-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M/OR6xIwF87qXPm8xQngTPwmJsCopufEYDsXaYQcPev+tajz8Q9HIA2LlGpWgxxw cdNmgSwwJSbsmEkZP19P2Q== 0000950147-96-000343.txt : 19960816 0000950147-96-000343.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950147-96-000343 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARIZONA INSTRUMENT CORP CENTRAL INDEX KEY: 0000724904 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 860410138 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-12575 FILM NUMBER: 96611659 BUSINESS ADDRESS: STREET 1: 4114 E WOOD ST CITY: PHOENIX STATE: AZ ZIP: 85040 BUSINESS PHONE: 6024701414 MAIL ADDRESS: STREET 1: 4114 E WOOD STREET CITY: PHOENIX STATE: AZ ZIP: 85040 FORMER COMPANY: FORMER CONFORMED NAME: QUINTEL CORP DATE OF NAME CHANGE: 19870329 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTRAC INSTRUMENTS INC DATE OF NAME CHANGE: 19840613 10QSB 1 SECOND QUARTER REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 1996 Commission File Number 0-12575 Arizona Instrument Corporation (Exact name of registrant as specified in its charter) Delaware 86-0410138 (State of incorporation) (I.R.S. Employer identification number) 4114 East Wood Street, Phoenix, Arizona 85040-1941 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (602) 470-1414 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 and 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 ------ ------ As of July 20, 1996, 6,521,180 shares of Common Stock ($0.01 par value) were outstanding. ARIZONA INSTRUMENT CORPORATION TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets June 30, 1996 and December 31, 1995 II-3 Consolidated Statements of Operations Three and six months ended June 30, 1996 and June 30, 1995 II-4 Consolidated Statements of Cash Flows Six months ended June 30, 1996 and June 30, 1995 II-5 Notes to Consolidated Financial Statements II-6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations II-7 II. OTHER INFORMATION Item 1 Legal Proceedings II-11 Item 4 Submission of Matters to a Vote of Security Holders II-11 Item 6 Exhibits and Reports on Form 8-K II-12 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS II-3 ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1996 1995 ----------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 359,151 $ 486,382 Receivables, net 3,035,789 3,371,837 Inventories 1,877,547 1,793,770 Current portion of notes receivable related party 45,501 55,501 Prepaid expenses and other current assets 314,412 222,680 Settlement receivable, net 997,096 ------------- ------------ Total current assets 6,629,496 5,930,170 PROPERTY, PLANT AND EQUIPMENT, NET 949,883 1,083,199 GOODWILL, NET 2,332,827 2,455,924 COVENANT NOT TO COMPETE, NET 131,250 160,417 DEFERRED INCOME TAXES 598,500 113,500 OTHER ASSETS 833,965 856,952 ------------- ------------ TOTAL ASSETS $ 11,475,921 $ 10,600,162 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Lines of credit $ 150,000 $ 250,000 Accounts payable 751,251 863,386 Current portion of long-term debt and capital lease obligations 1,002,224 613,224 Other accrued expenses 484,843 871,136 ------------- ------------ Total current liabilities 2,388,318 2,597,746 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 953,301 1,663,112 SHAREHOLDERS' EQUITY Common stock, .01 par value per share: Authorized, 10,000,000 shares; Issued, 6,607,345 and 6,352,563 shares 66,073 63,526 Preferred stock, $.01 par value per share: Authorized, 1,000,000 shares Additional paid-in capital 9,617,261 9,360,950 Deficit (1,326,581) (2,862,721) ------------- ------------ 8,356,753 6,561,755 Less treasury stock, 86,165 shares at cost (222,451) (222,451) ------------- ------------ Total shareholders' equity 8,134,302 6,339,304 ------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,475,,921 $ 10,600,162 ============= ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS II-4 ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended 6/30/96 6/30/95 6/30/96 6/30/95 -------------------------- ---------------------------- NET SALES $ 3,181,412 $ 3,123,952 $ 6,465,843 $ 5,951,044 COST OF GOODS SOLD 1,404,355 1,338,056 2,880,253 2,661,331 ----------- ----------- ----------- ----------- Gross Margin 1,777,057 1,785,896 3,585,590 3,289,713 ----------- ----------- ----------- ----------- EXPENSES Marketing 787,212 721,896 1,561,037 1,392,728 General & administrative 557,915 560,208 1,119,833 1,073,183 Research and development 173,287 142,304 351,616 293,861 Amortization and depreciation 163,645 139,286 329,709 276,883 ----------- ----------- ----------- ----------- Total Expenses 1,682,059 1,563,694 3,362,195 