3,796 4,841
----- -----
Page 19 of 40
Total Liabilities and Shareholders' Equity $29,629 $26,792
======= =======
See Notes to Consolidated Financial Statements.
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
2001 2000 1999
---- ---- ----
Sales $31,313 $29,883 $ 28,363
Cost of sales 18,185 15,721 17,448
------ ------ ------
Gross profit 13,128 14,162 10,915
------ ------ ------
Marketing and selling expenses 8,719 8,010 8,896
Engineering expenses 2,218 1,958 2,127
General and administrative expenses 3,644 1,999 2,379
Restructuring expense 1,496 -- --
Goodwill amortization 105 7 --
Intangible amortization 41 163 180
-- --- ---
16,223 12,137 13,582
------ ------ ------
Operating income/(loss) (3,095) 2,025 (2,667)
Interest expense (1,328) (1,305) (1,085)
Interest expense - affiliate (47) -- (1,020)
Foreign currency loss (518) (620) (123)
--------- --------- ---------
Income/(Loss) before income taxes (4,988) 100 (4,895)
Income taxes 5 9 243
---------- -------- ---------
Net income/(loss) $ (4,993) $ 91 $ (5,138)
========== ===== =========
Net income/(loss) per share
Basic $(0.21) $0.00 $(0.39)
======= ===== =======
Diluted $(0.21) $0.00 $(0.39)
======= ===== =======
Average number of shares outstanding
Basic 23,963 18,937 13,162
====== ====== ======
Diluted 23,963 22,959 13,162
====== ====== ======
See Notes to Consolidated Financial Statements.
Page 20 of 40
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Year Ended December 31,
2001 2000 1999
---- ---- ----
Cash Flows from Operating Activities:
Net (loss)/income $(4,993) $ 91 $(5,138)
Adjustments to reconcile net income/(loss) to net cash (used
in)/provided by operating activities:
Depreciation and amortization of plant and equipment 834 829 710
Amortization of goodwill 105
7 --
Provision for slow moving inventory 452 -- 1,840
Amortization of intangibles 41 163 180
Loss on retirement of property, plant and equipment 27 -- 4
Amortization of options issued as compensation 10 -- --
Restructuring reserve (includes inventory reserve of $702) 1,496 -- --
Warrants issued for services -- -- 167
Unrealized currency loss/(gain) 520 458 (145)
Changes in assets and liabilities (net of effect of PSI
Acquisition in 2000 and Aviv in 2001):
Receivables 1,414 571 (488)
Inventories (2,103) (261) 1,898
Prepaid expenses and other current assets 348 (146) 253
Accounts payable and accrued liabilities (434) 248 542
Payable to affiliate -- -- 1,020
Other assets 94 (326) 60
Other non-current liabilities (40)
48 1
Other non-current liability - Mettler -- -- (76)
------- ------- -------
Net cash (used in)/ provided by operating activities (2,229) 1,682 828
Cash Flows from Investing Activities:
Aviv acquisition costs net of cash acquired ($327) (177) -- --
PSI acquisition costs (50) (385) --
Purchases of property, plant and equipment (186) (201) (115)
------- ------- -------
Net cash used in investing activities (413) (586) (115)
Cash Flows from Financing Activities:
Net borrowing from/(repayments of) line of credit 2,290 1,775 (893)
(Repayments)/borrowings against accounts receivable 631 (594) 103
Proceeds from long-term debt 300 1,500 --
Repayment of long-term debt/lease obligation (641) (419) (244)
Repayment of long-term debt affiliate (50) (3,500) --
Proceeds from issuance of common stock, net of
Issuance costs 96
875 --
Proceeds from warrants exercised -- 1,000 --
Repayment of Mettler liability -- (1,212) --
------- ------- -------
Net cash provided by/(used in) financing activities 2,626 (575) (1,034)
Effect of Exchange Rate Changes on Cash (74) -- 98
------- ------- -------
Net (decrease)/increase in cash (90) 521 (223)
Cash at beginning of year 786 265 488
------- ------- -------
Cash at end of year $ 696 $ 786 $ 265
======= ======= =======
See Notes to Consolidated Financial Statements.
Page 21 of 40
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
AND COMPREHENSIVE INCOME/(LOSS)
(in thousands) Accumulated
Additional Other Total
Common Stock Paid-In Treasury Accumulated Comprehensive Shareholders'
Shares Amount Capital Stock Deficit Income/(Loss) Equity
------ ------ ------- ----- ------- ------------- ------
Balance at December 31, 1998 13,162 $ 132 $ 25,404 -- $ (23,691) $ (80) $ 1,765
Net loss -- -- -- -- (5,138) -- (5,138)
Currency translation adjustment -- -- -- -- -- 219 219
Comprehensive loss -- -- -- -- -- -- (4,919)
Warrants issued for services -- -- 167 -- -- -- 167
-------- -------- --------- --- ---------- ----------- -----------
Balance at December 31, 1999 13,162 $ 132 $ 25,571 -- $ (28,829) $ 139 $ (2,987)
Net income -- -- -- -- 91 -- 91
Currency translation adjustment -- -- -- -- -- (65) (65)
Comprehensive income -- -- -- -- -- -- 26
Axess indebtedness contributed
To capital -- -- 3,727 -- -- -- 3,727
Common stock issued
to
Andlinger Capital XXVI
Net of offering costs 10,606 106 769 -- -- -- 875
Exercise of stock warrants 1,268 13 987 -- -- -- 1,000
Treasury stock (2,800) -- -- -- -- -- --
Common stock issued pursuant
To Protein Solutions Acquisition 680 6 2,194 -- -- -- 2,200
-------- -------- --------- --- ---------- ----------- ----------
Balance at December 31, 2000 22,916 $ 257 $ 33,248 -- $ (28,738) $ 74 $ 4,841
Net loss -- -- -- -- (4,993) --
(4,993)
Currency translation adjustment -- -- -- -- -- (161) (161)
Comprehensive loss -- -- -- -- -- -- (5,154)
Common stock issued pursuant
To Aviv Acquisition 806 8 2,732 -- -- -- 2,740
Conversion of preferred stock 1,000 10 990 -- -- -- 1,000
Axess conversion debt to equity 66 1 262 -- -- -- 263
Options exercised 127 1 95 -- -- -- 96
Fair Value of options granted -- -- 10 -- -- -- 10
-------- -------- --------- --- ---------- ------------ ----------
Balance at December 31, 2001 24,915 $ 277 $ 37,337 -- $ (33,731) $ (87) $ 3,796
======== ========= ========= --- ========== ============ ==========
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.
