SECURITY AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
FORM 10-KSB
AMENDED
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
REGISTRANT NAME: CLARY CORPORATION
STATE OF INCORPORATION: CALIFORNIA
EIN: 95-0630196
ADDRESS:1960 S WALKER AVE, MONROVIA, CALIFORNIA, 91016
REGISTRANT TELEPHONE NUMBER: 818/359-4486
SECURITIES REGISTERED PURSUANT SECTION 12 (g) OF ACT: NONE
The registrant has filed all reports required to be filed by section 13 or
15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months
and has been subject to such filing requirements for the past ninety(90) days.
There are not delinquent filers in response to item 405 of Regulation SB if
not contained in this form and no disclosure will be contained to the best
of Registrant's knowledge is definitive Proxy or information statement
incorporated by reference to part III of this form 10-KSB or any amendment
to this Form 10-KSB.
Issuer's revenues for its most fiscal year were $6,401,000.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 27,1996 amounted to $800,000.
The registrant had 1,807,319 shares of common stock outstanding as of March
27,1996
LISTING OF DOCUMENTS INCORPORATED BY REFERENCE
(1) Part II - Items 5,6,7 and 8 Annual Report to Shareholders for fiscal year
ended December 31,1995
(2) Part III - Item 10,11,12 and 13. Definitive proxy statement for the 1995
Annual Meeting Of Shareholders to be filed pursuant to Regulation 14A within
120 days after the close of the fiscal year ended December 31,1995.
Item 1 Business
The Registrant's operations are presently conducted through its Precision
Instrument Division located in Monrovia, California. The product presently
being produced by the Precision Instrument Division consist of a line of
uninterruptible power supplies (U.P.S.) ranging in size from 400va to 37.5 kva.
The U.P.S. is a power system that can both smooth out voltage fluctuations
and maintain a power load under power blackout conditions. U.P.S.'s are
designed to provided fifteen minutes or more(depending on num
The registrant markets the U.P.S. trough trade publications, tradeshows and
telemarketing. However, sales are generally made by the Registrant through
distributors who sell the products to end-users. For the year 1995,
Nova Power System, a major distributor through its direct and indirect sales
accounted for more than twenty percent of the Registrant's total sales.
The Registrant assembles finished components and other materials to produce
its products. Relatively little fabrication or raw materials is done by the
Registrant. The Registrant purchases imported raw material and finished
components used in production of the Registrant's products. Thus, the
Registrant is dependent upon the ability of suppliers to meet performance
specifications, quality standard and delivery schedules. The Registrant
endeavors to assure availability of sources of supplies and does not an
Competition - The markets for the registrant's products highly competitive.
The Registrant is aware of approximately forty competitors for on-line UPS
products and additional fifty to sixty competitors for off-line UPS products.
Many of these companies have far greater financial resources than the
registrant. The Registrant competes primarily on the basis of the quality,
reliability and technical sophistication of its products, although price
remains an important factor. The registrant attempts to locates
Substantially all of the Registrant's products are subject of ongoing
modification and I improvment and are subject to scientific and technological
changes.
Backlog - The following table sets forth the amounts representing orders
believed by the Registrant to be firm. The backlog at December 31,1995
represents orders which the Registrant expects to deliver during 1996.
There are no seasonal effects on orders.
FIRM BACKLOG AS OF
DECEMBER 31
1995 1994
$209,045 $449,000
Other - As of December 31,1995, the Registrant employed 29 people, all of
which are full-time employees.
Other required information as to the Registrant's description of business
operations and its development is incorporated herein by reference to pages
1 through 3 in the Registrant's financial statements contained therein,
each incorporated by reference in this report.
Item 2. Properties Sq.Fts.Leased Annual Rental Term
Home Office and Precision
Instrument Division 26,000 $220,000 5/31/98
During fiscal 1995 properties were utilized at approximately 60% of capacity
The Registrant believes its properties are suitable for its needs.
Item 3. Legal Proceedings
In 1996 the company entered into a verbal distribution agreement granting a
distributor the non-exclusive rights to distributor certain products of its
former CAD division. In 1991, the company filed suit to recover the
uncollected balance of its receivable due from the distributor.
The distributor filed a countersuit alleging misrepresentation.
