SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter ended: June 30, 1997 Commission File Number: 0-19589
ARGUSS HOLDINGS, INC.
_________________________________________
(formerly "Conceptronic, Inc.")
(Exact Name of Small Business Issuer as Specified
in its Charter)
Delaware 02-0413153
____________________________
(State of other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
One Church Street, Suite 302, Rockville, Maryland 20850
____________________________________________________
(Address of Principal Executive Offices) (Zip Code)
(Issuer's Telephone Number Including Area Code:) 301-315-0027
________________________
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:_____
As of June 30, 1997, there were 7,278,826 shares of Common
Stock, $.01 par value per share outstanding.
ARGUSS HOLDINGS, INC.
INDEX
Part I - Financial Statements:
Item 1 - Financial Statements
Consolidated Balance Sheets (Unaudited) -
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations (Unaudited)-
Three Months and Six Months Ended June 30, 1997 and
June 30, 1996 4
Consolidated Statements of Cash Flows (Unaudited)-
Six Months Ended June 30, 1997 and June 30, 1996 5
Notes to Consolidated Financial Statements
(Unaudited) 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II - Other Information
Items 1 through 6 13
Signatures 14
Exhibits 15
ARGUSS HOLDINGS, INC.
Consolidated Balance Sheets
(Unaudited)
Assets June 30, 1997 Dec. 31, 1996
Current assets:
Cash $ 1,555,000 $ 10,318,000
Accounts receivable, net 8,010,000 2,917,000
Inventories 4,977,000 4,133,000
Other assets, current 1,025,000 339,000
Total current assets 15,567,000 17,707,000
Property, plant and equipement, net 6,608,000 1,393,000
Goodwill and other assets 15,308,000 7,000
$ 37,483,000 $ 19,107,000
Liabilities and Stockholders' Equity
Current liabilities:
Current portion long-term debt $ 551,000 $ 48,000
Short-term borrowings 2,211,000 -
Accounts payable 3,197,000 1,479,000
Accrued expenses and other
liabilities 3,159,000 1,771,000
Total current liabilities 9,118,000 3,298,000
Long-term debt, excluding
current portion 3,402,000 1,038,000
Deferred income taxes 481,000 -
Stockholders' equity:
Common stock $.01 par value 73,000 57,000
Additional paid-in capital 24,380,000 16,077,000
Retained Earnings 29,000 (1,363,000)
Total stockholders' equity 24,482,000 14,771,000
$ 37,483,000 $ 19,107,000
The accompanying notes are an integral part of these consolidated
financial statements.
ARGUS HOLDINGS, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
Net Sales 12,682,000 3,630,000 21,658,000 7,560,000
Cost of sales excluding depreciation 8,251,000 2,577,000 14,765,000 5,168,000
Gross profit 4,431,000 1,053,000 6,893,000 2,392,000
Expenses:
Selling, general and administrative 2,063,000 905,000 3,569,000 1,844,000
Depreciation 240,000 86,000 448,000 168,000
Engineering and development 313,000 336,000 573,000 550,000
Income (loss) from operations 1,815,000 (274,000) 2,303,000 (170,000)
Other expense:
Goodwill amortization 197,000 - 393,000 -
Interest expense, net 91,000 46,000 146,000 91,000
Income (loss) before income taxes 1,527,000 (320,000) 1,764,000 (261,000)
Income tax expense 753,000 - 372,000 -
Net income (loss) $ 774,000 $(320,000) $ 1,392,000 $ (261,000)
Net income (loss) per share $ .10 $ (.19) $ .19 $ (.15)
Weighted average number
of shares outstanding 7,541,000 1,700,000 7,518,000 1,700,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
ARGUSS HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30, June 30,
1997 1996
Cash flows from operating activities:
Net income (loss) $ 1,392,000 (261,000)
Adjustments to reconcile net
income (loss) to net
cash provided by (used for)
operating activities:
Goodwill amortization 393,000 -
Depreciation 448,000 168,000
Changes in assets and
liabilities:
Accounts receivable (688,000) 95,000
Inventories (553,000) (961,000)
Refundable income taxes
and other assets (598,000) (73,000)
Accounts payable 979,000 1,101,000
Accrued expenses and
other liabilities (822,000) (105,000)
Net cash provided by
(used for) operating
activities 551,000 (36,000)
Cash flows used for investing
activities:
Purchase of White Mountain Cable
Construction Corp. (8,879,000) -
Additions to property, plant
and equipment (1,981,000) (50,000)
Net cash used for
investing activities (10,860,000) (50,000)
Cash flows used for financing
activities:
Proceeds from line of credit, net 2,211,000 108,000
Repayments of notes payable (665,000) (21,000)
Net cash provided by
financing activities 1,546,000 87,000
Net increase (decrease) in cash (8,763,000) 1,000
Cash at beginning of period 10,318,000 10,000
Cash at end of period $ 1,555,000 $ 11,000
The accompanying notes are an integral part of these consolidated
financial statements.
