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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number: 0-14617
Proterion Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 61-0708419
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
One Possumtown Road, Piscataway, NJ 08854-2103
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(732) 987-8200
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at November 10, 2003
- -------------------------------------- --------------------------------
Common Stock, $.01 par value per share 26,032,835
Index to Form 10-Q
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2003 and December 31, 2002 ............. 3
Condensed Consolidated Statements of Operations
for the three and nine months ended September 30,
2003 and 2002 ........................................ 4
Condensed Consolidated Statement of Shareholders'
Equity (Deficiency) for the nine months ended
September 30, 2003 ................................... 5
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 2003 and 2002 .... 6
Condensed Consolidated Statements of Comprehensive
Income for the nine months ended September 30, 2003
and 2002 ............................................. 7
Notes to Condensed Consolidated Financial
Statements ........................................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........ 14
Item 3. Quantitative and Qualitative Disclosures About Market
Risk ................................................. 21
Item 4. Controls and Procedures .............................. 21
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities ...................... 22
Item 6. Exhibits and Reports on Form 8-K ..................... 22
(a) Exhibits
(b) Reports on Form 8-K
Signatures .................................................... 23
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROTERION CORPORATION (FORMERLY
RHEOMETRIC SCIENTIFIC, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, 2003 December 31, 2002
------------------ ------------------
(unaudited)
-----------
ASSETS
Current Assets
Cash $ 46 $ 710
Restricted cash 61 --
Receivables - less allowance for doubtful accounts of $203
at September 30, 2003 and $13 at December 31, 2002 857 677
Inventories, net
Finished goods 188 100
Work-in-process 44 307
Assembled components, materials and parts 443 540
-------- --------
Total inventory 675 947
Due from TA Waters 850 --
Deferred tax asset 215 3,400
Prepaid expenses and other current assets 110 597
Assets held for sale -- 8,899
-------- --------
Total current assets 2,814 15,230
-------- --------
Property, plant and equipment 536 658
Less accumulated depreciation and amortization 288 280
-------- --------
Property, plant and equipment, net 248 378
-------- --------
Assets held for sale and disposal -- 4,338
Goodwill 5,665 5,609
Patents 137 121
Deferred tax assets (net of valuation allowance of $145) 295 --
Other assets 80 494
-------- --------
Total assets $ 9,239 $ 26,170
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Short-term bank borrowings $ 218 $ 8,700
Obligations under lease termination agreement 460 --
Current maturities of long-term debt -- 3,631
Affiliate debt 500 500
Accounts payable 1,369 2,294
Accrued restructuring -- 40
Accrued liabilities 1,553 1,900
Note payable 190 --
Liabilities to be transferred -- 6,466
-------- --------
Total current liabilities 4,290 23,531
-------- --------
Long-term debt -- 1,752
Long-term debt - affiliate -- 250
Other long-term liabilities 40 28
Redeemable Preferred Stock 1,565 2,105
Shareholders' Equity (Deficiency)
Common Stock, par value of $.01,
Authorized 49,000 shares; issued 28,832 at September 30,
2003 and 27,726 at December 31, 2002 288 277
Additional paid-in capital 37,412 37,096
Treasury stock, at cost, 2,800 shares at September 30, 2003
and December 31, 2002 -- --
Accumulated deficit (34,689) (39,109)
Accumulated other comprehensive income 333 240
-------- --------
Total Shareholders' Equity\(Deficiency) 3,344 (1,496)
-------- --------
Total Liabilities and Shareholders' Equity/(Deficiency) $ 9,239 $ 26,170
======== ========
See Notes to Condensed Consolidated Financial Statements.
3
PROTERION CORPORATION (FORMERLY
RHEOMETRIC SCIENTIFIC, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2003 2002 2003 2002
-------- -------- -------- --------
Sales $ 1,368 $ 1,312 $ 4,133 $ 4,215
Cost of Sales 832 899 2,625 2,981
-------- -------- -------- --------
Gross profit 536 413 1,508 1,234
-------- -------- -------- --------
Marketing and selling expenses 160 109 483 311
Engineering and technical services expenses 60 78 141 179
General and administrative expenses 724 1,006 1,794 3,127
-------- -------- -------- --------
Total Operating Expenses 944 1,193 2,418 3,617
-------- -------- -------- --------
Operating loss (408) (780) (910) (2,383)
Interest expense 49 86 51 215
Interest expense - affiliate 7 -- 22 --
Foreign currency (gain)/loss (42) 13 (6) 46
-------- -------- -------- --------
Loss from continuing operations before income
tax benefit (422) (879) (977) (2,644)
Income tax benefit 200 31 200 81
Loss from continuing operations (222) (848) (777) (2,563)
Discontinued Operations:
Income/(loss) from discontinued operations, net
of tax benefit 227 (1,508) (1,378) (568)
Gain on sale of discontinued operations, net of
income taxes -- -- 6,575 --
-------- -------- -------- --------
Income/(loss) from discontinued operations 227 (1,508) 5,197 (568)
-------- -------- -------- --------
Net Income/(loss) 5 (2,356) 4,420 (3,131)
Increase in redemption value of preferred stock 43 -- 126 --
-------- -------- -------- --------
Net income/(loss) available to common
shareholders ($ 38) ($ 2,356) $ 4,294 ($ 3,131)
-------- -------- -------- --------
Loss per share from continuing operations
Basic (0.01) (0.03) (0.03) (0.11)
======== ======== ======== ========
Diluted (0.01) (0.03) (0.03) (0.11)
======== ======== ======== ========
Earnings/(loss) per share from discontinued
operations
Basic 0.01 (0.06) 0.20 0.02
======== ======== ======== ========
Diluted 0.01 (0.06) 0.20 0.02
======== ======== ======== ========
