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: June 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 August 8, 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
June 30, 2003 and December 31, 2002 .................. 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 2003
and 2002 ............................................. 5
Condensed Consolidated Statement of Shareholders'
Equity (Deficiency) for the six months ended
June 30, 2003 ........................................ 6
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2003 and 2002 ...... 7
Condensed Consolidated Statements of Comprehensive
Income/(Loss) for the six months ended June 30, 2003
and 2002 ............................................. 8
Notes to Condensed Consolidated Financial
Statements ........................................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........ 15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk .......................................... 23
Item 4. Controls and Procedures .............................. 23
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities ...................... 24
Item 4. Submission of Matters to a Vote of Security
Holders .............................................. 24
Item 6. Exhibits and Reports on Form 8-K ..................... 25
(a) Exhibits
(b) Reports on Form 8-K
Signatures .................................................... 26
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROTERION CORPORATION AND SUBSIDIARIES
(FORMERLY RHEOMETRIC SCIENTIFIC, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets (in thousands) June 30, 2003 December 31,
------------- -------------
(unaudited) 2002
----------- ----
Current Assets
Cash $ 101 $ 710
Restricted cash 69 --
Receivables - less allowance for doubtful accounts of $12
at June 30, 2003 and $13 at December 31, 2002 972 677
Inventories, net
Finished goods 188 100
Work-in-process 50 307
Assembled components, materials and parts 615 540
------------- -------------
Total Inventory 853 947
Due from TA Waters 1,700 --
Deferred tax asset -- 3,400
Prepaid expenses and other current assets 123 597
Assets held for sale -- 8,899
------------- -------------
Total current assets 3,818 15,230
------------- -------------
Property, plant and equipment 536 658
Less accumulated depreciation and amortization 271 280
------------- -------------
Property, plant and equipment, net 265 378
------------- -------------
Assets held for sale and disposal -- 4,338
Goodwill 5,598 5,609
Patents 115 121
Other assets 105 494
------------- -------------
Total Assets $ 9,901 $ 26,170
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Short-term bank borrowings $ 154 $ 8,700
Obligations under lease termination agreement 750 --
Current maturities of long-term debt 11 3,631
Affiliate debt 500 500
Accounts payable 1,272 2,294
Accrued restructuring -- 40
Accrued liabilities 2,449 1,900
Liabilities to be transferred -- 6,466
------------- -------------
Total current liabilities 5,136 23,531
------------- -------------
Long-term debt 21 1,752
Long-term debt - affiliate -- 250
Other long-term liabilities -- 28
------------- -------------
Total liabilities 5,157 25,561
------------- -------------
Redeemable Preferred Stock 1,521 2,105
------------- -------------
3
Shareholders' Equity (Deficiency)
Common Stock, par value of $.01,
Authorized 49,000 shares; issued 28,832
at June 30, 2003 and 27,726 at December 31,2002 288 277
Additional paid-in capital 37,435 37,096
Treasury Stock, at cost, 2,800 shares at June 30, 2003 and December
31, 2002 -- --
Accumulated deficit (34,694) (39,109)
Accumulated other comprehensive income 194 240
------------- -------------
Total Shareholders' Equity\(Deficiency) 3,223 (1,496)
------------- -------------
Total Liabilities and Shareholders' Equity/(Deficiency) $ 9,901 $ 26,170
============= =============
See Notes to Condensed Consolidated Financial Statements.