ARGUSS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
A) Restructuring
Prior to May, 1997, Arguss Holdings, Inc. (the" Company") operated
as a single entity under the name "Conceptronic, Inc." On May 9,
1997, the shareholders of the Company approved a plan providing
for the internal restructuring of the Company whereby the
Company became a holding company and its operating assets were
held by wholly-owned operating subsidiaries. Accordingly, on May
9, 1997, the Company transferred substantially all of its
Conceptronic, Inc. operating assets to a newly-formed, wholly-
owned subsidiary of the Company, and the Company changed its name
to "Arguss Holdings, Inc." The subsidiary then adopted the name
"Conceptronic, Inc." The Company's other wholly-owned operating
subsidiary is White Mountain Cable Construction Corp. ("WMC").
The Company conducts its operations through its wholly-owned
subsidiaries, WMC and Conceptronic. WMC is engaged in the
construction, reconstruction, maintenance, repair and expansion
of communications systems, cable television and data systems,
including providing aerial construction and splicing of both
fiber optic and coaxial cable to major communications customers.
Conceptronic manufactures and sells highly advanced, computer-
controlled equipment used in the SMT circuit assembly industry.
B) Basis for Presentation
As permitted by the rules of the Securities and Exchange
Commission (the "Commission") applicable to quarterly reports on
Form 10-QSB, these notes are condensed and do not contain all
disclosures required by generally accepted accounting principles.
Reference should be made to the financial statements and related
notes included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996, filed with the Commission on
March 31, 1997.
In the opinion of the Company, the accompanying unaudited
financial statements contain all adjustments considered necessary
to present fairly the financial position of the Company as of
June 30, 1997 and the results of operations and cash flows for
the periods presented. The Company prepares its interim financial
information using the same accounting principles as it does for
its annual financial statements.
Research and development expenses incurred and expensed were
$276,000 and $114,000, respectively, for the six and three months
ended June 30, 1997 and $225,000 and $163,000, respectively for
the six and three months ended June 30, 1996.
The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full
year.
The Company reclassified certain information from prior year
financial statements to conform with the current year
presentation.
C) Earnings per Share
Earnings per share is computed based on the weighted average
number of common shares outstanding adjusted, when dilutive, for
the number of shares issuable upon assumed exercise of stock
options after the assumed repurchase of shares with the related
proceeds. Earnings per share for individual quarters during the
year may not aggregate to year to date earnings per share due to
differences in the number of weighted average shares used in
each reporting period's calculation and mathematical rounding.
On May 25, 1997, 4,000,000 shares of the Company's Class A
Common Stock converted into 4,000,000 shares of the Company's
Common Stock.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" (SFAS No. 128). SFAS No. 128 supersedes Accounting
Principles Board Opinion No. 15 and specifies the computation,
presentation and disclosure requirements for earnings per share.
SFAS No. 128 is effective for financial statements for both
interim and annual periods ending after December 15, 1997 and
early application is not permitted. Accordingly, the Company will
apply SFAS No. 128 for the quarter and year ended December 31,
1997 and restate prior period information as required under the
statement. The Company has determined that if SFAS No. 128 had
been applied for the six months and three months ended June 30,
1997 the impact on earnings per share as currently stated would
be immaterial.
D) Taxes
During the six months ended June 30, 1997, the Company reversed
the valuation allowance previously recorded against the entire
deferred tax asset of approximately $554,000. Based on the
weight of evidence available, management determined that it is
more likely than not that the deferred tax asset will be realized
at a future date. During the six months ended June 30, 1997, the
Company also recorded current tax expense of $926,000 based on
its estimated annual effective tax rate applied to pretax
income.
E) White Mountain Cable Construction Corp.
In the first quarter of 1997, the Company acquired WMC which is
engaged in the construction, reconstruction, maintenance, repair
and expansion of communications systems, cable television and
data systems, including providing aerial construction and
splicing of both fiber optic and coaxial cable to major
communications customers.