3,036,655 ----------- ----------- ----------- ----------- OPERATING INCOME 94,998 222,202 223,395 253,058 ----------- ----------- ----------- ----------- OTHER REVENUE (EXPENSE) Interest Income 4,061 4,545 7,236 9,375 Interest expense (63,866) (133,686) (134,544) (273,066) Other income (expense) 1,004,347 50,035 1,024,053 78,525 ----------- ----------- ----------- ----------- Total other revenue (expense) 944,542 (79,106) 896,745 (185,166) ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 1,039,540 143,096 1,120,140 67,892 INCOME TAXES (BENEFIT) (418,000) 3,000 (416,000) 4,000 ----------- ----------- ----------- ----------- NET INCOME $ 1,457,540 $ 140,096 $ 1,536,140 $ 63,892 =========== =========== =========== =========== NET INCOME PER SHARE $ 0.21 $ 0.02 $ 0.22 $ 0.01 =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON STOCK EQUIVALENTS 7,040,227 6,466,126 6,960,605 6,407,151 =========== =========== =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS II-5 ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended 6/30/96 6/30/95 -------------------------- OPERATING ACTIVITIES NET INCOME $ 1,536,140 $ 63,892 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Depreciation and amortization 409,882 370,295 Decrease in accounts receivable 336,048 16,537 (Increase) decrease in inventory (83,777) 309,834 (Increase) decrease in prepaid expenses and other current assets (81,731) 17,669 (Increase) in settlement receivable, net (997,096) (Increase) decrease in other assets (26,774) 2,749 (Increase) in deferred income taxes (485,000) (Decrease) in accounts payable and other accrued expenses (498,428) (38,541) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 109,264 742,435 ----------- ----------- INVESTING ACTIVITIES Proceeds from the sale of assets 23,700 Gain on the sale of assets (23,200) Purchases of capital equipment (75,042) (56,542) ----------- ----------- NET CASH (USED) BY INVESTING ACTIVITIES (74,542) (56,542) ----------- ----------- FINANCING ACTIVITIES Net (payments) under lines of credit (100,000) (625,000) Issuance of common stock pursuant to earnout agreement 202,585 Issuance of common stock pursuant to stock purchase plan 28,273 17,021 Stock issued for warrants 28,000 22,501 Payments of long-term debt and capital leases (320,811) (136,350) ----------- ----------- NET CASH (USED) BY FINANCING ACTIVITIES (161,953) (721,828) ----------- ----------- NET (DECREASE) IN CASH & CASH EQUIVALENTS (127,231) (35,935) CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 486,382 387,979 ----------- ----------- CASH & CASH EQUIVALENTS AT END OF PERIOD $ 359,151 $ 352,044 =========== =========== Supplemental cash flow information:
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS II-6 ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of June 30, 1996, the consolidated statements of operations and cash flows for the three-month and six-month periods ended June 30, 1996 and 1995 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at June 30, 1996 and the results of operations and cash flows for the three-month and six-month periods ended June 30, 1996 and June 30, 1995 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 1995 Report on Form 10-KSB. The results of operations for the interim periods are not necessarily indicative of the results to be obtained for the entire year. 2. INVENTORIES Inventories consist of the following: June 30, December 31, 1996 1995 Finished goods $ 611,764 $ 645,262 Components 1,265,783 1,148,508 ------------- ------------- $ 1,877,547 $ 1,793,770 ============= ============= 3. INCOME TAXES A $485,000 tax benefit was recognized in the second quarter of 1996 from reducing the Company's deferred tax valuation allowance and recognizing a deferred tax asset. The II-7 recognized deferred tax asset is based upon utilization of net operating loss carryforwards and the reversal of certain temporary differences. 4. SETTLEMENT OF LITIGATION Other revenue in second quarter of 1996 included $997,096 of income related a settlement the Company reached in June, 1996 with a state organization involving a technology development contract. The Company also received exclusive rights to the contested technology in the Jerome toxic gas monitors product line. The following discussion should be read in conjunction with, and is qualified in its entirety by, the Company's Consolidated Financial Statements and Notes thereto appearing elsewhere herein. Historical results are not necessarily indicative of trends in operating results for any future period. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations: Six months ended June 30, 1996 and June 30, 1995 Net sales for the six months ended June 30, 1996 increased 9% to $6,465,843 from $5,951,044 in the first six months of 1995. The increase in sales resulted primarily from the increase in ENCOMPASS fuel management and compliance leak detection systems and ENCOMPASS related installation sales. Historically, due to the relatively short time period between receipt of customer equipment orders and shipments, the Company's backlog for equipment orders has been quite low. However, backlog for Horizon tank testing services was $295,000 at the end of the second quarter of 1996 compared to $596,000 at the end of the second quarter of 1995. The decrease in Horizon backlog is primarily due to a decrease in tank testing sales. Cost of goods sold was 45% of net sales in the first six months of 1996 compared to 45% for the same period in 1995. Overall, total expenses in the first six months of 1996 increased $325,540 or 11%, from the same period in 1995. This was primarily the result of the $168,309 increase in marketing expenses to support the higher sales and installations of the ENCOMPASS systems and the $57,755 increase in research and development expenses. II-8 Marketing expenses increased 12%, or $168,309 in the first six months of 1996 compared to the same period in 1995. Marketing expenses increased primarily as a result of the increase in sales and service related activity to support the higher level of ENCOMPASS equipment and installations related sales volume. Marketing expenses are anticipated to increase in 1996 compared to 1995. General and administrative expenses increased $46,650 or 4%, in the first six months of 1996 compared to the same period in 1995. General and administrative expenses increased primarily from increased administrative expenses to support increased ENCOMPASS sales and installation activity. Research and development expenses increased $57,755 or 20%, for the first six months of 1996 compared to the same period of 1995. The increase in research and development expenses was primarily the result of a planned increase in research and development personnel to support the new product development activities for all the Company's various product lines. Research and development expenses are anticipated to increase in 1996 compared to 1995. Other revenue increased $1,081,911 in the first six months of 1996 as compared to the same period in 1995. The increase was primarily the result of $997,096 of other income the Company recognized in the second quarter related to a settlement the Company reached in June, 1996 with a state organization involving a technology development contract. The Company also received exclusive rights to the contested technology in the Jerome product line. Other revenue also increased as a result of lower interest expense on decreased borrowing on the Company's bank lines of credit and in long-term debt. Income taxes decreased $420,000 in the first six months of 1996 as compared to the same period in 1995. The decrease was primarily the result of a $485,000 tax benefit being recognized in the second quarter from reducing the Company's deferred tax valuation allowance and recognizing a deferred tax asset. The recognized deferred tax asset is based upon utilization of net operating loss carryforwards and reversal of certain temporary differences. Three months ended June 30, 1996 and June 30, 1995 Net sales for the second quarter ended June 30, 1996 increased 2% to $3,181,412 from $3,123,952 in the second quarter of 1995. The increase in sales resulted primarily from the increase in ENCOMPASS fuel management and compliance leak detection systems and ENCOMPASS related installation sales. Cost of goods sold was 44% of net sales in the second quarter of 1996 compared to 43% for the same period in 1995. Overall, total expenses in the second quarter of 1996 increased $118,365 or 8%, from the same II-9 period in 1995. This was primarily the result of the $65,316 increase in marketing expenses to support the higher sales and installations of the ENCOMPASS systems and the $30,983 increase in research and development expenses. Marketing expenses increased 9%, or $65,316 in the second quarter of 1996 compared to the same period in 1995. Marketing expenses increased primarily as a result of the increase in sales and service related activity to support the higher level of ENCOMPASS equipment and installations related sales volume. Marketing expenses are anticipated to increase in 1996 compared to 1995. General and administrative expenses decreased $2,293 or in the second quarter of 1996 compared to the same period in 