SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Fiscal Year Ended February
28, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the Transition PeriodFrom
__________ to __________
Commission File Number: 1-8381
WELDOTRON CORPORATION
(Exact Name of registrant as Specified in its Charter)
New Jersey 22-160728
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1532 South Washington Avenue, Piscataway, New Jersey 08855
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 752-6700
Securities registered pursuant to Section 12(b) of the Act:
Title of Class: Name of Exchange on Which Registered:
Common Stock, $.05 Par Value OTC-BB
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III to this Form 10-K or any amendment to this
Form 10-K. [ ]
Approximate aggregate market value of voting stock held by non-affiliates of the
Registrant as of May 20, 1997
Common Stock...................$577,000
As of May 20, 1997 there were outstanding 2,300,173 shares of the Registrant's
Common Stock, $.05 Par Value.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
WELDOTRON CORPORATION
Index to Annual Report on
FORM 10-K
Twelve Months Ended February 28, 1997
(Dollar Amounts in Thousands)
PART I PAGE
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes In and Disagreements with Accountants 43
PART III
Item 10. Directors and Executive Officers of the Registran 44
Item 11 Executive Compensation 45
Item 12 Security Ownership of Certain Beneficial
Owners and Management 46
Item 13. Certain Relationships and Related Transactions 48
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 49
<PAGE>
PART I
ITEM 1. BUSINESS
Weldotron Corporation (which, together with its subsidiaries, is herein called
the "Company" or the "Registrant"), a New Jersey corporation organized in 1958,
is engaged in two principal areas of activity --packaging and industrial
automation and safety controls. The two principal businesses are Packaging
Systems Group and the Safety and Automation Systems Group located in Piscataway,
New Jersey in addition to the 60% owned subsidiary in Brazil engaged also in the
packaging systems business. The Packaging Systems Group designs, manufactures
and markets a comprehensive line of packaging machinery and systems for a broad
range of industrial and consumer applications. The Safety and Automation Systems
Group manufactures and markets electronic systems for personnel safety and
controls for monitoring high speed automatic production machinery. A
communications subsidiary, Valiant International Multi-Media Corp. ("Valiant"),
which was sold effective August 31, 1994, marketed multimedia products, video
products, and audio/visual equipment and supplies.
The following table sets forth the aggregate net sales derived from the two
product groups in dollars and as a percentage of consolidated net sales for the
fiscal years ended February, 1997, 1996 and 1995 as restated to give effect to
the sale of Valiant as of August 31, 1994.
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
February 28, 1997 February 29, 1996 February 28, 1995
----------------- ----------------- -----------------
(Dollars in Thousands)
Packaging ....... $12,130 91% $15,997 87% $16,647 85%
Systems
Safety &
Automation
Systems ......... 1,156 9% 2,318 13% 3,023 15%
Total ........... $13,286 100% $18,315 100% $19,670 100%
For additional details relating to industry segments, see the Notes to the
Consolidated Financial Statements.
A. Packaging Systems Group
The Packaging Systems Group designs, manufactures and markets a comprehensive
line of packaging machinery and systems for a broad range of industrial and
consumer applications. These systems employ either shrink or stretch packaging
techniques.
(i) Industrial Packaging Systems: The Company's industrial packaging machines
and systems employ a technique called "shrink" packaging which utilizes
specially formulated thermoplastic films that are oriented in the original
manufacturing process to shrink with the application of heat. In actual
operation, the product is enveloped in shrink film, the film is sealed, and the
completely over wrapped product is passed through a hot air shrink tunnel where
the heated air causes the film to shrink tightly around the product.
The Company was a pioneer in the shrink packaging industry and is considered a
leading developer of shrink packaging machinery. The Company's Industrial
Packaging Systems group manufactures a broad line of shrink packaging systems
designed to provide substantial user benefits such as lower packaging costs,
increased productivity, and improved product appearance and integrity. Many
standard models are offered from manual L-sealers and shrink tunnels up through
fully automated form/fill/seal wrapping systems that include feeders, collators
and speed modulated conveyors.
Industrial Packaging's line of manually operated shrink packaging machines is
believed to be among the highest quality machines of their type. These machines
incorporate features not generally found in competitive low-end units such as
electronic timing, microprocessor controls, self-compensating temperature
controls and low operating costs and maintenance requirements.
Industrial Packaging's medium speed equipment program includes a series of
automatic L-sealers. This series features a unique "vertical rising" seal head
that maximizes machine operating speed and produces stronger seals than pivoting
type seal bars found on competitive machines. Other features include single
level operation for smooth product transfer, adjustable film forming plow for
quick product changeover, and heavy duty unibody steel construction for
longevity.
The Company's high-speed automatic equipment is of the type known as horizontal
form, fill and seal. It functions by forming film into a tube, feeding the
products to be wrapped at spaced intervals into the tube, and then sealing and
cutting the tube between successive products. The result is a film-wrapped
package which is then passed through a high-speed shrink tunnel for the final
stage of shrinking. The principal applications for these systems have been the
packaging of computer software and memory disks, magnetic tapes, cassettes,
books, hardware, toys, gift items and the like wherein large quantities of items
must be packaged and shipped in relatively short time intervals.
The Company also offers an economically priced, in-line form-fill shrink
packaging system that targets a medium speed niche market for larger industrial
products. The Company has expanded this product range to include an edge seal
version to target the tape, cassette, CD and entertainment products industries.
The Company's high speed automatic shrink packaging systems also provide what
the Company believes to be a practical, cost-effective method for tamper-evident
packaging for food and non-food products.
(ii) Stretch Packaging Systems: The Company introduced the first automatic
four-way stretch packaging machines in the United States during the 70's. These
systems use semi-elastic plastic films to wrap food products such as meat,
poultry, seafood and produce. These packaging systems mechanically stretch
plastic film tightly around the food product, which is generally in a tray, and
then lap the plastic film over itself on the bottom of the tray and seal the
package. The result is a transparent, skin-tight wrap on the display surface of
the tray.
B. Safety and Automation Systems Group
The Safety and Automation Systems Group designs, manufactures and markets a line
of solid state industrial electronic control systems for personnel safety and
quality control monitoring of automatic production machinery. Certain models are
manufactured in Piscataway, New Jersey while others are manufactured elsewhere
in accordance with the Company's specifications. The electronic controls protect
operators from injury, prevent tool damage, and detect production malfunctions.
Areas of concentration within this market are electronics, automotive and
appliances. Secondary markets consist of packaging, plastics, special machines,
and robotics area guarding.
Safe-T-Lite is the trade name of the Company's product line of infrared presence
sensing devices designed to comply with current standards for machine guarding.
The addition of the 8230 Thin Line Series will allow the Company to gain market
share. The Company now offers what it believes to be one of the widest variety
of sizes and options of presence sensing devices.
PMD - Programmable Monitoring Device - is the Company's latest entry into the
die protection market. The unit incorporates advances in microprocessor
technology and is designed to prevent costly damage due to improper parts
ejection, die overload, misfeed, and other malfunctions of automatic press
operations. The PMD has 6 Channel capability, each with the ability to program
one of five functions.
Pro-Set is a resolver based multi-functional press automation controller. It
combines the features of 16-channel programmable limitswitch with an advanced
12-station programmable die protection system and a brake monitor which complies
with OSHA 1910.217 (b 14). It features 200 job set-up memory capability.
During the last fiscal year, this group introduced a new line of press controls
which complement the existing product line.
C. Discontinued Operations
Due to management's desire to focus on its core businesses -- packaging and
safety and automation -- it decided in the first quarter of Fiscal `95 to divest
its communications subsidiary, Valiant International Multi-Media Corp. The
subsidiary was sold effective August 31, 1994 to a group of investors which
included the management of the subsidiary and a former Company director.
The product line of the discontinued operation consisted of video equipment,
tape recorders and other audio devices, computer equipment and accessories,
books and other related products. These products targeted professional markets
that included schools, business and industry, government agencies, hospitals,
libraries, television and radio stations and colleges. Some of the products were
produced to Company specifications and were assembled and packaged to meet
market needs. None were manufactured by the Company.
D. Manufacturing
The Company currently conducts North American manufacturing operations in a
leased, one-story plant consisting of 256,000 square feet located on a 15 acre
site in Piscataway, New Jersey. The Company intends to move its operations to a
smaller, more efficient facility in the southern New Jersey area in the third
fiscal quarter.
Manufacturing of packaging systems are conducted on a batch production basis
using progressive assembly methods. The Company fabricates the parts used in its
finished products from raw materials and components and produces most of its
sub-assemblies, except for certain parts and sub-assemblies supplied by selected
domestic and foreign suppliers. These parts, components and sub-assemblies are
carried in inventory in anticipation of projected sales and are then assembled
into finished products according to production schedules. In general,
manufacturing of standard machines is commenced in anticipation of orders rather
than to meet existing backlog. The manufacturing processes for the Company's
products take several months, depending upon their size, complexity and
quantity. However, it has generally been the Company's experience that except
for customized equipment (which is made to order), most orders received are for
items that are in the process of being manufactured or are in inventory. The
Company also maintains an extensive spare parts inventory to meet customer
needs.
The raw materials used by the Company include steel, copper, brass, aluminum and
various plastics. Some components including motors, transformers, fittings,
electrical and electronic components, drives, and general purpose hardware, are
purchased by the Company. Many of the purchased components are built to the
Company's specifications. The Company believes that it is not dependent upon any
single supplier for any raw material or component.
The Company's products are designed to operate efficiently over long periods,
and rigorous inspection procedures are performed to insure that its
manufacturing processes result in products meeting these and other requirements.
The Company's products are serviced at its customers' premises by distributors,
dealers or the Company's technicians.
The Company generally provides its customers with express limited written
warranties covering its industrial packaging equipment for a period of 90 days
and its food packaging equipment for a period up to two years.
The Company also has a manufacturing plant in Nova Odessa, Brazil.
E. Marketing and Sales
The Company sells its packaging equipment in North America to industrial
companies, food processors, and supermarkets directly and through packaging
machinery distributors and dealers. For the fiscal year ended February 28, 1997,
approximately 44% of the Company's sales were made directly to the end user and
approximately 56% were made through other distribution channels. Direct sales
are more prevalent in stretch packaging systems than in shrink systems. Stretch
wrapping machinery sales to supermarkets, however, are generally made through
independent dealers who specialize in sales and service in selected cities or
regions. The Company's largest customer is W.R. Grace and Co., which buys
packaging equipment from the Company for resale. For the fiscal years ended
February 28, 1997, February 29, 1996, and February 28, 1995, respectively, sales
to W.R. Grace and Co. accounted for approximately 7%, 8%, and 6% respectively,
of the consolidated net sales of the Company.
Regional sales territories are managed by the Company's staff, who provide
distributors sales training and sales support. The Company participates in
domestic and foreign trade shows and maintains an in-house marketing services
staff that handles product publicity, advertising, and promotion. Advertising is
generally placed in trade journals.
The Company's backlog of unshipped customer orders was approximately $1,405 and
$2,200 at February 28, 1997 and February 29, 1996, respectively.
Foreign sales, which aggregated approximately 6% of net consolidated sales for
the fiscal year ended February 28, 1997 are carried out directly and by certain
appointed distributors.
The Company's Brazilian subsidiary, Weldotron do Brasil, Ltd. (WdB), is included
in the consolidated results of the Company. It is 60% owned by the Company, with
the remaining 40% being Brazilian owned. WdB has been a subsidiary of the
Company since 1973. The Company believes that WdB has a substantial share of the
Brazilian shrink packaging equipment market; however competition from imported
equipment is intense.
Weldotron do Brasil manufactures industrial packaging systems for sale in Brazil
and certain South American export markets. WdB owns a 21,000 square foot
production facility in Nova Odessa, Brazil which it constructed and occupied
during fiscal 1990.
Although the Brazilian economy showed increasing economic activity this year,
inflation continues to disturb the relative price of goods and services, leaving
the economic situation uncertain.
In October 1994, the local management of the company submitted a proposal to buy
the Brazilian operations. However, the Company rejected the offer due to
unsatisfactory terms. The Company obtained the services of an investment banker
to prepare a valuation of the entire Brazilian operations comprising the
packaging machinery business and the real estate. According to this valuation,
the entire value of this business was approximately $1,950, before the fiscal
1996 distribution of capital. The Company instructed this firm to find a
possible buyer for the Brazilian operations assuming an appropriate price would
be realized. Subsequently, after receiving no legitimate offers for the
business, efforts to sell the Brazilian operations were discontinued.
