i
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
Commission File No. 0-20097
ARC CAPITAL
A California Corporation
IRS Employer Identification No. 33-0256103
2067 Commerce Drive
Medford, OR 97504
Telephone: (541) 776-7700
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Indicate by checkmark 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 |_|
On July 31, 1996, registrant had 10,764,190 shares of Class A Common Stock, and
118,501 shares of Class B Common Stock, all no par value, issued and
outstanding.
Exhibit Index at page 17
<PAGE>
INDEX
Page Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets....................................1
Consolidated Statements of Operations......................2 - 3
Consolidated Statements of Cash Flows..........................4
Notes to Unaudited Consolidated Financial Statements.......5 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................9 - 15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................17
Item 6. Exhibits and Reports on Form 8-K.........................18 - 19
Signature.....................................................19
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
ARC Capital
Consolidated Balance Sheets
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,166,000 $ 4,171,000
Accounts receivable, net 3,139,000 1,904,000
Inventories 8,933,000 3,810,000
Prepaid expenses 1,143,000 506,000
------------- -------------
Total current assets 14,381,000 10,391,000
Property, plant and equipment, net 6,890,000 4,693,000
Goodwill and other assets, net 3,137,000 2,544,000
------------- -------------
$ 24,408,000 $ 17,628,000
============= =============
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,474,000 $ 769,000
Accrued liabilities 1,425,000 845,000
Short-term borrowings 816,000 --
Customer deposits 3,393,000 1,083,000
Accrued payroll 524,000 374,000
Warranty reserve 474,000 408,000
Current portion of notes payable 2,248,000 22,000
------------- -------------
Total current liabilities 12,354,000 3,501,000
------------- -------------
Long-term liabilities:
Notes payable, less current portion 9,899,000 4,875,000
------------- -------------
Shareholders' equity:
Common stock:
Class A - no par value: 60,000,000 shares authorized; 10,764,000 and
8,718,000 shares issued and outstanding at June 30, 1996, and
December 31, 1995, respectively 25,005,000 22,966,000
Class B - no par value: 3,000,000 shares authorized, 119,000
and 705,000 shares issued and outstanding at
June 30, 1996, and December 31, 1995, respectively 78,000 458,000
Class E - no par value: 3,000,000 shares authorized, 0 and
497,000 shares issued and outstanding at June 30, 1996,
and December 31, 1995, respectively -- 326,000
Common stock warrants 2,211,000 3,112,000
Additional paid in capital 2,797,000 1,500,000
Accumulated deficit (27,980,000) (19,110,000)
Cumulative translation adjustment 44,000 --
------------- -------------
Total shareholders' equity 2,155,000 9,252,000
------------- -------------
$ 24,408,000 $ 17,628,000
============= =============
<FN>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
ARC Capital
Consolidated Statements of Operations
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended June 30,
1996 1995
<S> <C> <C>
Net sales $ 6,419,000 $ 4,976,000
Cost of sales 3,821,000 2,946,000
------------ ------------
Gross profit 2,598,000 2,030,000
------------ ------------
Operating expenses:
Selling and marketing 877,000 761,000
Research and development 1,125,000 405,000
General and administrative 1,181,000 505,000
Goodwill amortization 99,000 93,000
------------ ------------
3,282,000 1,764,000
(Loss) income from continuing operations before other income and expense (684,000) 266,000
Other income and expense:
Investment and other income 36,000 67,000
Interest expense (252,000) (132,000)
------------ ------------
(Loss) income from continuing operations before income taxes (900,000) 201,000
Provision for income taxes -- --
------------ ------------
(Loss) income from continuing operations (900,000) 201,000
Income from discontinued operations -- 57,000
------------ ------------
Net (loss) income $ (900,000) $ 258,000
============ ============
Net (loss) income per share:
Continuing operations $ (0.08) $ 0.01
Discontinued operations -- 0.01
------------ ------------
Total $ (0.08) $ 0.02
============ ============
Weighted average shares outstanding 10,854,000 9,339,000
============ =============
<FN>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
ARC Capital
Consolidated Statements of Operations
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended June 30,
1996 1995
<S> <C> <C>
Net sales $ 10,032,000 $ 7,702,000
Cost of sales 5,955,000 4,841,000
------------ ------------
Gross profit 4,077,000 2,861,000
------------ ------------
Operating expenses:
Selling and marketing 1,691,000 1,253,000
Research and development 1,943,000 785,000
General and administrative 2,064,000 970,000
Goodwill amortization 194,000 186,000
Charge for acquired in-process technology 6,088,000 --
Charge for royalty expense 647,000 --
------------ ------------
12,627,000 3,194,000
Loss from continuing operations before other income and expense (8,550,000) (333,000)
Other income and expense:
Gain on rescission of stock compensation -- 732,000
Investment and other income 104,000 95,000
Interest expense (424,000) (196,000)
------------- ------------
(Loss) income from continuing operations before income taxes (8,870,000) 298,000
Provision for income taxes -- --
------------ ------------
(Loss) income from continuing operations (8,870,000) 298,000
Income from discontinued operations -- 31,000
------------ ------------
Net (loss) income $ (8,870,000) $ 329,000
============ ============
Net (loss) income per share:
Continuing operations $ (0.85) $ 0.02
Discontinued operations -- 0.01
------------ -----------
Total $ (0.85) $ 0.03
============ ===========
Weighted average shares outstanding 10,388,000 9,521,000
============ ============
<FN>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ARC Capital
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (8,870,000) $ 329,000
Income from discontinued operations -- (31,000)
------------ -------------
(Loss) income from continuing operations (8,870,000) 298,000
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Cash outflows related to discontinued operations -- (336,000)
Charge for in-process technology 6,088,000 --
Charge for royalty expense 647,000 --
Depreciation and amortization 473,000 483,000
Gain on rescission of stock compensation -- (732,000)
Changes in assets and liabilities (net of amounts purchased in
acquisition):
Accounts receivable (36,000) 474,000
Inventories (1,689,000) (367,000)
Prepaid expenses and other assets (697,000) 108,000
Accounts payable, accrued liabilities, customer deposits
accrued payroll, and warranty reserve 2,735,000 2,202,000
-------------- ------------
Net cash provided by (used in) operating activities (1,349,000) 2,130,000
-------------- ------------
Cash (used in) provided by investing activities:
Acquisition of Pulsarr (6,225,000) --
Purchases of property and equipment (1,361,000) (335,000)
Repayments of notes receivable -- 93,000
------------ -------------
Net cash (used in) investing activities (7,586,000) (242,000)
------------- --------------
Cash (used in) provided by financing activities:
Notes payable to bank and others, net 4,270,000 2,149,000
Proceeds from common stock issuances 2,000,000 --
Proceeds from exercise of stock options 60,000 --
Debt issuance costs (400,000) (160,000)
------------ -------------
Net cash provided by financing activities 5,930,000 1,989,000
------------ -------------
Net increase in cash (3,005,000) 3,877,000
Cash and cash equivalents, beginning of the period 4,171,000 790,000
------------- -------------
Cash and cash equivalents, end of the period $ 1,166,000 $ 4,667,000
============ =============
<FN>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
11
ARC CAPITAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. Principles Of Consolidation
In the opinion of the management of ARC Capital (the "Company" or "ARC"),
the accompanying consolidated financial statements, which have not been
audited by independent accountants (except for the balance sheet as of
December 31, 1995), reflect all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's financial position at
June 30, 1996, and December 31, 1995, the results of operations and cash
flows for the three and six month periods ended June 30, 1996 and 1995. The
financial statements include the accounts of the Company and its three
wholly-owned subsidiaries, Applied Laser Systems, Inc. ("ALS-Oregon"), SRC
VISION, Inc. ("SRC"), and Pulsarr Holding BV ("Pulsarr"), the latter from
its March 1, 1996, acquisition date. See Note 6 regarding the acquisition
of Ventek, Inc. ("Ventek") subsequent to June 30, 1996. See Note 9
regarding the sale of ALS-Oregon in October 1995.