Earnings/(loss) per share
Basic (0.00) (0.09) 0.17 (0.13)
======== ======== ======== ========
Diluted (0.00) (0.09) 0.16 (0.13)
======== ======== ======== ========
Average number of shares outstanding
Basic 26,032 24,921 25,975 24,923
======== ======== ======== ========
Diluted 26,032 24,921 26,127 24,923
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
4
PROTERION CORPORATION (FORMERLY
RHEOMETRIC SCIENTIFIC, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DEFICIENCY) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(In thousands)
(Unaudited)
Accumulated Total
Common Stock Other Shareholders'
---------------------------- Additional Accumulated Comprehensive Equity
Shares Amount Paid-in-Cap Deficit Income (Deficiency)
------------- ------------- ------------- ------------- ------------- -------------
Balances at December 31, 2002 27,726 $ 277 $ 37,096 ($ 39,109) $ 240 ($ 1,496)
Amortization of options issued as -- -- 36 -- -- 36
compensation
Increase in redemption value of -- -- (126) -- -- (126)
preferred stock
Stock and replacement options
issued to landlord in connection
with lease termination
agreement 1,106 11 406 -- -- 417
Translation adjustment -- -- -- -- 93 93
Net income -- -- -- 4,420 -- 4,420
------------- ------------- ------------- ------------- ------------- -------------
Balances at September 30, 2003 28,832 $ 288 $ 37,412 ($ 34,689) $ 333 $ 3,344
============= ============= ============= ============= ============= =============
See Notes to Condensed Consolidated Financial Statements.
5
PROTERION CORPORATION (FORMERLY
RHEOMETRIC SCIENTIFIC, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2003 2002
---------- ----------
Net cash used in operating activities ($ 1,774) ($ 1,127)
---------- ----------
Cash Flows from Investing Activities:
Proceeds from sale of rheology instruments and services
business, net of costs 13,758 --
Proceeds from sale of property and equipment 87 --
Purchases of property and equipment -- (118)
Purchase of patent (25) --
---------- ----------
Net cash provided by (used in) investing activities 13,820 (118)
---------- ----------
Cash Flows from Financing Activities:
Net borrowings from factoring line of credit 218 519
Borrowings from note payable 190
Repayments of line of credit (8,754) (121)
Repayment of long-term debt (844) --
Repayment of long-term debt affiliate (250) --
Repayment of long-term debt/lease obligation (2,544) (523)
Increase in restricted cash (61) --
Proceeds from issuance of Common Stock, net of
Issuance costs -- 4
Issuance of Series B Preferred Stock
net of issuance costs of $180 1,320
Redemption of preferred stock (667) --
---------- ----------
Net cash used in financing activities (12,712) 1,199
---------- ----------
Effect of exchange rate changes on cash 2 60
---------- ----------
Net increase/(decrease) in cash (664) 14
Cash at beginning of year 710 696
---------- ----------
Cash at end of period $ 46 $ 710
========== ==========
See Notes to Condensed Consolidated Financial Statements.
6
PROTERION CORPORATION (FORMERLY
RHEOMETRIC SCIENTIFIC, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
--------------------
2003 2002
-------- --------
Net Income/(loss) $ 4,420 ($ 3,131)
Other comprehensive income/(loss)
Foreign currency translation adjustments 93 278
-------- --------
Comprehensive income/(loss) $ 4,513 ($ 2,853)
======== ========
See Notes to Condensed Consolidated Financial Statements.
7
PROTERION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
The information included in the foregoing condensed consolidated financial
statements is unaudited. In the opinion of management, all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the financial position, results of operations and cash flows for the interim
periods presented have been reflected herein. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
year. This Quarterly Report on Form 10-Q should be read in conjunction with the
latest Annual Report on Form 10-K for Proterion Corporation (hereinafter
referred to as "Proterion" or the "Company"). Certain prior-period amounts have
been reclassified to conform with the current-period presentation.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires certain
guarantees to be recorded at fair value and requires a guarantor to make
significant new disclosures, even when the likelihood of making any payments
under the guarantee is remote. Generally, FIN 45 applies to certain types of
financial guarantees that contingently require the guarantor to make payments to
the guaranteed party. The initial recognition and initial measurement provisions
of FIN 45 are effective for financial statements for periods ending after
December 15, 2002 and are applicable to all guarantees issued by a guarantor
subject to FIN 45's scope, including guarantees issued prior to FIN 45.
Management believes that the Company has no guarantees as defined by FIN 45.
Accordingly, there was no material impact on the Company's financial statements
attributable to FIN 45.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure" ("SFAS 148"). SFAS 148 amends SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123") to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The amendments to SFAS 123 regarding disclosure are
effective for financial statements for fiscal years ending after December 15,
2002. The Company has adopted the disclosure provisions of SFAS 148 for its
financial statements for the year ended December 31, 2002 and interim periods
thereafter. The Company opted not to change to the fair value based method of
accounting for stock-based compensation.
At September 30, 2003, the Company had three stock-based employee compensation
plans. The Company accounts for those plans under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. The only stock-based employee
compensation cost reflected in net income are options granted with an exercise
price less than the market value of the underlying common stock on the date of
the grant. The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
SFAS 123 to stock-based employee compensation.
