UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended September 30, 1998
Commission file Number 1-3489
CLARY CORPORATION
- ----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 95-0630196
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(State or other jurisdiction of (I.R.S. Employer
incororation or organization) Identification No.
1960 So. Walker Avenue Monrovia, California 91016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (626) 359-4486
N/A
- ----------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicated by check whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
As of October 29, 1998, there were 1,807,419 shares of common stock out-
standing.
Transitional Small Business Disclosure Format
Yes X No
----- -----
<PAGE>
PART 1
ITEM #1 - FORM 10-QSB
CLARY CORPORATION
(Statement of Operations)
<TABLE>
<CAPTION>
PROFIT AND LOSS INFORMATION Three Months Period Ended September 30,
1998 1997
- ----------------------------------- ---------------------------------
<S> <C> <C>
Sales and other revenue $ 837,000 $ 1,397,000
Cost and expenses:
Cost of products sold 580,000 909,000
Engineering and product development 97,000 76,000
Selling and service 191,000 291,000
General and administrative 81,000 82,000
Interest expense 35,000 36,000
--------- ---------
984,000 1,394,000
--------- ---------
Net (loss) earnings $ (147,000) $ 3,000
========= =========
Net (loss) earnings per common share $ (.08) $ -0-
========= =========
Average number of shares 1,807,419 1,807,319
Dividends per share None None
<PAGE>
CLARY CORPORATION
Statement of Operations
-----------------------
</TABLE>
<TABLE>
<CAPTION>
PART I
ITEM #1 - FORM 10-QSB
Nine Month Period Ended September 30,
--------------------------------------
Profit and Loss Information 1998 1997
- --------------------------- ----- ----
<S> <C> <C>
Net Sales and Other Revenue $ 2,792,000 $ 3,398,000
Cost and expenses:
Cost of products sold 1,968,000 2,257,000
Engineering and Product Development 288,000 250,000
Selling and Service 569,000 557,000
General and Administrative 238,000 228,000
Interest expense 106,000 99,000
--------- ---------
3,169,000 3,391,000
(Loss) earnings before income taxew (377,000) 7,000
Income tax expense 1,000 1,000
--------- ---------
Net (loss) earnings $ (378,000) $ 6,000
======== =====
Net (loss) earnings per common
share $ (.21) $ -0-
======== =====
Average number of shares 1,807,419 1,807,319
Dividends per share None None
</TABLE>
<TABLE>
<CAPTION>
CLARY CORPORATION
CONSOLIDATED BALANCE SHEETS
-----------------------------
ASSETS Sept. 30, 1998 Dec. 31, 1997
- ---------------------------------- -------------- -------------
<S> <C> <C>
CURRENT ASSETS
- --------------
<S>
Cash $ 184,000 $ 321,000
Cash restricted --- 300,000
Notes and accounts receivable less
allowance for doubtful amounts
of $13,000 in 1998 and $14,000 in
1997. 493,000 759,000
Inventories, principally finished
goods and work-in-process 1,710,000 1,442,000
Prepaid expenses and other assets 68,000 47,000
--------- ---------
Total Current Assets $ 2,455,000 $ 2,869,000
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Machinery and equipment 1,407,000 1,374,000
Dies, jigs and fixtures 31,000 31,000
Leasehold improvements 71,000 68,000
--------- ---------
1,509,000 1,473,000
Less: Accumulated depreciation
and amortization 1,389,000 1,366,000
--------- ---------
120,000 107,000
OTHER ASSETS
- ------------
Miscellaneous 65,000 59,000
--------- ---------
65,000 59,000
TOTAL ASSETS $ 2,640,000 $ 3,035,000
========= =========
<PAGE>
PART I
ITEM #1 - FORM 10-QSB
CLARY CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
---------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY Sept. 30, 1998 Dec. 31, 1997
- ------------------------------------ -------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
- -------------------
Notes payable $ 695,000 $ 725,000
Accounts payable and accrued expenses 717,000 681,000
Accrued payroll and related expenses 63,000 98,000
Customer deposits 29,000 17,000
------- -------
Total Current Liabilities $ 1,504,000 $ 1,521,000
9-1/2% Convertible Subordinated Notes
due October 17, 2000 600,000 600,000