Certain notes and other information are condensed or omitted in the interim
financial statements presented in this Quarterly Report on Form 10-Q. These
financial statements should be read in conjunction with the Company's 1995
annual report on Form 10-K.
Certain reclassifications have been made to the fiscal 1995 financial
statements to conform with the financial statement presentation for fiscal
1996. Such reclassifications had no effect on the Company's results of
operations or shareholders' equity.
2. Nature Of Operations
The Company's ALS-Oregon subsidiary, which designed, developed,
manufactured and marketed laser diode devices, incorporating its visible
laser module, and "no-light" products based on technology for illumination
with infrared laser systems, was sold in October 1995 (see Note 9).
In February 1994, the Company acquired all of the issued and outstanding
capital stock of SRC for $8,100,000 in cash. SRC designs, manufactures and
markets computer-aided vision sorting and defect removal equipment for use
in a variety of industries, including food processing, wood products and
recycling. SRC's systems combine optical and mechanical systems
technologies to perform diverse scanning, analytical sensing, measuring and
sorting applications on a variety of products such as food, wood, glass,
and plastic.
On March 1, 1996, the Company acquired all of the issued and outstanding
stock of Netherlands-based Pulsarr for approximately $7.8 million in cash
and notes and other securities. Pulsarr is a manufacturer and seller of
computer aided vision sorting and defect removal equipment similar to that
produced by SRC (see Note 5).
In July 1996, the Company acquired the business and certain assets, subject
to certain liabilities, of Ventek for approximately $5.1 million in notes
and other securities. Ventek manufacturers and markets computer-aided
vision defect detection systems used in the wood veneer industry (see Note
6).
3. Financing
In April 1995, the Company borrowed $2,160,000 pursuant to a convertible
subordinated secured note. Interest on the note is 10.25% and is payable
semi-annually. The principal amount is due in April 1997. The note is
secured by the issued and outstanding capital stock of SRC. The note is
convertible into the Company's Class A Common Stock at $1.875 per share. In
connection with the borrowing, the Company paid a finders fee of $160,000
and issued 300,000 warrants to purchase Class A Common Stock at $1.875 per
share.
In April 1996, the Company borrowed $3,400,000 pursuant to a convertible
secured note. Interest on the note is 6.75% and is payable quarterly. The
interest rate may be adjusted upward on each anniversary date of the note
if the market price of the Company's Class A Common Stock fails to reach
certain levels. The maximum possible coupon interest rate is 11.25% if none
of the market price thresholds are met. The principal amount is due in
April 2001. The note is secured by 54% of the stock of ARC Netherlands bv,
a wholly owned subsidiary of the Company established to purchase Pulsarr.
The note is convertible into the Company's Class A Common Stock at $2.125
per share. The conversion price may be adjusted downward if the market
price of the Company's Class A Common Stock fails to reach $2.125 for any
30 consecutive days during the 12 months following the date of the note. In
connection with the borrowing, the Company paid a finders fee of $400,000
and issued 340,000 warrants to purchase Class A Common Stock at $2.125 per
share.
See Note 6 for a description of notes issued in connection with the
acquisition of Ventek.
4. Stock Transactions; Shares Eligible For Future Sale; Effect Of Warrants,
Options And Convertible Securities; Possible Dilution In February 1995,
Liviakis Financial Communications, Inc. returned approximately 668,000
previously issued and outstanding shares of ARC Class A Common Stock
pursuant to an award in arbitration in favor of the Company. A gain of
$732,000 was recorded in February 1995 relating to the shares recovered.
In March 1996, the Company sold 1,400,000 shares of its Class A Common
Stock in a private Regulation S offering to foreign investors at $1.625 per
share, the market price on the date the related Subscription Agreement was
entered into. In connection with the private placement, the Company paid
finders fees and other costs of $650,000 and issued 240,000 warrants to
purchase Class A Common Stock at $2.00 per share.
On February 15, 1996, the Company redeemed all 497,094 shares of its Class
E Common Stock for nominal consideration. Also on that date, the 3,002,906
Class E Warrants to purchase Class A Common Stock ceased to exist because
escrow conditions related to the warrants were not met.
Schedule of Outstanding Stock, Warrants, Units and Potential Dilution: The
following table summarizes, as of August 5, 1996, outstanding common stock,
potential dilution to the outstanding common stock upon exercise of
warrants, UPO Units and convertible debt, and proforma proceeds from the
exercise of warrants and UPO Units.