The purchase price was approximately $17,200,000 and consisted of
1,571,326 shares of Common Stock, $ .01 par value per share, of
the Company and approximately $8,642,000 in cash. The Company has
classified as goodwill approximately $15,700,000 which represents
the cost in excess of the fair value of the net assets of WMC
which was accounted for as a purchase transaction. Goodwill is
being amortized using the straight-line method over 20 years. The
Company has further committed to acquire, during the third
quarter of 1997, a corporate office and operations facility
directly from the previous owners of WMC for an acquisition price
of approximately $345,000.
F) Business Segment Information
The Company's operations have been classified into two business
segments for the three and six month periods ended June 30, 1997,
Cable Construction and Manufacturing. Summary financial
information for the two segments is as follows:
<TABLE>
<CAPTION>
June 30, 1997
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
Cable Cable
Construction Mfg. Construction Mfg.
Net Sales 7,535,000 5,147,000 12,929,000 8,729,000
Cost of sales excluding depreciation 4,869,000 3,382,000 8,867,000 5,898,000
Gross profit 2,666,000 1,765,000 4,062,000 2,831,000
Operating expenses before
depreciation (1) 796,000 1,556,000 1,128,000 2,991,000
Depreciation expense 184,000 56,000 330,000 118,000
Goodwill amortization 197,000 - 393,000 -
Net interest and other expense (1) 63,000 52,000 109,000 60,000
Pretax operating income (loss) 1,426,00 101,000 2,102,000 (338,000)
Capital Expenditures 1,449,000 58,000 1,865,000 82,000
Property Plant and Equipment, Net 5,211,000 1,364,000 5,211,000 1,364,000
</TABLE>
(1) Net interest and other expense at the segment
level does not include corporate interest income
and as a consequence it does not aggregate to
consolidated financial amounts reported.
G) Litigation
On December 13, 1991, the Company was served with a complaint
from Vitronics Corporation ("Vitronics"), one of the Company's
competitors, alleging patent infringement involving its reflow
soldering ovens. Vitronics sought an injunction, together with
unspecified damages and costs. The claim was filed in the United
States Federal District Court, District of New Hampshire.
In August 1995, the U.S. District Court issued a directed verdict
of non-infringement in the Company's favor regarding method
patent #4,654,502. Additionally, a decision was reached on the
apparatus patent #4,833,301 by a jury which found non-
infringement on all past and current Conceptronic ovens.
Vitronics appealed the directed verdict on patent #4,654,502 and
the United States Court of Appeals for the First Circuit
subsequently reversed and remanded the case for further
proceeding. A trial on the #4,654,502 patent is scheduled for
October 1997.
In related actions, in April, 1997, the United States Patent
Office ("PTO") rejected certain claims of Vitronics' patent
#4,654,502 as being unpatentable. This decision by the PTO, if
upheld on appeal, should terminate the pending lawsuit. In
December 1996, the Company named Vitronics and its Chairman and
CEO, James Manfield in a lawsuit, filed in Superior Court of the
State of New Hampshire, citing malicious prosecution and abuse of
process. The suit claims that Vitronics, when it initiated the
1991 patent infringement case against Conceptronic, knew or
should have known that the suit was without merit and that claim
1 of U.S. Patent #4,883,301 was invalid, unenforceable and as
consequence that the patent was not infringed.
In the opinion of counsel, the ultimate outcome of this
litigation cannot presently be determined. Management of the
Company believes that Vitronics' claim is without merit and that
the Company will ultimately prevail. Accordingly, no provision
has been made in the accompanying financial statements for any
potential liability that might result.
ARGUSS HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended
June 30, 1996.
The Company had net income of approximately $774,000 for the
three months ended June 30, 1997 compared to a net loss of
($320,000) for the three months ended June 30, 1996. During the
three months ended June 30, 1997 improvement in earnings was due
primarily to the profitable results of WMC whose pretax income
was $1,426,000 and whose financial results is included only in
1997, (See Note E to Consolidated Financial Statements), and to
Conceptronic's improved pretax operating income of $101,000
compared to a pretax loss of ($320,000) in the comparable period
one year ago.
Net sales for the three months ended June 30, 1997 increased
$9,052,000 or 250% to approximately $12,682,000 from
approximately $3,630,000 for the three months ended June 30, 1996
due primarily to the acquisition of WMC which had sales of
$7,535,000 and to Conceptronic's increase in sales of $1,517,000
or 42%. Conceptronic sales for the second quarter of 1997 were
favorably impacted by increased bookings of 17% or $600,000
during the quarter as well as by a backlog of $2,300,000 at
March 31, 1997, an increase of 38% over the comparable period in
1996. The increase in Conceptronic sales resulted from concerted
efforts to increase market penetration in the SMT circuit
assembly equipment industry.
