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 March 31, 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 April 20, 1996, 6,498,780 shares of Common Stock ($0.01 par value) were
outstanding.
<PAGE>
ARIZONA INSTRUMENT CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 I-3
Consolidated Statements of Operations
Three months ended March 31, 1996 and
March 31, 1995 I-4
Consolidated Statements of Cash Flows
Three months ended March 31, 1996
and March 31, 1995 I-5
Notes to Consolidated Financial
Statements I-6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations I-7
II. OTHER INFORMATION
Item 1 Legal Proceedings I-9
Item 6 Exhibits and Reports on Form 8-K I-10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1996 1995
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 384,956 $ 486,382
Receivables, net 3,161,409 3,371,837
Inventories 1,907,006 1,793,770
Current portion of notes receivable related party 55,501 55,501
Prepaid expenses and other current assets 263,843 222,680
----------- -----------
Total current assets 5,772,715 5,930,170
PROPERTY, PLANT AND EQUIPMENT, NET 1,006,587 1,083,199
GOODWILL, NET 2,394,415 2,455,924
COVENANT NOT TO COMPETE, NET 145,834 160,417
OTHER ASSETS 961,563 970,452
----------- -----------
TOTAL ASSETS $10,281,114 $10,600,162
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Lines of credit $ 150,000 $ 250,000
Accounts payable 816,480 863,386
Current portion of long-term debt and
capital lease obligations 620,224 613224
Other accrued expenses 539,880 871136
----------- -----------
Total current liabilities 2,126,584 2,597,746
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 1,505,768 1,663,112
SHAREHOLDERS' EQUITY
Common stock, .01 par value per share:
Authorized, 10,000,000 shares;
Issued, 6,584,945 and 6,352,563 shares 65,849 63,526
Preferred stock, $.01 par value per share:
Authorized, 1,000,000 shares
Additional paid-in capital 9589485 9360950
Deficit -2784121 -2862721
----------- -----------
6871213 6561755
Less treasury stock, 86,165 shares at cost -222451 -222451
----------- -----------
Total shareholders' equity 6648762 6339304
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,281,114 $10,600,162
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
----------------------------
3/31/96 3/31/95
------------ ------------
NET SALES $ 3,284,431 $ 2,827,092
COST OF GOODS SOLD 1,475,898 1,323,275
------------ ------------
Gross Margin 1,808,533 1,503,817
------------ ------------
EXPENSES
Marketing 773,825 670,832
General & administrative 561,918 512,975
Research and development 178,329 151,557
Amortization and depreciation 166,064 137,597
------------ ------------
Total Expenses 1,680,136 1,472,961
------------ ------------
OPERATING INCOME 128,397 30,856
------------ ------------
OTHER REVENUE (EXPENSE)
Interest Income 3,175 4,830
Interest expense (70,678) (139,380)
Other income (expense) 19,706 28,490
------------ ------------
Total other expense (47,797) (106,060)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 80,600 (75,204)
INCOME TAXES 2,000 1,000
------------ ------------
NET INCOME (LOSS) $ 78,600 ($ 76,204)
============ ============
NET INCOME (LOSS) PER SHARE $ 0.01 ($ 0.01)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON STOCK EQUIVALENTS 6,862,548 6,193,156
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
3/31/96 3/31/95
--------- ---------
OPERATING ACTIVITIES
NET INCOME (LOSS) $ 78,600 ($ 76,204)
--------- ---------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH (USED) PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization 200,845 186,225
Decrease in accounts receivable 210,428 265,846
(Increase) decrease in inventory (113,236) 143,744
(Increase) decrease in prepaid expenses and
other current assets (24,957) 106,033
(Increase) in other assets (16,031) (3,797)
(Decrease) in accounts payable and other
accrued expenses (378,162) (249,268)
--------- ---------
NET CASH (USED) PROVIDED BY OPERATING
ACTIVITIES (42,513) 372,579
--------- ---------
INVESTING ACTIVITIES
Proceeds from the sale of assets 19,750
Gain on the sale of assets (19,690)
Purchases of capital equipment (39,487) -38188
--------- ---------
NET CASH (USED) BY INVESTING
ACTIVITIES (39,427) -38188
--------- ---------
FINANCING ACTIVITIES
Net (payments) under lines of credit (100,000) (225,000)
Issuance of common stock pursuant to earnout agreement 202,585
Issuance of common stock pursuant to stock
purchase plan 28,273 17021
Payments of long-term debt and capital leases (150,344) -56152
--------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES (19,486) (264,131)
--------- ---------
NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS -101426 70260
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 486382 387979
--------- ---------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 384,956 $ 458,239
========= =========
Supplemental cash flow information:
Property, plant and equipment acquired through
capital lease obligations
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1996, the consolidated statements
of operations and cash flows for the three-month periods ended March 31, 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 March 31, 1996 and the
results of operations and cash flows for the three-month periods ended March 31,
1996 and March 31, 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:
March 31, December 31,
1996 1995
Finished goods $ 684,628 $ 645,262
Components 1,222,378 1,148,508
----------- -----------
$ 1,907,006 $ 1,793,770
----------- -----------
<PAGE>
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:
Three months ended March 31, 1996 and March 31, 1995
Net sales for the three months ended March 31, 1996 increased 16% to $3,284,431
from $2,827,092 in the first three 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 $413,000 at the end of the first quarter of 1996 compared to $320,000 at the
end of the first quarter of 1995.