<PAGE>
<TABLE>
<CAPTION>
Proforma
Number or Principal Class A Common Proceeds
Amount Outstanding Conversion Stock After Conversion or Debt
Security at August 5, 1996 Factor Conversion Price Reduction
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock:
Class A 10,764,190 10,764,190
Class B 118,501 118,501
-------------
Total currently outstanding 10,882,691
-------------
Warrants:
A 2,941,963 1.4 4,118,748 $ 2.84 $ 11,697,000
B 4,354,863 (A) 1.4 6,096,808 4.17 25,424,000
C 846,250 1.4 1,184,750 2.21 2,618,000
D 275,000 1 275,000 2.75 756,000
F 300,000 1 300,000 1.88 564,000
G 240,000 1 240,000 2.00 480,000
H 340,000 1 340,000 2.13 724,000
I 1,000,000 1 1,000,000 2.25 2,250,000
Gerinda 300,000 1 300,000 5.00 1,500,000
Laidlaw 135,000 1 135,000 2.25 304,000
-------------
13,990,306
-------------
Unit Purchase Options: 188,400 6.38 1,187,000
Class A Common 376,800 1 376,800
A Warrants 376,800 1.4 527,520 2.84 1,498,000
B Warrants 565,200 1.4 791,280 4.17 3,300,000
-------------
1,695,600
-------------
Convertible Debt:
10.25% Notes $ 2,160,000 1,152,000 1.88 2,160,000
6.75% Notes 3,400,000 1,600,000 2.13 3,400,000
6.75% Ventek Note 2,250,000 1,000,000 2.25 2,250,000
6% Note 980,000 441,486 2.22 980,000
Ventek Note 1,125,000 1,800,000 1,125,000
------------- ---------------
5,993,486
-------------
Potentially outstanding shares and proforma proceeds
and reduction of debt 32,562,083 $ 62,217,000
============= ===============
<FN>
(A) Includes 1,412,900 outstanding plus 2,941,963 assuming exercise of the Class
A Warrants.
</FN>
</TABLE>
The proforma amounts above are for illustrative purposes only. Unless the
market price of ARC's Class A Common Stock rises significantly above the
exercise or conversion prices, it is unlikely that any warrants or unit
purchase options will be exercised or that the debt will be converted.
On July 31, 1996, ARC had outstanding options to purchase 3,216,000 shares
of Class A Common Stock, 2,854,000 of which are under its stock option
plans.
In connection with the Ventek acquisition in July 1996, the Company also
issued a $1,125,000 note payable, (a) at the Company's option, in cash or
by delivery of up to 1,800,000 shares of Class A Common Stock on the third
anniversary date of the note; or (b) solely in cash in the event ARC Common
Stock is delisted from the NASDAQ Stock Market. The Company also issued a
Warrant to purchase 1,000,000 shares of Class A Common Stock at $2.25 per
share which vests 25% in each of the next four years if sales and earnings
objectives are achieved.
The existence of these outstanding warrants, options, and convertible debt,
including those granted or to be granted under ARC's Stock Option Plans or
otherwise, and potentially issuable shares pursuant to antidilution
provisions of warrant agreements could adversely affect ARC's ability to
obtain future financing. The price which ARC may receive for the Class A
Common Stock issued upon exercise of options and warrants, or amount of
debt forgiven in the case of conversion of debt, may be less than the
market price of Class A Common Stock at the time such options and warrants
are exercised or debt is converted. For the life of the warrants, options
and convertible debt, the holders are given, at little or no cost, the
opportunity to profit from a rise in the market price of their Class A
Common Stock without assuming the risk of ownership. Moreover, the holders
of the options and warrants might be expected to exercise them at a time
when ARC would, in all likelihood, be able to obtain needed capital by a
new offering of its securities on terms more favorable than those provided
for by the options and warrants.
5. Acquisition Of Pulsarr
On March 1, 1996, the Company acquired all of the outstanding capital stock
of Pulsarr for approximately $7.8 million in cash and notes payable. The
acquisition is accounted for under the purchase method of accounting. The
$7.8 million purchase price was allocated based on the fair values of the
identifiable assets of Pulsarr as follows: $1.3 million represents the net
assets of Pulsarr, $6.1 million represents acquired in-process technology
which was subsequently charged to operations in the quarter ending March
31, 1996, and the remainder of $0.4 million represents goodwill to be
amortized over 15 years. Goodwill amortization for the three and six month
periods ended June 30, 1996, was $6,000 and $8,000 respectively.
The consolidated results of operations for the three and six month periods
ended June 30, 1996, includes Pulsarr's results of operations beginning on
March 1, 1996.
The pro forma condensed combined statements of operations, shown below as
supplemental information, assumes the acquisition of Pulsarr occurred as of
the beginning of the three and six month periods. However, the pro forma
combined balances are not necessarily indicative of balances which would
have resulted had the acquisition occurred as of the beginning of the three
and six month periods presented. Pro forma condensed combined statements of
operations for the three and six month periods are as follows:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
Actual Proforma Proforma Proforma
<S> <C> <C> <C> <C>
Sales $ 6,419,000 $ 9,018,000 $ 11,290,000 $ 14,047,000
Cost of sales 3,821,000 4,798,000 6,463,000 7,561,000
-------------- ------------- ------------- -------------
Gross profit $ 2,598,000 $ 4,220,000 $ 4,827,000 $ 6,486,000
============== ============= ============= =============
Net (loss) income $ (900,000) $ 290,000 $ (2,713,000) $ 308,000
============== ============= ============== =============
(Loss) earnings per share $ (0.08) $ 0.03 $ (0.25) $ 0.03
============== ============= ============- =============
</TABLE>
The $6.1 million charge for in-process technologies is excluded from the
above pro forma statement of operations.
6. Acquisition of Ventek
On July 24, 1996, the Company acquired certain assets and the business of
Ventek, subject to certain liabilities. Ventek manufactures and markets
computer-aided vision defect detection systems used in the wood veneer
industry. The purchase price was approximately $5.1 million in notes and
other securities: (i) a 6.75% $1,000,000 note due in three years; (ii) a
6.75% $2,250,000 note due in three years convertible into the Company's
Class A Common Stock at $2.25 per share; and (iii) a note and stock
appreciation rights payable (a) by issuance of up to 1,800,000 shares of
Class A Common Stock or at the Company's option, in cash in three years, or
(b) solely in cash in the event ARC Common Stock is delisted from the
NASDAQ Stock Market. The Company also issued a warrant to purchase
1,000,000 shares of Class A Common Stock which vests over a four year
period subject to Ventek meeting specified sales and earnings goals.
For the year ended December 31, 1995, Ventek reported sales of $4.4 million
and pre-tax income of $2.4 million (unaudited). The pre-tax income amount
does not include proforma adjustments for interest and goodwill, charges
that will result from the acquisition transaction.