STOCKHOLDERS' EQUITY
- --------------------
Preferred stock 55,000 55,000
Common stock and additional stated
value arising from conversion of
preferred stock 2,509,000 2,509,000
Additional paid-in capital 5,099,000 5,099,000
Beginning of year deficit (6,749,000) (6,749,000)
Current years' loss (378,000) ---
--------- ---------
Total Equity 536,000 914,000
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 2,640,000 $ 3,035,000
========= =========
</TABLE>
<PAGE>
CLARY CORPORATION
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION> For the Nine Month Period Ended
--------------------------------
September 30,
------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Operating (loss) earnings $ (378,000) $ 6,000
Adjustments to reconcile net (loss)
earnings to net cash (used for)
provided by Operating Activities:
Depreciation and amortization 23,000 39,000
(Used) for losses on accts. rec. (1,000) (6,000)
Change in assets and liabilities:
Decrease in cash restricted 300,000 ---
Decrease(increase) in accts. receivable 265,000 (408,000)
(Increase) decrease in inventory (268,000) 371,000
(Increase) in prepaid expenses (19,000) (34,000)
(Increase) in other assets (6,000) ---
Increase in accts. payable and accrued
expenses 1,000 76,000
Increase(decrease) in customer deposits 12,000 (2,000)
------- -------
Net cash (used for) provided by
Operating Activities: (71,000) 42,000
Cash Flows from Investing Activities:
Capital expenditures (36,000) (28,000)
------ ------
Net Cash (used for) Investing
Activities: (36,000) (28,000)
Cash Flows from Financing Activities:
Net (repayments) borrowings under
line-of-credit (30,000) 75,000
------ ------
Net Cash (used for) provided by
Financing Activities (30,000) 75,000
------ ------
Net (decrease) increase in cash and cash
equivalents (137,000) 89,000
Cash and cash equivalents at beginning of
period 321,000 123,000
------- -------
Cash and cash equivalents at end of period $ 184,000 $ 212,000
======= =======
</TABLE>
<PAGE>
PART I
ITEM #2 - FORM 10-QSB
MANAGEMENT DISCUSSION AND ANALYSIS
- ----------------------------------
Results of Operation
- --------------------
Sales and other revenues for the third quarter of 1998 decreased
$560,000 or 40.0% from the third quarter of 1997. The reduction was
the result of older programs using the Registrant's imported products
being phased out and newer programs using the Registrant's newly
developed digital products not achieving expectations. Recently,
several customers have shown interest in the new line (need a sales
forecast to expand this area for potential sales). However, the
Registrant feels it will continue to show operation losses for the
next several months before it returns to profits in the first or
second quarter of 1999.
Cost of sales decreased $329,000 or 36.2% over the two periods.
This decrease was due to the sales decrease. Selling and administra-
tive expenses decreased $99,000 or 34.0% due primarily to reduced
commissions on the decreased sales and secondly to reduced advertising
costs. Engineering and development cost increased $21,000 or 35.0%
due to increased efforts to prepare products for the marketplace. The
net loss of $147,000 was due to lost margins on the decreased sales.
Liquidity and Capital Requirements
- ----------------------------------
The Registrant is negotiating with a financial company to supply
further credit to finance its immediate need for working capital. Due
to its current losses, the short-term credit lines it now has is not
sufficient for these needs. Although the Registrant is confident their
negotiations will be successful, there are no assurances these expanded
lines of credit will be granted.
The Registrant's short-term secured borrowing agreement with the bank
was renewed for one year on May 1, 1998. At the present time, the
Registrant is not meeting the Working Capital covenant of this Agreement
and is negotiating with the bank to ease the requirement until the
renewal date. Again, although the Registrant is confident their nego-
tiations will be successful, there is no assurance the bank will ease
the loan requirement.