Cost of goods sold was 45% of net sales in the first three months of 1996
compared to 47% for the same period in 1995. Gross margin increased primarily
from higher utilization of the tank testing field technicians in the first
quarter of 1996 compared to the same quarter in 1995.
Overall, total expenses in the first three months of 1996 increased $207,175, or
14%, from the same period in 1995. This was primarily the result of the $102,993
increase in marketing expenses to support the higher sales and installations of
the ENCOMPASS systems.
Marketing expenses increased 15%, or $102,993 in the first three 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 $48,943 or 9%, in the first three
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. General and administrative
expenses are anticipated to increase in 1996 compared to 1995.
<PAGE>
Research and development expenses increased $26,772 or 18%, for the first three
months of compared to the same period of 1995. The increase in research and
development expenses was primarily the result of a planned increased in research
and development personnel to support the new product development activities for
all the Company's product lines. Research and development expenses are
anticipated to increase in 1996 compared to 1995.
Other expenses decreased $58,263 or 55%, in the first three months of 1996 as
compared to the same period in 1995. The decrease was primarily the result of
lower interest expense on decreased borrowing on the Company's bank lines of
credit and decreases in long term debt.
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 customers. While management believes that its relationships
with these customers are strong, future orders under purchase agreements with
these customers are subject to change based on changing business conditions of
the customers.
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 9% to $3,646,131 in the first three months of 1996
from $3,332,424 at December 31, 1995. The current ratio increased from 2.3 to
2.7. The increases in working capital and the current ratio were primarily due
to increased cash flow from reducing receivables and reducing borrowing under
the bank lines of credit.
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.
<PAGE>
Advances can be made against the lines based on qualified levels of
receivables and inventory. At April 20, 1996 an aggregate of $1,897,038 was
available under the lines of credit of which $150,000 had been drawn leaving
$1,747,038. The Company was in compliance with all of the financial covenants at
March 31, 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
$1,130,952 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 March 31, 1996. On a quarterly basis, half of any
excess cash flow that the Company 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 engage in a non-binding mediation
process which currently is underway. However, there can be no assurances that
the litigation can be resolved via mediation.
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
(b) There were no reports on Form 8-K for the
quarter ended March 31, 1996
<PAGE>
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
May 14, 1996 /s/ John P. Hudnall
- - ------------ -------------------
Date John P. Hudnall, President, CEO
(Authorized officer)
May 14, 1996 /s/ Scott M. Carter
- - ------------ -------------------
Date Scott M. Carter, Vice President, CFO
(Principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 724904
<NAME> ARIZONA INSTRUMENT CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 384,956
<SECURITIES> 0
<RECEIVABLES> 3,349,790
<ALLOWANCES> 188,381
<INVENTORY> 1,907,006
<CURRENT-ASSETS> 5,772,715
<PP&E> 2,797,657
<DEPRECIATION> 2,326,405
<TOTAL-ASSETS> 10,281,114
<CURRENT-LIABILITIES> 2,126,584
<BONDS> 1,514,471
0
0
<COMMON> 65,849
<OTHER-SE> 6,582,913
<TOTAL-LIABILITY-AND-EQUITY> 10,281,114
<SALES> 3,284,431
<TOTAL-REVENUES> 3,284,431
<CGS> 1,475,898
<TOTAL-COSTS> 1,680,136
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,678
<INCOME-PRETAX> 80,600
<INCOME-TAX> 2,000
<INCOME-CONTINUING> 78,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,600
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