7. Inventories
Inventories are stated at the lower of cost or market and include material,
labor and related manufacturing overhead. The Company determines cost based
on the first-in, first-out (FIFO) method.
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------------------
<S> <C> <C>
Raw materials $ 2,255,000 $ 1,242,000
Work-in-process 3,674,000 889,000
Finished goods 3,004,000 1,679,000
------------- -------------
$ 8,933,000 $ 3,810,000
============= =============
</TABLE>
The increase is due principally to the addition of Pulsarr in the current
year.
8. Discontinued Operation
In October 1995, the Company sold the laser diode operations of its
ALS-Oregon subsidiary to Coherent, Inc. for approximately $1,052,000 in
cash, which represented the net book value of the operation. Operating
results for this discontinued business have been excluded from the
Consolidated Statements of Operations to present separately the results of
continuing operations. The results of ALS-Oregon for the three and six
month periods ended June 30, 1995, are summarized as follows:
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, 1995 June 30, 1995
<S> <C> <C>
Net sales $ 771,000 $ 1,639,000
============= =============
Income from operations of discontinued business $ 57,000 $ 31,000
============= =============
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
In October 1995, the Company sold its laser diode operation for cash in an
amount equal to the book value of net assets and liabilities sold. The
operations of ALS-Oregon have been classified as a discontinued business.
On March 1, 1996, the Company acquired Pulsarr. The discussion below
pertains to the ongoing operations of ARC for the three and six months
ended June 30, 1996, namely SRC, Pulsarr and the holding company, with
Pulsarr included from its acquisition date.
The Company's backlog at June 30, 1996, was $10,385,000 an increase of 25%
when compared to the $8,284,000 backlog as of June 30, 1995.
Results of Operations - Comparison between three months ended June 30,
1996, and June 30, 1995
Sales for the three months ended June 30, 1996 ("Q2 1996") were $6,419,000,
up 29% when compared to sales for the three months ended June 30, 1995 ("Q2
1995") of $4,976,000. The increase is due to the inclusion of $2,855,000 of
Pulsarr's sales, offset by lower sales at SRC of $1,412,000.
Cost of sales was 60% of sales in Q2 1996 and 59% in Q2 1995.
Gross profit increased by 28% to $2,598,000 in Q2 1996 when compared to
$2,030,000 of gross profit in Q2 1995. In Q2 1996, gross profit was 40% as
compared to 41% in Q2 1995.
Selling and marketing expense increased 15% in Q2 1996 from Q2 1995 to
$877,000 amounting to 14% of sales in Q2 1996. Similar expenses in Q2 1995
were $761,000 or 15% of sales.
Research and development expenses were $1,125,000 and $405,000 in Q2 1996
and Q2 1995, or 18% and 8% of sales, respectively. The larger research and
development level in Q2 1996 was due principally to the continuing
development of SRC's Advanced Vision Processor and projects in tobacco
sorting.
General and administrative expenses increased $676,000 to $1,181,000 in Q2
1996 from $505,000 in Q2 1995. The increase in general and administrative
expenses is due to an increase in personnel costs and legal fees, as well
as the addition of Pulsarr.
The decrease in investment and other income is the result of lower cash
balances available for investment.
The increase in interest expense is the result of the increase in debt
outstanding relating to the acquisition of Pulsarr.
The net loss for Q2 1996 was $900,000 as compared to net income of $201,000
in Q2 1995, primarily as a result of the lower sales volume at SRC, as well
as the increases in all operating expenses categories.
Results of Operations - Comparison between six months ended June 30, 1996,
and June 30, 1995
Sales for the six months ended June 30, 1996 ("the "1996 Period") were
$10,032,000,up 30% when compared to sales for the six months ended June 30,
1995 (the "1995 Period") of $7,702,000. The increase is due to the
inclusion of $3,283,000 of Pulsarr's sales, offset by lower sales at SRC of
$953,000.
Cost of sales was 59% of sales in the 1996 Period and 63% in the 1995
Period. The decrease is primarily due to better margins on non-food
industry systems.
Gross profit increased by 43% to $4,077,000 in the 1996 Period when
compared to $2,861,000 of gross profit in the 1995 Period. In the 1996
Period, gross profit was 41% as compared to 37% in the 1995 Period.
Selling and marketing expense increased 35% in the 1996 Period from the
1995 Period to $1,691,000, amounting to 17% of sales in the 1996 Period.
Similar expenses in the 1995 Period were $1,253,000, or 16% of sales.
Research and development expenses were $1,943,000 and $785,000 in the 1996
Period and the 1995 Period, or 19% and 10% of sales, respectively. The
larger research and development level in the 1996 Period was due
principally to the continuing development of SRC's Advanced Vision
Processor and projects in tobacco sorting.
General and administrative expenses increased $1,094,000 to $2,064,000 in
the 1996 Period from $970,000 in the 1995 Period. The increase in general
and administrative expenses is due to an increase in personnel costs and
legal fees, as well as the addition of Pulsarr.
As discussed in the Notes to the Financial Statements, on March 1, 1996,
the Company acquired Pulsarr for approximately $7.8 million. Approximately
$6.1 million of the purchase price was allocated to in-process technology,
which was subsequently charged to expense during the quarter ended March
31, 1996. This charge is not deductible for tax purposes. The Company
expects to invest in additional development efforts related to the
in-process technology to make these technologies commercially successful.
These expenditures are expected to be paid out through 1997 and will be
funded primarily from cash generated from operations.
In Q1 1996, the Company wrote off $647,000 of deferred royalty expenses
relating to certain technologies as all royalties have been earned and the
Company believes that no significant future economic life exists relating
to the royalty agreement, as the result of changing technologies. See
Liquidity and Capital Resources below.
In February 1995, Liviakis Financial Communications, Inc. returned
approximately 668,000 previously issued and outstanding shares of ARC Class
A Common Stock pursuant to an award in arbitration in favor of the Company.
A gain of $732,000 was recorded in February 1995 relating to the shares
recovered.
The increase in interest expense is due to the increase in debt outstanding
relating to the acquisition of Pulsarr.
The net loss for the 1996 Period was $(8,870,000) as compared to net income
of $329,000 in the 1995 Period, primarily as a result of the nonrecurring
charges for in-process technology and royalty expense, the increased level
of research and development expenses, and the nonrecurring gain in the 1995
Period relating to the shares of ARC Common Stock retained pursuant to an
arbitration award.