For the past several fiscal years, the Company has experienced fluctuations in
reported financial results due to Brazilian currency translation gains and
losses. The Company is not capable of determining future translation gains or
losses and is uncertain of their effects on reported results in future periods.
F. Competition
The Company faces intense competition in all of its product lines. The Company
competes primarily on the basis of quality, service, technology and price. The
Company's principal competitors in shrink packaging are Great Lakes Corporation
and Shanklin Corporation. Great Lakes Corporation and Shanklin Corporation are
comparable in size to the Company. Although definitive statistics are not
available, the Company believes that it has an important share of the high-speed
automatic shrink packaging equipment market in the United States.
The Company holds and has filed applications for United States and foreign
patents relating to many of its products. The Company also has certain
registered trademarks. The Company has licensed some of its technology to other
manufacturers.
G. Employees
At February 28, 1997, the Company had approximately 88 domestic employees,
including 55 engaged in manufacturing, 4 in engineering and design, 4 in
technical service and support, 13 in sales and marketing, and 12 in general and
administrative functions. Comparatively, last year the Company had approximately
111 domestic employees, which included 68 engaged in manufacturing, 6 in
engineering and design, 6 in technical service and support, 21 in sales and
marketing and 10 in general and administrative functions.
The Company's manufacturing employees predominantly work a single shift.
Approximately 17 of the Company's manufacturing employees are represented by
Local 427 of the International Union of Electrical, Radio and Machine Workers
AFL-CIO.
Because of the reduced level of business, the Company has made subsequent staff
reductions in the first and second Quarters of Fiscal 1998. At August 31, 1997,
the Company had approximately 49 employees, including 26 engaged in
manufacturing and 23 engaged in marketing and general and administrative
functions.
A labor contract covering the Company's manufacturing employees was successfully
concluded in March 1997 for the period March 1997 through March 1998. The
Company generally considers its labor relations to be satisfactory.
The Company's Brazilian subsidiary employs about 64 people.
ITEM 2. PROPERTIES
The continuing operations of the Company and its subsidiaries occupy the plants
and offices described on the following pages:
<PAGE>
WELDOTRON CORPORATION AND SUBSIDIARIES
PROPERTIES
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate Estimated Owned Lease
Floor Area Percent Principal or Term
Location (Sq. Ft.) Utilized Use Segment Leased Date Notes
- -----------------------------------------------------------------------------------------------------
(1)
Piscataway, 256,000 35% (1) Packaging Leased 2005
New Jersey Manufacturing, Systems,
Warehousing, Communications
General and
and Controls
Corporate
Office
Sao Paulo, 3,000 100% General Packaging Leased 1998
Brazil Systems
Nova 21,000 100% Packaging Owned N/A (2)
Odessa, Manufacturing, Systems
Brazil Warehousing,
General
Office
</TABLE>
Notes:
(1) Personnel reductions and reduced space requirements due to the use of
demand flow manufacturing concepts. The current space requirement is only
35,000 - 70,000 sq. ft. Therefore, the Company has actively sought to
sublease the excess square footage. It was anticipated that the sublease
income would exceed the remaining lease obligations and amortization of
the leasehold improvements. See discussion of Legal Proceedings regarding
the current status of this property.
(2) Property is free of encumbrances.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the ordinary course
of business and several claims have been asserted against the Company as of
February 28, 1997. Some of the actions involve claims for compensatory, punitive
or other damages. The Company presently believes that any compensatory,
punitive, and other damage claims are adequately covered by insurance.
Martin Siegel vs. Weldotron Corporation
On November 23, 1994, the Registrant was served with a lawsuit filed by Martin
Siegel in the Superior Court of New Jersey, naming the Company as the defendant.
The other defendants named were: William L. Remley and Richard C. Hoffman,
officers and directors of the Company; Richard Kramer, John D. Mazzuto, Bryon
Fusini and Fred H. Rohn, directors of the Company; Lyford Corp., a major
shareholder of the Company and Mentmore Holdings Corp. Until earlier that year,
Mr. Siegel served as Chairman of the Board and Chief Executive Officer of the
Company. On or about November 2, 1994, the Company terminated Mr. Siegel's
employment agreement for cause. Mr. Siegel alleged, among other things, that the
Company breached its obligations to him under his employment agreement by
forcing his resignation as Chairman of the Board and Chief Executive Officer,
ceasing his regular salary and failing to fund a grantor trust designed to
secure Mr. Siegel's deferred compensation benefits. The defendants were also
served with an Order to Show Cause, seeking to secure an immediate funding of
the grantor trust and summary disposition of his claims.
On January 3, 1995, the court denied Mr. Siegel's request for a preliminary
injunction mandating the immediate funding of the grantor trust and for the
matter to proceed summarily. Periodic payments of Mr. Siegel's annual deferred
compensation benefits were deposited into an escrow account pending a final
determination of this matter.
On April 13, 1995, the Company reached a full and final settlement with Martin
Siegel. Under the terms of the settlement, which was approved by the Court: (1)
all claims and counterclaims by, between and among Mr. Siegel, the Company and
the other parties to the litigation were dismissed, with prejudice, (2) Mr.
Siegel and the Company exchanged mutual releases, (3) Mr. Siegel's Employment
Agreement with the Company dated March 1, 1988, as amended, was terminated, and
(4) Mr. Siegel was awarded a lifetime annual deferred compensation benefit of
$100. The annual deferred compensation benefit is an unsecured obligation of the
Company.
The Company made regular monthly payments to Mr. Siegel under the revised
deferred compensation benefit arrangement until April of 1997 when such payments
were suspended. Mr. Siegel served written notice of default in the payment of
his deferred compensation benefits upon the Company in May of 1997. In June, as
was Mr. Siegel's right under the terms of the deferred compensation agreement
entered into as part of the settlement of the prior litigation, Mr. Siegel made
application to the New Jersey Court for a confessed judgment against the Company
in the amount of the present value of the remaining payments due him under the
deferred compensation agreement.
On June 24, 1997, the Superior Court of Bergen County, New Jersey awarded a
judgment in Mr. Siegel's favor in the amount of $772. The Company is in
discussions with Mr. Siegel concerning a potential settlement of its obligations
to Mr. Siegel. As of February 28, 1997, the Company had accrued $810 as the
present value of this obligation.
<PAGE>
Seymour Siegel vs. Weldotron Corporation
Seymour Siegel, who is the brother of Martin Siegel, was formerly an executive
officer and director of the Company who retired from the Company as an officer
in 1993 and as a director in 1994. Under the terms of Seymour Siegel's
Employment Agreement with the Company, upon his retirement he was to receive
annual deferred compensation benefits of $50. These annual deferred compensation
benefits are unsecured obligations of the Company. Such benefits were paid in
monthly installments to Seymour Siegel until April, 1997, at which time they
were suspended by the Company. Seymour Siegel has put the Company on notice of
default and has threatened to retain counsel to pursue his rights unless said
payments are resumed. To pursue his claims against the Company, Seymour Siegel
would be required to initiate litigation against the Company. The Company
intends to meet with Seymour Siegel and his counsel in an effort to settle these
claims. As of February 28, 1997, the Company has accrued $355 as the present
value of this obligation.
Riken Optech Corp. vs. Weldotron Corporation
Riken Optech Corp. ("Riken") is a Japanese manufacturer of solid state
industrial electronic control systems which formerly provided products for
resale by the Safety and Automation Systems Group of the Company under an
exclusive distributorship agreement (the "Distributorship Agreement") which
originated in the late 1970's.
In 1995, as a result of unfavorable exchange rates between the Japanese Yen and
the U.S. Dollar, Riken unilaterally increased the prices at which its products
would be sold to the Company to a prohibitive level. The Company pursued
discussions with Riken to license production of the Riken products and
simultaneously initiated separate efforts to design, fabricate and source
comparable products domestically. Discussions ensued between the Company and
Riken during which time the Company suspended further payments upon certain open
invoices with Riken. In December of 1995, Riken allegedly terminated the
Company's exclusive Distributorship Agreement with the Company. Negotiations
were terminated and the Company exclusively pursued its domestic product design
and fabrication efforts. Thereafter, the Company, through its Safety and
Automation Group, successfully introduced and began marketing its domestically
sourced line of industrial electronic control systems.
In early 1996, the Company commenced an action in New Jersey State Court against
Riken and a former employee of its Safety and Automation Group who had left to
join a competitor, asserting various claims in relation to Riken's termination
of the exclusive Distributorship Agreement, predatory pricing practices, and
tortious interference with existing contractual relationships.
In late 1996, Riken commenced a separate action against the Company in the
United States District Court for the Southern District of New York, seeking
payment in respect of the outstanding unpaid invoices and asserting various
claims in relation to the Company's new domestically sourced industrial
electronic control system products.
In January of 1997, the Company, Riken, and the former Company employee reached
a settlement of the claims raised in the New Jersey State and New York Federal
Court actions. Under the terms of the settlement: (1) All claims and
counterclaims were released and the two court actions were dismissed with
prejudice; (2) the Company agreed to pay Riken the sum of approximately $185 in
installments over a 14-month period, which the Company had accrued as of
February 28 1997; and (3) Weldotron agreed to make certain cosmetic changes to
the appearance of its new domestically sourced products.
Weldotron has made the first 3 installment payments, totaling approximately $48,
under the terms of the settlement with Riken. Weldotron suspended further
payments in April of 1997. Riken has notified Weldotron that it will seek to
pursue the enforcement of the settlement terms against the Company and will seek
to obtain a judgment in the amount of the remaining settlement payments. The
Company anticipates having further discussions with Riken in an effort to
compromise the remaining payment obligations of the Company.
Mackman Realty Corp. vs. Weldotron Corporation
The Company currently occupies a 256,000 square foot manufacturing, warehousing,
and corporate facility in Piscataway, New Jersey under a long-term lease whose
original term was set to expire in May of 2005. Because the Company only
utilizes approximately 35% of said facility and because the rent payable under
said lease was substantially below current prevailing market rents for similar
facilities in the proximate geographic marketplace, the Company has, for the
last two years, sought to sublease said facility and to move to smaller, more
efficient quarters. Because the existing facility is dated and because updating
would require a significant expenditure of funds to make the facility attractive
to potential users, the Company chose to defer certain maintenance items until a
suitable subtenant could be identified.
In January of 1997, the Landlord of this facility, Mackman Realty Corp.
("Mackman") sought to declare a default under the Lease and to terminate the
Lease by reason of Weldotron's alleged failure to meet its repair and
maintenance obligations under said Lease. Mackman commenced an action for
summary possession in New Jersey Court. The Company then filed a motion to
transfer the case to another court as there were substantial issues of fact and
interpretation and the need for discovery and expert testimony. The Company's
motion was granted and the parties commenced discovery efforts. Despite repeated
attempts at settlement, negotiations broke down and a trial was held before the
Court in July. The Court issued its order on July 11, 1997 declaring the
Company's lease terminated and granting judgment in favor of Mackman for
possession of the facility on August 15, 1997. The Company continues to occupy
the facility, under an interim arrangement with Mackman, through October 15,
1997.
The Company has located a smaller, more efficient facility in the immediate area
of the existing facility into which it intends to move by said October 15, 1997
date. Negotiations for a lease for the new facility are proceeding. As a result
of the Court's decision, the Company will be required to write-off the value of
unamortized leasehold improvements for the existing facility during the second
fiscal quarter of 1998, which are estimated at $662.
Product Safety Program
The Company has a product safety program which has been implemented in response
to the burgeoning litigation against corporations in America. The program
includes, among other things, taking a proactive and aggressive course of action
to defend against alleged claims for damages including immediate investigation
if an injury is reported.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock was traded on the American Stock Exchange (Symbol
WLD) until November 8, 1996. High and low prices for each quarter during Fiscal
Year 1997 and Fiscal Year 1996 and information relating to dividends are:
For the year ended February 28, For the year ended February 29,
1997 1996
High Low High Low
1st Quarter .... $1-1/2 $ 1 $1-1/8 $ 9/16
2nd Quarter .... 1 11/16 7/8 1/2
3rd Quarter15/16 5/16 5/16 1-1/4 7/16
4th Quarter .... 5/8 1/16 1-5/16 5/8
No dividends have been paid to date and the Company does not anticipate the
payment of future dividends. The Company's loan agreements also place
restrictions on the amounts of dividends that can be paid.
