SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended March 31, 2000 Commission File No. 0-6994
------
NEW BRUNSWICK SCIENTIFIC CO., INC.
State of Incorporation - New Jersey E. I. #22-1630072
-----------
44 Talmadge Road, Edison, N.J. 08818-4005
Registrant's Telephone Number: 732-287-1200
------------
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 twelve (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 ninety (90) days.
Yes X No
---
There are 5,498,715 Common shares outstanding as of May 3, 2000.
1
NEW BRUNSWICK SCIENTIFIC CO., INC.
Index
PAGE NO.
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PART I. FINANCIAL INFORMATION:
Item 1:
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations -
Three Months Ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 5
Consolidated Statements of Comprehensive Loss -
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item II:
Management's Discussion and Analysis of Results
of Operations and Financial Condition 9
PART II. OTHER INFORMATION 13
2
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
ASSETS
------
March 31, December 31,
2000 1999
------------ -------------
Current Assets (Unaudited)
- --------------------------------------------
Cash and cash equivalents $ 1,969 $ 2,111
Accounts receivable, net 10,679 13,769
Refundable income taxes 114 28
Deferred income taxes 85 85
Inventories:
Raw materials and sub-assemblies 8,100 6,397
Work-in-process 3,284 3,669
Finished goods 5,666 4,931
------------ -------------
Total inventories 17,050 14,997
Prepaid expenses and other current assets 1,275 897
------------ -------------
Total current assets 31,172 31,887
------------ -------------
Property, plant and equipment, net 6,779 7,023
Excess of cost over net assets acquired, net 4,850 4,751
Deferred income taxes 153 153
Other assets 2,223 2,212
------------ -------------
$ 45,177 $ 46,026
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
- -------------------------------------------------------
Current installments of long-term debt $ 238 $ 236
Accounts payable and accrued expenses 8,382 8,293
-------- --------
Total current liabilities 8,620 8,529
-------- --------
Long-term debt, net of current installments 7,259 7,347
-------- --------
Other liabilities 390 380
Commitments and contingencies
Shareholders' equity:
Common stock, $0.0625 par value per share,
authorized 25,000,000 shares; outstanding, 2000
- 5,494,053; 1999 - 5,344,000; net of shares held in
treasury, 2000 and 1999 - 473,069 344 334
Capital in excess of par 33,578 32,907
Accumulated deficit (3,485) (2,107)
Accumulated other comprehensive loss (1,467) (1,032)
Notes receivable from exercise of stock options (62) (332)
-------- --------
Total shareholders' equity 28,908 29,770
-------- --------
$45,177 $46,026
======== ========
See notes to consolidated financial statements.
3
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
--------------------
2000 1999
-------------------- -----------
Net sales $ 10,385 $ 11,754
Operating costs and expenses:
Cost of sales 5,729 7,715
Selling, general and administrative expenses 4,009 3,670
Research, development and engineering expenses 1,910 1,371
-------------------- -----------
Total operating costs and expenses 11,648 12,756
-------------------- -----------
Loss from operations (1,263) (1,002)
Other income (expense):
Interest income 12 14
Interest expense (149) (2)
Other income (expense), net (4) 7
Equity in loss in joint venture company (3) (12)
-------------------- -----------
(144) 7
-------------------- -----------
Loss before income tax benefit (1,407) (995)
Income tax benefit (29) -
-------------------- -----------
Net loss $ (1,378) $ (995)
==================== ===========
Basic loss per share $ (.25) $ (.19)
==================== ===========
Diluted loss per share $ (.25) $ (.19)
==================== ===========
Basic weighted average number of shares outstanding 5,404 5,260
==================== ===========
Diluted weighted average number of shares outstanding 5,404 5,260
==================== ===========
See notes to consolidated financial statements.