Liquidity and Capital Resources
In March 1996, in conjunction with the acquisition of Pulsarr, the Company
received $2,000,000 from the sale of 1,400,000 shares of Class A Common
Stock pursuant to a private placement. In April 1996, the Company received
$3,000,000 representing the net proceeds of a private placement of a
convertible debt. In October 1995, the Company received approximately
$1,052,000 from the sale of its laser diode operations. In April 1995, the
Company received $2,000,000 representing the net proceeds from a private
placement of convertible debt. The cash generated from these transactions
is being used to finance the acquisition of Pulsarr and to provide funds
for working capital purposes.
The Company's principal sources of operating capital have been funds from
the above transactions, its overseas Regulation S offerings in September
and October 1993 and in 1994, its initial public offering in March 1992,
and prior to the public offering, from capital contributions and advances
from the Company's principal shareholders, private placements, and loans
from investors. As of June 30, 1996, the Company had $2,027,000 in working
capital.
As a result of the settlement in July 1992 of a lawsuit alleging certain
patent infringements, SRC entered into a royalty agreement, pursuant to
which SRC will pay royalties of 7% of its vision system sales through the
earlier of June 30, 2003, and the date at which aggregate royalty payments
equal $1,600,000. Until aggregate royalty payments equal $1,600,000,
maximum annual royalty payments are $400,000 through 1996. The final
$400,000 installment was paid in July 1996. During the quarter ended March
31, 1996, the Company wrote off against income $647,000 of deferred royalty
expense related to the settlement as all royalties had been earned and no
significant future economic life is estimated to exist.
The Company intends to continue to market its vision systems technology and
products, and will evaluate selected acquisition opportunities. Additional
investments will be required for capital equipment, marketing and R & D for
the Company to remain competitive. For example, funds must be expended to
complete development of the Company's Advanced Vision Processor ("AVP") to
enhance the Company's ability to effectively compete in certain markets
with Key Technology Inc.'s (the Company's principal competitor) recent
product introduction. Furthermore, if the Company consummates a technology
intensive acquisition, additional equipment and R & D investments may be
necessary, perhaps to a greater extent than for the Company's existing
operations.
The Company's ALS-Oregon operation, ARC's only business prior to the
February 1994 acquisition of SRC, had suffered losses since inception. The
operations of ALS-Oregon were sold in October 1995. In 1995, SRC generated
operating profits (before allocation of platform overhead expenses). Even
though SRC reached operating profitability in three of the last five
quarters and had a history of profitable operations prior to its
acquisition by ARC, there can be no assurance that long term profitability
will be realized. Pulsarr has operated profitably since 1990. Ventek has
operated profitably since 1992. The Company operates in a highly
competitive environment, and delays and difficulties relating to
technological changes and turnaround situations often occur, any of which
would materially and adversely affect the Company's cash flow. Furthermore,
operational and marketing difficulties may occur relating to the
integration of the recently completed acquisitions of Pulsarr and Ventek.
The acquisition of Pulsarr occurred on March 1, 1996. In connection
therewith, the Company has paid approximately $6.3 million to the sellers.
Cash received from the March and April 1996 placements of stock and notes
detailed above generated approximately $5,000,000. The balance of the cash
payments of approximately $1,300,000, was paid from the Company's current
cash balances.
The acquisition of Ventek occurred in July 1996. Consideration for the
transaction was approximately $5.1 million in notes and other securities as
described in Note 6 in this Form 10-Q.
Prior to 1995, the Company had a history of negative operating cash flow.
The Company believes it will operate at a negative cash flow for at least
the next four months and during certain periods in the future due to
payment of notes issued in connection with prior financings, working
capital requirements, the need to fund certain development projects, cash
required to enter new market areas, and possible cash needed to fully
integrate Pulsarr's and Ventek's operations. However, management believes
that the Company has sufficient cash to enable the Company to sustain its
operations and to adequately fund the cash flow expected to be used in
operating activities for the next twelve months. Until the Company is able
to consistently generate sustained positive cash flow from operations, the
Company must rely on debt or equity financing.
In connection with the acquisition of Pulsarr, the Company wrote off
approximately $6.1 million of acquired in-process technology in the first
quarter of 1996. This non-recurring charge contributed to substantial
reported losses in that quarter and six months ended June 30, 1996, even
though sales for such periods, including Pulsarr from the March 1, 1996,
acquisition date, increased from the same periods in the prior year.
The Company is seeking additional financing; however, there can be no
assurance the Company will be able to obtain any additional financing on
terms satisfactory to the Company, if at all. The recent increases in (i)
outstanding shares of the Company's Class A Common Stock due to private
placements, (ii) the April 1995 and April 1996 private placements of
convertible debt, (iii) notes issued in connection with the acquisition of
Ventek, (iv) a substantial loss in the first half of 1996, and (v) the
number of securities issuable upon exercise of warrants and convertible
debt may limit the Company's ability to negotiate additional debt or equity
financing.
Cautionary Statements and Risk Factors
The Company may, from time to time, make forward looking statements that
involve risks and uncertainties. Factors associated with the forward
looking statements which could cause actual results to differ materially
from those stated appear below. Readers should carefully consider the
following cautionary statements and risk factors.
History of Losses; Negative Cash Flow: Prior to 1995, the Company had a
history of losses and negative operating cash flow. The Company believes it
may operate at a negative cash flow in the future due to (i) the need to
fund certain development projects, such as the AVP, (ii) cash required to
enter new market areas, (iii) interest costs associated with recent
financings, (iv) cash required for the repayment of debt and (v) possible
cash needed to fully integrate Pulsarr's and Ventek's operations. Until the
Company is able to consistently generate sustained positive cash flow from
operations, the Company must rely on debt or equity financing.
Although the Company achieved profitability in 1995, there can be no
assurance as to the Company's profitability on a quarterly or annual basis
in the future. Furthermore, the non-recurring expenses in early 1996 will
result in a significant loss for the 1996 year.
Need for Additional Financing: The Company is seeking additional financing;
however, there can be no assurance the Company will be able to obtain any
additional financing on terms satisfactory to the Company, if at all. The
recent increases in (i) outstanding shares of the Company's Class A Common
Stock due to private placements, (ii) the April 1995 and April 1996 private
placements of convertible debt, (iii) a substantial loss in the first half
of 1996, (iv) debt incurred for the acquisition of Ventek, and (v) the
number of securities issuable upon exercise of warrants and convertible
debt may limit the Company's ability to negotiate additional debt or equity
financing.