On May 24,1993 the jury awarded the distributor net damages of approximately
$264,000
including double damages, legal cost and interest. In November 1993. the
Company filed and appeal against this judgment and provided a supersedeas
bond secured by $300,000 certificate of deposit. On November 8,1994, the
Court of Appeals issued an order reversing the trial courts judgment against
the Company. On January 23,1995 the distributor files an Application for
Writ of Error with the Supreme Court of Texas.
On July 7,1995, the Supreme Court of Texas ordered the judgment of the Court
of appeals be reversed and the cause be remanded back to that court for
further proceedings. On July 20,1995, the company filed a motion for
Rehearing with the Supreme Court. Management has estimated a range of
amounts for the potential loss, including legal costs, relating to this
matter and an amount considering management to be the probable loss was
provided for in the statement of operations for 1993 as loss from discontinued
operations. An unfavorable resolution of this matter to the company could
result in an additional liability of approximately $250,000 which jas not been
reflected in the financial statements.
Part II
Item 4. Submissions Matters to Vote of Security Holder- Not applicable
Item 5. Market for Registrant's Common Equity and Related Shareholders Matters
(Annual Report, page#11)
Item6. Selected Financial Data(Annual Report, page #12)
Item 7. Management's Discussion and Analysis of Financial Conditions and
Result of Operations. (Annual Report, page #4)
Item 8. Financial Statemants and Supplemental Data. (Annual Report, pages 5,
6,7)
On the Above Items 5 through 8 reference is mades to the Registrant's Annual
Report to the Shareholders for the year anded December 31,1995. incorporated
by reference in this report.
Item 9. Disagreements on Accounting and Financial Disclosures - None
Part III
Item 10. Directors and Executive Officers of the Registrant.(Proxy. pages 3.4)
The Directors and Executive Officers are incorporated by reference to
information contained in Registrant's Proxy Statements to be filed with
the commission pursuant to Regulation 14A.
Item 11. Management Remuneration and Transactions. (Proxy, page 5)
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(Proxy, page 3)
Item 13. Certain Relationships and Related Transactions.(Proxy, page 4,5)
Item 10 through 13 are incorporated by reference to information in the
Registrant's proxy statement to be filed with the Commission pursuant
to Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1)Financial Statements
The following financial statements are included in the Registrant's Annual
Reports to Shareholders for the year ended December 31,1995 (incorporated
by reference in this report):
Report of Independent Certified Public Accountants(Annual Report, page 11)
Statements of Operations for the years ended December 31,1994 and 1994
(Annual Report, page 5)
Balance Sheet- December 31,1995 (Annual Report, page 6)
Statements of Stockholder's Equity for three years ended December 31,1995
(Annual Report, page 8)
Statements of Cash Flows for the years ended December 31,1995 and 1994
(Annual Report, page 7)
Notes to Financial Statements.(Annual Report, page 8,10)
(2) Report of Independent Certified Public Accountants on Schedules
The following schedule is included in this report:
II- Valuations Accounts and Reserves - 1995 and 1994
Schedules other than those listed above are omitted as not applicable, not
required or the information is included in the financial statements or
notes thereto
(3) Exhibits
3.1 Articles of incorporation with all amendments to date(incorporated by
reference from Registrant's Annual Reports with Form 10K for the year
ended December 31,1992)
3.2 Bylaws of the Registrant (incorporated by reference from Registrant's
Annual Report with Form 20K for the year ended December 31,1992)
4.1 9% Convertible Subordinated Note Agreement (incorporated with this
report)
(3) Exhibits(continued)
4.2 Statements of Preferences of Preferred Stock (incorporated by reference
from Registrant's Annual Report with Form 10K for the year ended
December 31,1992) See Exhibit 3.1
10.1 Credit Agreement between Clary Corporation and the First Interstate
Bank (incorporated with this report).
10.2 1982 Stock Option Plan (incorporated by reference form Registrant's
Annual Report with Form 10K for the year ended December 31,1992)
10.3 1984 Stock Option Plan (incorporated by reference form Registrant's
Annual Report with Form 10K for the year ended December 31,1992)
13.1 Annual Report to Shareholders for the year ended December 31,1995
(incorporated by reference in this report)
(b) Reports on Form 8-k
On November 11,1994, the Registrant filed a Form 8-k reflecting a change from
Grant Thornton to Stonefield Josephson, the Registrant's Independent Public
Accountants.