8
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net income/(loss) as reported $ 5 ($ 2,356) $ 4,420 ($ 3,131)
Less: Additional stock-based employee compensation
expense under fair value based method 54 41 130 123
-------- -------- -------- --------
Pro forma net income/(loss) (49) (2,397) 4,290 (3,254)
Increase in redemption value of preferred stock 43 -- 126 --
-------- -------- -------- --------
Pro forma net income/(loss) available to common
shareholders ($ 92) ($ 2,397) $ 4,164 ($ 3,254)
======== ======== ======== ========
Earnings/(loss) per share:
Basic: as reported ($ 0.00) ($ 0.09) $ 0.17 ($ 0.13)
Basic: pro-forma ($ 0.00) ($ 0.10) $ 0.16 ($ 0.13)
Diluted: as reported ($ 0.00) ($ 0.09) $ 0.16 ($ 0.13)
Diluted: pro-forma ($ 0.00) ($ 0.10) $ 0.16 ($ 0.13)
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133. This statement is effective for contracts entered into or
modified after June 30, 2003, except as for provisions that relate to SFAS No.
133 implementation issues that have been effective for fiscal quarters that
began prior to June 15, 2003, which should continue to be applied in accordance
with their respective dates. The Company does not expect the adoption of this
pronouncement to have a material effect on the results of operations or
financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
requires that certain financial instruments that, under previous guidance,
issuers could account for as equity, be classified as liabilities in statements
of financial position. Most of the guidance in SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The Company has adopted this statement.
2. Earnings (Loss) Per Share
The Company calculates net earnings/(loss) per share as required by SFAS No.
128, "Earnings Per Share" ("SFAS 128"). SFAS 128 replaced 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. For the
nine months ended September 30, 2003 the effect of stock options, warrants, and
convertible securities were dilutive. For the nine months ended September 30,
2002, the effects of stock options, warrants, and convertible securities were
anti-dilutive. On May 15, 2003, options to purchase 120,000 shares of Common
Stock were granted to non-employee directors of the Company under the Company's
2003 Equity Incentive Plan and on June 27, 2003, options to purchase 643,000
shares of Common Stock were granted to employees as compensation under the
Company's stock option plans. The dilutive Common Shares consist of stock
options.
9
3. Sale of the Rheology Instruments and Services Business/Lease
Termination
On January 15, 2003, the Company completed the sale of its rheology instruments
and services business to the TA Instruments Division of Waters Corporation for
consideration of $17 million in cash and the assumption of $6 million of
accounts payable, and accrued expenses, plus certain other specified
obligations. Of such cash consideration, $15.3 million was paid to the Company
at closing. The remainder was deposited in escrow to secure potential
indemnification claims that could be brought by the purchaser, subject to the
terms of the asset sale agreement. Under the terms of such escrow, $850,000 is
to be released on each of July 22, 2003 (which date had been extended from July
15, 2003) and January 15, 2004, subject to the pendency of any such
indemnification claims. The "Rheometric Scientific" and "Rheometrics" names were
included in the sale. The Company used the proceeds received from this sale to
retire all of its bank debt, which amounted to approximately $9,600,000, to
discharge or reduce certain other obligations and to provide interim working
capital. As part of this transaction, the Company changed its name to Proterion
Corporation, which represents the Company's focus on its remaining life sciences
business.
During 2003 Waters Corporation made indemnification claims against the escrowed
amounts that were subsequently resolved to the satisfaction of the Company. The
Company collected receivables and received cash payments equal to $797,000 and
receivables of $163,000, for a total amount remitted of $960,000. The Company
has provided a $110,000 reserve against the receivables. Any amount received in
excess of the net book value of the receivables will be recorded as a gain on
the sale of the assets of the rheology instruments and services business. There
are currently no claims against the escrow balance that is due in January 2004,
but there can be no assurance that further claims will not arise.
In connection with the sale, the Company entered into a lease termination
agreement with the landlord of the facilities which house the Company's
corporate headquarters and main manufacturing plant in Piscataway, New Jersey
(the "Facility"). The lease termination agreement requires the Company to pay
the landlord $3,000,000: (i) $2,250,000 of which the Company paid in January
2003; (ii) $500,000 of which was to be paid on July 22, 2003 (which date had
been extended from July 15, 2003 to coincide with the scheduled release of the
first escrow payment under the terms of the sale); and (iii) $250,000 of which
is to be paid on January 15, 2004 (to coincide with the scheduled release of the
second escrow payment under the terms of the sale). In addition, under the lease
termination agreement the exercise price of the landlord's existing warrants for
464,160 shares of Common Stock was reduced from $.37 per share to $.01 per share
and the Company issued 650,000 shares of Common Stock to the landlord. The
Company has made payments of $290,000 against the balance that was to be paid on
July 22, 2003 and is currently discussing plans to pay the remaining balance.
The Company also signed a one-year agreement with the landlord to lease
significantly less space in the same building that it occupied prior to the
sale. This lease is classified as an operating lease. The Company recorded a net
loss on the lease termination of $2,929,000, which is included in the gain from
the sale of discontinued operations.
As a result of the sale of the rheology instruments and services business, the
Company recorded a gain before taxes, net of the loss on the lease termination,
of $10,475,000.
In addition, the results of operations for the rheology instruments and services
business for the periods ended September 30, 2003 and 2002 are included in the
accompanying Condensed Consolidated Statements of Operations as "discontinued
operations."