Uncertain Ability to Manage Growth and Integrate Acquired Businesses: As
part of its business strategy, the Company intends to pursue rapid growth.
In March and July 1996, the Company acquired Pulsarr and Ventek,
respectively, which had sales in 1995 of approximately $11.4 million and
$4.4 million, respectively, and would have added approximately 80% to the
Company's 1995 sales on a pro forma basis. This growth strategy will
require the integration of new entities, such as Pulsarr and Ventek, the
establishment of distribution relationships in foreign countries, expanded
customer service and support, increased personnel throughout the Company
and the continued implementation and improvement of the Company's
operational, financial and management information systems. There is no
assurance that the Company will be able to attract qualified personnel or
to accomplish other measures necessary for its successful integration of
Pulsarr, Ventek or other acquired entities or for internal growth, or that
the Company can successfully manage expanded operations. As the Company
expands, it may from time to time experience constraints that will
adversely affect its ability to satisfy customer demand in a timely
fashion. Failure to manage growth effectively could adversely affect the
Company's financial condition and results of operations.
Rapid Technological Change; Product Development: The markets for the
Company's machine vision products are characterized by rapidly changing
technology, evolving industry standards and frequent new product
introductions and enhancements. For example, the Company believes that the
1995 introduction by Key Technology, Inc. of its new line of vision sorting
equipment adversely affected bookings in late 1995 and 1996. Sales of
products such as those offered by the Company depend in part on the
continuing development and deployment of emerging technology and new
services and applications based on such technology. The Company's success
will depend to a significant extent upon its ability to enhance its
existing products and develop new products that gain market acceptance.
There can be no assurance that the Company will be successful in selecting,
developing and manufacturing new products or enhancing its existing
products on a timely or cost-effective basis or that products or
technologies developed by others will not render the Company's products
noncompetitive or obsolete. Moreover, the Company may encounter technical
problems in connection with its product development that could result in
the delayed introduction of new products or product enhancements. Failure
to develop or introduce on a timely basis new products or product
enhancements that achieve market acceptance would materially and adversely
affect the Company's business, operating results and financial condition.
Market Acceptance of New Products: The Company's future operating results
will depend upon its ability to successfully introduce and market, on a
timely and cost-effective basis, new products and enhancements to existing
products. There can be no assurance that new products or enhancements, if
developed and manufactured, will achieve market acceptance. The Company is
currently in the initial prototype stage of development on its AVP, a high
speed software and digital signal processing technology designed to
significantly improve system performance. There can be no assurance that a
market for AVP systems will develop (i.e. that a need for AVP systems will
exist, that AVP will be favored over other products on the market, etc.)
or, if a market does develop, that the Company will be able, financially or
operationally, to market and support AVP systems successfully.
Dependence on Certain Markets and Expansion Into New Markets: The future
success and growth of the Company is dependent upon continuing sales in
domestic and international food processing market as well as successful
penetration of other existing and potential markets. A substantial portion
of the Company's historical sales has been in the potato and vegetable
processing markets. Reductions in capital equipment expenditures by such
processors due to commodity surpluses, product price fluctuations, changing
consumer preferences or other factors could have an adverse effect on the
Company's results of operations. The Company also intends to expand the
marketing of its processing systems in additional food markets such as meat
and granular food products, as well as nonfood markets such as plastics,
wood products and tobacco, and to expand its sales activities in foreign
markets. In the case of Ventek, the wood products market served is narrow,
and saturation of that market and the potential inability to identify and
develop new markets could adversely affect Ventek's growth rate. There can
be no assurance that the Company can successfully penetrate additional food
and nonfood markets or expand further in foreign markets.
Lengthy Sales Cycle: The sales cycle in the marketing and sale of the
Company's machine vision systems, especially in new markets or in a new
application, is lengthy and can be as long as three years. Even in existing
markets, due to the $100,000 to $450,000 price range for each system, the
purchase of a machine vision system can constitute a substantial capital
investment for a customer (which may need more than one machine for its
particular proposed application) requiring lengthy consideration and
evaluation. In particular, a potential customer must develop a high degree
of assurance that the product will meet its needs, successfully interface
with the customer's own manufacturing, production or processing system, and
have minimal warranty, safety and service problems. Accordingly, the time
lag from initiation of marketing efforts to final sales can be lengthy.
Competition: The markets for the Company's products are highly competitive.
A major competitor of the Company has recently made a new product
introduction which has increased the competition that the Company faces.
Some of the Company's competitors may have substantially greater financial,
technical, marketing and other resources than the Company. Important
competitive factors in the Company's markets include price, performance,
reliability, customer support and service. Although the Company believes
that it currently competes effectively with respect to these factors, there
can be no assurance that the Company will be able to continued to compete
effectively in the future.
Dependence upon Certain Suppliers: Certain key components and subassemblies
used in the Company's products are currently obtained from sole sources or
a limited group of suppliers, and the Company does not have any long-term
supply agreements to ensure an uninterrupted supply of these components.
Although the Company seeks to reduce dependence on sole or limited source
suppliers, the inability to obtain sufficient sole or limited source
components as required, or to develop alternative sources if and as
required, could result in delays or reductions in product shipments which
could materially and adversely affect the Company's results of operations
and damage customer relationships. The purchase of certain of the
components used in the Company's products require an 8 to 12 week lead time
for delivery. An unanticipated shortage of such components could delay the
Company's ability to timely manufacture units, damage customer relations,
and have a material adverse effect on the Company. In addition, a
significant increase in the price of one or more of these components or
subassemblies could adversely affect the Company's results of operations.
Dependence upon Significant Customers and Distribution Channel: The Company
sold equipment to two unaffiliated customers each totaling 20% of sales in
1995. Sales to a third unaffiliated customer totaled 15% of sales in 1994.
Ventek's sales have been to a relatively small number of multi-location
plywood manufacturers. The Company usually receives orders of from one to
several machine vision systems, but occasionally receives larger orders.
While the Company strives to create long-term relationships with its
customers and distributors, there can be no assurance that they will
continue ordering additional systems from the Company. The Company may
continue to be dependent on a small number of customers and distributors,
the loss of which would adversely affect the Company's business.
Risk of International Sales: Due to its export sales (from the U.S. in the
case of SRC and Ventek, or from the Netherlands in the case of Pulsarr),
the Company is subject to the risks of conducting business internationally,
including unexpected changes in regulatory requirements; fluctuations in
the value of the U.S. dollar or Dutch guilder, which could increase the
sales prices in local currencies of the Company's products in international
markets; delays in obtaining export licenses, tariffs and other barriers
and restrictions; and the burdens of complying with a variety of
international laws. In addition, the laws of certain foreign countries may
not protect the Company's intellectual property rights to the same extent
as do the laws of the United States or the Netherlands.