4
PROTERION CORPORATION AND SUBSIDIARIES
(FORMERLY RHEOMETRIC SCIENTIFIC, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share amounts) 2003 2002 2003 2002
-------- -------- -------- --------
Sales $ 1,337 $ 1,261 $ 2,765 $ 2,903
Cost of Sales 887 913 1,793 2,082
-------- -------- -------- --------
Gross profit 450 348 972 821
-------- -------- -------- --------
Marketing and selling expenses 130 88 323 202
Engineering 17 75 81 101
General and administrative expenses 445 996 1,070 2,109
-------- -------- -------- --------
592 1,159 1,474 2,412
-------- -------- -------- --------
Operating loss (142) (811) (502) (1,519)
Interest expense 1 79 2 135
Interest expense - affiliate 7 -- 15 6
Foreign currency loss 47 52 36 33
-------- -------- -------- --------
Loss from continuing operations before income tax benefit (197) (942) (555) (1,765)
Income tax benefit -- 50 -- 50
-------- -------- -------- --------
Loss from continuing operations (197) (892) (555) (1,715)
Discontinued Operations:
Income/(loss) from discontinued operations (167) 474 (1,605) 940
Gain on sale of discontinued operations -- -- 6,575 --
-------- -------- -------- --------
Income/(loss) from discontinued operations (167) 474 4,970 940
-------- -------- -------- --------
Net Income/(loss) (364) (418) 4,415 (775)
Increase in redemption value of preferred stock 43 -- 83 --
-------- -------- -------- --------
Net income/(loss) available to common shareholders ($ 407) ($ 418) $ 4,332 ($ 775)
-------- -------- -------- --------
Loss per share from continuing operations
Basic ($ .01) ($ .04) ($ .02) (.07)
======== ======== ======== ========
Diluted ($ .01) ($ .04) ($ .02) (.07)
======== ======== ======== ========
Earnings/(loss) per share from discontinued operations
Basic ($ .01) $ .02 $ .19 $ .04
======== ======== ======== ========
Diluted ($ .01) $ .02 $ .19 $ .04
======== ======== ======== ========
Earnings/(loss) per share
Basic ($ .02) ($ .02) $ .17 ($ .03)
======== ======== ======== ========
Diluted ($ .02) ($ .02) $ .17 ($ .03)
======== ======== ======== ========
Average number of shares outstanding
Basic 26,032 23,347 25,946 24,921
======== ======== ======== ========
Diluted 26,032 23.347 25,957 24,921
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
5
PROTERION CORPORATION AND SUBSIDIARIES
(FORMERLY RHEOMETRIC SCIENTIFIC, INC.)
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DEFICIENCY) FOR THE SIX MONTHS ENDED JUNE 30, 2003
(unaudited)
(in thousands)
Accumulated Total
Other Shareholders'
Common Stock Additional Accumulated Comprehensive Equity
Shares Amount Paid-in-Cap Deficit Income (Deficiency)
------------- ------------- ------------- ------------- ------------- -------------
Balances at December 27,726 $ 277 $ 37,096 ($ 39,109) $ 240 ($ 1,496)
31, 2002
Amortization of options -- -- 16 -- -- 16
issued as
compensation
Increase in redemption -- -- (83) -- -- (83)
value of preferred
stock
Stock and replacement 1,106 11 406 -- -- 417
options issued to
landlord in connection
with lease termination
agreement
Translation Adjustment -- -- -- -- (46) (46)
Net income -- -- -- 4,415 -- 4,415
------------- ------------- ------------- ------------- ------------- -------------
Balances at 28,832 $ 288 $ 37,435 ($ 34,694) $ 194 $ 3,223
June 30, 2003
------------- ------------- ------------- ------------- ------------- -------------
See Notes to Condensed Consolidated Financial Statements.
6
PROTERION CORPORATION AND SUBSIDIARIES
(FORMERLY RHEOMETRIC SCIENTIFIC, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Six Months Ended June 30,
2003 2002
-------- --------
Net cash (used in)/provided by operating activities ($ 1,768) $ 362
-------- --------
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 83 --
Purchases of property and equipment -- (107)
-------- --------
Net cash provided by (used in) investing activities 13,841 (107)
-------- --------
Cash Flows from Financing Activities:
Borrowings from line of credit 154 707
Repayments of line of credit (8,754) (373)
Repayment of long-term debt (844) --
Repayment of long-term debt affiliate (250) --
Repayment of long-term debt/lease obligation (2,254) (398)
Increase in restricted cash (69) --
Proceeds from issuance of Common Stock, net of
Issuance costs -- 4
Redemption of preferred stock (667) --
-------- --------
Net cash used in financing activities (12,684) (60)
-------- --------
Effect of exchange rate changes on cash 2 35
Net increase/(decrease) in cash (609) 230
-------- --------
Cash at beginning of year 710 696
-------- --------
Cash at end of period $ 101 $ 926
======== ========
Supplemental Information:
(in thousands) Six Months Ended June 30,
2003 2002
-------- --------
Cash payments for interest $ 38 $ 593
Cash payments for taxes $ 1 $ 1
Supplemental disclosure of non-cash investing and
financing activities:
Stock and replacement options
to landlord in connection with lease termination
agreement $ 417 --
Amount due from TA Waters on sale of rheology
instruments and services business $ 1,700 --
See Notes to Condensed Consolidated Financial Statements.