There were approximately 538 stockholders of record at February 28, 1997. The
Company believes that a significant number of beneficial owners of stock hold
their shares in "street" names.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company for each of the last five fiscal years
are set forth on the following page:
<PAGE>
WELDOTRON CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(amounts in thousands except share data)
For Fiscal Years Ended February,
1997 1996 1995 1994 1993
Net Sales $13,286 $18,315 $19,670 $21,462 $19,046
Gross Profit 3,460 5,901 7,234 6,265 5,341
(Loss) From Continuing
Operations (2,233) (2,754) (3,202) (2,361) (3,009)
Other Income (Expense) (274) 99 (110) 101 (7)
Loss from Continuing
Operations Net of Taxes (2,347) (3,134) (3,418) (2,223) (3,099)
Gain (Loss) From
Discontinued Operations -- -- (16) 12 (22)
Net Loss (2,347) (3,134) (3,434) (2,211) (3,121)
Net (Loss) Earnings Per
Share:
Continuing Operations (1.02) (1.36) (1.49) (1.05) (1.70)
Discontinued Operations -- -- .00 .01 (.01)
Net Loss Per Share (1.02) (1.36) (1.49) (1.04) (1.71)
Total Assets 9,031 12,217 15,286 17,047 18,550
Working Capital 579 3,989 5,933 7,621 8,649
Long-Term Debt 1,000 1,750 1,250 777 835
Stockholders' Equity 95 2,442 5,576 9,010 10,114
See Item 7 for Management's Discussion and Analysis of Financial Condition and
Liquidity and Results of Operations.
Statements of Operations and balance sheet data is reclassified for discontinued
operations. (See Note 4 to the consolidated financial statements).
No cash dividends have been distributed during the periods presented.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
accompanying Consolidated Financial Statements, including the Notes thereto, and
the information presented under the caption, "Selected Consolidated Financial
Data". All information is based on the Company's fiscal year-end of February.
All amounts are in thousands except as noted.
FINANCIAL CONDITION AND LIQUIDITY
The primary and secondary sources of financing for the Company during the year
were notes from Related Parties and a secured revolving line of credit with
Business Alliance Capital Corporation (the New Credit Facility), respectively.
In June 1991, the Company entered into a credit facility (the "Credit Facility")
with Congress Financial Corporation, ("Congress") which was amended on June 10,
1996. It provided a revolving line of credit and term loan of $2,500 an interest
rate of 3.75% over the Core States floating base rate, a maturity date of June
25, 1997, and financial covenants as follows: minimum domestic working capital
of $1,700 and minimum domestic tangible net worth of $1,050.
The Credit Facility was collateralized by substantially all of the assets of the
Company and its domestic subsidiaries. Borrowings under the Credit Facility were
limited to certain percentages of eligible inventory and accounts receivable
including stipulations as to the ratio of advances collateralized by receivables
compared to advances collateralized by inventory.
The Company was in default of its minimum working capital and tangible net worth
covenants of the Credit Facility as of August 31, 1996 and November 30, 1996.
Subsequently, Congress Financial Corporation notified the Company of its
intention to terminate the Credit Facility due to the default as well as the
reduced size of the outstanding loan (below $1,000) and provided the Company a
period of time in which to seek alternative sources of financing. On December
10, 1996, the Company successfully entered into a new credit facility (the "New
Credit Facility") with Business Alliance Capital Corporation, ("BACC") to
provide a revolving line of credit for working capital purposes. The interest
rate is 3.0% over the Core States floating base rate. The New Credit Facility
further requires that the Company pay fees on the average outstanding loan of
0.33% per month, for administration and upon early termination of the New Credit
Facility. The maximum line of credit is $1,500 and the maturity date is December
10, 1998.
The New Credit Facility is collateralized by substantially all of the assets of
the Company and its domestic subsidiaries. Borrowings under the New Credit
Facility are limited to certain percentages of eligible inventory and accounts
receivable as well as a stipulation as to the maximum advance level on
inventory.
At February 28, 1997, the Company had used approximately $1,172 of the Business
Alliance Capital New Credit Facility (See note 7 to the consolidated financial
statements). Based on the advance percentages of eligible receivables and
inventory, the Company had unused borrowing availability of approximately $306
at February 28, 1997.
On August 31, 1994, the Registrant borrowed $500 Dollars from Lyford Corporation
("Lyford"), an affiliated company that owns 19.56% of the issued and outstanding
common stock of the Company. The Company executed and delivered to Lyford a
promissory note, a security agreement and a Common Stock Purchase Warrant
granting to Lyford the right to purchase up to 200,000 shares of the Company's
common stock at an initial exercise price of two dollars per share, the closing
price for the Company's common stock on the date the warrant was granted. The
warrant expires on August 4, 2004.
On March 1, 1995, the Registrant concluded the rolling of this note into a new
note in the amount of $1,000. The new obligation is evidenced by a certain
Amended, Extended and Restated Promissory Note dated as of March 1, 1995 (the
"Restated Note"). In consideration for the new loan, the Company executed and
delivered to Lyford the Restated Note and an additional Common Stock Purchase
Warrant. The new note was originally due and payable on or before March 31, 1996
and bears interest at 12% per annum. The note was subsequently extended twice
- -first until April 1, 1997, then until April 1, 1998 and the interest rate was
increased to 14%. The new loan is secured by a junior lien on all of the
Company's assets. The new warrant grants to Lyford the right to purchase up to
1,000,000 shares of the Company's common stock at an initial exercise price of
One ($1.00) Dollar per share. The market price of the Company's common stock was
$.875 on the date of the warrant grant. The new warrant expires by its terms on
April 12, 2005. The Company's management considers the note to be at fair value
and has not assigned any value to the warrants. The loan transaction closed
pursuant to documents dated as of March 1, 1995 and, in the case of the new
Warrant, April 13, 1995. These loan documents were contingent on the Company's
obtaining the consent of its senior lender, which consent was obtained on May 5,
1995. The Lyford loan is collateralized by a junior lien on substantially all of
the assets of the Company.
As a result of the continuing deterioration in the financial performance of the
Company and the negative impact of the events described under "Item 3, Legal
Proceedings", Lyford has advanced additional sums to the Company to protect its
collateral position and to fund ongoing operations. As of August 31, 1997, the
current balance due and owing to Lyford, including unpaid and accrued interest
is $1,684.
In January, 1996 the Registrant entered into a $500 revolving loan agreement
with Exford Corp. "Exford", an affiliated company of Lyford. The Registrant
borrowed $350 under this agreement which borrowings bear interest at 14%, and
was originally due on January 31, 1997. The note was subsequently extended until
January 31, 1998. In connection with this revolving loan, the Company has
assigned to Exford its right, title and interest as tenant under the main
operating lease, together with any rents due and payable to the Company.
In February, 1997 the Registrant entered into a one year promissory note in the
amount of $96 with Mentmore Holdings. The note bears interest at two percentage
points above the prime rate, with a default rate of the interest rate plus five
percent for late payment of interest or principal. The note expires on February
11, 1998.
The Company's net working capital and current ratio decreased from last year.
Net working capital decreased from $3,989 to $579 and the current ratio
decreased from 1.67 to 1.09. The major changes in the net working capital from
year to year were the following:
Accounts receivable decreased from $2,000 last year to $1,299 this year due to a
27% decline in consolidated sales from last year. Inventories decreased from
$6,653 to $5,088 this year due to efforts to keep inventory levels in line with
reduced sales, particularly in the domestic side of the business.
Prepaid expenses and other current assets decreased from $563 last year to $399
this year due primarily to reductions in prepaid insurance resulting from
premium savings and prepaid payroll taxes due to timing differences from one
year to the next.
Investment in real estate held for sale decreased from $377 to $0 due to the
reclassification of this asset to long term after reevaluating its probability
of sale within the next twelve months.
Cash overdraft increased from $0 last year to $211, due to the issuance of
checks prior to the funding from an unused borrowing availability as of February
28th of $306.
Short-term borrowings increased from $835 to $1,396 due primarily to the $750
portion of last year's credit facility that was classified as long-term, and
increases in short-term obligations at our Brazilian subsidiary.
Short-term borrowing - Related Party increased from $150 to $446 due to
additional financing of $200 under the Exford line of credit and $96 from an
additional note with Mentmore Holdings.
Accounts payable and other current liabilities decreased from $4,963 to $4,173
due to a combination of reduced purchases consistent with volume declines,
negotiated forgiveness of debt with a former supplier, and reduced customer
deposits.
Capital expenditures excluding finance-type leases were $92 for 1997 compared to
$231 last year.
The Company expects capital expenditures to be minimal in 1998 and intends to
use leases to finance such investments where practical. At February 28, 1997,
the Company had no commitments for capital expenditures.
The Company's sixty percent owned Brazilian subsidiary, Weldotron do Brasil, was
financially self-sufficient for the year and is expected to be so again in 1998.
Brazil operates in a highly inflationary economy. As a hedge against inflation,
in prior years, Weldotron do Brazil had invested excess cash in three real
estate apartments as investment property. One apartment was sold in fiscal 1995,
with the proceeds distributed as dividends in a 60% and 40% relationship between
Weldotron U. S. and the minority interest. At the end of fiscal 1996, title to
one of the remaining two apartments was transferred to Weldotron, U.S.
(approximately a 60% interest in the total value of the two) at a carrying value
of $377. The Company has enlisted the services of a broker for the sale of this
apartment to raise additional cash.
The major component affecting the operating cash flow adversely this year and
last year was the operating losses. However, these adverse changes were largely
offset by decreases in inventory levels due to non-cash inventory valuation
reserves last year and tighter controls and improved asset management this year.
The Company invested $137 in property plant and equipment this year (including
$45 in finance-type leases) compared to $231 last year. These capital
expenditures were primarily for tooling and engineering support services.
The effect of exchange rate changes on cash and cash equivalents for the year
ended February 28, 1997 and the prior year was $(148) and $306 respectively.
This is attributable to Brazil's highly inflationary economy and the
"Remeasurement method" used for foreign currency translation to be measured into
U.S. dollars as required by SFAS No. 52.
Due to the decline in market share and recurring losses over the past several
years, the Company downsized its organization considerably during fiscal 1995,
1996 and 1997. The Company continues to aggressively outsource product formerly
manufactured in-house, thereby further reducing investments in inventory as well
as lowering overall costs of manufacturing. Special efforts will be made in
fiscal 1998 to sell off slower moving inventory of spare parts, finished product
to secondary markets, and underutilized manufacturing equipment. Certain cost
reduction programs have been implemented and others are in process in the areas
of business insurance, employee benefits, utilities and professional fees. With
new marketing strategies and potential opportunities for exports to the
Brazilian and South American marketplaces coupled with the continuing
streamlining of the organization and more favorable advance rates under the new
Credit Facility, the Company's cash requirements for operating needs and capital
expenditures in the next twelve months may be met. The Company is involved in
various legal actions, among which is the lawsuit filed by a former officer
(Martin Siegel) in the amount of $772,396.49. Whereas the Company is not in a
position to settle such claim in full at this time, discussions with Mr. Siegel
are in process concerning a suitable settlement arrangement for both parties.
The Company incurred net losses in recent years, and as of February 28, 1997 had
an accumulated deficit of $9,698. Whereas the Company's financial statements for
the year ended February 28, 1997 have been prepared on a going concern basis, no
assurance can be given that the Company will be successful in achieving
profitability or positive cash flow. The Company's independent auditors have
issued a going concern opinion as of February 28, 1997.
RESULTS OF OPERATIONS
Fiscal Year 1997 Compared To 1996
Net Sales from continuing operations were $13,286, which is a decrease of 27.5%
from $18,315 in 1996. Domestic packaging sales declined from $11,050 to $8,863
or 19.8%. Sales in the Control segment declined from $2,318 to $1,156 or 50.1%.
The Brazilian subsidiary experienced a decline in sales from $4,947 in 1996 to
$3,267 in 1997, or 34.0%. Domestically, the Company experienced an improvement
in industrial packaging equipment sales of 3.7% versus the prior year due to the
shipment of several custom roofing shingle bundling machines. During fiscal
1997, the Company refocused its marketing efforts toward such higher cash
contributing industrial packaging products, which had a negative impact on food
packaging equipment sales, and packaging sales overall. To compensate for the
marginal cash generated from the food packaging side of the business, the
Company reduced excess marketing expenses associated with that segment in fiscal
1997. The Control segment continued to feel the effects of last year's extended
period of being without inventory due to exorbitant price increases and
unfavorable foreign exchange rates with its former major offshore supplier. The
supplier situation has since been resolved with the procurement of high quality
material from domestic sources, and the segment continues to gradually regain
market share.