4
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
2000 1999
-------------------- --------
Cash flows from operating activities:
Net loss $ (1,378) $ (995)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 239 259
Change in related balance sheet accounts:
Accounts receivable 2,890 232
Refundable income taxes (86) 165
Inventories (2,129) (632)
Prepaid expenses and other current assets (392) (11)
Accounts payable and accrued expenses (319) (303)
Advance payments from customers 571 (138)
Other assets (33) -
Other liabilities 10 -
-------------------- --------
Net cash used in operating activities (627) (1,423)
-------------------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (139) (414)
Sale of equipment - 15
Increase in goodwill related to acquisition costs (218) -
-------------------- --------
Net cash used in investing activities (357) (399)
-------------------- --------
Cash flows from financing activities:
Repayment of long-term debt (55) ( 8)
Proceeds from issue of common stock under
stock option plans 681 166
Payments on notes receivable related to exercised
stock options 270 -
-------------------- --------
Net cash provided by financing activities 896 158
-------------------- --------
Net effect of exchange rate changes on cash (54) (87)
-------------------- --------
Net decrease in cash and cash equivalents (142) (1,751)
Cash and cash equivalents at beginning of period 2,111 3,793
-------------------- --------
Cash and cash equivalents at end of period $ 1,969 $ 2,042
==================== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 157 $ 5
Income taxes 89 5
See notes to consolidated financial statements.
5
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
2000 1999
-------------------- --------
Net loss $ (1,378) $ (995)
Other comprehensive loss:
Foreign currency translation adjustment (435) (470)
-------------------- --------
Net comprehensive loss $ (1,813) $(1,465)
==================== ========
See notes to consolidated financial statements.
6
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(Unaudited)
Note 1 - Interim results:
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly, its financial position as of March 31,
2000 and the results of its operations and cash flows for the three months ended
March 31, 2000 and 1999. Interim results may not be indicative of the results
that may be expected for the year.
Note 2 - Segment information as of and for the three months ended March 31, 2000
and 1999:
Laboratory Drug
Research Lead Total
Equipment Discovery Segments
----------- ----------- ----------
2000: Net sales $ 10,267 $ 118 $10,385
Percentage of sales 98.9% 1.1% 100%
Loss from operations (528) (735) (1,263)
Total assets (1) 44,303 874 45,177
Capital expenditures 139 - 139
Depreciation and amortization(1) 239 - 239
1999: Net sales $ 11,754 $ - $11,754
Percentage of sales 100% - 100%
Loss from operations (362) (640) (1,002)
Total assets (1) 37,313 139 37,452
Capital expenditures 414 - 414
Depreciation and amortization(1) 259 - 259
<FN>
(1) Fixed assets and depreciation related to the Drug Lead Discovery segment
are not allocated to the segment as the assets are owned directly by New Brunswick
Scientific Co., Inc. and are included in the Laboratory Research Equipment Segment.
However, rental expense in lieu of depreciation expense is charged to the Drug Lead
Discovery segment which is comprised of DGI BioTechnologies, the Company's drug
lead discovery operation.
Note 3 - Loss per Common share:
Basic loss per share is calculated by dividing net loss by the weighted average
number of shares outstanding. Diluted loss per share is calculated by dividing
net loss by the sum of the weighted average number of shares outstanding plus
the dilutive effect of stock options which have been issued by the Company
unless the effect of the stock options is antidilutive.
7
Note 4 - Long-term debt and credit agreement:
On April 16, 1999, the Company entered into an agreement (the Bank Agreement)
with First Union National Bank for a three year, $31 million secured line of
credit. The Bank Agreement provides the Company with a $5 million revolving
credit facility for both working capital and for letters of credit, a $1 million
Revolving Line of Credit for equipment acquisition purposes, a $15 million
credit line for acquisitions and a $10 million foreign exchange facility. There
are no compensating balance requirements and any borrowings under the Bank
Agreement bear interest at various rates based upon a function of the bank's
prime rate or Libor at the discretion of the Company. All of the Company's
domestic assets, which are not otherwise subject to lien have been pledged as
security for any borrowings under this Bank Agreement. The Bank Agreement
contains various business and financial covenants including among other things,
a debt service coverage ratio, a net worth covenant, and a ratio of total
liabilities to tangible net worth all of which the Company was in compliance
with at March 31, 2000. At March 31, 2000, $6,698,000 was outstanding under the
Bank Agreement.