CLARY CORPORATION
SCHEDULE II- VALUATION ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31,1995 AND 1994
ALLOWANCE FOR DOUBTFUL ACCOUNTS
1995 1994
BEGINNING BALANCE $15,000 $11,000
ADDITIONAL CHARGES
TO COST AND EXPENSES 7,000 10,000
DEDUCTIONS 2,000 6,000
ENDING BALANCE 20,000 15,000
STONEFIELD JOSEPHSON
ACCOUNTANCY CORPORATION
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors
Clary Corporation
In connection with our audit of the financial statements of Clary Corporate
ion referred to in our report dated February 16,1996, which is included in
the annual report to security holders and incorporated by reference in
Part II of this form, we have also audited schedule II for the years ended
December 31,1995 and 1994. In our opinion, this schedule present fairly,
in all material respects, the information required to be set forth
therein.
Stonefield Josephson
Accountancy Corporation
Santa Monica, California
February 16,1996
SIGNATURES
Pursuant to the requirements of the 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.
CLARY CORPORATION
BY: D.G.ASH-Treasurer
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.
Dated:
President and Chief Executive Officer
March 28,1996 John G. Clary
Directors:
March 28,1996 D.G. Ash
March 28,1996 John G. Clary
March 28,1996 John P. Clary
March 28,1996 Dr. Harland Gerds
Statement of Operations (Year Ended December 31,1995)
Sales and Other Income
Net Sales 5971,000
Other Income 430,000
-------------
6401,000
Cost and Expenses
Cost Of Products sold 4713,000
Engineering and product development 386,000
Selling 1033,000
General and Administrative 296,000
Interest on Long-term debt 33,000
Other Interest 129,000
-------------
6590,000
-------------
(Loss) Earnings before income taxes and
discontinued operation ( 189,000)
Income tax expense 1,000
--------------
Net loss ( 190,000)
==============
(Loss) earnings per share (.11)
Discontinued operation -0-
---------------
Net(loss) per common share (.11)
===============
BALANCE SHEET
ASSETS
CURRENT ASSETS
Cash 292,000
Cash Restricted 300,000
Notes and accounts receivable, less allowance
for doubtful accounts of $20,000 in 1995 838,000
Inventories 2010,000
Prepaid expenses and other assets 61,000
-------------
Total current assets 3501,000
Property and equipment 151,000
Others assets 120,000
-------------
TOTAL ASSETS 3772,000
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable 895,000
Accounts payable and accrued expenses 421,000
Accrued payroll, payroll taxes and amounts
withheld from employees 120,000
Customer deposits 31,000
------------
Total current liabilities 1467,000
Convertible subordinated debt 600,000
Stockholders' equity
Cumulative convertible preferred stock,51/2 %,
par value $5 per share; authorized and outstanding,
11.033 55,000
Common stock, par value$1 per share, authorized
3000,000 shares, issued and outstanding 1807,319 2509,000
Additional paid-in capital 5099,000
Accumulated deficit (5958,000)
-------------
1705,000
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 3772,000
============
STATEMENT OF CASH FLOW
CASH FLOWS FROM OPERATING ACTIVITIES
NET(LOSS) (190,000)
Adjustment to reconcile net(loss) to net cash
(used) provided by operating activities:
Depreciation 48,000
Provision for losses on accounts receivable 7,000
Change in assets and liabilities:
Decrease(increase) in accounts receivable 280,000
(increase)decrease in inventory (172,000)
Decrease(increase)in prepaid expenses 5,000
(Increase)decrease in other assets ( 7,000)
(Decrease)increase in accounts payable and accrued
expenses (147,000)
(Decrease)increase in customer deposits ( 12,000)
--------------
Net cash(used)provided by operating activities ( 188,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ( 17,000)
Proceeds from disposal of Division 65,000
-------------
Net cash provided(used)by investing activities 48,000
CASH FLOWS FROM FINANCING ACTIVITIES
Net(repayment) borrowing under line-of credit ( 205,000)
Proceeds from issuance of Long-Term Notes 600,000
Principal payments under long-term debt and capital
lease obligations ( 292,000)
Dividends paid ( 3,000)
--------------
Net cash provided(used)by financing activities 100,000
--------------
Net(decrease) increase in cash and cash equivalents ( 40,000)
Cash and cash equivalents at beginning of period 332,000
--------------
Cash and cash equivalents at end of period 292,000
============
NOTES TO FINANCIAL STATEMENTS
December 31,1995
NOTE 1: SUMMARY OF ACCOUNTING POLICIES
The company's operations are In manufacturing of uninterruptible power
systems and related products. A summary of the Company's significant
accounting policies consistently applied in the preparation of the financial
statements to follows
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 amount 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.
CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments which are
readily convertible into cash.
INVENTORIES
Inventories are stated at the lower of cost(including direct materials,
direct labor and manufacturing overhead) or market on the first-in, first-out
basis. Obsolete and possible excess quantities are reduced to their estimated
net realizable values in the period such obsolescence is determined.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Improvement to leased property are
amortized over the term of the lease. Depreciation is provided on the
straight-line basis over the estimated useful lives form 3 to 20 years.
(LOSS)EARNINGS PER COMMON SHARE
(Loss) earnings per common share are based upon the weighted average number
of common stock outstanding during each period(1,807,319 in 1995) after
giving effect to dividend requirements on the preferred stock. No effect is
given to stock options as they resulted in less than 3% dilution.
NOTE 2- INVENTORIES
Inventories were composed of the following amounts as of December 31,1995
Finished Goods $1,130,000
Work In Progress 880,000
----------------
$2,010,000
================
NOTE 3- PROPERTY AND EQUIPMENT
Property and equipment were composed of the following amounts as of December
31,1995.
Machinery and equipment $1,326,000
Dies,,jigs and fixtures 31,000
Leasehold improvements 60,000
----------------
$1,417,000
Less accumulated deprecciation
and amortization 1,266,000
----------------
$ 151,000
================
NOTE 4- NOTES PAYABLE
At December 31,1995 the company had a short-term borrowing agreement with a
financial institution which was collateralized by essentially all assets of
the company.
The agreement require the maintenance of certain ratios pertaining to working
capital and debt to equity. The financial institute has informed the Company
it will not renew the agreement when it terminates on March 15,1996.
The Company is in the process of obtaining alternative financing. Information
with respect to notes payable to the financial institution at December 31,1995
is as follows:
Line of credit subject to collateral available $1,200,000
Oustanding loans 895,000
Unused credit available 29,000
Interest rate prime plus 2.5%
Average interest rate at 12/31 12.25%
Average during the year
Short-term borrowings $1,035,000
Weighted average interest rate 11.38%
Maximum month end short-term borrowing
during the year $1,1000,00
NOTE 5- TAXES ON INCOME
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes"
("SFAS109").The Company previously accounted for income taxes under Accounting
Principles Board Opinion No. 11("APB 11"). Effective January 1,1996 the Company
changed its method of accounting for income taxes from the deferred method
required under APB 11 to the asset end liability method required under SFAS
109. There was no effect of this change on the Company's financial position or
results of operations due to cumulative losses.
The objective of the asset and liability method is to establish deferred tax
assets and liabilities for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. As of December 31,1995, the Company has total deferred tax liability
of $13,000, and total deferred tax assets of $546,000. The Company has recorded
valuation allowance for the amount by which total deferred tax assets exceed
total deferred liability,and as a result, the Company has not recorded any
liability or assets for deferred taxes as of December 31,1995. Significant
components of the company's deferred tax assets and liabilities as of
December 31,1995,are as follows:
Deferred tax assets
Allowance for doubtful accounts $ 6,000
Inventory reserve 7,000
Accrued legal fees 22,000
Tax credit carryforward 82,000
Net operating loss carryforward 368,000
------------
485,000
Valuation allowance 472,000
============
13,000
Deferred tax liabilities
Depreciation
Installment sale income ( 13,000)
--------------
$ -0-
==============
The net operating loss carryforwards expire at various dates through 2009 and
the tax credit carryforwards expires in 1996 through 2001.