On March 6, 2000, pursuant to a Securities Purchase Agreement, dated as of
February 17, 2000, by and between the Company, Axess Corporation ("Axess") and
Andlinger Capital XXVI LLC ("Andlinger Capital XXVI"), as amended (the "Purchase
Agreement") and certain related agreements, to provide Andlinger Capital XXVI
with control of the Company, Andlinger Capital XXVI purchased (i) 10,606,000
shares of newly issued common stock of the Company (the "Investor Shares") and
(ii) warrants to purchase (x) an additional 2,000,000 shares of common stock of
the Company at an exercise price of $1.00 per share, exercisable at any time
prior to March 6, 2007 (the "Investor A Warrants") and (y) an additional
4,000,000 shares of common stock of the Company at an exercise price of $3.00
per share, exercisable at any time prior to March 6, 2003 (the "Investor B
Warrants," and collectively with the Investor A Warrants, the
Page 22 of 40
"Investor Warrants"), for the aggregate consideration of $1,825,000 (the
"Purchase Price"). Upon consummation of this transaction Andlinger Capital XXVI
acquired the power to vote an aggregate of 16,606,000 shares of the Company's
common stock (of which 6,000,000 shares are attributable to the Investor
Warrants) representing approximately 74% of the issued and outstanding common
stock of the Company (including as outstanding for the purposes of determining
such percentage the 6,000,000 shares issuable upon exercise of the Investor
Warrants). Prior to the purchase by Andlinger Capital XXVI of the Investor
Shares and the Investor Warrants, Axess agreed to contribute 2,800,000 shares of
common stock to the Company.
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.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
Revenue Recognition
Product sales are recorded upon shipment. Service revenue is recorded as
services are performed. Maintenance agreement revenue is recorded on a
straight-line basis over the terms of the respective agreements. Service revenue
for the years ended December 31, 2001, 2000 and 1999 was $3,591,000, $4,012,000,
and $3,473,000, respectively. Deferred revenue relating to maintenance
agreements amounted to $999,000 and $812,000 at December 31, 2001 and 2000,
respectively, and is included in accrued liabilities in the accompanying
Consolidated Balance Sheet.
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. The Company's inventory increased 2,462,000 in 2001 vs.
December 31, 2000. $865,000 of this increase relates to the acquisition of Aviv,
which was not in the 2000 number. The remaining increase of 1,597,000 relates to
rheogical inventory . The inventory increased late in the second quarter 2001 as
we prepared for the expected second half upswing in sales. With the downturn in
the economy, our inventory levels remained higher than expected throughout the
second half of the year. We expect inventory to decrease in 2002 as we implement
our aggressive asset management program. As of December 31, 2001 and 2000, the
Company had a reserve of approximately $3,090,000 and $1,941,000, respectively,
for excess and obsolete inventory. $702,000 of the increase in obsolescence is
part of the restructuring provision booked in the fourth quarter of 2001. (See
Note 10 of Notes to Consolidated Financial Statements). We continuously monitor
our exposure relating to excess and obsolete inventory and establish reserves
for any exposure.
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, whichever is 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.
Page 23 of 40
The estimated useful lives for each class of fixed assets are as follows:
Office equipment 5-8 years
Assets under direct Transportation equipment 3-5 years
financing lease 15 years Leasehold improvements 5 years
Machinery and 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 or minus 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 $314,000 as of December 31, 2001 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 forty years. All other
intangibles are amortized using the straight-line method over the respective
useful lives. Goodwill amortization for the years ended December 31, 2001 and
2000 totaled $105,000 and $7,000 respectively. Commencing January 1, 2002 as a
result of adopting SFAS 142, goodwill will no longer be amortized, but will be
reviewed for impairment. (See Accounting for the Impairment of Long-Lived
Assets.) If SFAS 142 had been in effect for the twelve months ended December 31,
2001 and 2000 net loss would have decreased by $105,000 and net income would
have increased by $7,000, respectively. The per share impact would have been
less than $.01 per share in each year.
Deferred Financing Costs
Deferred financing costs are amortized over the life of the loan. The
unamortized balance of deferred financing costs at December 31, 2001 and 2000 is
$188,000 and $282,000 respectively. Deferred financing costs are included in
other assets in the Consolidated Balance Sheet.
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.
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as foreign currency exchange rates.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Page 24 of 40
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 used in operating activities for the year ended December 31, 2001 and
net cash provided by operating activities for the years ended December 31, 2000
and 1999 reflects cash payments for interest of $1,365,000, $1,301,000 and
$2,071,000, respectively, and income taxes of $7,000, $194,000 and $15,700,
respectively. The bad debt expense for the years ended December 31, 2001, 2000
and 1999 was $46,700, $21,500 and $376,900, respectively.
In 2000, noncash transactions from investing activities resulted in the issuance
of approximately 680,000 shares of common stock valued at approximately
$2,200,000 in connection with the acquisition of Protein Solutions.
Additionally, noncash transactions from financing activities resulted in an
increase in paid in capital of $3,730,000 from the Axess debt forgiveness.