10
4. Long-Term Debt and Short-Term Borrowings
Long-term debt as of September 30, 2003 and December 31, 2002, respectively,
consisted of the following:
September 30, December 31,
2003 2002
------------ ------------
Obligation under sale/leaseback payable
through February 2011, with interest
imputed at a rate of 13.9% for 2002 (a) $ -- $ 4,503,000
Term loan payable through March 2003
Loan bears interest at prime plus 1.5% (b) -- 675,000
Obligations under capital leases payable
2002 through 2006 with interest imputed at
rates from 8.5% to 13.3% (c) -- 39,000
Term loan payable through June 2005
Loan bears interest at prime plus 1.5% (b) -- 194,000
Term note payable December 31, 2003 at
15% (d) 190,000 --
------------ ------------
190,000 5,411,000
Less Current Maturities 190,000 3,631,000
------------ ------------
Total $ -- $ 1,780,000
------------ ------------
(a) In connection with the sale of the Company's rheology instruments and
services business on January 15, 2003, the Company terminated its existing
lease. (See note 3 above.)
(b) In connection with the sale of the rheology instruments and services
business on January 15, 2003, this term loan was paid in full.
(c) A settlement was entered into with the lessor to terminate this lease for
office furniture and fixtures.
(d) On September 25, 2003 the Company executed a note for $190,000 with an
accredited private investor; such note secures the sale by the Company of
certain New Jersey state net operating loss carryforwards (NOL's). The sale of
the NOL's is governed by a program sponsored by the New Jersey Economic
Development Authority. The note becomes due upon receipt of the proceeds
received under the program, which is expected to be during December 2003. The
Company pledged 1,500,000 treasury shares of common stock as additional
collateral for the note. These shares are not considered to be outstanding.
11
Short-Term Borrowings
On June 13, 2003, the Company entered into a factoring arrangement with KBK
Financial, Inc. ("KBK") under which the Company could borrow up to $1,000,000
based on eligible accounts receivable. As of September 30, 2003, total
outstanding fundings under this facility was $218,000.
On January 15, 2003 and in connection with the sale of the rheology instruments
and services business, the Company's entire working capital credit facility with
PNC Bank, in the amount of approximately $8,700,000, was paid in full.
5. Affiliate Debt
Affiliate debt consisted of the following:
September 30, December 31,
2003 2002
------------ ------------
Promissory note with interest at 6% $500,000 $750,000
Immediately prior to the sale of the Company's rheology instruments and services
business, the Company owed Axess Corporation ("Axess") $787,000 (including
accrued interest) under the terms of a promissory note (as amended and restated,
the "Axess Note"). On January 15, 2003, at the closing of the sale, the Company
and Axess amended the Axess Note with the Company agreeing to pay Axess: (i)
$287,000 at the closing; (ii) $250,000 on July 15, 2003 (which date was extended
to July 22, 2003, to coincide with the scheduled release of the first escrow
payment - see note 3 above); (iii) $250,000 upon the scheduled release of the
second escrow payment - see note 3 above; and (iv) interest on the outstanding
principal amount on a monthly basis until maturity. Due to the indemnification
claims of Waters Corporation referenced in note 3 above, the Company did not pay
Axess the $250,000 due on July 22, 2003. As a result, Axess has declared all
amounts under the Axess Note immediately due and payable. The escrow balance was
subsequently paid; however, to date, the Company has not paid Axess, and is
currently discussing plans to pay the amounts owed.
6. Operating Segments/Foreign Operations and Geographic Information
Effective with the sale of the Company's rheology instruments and services
business, the Company operates in one business segment: life sciences.
7. Redeemable Preferred Stock
On August 8, 2002, the Company's Board of Directors approved our entering into a
securities purchase agreement with Andlinger Capital XXVI LLC ("Andlinger
Capital XXVI"), our controlling shareholder, under which Andlinger Capital XXVI
purchased $1,500,000 of the Company's newly created Series B Preferred Stock,
with the right, subject to future Board determination of the need for such
capital, to invest up to an additional $500,000 on the same terms. The new
Series B Preferred Stock does not carry a current dividend and is subject to
redemption at the Company's option at any time or, at Andlinger Capital XXVI's
option, upon a change in control of the Company or the occurrence of certain
other major corporate events, including a sale of substantially all of the
Company's assets. The redemption price is 101% of the original issuance amount
plus an additional 1% for each calendar month completed following the date of
original issuance.
On October 30, 2002, the Company's Board of Directors approved our entry into an
agreement with Andlinger Capital XXVI pursuant to which Andlinger Capital XXVI:
(i) purchased an additional $500,000 of the Company's Series B Preferred Stock;
12
(ii) deferred its right to have all of the outstanding Series B Preferred Stock
redeemed in full by the Company upon the closing of the sale of our rheology
instruments and services business; and (iii) subordinated such deferred
redemption payments to amounts payable by the Company to our landlord under the
Facility lease and to Axess.
In consideration therefor, the Company issued to Andlinger Capital XXVI a new
warrant, with an expiration date of March 6, 2007, to purchase up to 1,000,000
shares of the Company's Common Stock at an exercise price equal to $1.00 per
share (the average of the closing prices of the Company's Common Stock over the
ten trading days immediately preceding October 30, 2002).
At the closing of the sale of the Company's rheology instruments and services
business, we paid Andlinger Capital XXVI $667,000 for the redemption of
one-third of the shares of our Series B Preferred Stock then held by it.