Fluctuations in Quarterly Operating Results; Seasonality: The Company has
experienced and may in the future experience significant fluctuations in
revenues and operating results from quarter to quarter as a result of a
number of factors, many of which are outside the control of the Company.
These factors include the timing of significant orders and shipments,
product mix, delays in shipment, capital spending patterns of customers,
competition and pricing, new product introductions by the Company or its
competitors, the timing of research and development expenditures, expansion
of marketing and support operations, changes in material costs, production
or quality problems, currency fluctuations, disruptions in sources of
supply, regulatory changes and general economic conditions. These factors
are difficult to forecast, and these or other factors could have a material
adverse effect on the Company's business and operating results. Moreover,
due to the relatively fixed nature of many of the Company's costs,
including personnel and facilities costs, the Company would not be able to
reduce costs in any quarter to compensate for any unexpected shortfall in
net sales, and such a shortfall would have a proportionately greater impact
on the Company's results of operations for that quarter. For example, a
significant portion of the Company's quarterly net sales depends upon sales
of a relatively small number of high-priced systems. Thus, changes in the
number of such high-priced systems shipped in any given quarter can produce
substantial fluctuations in net sales, gross profits, and net income from
quarter to quarter. In addition, in the event the Company's machine vision
systems' average selling price increases, of which there can be no
assurance, the addition or cancellation of sales may exacerbate quarterly
fluctuations in revenues and operating results.
The Company's operating results may also be affected by certain seasonal
trends. The Company typically experiences lower sales and order levels in
the first quarter when compared with the preceding fourth quarter due
primarily to the seasonality of certain harvested food items. The Company
expects these seasonal patterns to continue, though their impact on
revenues will decline as the Company continues to expand its presence in
nonagricultural and other markets which are less seasonal.
Risks Associated with Possible Acquisitions: The Company may pursue
strategic acquisitions or joint ventures in addition to the acquisitions of
Pulsarr and Ventek as part of its growth strategy. While the Company has no
understandings, commitments or agreements with respect to any further
acquisition, the Company anticipates that one or more potential
opportunities may become available in the future. Acquisitions and joint
ventures would require investment of operational and financial resources
and could require integration of dissimilar operations, assimilation of new
employees, diversion of management resources, increases in administrative
costs and additional costs associated with debt or equity financing. There
can be no assurance that any acquisition or joint venture by the Company
will not have an adverse effect on the Company's results of operations or
will not result in dilution to existing shareholders. If additional
attractive opportunities become available, the Company may decide to pursue
them actively. There can be no assurance that the Company will complete any
future acquisitions or joint ventures or that such a future transaction
will not materially and adversely affect the Company.
Dependence upon Key Personnel: The Company's success depends to a
significant extent upon the continuing contributions of its key management,
technical, sales and marketing and other key personnel. Except for William
J. Young, the Company's President and Chief Executive Officer, Alan R.
Steel, the Company's Chief Financial Officer, Dr. James Ewan, SRC's
President and Chief Executive Officer, Jan C. Scholt, Pulsarr's Managing
Director, and the four former stockholders of Ventek, the Company does not
have long-term employment agreements or other arrangements with such
individuals which would encourage them to remain with the Company. The
Company's future success also depends upon its ability to attract and
retain additional skilled personnel. Competition for such employees is
intense. The loss of any current key employees or the inability to attract
and retain additional key personnel could have a material adverse effect on
the Company's business and operating results. There can be no assurance
that the Company will be able to retain its existing personnel or attract
such additional skilled employees in the future.
Intellectual Property: The Company's competitive position may be affected
by its ability to protect its proprietary technology. Although the Company
has a number of United States and foreign patents, there can be no
assurance that any such patents will provide meaningful protection for its
product innovations. The Company may experience additional intellectual
property risks in international markets where it may lack patent
protection.
Product Liability and Other Legal Claims: From time to time, the Company
may be involved in litigation arising out of the normal course of its
business, including product liability and other legal claims. While the
Company has a general liability insurance policy which includes product
liability coverage up to an aggregate amount of $10 million, there can be
no assurance that the Company will be able to maintain product liability
insurance on acceptable terms or that its insurance will provide adequate
coverage against potential claims in the future. There can be no assurance
that third parties will not assert infringement claims against the Company,
that any such assertion of infringement will not result in litigation or
that the Company would prevail in such litigation. Furthermore, litigation,
regardless of its outcome, could result in substantial cost to and
diversion of effort by the Company. Any infringement claims or litigation
against the Company could materially and adversely affect the Company's
business, operating results and financial condition. If a substantial
product liability or other legal claim against the Company were sustained
that was not covered by insurance, there could be an adverse effect on the
Company's financial condition and marketability of the affected products.
Warranty Exposure and Performance Specifications: The Company generally
provides a one-year limited warranty on its products. In addition, for
certain custom-designed systems, the Company contracts to meet certain
performance specifications for a specific application. In the past, the
Company has incurred higher warranty expenses related to new products than
it typically incurs with established products. There can be no assurance
that the Company will not incur substantial warranty expenses in the future
with respect to new products, as well as established products, or with
respect to its obligations to meet performance specifications, which may
have an adverse effect on its results of operations and customer
relationships.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Ford & Cohn
In March 1993, Wilson Ford, Robert Paul and Maxwell Cohn (together
"Claimants") brought various claims against ARC and William Patridge, Asif
Ahmad and Nagaraj Murthy, past or current directors or employees of ARC, in
lawsuits in the Superior Courts for Los Angeles County and Orange County,
California. The lawsuits were consolidated in February, 1994, and were
litigated in Superior Court for Los Angeles County in September and
October, 1995.
Ford, a consultant to ARC, claims that ARC breached an agreement dated
September 17, 1987, and subsequently amended on August 16, 1988, by which
he was to receive 25,000 shares of stock of CNVS, Inc., predecessor to ARC,
at no cost and an option to purchase 25,000 additional shares in the future
upon the occurrence of specified events. Ford claims he was promised that
this total of 50,000 shares in the Company would amount to 5% of the
outstanding shares. Ford also claims ARC owes him royalties under a royalty
agreement for certain low light video camera technology. ARC contends that
Ford was never promised that his interest would amount to 5% of the
outstanding shares, that Ford failed to fulfill his obligations under the
royalty agreement, and that Ford's claims are barred under various legal
theories. Based on these allegations, Ford made claims for breach of
contract and breach of the covenant of good faith and fair dealing.