In 2001, noncash transactions from investing activities resulted in the issuance
of approximately 806,000 shares of common stock valued at approximately
$2,740,000 in connection with the acquisition of Aviv. Additionally fixed assets
increased approximately $234,000 for assets under capital leases. Noncash
transactions from financing activities resulted in an increase in common stock
and paid in capital of $1,000,000 due to the conversion of preferred stock to
common stock and $263,000 related to the conversion of Axess debt and accrued
interest to common stock.
Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments as of December
31, 2001 and 2000 approximates the carrying amounts.
Concentration of Credit Risk
The Company's product line is sold worldwide, principally to large corporations,
research, and educational and governmental institutions. 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
Financial Accounting Standards Board Statement of Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" 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.
Earnings (Loss) Per Share
The Company calculates net income per share as required by Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 replaces the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effect of stock options,
warrants, and convertible securities.
The following table sets forth the computation of diluted earnings per share for
the year ended December 31, 2000:
(dollars in thousands except per share data)
- --------------------------------------------
Net income available to common
Shareholders $ 91
-----
Denominator for basic earnings per share:
Weighted average:
Page 25 of 40
Common shares outstanding 18,937
Effect of dilutive securities:
Preferred Stock 833
Stock options 381
Warrants 2,808
-----
Denominator for diluted earnings per share 22,959
------
Diluted earnings per share $0.00
-----
For the years ended December 31, 2001 and 1999 common stock equivalents were
anti-dilutive.
On May 26, 2000 the Company changed its authorized number of shares of common
stock from 20,000,000 to 49,000,000 and adjusted the par values from no par with
a stated value of $.001 to par value of $.01. The Company's financial statements
give effect to the change in the par value for all years presented.
Other Matters
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), for fiscal years beginning
after June 15, 2000. The provisions of SFAS 133 require all derivatives to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging relationships
must be designated, reassessed and documented pursuant to the provisions of SFAS
133. In June 2000 the FASB issued SFAS 138, which amends certain provisions of
SFAS 133. The Company adopted these standards in the first quarter of 2001.
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB 101"), which must be adopted no later than fourth quarter of 2000. As the
Company's accounting policies are consistent with the provisions of SAB 101,
there was no impact on the financial statements.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" ("FAS 141"), and
SFAS no. 142, "Goodwill and Other Intangible Assets."("FAS 142") Under these new
Standards the FASB eliminated accounting for any mergers and acquisitions as
poolings of interests, eliminated amortization of goodwill and indefinite life
intangible assets, and established new impairment measurement procedures for
goodwill. FAS 141 is effective for all business combinations initiated after
June 30, 2001 and for all business combinations accounted for by the purchase
method for which the date of acquisition is July 1, 2001 or later. The Company
is currently determining the impact of adopting "FAS 142" in 2002.
In July 2001, the FASB issued SFAS no. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. The Company is currently assessing the impact of this new
standard.
In July 2001, the FASB issued SFAS no. 144, "Impairment or Disposal of
Long-Lived Assets." which is effective for fiscal years beginning after December
15, 2001. The provisions of this statement provide a single accounting model for
impairment of long-lived assets. The Company is currently assessing the impact
of this new standard.
2. Property, Plant and Equipment
Property, plant and equipment as of December 31 consisted of the following:
Page 26 of 40
2001 2000
---- ----
Assets under direct financing lease $ 6,765,000 $ 6,607,000
Machinery and equipment 4,450,000 3,781,000
Office equipment 5,453,000 5,445,000
Transportation equipment 72,000 94,000
Leasehold improvements 103,000 135,000
------------- -------------
$ 16,843,000 $ 16,062,000
============= =============
On February 23, 1996, the Company entered into a sale/leaseback arrangement
whereby the Company sold its 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. The transaction was treated as a financing. A lease obligation
was recorded and the asset was written down to the amount of the proceeds. The
asset is being amortized over the life of the lease on a straight-line basis.
Accumulated amortization on the asset under direct financing was $2,523,000 and
$2,066,000 as of December 31, 2001 and 2000, respectively.
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.
3. Long-Term Debt and Short-Term Borrowings
Long-term debt as of December 31 consisted of the following:
December 31, December 31,
------------ ------------
2001 2000
---- ----
Obligation under sale/leaseback payable
through February 2011, with interest
imputed at a rate of 13.9% for 2001 and
2000 $ 4,571,000 $ 4,644,000
Term loan payable through March 2003.
Loan bears interest at prime plus 1.5%
(6.25% at December 31, 2001 and 11.0%
at December 31, 2000) 975,000 1,275,000
Obligations under capital leases payable
2002 through 2006 with interest imputed
at rates from 8.5% to 13.3% 255,000 --
Term loan payable through June 2005.
Loan bears interest at prime plus 1.5%
(6.25% at December 31, 2001) 269,000 --
---------- ----------
Less current maturities 6,070,000 5,919,000
751,000 524,000
------- -------
$5,319,000 $5,395,000
========== ==========
Page 27 of 40
Following are the annual maturities of long-term debt (in thousands): 2002 $751;
2003 $1,094; 2004 $468; 2005 $495; 2006 $480; and $2,782 thereafter.
On March 6, 2000 in conjunction with the Andlinger Capital XXVI transaction, the
Mettler debt was settled for the amount of $1,212,000. This payment satisfied
the entire debt to Mettler.
Short-Term Borrowings
On March 6, 2000, in connection with the transactions under the Purchase
Agreement and with the support and assistance of Andlinger Capital XXVI, the
Company made a final payment under a prior loan agreement and terminated such
agreement and obtained a credit facility with PNC Bank, National Association
("PNC Bank"). The new Revolving Credit, Term Loan and Security Agreement (the
"Loan Agreement") provides for a total facility of $14,500,000, of which
$13,000,000 is a working capital revolving credit facility with an initial
three-year term expiring on March 6, 2003. The amount of available credit is
determined by the level of certain eligible receivables and inventories. The
line of credit bears interest at the prime rate, 4.75% at December 31, 2001.