Pursuant to the Company's deferral agreement with Andlinger Capital XXVI
referenced above, the Company had agreed to redeem the remaining shares of
Series B Preferred Stock in two equal installments on July 15, 2003 (which date
was extended to July 22, 2003 to coincide with the scheduled release of the
first escrow payment - see note 3 above) and January 15, 2004 (to conicide with
the scheduled release of the second escrow payment - see note 3 above). The
Company, however, was unable to make the scheduled July 22, 2003 redemption. In
connection therewith, Andlinger Capital XXVI has agreed to further defer this
redemption until July 15, 2004. As a result of this additional deferment, the
Company is obligated to issue to Andlinger Capital XXVI a new warrant to
purchase up to 333,333 shares of our Common Stock at an exercise price equal to
$.64 per share. In addition, the expiration date of this warrant will be March
6, 2007 and the other terms and conditions of this warrant will be similar to
those contained in the existing warrants to purchase shares of our Common Stock
held by Andlinger Capital XXVI.
13
ITEM 2. 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 that are referred to or described in more detail below under the
caption "Forward Looking Statements." The Company's actual results could differ
materially from those anticipated in these forward-looking statements. This
Quarterly Report on Form 10-Q should be read in conjunction with the latest
Annual Report on Form 10-K filed by the Company. The terms "Proterion," the
"Company," "our," "we" and "us," as used in this Management's Discussion and
Analysis of Financial Condition and Results of Operations refer to Proterion
Corporation and its wholly owned subsidiaries, except where it is clear that the
term refers only to the parent company.
Comparison of nine months and three months ended September 30, 2003 and 2002
Please note that except where specifically noted, the comparative discussion
below does not include the operations of our rheology instruments and services
business which we sold to the TA Instruments Division of Waters Corporation on
January 15, 2003. This sold business is referred to as "discontinued operations"
in the accompanying financial statements.
Continuing Operations
Revenues
In the nine months ended September 30, 2003, we achieved revenues of $4,133,000
from continuing operations, compared to revenues of $4,215,000 in the
corresponding period in 2002; a decrease of $82,000, or 2%. This decrease in
revenue was primarily the result of a decreased rate of orders placed for the
Company's Circular Dichroism product line, which was partially offset by an
increase in orders placed for the Company's DynaPro product line. For the three
months ended September 30, 2003, we achieved revenues of $1,368,000 from
continuing operations compared to revenues of $1,312,000 in the corresponding
period in 2002; an increase of $56,000, or 4%. The revenue increase from DynaPro
shipments was partially offset by decreased revenue in the Company's Circular
Dichroism product line. Both product lines experienced a slowdown in orders
during the three month period ended September 30, 2003. We believe this slowdown
was caused by the reorganization of our new sales and marketing group, overall
reductions in capital spending caused by global economic and political
uncertainties, and government-sponsored funding delays to major research
organizations, primarily in North America. Order rates in both our Circular
Dichroism and DynaPro product lines have historically been characterized by a
high level of variability. Revenue did not fall as much as orders as the Company
worked its way through a backlog of orders.
Gross Profit
Gross profit from continuing operations for the three month period ended
September 30, 2003 totaled $536,000, or 39% of revenues, compared to $413,000,
or 31% of revenues, in the corresponding period in 2002, an increase of
$123,000. The gross profit for the nine month period ended September 30, 2003
totaled $1,508,000, or 36% of revenues, compared to $1,234,000, or 29% of
revenues, in the corresponding period in 2002, an increase of $274,000. The
increases were achieved primarily as the result of changes made to our Circular
Dichroism product line manufacturing strategy. Outsourcing most major mechanical
operations reduced overhead and the overall manufacturing cost of each
instrument. We expect these benefits to continue. Gross margins on our DynaPro
product line improved as a result of higher margins achieved on a recently
introduced high-throughput "Plate-Reader" version of the DynaPro. We expect
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higher margins in the future on our DynaPro product line, as the product mix
continues to shift in favor of this higher-margin product. Product mix changes
in favor of the higher-margin DynaPro product line are also contributing to
improved margins.
Operating Expenses
Operating expenses for the three months ended September 30, 2003 were $944,000
compared to $1,193,000 in the corresponding period last year, a decrease of
$249,000. The operating expenses for our life sciences business for the nine
month period ended September 30, 2003 were $2,418,000, compared to $3,617,000
for the same period in the prior year, a decrease of $1,199,000. The decrease is
primarily the result of corporate expenses that were eliminated with the sale of
the rheology instruments and services business.
General and Administrative. General and administrative expenses for the three
and nine month periods ended September 30, were $724,000, and $1,794,000,
respectively, a decrease of $282,000 and $1,333,000, respectively, over the
corresponding periods in the prior year. This decrease is primarily the result
of corporate expenses that were eliminated with the sale of the rheology
instruments and services business.
Marketing and Selling. Marketing and selling expenses for the three and nine
month periods ended September 30, 2003 were $160,000 and $483,000, respectively,
an increase of $51,000 and $172,000, respectively, over the corresponding
periods in the prior year. This increase primarily reflects additional sales and
marketing personnel, and expenses associated with hiring three new sales
professionals during the three month period ended September 30, 2003.
Engineering. Engineering expenses for the three and nine month periods ended
September 30, 2003 were $60,000 and $141,000, respectively, a decrease of
$18,000 and $38,000, respectively, compared to the corresponding periods in the
prior year. The decrease is caused largely by a reduction in headcount in the
engineering department.
Interest Expense
Net interest expense for the three and nine month periods ended September 30,
2003 was $56,000 and $73,000, respectively, a decrease of $24,000 and $142,000,
respectively, compared to the corresponding periods in 2002. An increase in
interest due to the initiation of the financing arrangement with KBK Financial,
Inc, was less than the reduction in interest from the payoff of the Company's
line of credit with PNC Bank that accompanied the sale of our rheology
instruments and services business in January 2003.