NOTE 6-CONVERTIBLE SUBORDINATED DEBT
Convertible subordinated debt at December 31, consist of the following:
9.5% convertible subordinated notes due October 17,2000
and convertible into common stock at $1.00 per share. $600,000
The convertible subordinated debt is generally subordinated to notes payable
and indebtedness to financial institutions now outstanding or subsequently
incurred.
NOTE 7- COMMITMENTS AND CONTINGENCIES
Aggregate rental commitments under operating leases at December 31,1995 for
property are as follows:$82,000(1996), $82,000(1997),$34,000(1998).
The total rental expenses under all leases was $81,000 for 1995, $81,000 for
1994 and $80,000 for 1993.
In 1990 the Company entered into a verbal distributor agreement granting a
distributor the non-exclusive rights to distribute certain products of its
former CAD division. In 1991, the Company filed suit to recover the uncollected
balances of its receivable due from the distributor. The distributor filed a
countersuit alleging mis representation. On may 24,1993 the jury awarded the
distributor net damages of approximately $265,000 including double damages,
legal costs and interest. In November 1993, the Company filed an appeal againts
this judgement and provided a supersedeas bond secured by $300,000 certificate
of deposit, which has been classified as a current asset in the accompanying
balance sheet. On November 8,1994 the Courts of Appeals issued an order
reversing the trial courts judgment against the company.On January 23,1995
the distributor filedan Application for Writ of Error with the Supreme Court
of Texas. On July 7,1995,the Supreme Court of Texas ordered the judgement
of the Court of Appeals be reversed and the cause be remanded back to that
court for further proceeding. On July 20,1995,the company filed a Motion for
Rehearing with the Supreme Court.
Management has estimated a range of amounts for the potential loss,including
legal costs, relating to this matter and an amount considered by management
to be probable loss was provided for in the statement of operations for 1993
as loss form discontinued operations.The additional liability, if any, and the
classification of the certificate of deposit cannot presently be determined.
A unfavorable resolution of this matter to the Company, including failure to
conclude the appeal prior to December 31,1996 could result in an additional
liability of approximately $250,000 and/or the reclasification of an equal
amount of the "cash restricted" to noncurrent assets,which has not been
reflected in the financial statements.
NOTE 9- SALE OF DIVISION
On March 1,1991, the company completed an asset sales of its Construction
Automation Division to Alpine Engineered Products,Inc.. In the transaction,
the Company received $900,000 in cash, a five year note for $261,000 and
override payments on the net sales of the Division over the next five years.
The five-year note receivable balance was $33,000 at December 31,1995. The
note bears interest at prime rate.
As of December 31,1995, the Company has received the maximum amount of override
payments due either from direct payment or sale of future payments on a non-
recourse basis. During 1995,1994 and 1993, the company recognized as income
$330,000, $319,000 and $213,000, respectively from these override payments
NOTE 8-STOCKHOLDERS' EQUITY
The 5.5% cumulative convertible preferred stock may be redeemed in whole or
in part by the Company , upon not less than 30 days notice, at $5.50 a share,
plus accrued dividends to the date of redemption. The preferred stock is
convertible on basis of 1.15 shares of common stock for each share of preferred
stock. During 1995 and 1994 there were no shares of preferred stock converted
to common stock. As of December 31,1995 , 12,688 shares of common stock were
reserved for conversion of preferred stock. The company also has reserved
600,000 shares of common stock for conversion of 9.5% convertible subordinated
note:
In the event of liquidation, the holder of the preferred stock have preferential
rights to the company's assets.
The company has an Employee Incentive Stock Option Plan which was adopted in
1984. Under this plan, the Company has reserved 59,000 shares of common stock
for purchases by officers and key employees. Grants under the plan are made
by the committee consisting of two members of the Board of Directors.
Exercise price of options may not be less than the fair market value of common
stock at the time of grant. At December 31,1995, 59,000 shares outstanding
and 10,000 are exercisable at $1.00 per share.The options are exercisable in
annual instalments, commencing one year after the date of grant and expiring
five years after the date of grant.
In addition, the company had reserved 15,000 shares of common stock for
purchase by directors, officers or employees under a non-qualified stock
option plan. At December 31,1995, 15,000 shares are outstanding at $1.00 per
share. The options are immediately exercisable and expire five years from
date of grant.