Additionally, the Loan Agreement contains various covenants including a
financial covenant that generally requires the Company to maintain a fixed
charge coverage ratio (as defined in the Loan Agreement) of .7 to 1 for the
three-month period ending June 30, 2000 and 1.1 to 1 thereafter. As of December
31, 2001 the Company is in violation of this covenant. On March 29, 2002, PNC
bank issued a waiver with respect to December 31, 2001 and amended the financial
covenant for 2002 based on the Company's 2002 budget. The PNC Bank waiver
includes a condition requiring a cash infusion of at least $1,000,000 in the
form of equity within 120 days after March 29, 2002, the date of the waiver. The
Loan Agreement also includes a term loan with PNC Bank in the amount of
$1,500,000 to be repaid in 4 equal quarterly installments of $75,000, 23 monthly
installments of $25,000 and a final payment of $625,000 due at maturity on March
6, 2003. The term loan bears interest at prime plus 1.5 percent which is due
monthly (6.25% at December 31, 2001). The outstanding balance of the term loan
obligation is $975,000 at December 31, 2001. The Loan Agreement is subject to
customary event of default and acceleration provisions and is collateralized by
substantially all of the Company's assets.
On June 1, 2001, in connection with the Aviv acquisition, the Company and PNC
Bank amended the Revolving Credit, Term Loan and Security Agreement to provide
for a second term loan in the amount of $300,000. This second term loan is
repayable in 48 monthly installments of $6,250 and bears interest at the prime
rate plus 1.5% (6.25% at December 31, 2001).
The Company at December 31, 2001 had total borrowings under its working capital
credit facility of $8,919,000 with remaining availability of approximately
$595,000. The weighted-average interest rate on short-term debt outstanding was
6.7% and 9.5% as of December 31, 2001 and 2000, respectively.
The Company's foreign subsidiaries sell certain accounts receivable balances
with recourse, to the Company's financial institutions. At December 31, 2001 and
2000, amounts outstanding are $923,000 and $385,000, respectively. During the
years ended December 31 2001, and 2000, approximately $2,662,000 and $2,233,000,
respectively, of trade receivables were sold to banks with recourse.
4. Long-Term Debt - Affiliate
Long-term debt - affiliate as of December 31 consisted of the following:
2001 2000
---- ----
Subordinated promissory note due
February 28, 2006 with interest at 6% 750,000 $1,000,000
Page 28 of 40
Following are the annual maturities of long-term affiliate debt (in thousands):
2002 $150; 2003 $200; 2004 $200; and 2005 $200.
On March 6, 2000 in conjunction with the Andlinger transaction, Axess cancelled
its existing debt of $8,206,000 and the accrued interest thereon in exchange for
(x) the payment by the Company to Axess of $3,500,000 in cash; (y) the issuance
to Axess of a subordinated promissory note in the principal amount of $1,000,000
and (z) the issuance to Axess, of a warrant (the "Preferred Stock Warrant") to
purchase 1,000 shares of the Company's non-voting convertible redeemable
preferred stock (convertible into 1,000,000 shares of common stock) to be
issued, subject to stockholder approval, pursuant to an amendment to the
certificate of incorporation of the Company.
The subordinated promissory note calls for a mandatory prepayment in the event
of the sale of one of the Company's product lines. In the absence of this sale
repayment is to begin March 1, 2001 in the amount of $50,000 per quarter plus
accrued interest on the unpaid balance at a rate of 6% per annum. The entire
unpaid principal and interest balance is due and payable on February 28, 2006.
On September 28, 2001 Axess converted $200,000 of the principal balance along
with $63,000 of interest relating to the period March 1, 2001 to March 1, 2002
into 65,762 shares of the Company's common stock. As a result, the Company and
Axess executed an amended and restated subordinated promissory note for the
remaining amount of $750,000 payable upon the sale of one of the Company's
product lines. In the absence of this sale, repayment is to begin on June 30,
2002 in the amount of $50,000 per quarter plus accrued interest on the unpaid
balance at a rate of 6% per annum. Interest begins to accrue as of April 1,
2002. The entire unpaid principal and interest balance is due and payable on
February 28, 2006.
On July 2, 2001, State Farm acquired from Axess 6,422,933 shares of the
Company's common stock along with 800 shares of the Company's convertible
redeemable preferred stock. The total shares acquired by State Farm (including
as outstanding the 800,000 shares issuable upon conversion of the 800 shares of
convertible redeemable preferred stock, which have subsequently been converted)
represents approximately 29% of the outstanding common stock of the Company at
December 31, 2001. See Note 11 to Notes to Consolidated Financial Statements.
5. Income Taxes
The components of deferred tax assets and liabilities as of December 31
consisted of the following:
2001 2000
---- ----
Inventory reserves, inventory
capitalization and
intercompany profit in inventory $ 843,000 $ 500,000
Other 453,000 160,000
Restructuring expense 387,000 --
Net operating loss carryforwards 9,873,000 7,385,000
Research and development and other
tax
credit carryforwards 1,002,000 1,002,000
--------- ---------
Gross deferred tax assets 12,558,000 9,047,000
---------- --------
Gross deferred tax liabilities (16,000) (229,000)
--------- --------
Net deferred tax asset before
valuation
allowance 12,542,000 8,818,000
Valuation allowance on deferred tax (12,542,000) (8,818,000)
------------- ------------
assets
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.
Page 29 of 40
At December 31, 2001, the Company had federal net operating loss carryforwards
for income tax purposes of approximately $13,673,000 that expire in 2005 through
2021, state net operating losses of $7,960,000 that expire 2001 through 2011,
and foreign loss carryforwards of approximately $10,511,000, a portion of which
may be carried forward indefinitely. The Company also has other tax credit
carryforwards aggregating approximately $1,002,000 at December 31, 2001, which
expire in 2002 through 2011.