In November 1999, the Company issued notes in the amount of 250,000 ($392,500
at the date of acquisition) in connection with the acquisition of the DJM
Cryo-Research Group. The notes bear interest at 6% which are payable annually
and principal is payable in five equal annual installments commencing November
2004. At March 31, 2000 the balance of the notes was $398,325.
Note 5 - Consolidated statements of shareholders' equity:
Three Months Ended
March 31,
--------------------
2000 1999
-------------------- --------
(In thousands)
Balance at beginning of period $ 29,770 $30,447
Net loss (1,378) (995)
Other comprehensive loss (435) (470)
Issuance of shares under stock option plans 681 166
Payments on notes receivable from exercise of
stock options 270 -
-------------------- --------
Balance at end of period $ 28,908 $29,148
==================== ========
Note 6 - Stock dividend
On February 28, 2000, the Company declared a 10% stock dividend, payable May 15,
2000 to shareholders of record as of April 14, 2000. Upon issuance of the stock
dividend, all share data will be retroactively restated. Share and per share
amounts for March 31, 1999 have been retroactively restated as a result of the
May 14, 1999 stock dividend.
Note 7 - Investment in Organica, Inc.
Since November 1994, the Company has invested $950,000 (less than a
twenty-percent interest) in Organica, Inc. (Organica) which was formed in 1993
to develop and commercialize various "environmentally friendly" products
produced via fermentation processes. Organica isolates and cultures naturally
occurring microorganisms and fungi and blends them with various nutrient sources
and carriers to create its products, which are offered as alternatives to
various hazardous products. Organica has focused primarily on natural turf
8
products, compost accelerators, hydrocarbon remediation products and non-caustic
drain openers.
As previously described in the Company's Annual Report on Form 10-K, the Chief
Executive Officer of Organica, Inc. left in the Spring of 1999, after which
operations were consolidated at its Pennsylvania production facility. There are
continuing uncertainties as to the future direction of Organica while it has
generated net losses. As a result of recent developments, Organica now faces
the possible departure of one or more key employees and part of its customer
base. The Company continues to believe in the marketability of Organica's
products and is working with Organica's management to develop a plan to make the
Company successful, however, it is continuing to assess the future
recoverability of its investment in Organica during this transition period.
Note 8 - Acquisition
On November 23, 1999, the Company acquired all of the outstanding common stock
of DJM Cryo Research Limited and the net assets of DJM Fabrications
(collectively, "DJM Cryo Research Group"), a United Kingdom Corporation and
Partnership under common control, respectively, located in Tollesbury, England
(the Acquisition). The purchase price consisted of 3.5 million ($5.5 million)
in cash, and 250,000 ($392,500) in term notes payable in annual installments
over a five year period beginning in November 2004 with 6.00% interest payable
annually. The source of the cash consideration paid was the Company's line of
credit for acquisition purposes provided by First Union National Bank, payable
in monthly installments of $52,513 with 8.14% fixed interest. DJM Cryo Research
Group is in the business of designing, developing, and manufacturing ultra-low
temperature freezers for laboratories. The acquisition has been accounted for
by the purchase method and, accordingly, the results of operations of DJM Cryo
Research Group have been included in the Company's consolidated financial
statements from November 23, 1999. The excess of the purchase price over the
fair value of net identifiable assets acquired of $4,769,000 has been recorded
as goodwill and is being amortized on a straight-line basis over 25 years.
The following unaudited pro forma financial information presents the combined
results of operations of the Company and DJM Cryo Research Group as if the
acquisition had occurred on January 1, 1999, after giving effect to certain
adjustments, including amortization of goodwill, additional depreciation
expense, increased interest expense on debt related to the acquisition, and
related income tax effects. The unaudited pro forma financial information does
not necessarily reflect the results of operations that would have occurred had
the Company and DJM Cryo Research Group constituted a single entity during such
period.
Three months ended March 31, 1999
(in thousands, except per share amount)
Net sales $ 11,788
========================================
Net loss $ (1,052)
========================================
Loss per share $ (0.20)
========================================
9
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Forward-looking statements, within the meaning of Section 21E of the Securities
Exchange Act of 1934, are made throughout this Management's Discussion and
Analysis of Financial Condition and Results of Operations. For this purpose,
any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the results of the Company to
differ materially from those indicated by such forward-looking statements.
The following is Management's discussion and analysis of significant factors
that have affected the Company's operating results and financial condition
during the quarter ended March 31, 2000.
Results of Operations
---------------------
Quarter Ended March 31, 2000 vs. Quarter Ended March 31, 1999.
- ------------------------------------------------------------------------
For the quarter ended March 31, 2000, net sales were $10,385,000 compared with
net sales of $11,754,000 for the quarter ended March 31, 1999, a decrease of
11.6%. The net loss for the 2000 quarter of $1,378,000 or $.25 per diluted
share compared with a net loss of $995,000 or $.19 per diluted share for the
first quarter of 1999.