The Company is developing alternative marketing strategies in response to the
continued revenue declines, and has begun to explore applications of certain of
its product lines with their advanced technologies, within the Brazilian and
South American marketplaces, in which our subsidiary already has a long
established presence of respectability, reliability, and quality.
The Loss From Continuing Operations decreased to $2,347 from $3,134 last year.
The decrease resulted from the absence of major restructuring and inventory
charges this year, as well as reduced selling, general and administrative
expenses.
Gross Margin decreased from 32.2% of sales to 26.0% in 1997 and from $5,901 to
$3,460 in dollars. Despite improvements achieved in material costs, as a
percentage of sales, labor costs were higher, most notably at our Brazilian
subsidiary. In terms of dollar contribution, the Brazilian subsidiary's gross
margin decreased $1,046 due to higher labor and related overhead content on
reduced sales, while the domestic packaging segment's and control segment's
gross margins declined $728 and $667, respectively.
The Company's selling, general and administrative expenses decreased this year
by $1,857 to $4,801 compared to last year. Domestic operations had a decrease of
$1,530, while the Brazilian location had a decrease of $327. The decrease in
domestic expenses was in a) salaries and wages of $715, b) travel and
entertainment of $196, c) reduced fringe expenses of $180 due to the salary
reduction, d) dealer commissions primarily associated with the food packaging
segment of $170, and e) reduced general business insurance of $105. The decrease
at Brazil was evenly distributed between marketing and general administrative
expenses.
In the current year, the Company recorded a reserve of $91 to write down
inventory to net realizable value. This compares to a total charge of $1,085 in
the prior year.
Deferred compensation expense this year decreased slightly to $113 from $124
last year.
Other income and expenses this year included a foreign currency translation loss
of $148 compared to a gain of $345 last year with respect to the Company's
Brazilian subsidiary. These translation gains represent inflationary gains for
these years on the net assets of the Brazilian subsidiary. Brazil operates in a
highly inflationary economy. Accordingly, the results from the Brazilian
operations may be significantly affected by such fluctuations. The general price
index for the current year was 9% compared to 15% for the prior year. The
official selling rates of exchange to the U.S. dollar were $1 equals R$1.0394
this year compared to $1 equals R$0.9726 last year (In fiscal 1995, the
Brazilian currency was changed from Cruzeiros to Reals). The current and
historical levels of inflation in Brazil and the changing exchange rates cannot
be expected to affect future periods to the same extent, or even in the same
direction as were the current and prior years affected. Interest expense
increased by $8 due to increased borrowings at our Brazilian subsidiary. Royalty
income this year was $60 compared to $42 last year. The Company expects to
receive future royalties on patents through 2002. Commission income generated
entirely by our Brazilian subsidiary decreased from $489 last year to $414 this
year.
RESULTS OF OPERATIONS
Fiscal Year 1996 Compared To 1995
Net Sales from continuing operations were $18,315 which is a decrease of 6.9%
from $19,670 in 1995. The sales decrease was all domestically related. Domestic
packaging systems sales declined from $13,097 to $11,050 or 15.6%, whereas sales
in the Control segment declined from $3,023 to $2,318 or 23.3%. The Brazilian
subsidiary increased its sales from $3,550 in 1995 to $4,947 in 1996, or 39.4%.
Domestically, the Company streamlined its product offering this year eliminating
several low margin, custom made products which required extensive engineering
time, as well as certain imported product lines which became less profitable due
to unfavorable changes in exchange rates. The Control segment suffered from lack
of inventory, unfavorable exchange rates and exorbitant price increases. In
response, it shifted sourcing to domestic production on 50% of its product line
and discontinued products accounting for 15% of previous year's sales. The
control segment is now producing domestically adequate inventory at competitive
prices to support demand, and is rebuilding its business.
Continued cautious capital spending in the economy and fierce competition in
certain segments of the market have contributed to the domestic revenue decline.
In response to the latter situation, the Company has rationalized its product
lines into three major segments, manual, semi-automatic, and fully automatic and
high speed, and lowered prices on certain products, while restructuring certain
manufacturing operations to minimize any margin impacts.
The Loss From Continuing Operations decreased to $3,134 from $3,418 last year.
The decrease resulted from substantially reduced operating expenses and deferred
compensation this year.
Gross margin decreased from 36.8% to 32.2% of sales in 1996 and from $7,234 to
$5,901 in dollars. $1,085 in inventory valuation reserves were charged to the
period and despite certain savings achieved in material and labor costs
domestically, the Brazilian subsidiary's material cost increased from 29.8% of
sales to 33.3%.
In terms of dollar contribution, the Brazilian subsidiary's gross margin
increased $664 due to higher sales on a relatively fixed level of overhead
expenses, while the Control segment's and the Domestic Packaging segment's gross
margins declined $316 and $1,681 respectively.
The Company's selling, general, and administrative expenses decreased this year
by $1,406 to $6,658 compared to last year. The Piscataway, New Jersey location
had a decrease of $1,710, while the Brazilian location had an increase of $304.
The decrease in Piscataway was in: a) salaries and wages of $801, b) legal fees
of $290, c) benefits of $203 and d) advertising and trade shows of $183. The
increase at Brazil was primarily due to selling and distribution expenses.
In the current year, the Company recorded a reserve of $1,085 to write down
inventory to net realizable value. This compares to a total charge of $1,031 in
the prior year comprised of $390 in reserves to write down inventory to net
realizable value, and $641 of write offs due to discontinued product lines. The
inventory write off related to discontinued product lines was part of an overall
reassessment program of future product plans and streamlining of existing
products that began during calendar 1993 and which continued through fiscal 1995
due to the complexity of the review process.
The decrease in deferred compensation expense this year by $497 is due to the
effect of a settlement last year of a lawsuit brought by a former officer
resulting from early termination which increased his deferred compensation from
$80 to $100 per annum and the recognition of increased life expectancy of two
former officers reflected in the valuation.
Other Income and Expenses this year included a foreign currency translation gain
of $345 compared to $344 last year with respect to the Company's Brazilian
subsidiary. These translation gains represent inflationary gains for these years
on the net assets of the Brazilian subsidiary. Brazil operates in a highly
inflationary economy. Accordingly, the results from the Brazilian operations may
be significantly affected by such fluctuations. The general price index for the
current year was 15% compared to 869% for the prior year. The official selling
rates of exchange to the U.S. dollar were $1 equals R$0.9726 this year compared
to $1 equals R$0.8460 last year. (In fiscal 1995, the Brazilian currency was
changed from Cruzeiros to Reals). The current and historical levels of inflation
in Brazil and the changing exchange rates cannot be expected to affect future
periods to the same extent, or even in the same direction as were the current
and prior years affected. Interest expense increased by $121 due to increased
average borrowings from a Related Party and higher interest rates. Royalty
income this year was $42 compared to $84 last year. The Company expects to
receive future royalties on patents through 2002. Commission income generated
entirely by our Brazilian subsidiary increased from $109 last year to $489 this
year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, notes thereto and auditors' report
thereon, are included herein.
Selected quarterly financial data and other supplementary financial information
is not required.
WELDOTRON CORPORATION
Consolidated Financial Statements and
Supplemental Schedule for the
Years Ended February, 1997, 1996, and 1995
and Independent Auditors' Report
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders of Weldotron Corporation
Piscataway, New Jersey
We have audited the accompanying consolidated balance sheet of Weldotron
Corporation and subsidiaries as of February 28, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as, evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Weldotron
Corporation and subsidiaries at February 28, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
BDO Seidman, LLP
New York, New York
July 3, 1997
<PAGE>
Weldotron Corporation and Subsidiaries Consolidated Balance Sheets February 28,
1997 and February 29, 1996 (Amounts in thousands, except share data)
1997 1996
Assets
CURRENT ASSETS
Cash and cash equivalents $ 19 $ 344
Accounts receivable (less allowance
for doubtful accounts:
1997, $184; 1996, $271 1,299 2,000
Inventories 5,088 6,653
Prepaid expenses and other current assets 399 563
Investment in real estate held for sale -- 377
----- -----
Total current assets 6,805 9,937
----- -----
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 660 746
Fixtures and equipment 8,781 8,947
Leasehold improvements 1,758 1,758
Automotive equipment 164 152
----- -----
Total property, plant and equipment 11,363 11,603
Less accumulated depreciation and amortization 9,676 9,497
Property, plant and equipment, net 1,687 2,106
DEFERRED COSTS AND OTHER ASSETS 539 174
----- -----
TOTAL ASSETS $9,031 $12,217
==================
Liabilities and Stockholders' Equity CURRENT LIABILITIES:
Cash overdraft $ 211 $ --
Short-term borrowings 1,396 835
Short-term borrowings - related party 446 150
Accounts payable 1,721 2,077
Payables to related parties 807 418
Accrued payroll, vacation and payroll taxes 539 666
Customer deposits 163 595
Other current liabilities 943 1,207
----- -----
Total current liabilities 6,226 5,948
----- -----
LONG-TERM DEBT -- 750
LONG-TERM DEBT - Related Party 1,000 1,000
----- -----
TOTAL LONG-TERM DEBT 1,000 1,750
----- -----
DEFERRED COMPENSATION 1,165 1,201
----- -----
MINORITY INTEREST IN SUBSIDIARY 478 715
----- -----
OTHER LONG-TERM LIABILITIES 67 161
----- -----
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.05 per share; authorized
1,000,000 shares; issued none --
Common stock, par value $.05 per share; authorized
10,000,000 shares; issued 2,352,720 shares 118 118
Additional paid-in capital 9,798 9,798
Deficit (9,698) (7,351)
Common stock in treasury, at cost - 52,547 shares
1997 and 1996 (123) (123)
----- -----
Total stockholders' equity 95 2,442
----- -----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,031 $12,217
====== =======
See Notes to Consolidated Financial Statements.
<PAGE>
Weldotron Corporation and Subsidiaries
Consolidated Statements of Operations
For the Years Ended February 28, 1997 and
February 29, 1996 and February 28, 1995
(Dollar amounts in thousands, except per share amounts.)
1997 1996 1995
NET SALES $13,286 $18,315 $19,670
COST AND EXPENSES
Cost of sales 9,826 12,414 12,436
Selling, general and administrative 4,801 6,658 8,064
Depreciation and amortization 388 488 506
Deferred compensation expenses 113 124 621
Restructuring and other inventory charges 91 1,085 1,031
Related party charges 300 300 214
------ ------ -----
15,519 21,069 22,872
------ ------ ------
LOSS FROM OPERATIONS (2,233) (2,754) (3,202)
------- ------- -------
OTHER INCOME (EXPENSES)
Foreign currency translation gain (loss) (148) 345 344
Interest expense (621) (613) (492)
Royalty income 60 42 84
Other (expense) income 21 (164) (155)
Commission income 414 489 109
------ ------ -----
(274) 99 (110)
LOSS FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST IN
SUBSIDIARY AND INCOME TAXES (2,507) (2,655) (3,312)
INCOME TAX (PROVISION) BENEFIT (37) (270) (60)
MINORITY INTEREST IN FOREIGN
SUBSIDIARY'S (INCOME) LOSS 197 (209) (46)
------ ------ ------
LOSS FROM CONTINUING OPERATIONS (2,347) (3,134) (3,418)
------- ------- -------
DISCONTINUED OPERATIONS
Income from operations -- -- 66
Loss on disposal -- -- (82)
------ ------ ------
NET LOSS $ (2,347) $(3,134) $(3,434)
========= ======== ========
NET LOSS PER COMMON SHARE:
Continuing operations $ (1.02) $ (1.36) $ (1.49)
Discontinued operations -- -- .00
------------------------------------
NET LOSS PER COMMON SHARE $ (1.02) $ (1.36) $ (1.49)
========== ========= =========
See Notes to Consolidated Financial Statements.
<PAGE>
Weldotron Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Years Ended February 28, 1997,
February 29, 1996, and February 28, 1995 (Dollar amounts in thousands.)
Common
Additional (Deficit) Stock In
Common Paid-In Retained Treasury,
Stock Capital Earnings At Cost Total
BALANCE,
FEBRUARY 28, 1994 $ 118 $9,798 $ (783) $ (123) $ 9,010
Net Loss -- -- (3,434) -- (3,434)
-------- ---------- ------- -------- -------
BALANCE
FEBRUARY 28, 1995 118 9,798 (4,217) (123) 5,576
Net Loss -- -- (3,134) -- (3,134)
--------- ----------- ------- --------- -------
BALANCE
FEBRUARY 29, 1996 118 9,798 (7,351) (123) 2,442
Net Loss -- -- (2,347) -- (2,347)
--------- ---------- ------- --------- -------
BALANCE
FEBRUARY 28, 1997 $ 118 $9,798 $(9,698) $ (123) $ 95
See notes to consolidated financial statements.