The change in ownership resulting from the August 21, 1992 sale of common stock
and a subordinated convertible debenture has resulted in a limitation on future
annual utilization of domestic tax credits and net operating losses, pursuant to
Internal Revenue Code Sections 382 and 383.
On March 6, 2000 pursuant to a Securities Purchase Agreement between Rheometric
Scientific, Axess Corporation and Andlinger Capital XXVI, Andlinger Capital
acquired the power to vote an aggregate of 16,606,000 shares of the Company's
common stock representing approximately 74% of the issued and outstanding common
stock of the Company. This includes 6,000,000 shares issuable upon exercise of
the Investor Warrants. This will result in a further 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:
2001 2000 1999
---- ---- ----
Domestic $(3,068,000) $55,000 $(2,438,000)
Foreign (1,920,000) 45,000 (2,457,000)
---------- ------ ----------
$(4,988,000) $100,000 $(4,895,000)
=========== ======== ===========
The components of income tax expense for the years ended December 31 consisted
of the following:
2001 2000 1999
---- ---- ----
Federal:
Current -- $ -- $(35,000)
Deferred -- -- --
--------- -------- ---------
-- -- (35,000)
--------- -------- ---------
Foreign:
Current 4,000 5,000 276,000
Deferred -- -- --
--------- -------- ---------
4,000 5,000 276,000
--------- -------- ---------
State:
Current 1,000 4,000 2,000
Deferred -- -- --
--------- -------- ---------
1,000 4,000 2,000
--------- -------- ---------
$ 5,000 $ 9,000 $ 243,000
======== ======== =========
The Company's effective tax rate varies from the statutory federal tax rate as
of December 31 as a result of the following:
2001 2000 1999
---- ---- ----
Computed statutory income
tax (benefit) $(1,696,000) $34,000 $ (1,664,000)
State income taxes, net of
Federal
tax benefit 1,000 4,000 2,000
Foreign taxes in excess of/(less
than)
statutory rate 649,000 (10,000) 274,000
Utilization of net operating -- (19,000) --
losses
Benefit of loss carryforwards not
Page 30 of 40
recognized 631,000 -- 1,713,000
Benefit of temporary differences
not recognized 821,000
Permanent differences (388,000) -- (57,000)
Other (13,000) (25,000)
----------- -------- ----------
$ 5,000 $ 9,000 $ 243,000
=========== ======== ==========
6. Capital Stock and Stock Option and Incentive Plans
The Company has two stock option plans under which stock options may be granted,
the 1996 Stock Option Plan (the "1996 Plan") and the 2000 Stock Option Plan (the
"2000 Plan"). The 1996 Plan, as amended, authorizes the issuance of up to
500,000 shares of the Company's common stock as incentive stock options pursuant
to Section 422 of the Internal Revenue Code. The 2000 Plan authorizes the
issuance of up to 1,000,000 shares of the Company's common stock. Stock options
are generally granted at prices which equate to the market value of the stock on
the date of option grant. Options generally become exercisable in ratable
installments over a four-year period, with unexercised options expiring no later
than 10 years from the date of grant.
Stock option activity for the years 2001 and 2000 is as follows:
2001 2000
---- ----
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
Outstanding at January 1, 724,100 $2.28 414,400 $0.84
Granted 217,000 4.44 333,700 4.19
Exercised 127,500 .74 -- --
Canceled 79,500 3.71 24,000 3.83
Outstanding at December 31, 734,100 2.97 724,100 2.28
Exercisable at December 31, 298,250 1.68 328,650 0.93
Available for grant at December 31, 638,400 775,900
Weighted average fair value of options
granted during the period $1.82 $3.39
The following table summarizes the information about stock options outstanding
at December 31, 2001:
Page 31 of 40
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Outstanding at Exercise
Exercise Prices December 31, Life (Years) Price December 31, Price
--------------- ------------ ------------ ----- ------------- -----
$0.28 - $6.25 734,100 7.99 $2.97 298,250 $1.68
The Company has adopted the "disclosure only" provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock Based Compensation
("SFAS 123") and will continue to apply APB No. 25 to account for stock options.
Had the Company accounted for stock options under the fair value method of SFAS
123, net loss and net loss per share would have increased by $160,000 and $.01
in 2001. Net income would have decreased by approximately $39,000 in 2000 and
net loss would have increased by $29,000 in 1999. The per share impact was less
than $0.01 in 2000 and 1999.
The fair value of the options granted were estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
2001 2000
---- ----
Risk free interest rate 4.31% 5.75%
Expected volatility 31.42% 36.10%
Expected life (years) 4 4
Dividend yield 0% 0%
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 the 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 the Lender is not refinanced prior to
February 23, 1997. On February 20, 1997, the Landlord refinanced the Mortgage
Loan and the Company's interest in the Mortgage Loan was repaid. On that same
day, the conditional warrant to the Landlord to purchase 331,543 shares of
Common Stock of the Company became exercisable and the conditional warrant to
the Lender terminated. On July 22, 1998 in consideration for waiving certain
covenant violations, the exercise price for the outstanding warrants was reduced
to $1.00 per share. Additionally, on December 29, 1999 in consideration of
waiving certain covenant violations, the exercise price for the outstanding
warrants was reduced to $0.37 per share.
In conjunction with the acquisition of Protein Solutions, Andlinger Capital XXVI
exercised Investor A Warrants for the purchase of one million shares of common
stock of the Company at an exercise price of $1.00 per share.
7. 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 $95,000,
$110,000 and $124,000 for the years ended December 31, 2001,
Page 32 of 40
2000 and 1999, 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, 2001, 2000 and 1999. The
Company does not sponsor any post-retirement health, life insurance or related
benefit plans, nor any significant post-employment benefit plans.
8. 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. Rent expense was $620,000, $480,000 and $527,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.