The decrease in sales for the 2000 quarter resulted from shipping delays
primarily related to laboratory shakers, as the backlog increased to $10,327,000
at March 31, 2000 from $8,569,000 at December 31, 1999. Gross margins
increased during the quarter ended March 31, 2000 to 44.8% from 34.4% during the
quarter ended March 31, 1999 primarily as a result of the Company's acquisition
of DJM Cryo-Research Limited (DJM) in November 1999 who prior to the acquisition
DJM was a supplier to the Company. In addition, the margins on certain product
lines and in some market areas were lower than normal during the first quarter
of 1999 and there was a more profitable mix of products sold in the 2000
quarter.
Selling, general and administrative expenses increased 9.2% during the 2000
quarter compared with the first quarter of 1999 as a result of normal year to
year increases and expenses, including amortization of goodwill related to DJM
which was acquired in November 1999.
The increase of 39.3% in research, development and engineering expenses is
primarily attributable to increased spending by DGI BioTechnologies, the
Company's drug lead discovery operation, expenses related to DJM and an increase
in the engineering staff.
Interest expense increased to $149,000 in the 2000 quarter compared with $2,000
for the 1999 quarter as a result of borrowings under the Company's line of
credit for the acquisition of DJM and for working capital purposes.
No tax benefit was taken during the quarter for the losses incurred by the
Company's U.S. operations, however, a tax benefit was provided for the losses of
the Company's European subsidiaries due to those subsidiaries ability to
carryback such losses if necessary.
10
------
Financial Condition
-------------------
Liquidity and Capital Resources
- ----------------------------------
Working capital decreased from $23,358,000 at December 31, 1999 to $22,552,000
at March 31, 2000 and cash and cash equivalents decreased from $2,111,000 at
December 31, 1999 to $1,969,000 at March 31, 2000. During the quarter ended
March 31, 2000, accounts receivable decreased to $10,679,000 from $13,769,000 at
December 31, 1999 due to the lower level of net sales in the March quarter and
compared with the quarter ended December 31, 1999. The cash proceeds related to
the decrease in accounts receivable was partially offset by an increase in
inventories (raw materials and sub-assemblies) to $17,050,000 at March 31, 2000
compared with $14,997,000 at December 31, 1999. The increase in inventories
resulted from lower than planned shipments during the quarter in conjunction
with a build cycle anticipated to meet the inflow of orders. These orders are
being shipped in the second quarter of the year 2000.
On April 16, 1999, the Company entered into an agreement (the Bank Agreement)
with First Union National Bank for a three year, $31 million secured line of
credit. The Bank Agreement provides the Company with a $5 million revolving
credit facility for both working capital and for letters of credit, a $1 million
Revolving Line of Credit for equipment acquisition purposes, a $15 million
credit line for acquisitions and a $10 million foreign exchange facility. There
are no compensating balance requirements and any borrowings under the Bank
Agreement bear interest at various rates based upon a function of the bank's
prime rate or Libor at the discretion of the Company. All of the Company's
domestic assets, which are not otherwise subject to lien have been pledged as
security for any borrowings under this Bank Agreement. The Bank Agreement
contains various business and financial covenants including among other things,
a debt service coverage ratio, a net worth covenant, and a ratio of total
liabilities to tangible net worth all of which the Company was in compliance
with at March 31, 2000.
In November 1999, the Company issued notes in the amount of 250,000 ($392,500
at the date of acquisition) in connection with the acquisition of the DJM
Cryo-Research Group. The notes bear interest at 6% which are payable annually
and principal is payable in five equal annual installments commencing November
2004. At March 31, 2000 the balance of the notes was $398,325.
Cash Flows from Operating Activities
- ----------------------------------------
During the three months ended March 31, 2000 and 1999 net cash used in operating
activities amounted to $627,000 and $1,423,000, respectively. The primary
reasons for the $796,000 net change from 1999 to 2000 were a decrease in
accounts receivable in 2000 of $2,890,000 vs. a decrease of $232,000 in 1999 and
an increase in advance payments from customers of $571,000 in 2000 vs. a
decrease of $138,000 in 1999 partially offset by (i) a net loss in 2000 of
$1,378,000 compared with a net loss of $995,000 in 1999, (ii) an increase in
refundable income taxes of $86,000 in 2000 vs. a decrease of $165,000 in 1999,
(iii) an increase in inventories of $2,129,000 in 2000 vs. an increase of
$632,000 in 1999 and (iv) an increase in prepaid expenses and other current
assets of $392,000 in 2000 vs. an increase of $11,000 in 1999.