The Claimants contend that statements allegedly made by William Patridge
and Asif Ahmad to United States Alcohol Testing of America, Inc. ("USAT")
caused USAT to rescind an Asset Purchase Agreement with the Claimants. The
Claimants allege that the statements concerning outstanding lawsuits and
disputes between ARC and the Claimants were false and meant to disrupt the
business relationship between Prime Lasertech and USAT. The Claimants
allegedly would have benefited from the Asset Purchase Agreement as
shareholders and/or licensees. Based on these allegations, the Claimants
made claims for intentional and negligent interference with prospective
advantage, intentional and negligent infliction of emotional distress, and
civil conspiracy.
On October 2, 1995, a jury awarded $375,000 to the Claimants, which
included $281,000 of punitive damages for the breach of contract claim. The
Company has filed motions with the court to eliminate the punitive portion
of the award. ARC believes such damages are improper because (i) the
claimants did not ask for punitive damages in the contract claim, and (ii)
such damages cannot be awarded for breach of contract under applicable
state laws. ARC is also attempting to overturn the balance of the breach of
contract award based on the fact that the claim was made after the statute
of limitations had expired. ARC has made an appeal to overturn the verdict
on these factors and certain other irregularities that occurred during the
trial, which ARC believes unfairly affected the jury's decision. Due to the
fact that a verdict was rendered, a $93,000 loss on the breach of contract
claim was recorded as a liability in the fourth quarter of 1995.
Other
ARC is a party to several other suits in the ordinary course of its
business. ARC believes that the outcome of all such proceedings, even if
determined adversely to ARC, will not have a material adverse effect upon
its financial statements.
<PAGE>
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
Exhibit
Number Description
10.1 Stock Purchase Agreement dated March 1, 1996 (without
exhibits), between Meijn Beheer B.V. and ARC Netherlands B.V.,
a wholly owned subsidiary of the Company. (1)
10.2 Stock Purchase Agreement dated March 1, 1996, between
J. C. Scholt and ARC Netherlands B.V., a
wholly owned subsidiary of the Company. (1)
10.3 Convertible Note dated March 1, 1996, issued in connection
with that certain Stock Purchase Agreement dated March 1,
1996, between J. C. Scholt and ARC Netherlands b.v. (1)
10.4 Subscription Agreement dated January 18, 1996, between the
Company and Swiss American Securities, Inc. as agent for
Credit Suisse related to the private placement of 1,400,000
shares of the Company's Class A Common Stock. (1)
10.5 Convertible Secured Note dated April 17, 1996, between the
Company and Ilverton International, Inc. (3)
10.6 Form of Class G Warrant Agreement. (2)
10.7 Form of Class H Warrant Agreement. (3)
10.8 Asset Purchase Agreement dated July 24, 1996, by and among
ARC, Ventek and the shareholders of Ventek. (4)
10.9 $1,000,000 Note dated July 24, 1996, between ARC and
Ventek.(4)
10.10 $2.250,000 Convertible Note dated July 24, 1996, between
ARC and Ventek. (4)
10.11 $1,125,000 Note dated July 24, 1996, between ARC and
Ventek. (4)
10.12 Stock Appreciation Rights Agreement dated July 24, 1996,
between ARC and Ventek. (4)
10.13 Warrant agreement dated July 24, 1996, between ARC and
Ventek. (4)
10.14 Form of Employment Agreement dated July 24, 1996, between
each of the four stockholders of Ventek and ARC. (4)
10.15 Pledge and Security Agreement dated July 24, 1996, by and
among ARC, ARC Subsidiary, Inc., Ventek and
Solin and Associates, P.C. (4)
27 Financial Data Schedule
- -------------------------------
(1) Filed with the SEC on March 6, 1996, as an exhibit to the
Company's Form 8-K dated March 1, 1996.
(2) Filed with the SEC on April 14, 1996, as an exhibit to the
Company's Form 10-K for the year ended December 31, 1995.
(3) Filed with the SEC on May 14, 1996, as an exhibit to the
Company's Form 10-Q for the quarter ended March 31, 1996.
(4) Filed with the SEC on July 25, 1996, as an exhibit to the
Company's Form 8-K regarding the acquisition of Ventek.
(b) Reports on Form 8-K:
On January 26, 1996, a Form 8-K was filed regarding a letter
of intent to acquire Pulsarr and a Subscription Agreement for
the dale of 1,400,000 shares of Class A Stock.
On February 16, 1996, a Form 8-K was filed regarding
redemption by the Company of 497,094 shares of its Class E
Common Stock and the expiration of 3,002,906 Class E Warrants.
On March 6, 1996, a Form 8-K was filed regarding the
acquisition of Pulsarr and completion of the sale of 1,400,000
shares of Class A Common Stock.
On May 13, 1996, a Form 8-K-A was filed regarding the
acquisition of Pulsarr to include audited financial statements
of the business acquired and related pro forma financial
information.
On July 25, 1996, a Form 8-K was filed regarding the
acquisition of Ventek and the resignation of a director.
SIGNATURE
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.
August 13, 1996 /s/ Alan R. Steel
------------------------------- --------------------------------
Alan R. Steel
Vice President - Finance
(Principal Financial and duly
Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
June 30, 1996, financial statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1166
<SECURITIES> 0
<RECEIVABLES> 3139
<ALLOWANCES> 0
<INVENTORY> 8933
<CURRENT-ASSETS> 14381
<PP&E> 7948
<DEPRECIATION> 1058
<TOTAL-ASSETS> 24408
<CURRENT-LIABILITIES> 12354
<BONDS> 9899
0
0
<COMMON> 25083
<OTHER-SE> (22928)
<TOTAL-LIABILITY-AND-EQUITY> 24408
<SALES> 10032
<TOTAL-REVENUES> 10032
<CGS> 5955
<TOTAL-COSTS> 11847
<OTHER-EXPENSES><F1> 6735
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 424
<INCOME-PRETAX> (8870)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8870)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8870)
<EPS-PRIMARY> (0.85)
<EPS-DILUTED> (0.85)
<FN>
<F1>
Other expenses include a charge for acquired in-process
technology of $6088 and a charge for royalty expense of $647.
</FN>
</TABLE>