The Company and its subsidiaries are parties to various capital leases relating
to office furniture and fixtures and machinery and equipment. See Note 3 -
Long-Term Debt.
On February 23, 1996, the Company entered into a sale/leaseback arrangement that
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 facility lease is
treated as debt for financial reporting purposes. See Note 3 - Long-Term Debt.
The lease is subject to an annual CPI adjustment that is capped at 3% per year.
On March 1, 2001 the basic rent payment was adjusted to $884,288 and on March 1,
2002, the basic rent payment was again adjusted to $900,717.
The minimum commitments under noncancellable leases consisted of the following
at December 31, 2001:
Direct
Operating Financing Capital
Year Leases Lease Leases
---- ------ ----- ------
2002 $ 531,000 $ 898,000 127,000
2003 182,000 901,000 53,000
2004 75,000 901,000 53,000
2005 22,000 901,000 53,000
2006 4,000 901,000 19,000
Thereafter 0 3,752,000 0
---------- ---------- ----------
Total minimum lease payments $ 814,000 8,254,000 305,000
Less amounts representing interest ==========
3,683,000 50,000
---------- ----------
Total lease obligation 4,571,000 255,000
Less current maturities 270,000 106,000
---------- ----------
Long-term lease obligation $4,301,000 $ 149,000
========== ==========
On August 27, 1998, the Company consummated the assignment of the lease of its
Epsom facility in the United Kingdom to a third party and moved its sales and
service personnel to offices located in Leatherhead. In the event of
non-performance by the third party, the Company is liable. Should they not
perform, the Company's additional cash outflow would be $189,000 per year in
years 2002, 2003, 2004, 2005 and 2006 and $1,415,000 thereafter.
Page 33 of 40
The Company has employment agreements with key management executives. The
agreements provide for severance upon termination of from eight months to twelve
months base pay. The minimum obligation related to these agreements approximates
$591,000.
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. Accrued royalties were $21,000 and $27,000 at the end of 2001 and 2000,
respectively.
As of December 31, 2001 the Company is contingently liable on open standby
letters of credit totaling $178,000.
In the ordinary conduct of its business, the Company may be party to litigation.
At December 31, 2001, 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.
9. Operating Segments/Foreign Operations and Geographic Information
The Company's three reportable segments are: Domestic, Europe, and the Japan.
The accounting policies of the reportable segments are the same as those
described in the Summary of Significant Accounting Policies. The Company
evaluates the performance of its operating segments based on revenue performance
and operating income.
Summarized financial information concerning the Company's reportable segments is
shown below:
(In thousands) Domestic Europe Japan Consolidated
-------------- -------- -------- -------- --------
Trade Revenues
2001 $ 19,616 $ 5,416 $ 6,281 $ 31,313
2000 16,906 7,100 5,877 29,883
1999 15,114 6,465 6,784 28,363
Intercompany Revenues
2001 5,941 1,352 0 --
2000 6,972 1,242 0 --
1999 5,950 1,113 0 --
Operating Income (loss)
2001 (1,815) (1,770) 490 (3,095)
2000 2,296 (681) 410 2,025
1999 (1,119) (1,737) 189 (2,667)
Total Assets
2001 22,194 3,455 3,980 29,629
2000 17,737 4,419 4,636 26,792
1999 15,347 3,949 4,687 23,983
Page 34 of 40
Depreciation and Amortization
(including intangibles)
2001 859 82 39 980
2000 844 129 26 999
1999 765 101 24 890
Aviv was acquired effective May 31, 2001, and is included in the domestic
segment. The 2001 figures above include the following Aviv numbers related to
the short period (in thousands): Sales of $1,668; Operating loss of $250; Total
assets of $4,778; and Depreciation of $65.
Protein Solutions was acquired November 17, 2000 and is included in the domestic
segment. The 2000 figures above include the following numbers related to Protein
Solutions for the short period (in thousands): Sales of $481; Operating income
of $21; Total assets of $3,755; and Depreciation of $3. The 2001 figures above
include the following Protein Solutions amounts for the full year (in
thousands): Sales of $4,062; Operating income of $345; Total assets of $3,540;
and Depreciation of $57.
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 $2,611,000, $2,996,000 and $728,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.
10. Restructuring of Operations
In the fourth quarter of 2001, a restructuring provision totaling $1,496,000 was
recorded for the restructuring of certain Domestic and European operations and
the write down on inventories related to specific products the Company will no
longer sell. Key initiatives of the restructuring program include: a)
outsourcing the European service function, b) centralizing the European sales
function at European headquarters, c) centralizing shared services including
order processing, cash collections, and cash application at European
headquarters, and d) streamlining certain domestic functions. The charges
consist of approximately $702,000 relating to the inventory write down, and
approximately $566,000 for the termination of 28 U.S. and European employees.
The $566,000 includes severance pay as per company policy, payroll taxes,
accrued vacation for those employees under contract and for the U.S. employees
the cost of medical benefits for the severance period. A provision of $228,000
was made for the closing and consolidation of certain European offices. This
includes $96,000 related to lease termination costs and any impairment on fixed
assets in those locations, $67,000 for the elimination of certain European legal
entities, and $65,000 for the cost of lease terminations on automobiles for the
European service people. All charges for inventory and fixed assets have been
recorded net of any expected salvage value. The restructuring program is
expected to yield annualized savings of approximately $1,200,000 related to
reduced wages, facility related costs, and depreciation and will be reflected in
cost of sales, general and administrative expenses, selling expenses and
research and development expenses. $794,000 of the restructuring reserve is
classified as accrued restructuring in the Consolidated Balance Sheet while
$702,000 in included in inventory.
11. Convertible Redeemable Preferred Stock
On March 6, 2000, in connection with Andlinger Capital XXVI investment in the
Company, the Company issued to Axess 1,000 shares of convertible redeemable
preferred stock with a $1,000 per share liquidation preference, redeemable over
a five year period. Each such preferred share is subject to mandatory redemption
at $1,000 per share, or convertible at the holder's option into 1,000 shares of
the Company's common stock.