Gross profit margin was 35% of sales for the three months ended
June 30, 1997 compared to 29% for the comparable period in 1996.
WMC had approximately a 35% gross profit margin for the three
months while Conceptronic improved its margins to 34% through
improved absorbtion of manufacturing costs by higher sales levels
with a product mix which has favorable margins.
Selling, general and administrative expenses for the three months
ended June 30, 1997 were $2,063,000 compared to $905,000 for the
comparable period one year ago. The increase was largely due to
the acquisition of WMC which accounted for $639,000 in expenses
as well as increased costs at Conceptronic for its new Malaysian
sales office, and other infrastructure expenditures.
Depreciation expense was $240,000 for the three months ended June
30, 1997 compared to $86,000 for the three months ended June 30,
1996 due primarily to WMC which had $184,000 of depreciation
expense.
In the first quarter of 1997, the Company acquired WMC for a
purchase price of approximately $17,200,000 which consisted of
1,571,326 shares of Common Stock, $ .01 par value per share, of
the Company and approximately $8,642,000 in cash. The Company has
classified as goodwill approximately $15,700,000 which represents
the cost in excess of the fair value of the net assets of WMC
which was accounted for as a purchase transaction. Goodwill is
being amortized using the straight-line method over 20 years
resulting in goodwill amortization of $197,000 for the three
months ended June 30, 1997.
Net interest expense for the three months ended June 30, 1997
was $91,000 compared to $46,000 for the comparable period one
year ago. The WMC net interest expense for the second quarter of
1997 was $64,000. Conceptronic's net interest expense for the
three months ended June 30, 1997 increased by $6,000 to $52,000
due to increased amounts outstanding under its credit line. These
amounts were partially offset by short-term interest income.
Income tax expense increased from zero to $753,000 due primarily
to the profitable operations of WMC.
Six Months Ended June 30, 1997 Compared to Six Months Ended June
30, 1996.
The Company had net income of approximately $1,392,000 for the
first half of 1997 compared to a net loss of ($261,000) in the
first half of 1996. During the six months ended June 30, 1997
improvement in earnings was due primarily to the profitable
results of WMC whose pretax income was $2,102,000 and whose results
is included commencing January 1, 1997. The increase in
Conceptronic's pretax operating loss to ($338,000) for the six
months ended June 30, 1997 compared to a pretax loss of
($261,000) in the comparable period one year ago is due to
increased operating expenses. (See discussion below.)
Net sales for the first half of 1997 were approximately
$21,658,000 compared to $7,560,000 for the first half of 1996, an
increase of 187%. The increase is primarily due to WMC sales of
$12,929,000 and an increase of $1,169,000 or 15% in Conceptronic
sales for the first half of 1997 which were favorably impacted by
increased bookings of 14% or $1,097,000 during the six months
ended June 30, 1997. The increase in Conceptronic sales resulted
from concerted efforts to increase market penetration in the SMT
circuit-assembly equipment industry.
Gross profit margin was 32% for the six months ended June 30,
1997 compared to 32% for the same period in 1996. WMC had a 31%
gross profit margin and Conceptronic improved its first half
margins to 32% through improved absorbtion of manufacturing
costs by higher sales levels with a product mix which has
favorable margins.
Selling, general and administrative expenses for the six months
ended June 30, 1997 were $3,569,000 compared to $1,844,000 for
the same period in 1996. The increase is largely due to WMC
which accounted for $922,000 of these expenses and increased
costs at Conceptronic which were the result of its new Malaysian
sales office, and other infrastructure expenditures.
Depreciation expense was $448,000 for the six months ended June
30, 1997 compared to $168,000 for the six months ended June 30,
1996 due primarily to WMC which had $330,000 of depreciation
expense.
Net interest expense for the first half of 1997 was $146,000
compared to $91,000 for the first half of 1996. The WMC net
interest expense was $109,000 for the first six months of 1997.
Conceptronic's expense for the six months ended June 30, 1997
decreased $31,000, to $60,000, due to reduced average amounts
outstanding under its credit line. These amounts were partially
offset by short-term interest income.
Income tax expense increased from zero to $372,000 due primarily
to the profitable operations of WMC. The effective income tax
rate was reduced as a result of the reversing of valuation
allowances previously recorded against the entire deferred tax
asset of $554,000.