Foreign Currency
The foreign currency transactions for the three and nine months ended September
30, 2003 resulted in a gain of $42,000 and $6,000, respectively, compared to
losses of $13,000 and $46,000, respectively, compared to the corresponding
periods in 2002. The gains over the corresponding prior periods are due to
currency fluctuations, primarily the weakening of the US dollar versus the
British Pound.
Income Tax Benefit
During the three month period ended September 30, 2003 the New Jersey Department
of Taxation accepted the Company's application to sell its New Jersey net
operating loss carryforwards (NOL's). As a result, the Company has recognized a
deferred tax benefit of $510,000. Continuing operations accounted for $200,000
of the NOL's, and $310,000 of the NOL's related to discontinued operations.
15
Loss from continuing operations after taxes
The three and nine month periods ended September 30, 2003 resulted in a net loss
from continuing operations of $222,000 and $777,000, respectively, compared to
losses of $848,000 and $2,563,000, respectively, for the corresponding periods
in 2002.
Discontinued Operations
Income/Loss from discontinued operations
For the three and nine month periods ended September 30, 2003, the rheology
instruments and services business achieved income of $227,000 and $5,197,000,
respectively. The income of $5,197,000 is comprised of a $1,378,000 loss from
discontinued operations and a $6,575,000 gain on the sale of discontinued
operations. Income from discontinued operations for the three month period ended
September 30, 2002 is primarily due to the recognition of a deferred tax benefit
related to the Company's sale of its New Jersey NOL's. Expenses for the nine
month period ended September, 2003 include 15 days of expenses for the operation
of discontinued operations with no associated revenue to offset the expenses.
Gain from the sale of the rheology instruments and services business
As a result of the sale of the rheology instruments and services business and
consummation of the lease termination, in the first quarter of 2003 the Company
recorded a net gain on the transaction of $6,575,000, after income tax expense
of $3,900,000.
Liquidity and Capital Resources
The Company received $15,300,000 from Waters Corporation as consideration for
the sale of the rheology instruments and services business on January 15, 2003.
In addition, during the three month period ended September 30, 2003, the Company
received from Waters Corporation, in satisfaction for the $850,000 escrow
payment due the Company, $290,000 in cash and $670,000 in receivables of which
$507,000 has been collected. The Company has provided a $110,000 receivable
reserve against the remaining outstanding receivables.
At the time of the sale of the rheology instruments and services businesses the
Company used the cash proceeds to pay off our senior credit facility with PNC
Bank and satisfy certain vendor obligations which were not assumed by the
purchaser. In addition, we were required to make substantial payments at the
closing of this transaction: (i) to the landlord of our Piscataway, New Jersey
facility in connection with a lease termination agreement; (ii) to repay, in
part, certain obligations to Axess Corporation ("Axess"), our former controlling
stockholder; (iii) to redeem a portion of the shares of Series B Preferred Stock
issued to Andlinger Capital XXVI LLC ("Andlinger Capital XXVI") with respect to
amounts provided as interim financing by Andlinger Capital XXVI; (iv) to pay
certain other obligations to Andlinger Capital XXVI; and (v) to pay legal,
accounting and other expenses incurred relative to the sale transaction. We made
payments totaling $14,400,000 to satisfy these obligations. Following the sale
of our rheology instruments and services business, and the payment in full of
all outstanding indebtedness thereunder, we terminated our senior credit
facility with PNC Bank.
Until the successful commercialization of our Plasmon Waveguide Resonance
("PWR") product line we anticipate that with our current cost structure, cash
flow from operations will be insufficient to optimally fund the development of
our PWR technology, or to retire all our obligations as they come due. Our
near-term and medium-term liquidity is contingent on sales as well as on
securing additional financing, and our long-term liquidity is dependent on the
success of our PWR technology.
16
To better conserve cash and manage our liquidity, in 2002 we implemented an
expense reduction program. For example, we reduced our employee headcount from
50 at June 30, 2002 (excluding discontinued operations) to 31 at September 30,
2003. We will continue to assess our cost structure as it relates to our
revenues and cash position in 2003, and we may make further reductions if such
actions are deemed appropriate.
In addition, on June 13, 2003 we entered into a factoring agreement with KBK
Financial, Inc. ("KBK") to provide up to $1,000,000 of financing based on
eligible accounts receivable. As of September 30, 2003, total outstanding
fundings under this facility was $218,000. In November 2003, we replaced that
facility with a new facility provided by Entrepreneur Growth Capital LLC of up
to $700,000 based on eligible receivables and inventory (as defined) and
$120,000 secured by a deposit of that amount made by Andlinger Capital XXVI. In
addition, in October 2003, Andlinger Capital XXVI loaned $120,000 to the Company
on a short-term basis.
Waters Corporation's claim against the escrowed funds prevented us from making
full payments due on July 22, 2003 to Axess, Andlinger Capital XXVI and the
landlord for our Facility. Consequently, we are currently in discussion with our
landlord concerning how to remedy our failure to make the remaining $210,000
payment on July 22, 2003. Axess has declared all amounts due under the Axess
Note immediately due and payable, of which principal and interest currently
totals $539,000.
We are currently seeking additional debt and equity financing on acceptable
terms in order to obtain the liquidity necessary to fund our operations, fund
development of PWR, and meet our other obligations, but there can be no
assurance that we will be able to obtain such additional financing or that it
will be available on terms acceptable to us.
If we do not increase our sales or are not successful in our expense reduction
efforts and do not obtain such additional financing, we are unlikely to have an
adequate level of cash and other financial resources to fund our operations,
meet our other obligations, or fund continued development of PWR. In light of
this uncertainty, we approached Andlinger Capital XXVI and requested a further
delay of the July 22, 2003 Series B Preferred Stock redemption. Andlinger
Capital XXVI has agreed to defer this redemption until July 15, 2004 when the
final redemption of the Series B Preferred Stock is scheduled, provided that the
Company must make this redemption earlier if it obtains sufficient financing or
has adequate working capital to do so.