Page 35 of 40
On May 2, 2001, Axess converted 200 shares of the preferred stock into 200,000
shares of common stock of the Company. Subsequently on July 2, 2001, Axess
transferred the remaining 800 shares of preferred stock to State Farm Mutual
Automobile Insurance Company ("State Farm").
On July 10, 2001, State Farm converted the 800 shares of preferred stock into
800,000 shares of common stock of the Company.
12. Protein Solutions Acquisition
Effective November 17, 2000, the Company acquired all of the issued and
outstanding capital stock of PSI Holding Corporation, a Virginia corporation
("PSI"), and its wholly-owned subsidiaries, Protein Solutions, Inc., a Virginia
corporation and its affiliate Protein Solutions Ltd., a corporation organized
under the laws of England and Wales, when PSI merged with and into PSI
Acquisition Corp., a wholly-owned subsidiary of the Company ("Acquisition Sub"),
pursuant to a Merger Agreement (the "Merger Agreement"), dated as of November
20, 2000. PSI was acquired for approximately $525,000 cash and approximately
680,000 shares of Rheometric common stock. Upon consummation of the merger,
Acquisition Sub changed its name to Protein Solutions Holdings, Inc. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the net assets were allocated based upon their fair values at the
acquisition's effective date of November 17, 2000. The Company's consolidated
statements of operations do not include the revenues and expenses of PSI prior
to this date. The excess of the purchase price over the fair value of the net
assets acquired (goodwill) was approximately $2,452,000 and was amortized on a
40 year straight-line basis through December 31, 2001. Commencing January 1,
2002, goodwill will no longer be amortized, but will be reviewed for impairment.
In conjunction with this transaction, Andlinger Capital XXVI exercised Investor
A Warrants for the purchase of one million shares of common stock of the Company
at an exercise price of $1.00 per share. These warrants were acquired by
Andlinger Capital XXVI in March of 2000 in connection with its majority equity
investment in the Company. A portion of the one million dollars received by the
Company upon such exercise was applied to the cash portion of the purchase price
of PSI.
13. Aviv Acquisition
Effective May 31, 2001, through the Company's wholly-owned subsidiary, Tel
Acquisition Corp., a Delaware corporation, the Company acquired all of the
issued and outstanding capital stock of Aviv Instruments, Inc., a New Jersey
corporation and Aviv Associates, Inc., a New Jersey corporation, pursuant to a
Merger Agreement, dated as of May 31, 2001, pursuant to which the Aviv companies
merged with and into Tel Acquisition Corp. In exchange for all of the issued and
outstanding capital stock of the Aviv companies, the Company issued to the
stockholders of the Aviv companies 805,882 shares of our common stock. Upon
consummation of the merger, Tel Acquisition Corp. changed its name to Aviv
Instruments, Inc. In addition, the Company and Aviv Instruments made cash
payments aggregating approximately $1,221,000 to pay off existing indebtedness
of the Aviv companies, approximately $1,145,000 of which was owed to the
stockholders of the Aviv companies and their affiliates. The acquisition was
accounted for using the purchase method of accounting. Accordingly, the net
assets were allocated based upon their fair values at the acquisition's
effective date of May 31, 2001. The Company's consolidated statements of
operations do not include the revenues and expenses of Aviv prior to the
acquisition date. The excess of the purchase price over the fair value of the
net assets acquired (goodwill) was approximately $3,020,000 and was amortized on
a 40-year straight-line basis through December 31, 2001. Commencing January 1,
2002, goodwill will no longer be amortized, but will be reviewed for impairment.
Page 36 of 40
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding this item is incorporated by reference to the Company's
definitive Proxy Statement relating to the Company's 2002 Annual Meeting of
Stockholders, to be filed pursuant to Regulation 14A on or prior to April 30,
2002, and is made a part hereof.
Item 11. Executive Compensation
Information regarding this item is incorporated by reference to the Company's
definitive Proxy Statement relating to the Company's 2002 Annual Meeting of
Stockholders, to be filed pursuant to Regulation 14A on or prior to April 30,
2002, and is made a part hereof.
Item 12. Security Ownership of Management and Others
Information regarding this item is incorporated by reference to the Company's
definitive Proxy Statement relating to the Company's 2002 Annual Meeting of
Stockholders, to be filed pursuant to Regulation 14A on or prior to April 30,
2002, and is made a part hereof.
Item 13. Certain Relationships and Related Transactions
Information regarding this item is incorporated by reference to the Company's
definitive Proxy Statement relating to the Company's 2002 Annual Meeting of
Stockholders, to be filed pursuant to Regulation 14A on or prior to April 19,
2002, and is made a part hereof.
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 18 through 36
Independent auditor's report on consolidated financial statements
is on page 18
(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).
2.1 Securities Purchase Agreement, dated as of February 17, 2000, by and
between Rheometric Scientific, Inc., Andlinger Capital XXVI LLC and
Axess Corporation, incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed on March 21, 2000.
2.2 Merger Agreement, dated as of November 20, 2000, among Sheridan D.
Snyder, Robert P. Collins, Jr., PSI Holding Corporation, Rheometric
Scientific, Inc., and PSI Acquisition Corp., incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
filed on November 29, 2000.
Page 37 of 40
2.3 Merger Agreement, dated as of May 31, 2001, among the individuals
listed on Schedule A thereto as Company Shareholders, Aviv
Instruments, Inc., Aviv Associates, Inc., Rheometric Scientific,
Inc. and Tel Acquisition Corp., incorporated by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K filed on June 4,
2001.
3.1 Certificate of Incorporation of Rheometric Scientific, Inc.,
incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 2000.
3.2 Bylaws of Rheometric Scientific, Inc., as amended, incorporated by
reference to Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 2000.