Listing Requirement
- -------------------
The Registrant has been notified by the Pacific Exchange that its
$1.00 par common stock which is traded on this Exchange was not in
compliance with its listing maintenance requirement for share bid price.
The Registrant stock is currently being monitored by the Exchange to
make sure it makes tangible progress toward attaining compliance within
a reasonable period of time.
<PAGE>
PART I FORM 10-QSB
Item #2
YEAR 2000 COMPLIANCE
- --------------------
Clary Corporation manufactures Uninterruptible Power Systems that
provide clean continuous power for commercial, medical, industrial and
military applications. Questions concerning issues related to the
processing of dates are not applicable to our equipment. The millenium
or century change will not impact the operation of a Clary UPS and will
not result in any loss of power to equipment being supplied power by a
Clary UPS through internal unit fault.
Most Clary equipment manufactured to date does not have microprocessors.
Of the equipment that does have a microprocessor and electronically stores
a date; this date is for customer reference only and is not a factor in
the actual operation.
Clary Corporation has no plans to modify any prior models with regard
to the way they handle dates.
Internally, Clary Corporation has obtained Y2K compliant versions of
our Accounting and Manufacturing software programs. These will be
installed prior to Q1 1999.
Some of our customers use third party software installed in a host
computer to communicate with our equipment. Clary has supplied its
customers the names, addresses and phone numbers of software suppliers
to contact regarding the host software.
<PAGE>
PART I
ITEM #3 - FORM 10-QSB
CLARY CORPORATION
-----------------
NOTES TO PART I OF THIS REPORT
------------------------------
NOTE 1. As of September 30, 1998, the Registrant has 12,688 shares of
common stock reserved for conversion of preferred stock and 600,000 shares
reserved for the conversion of the 9-1/2% convertible subordinated notes.
In addition, the Registrant has reserved 26,000 shares of common stock for
purchase by officers or employees under its 1984 Incentive Stock Option
Plan and an additional 100,000 shares reserved for purchase by officers
and key employees under its 1996 Employee Incentive Stock Option Plan.
Also, the Company has 40,000 shares of common stock for purchase by its
Executive Vice President under a non-qualified stock option plan.
NOTE 2. This report reflects all adjustments which are, in the
opinion of management, necessary to present a fair statement of the
results for the interim period. The report has not been reviewed by
our independent public accountants and is, therefore, unaudited.
<PAGE>
FORM 10-QSB
CLARY CORPORATION
PART II
OTHER INFORMATION
-----------------
Item 1 Legal Proceedings - None of any significance
Item 2 Change in Securities - Inapplicable
Item 3 Defaults Upon Senior Securities - Inapplicable
Item 4 Submission of Matters to a Vote of Security Holders - Inapplicable
Item 5 Other Information - Inapplicable
Item 6 Exhibits and Reports on Form 8K - None
<PAGE>
Pursuant to the requirements of the Securities and Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLARY CORPORATION
(Registrant)
<TABLE>
<CAPTION>
SIGNATURE TITLE
========= =====
<S> <C>
/s/ John G. Clary President, Chief Executive Officer,
- ----------------- Chairman of the Board and Director
John G. Clary
/s/ Donald G. Ash Treasurer, Chief Financial Officer,
- ----------------- Assistant Secretary and Director
Donald G. Ash
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 184
<SECURITIES> 0
<RECEIVABLES> 506
<ALLOWANCES> 13
<INVENTORY> 1710
<CURRENT-ASSETS> 2455
<PP&E> 1509
<DEPRECIATION> 1389
<TOTAL-ASSETS> 2640
<CURRENT-LIABILITIES> 1504
<BONDS> 600
<COMMON> 2509
0
35
<OTHER-SE> (2034)
<TOTAL-LIABILITY-AND-EQUITY> 2640
<SALES> 2796
<TOTAL-REVENUES> 2796
<CGS> 1730
<TOTAL-COSTS> 1730
<OTHER-EXPENSES> 1337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106
<INCOME-PRETAX> (377)
<INCOME-TAX> 0
<INCOME-CONTINUING> (377)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (377)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