We are also pursuing other alternatives for alleviating our liquidity
requirements, but despite our direct and indirect fundings from and agreements
with Andlinger Capital XXVI and our continuing efforts to seek alternative
sources of liquidity, there can be no assurance that: (a) we will have
sufficient financial resources to meet all of our cash flow needs and
obligations; or (b) any alternatives sought by the Company will be successful
and/or result in positive cash flow for the Company.
If the Company does not obtain sufficient additional financing, it raises
substantial doubt about the Company's ability to continue as a going concern.
Cash Flows
Through the nine month period ended September 30, 2003, the net change in cash
was a decrease of $664,000 compared to a $14,000 increase over the corresponding
period last year. Effects of exchange rate changes on cash were minimal.
Cash Flows from Operations
In the nine months ended September 30, 2003, excluding the gain on the sale of
the Company's rheology instruments and services businesses, the Company incurred
a loss of $2,155,000, of which $777,000 was related to continuing operations,
17
and $1,378,000 was related to discontinued operations. Aside from the net loss,
of which cash used in operating activities amounted to $1,774,000, the primary
use of cash was a reduction in accounts payable of $925,000, a reduction of
accrued liabilities of $387,000, and an increase in accounts receivable of
$180,000. Cash was provided by a reduction in inventory of $272,000, a reduction
in prepaid expenses and other current assets of $487,000, and a reduction of
other assets of $414,000.
Management anticipates that until the PWR is commercialized, net cash flows from
operations will continue to be negative.
Cash Flows from Investing
The proceeds from the sale of our rheology instruments and services business
provided net cash of $13,758,000. The Company generated $87,000 on the sale of
property and equipment. In the nine months ended September 30, 2003, we made a
capital expenditure of $25,000 for the acquisition of patents. In the nine
months ended September 30, 2002, the Company purchased $118,000 of property and
equipment.
Cash Flows from Financing
Net cash used by financing activities for the nine months ended September 30,
2003 was $12,712,000 compared to net cash provided of $1,199,000 in the same
period in 2002. The cash generated from the sale of the rheology instruments and
services business was used to repay borrowings under our now terminated line of
credit and term debt with PNC Bank of $9,598,000, a payment under our lease
termination agreement of $2,544,000, a redemption payment on our Series B
Preferred Stock to Andlinger Capital XXVI of $667,000, and repayment of
affiliate debt of $250,000.
Proceeds from borrowings under our factoring agreement with KBK in the nine
months ended September 30, 2003 was $218,000. In addition, the Company received
proceeds from executing a short-term note payable, in the amount of $190,000.
The note is secured by the pending proceeds from the sale of the net operating
loss carryforwards under a program sponsored by the New Jersey Economic
Development Authority.
During the nine months ended September 30, 2003, restricted cash increased by
$61,000. For the nine months ended September 30, 2003 the net change in cash was
a decrease of $664,000, compared to an increase of $14,000 for the corresponding
period last year.
Critical Accounting Policies and Estimates
The preparation of financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues,
and expenses and related disclosure of contingent assets and liabilities. On an
ongoing basis management evaluates its estimates, including those related to
inventory reserves and the allowance for doubtful accounts. Management bases its
estimates on historical experience and on various other assumptions that
management believes to be reasonable under the circumstances, the results of
which form a basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions, however,
management believes that its estimates, including those for the above described
items, are reasonable and that the actual results will not vary significantly
from the estimated amounts.
The following critical accounting policies relate to the more significant
judgments and estimates used in the preparation of the consolidated financial
statements:
18
Inventory Reserves
The Company continuously monitors its exposure relating to excess and obsolete
inventory and has established reserves for any exposure that may be required.
Factors considered in evaluating the reserves include product changes, usage,
technology changes, shifts in sales patterns and quantities on hand. An estimate
is made of the market value, less costs to dispose, of products whose value is
determined to be impaired. If these products are ultimately sold at less than
estimated amounts, additional reserves may be required.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses
resulting from customers or other parties failure to make payments on a trade
receivable due to the Company. The estimates for the allowance and discounts are
based on a number of factors, including: (1) historical experience; (2) aging of
the trade accounts receivable; (3) specific information obtained by the Company
on the financial condition and current credit worthiness of customers or other
parties; and (4) specific agreements or negotiated amounts with customers.
If the financial condition on the Company's customers were to deteriorate and
reduce the ability of the Company's customers to make payments on their
accounts, the Company may be required to increase its allowances by recording
additional bad debt expense. Likewise, should the financial condition of the
Company's customers or other parties improve and result in payments or
settlements of previously reserved amounts, the Company may be required to
record a reduction in bad debt expense to reverse recorded allowances.
Impairment of Long-lived Assets
The Company reviews long-lived assets and intangible assets with a definite life
for impairment whenever events or changes in circumstances indicate the carrying
value of such assets may not be recoverable.
Revenue Recognition
Product sales are recorded upon shipment, provided that the price is fixed,
title has been transferred, collection of the resulting receivable is reasonably
assured, and there are no significant obligations. Maintenance agreement revenue
is recorded on a straight-line basis over the terms of the respective
agreements. Other service revenue is recorded as services are performed. We
accrue for expected warranty cost on product sales.