4.1 Specimen Certificate representing Common Stock of Rheometric
Scientific, Inc., incorporated by reference to the exhibits to the
Company's Registration Statement on Form S-1, File No. 33-807 filed
on October 10, 1985.
4.2 Warrant to Purchase 132,617 shares Common Stock of Rheometric
Scientific, Inc. issued to RSI (NJ) QRS 12-13, Inc., incorporated by
reference to Exhibit 1 to the Company's Current Report on Form 8-K
filed on March 11, 1996.
4.3 Warrant to Purchase 331,543 shares of Common Stock of Rheometric
Scientific, Inc. issued to RSI (NJ) QRS 12-13, Inc., incorporated by
reference to Exhibit 2 to the Company's Current Report on Form 8-K
filed on March 11, 1996.
10.1 Rheometric Scientific, Inc. 1996 Stock Option Plan, incorporated by
reference to Exhibit 4.3 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1996.
10.2 Rheometric Scientific, Inc. 2000 Stock Option Plan, incorporated by
reference to Exhibit 10.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 2000.
10.3 Revolving Credit, Term Loan and Security Agreement, dated as of
March 6, 2000, by and among PNC Bank, National Association, as agent
and a lender, and Rheometric Scientific, Inc. and certain
subsidiaries thereof, as borrowers, incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.
10.4 First Amendment to the Revolving Credit, Term Loan and Security
Agreement, dated as of August 31, 2000, incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.
10.5 Second Amendment to the Revolving Credit, Term Loan and Security
Agreement, dated as of March 16, 2001, incorporated by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.
10.6 Third Amendment of the Revolving Credit, Term Loan and Security
Agreement, dated as of May 31, 2001, incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
June 4, 2001.
10.7 Lease Agreement by and between RSI (NJ) QRS 12-13, Inc., and
Rheometric Scientific, Inc. dated as of February 23, 1996,
incorporated by reference to Exhibit 5 to the Company's Current
Report on Form 8-K filed on March 11, 1996.
10.8 Subordination Agreement between Axess Corporation and RSI (NJ) QRS
12-13, Inc., incorporated by reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K dated filed on April 16, 1996.
10.9 First Amendment to Lease Agreement dated June 10, 1996 between RSI
(NJ) QRS 12-13, Inc. and Rheometric Scientific, Inc. incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on Form
10-K filed on May 19, 1997.
10.10 Second Amendment to Lease Agreement dated February 20, 1997 between
RSI (NJ) QRS 12-13, Inc. and Rheometric Scientific, Inc.
incorporated by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K filed on May 19, 1997.
Page 38 of 40
10.11 Amendment Letter dated May 6, 1997 by RSI (NJ) QRS-12-13, Inc.,
amending paragraphs 7 and 8 of Exhibit D to the Lease Agreement
dated as of February 23, 1996, incorporated by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K filed on May 19,
1997.
10.12 Landlord Agreement and Amendment of Lease, dated as of March 6,
2000, by among RSI (NJ) QRS 12-13, Inc., Rheometric Scientific, Inc.
and Axess Corporation, incorporated by reference to Exhibit 10.12 to
the Company's Registration Statement on Form S-3/A filed on November
9, 2002.
10.13 Registration Rights Agreement, dated as of March 6, 2000, as amended
and restated as of September 28, 2001, by and among Rheometric
Scientific Inc., Andlinger Capital XXVI, Axess Corporation, State
Farm Mutual Automobile Insurance Company, Trustee Under the
Revocable Trust of R. Michael Hendricks, and Robert E. Davis,
incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement on Form S-3/A filed on November 9, 2002.
10.14 Stockholders' Agreement, dated as of March 6, 2000, by and between
Rheometric Scientific Inc., Andlinger Capital XXVI and Axess
Corporation, incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed on March 21, 2000.
10.15 Voting Agreement, dated as of February 17, 2000, by and between
Rheometric Scientific Inc., Andlinger Capital XXVI and Axess
Corporation, incorporated by reference to Exhibit 10.3 to the
Company's Current Report on Form 8-K filed on March 21, 2000.
10.16 Employment Agreement, dated as of August 27, 2001, by and between
Rheometric Scientific, Inc. and Paul Mangano, incorporated by
reference to Exhibit 10.16 to the Company's Registration Statement
on Form S-3/A filed on November 9, 2002.
10.17 Amended and Restated Subordinated Promissory Note, dated as of
September 28, 2001, issued by Rheometric Scientific, Inc. to Axess
Corporation, incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-3/A filed on November 9,
2002.
21.1 Subsidiaries of Rheometric Scientific, Inc.
23.1 Consent of Mahoney Cohen & Company, CPA, P.C.
Page 39 of 40
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.
Date: March 30, 2002 By: /s/ Robert M. Castello
----------------------- ------------------------------
Robert M. Castello, Chairman
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/ Robert M. Castello Chairman and Chief March 30, 2002
- --------------------------- Executive Officer
Robert M. Castello (principal executive officer)
/s/ Paul Mangano President, and Chief March 30, 2002
- --------------------------- Operating Officer
Paul Mangano
/s/ Joseph Musanti Vice President, Finance March 30, 2002
- --------------------------- and Materials; Chief
Joseph Musanti Financial Officer; and
Assistant Secretary (principal
financial and principal
accounting officer)
/s/ Mark F. Callaghan Director March 30, 2002
- ---------------------------
Mark F. Callaghan
/s/ David R. Smith Director March 30, 2002
- ---------------------------
David R. Smith
/s/ Merrick G. Andlinger Director March 30, 2002
- ---------------------------
Merrick G. Andlinger
/s/ Robert K. Prud'homme Director March 30, 2002
- ---------------------------
Robert K. Prud'homme
/s/ Paul Woitach Director March 30, 2002
- ---------------------------
Paul Woitach
Page 40 of 40