7
PROTERION CORPORATION AND SUBSIDIARIES
(FORMERLY RHEOMETRIC SCIENTIFIC, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(In thousands)
(Unaudited)
(in thousands) Six Months Ended June 30,
2003 2002
-------- --------
Net Income/(loss) $ 4,415 ($ 775)
Other comprehensive income/(loss):
Foreign currency translation adjustments (46) 37
-------- --------
Comprehensive income/(loss) $ 4,369 ($ 538)
-------- --------
See Notes to Condensed Consolidated Financial Statements.
8
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 to be expected 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").
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"). SFAS 145 rescinds the provisions of SFAS No. 4
"Reporting Gains and Losses from Extinguishment of Debt," and an amendment of
that Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." SFAS 145 also rescinds SFAS No. 44, "Accounting for
Intangible Assets of Motor Carriers." In addition, SFAS 145 amends SFAS No. 13,
"Accounting for Leases" ("SFAS 13"), to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
leaseback transactions. SFAS 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The SFAS 13 recissions
are effective for transactions entered into after May 15, 2002. The adoption of
SFAS 145 has not and is not expected to have a material impact on the Company's
financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). This statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3").
SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. EITF 94-3
allowed for an exit cost liability to be recognized at the date of an entity's
commitment to an exit plan. SFAS 146 also requires that liabilities recorded in
connection with exit plans be initially measured at fair value. The provisions
of SFAS 146 are effective for exit or disposal activities that are initiated
after December 31, 2002, with early adoption encouraged. The Company adopted
SFAS 146 in 2003.
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 condition,
results of operations, or cash flows for the period ended June 30, 2003
attributable to FIN 45.
9
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 June 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.
Six Months Ended
June 30
2003 2002
-------- --------
Net income/(loss) as reported $ 4,415 ($ 775)
Less: Additional stock-based employee compensation
expense under fair value based method 76 82
-------- --------
Pro forma net income/(loss) 4,339 (857)
Increase in redemption value of preferred stock 83 --
-------- --------
Pro forma net income/(loss) available to common shareholders $ 4,256 ($ 857)
======== ========
Earnings/(loss) per Share:
Basic: as reported $ 0.17 $ (0.03)
Basic: pro-forma $ 0.16 $ (0.03)
Diluted: as reported $ 0.17 $ (0.03)
Diluted: pro-forma $ 0.16 $ (0.03)
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. The
impact on earnings for the six months ended June 30, 2003 for the effect of
stock options, warrants, and convertible securities was less than $.01 per
share. For the six months ended June 30, 2002, the effects of stock options,
warrants, and convertible securities were anti-dilutive.
10
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.
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 was
to be released on July 22, 2003 (which date had been extended from July 15,
2003) and $850,000 is to be released on 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.
In July 2003, Waters Corporation made indemnification claims against the
escrowed amounts in the aggregate amount of $1,244,485. The Company is currently
actively engaged in discussions with Waters Corporation in order to settle this
dispute. Pending its resolution, the $850,000 in cash scheduled to be released
from escrow to the Company on July 22, 2003 remains in escrow. No assurances can
be given, however, that the Company will be able to settle this matter with
Waters Corporation or that the disputed escrow amounts will be released to the
Company.
In connection with the sale of the 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, NJ (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, the lease termination agreement provided that the
exercise price of the landlord's existing warrants for 464,160 shares of Common
Stock be reduced from $.37 per share to $.01 per share and for the issuance of
650,000 shares of Common Stock to the landlord. The Company, however, was unable
to pay the landlord the $500,000 due on July 22, 2003 because of our lack of
liquidity and the failure on July 22, 2003 of $850,000 to be released from the
escrow account established in connection with the sale of our rheology
instruments and services business. The parties are currently discussing how to
address the non-payment.
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 $2,929,000, of $10,475,000.
11
In addition, the results of operations for the rheology instruments and services
business for the periods ended June 30, 2003 and 2002 are included in the
accompanying Condensed Consolidated Statements of Operations as discontinued
operations.