1995. Research and development expenses increased $30,983 or 22%, in the second quarter of 1996 compared to the same period of 1995. The increase in research and development expenses was primarily the result of a planned increase in research and development personnel to support the new product development activities for all the Company's various product lines. Research and development expenses are anticipated to increase in 1996 compared to 1995. Other revenue increased $1,023,648 in the second quarter of 1996 as compared to the same period in 1995. The increase was primarily the result of $997,096 of other income the Company recognized in the second quarter related to a settlement the Company reached in June, 1996 with a state organization involving a technology development contract. The Company also received exclusive rights to the contested technology in the Jerome product line. Other revenue also increased as a result of lower interest expense on decreased borrowing on the Company's bank lines of credit and long-term debt. Income taxes decreased $421,000 in the second quarter of 1996 as compared to the same period in 1995. The decrease was primarily the result of a $485,000 tax benefit being recognized in the second quarter from reducing the Company's deferred tax valuation allowance and recognizing a deferred tax asset. The recognized deferred tax asset is based upon utilization of net operating loss carryforwards and reversal of certain temporary differences. The Company has historically experienced and expects to continue to experience quarterly fluctuations, potentially in a material amount, in its operating results. A variety of factors influence the Company's operating results in a particular period, including economic conditions in the industries served by the Company, regulatory developments, the timing of significant orders, shipment delays, specific features requested by the customers, the introduction of new products by the Company and its competitors, market acceptance of new products and enhancements of existing products, changes in the cost of materials, disruptions in the sources of supply, seasonal variations of spending by customers, the timing of the Company's expenditures in anticipation of future orders and other factors, many of which are beyond the Company's control. In addition, the Company sells a significant portion of its ENCOMPASS products to a limited number of II-10 customers. While management believes that its relationships with these customers are good, future orders under purchase agreements with these customers are subject to change based on changing business conditions of the customers. One large customer was acquired during the second quarter of 1996 and consequently future purchases of ENCOMPASS by this customer are currently being re-evaluated by the new parent company. Except for the historical information contained herein, the discussion in this Report contains or may contain forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Management's Discussion and Analysis, the Company's Prospectus dated February 18, 1994 or the Company's Report on Form 10-KSB for the year ended December 31, 1995, as well as those factors discussed elsewhere herein. Liquidity and Capital Resources: Net working capital increased 27% to $4,241,178 in the first half of 1996 from $3,332,424 at December 31, 1995. The current ratio increased to 2.8 from 2.3. The increases in working capital and the current ratio were primarily due to the increase in the settlement receivable. The Company currently has two lines of credit available through Silicon Valley Bank ("the Bank"), collateralized by accounts receivable, inventory, and property, plant and equipment which provide for an aggregate maximum commitment of $2,500,000 through March 15, 1997. Advances can be made against the lines based on qualified levels of receivables and inventory. At July 20, 1996 an aggregate of $1,836,841 was available under the lines of credit of which none had been drawn. The Company was in compliance with all of the financial covenants at June 30, 1996. On April 14, 1995, the Company entered into an agreement with Classic Syndicate, Inc. ("Classic"). Pursuant to the Subordinated Loan Agreement, Classic holds a 10% Note in the principal amount of $375,000 with a maturity date of April 30, 1997. The funds were to be used exclusively for the April 30, 1995 principal payment on a Subordinated Note to Bridge Capital which was completely paid off in 1995. Semi-annual interest payments are to be made on April 30, 1996 and October 31, 1996. On November 17, 1995, the Company entered