<PAGE>
Weldotron Corporation and Subsidiaries Consolidated Statements of Cash Flows For
The Years Ended February 28, 1997, February 29, 1996 and February 28, 1995
(Dollars amounts in thousands)
1997 1996 1995
---------- ---------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(2,347) $(3,134) $(3,434)
-------- -------- --------
Adjustments to reconcile net loss to
net cashflows provided by (used in)
operating activities:
Depreciation and amortization 388 488 506
Foreign currency translation (gain) loss 148 (345) (344)
Bad debt provision (recoveries) (75) (46) 201
Non-cash inventory reductions 91 1,085 1,031
Income from discontinued operations -- -- (66)
Deferred compensation expense 113 122 621
Minority interest in subsidiary
net income (loss) (197) 209 46
(Gain) Loss on sale of property,
plant and equipment (148) (13) 75
Changes in operating assets and liabilities, net of
proceeds from sale of business
(Increase) decrease in assets:
Accounts receivable 833 379 423
Inventories 1,651 1,100 (1,150)
Prepaid expenses and other current assets 120 (126) (5)
Other assets (17) 19 18
Increase (decrease) in current
liabilities (1,305) 538 (23)
Increase (decrease) in related
party liabilities 389 334 85
Increase (decrease) in other
long-term liabilities (150) (158) (66)
Total adjustments 1,841 3,586 1,352
---------- --------- ---------
Net cash provided by (used in)
operating activities (506) 452 (2,082)
---------- ---------- ----------
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (137) (231) (399)
Proceeds from the sales of property, plant and
equipment 148 132 287
Proceeds from sale of business -- -- 762
------------------------------------
Net cash (used in) provided by
investing activities 11 (99) 650
------------ --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) under short-term
borrowings (179) (1,347) 569
Proceeds from debt - related party 296 650 500
Principal payments under capital
lease obligations (10) (33) (47)
Cash overdraft 211 -- --
Dividends paid by subsidiary to minority
shareholder -- (23) (28)
----------- ---------- -----------
Net cash (used in) provided by financing
activities 318 (753) 994
---------- --- ----- ---
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (148) 306 375
--------- ---------- -------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (325) (94) (63)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 344 438 501
---------- ------------- -------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 19 $ 344 $ 438
===================================
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash (paid) received during the year for:
Interest Paid $ (403) $ (631) $ (511)
Taxes (178) (169) (62)
Interest received 45 23 32
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred when
the Company entered into leases for
new equipment $ 45 $ -- $ --
Distribution of investment in real estate to
minority interest $ -- $ 252 $ --
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements of the
Company and its subsidiaries include the accounts of all subsidiaries. Financial
information relating to the Company's 60% owned subsidiary in Brazil reflects
the 12 month periods ended December 31, 1996, 1995 and 1994. All material
intercompany transactions and balances have been eliminated.
The Company designs, manufactures and markets a comprehensive line of packaging
machinery and systems for a broad range of industrial and consumer applications
as well as innovative food packaging and weighing systems for supermarkets and
fresh food processors. Its Safety & Automation Systems Group manufactures and
markets electronic systems for personnel safety and controls for monitoring high
speed automatic production machinery.
Sales are primarily made throughout North America, with only 6% of the parent
Company's sales taking place internationally. The Company's 60% owned Brazilian
subsidiary sells throughout Brazil and certain South American export markets.
Revenue Recognition - Sales and earnings are recognized primarily upon shipment
of products or when title passes.
Inventories - Substantially all inventories are valued at the lower of cost,
determined by the use of the first-in, first-out method (FIFO) or market.
A standard cost system is used to value the inventory whereby overhead is
allocated to work-in-process and finished goods based upon a direct labor
component. Portions of product cost variances are allocated to the inventory
value under the FIFO method.
Accounts Receivable - Accounts receivable are net of an allowance for doubtful
accounts. The provision for doubtful accounts and write-off for uncollectible
accounts were $(75), $(46), $201 and $12, $21, $68 for the fiscal years ended
February 1997, 1996, and 1995, respectively.
Property, Plant and Equipment - Property, Plant and Equipment are stated at
cost. The Company provides for depreciation and amortization for financial
statement purposes on the straight-line or accelerated method over the estimated
useful lives of the various depreciable or amortizable assets. The Company's
Brazilian operations transferred title in fiscal 1996 to Weldotron U.S. of a 60%
interest in certain residential real estate which consists of apartments held
for investment purposes. The title to the remaining 40% interest was transferred
to the holder of the minority interest.
Income Taxes - Weldotron Corporation and its U.S. subsidiaries file a
consolidated federal income tax return. Accumulated undistributed earnings of
the Company's foreign subsidiary were approximately $355 at February 28, 1997.
The Company has not recognized a deferred tax liability for the undistributed
earnings of the subsidiary as it is their intention to permanently reinvest such
earnings. Determination of the liability is not practicable. Income taxes are
provided based on the liability method of accounting pursuant to Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Deferred income taxes are recorded to reflect the tax consequences on future
years differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end. Valuation allowances are
established for those income tax benefits whose reliability is uncertain.
Investment in real estate held for sale - The Company reclassified its
investment in real estate held for sale from current assets to deferred costs
and other assets after reevaluating its probability of sale within the next
twelve months. Cash and Cash Equivalents - Cash and cash equivalents include
cash on hand and on deposit in banks and certificates of deposit with an
original maturity period not in excess of three months. Cash and cash
equivalents of $1, and $184 were designated for payments under various bank
agreements as of February 28, 1997 and February 29, 1996, respectively.
Deferred Costs - Costs incurred to secure financing are capitalized and are
amortized on a straight-line method over the life of the related borrowings.
Costs incurred in connection with royalty license agreements are amortized over
the life of the associated patent or the duration of the agreement, whichever is
shorter.
Foreign Currency Translation - The U.S. dollar is the functional currency for
the Brazilian foreign subsidiary operating in a highly inflationary economy, for
which both translation adjustments and gains and losses on foreign currency
transactions are included in earnings.
Net Loss Per Common Share - Net loss per common share for each of the years
ended February 28, 1997, February 29, 1996, and February 28, 1995 were computed
by dividing net loss by the weighted average number of shares outstanding of
2,300,173 each year. Assumed exercise of stock options, warrants and stock
rights has not been included in the earnings per common share calculation as the
effect is anti-dilutive.
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications - Certain prior year reclassifications have been made to
conform to 1997 classifications.
Long-lived assets - Long-lived assets, such as goodwill, intangible assets and
property and equipment, are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related assets will be
written down to fair value. This policy is in accordance with the Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets to Be Disposed of," which was adopted in the 1997 fiscal year.
No impairment losses have been necessary through February 28, 1997
Stock based compensation - The Company accounts for its stock option awards
under the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Under the intrinsic value based method, compensation cost is the excess, if any,
of the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. The Company makes pro
forma disclosures of net income and earnings per share as if the fair value
based method of accounting had been applied as required by Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation."
Recent Accounting Standards - In March, 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"), "Earnings Per Share". SFAS No. 128 specifies the computation,
presentation and disclosure requirements for earnings per share. SFAS No. 128 is
effective for periods ending after December 15, 1997. The adoption of this
statement is not expected to have a material effect on the consolidated
financial statements.
Fair Value of Financial Instruments - The Company's financial instruments are
comprised of cash, accounts receivable, accounts payable and debt which are
carried in the balance sheet at amounts which approximate fair value.
2. MANAGEMENT PLANS AND INTENTIONS
The Company's financial statements for the year ended February 28, 1997 have
been prepared on a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business. The Company incurred net losses in recent years and as of February 28,
1997 had an accumulated deficit of $9,698. Management actions were implemented
at the end of fiscal 1995 and throughout fiscal 1996 and 1997 to begin to
restore the Company to financial strength and stability. Among these actions
were the divestiture of non-core business, substantial reductions of operating
expenses, the reestablishment of a major distributorship, the outsourcing of
certain manufacturing operations at more favorable costs, the implementation of
alternative marketing strategies, and the reemphasis upon high cash contributing
product lines. The aforementioned actions lead management to believe that
operations will improve. However, no assurance can be given that the Company
will be successful in achieving these cost savings and increased sales levels,
as well as the Company's ability to maintain or increase existing financing
arrangements. Further, there can be no assurance, assuming the Company achieves
the cost savings, additional sales, and working capital that the Company will
achieve profitability or positive cash flow.
3. RESTRUCTURING AND OTHER INVENTORY CHARGES
In fiscal 1994 the Company recorded a restructuring charge of $625 as a result
of a strategic decision taken by the Company's Board of Directors, which
consisted of $150 of severance payments for a terminated employee and a
write-off of $475 of inventories related to certain products and parts which
were discontinued. In fiscal 1995 the Company discontinued several other product
lines which were either aging or not a part of the core packaging or industrial
safety and automation business which resulted in a write-off of $641 of
inventories. In addition during fiscal 1996 the Company recorded a reserve of
$1,085 to write down inventory to net realizable value.
4. DISCONTINUED OPERATIONS
In August 1994, the Company adopted a plan to discontinue the operations of its
100% owned subsidiary, Valiant International Multi-media Corporation
("Valiant"), and reported the subsidiary as a discontinued operation as of
August 31, 1994.
<PAGE>
The consolidated statements of operations and cash flows of the Company have
been reclassified to present the operating results of the discontinued
operation. Summarized operating results for the discontinued Valiant operation
were as follows ($000's omitted):
Mar. 1,
1994 to
Aug. 31, 1994
--------------
Net Sales $ 5,246
Cost and Expense (5,180)
-------
Income (Loss) from Discontinued Operations $ 66
There was no income tax expense or benefit related to income (loss) from
operations.
The sale of Valiant's Assets was consummated as of August 31, 1994 to a group
which included the subsidiary's management and a former director/officer of the
Company.
The sale resulted in a loss on disposal of $82 or $.04 per share. This loss
consists of costs in connection with the sale. There was no current income tax
expense or benefit related to the loss on disposal.
5. ROYALTY AGREEMENTS
In 1992, the Company licensed one of its patents to several other manufacturers.
The Company received royalty revenue related to licensing agreements of $60,
$42, and $84 for fiscal years ended February 28, 1997, February 29, 1996 and
February 28, 1995 respectively. The Company has filed two design patents on its
custom roofing shingle bundling machines.
Charges incurred to obtain patents are capitalized.
<PAGE>
6. INVENTORIES
Inventories consist of the following at February 28, 1997 and February 29, 1996:
1997 1996
---- ----
Finished goods $1,704 $2,870
Work in process 2,094 2,508
Raw material 1,290 1,275
------- ------
$5,088 $6,653
7. DEBT
Debt consists of the following at February 28, 1997 and February 29, 1996:
1997 1996
---- ----
Term loan $ -- $ 750
Revolving line of credit (Including Brazil) 1,353 818
Notes payable -- Related Party 1,446 1,150
Installment notes and capitalized lease
obligations 43 17
------ ------
2,842 2,735
Less current portion 1,842 985
-------- --------
Long-term portion $1,000 $1,750
======= ======
In June 1991, the Company entered into a credit facility (the "Credit Facility")
with Congress Financial Corporation, ("Congress") which was amended on June 10,
1996. It provided a revolving line of credit and term loan of $2,500 an interest
rate of 3.75% over the Core States floating base rate, a maturity date of June
25, 1997, and financial covenants as follows: minimum domestic working capital
of $1,700 and minimum domestic tangible net worth of $1,050.
The Credit Facility was collateralized by substantially all of the assets of the
Company and its domestic subsidiaries. Borrowings under the Credit Facility were
limited to certain percentages of eligible inventory and accounts receivable
including stipulations as to the ratio of advances collateralized by receivables
compared to advances collateralized by inventory.
The Company was in default of its minimum working capital and tangible net worth
covenants of the Credit Facility as of August 31, 1996 and November 30, 1996.