4. Long-Term Debt and Short-Term Borrowings
Long-term debt and short-term borrowings as of June 30, 2003 and December 31,
2002, respectively, consisted of the following:
June 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% 32,000 39,000
Term loan payable through June 2005
Loan bears interest at prime plus 1.5%
(b)
-- 194,000
------------ ------------
32,000 5.411,000
Less Current Maturities 11,000 3,631,000
------------ ------------
Total $ 21,000 $ 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.
Short-Term Borrowings
On June 13, 2003, the Company entered into a factoring arrangement with KBK
Financial, Inc. ("KBK") under which the Company can borrow up to $1,000,000
based on eligible accounts receivable. As of June 30, 2003, total outstanding
fundings under this facility was $154,000.
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.
12
5. Affiliate Debt
Affiliate debt consisted of the following:
June 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 Company's lack of
liquidity and 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.
Axess has declared all amounts under the Axess Note immediately due and payable.
6. Operating Segment
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;
(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 therefore, 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 held by it. Pursuant to
13
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, we are obligated to issue to
Andlinger Capital XXVI a new warrant to purchase up to 333,333 shares of our
Common Stock. The exercise price of this warrant relative to each share of
Common Stock shall be the average of the closing prices of our Common Stock over
the ten trading days immediately preceding July 15, 2004. 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.
14
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 six months and three months ended June 30, 2003 and 2002
Please note that except where specifically noted in the comparative discussion
below, the six months and three months ended June 30, 2003 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. Similarly, when discussing the six months and three months
ended June 30, 2002 below, except where specifically noted we have not included
these discontinued operations, but only our life sciences business, our
"continuing operations".
Continuing Operations
Revenues
In the six months ended June 30, 2003, we achieved revenues of $2,765,000 from
continuing operations, compared to revenues of $2,903,000 in the corresponding
period in 2002; a decrease of $138,000, or 5%. For the three months ended June
30, 2003, we achieved revenues of $1,337,000 from continuing operations compared
to revenues of $1,261,000 in the corresponding period in 2002; an increase of
$76,000, or 6%. This increase in revenue for the three month period was
primarily the result of increased demand for the Company's DynaPro product line.
The Aviv product line has experienced a slowdown in orders. 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 Aviv and
DynaPro product lines have historically been characterized by a high level of
variability.
Gross Profit
Gross profit for the six month period ended June 30, 2003 totaled $972,000, or
35% of revenues, compared to $821,000, or 28% of revenues, in the corresponding
period in 2002, an increase of $151,000. The gross profit from continuing
operations for the three month period ended June 30, 2003 totaled $450,000, or
34% of revenues, compared to $348,000, or 28% of revenues, in the corresponding
period in 2002, an increase of $102,000. The increase for the six months ended
June 30, 2003 (as compared to the corresponding period in 2002) was achieved
despite lower sales volume, primarily as the result of changes made to our Aviv
15
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 our recently
introduced high-throughput "Plate-Reader" version of the DynaPro. We expect
higher margins in the future on our DynaPro product line as the product mix
continues to shift in favor of this higher-margin product.
Operating Expenses
Operating expenses for the six month period ended June 30, 2003 were $1,474,000,
compared to $2,412,000 for the same period in the prior year, a reduction of
$938,000. The operating expenses for the three months ended June 30, 2003 were
$592,000 compared to $1,159,000 in the corresponding period last year, a
reduction of $567,000. The decrease in each period is primarily attributable to
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 six month periods ended June 30, 2003 were $445,000, and $1,070,000,
respectively, a decrease of $551,000 and $1,039,000, respectively, compared to
the same periods in 2002. These reductions relate primarily to 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 six
month periods ended June 30, 2003 increased by $42,000 and $121,000,
respectively, over the corresponding periods last year. These increases were
primarily the result of adding sales and marketing personnel.
Engineering. Engineering expenses for the three and six month periods ended June
30, 2003 decreased by $58,000 and $20,000, respectively, when compared to the
corresponding periods of 2002.
Interest Expense
Net interest expense for the three and six month periods ended June 30, 2003
were $8,000 and $17,000, respectively, decreases of $71,000 and $124,000,
respectively, when compared to the same periods in 2002. These decreases were
due in large part to 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. Remaining interest expense is mostly related to affiliate debt.
Interest expenses related to the new factoring arrangement with KBK Financial,
Inc. were not significant in the six months ended June 30, 2003.