into a second agreement with the Bank. Pursuant to the Loan Agreement, the Bank holds a Note in the principal amount of $1,041,667 at an interest rate of prime plus 2% and a warrant to purchase 62,500 shares of the Company's Common Stock at an exercise price of $2.08 per share. The Company is required to pay 42 monthly principal payments of $29,762 in addition to monthly interest payments from December 7, 1995 through May 7, 1999. The Note is cross-collateralized with the Company's bank lines of credit until the Note is fully repaid. The Note contains certain covenants, including minimum net income levels and certain financial ratios. The Company was in compliance with all these covenants at June 30, 1996. On a quarterly basis, half of any excess cash flow that the Company II-11 generates is required to be used to prepay any remaining principal balance due on this Note. Excess cash flow is defined as net income plus non-cash expenses less capital expenditures, scheduled principal payments and increases in net working capital. The Company believes that cash generated from ongoing operations and the borrowing arrangements described above will satisfy the anticipated cash requirements of the Company's current operations over the next 12 months, though there can be no assurance that this will be the case. The Company's ability to continue funding its planned operations beyond the next 12 months is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, or to obtain additional funds though equity or debt financing, or from other sources of financing, as may be required. PART II. OTHER INFORMATION Item 1 Legal Proceedings Information is incorporated by reference from the Company's Report on Form 10-KSB for the year ended December 31, 1995. With regard to litigation reported therein involving the Company, another firm, a state organization and certain other parties, the parties have agreed to a settlement under which the Company will receive $1,000,000 as well as exclusive rights to the contested technology. Item 4 Submission of Matters to a Vote of Security Holders a) The 1996 Annual Meeting of Stockholders of the Company (the "Meeting") was held on June 27, 1996. b) At the Meeting Mr. Quinn Johnson and Mr. S. Thomas Emerson were re-elected to three-year terms as directors of the Company. Continuing directors include John P. Hudnall, Walfred R. Raisanen, Richard Long, Patricia Onderdonk and Stanley H. Weiss. c) Following is a brief description of the matters voted upon at the Meeting and the results of the voting. (1) Election of Quinn Johnson to the Board of Directors: 5,292,154 votes for, 392,799 votes withheld. (2) Election of S. Thomas Emerson to the Board of Directors: 5,620,454 votes for, 64,499 votes withheld. (3) Proposal to approve an amendment of the Company's Employee Stock Purchase II-12 Plan to increase the number of shares available thereunder by 200,000 shares: 2,912,872 votes for, 171,577 votes against, 48,033 votes abstained, 0 not voted. (4) Approval of an amendment of the Company's Employee Stock Purchase Plan to permit participation of senior officers: 4,677,982 votes for, 212,647 votes against, 56,573 votes abstained, 0 not voted. (5) Proposal to approve an amendment of the Company's 1991 Stock Purchase Plan to increase the number of shares available thereunder by 300,000 shares: 2,204,691 votes for, 870,108 votes against, 56,983 votes abstained, 0 not voted. (6) Ratification of the appointment of Deloitte and Touche as the independent auditors of the Company for the year ending December 31, 1996: 5,616,040 votes for, 32,554 votes against, 36,359 votes abstained, 0 not voted. Item 6 Exhibits and Reports on Form 8-K (b) There were no reports on Form 8-K for the quarter ended June 30, 1996 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. ARIZONA INSTRUMENT CORPORATION August 14, 1996 /s/ John P. Hudnall - ----------------- ------------------------------- Date John P. Hudnall, President, CEO (Authorized officer) August 14, 1996 /s/ Scott M. Carter - ----------------- ------------------------------- Date Scott M. Carter, Vice President, CFO (Principal financial officer) EX-27 2 ARTICLE 5 FDS FOR 2ND QUARTER 10-QSB
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000724904 ARIZONA INSTRUMENT CORPORATION 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 359,151 0 3,189,617 153,828 1,877,547 6,629,496 2,828,886 2,362,728 11,475,921 2,388,318 953,301 0 0 66,073 8,068,229 11,475,921 6,465,843 6,465,843 2,880,253 3,362,195 0 0 134,544 1,120,140 (416,000) 1,536,140 0 0 0 1,536,140 .22 .22
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