Subsequently, Congress Financial Corporation notified the Company of its
intention to terminate the Credit Facility due to the default as well as the
reduced size of the outstanding loan (below $1,000) and provided the Company a
period of time in which to seek alternative sources of financing. On December
10, 1996, the Company successfully entered into a new credit facility (the "New
Credit Facility") with Business Alliance Capital Corporation, ("BACC") to
provide a revolving line of credit for working capital purposes. The interest
rate is 3.0% over the Core States floating base rate. The New Credit Facility
further requires that the Company pay fees on the average outstanding loan of
0.33% per month, for administration and upon early termination of the New Credit
Facility. The maximum line of credit is $1,500 and the maturity date is December
10, 1998.
The New Credit Facility is collateralized by substantially all of the assets of
the Company and its domestic subsidiaries. Borrowings under the New Credit
Facility are limited to certain percentages of eligible inventory and accounts
receivable as well as a stipulation as to the maximum advance level on
inventory. At February 28, 1997, the Company had used approximately $1,172 of
the Business Alliance Capital New Credit Facility. Based on the advance
percentages of eligible receivables and inventory, the Company had unused
borrowing availability of approximately $306 at February 28, 1997.
On August 31, 1994, the Registrant borrowed $500 from Lyford Corporation
("Lyford"), an affiliated company that owns 19.56% of the issued and outstanding
common stock of the Company. The Company executed and delivered to Lyford a
promissory note, a security agreement and a Common Stock Purchase Warrant
granting to Lyford the right to purchase up to 200,000 shares of the Company's
common stock at an initial exercise price of two dollars per share, the closing
price for the Company's common stock on the date the warrant was granted. The
warrant expires on August 4, 2004.
On March 1, 1995, the Registrant concluded the rolling of this note into a new
note in the amount of $1,000. The new obligation is evidenced by a certain
Amended, Extended and Restated Promissory Note dated as of March 1, 1995 (the
"Restated Note"). In consideration for the new loan, the Company executed and
delivered to Lyford the Restated Note and an additional Common Stock Purchase
Warrant. The new note was originally due and payable on or before March 31, 1996
and bears interest at 12% per annum. The note was subsequently extended twice
- --first until April 1, 1997, then until April 1, 1998 and the interest rate was
increased to 14%. The new loan is secured by a junior lien on all of the
Company's assets. The new warrant grants to Lyford the right to purchase up to
1,000,000 shares of the Company's common stock at an initial exercise price of
One ($1.00) Dollar per share. The market price of the Company's common stock was
$.875 on the date of the warrant grant. The new warrant expires by its terms on
April 12, 2005. The Company's management considers the note to be at fair value
and has not assigned any value to the warrants. The loan transaction closed
pursuant to documents dated as of March 1, 1995 and, in the case of the new
Warrant, April 13, 1995. These loan documents were contingent on the Company's
obtaining the consent of its senior lender, which consent was obtained on May 5,
1995. The Lyford loan is collateralized by a junior lien on substantially all of
the assets of the Company.
As a result of the continuing deterioration in the financial performance of the
Company and the negative impact of the events described in Note 8, Lyford has
advanced additional sums to the Company to protect its collateral position and
to fund ongoing operations.
In January, 1996 the Registrant entered into a $500 revolving loan agreement
with Exford Corp. ("Exford"), an affiliated company of Lyford. The Registrant
borrowed $350 under this agreement which borrowings bear interest at 14%, and
was originally due on January 31, 1997. The note was subsequently extended until
January 31, 1998. In connection with this revolving loan, the Company has
assigned to Exford its right, title and interest as tenant under the main
operating lease, together with any rents due and payable to the Company.
In February, 1997 the Registrant entered into a one year promissory note in the
amount of $96 with Mentmore Holdings. The note bears interest at two percentage
points above the prime rate, with a default rate of the interest rate plus five
percent for late payment of interest or principal. The note expires on February
11, 1998.
Debt is carried in the balance sheet at amounts which approximate fair value.
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings - The Company is involved in certain legal actions and claims
arising in the ordinary course of business and otherwise.
Martin Siegel vs. Weldotron Corporation
On November 23, 1994, the Registrant was served with a lawsuit filed by Martin
Siegel in the Superior Court of New Jersey, naming the Company as the defendant.
The other defendants named were: William L. Remley and Richard C. Hoffman,
officers and directors of the Company; Richard Kramer, John D. Mazzuto, Bryon
Fusini and Fred H. Rohn, directors of the Company; Lyford Corp., a major
shareholder of the Company and Mentmore Holdings Corp. Until earlier that year,
Mr. Siegel served as Chairman of the Board and Chief Executive Officer of the
Company. On or about November 2, 1994, the Company terminated Mr. Siegel's
employment agreement for cause. Mr. Siegel alleged, among other things, that the
Company breached its obligations to him under his employment agreement by
forcing his resignation as Chairman of the Board and Chief Executive Officer,
ceasing his regular salary and failing to fund a grantor trust designed to
secure Mr. Siegel's deferred compensation benefits. The defendants were also
served with an Order to Show Cause, seeking to secure an immediate funding of
the grantor trust and summary disposition of his claims.
On January 3, 1995, the court denied Mr. Siegel's request for a preliminary
injunction mandating the immediate funding of the grantor trust and for the
matter to proceed summarily. Periodic payments of Mr. Siegel's annual deferred
compensation benefits were deposited into an escrow account pending a final
determination of this matter.
On April 13, 1995, the Company reached a full and final settlement with Martin
Siegel. Under the terms of the settlement, which was approved by the Court: (1)
all claims and counterclaims by, between and among Mr. Siegel, the Company and
the other parties to the litigation were dismissed, with prejudice, (2) Mr.
Siegel and the Company exchanged mutual releases, (3) Mr. Siegel's Employment
Agreement with the Company dated March 1, 1988, as amended, was terminated, and
(4) Mr. Siegel was awarded a lifetime annual deferred compensation benefit of
$100. The annual deferred compensation benefit is an unsecured obligation of the
Company.
The Company made regular monthly payments to Mr. Siegel under the revised
deferred compensation benefit arrangement until April of 1997 when such payments
were suspended. Mr. Siegel served written notice of default in the payment of
his deferred compensation benefits upon the Company in May of 1997. In June, as
was Mr. Siegel's right under the terms of the deferred compensation agreement
entered into as part of the settlement of the prior litigation, Mr. Siegel made
application to the New Jersey Court for a confessed judgment against the Company
in the amount of the present value of the remaining payments due him under the
deferred compensation agreement.
On June 24, 1997, the Superior Court of Bergen County, New Jersey awarded a
judgment in Mr. Siegel's favor in the amount of $772. The Company is in
discussions with Mr. Siegel concerning a potential settlement of its obligations
to Mr. Siegel. As of February 28, 1997, the Company had accrued $810 as the
present value of this obligation.
<PAGE>
Seymour Siegel vs. Weldotron Corporation
Seymour Siegel, who is the brother of Martin Siegel, was formerly an executive
officer and director of the Company who retired from the Company as an officer
in 1993 and as a director in 1994. Under the terms of Seymour Siegel's
Employment Agreement with the Company, upon his retirement he was to receive
annual deferred compensation benefits of $50. These annual deferred compensation
benefits are unsecured obligations of the Company. Such benefits were paid in
monthly installments to Seymour Siegel until April, 1997, at which time they
were suspended by the Company. Seymour Siegel has put the Company on notice of
default and has threatened to retain counsel to pursue his rights unless said
payments are resumed. To pursue his claims against the Company, Seymour Siegel
would be required to initiate litigation against the Company. The Company
intends to meet with Seymour Siegel and his counsel in an effort to settle these
claims. As of February 28, 1997, the Company has accrued $355 as the present
value of this obligation.
Riken Optech Corp. vs. Weldotron Corporation
Riken Optech Corp. ("Riken") is a Japanese manufacturer of solid state
industrial electronic control systems which formerly provided products for
resale by the Safety and Automation Systems Group of the Company under an
exclusive distributorship agreement (the "Distributorship Agreement") which
originated in the late 1970's.
In 1995, as a result of unfavorable exchange rates between the Japanese Yen and
the U.S. Dollar, Riken unilaterally increased the prices at which its products
would be sold to the Company to a prohibitive level. The Company pursued
discussions with Riken to license production of the Riken products and
simultaneously initiated separate efforts to design, fabricate and source
comparable products domestically. Discussions ensued between the Company and
Riken during which time the Company suspended further payments upon certain open
invoices with Riken. In December of 1995, Riken allegedly terminated the
Company's exclusive Distributorship Agreement with the Company. Negotiations
were terminated and the Company exclusively pursued its domestic product design
and fabrication efforts. Thereafter, the Company, through its Safety and
Automation Group, successfully introduced and began marketing its domestically
sourced line of industrial electronic control systems.
In early 1996, the Company commenced an action in New Jersey State Court against
Riken and a former employee of its Safety and Automation Group who had left to
join a competitor, asserting various claims in relation to Riken's termination
of the exclusive Distributorship Agreement, predatory pricing practices, and
tortious interference with existing contractual relationships.
In late 1996, Riken commenced a separate action against the Company in the
United States District Court for the Southern District of New York, seeking
payment in respect of the outstanding unpaid invoices and asserting various
claims in relation to the Company's new domestically sourced industrial
electronic control system products.
In January of 1997, the Company, Riken, and the former Company employee reached
a settlement of the claims raised in the New Jersey State and New York Federal
Court actions. Under the terms of the settlement: (1) All claims and
counterclaims were released and the two court actions were dismissed with
prejudice; (2) the Company agreed to pay Riken the sum of approximately $185 in
installments over a 14-month period, which the Company had accrued as of
February 28 1997; and (3) Weldotron agreed to make certain cosmetic changes to
the appearance of its new domestically sourced products. Weldotron has made the
first 3 installment payments, totaling approximately $48, under the terms of the
settlement with Riken. Weldotron suspended further payments in April of 1997.
Riken has notified Weldotron that it will seek to pursue the enforcement of the
settlement terms against the Company and will seek to obtain a judgment in the
amount of the remaining settlement payments. The Company anticipates having
further discussions with Riken in an effort to compromise the remaining payment
obligations of the Company.
Mackman Realty Corp. vs. Weldotron Corporation
The Company currently occupies a 256,000 square foot manufacturing, warehousing,
and corporate facility in Piscataway, New Jersey under a long-term lease whose
original term was set to expire in May of 2005. Because the Company only
utilizes approximately 35% of said facility and because the rent payable under
said lease was substantially below current prevailing market rents for similar
facilities in the proximate geographic marketplace, the Company has, for the
last two years, sought to sublease said facility and to move to smaller, more
efficient quarters. Because the existing facility is dated and because updating
would require a significant expenditure of funds to make the facility attractive
to potential users, the Company chose to defer certain maintenance items until a
suitable subtenant could be identified.
In January of 1997, the Landlord of this facility, Mackman Realty Corp.
("Mackman") sought to declare a default under the Lease and to terminate the
Lease by reason of Weldotron's alleged failure to meet its repair and
maintenance obligations under said Lease. Mackman commenced an action for
summary possession in New Jersey Court. The Company then filed a motion to
transfer the case to another court as there were substantial issues of fact and
interpretation and the need for discovery and expert testimony. The Company's
motion was granted and the parties commenced discovery efforts. Despite repeated
attempts at settlement, negotiations broke down and a trial was held before the
Court in July. The Court issued its order on July 11, 1997 declaring the
Company's lease terminated and granting judgment in favor of Mackman for
possession of the facility on August 15, 1997. The Company continues to occupy
the facility, under an interim arrangement with Mackman, through October 15,
1997.
The Company has located a smaller, more efficient facility in the immediate area
of the existing facility into which it intends to move by said October 15, 1997
date. Negotiations for a lease for the new facility are proceeding. As a result
of the Court's decision, the Company will be required to write-off the value of
unamortized leasehold improvements for the existing facility during the second
fiscal quarter of 1998, which are estimated at $662.
Management believes that the ultimate outcome of such litigation and claims will
not have a material adverse impact on the Company's financial position.
Self Insurance - The Company is party to personal injury and property damage
litigation arising out of incidents involving the use of its products. The
Company obtains insurance for product and general liability. However, the
Company has elected to retain a significant portion of expected losses through
the use of deductibles. Provisions for losses are recorded based upon the
Company's estimates of the aggregate liability for claims incurred. Estimates of
such accrued liabilities are based on an evaluation of the merits of individual
claims and historical claims experience; thus, the Company's ultimate liability
may exceed or be less than the amount accrued. Amounts accrued are paid over
varying periods, which generally do not exceed five years. The methods of making
such estimates and establishing the resulting accrued liability are reviewed
continually, and any adjustments resulting therefrom are reflected in current
earnings.