Liquidity and Capital Resources
Net cash provided by operations for the six months ended June 30,
1997 improved to $551,000 from a net use of cash of $36,000 for
the six months ended June 30, 1996. The positive impact of the
WMC acquisition is reflected in the $831,000 positive cash flow
from operations that WMC provided during the six months ended
June 30, 1997. The negative cash flow from Conceptronic
operations for the six months ended June 30, 1997 is due to the
first half pretax loss in 1997 of ($338,000) and an increase in
inventories to support on-time reflow oven deliveries. Net cash
used for investing activities for the first half of 1997 was
$10,860,000 compared to $50,000 in the first half of 1996. The
increase in investing activities is primarily due to the
acquisition of WMC as well as its capital equipment acquisition
program to support WMC's continued sales growth. Net cash flows
provided by financing activities was $1,546,000 for the six
months ended June 30, 1997 compared to net cash flows provided by
financing activities of $87,000 for the comparable period in
1996. The net increase reflects the proceeds from the Company's
working capital credit lines.
The acquisition of WMC significantly impacted various balance
sheet accounts during 1997. Cash declined by $8,763,000 to
$1,555,000 due primarily to the WMC acquisition which had used
net cash of $8,879,000. Accounts receivable increased $5,093,000
primarily due to the consolidation of WMC receivables of
$4,554,000 and the increased quarter end sales activity at
Conceptronic. Long-term debt increased $2,867,000 due primarily
to the addition of WMC's $2,892,000 in long-term debt.
The Company has $3,000,000 in revolving lines of credit with
commercial banks of which $2,211,000 was drawn down as of June
30, 1997 to fund increased inventories and capital asset
purchases.
The Company believes it has sufficient cash flows from
operations, cash on hand, and availabilty under its credit line
to meet its liquidity needs for the foreseeable future.
ARGUSS HOLDINGS, INC.
PART II
Other Information
Items 1 and 3: Not Applicable
Item 2: Changes in Securities.
On May 25, 1997, 4,000,000 shares of the Company's Class A
Common Stock converted into 4,000,000 shares of the Company's
Common Stock.
Item 4: Submission of Matters to a Vote of Security
Holders.
See the Company's Form 10-QSB for March 31, 1997 for discussion
of the Annual Meeting of the Stockholders.
Item 5: Not Applicable
Item 6: Exhibits and Reports on Form 8-K
(a) 11a Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
none
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.
Arguss Holdings, Inc.
August 8, 1997 By: \\Rainer H. Bosselmann
Rainer H. Bosselmann
Chief Executive Officer
August 8, 1997 By:\\ Arthur F.Trudel
Arthur F. Trudel
Principal Financial Officer
and Principal Accounting Officer
EXHIBIT 11 a
ARGUSS HOLDINGS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Six Months Ended
June 30, June 30,
1997 1996
NET INCOME (LOSS) $1,392,000 $(261,000)
PRIMARY EARNINGS PER SHARE
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 7,275,000 1,700,000
STOCK OPTIONS 243,000 -
7,518,000 1,700,000
NET INCOME (LOSS) PER SHARE $ .19 $ (.15)
Three Months Ended
June 30, 1997 June 30, 1996
NET INCOME (LOSS)
$774,000 $(320,000)
PRIMARY EARNINGS PER SHARE
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 7,279,000 1,700,000
STOCK OPTIONS 262,000 -
7,541,000 1,700,000
NET INCOME (LOSS) PER SHARE $ .10 $ (.19)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,555,000
<SECURITIES> 0
<RECEIVABLES> 8,010,000
<ALLOWANCES> 0
<INVENTORY> 4,977,000
<CURRENT-ASSETS> 15,567,000
<PP&E> 10,188,000
<DEPRECIATION> (3,380,000)
<TOTAL-ASSETS> 37,483,000
<CURRENT-LIABILITIES> 9,118,000
<BONDS> 0
0
0
<COMMON> 24,453,000
<OTHER-SE> 29,000
<TOTAL-LIABILITY-AND-EQUITY> 37,483,000
<SALES> 12,682,000
<TOTAL-REVENUES> 12,682,000
<CGS> 8,251,000
<TOTAL-COSTS> 8,251,000
<OTHER-EXPENSES> 2,813,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,000
<INCOME-PRETAX> 1,527,000
<INCOME-TAX> (753,000)
<INCOME-CONTINUING> 774,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 774,000
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