Cash Flows from Investing Activities
- ----------------------------------------
Net cash used in investing activities amounted to $357,000 in 2000 vs. $399,000
in 1999. The 2000 and 1999 periods consisted of expenditures for property,
plant and equipment and additional goodwill related to additional acquisition
costs of DJM Cryo-Research.
11
- ------
Cash Flows from Financing Activities
- ----------------------------------------
Net cash provided by financing activities amounted to $896,000 in 2000 vs.
$158,000 in 1999. The 2000 and the 1999 periods include $681,000 and $166,000,
respectively, from the exercise of stock options and the 2000 period includes
$270,000 of repayments on notes receivable related to exercised stock options.
The proceeds in both periods were partially offset by the repayment of long-term
debt.
Management believes that the resources available to the Company, including its
line of credit are sufficient to meet its near and intermediate-term needs,
including the funding commitments for DGI BioTechnologies.
Other Matters
-------------
Recently Issued Accounting Standards
- ---------------------------------------
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities", was issued to establish standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement was amended so that it is
effective for all quarters of fiscal years beginning after June 15, 2000. The
Company does not believe that this statement will have a material impact on the
consolidated financial statements.
Drug-Lead Discovery Business
- ------------------------------
In October 1995, the Company entered the drug-lead discovery business by forming
a new company to develop a novel, small molecule drug discovery platform. The
company, DGI BioTechnologies (DGI), is majority-owned and fully funded by the
Company and occupies specially designed laboratory space at the Company's
headquarters facility in Edison, New Jersey. DGI's operations have had a
significant negative impact on the Company's 2000 and 1999 earnings and will
continue to do so. During the three months ended March 31, 2000 and 1999,
$853,000 and $640,000, respectively, of research and development expenses were
charged to operations. During the 2000 period DGI also recorded $118,000 of
revenues primarily for services rendered related to the research and License
Agreement with Novo Nordisk A/S. DGI is striving to become financially
self-sufficient in 2000 and all options are being explored, including pursuing
additional alliances as well as actively seeking strategic partners.
Investment in Organica, Inc.
- -------------------------------
Since November 1994, the Company has invested $950,000 (less than a
twenty-percent interest) in Organica, Inc. (Organica) which was formed in 1993
to develop and commercialize various "environmentally friendly" products
produced via fermentation processes. Organica isolates and cultures naturally
occurring microorganisms and fungi and blends them with various nutrient sources
and carriers to create its products, which are offered as alternatives to
various hazardous products. Organica has focused primarily on natural turf
products, compost accelerators, hydrocarbon remediation products and non-caustic
drain openers.
As previously described in the Company's Annual Report on Form 10-K, the Chief
Executive Officer of Organica, Inc. left in the Spring of 1999, after which
operations were consolidated at its Pennsylvania production facility. There are
continuing uncertainties as to the future direction of Organica while it has
generated net losses. As a result of recent developments, Organica now faces
the possible departure of one or more key employees and part of its customer
base.
12
The Company continues to believe in the marketability of Organica's
products and is working with Organica's management to develop a plan to make the
Company successful, however, it is continuing to assess the future
recoverability of its investment in Organica during this transition period.
13
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------------
The exhibits to this report are listed on the Exhibit Index included elsewhere
herein.
No reports on Form 8-K have been filed during the quarter ended March 31, 2000
14
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.
NEW BRUNSWICK SCIENTIFIC CO., INC.
--------------------------------------
(Registrant)
Date: May 15, 2000
/s/ David Freedman
--------------------
David Freedman
Chairman
(Chief Executive Officer)
/s/ Samuel Eichenbaum
-----------------------
Samuel Eichenbaum
Vice President - Finance
(Principal Accounting Officer)
15
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
EXHIBIT INDEX
-------------
Exhibit No. Exhibit. Page No.
- ----------- ------------------------------------- --------
Financial Data Schedule
27 (Filed electronically with SEC only)
16