Leases - The Company rents office and manufacturing facilities under lease
arrangements classified as operating leases which expire during 2005. The
Company is responsible for the payment of real estate taxes, water and sewer
rates and charges and janitorial and general maintenance charges upon the
facilities.
Rent expense for continuing operations, net of sublease income, was
approximately $291, $266 and $188 for the years ended February 28, 1997,
February 29, 1996 and February 28, 1995, respectively. Sublease income was $7,
$30, and $147 for the years ended February 28, 1997, February 29, 1996 and
February 28, 1995 respectively.
Aggregate net minimum lease payments for the remainder of leases are as follows:
Fiscal Year Ended Operating
February Leases
1998 $ 297
1999 295
2000 295
2001 295
2002 295
Thereafter 959
Employment Agreements - The Company has no employment or severance agreements
with officers which provide severance pay if certain changes in control or
employment status take place.
9. INCOME TAXES
The domestic and foreign components of pretax income (loss) are as follows:
Feb. 28, Feb. 29, Feb. 28,
1997 1996 1995
----- ----- -----
Domestic $(2,049) $ (3,447) $ (3,487)
Foreign-Before minority interest (458) 792 175
- -------------------------------- ----- ----- -----
Total $ 2,507) (2,655) $ (3,312)
----- ----- -----
The Company's effective income tax rate varied from the statutory U. S. Federal
income tax rate because of the following:
1997 1996 1995
Computed (benefit) provision at statutory rate $ (852) $ 903) $ (1,126)
Increase (decrease) resulted from:
Change in valuation allowance 820 1,010 1,181
Other 69 163 5
$ 37 $ 270 $ 60
----- ----- -----
At February 28, 1997, $10,071 of Federal tax loss carry forwards are available
to offset future domestic taxable income.
The net deferred tax asset at February 28, 1997 and February 29, 1996 is
comprised of the following:
1997 1996
Deferred tax assets:
Inventory capitalization $ 127 $ 114
Net operating losses 3,925 3,321
Deferred compensation 467 481
Reserves 1,208 1,206
Bad debt allowance 48 55
--------------
Total assets 5,775 5,177
----- -------
Deferred tax liability:
Fixed assets (27) (68)
Deferred assets (52) (13)
LIFO reserve recapture (440) (660)
----- --------
Total liabilities (519) (741)
----- --------
Net deferred tax asset 5,256 4,436
Valuation allowance (5,256) (4,436)
------- -------
Deferred tax asset $ -- $ --
===================================================================
A valuation allowance has been recognized to fully offset the related deferred
tax asset due to the uncertainly of realizing the benefit of the loss
carryforwards.
10. STOCK OPTIONS AND WARRANTS
The Company has an Incentive and Non-Qualified Stock Option Plan which permits
the granting of options to purchase 100,000 shares of common stock. Under the
plan, the option price, as to the incentive options, cannot be less than the
fair market value of the stock as of the date of grant and at least 110% of fair
market value for certain management employees. The purchase price under each
non-qualified stock option is determined by a Committee of the Board of
Directors. Options were granted until May 1993 and are exercisable within ten
years of the date of grant.
In June 1988, the stockholders approved the 1988 Stock Option Plan. The Plan
permits the granting of options to purchase 100,000 shares of common stock at
100% of the fair market value at the time the option is granted. Options, which
may be granted to March 1998, are exercisable only during the continuance of
employment, subject to certain limitations.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations for its stock option
grants. Generally, compensation expense is not recognized for stock option
grants.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), the Company discloses the
pro forma impact of recording compensation expense utilizing the Black-Scholes
model. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable.
Since no options were granted in 1997 and 1996, the accounting provisions of
SFAS No. 123 did not have an effect on the Company's pro forma net income and
earnings per share and thus have not been presented.
Changes under the stock option plans for the fiscal years ended February 1997,
1996, 1995, and 1994, are as follows:
Option Shares
Price Per Share
Outstanding, February 28, 1994 79,750 2.50 - 4.50
Granted 20,000 2.50
Canceled (750) 2.50
------------
Outstanding, February 28, 1995 99,000 2.50 - 4.50
Granted --
Canceled (54,000)
--------
Outstanding, February 29, 1996 45,000 2.50 - 4.50
Canceled (20,000)
-------
Outstanding, February 28, 1997 25,000 2.50
======
Exercisable, February 28, 1997 25,000 2.50
======
In connection with financing provided by Lyford Corporation (see note 7), the
Company granted Lyford on August 5, 1994, a Common Stock Purchase Warrant to
purchase up to 200,000 shares of common stock at $2.00 per share and on May 5,
1995 a warrant to purchase up to 1 million shares of the Company's common stock
at an exercise price of $1.00 per share. The warrants expire in August 2004 and
April 2005. The market price of the Company's stock at the date of the grants
was $2 in August 1994 and $.875 in May 1995.
11. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) savings plan. The Company contributes at a minimum
75% of each participating employee's annual contribution limited to 4% of the
employee's annual compensation. Additionally, the Company's matching
contribution increases on a sliding scale based on pretax profits as a
percentage of net worth. The additional contribution is based on the audited
results of the Company's fiscal year immediately preceding the beginning of the
plan year. Savings Plan expense was approximately $25 , $63 and $87 for the
fiscal years ended February 1997, 1996 and 1995, respectively.
The Company participates in a multi-employer pension plan which provides defined
benefits to substantially all union employees. Amounts charged to pension costs
and contributed to the Plan were $58, $62, and $94 for the fiscal years ended
February 1997, 1996 and 1995, respectively.
12. DEFERRED COMPENSATION
The Company has deferred compensation agreements with two former officers which
provides for an aggregate of $150 to be paid annually for the remainder of their
lives. The Company recorded the present value of the future estimated payments
over the remaining lives of these former employees based upon actuarial tables.
Deferred compensation expense under these agreements was $113, $124, and $621
for the fiscal years ended February, 1997, 1996 and 1995, respectively. Payments
made during the fiscal years ended February 1997, 1996 and 1995 were
approximately $150, $160, and $66, respectively. The increase in deferred
compensation expense in 1995 is due to the effect of a settlement of a lawsuit
brought by one officer resulting from early termination, which increased his
deferred compensation from $80 to $100 per annum, the recognition of increased
life expectancy of the former officers reflected in the current valuation,
offset by an increase in the discount rate.
13. RELATED PARTIES
The Company entered into an initial one year management advisory services
agreement in June 1994 with Mentmore Holdings, an affiliate of Lyford and Exford
Corporations, two related companies. (See also note #7). The agreement was
automatically extended for successive one-year periods thereafter, and is
subject to termination upon written notice by either party not less than 90 days
prior to the expiration of any extended term. The agreement provides for an
annual fee of $300. All unpaid monthly installments of the fee shall bear
interest at the lesser rate of 12% per annum, or the maximum rate allowed by law
until such time as such installments are paid. Management fees and expenses were
$300 for each of the years ended February 28, 1997 and February 29, 1996,
respectively, and $214 for the year ended February 28, 1995 under the agreement.
(See also note #7).
14. INDUSTRY SEGMENTS
The Company operates primarily in two business segments: Packaging Systems and
Controls. The Packaging Systems segment designs, manufactures and markets a
variety of industrial and food packaging systems. The Controls segment
manufactures electronic controls systems.
Sales to one customer, primarily from the Packaging Systems segment, were
approximately $1,243, $1,417, and $1,214 or 9%, 8%, and 6% of net sales for the
fiscal years ended February 1997, 1996 and 1995 respectively.
<PAGE>
Summary financial information by industry segment is as follows:
Industrial Segments 1997 1996 1995
-------------------------------
Net Sales:
Packaging Systems $12,130 $ 15,997 $ 16,647
Controls 1,156 2,318 3,023
---------- --------- --------
$13,286 $ 18,315 $ 19,670
======== ========= ========
Operating (loss) Income:
Packaging Systems $(2,690) $ (3,061) $ (3,171)
Controls 113 578 532
---------- ----------- ----------
$(2,577) $ (2,483) $ (2,639)
-------- --------- ---------
Unallocated corporate expense (419) (497) (778)
Other income 489 325 105
---------- ----------------------
$(2,507) $ (2,655) $ (3,312)
======== ========= =========
Identifiable assets:
Packaging Systems $ 8,420 $11,140 $13,636
Controls 554 681 1,133
Corporate 57 396 517
----------- ---------- ---------
$ 9,031 $12,217 $15,286
======== ======== =======
Capital expenditures:
Packaging Systems $ 137 $ 231 $ 391
Controls -- -- --
Corporate -- -- 8
$ 137 $ 231 $ 399
========== ========== =========
Depreciation and amortization:
Packaging Systems $ 367 $ 461 $ 469
Controls -- -- --
Corporate 21 27 37
------------ ----------- ---------
$ 388 $ 488 $ 506
========== ========== =========
Sales and identifiable assets by geographic region are as follows:
1997 1996 1995
-------------------------------
Net Sales:
United States $10,019 $13,368 $16,120
Brazil 3,267 4,947 3,550
--------- --------- --------
$13,286 $18,315 $19,670
======= ======= =======
Operating Income (loss):
United States $(2,049) $ (3,447) $ (3,487)
Brazil (458) 792 175
---------- --------------------
$(2,507) $ (2,655) $ (3,312)
======== ========= =========
Identifiable assets:
United States $ 6,632 $ 9,262 $12,138
Brazil 2,399 2,955 3,148
--------- ---------- --------
$ 9,031 $12,217 $15,286
======== ======== =======
<PAGE>
15. SHAREHOLDERS' RIGHTS PLAN
On February 25, 1988, the Board of Directors declared a dividend of one common
share purchase right (the "Rights") on each outstanding common share of the
Company (the "Common Stock"). The Rights attached to the Common Stock and
entitles the holder to buy one share of Common Stock at an exercise price of
$30.00 per share until March 30, 1998, unless they are redeemed earlier. The
exercise price and the number of shares issuable upon exercise of the Rights is
subject to adjustment to prevent dilution. The Rights have no voting or dividend
rights and 2,500,000 shares of Common Stock are reserved for issuance upon
exercise of the Rights.
The Rights can be redeemed by the Company's Board of Directors for $.05 per
Right at any time until ten days after 20% of the Company's Common Stock has
been acquired or the Rights expire.
The Rights only become exercisable, or transferable apart from the common stock,
ten business days after a person or group (the "Acquiring Person") acquires
beneficial ownership of 20% or more of the Common Stock; or commences or
announces an offer for 30% or more of the Common Stock. Thereafter, upon the
occurrence of certain events, (for example, if the Company is a party to a
merger or other business combination transaction or the Company is a surviving
entity in a reverse merger) each Right not owned by the Acquiring Person would
become exercisable for the number of shares of the Acquiring Person (or of the
Company in the case of a reverse merger) which, at that time, would have a
market value of twice the exercise price of the Right.
16. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
consist of certain trade receivables.
The Company's customer base includes a customer which represents a significant
portion of the Company's sales and accounts receivables. Although the Company is
directly affected by the well-being of this significant customer, management
does not believe significant credit risks exist at February 28, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On February 20, 1997, the Board of Directors of Weldotron Corporation approved
BDO Seidman, LLP as its certifying accountant for the year ending February 28,
1997. On February 20, 1997 management informed the former accountant, Deloitte
and Touche LLP, that it had been dismissed. Except as stated immediately below,
there was no adverse opinion, disclaimer of opinion or qualifications or
modifications as to uncertainty, audit scope or accounting principles regarding
the report of Deloitte and Touche LLP on the Registrant's financial statements
for the fiscal year ended February 29, 1996. The report of Deloitte and Touche
LLP on the Registrant's financial statements for the fiscal year ended February
29, 1996 was modified with respect to uncertainty regarding the Registrant's
ability to continue as a going concern based on recurring losses from operations
experienced at the time. There were no reportable disagreements with the former
accountants on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure leading to their dismissal.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the directors and executive officers of
Weldotron as of August 31, 1997 are as follows:
Principal Occupation,
Names Employment, etc. Age
Richard L. Kramer Chairman of the Board of the Corporation (Since 47
June, 1994); Chairman of the Board & Secretary
of CPT Holdings, Inc., a NASDAQ Small Market
Cap company (since January, 1992); Chairman of
the Board, Republic Properties Corp., a private real
estate investment company (since prior to 1989);
Chairman of the Board, Sunderland Industrial Holdings
Corporation, engaged in various industrial manufacturing
businesses (since prior to 1989); Chairman of the Board
(since November, 1994) and Director (since May, 1994),
Texfi Industries, Inc., manufacturing and marketing of
textiles and apparel.