Foreign Currency
The foreign currency transactions for the three and six months ended June 30,
2003 resulted in losses of $47,000 and $36,000, respectively. These losses and
the respective decrease of $5,000 for the three month period ended June 30, 2003
(when compared to the second quarter of 2002), and the increase of $3,000 for
the six month period ended June 30, 2003 (when compared to the corresponding
period in 2002) were due to currency fluctuations, primarily between the US
dollar and the British Pound.
Loss from continuing operations after taxes
Losses from continuing operations after taxes for the three and six month
periods ended June 30, 2003 were $197,000 and $555,000, respectively, compared
to losses of $892,000 and $1,715,000 for the corresponding periods in 2002.
16
The decrease in loss of $695,000 for three month period resulted primarily from
a $567,000 decrease in operating expenses which were eliminated with the sale of
the rheology instruments and services businesses, an improvement in gross profit
margin of $102,000, and a reduction of interest expense from the retirement of
the PNC Bank line of $71,000. Items offsetting this decrease in loss, including
taxes, totaled $45,000.
The decrease in loss of $1,160,000 for six month period resulted primarily from
a $938,000 decrease in operating expenses which were eliminated with the sale of
the rheology instruments and services businesses, an improvement in gross profit
margin of $151,000, and a reduction of interest expense from the retirement of
the PNC Bank line of $124,000. Items offsetting this decrease in loss, including
taxes, totaled $53,000.
Discontinued Operations:
Income/Loss from discontinued operations
For the three and six month periods ended June 30, 2003, the rheology
instruments and services business incurred losses from discontinued operations
of $167,000 and $1,605,000, respectively. Income from discontinued operations
for the three and six month periods ended June 30, 2002 was $474,000 and
$940,000, respectively. Expenses of $167,000 for the three month period ended
June 30, 2003 were for items for which expenses were incurred, but which had not
been anticipated at the time of the sale of the rheology instruments and
services business.
Gain from the sale of the rheology instruments and services business
As a result of the sale of the rheology instruments and services business, 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, the Company expected to receive $850,000 on July 22, 2003 (which
date was extended from July 15, 2003) and $850,000 on January 15, 2004 from the
escrow account established in connection with the sale to secure potential
indemnification claims by the purchaser. In July 2003, Waters Corporation made
indemnification claims against the escrowed amounts in the aggregate amount of
$1,244,485. The Company is currently actively engaged in discussions with Waters
in order to settle this dispute. Pending its resolution, of which no assurances
can be given, the $850,000 scheduled to be released on July 22, 2003 remains in
escrow. We believe, however, that Waters's claims against the escrow are without
merit and that the funds contained in the escrow account ($1.7 million) will
ultimately be received by the Company. Nevertheless, we can give no assurances
this will occur.
We used the cash proceeds already received to pay off our senior credit facility
with PNC Bank and satisfy, in whole or in part, 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.
17
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. We have had negative cash flow since this
sale and anticipate that this will continue during the second half of 2003.
Consequently, unless we secure debt and/or equity financing in the near term we
expect that our current cost structure and our cash flow from operations will be
insufficient to optimally fund the development of our Plasmon Waveguide
Resonance ("PWR") technology or to retire 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 and our existing product lines. Our customers,
however, are decreasing their capital spending activities and the sales trends
in our industry have been decreasing over the past eighteen months.
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 June 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 based on eligible accounts
receivable. As of June 30, 2003, total outstanding fundings under this facility
was $154,000.
Despite our expense reductions and arrangement with KBK, we are still
experiencing a significant lack of liquidity. Consequently, Waters Corporation's
claim against the escrowed funds impaired our ability to make payments due on
July 22, 2003 to Axess, Andlinger Capital XXVI and the landlord for our
Facility. As a result, we are currently in discussions with our landlord
concerning how to remedy our failure to make the necessary $500,000 payment on
July 22, 2003, and Axess has declared all amounts due under the Axess Note
immediately due and payable which principal and interest currently totals
$531,000.
We are currently seeking debt and equity financing on acceptable terms in order
to obtain the liquidity necessary to fund our operations, fund development of
the PWR, and meet our other obligations, but there can be no assurance that we
will be able to obtain such financing or that it will be available on terms
acceptable to us.