Contractual Obligations
The Company is a party to a lease relating to office facilities. The commitment
under this lease is $36,000 for the remainder of 2003.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "10-Q") includes forward-looking
statements, particularly in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section. In some cases, you can
identify forward-looking statements by terms such as "may," "will," "should,"
"could," "would," "expects," "plans," "anticipates," "believes," "estimates,"
"projects," "predicts," "potential" and similar expressions intended to identify
forward-looking statements. Additional written or oral forward-looking
statements may be made by or on behalf of the Company from time to time, in
19
filings with the Securities and Exchange Commission, in press releases and other
public announcements, or otherwise. All such forward-looking statements are
within the meaning of that term in Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements may include, but not be limited to:
o projections of revenue, income, losses and cash flows;
o plans for future capital and other expenditures;
o plans for future operations;
o financing needs or plans;
o plans relating to products or services;
o estimates concerning the effects of litigation or other disputes; as well
as
o expectations and assumptions relating to any or all of the foregoing
relating to the Company, its subsidiaries and/or divisions.
Although the Company believes that its forward-looking statements are based on
expectations and assumptions that are reasonable, forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot be
predicted. Accordingly, no assurance can be given that such expectations or
assumptions will prove to have been correct, and future events and actual
results could differ materially from those described in or underlying the
forward-looking statements. Among the factors that could cause future events and
actual results to differ materially are:
o the demand for the Company's products and services and other market
acceptance risks;
o the presence in the Company's markets of competitors with greater financial
resources and the impact of competitive products and services and pricing;
o the ability of the Company to develop new technologies that may be more
accurate, reliable, user-friendly or cost-effective than those currently
utilized in the Company's products;
o the ability of the Company to procure the requisite intellectual property
rights to any such new technologies developed by others, and to incorporate
such technologies into new products;
o the loss of any significant customers or group of customers;
o further reductions in outside fundings or capital budgets for our customers
(such as universities) for whom purchases of the Company's products
represent substantial capital outlays;
o general economic and market conditions; and
o the Company's ability to meet its current financial obligations and to
obtain new financing necessary to meet its working capital needs.
More detail regarding these and other important factors that could cause actual
results to differ materially from such expectations, assumptions and
forward-looking statements ("Cautionary Statements") may be disclosed in this
10-Q, other Securities and Exchange Commission filings and other public
announcements of the Company. All subsequent written and oral forward-looking
statements attributable to the Company, its subsidiaries or divisions or persons
acting on their behalf are expressly qualified in their entirety by the
Cautionary Statements.
The Company assumes no obligation to update its forward-looking statements or
advise of changes in the expectations, assumptions and factors on which they are
based.
20
ITEM 3. 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. The Company
does not enter into derivatives or other financial instruments for trading or
speculative purposes. The Company is exposed to market risk related to changes
in foreign exchange and interest rates.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act of 1934
reports is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission (the
"SEC"), and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, as ours are designed to do, and management necessarily was required
to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
As of September 30, 2003, we carried out an evaluation, under the supervision
and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective in enabling
us to record, process, summarize and report information required to be included
in our periodic SEC filings within the required time period.
There have been no changes in our internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
21
PART II
OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In connection with the sale of the Company's rheology instruments and services
business in January 2003, the Company entered into a lease termination agreement
with the landlord of the facilities which house the Company's corporate
headquarters and main manufacturing plant in Piscataway, New Jersey (the
"Facility"). The lease termination agreement requires the Company to pay the
landlord $3,000,000: (i) $2,250,000 of which the Company paid in January 2003;
(ii) $500,000 of which was to be paid on July 15, 2003 (which date was extended
to July 22, 2003 to coincide with the scheduled release of the first escrow
payment under the terms of the sale); and (iii) $250,000 of which is to be paid
on January 15, 2004 (to coincide with the scheduled release of the second escrow
payment under the terms of the sale). The Company, however, was unable to pay
the landlord $210,000 of the $500,000 due on July 22, 2003 and the parties are
currently discussing how to address the non-payment.
Immediately prior to the sale of the Company's rheology instruments and services
business, the Company owed Axess Corporation ("Axess") $787,000 (including
accrued interest) under the terms of a promissory note (as amended and restated,
the "Axess Note"). On January 15, 2003, at the closing of the sale, the Company
and Axess amended the Axess Note with the Company agreeing to pay Axess: (i)
$287,000 at the closing; (ii) $250,000 on July 15, 2003 (which date was extended
to July 22, 2003, to coincide with the scheduled release of the first escrow
payment); (iii) $250,000 upon the scheduled release of the second escrow
payment; and (iv) interest on the outstanding principal amount on a monthly
basis until maturity. Due to the indemnification claims of Waters Corporation,
the Company did not pay Axess the $250,000 due on July 22, 2003. As a result,
Axess has declared all amounts under the Axess Note immediately due and payable.
The escrow balance was subsequently paid; however, to date, the Company has not
paid Axess, and is currently discussing plans to pay the amounts owed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
31.1* Certification of Robert M. Castello Pursuant to Item
601(b)(31) of Regulation S-K, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Stephen M. Obeda Pursuant to Item 601(b)(31)
of Regulation S-K, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1* Certification of Robert M. Castello pursuant to Item
601(b)(32) of Regulation S-K, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Stephen M. Obeda pursuant to Item 601(b)(32)
of Regulation S-K, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Filed herewith
(b) Reports on Form 8-K.
None.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROTERION CORPORATION
(Registrant)
November 14, 2003 By /s/ STEPHEN M. OBEDA
--------------------------------------
Stephen M. Obeda, Vice President,
Finance, Chief Financial Officer and
Authorized Officer
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