William L. Remley Vice Chairman of the Board, President and CEO of 46
the Corporation (Since June, 1994); President and
Treasurer, CPT Holdings, Inc. (January 1993 to
present); Vice Chairman, Sunderland Industrial Holdings
Corp.(since prior to 1989); Director, CPT Holdings, Inc.
(since Jan. 1992); CEO and President (Since November,
1994) and Director, (Since May, 1994) Texfi Industries,
Inc., manufacturing and marketing of textiles and apparel.
Richard C. Hoffman Secretary and General Counsel 49
of the Corporation; Attorney - President,
InterUrban Management, Inc., a real estate
brokerage and management company. Currently
practices law as Richard C. Hoffman P.C. in
Connecticut.
Fred H. Rohn General Partner, North American Venture Capital 71
Funds (since 1989).
Bryon P. Fusini Vice President, Investments 43
at Smith Barney, Inc., a stock brokerage and
financial services concern (since prior to 1989).
Marvin D. Kantor, Director of the Company since July, 1992, resigned as a
Director effective May 1, 1997 for personal reasons. Effective August 1, 1997,
John D. Mazzuto, a Director of the Company since April of 1994, resigned as a
Director for personal reasons.
The remaining members of the Board of Directors have determined not to fill the
vacancies left by the resignations of Messrs. Kantor and Mazzuto.
ITEM 11. EXECUTIVE COMPENSATION
The following table shows, as to the Chief Executive Officer and each of the two
other most highly compensated executive officers whose salary plus bonus
exceeded $100,000, information concerning compensation paid for services to the
Company in all capacities during the fiscal year ended February 28, 1997, as
well as the total compensation paid to each such individual for the Company's
previous two fiscal years (if such person was the Chief Executive Officer or an
executive officer, as the case may be, during any part of such fiscal year).
SUMMARY COMPENSATION TABLE
Other All
Name and Principal Annual Other
Position FY Salary Bonus Compensation(1)(4) Compensation(2)
Richard L. Kramer(5) 1997 $ -0- -0- $ -0- $ 6,000
Chairman of the Board 1996 -0- -0- -0- 6,000
1995 -0- -0- -0- 6,000
William L. Remley(5) 1997 $ -0- -0- $ -0- $ 6,000
President and 1996 -0- -0- -0- 6,000
Chief Executive Officer 1995 -0- -0- -0- 6,000
Martin Siegel (3), (4) 1997 $ -0- -0- $100,000 $ -0-
Chairman of the Board 1996 -0- -0- 100,000 -0-
1995 138,090 -0- 4,000 32,581
1) Includes amounts paid for car allowances.
2) Includes amount of matching contributions under the Company's 401(K) Plan,
which may be subject to vesting requirements and Directors' Fees which total
$6,000 annually.
3) Martin Siegel resigned as Chairman of the Board and Chief Executive Officer
on June 14, 1994. Thereafter and until November 3, 1994 he continued to
receive compensation under his Employment Agreement dated March 1, 1988, as
amended, when his employment was terminated by the Company.
4) Includes deferred compensation benefits pursuant to Employment Agreement
referred to in (3) above from November 4, 1994 through December 31, 1994.
From and after January 1, 1995 Mr. Siegel receives annual deferred
compensation of $100,000 for life pursuant to a Deferred Compensation
Agreement dated as of January 1, 1995 which was entered into as a result and
in settlement of certain litigation between Mr. Siegel and the Company.
5) Not involved in the day to day activities of the business.
No options were granted nor exercised by any of the named executive officers or
directors during the fiscal year. The Company has not granted any stock
appreciation rights.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Security Holdings of Management
The following table sets forth as of August 31, 1997, information concerning the
ownership of shares of Common Stock by each Director or nominee of the
Corporation individually and by all officers and Directors of the Corporation as
a group, and the percentage ownership of such outstanding Common Stock based on
information furnished by such individuals. Except for shares beneficially owned
by spouses or other family members, such officers and Directors have sole voting
power and sole investment power with respect to such shares.
Amount and Nature
of Beneficial
Name of Director or Nominee Ownership of Percentage
or Identity of Group Common Stock of Class
Bryon P. Fusini 0 0%
Richard C. Hoffman 0 0%
Marvin D. Kantor 0 0%
Richard L. Kramer 0 (1) 0%
John D. Mazzuto 0 0%
Fred H. Rohn 0 0%
William L. Remley 0 (1) 0%
All executive officers and Directors 100 *%
as a group (7 persons)
*Less than one percent.
1) Mr. Kramer is the Chairman and Mr. Remley is the President of Lyford
Corporation, owner of 450,000 shares of Common Stock, as to which stock they
both disclaim beneficial ownership.
Principal Holders of Voting Securities
The following table indicates the only persons known by the Board of Directors
to be the beneficial owners of more than five percent of Common Stock as of
August 31, 1997.
Name and Address of Amount and Nature Percentage
or Beneficial Owner of Beneficial Ownership of Class
Lyford Corporation (1) 450,000 19.56%
1430 Broadway, l3th Floor
New York, NY 10018
Michael N. Kreiger (2) 219,000 9.50%
205 Church Street, 3rd Floor
New Haven, CT 06510
Walter J. Schloss Associates (3) 143,200 6.23%
Walter J. Schloss & Edwin W. Schloss
52 Vanderbilt Avenue
New York, NY 10017
Martin Siegel (4) 140,000 6.09%
26 Egan Place
Englewood Cliffs, NJ 07632
1) Based upon information contained in the named Shareholder's Schedule 13D
dated October 22, 1993, as amended by Amendment No. 1 dated February 17,
1994, filed pursuant to the Securities Exchange Act of 1934.
2) Based upon information contained in named Shareholder's Schedule 13D dated
May 23, 1996, as amended by Amendment No. 1 dated July 31, 1996 and Amendment
No. 2 dated January 14, 1997, filed pursuant to the Securities Exchange Act
of 1934.
3) Based upon information contained in the named Shareholder's Schedule 13D
dated October, 1990, as amended by Amendment No. 3 dated July 30, 1993, filed
pursuant to the Securities Exchange Act of 1934, which Schedule 13D as
amended also stated the named Shareholders had sole voting power with respect
to 143,200 shares as follows: Associates-127,200 shares; Walter J.
Schloss-10,000 shares and Edwin W. Schloss-6,000 shares and sole dispositive
power with respect to 143,200 shares hereinabove set forth.
4) Based upon information, including information contained in the named
Shareholder's Schedule 13D dated April 19, 1979, as amended by Amendment No.
4 dated February 17, 1994, filed pursuant to the Securities Exchange Act of
1934.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
officers and Directors and persons who own more than ten percent of a registered
class of the Corporation's equity securities ("Reporting Persons") to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the American Stock Exchange. The Reporting Persons are required
by SEC regulations to furnish the Corporation with copies of all Section 16(a)
forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain Reporting Persons that no Forms 4 were
required for those persons, the Corporation believes that during the fiscal year
ended February 28, 1995, all filing requirements applicable to its Reporting
Persons were complied with on a timely basis.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 31, 1994, the Registrant borrowed $500 Dollars from Lyford Corporation
("Lyford"), an affiliated company that owns 19.56% of the issued and outstanding
common stock of the Company. The Company executed and delivered to Lyford a
promissory note, a security agreement and a Common Stock Purchase Warrant
granting to Lyford the right to purchase up to 200,000 shares of the Company's
common stock at an initial exercise price of two dollars per share, the closing
price for the Company's common stock on the date the warrant was granted. The
warrant expires on August 4, 2004.
On March 1, 1995, the Registrant concluded the rolling of this note into a new
note in the amount of $1,000. The new obligation is evidenced by a certain
Amended, Extended and Restated Promissory Note dated as of March 1, 1995 (the
"Restated Note"). In consideration for the new loan, the Company executed and
delivered to Lyford the Restated Note and an additional Common Stock Purchase
Warrant. The new note was originally due and payable on or before March 31, 1996
and bears interest at 12% per annum. The note was subsequently extended twice
- -first until April 1, 1997, then until April 1, 1998 and the interest rate was
increased to 14%. The new loan is secured by a junior lien on all of the
Company's assets. The new warrant grants to Lyford the right to purchase up to
1,000,000 shares of the Company's common stock at an initial exercise price of
One ($1.00) Dollar per share. The market price of the Company's common stock was
$.875 on the date of the warrant grant. The new warrant expires by its terms on
April 12, 2005. The Company's management considers the note to be at fair value
and has not assigned any value to the warrants. The loan transaction closed
pursuant to documents dated as of March 1, 1995 and, in the case of the new
Warrant, April 13, 1995. These loan documents were contingent on the Company's
obtaining the consent of its senior lender, which consent was obtained on May 5,
1995. The Lyford loan is collateralized by a junior lien on substantially all of
the assets of the Company.
As a result of the continuing deterioration in the financial performance of the
Company and the negative impact of the events described under "Item 3, Legal
Proceedings", Lyford has advanced additional sums to the Company to protect its
collateral position and to fund ongoing operations. As of August 31, 1997, the
current balance due and owing to Lyford, including unpaid and accrued interest
is $1,684.
In January, 1996 the Registrant entered into a $500 revolving loan agreement
with Exford Corp. "Exford", an affiliated company of Lyford. The Registrant
borrowed $350 under this agreement which borrowings bear interest at 14%, and
was originally due on January 31, 1997. The note was subsequently extended until
January 31, 1998. In connection with this revolving loan, the Company has
assigned to Exford its right, title and interest as tenant under the main
operating lease, together with any rents due and payable to the Company.
In February, 1997 the Registrant entered into a one year promissory note in the
amount of $96 with Mentmore Holdings. The note bears interest at two percentage
points above the prime rate, with a default rate of the interest rate plus five
percent for late payment of interest or principal. The note expires on February
11, 1998.
The Company entered into an initial one year management advisory services
agreement in June 1994 with Mentmore Holdings, an affiliate of Lyford and Exford
Corporations, two related companies. (See also note #7). The agreement was
automatically extended for successive one-year periods thereafter, and is
subject to termination upon written notice by either party not less than 90 days
prior to the expiration of any extended term. The agreement provides for an
annual fee of $300. All unpaid monthly installments of the fee shall bear
interest at the lesser rate of 12% per annum, or the maximum rate allowed by law
until such time as such installments are paid. Management fees and expenses were
$300 for each of the years ended February 28, 1997 and February 29, 1996,
respectively, and $214 for the year ended February 28, 1995 under the agreement.
(See also note #7).
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following Consolidated Financial Statements of the Registrant are
filed as part of this Report in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets at February 28, 1995 and February 29,1996.
Consolidated Statements of Operations for the years ended February 28,
1997, February 29, 1996, and February 28, 1995.
Consolidated Statements of Stockholders' Equity for the years ended
February 28, 1997, February 29, 1996, and February 28, 1995.
Consolidated Statements of Cash Flows for the years ended February 28,
1997, February 29, 1996 and February 28, 1995.
Notes to Consolidated Financial Statements
3. Exhibits
See accompanying Index to Exhibits. Registrant will furnish to any
stockholder, upon written request, any exhibit listed in the accompanying
Index to Exhibits upon payment by such stockholder of Registrant's
reasonable expenses in furnishing any such exhibit.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by Registrant during the last
quarter of the period covered by this Report.
None.
(c) Reference is made to Item 14(a) (3) above.
(d) Reference is made to Item 14(a) (2) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
WELDOTRON CORPORATION
(Registrant)
By: /s/ Richard L. Kramer
-------------------------
Richard L. Kramer,
Chairman of the Board
Date: September 16, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated. Each such person, in the capacity
indicated below, constitutes and appoints Richard C. Hoffman, as his
attorney-in-fact, to sign any and all amendments to this report.
/s/Richard L. Kramer Chairman of the Board September 16, 1997
- --------------------------
Richard L. Kramer
/s/William L. Remley Vice Chairman and CEO September 16, 1997
- --------------------------
William L. Remley
/s/Fred H. Rohn Director September 16, 1997
Fred H. Rohn
/s/Bryon P. Fusini Director September 16, 1997
- --------------------------
Bryon P. Fusini
/s/Richard C. Hoffman Corp. Secretary, Director September 16, 1997
- --------------------------
Richard C. Hoffman
/s/Michael McKee Vice President, Finance September 16, 1997
- ------------------
Michael McKee