If we do not increase our sales, are not successful in further expense reduction
efforts and do not obtain 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 the 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.
We are also pursuing other alternatives for alleviating our liquidity
requirements, but despite these efforts and our agreement with Andlinger Capital
XXVI, 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.
Cash Flows from Operations
In the six months ended June 30, 2003, excluding the gain on the sale of the
Company's discontinued operations, the Company incurred a loss of $2,160,000 of
which $555,000 was from continuing operations and $1,605,000 was from
discontinued operations. Aside from the net loss, the primary use of cash was an
increase in accounts receivable of $295,000 and a decrease in accounts payable
and accrued expenses of $513,000. Reductions in inventories provided $95,000 and
reductions in prepaid expenses provided $474,000. Net cash provided by
operations for the six months ended June 30, 2002 was $362,000.
18
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 also generated $83,000 on the sale
of property and equipment. We made no capital expenditures during the six months
ended June 30, 2003 compared to capital expenditures of $107,000 during the same
period in 2002.
Cash Flows from Financing
Net cash used by financing activities for the six months ended June 30, 2003 was
$12,684,000 compared to net cash used of $60,000 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 on our lease termination agreement
of $2,254,000, 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 borrowing under our factoring agreement with KBK in the six months
ended June 30, 2003 was $154,000. Restricted cash increased by $69,000. Through
the six month period ended June 30, 2003, the net change in cash was a decrease
of $609,000 compared to a $230,000 increase over 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:
Inventory Reserves
The Company continuously monitors its exposure relating to excess and obsolete
inventory and we establish 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.
19
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 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.
The minimum commitments under noncancellable leases consisted of the following
at June 30, 2003:
(in thousands) Operating Capital
Year Leases Leases
---- --------- ---------
Remainder 2003 $ 48 $ 6
2004 -- 15
2005 -- 16
--------- ---------
Total minimum lease payments $ 48 37
=========
Less amounts representing interest 5
---------
Total lease obligation 32
Less current maturities 11
---------
Long-term lease obligation $ 21
=========
20
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
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
21
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.
22
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 reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, 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 June 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.
23
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, NJ (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 the $500,000 due on July 22, 2003 and the parties are currently
discussing how to address the non-payment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Proterion Corporation held its Annual Meeting of Stockholders on May 15, 2003.
At the meeting, the stockholders: (a) approved the re-election of the Board of
Directors of Proterion Corporation; (b) approved the Company's 2003 Equity
Incentive Plan; and (c) ratified the appointment of Mahoney Cohen & Company,
CPA, P.C. as the Company's independent accountants for the year ending December
31, 2003. The results of the stockholder votes at the Annual Meeting of
Stockholders is as follows:
a) Election of Directors:
- --------------------------------------------------------------------------------
Nominee For Withheld
- --------------------------------------------------------------------------------
Robert M. Castello 24,072,868 30,978
- --------------------------------------------------------------------------------
Mark F. Callaghan 24,072,868 30,978
- --------------------------------------------------------------------------------
David R. Smith 24,072,868 30,978
- --------------------------------------------------------------------------------
Merrick G. Andlinger 24,072,868 30,978
- --------------------------------------------------------------------------------
Robert K. Prud'homme 24,072,868 30,978
- --------------------------------------------------------------------------------
Paul Woitach 24,072,868 30,978
- --------------------------------------------------------------------------------
b) 2003 Equity Incentive Plan:
- --------------------------------------------------------------------------------
For Against Abstain
- --------------------------------------------------------------------------------
20,420,285 82,715 20,357
- --------------------------------------------------------------------------------
c) Approval of the appointment of Mahoney Cohen & Company CPA,
P.C. as the Company's independent accountants for the year ending December 31,
2003:
- --------------------------------------------------------------------------------
For Against Abstain
- --------------------------------------------------------------------------------
24,063,574 23,095 17,177
- --------------------------------------------------------------------------------
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.16* Proterion Corporation 2003 Equity Incentive Plan.
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.
(i) The Company filed a Current Report on Form 8-K on May 27, 2003
announcing its operating results for the fiscal quarter ended March 31,
2003.
25
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)
August 19, 2003 By /s/ STEPHEN M. OBEDA
--------------------------------------
Stephen M. Obeda, Vice President,
Finance, Chief Financial Officer and
Authorized Officer
26