TO OUR SHAREHOLDERS
The financial results of 1998 were extremely disappointing.
Although new product sales have increased during 1998 they did not increase as
fast as our older and obsolete product sales declined during the year.
Our margins on our new products have been good but their sales have not reached
the level where they can support the fixed expenses that are required to operate
a public company.
There were three significant events that were completed or started in 1998,
which we expect will materially improve our performance in 1999 and beyond.
First, we completed the design and configuration of our extreme environment UPS,
specifically designed for the backup of the new LED traffic signals. These UPSs
must operate in the typical traffic control cabinets that you see at most
intersections with traffic signals. These cabinets can vary from a high
temperature of 165oF in the summer to a low of 40of below zero in the winter.
These units have been well received but because they are dependent on
municipalities that have complicated budget restraints, this market has
developed much slower than we originally contemplated. It is expected it will
increase in 1999, but will not reach its potential until 2000.
We have, however, found that there is a significant market for extreme
temperature UPS products in other markets, such as military and communications,
and expect these markets to contribute to 1999 sales.
Second, we entered into negotiation on a branded product agreement with a
European UPS manufacturer to supply us UPS products in the 3K to 10K range.
These products fill a market area in which we have been successful in the past
and fit well as a companion to be marketed with our new Digital Line.
These products will substantially contribute to our sales in the first quarter
of 1999 and are expected to be a significant part of our business for the
balance of the year and on into the year 2000 and beyond.
Third, we finally received FDA clearance to sell our Model M-1145 as a back up
to life-support medical equipment. We were proud to receive this clearance as it
is an affirmation of the quality and reliability of the UPS's Clary manufactures
and distributes. Also, there are over 80,000 medical devices in use that can
benefit by using this model. Because of special manufacturing requirements
required for medical equipments, this model will not be available for sale until
late in the 2nd quarter of this year.
Because of the progress we have made in 1998 we started 1999 with a backlog of
$1,509,000, as compared with a starting backlog of $232,667 in 1998.
All of us at Clary will be working hard to make 1999 a much better year.
Sincerely,
John G. Clary
Chairman and Chief Executive Officer
<PAGE>
CONTINUOUS POWER SYSTEMS
- ------------------------
In December, 1998, Clary Corporation received FDA 510(k) clearance for its M1145
uninterruptible power system for hospital ventilators. Clary continues to be the
only UPS company in the world to get FDA clearance to market UPSs as a backup
for critical life support devices. Clary will begin the marketing of these
systems in the second quarter of 1999.
In 1998, Clary Corporation began the CT Series product establishing us as the
first UPS manufacturer to use a "build-to-order" approach much like Dell and
Gateway computer companies. This program has been a hit with dealers and systems
integrators.
Clary's new GT Series of UPSs automatically reconfigure themselves to local
power anywhere in the world. In 1999, Clary will ship these systems to United
States embassies all over the world to support small package x-ray security
systems. Clary Corporation has a new agreement with IMV, a European based
international power systems company, to market the GT Series worldwide.
In January 1998, Clary's new Transportation Products Group installed its first
Traffic UPS products in El Cajon, CA. Since then, we have seen four states
approve the units with over three dozen municipal and county agencies becoming
customers. Major customers include San Diego, San Jose, Philadelphia and the
State of Colorado. In 1999, Clary will introduce a second product for this
market. With many of the largest cities in the nation concerned about the impact
of Y2K on their infrastructure, a number of major products are on tap for 1999.
Clary continues to sell a growing number of systems to the US Military. In 1998,
Clary UPSs were approved for use in certain US nuclear submarine applications.
<PAGE>
MANAGEMENT'S DISCUSSION
-----------------------
Results of Operations
- ---------------------
Over the past three years, the Company has developed, produced and sold a wide
range of uninterruptible power systems.
1998 vs. 1997
- -------------
Sales for 1998 decreased $1,023,000 or 22.1% from 1997. This decrease was due
to continuing reductions in the sale of foreign imported products. The primary
market, traffic signals, for the newly developed digital products is maturing
much slower than originally anticipated.
Cost of sales decreased $623,000 or 19.4%.This decrease was due to the decreased
sales. Engineering and development increased $22,000 or 6.5% which is not
significant. Selling and service increased $162,000 or 21.0%. This increase is
due to the hiring of an outside advertising agency as well as attendance at
additional tradeshows to showcase the new line of Company products. With the
backlog building at year end, it appears this additional marketing effort is
beginning to pay off. General and administrative was reduced by $25,000 or 7.7%
and interest expenses was increased $4,000 or 3.0%, neither of which is believed
to be significant.
The low sales volume is the contributing factor for the Company loss. It is
anticipated, however, that sales volume in 1999 will be sufficient for the
Company to return to profitability.
1997 vs. 1996
- -------------
Sales for 1997 decreased $666,000 or 12.6% from 1996. This decrease was due to
continuing reductions in the sale of foreign imported products which, due to
production delays, had not yet been replaced with the Company's newly designed
digital products.
Cost of sales decreased $885,000 or 21.6% from 1996. This decrease was due to
the reduced sales but was substantially offset by higher margins on the newly
developed digital lines as well as a stronger United States dollar vs. the
Japanese yen. Selling expense decreased $110,000 or 12.5% primarily due to less
sales commission on the reduced sales and advertising cost delays on the new
line of products. General and Administrative cost decreased $152,000 or 31.9%
due to reserves established in 1996 for downsizing the future legal expenses or
settlement cost referred to in the lawsuit in Note 7. Engineering cost were
reduced by $47,000 or 12.1% as the development of the Company's new product line
is being done through a strategic alliance with an affiliate company. Interest
expenses was reduced $30,000 or 18.4% due to less borrowing since cash flow was
enhanced through inventory reduction.
With the increased margins and cost reductions, the Company reduced its loss
from $653,000 in 1996 to $132,000 in 1997 even with the reduced sales revenues.
Liquidity and Capital Requirements
- ----------------------------------
During the past three fiscal years, funds provided from operations, short-term
bank lines of credit and long-term financing through an affiliate Company have
been sufficient to fund the CompanyOs needs for working capital. Only minor
capital expenditures will be required in 1999. The Company anticipates its
growth in 1999 will require an increase in working capital. The Company expects
to meet its working capital requirements in 1999 through internally generated
funds and expanded short-term lines of credit
During the three-year period ended December 31, 1998, management believes
inflation did not have a material adverse effect on the CompanyOs revenues and
earnings.
<PAGE>
STATEMENT OF OPERATIONS
(Amounts in thousands except per share data)
<TABLE>
Year ended December 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales and other income
Net sales $3,601 $4,624 $5,290
Other income 103 33 70
------ ------ ------
3,704 4,657 5,360
Cost and expenses
Cost of products sold 2,595 3,218 4,103
Engineering and product development 362 340 387
Selling 935 773 883
General and administrative 299 324 476
Interest on long-term debt 57 57 57
Other interest 80 76 106
----- ----- -----
4,328 4,788 6,012
----- ----- -----
(Loss) before income taxes (624) (131) (652)
Income tax expense (Note 5) 1 1 1
------ ----- -----
Net (loss) $(625) $(132) $(653)
====== ====== ======
Net (loss) per common share
(Note 1) $(.35) $(.07) $(.36)
====== ====== ======
See notes to financial statements.
<PAGE>
BALANCE SHEETS
--------------
</TABLE>
<TABLE>
December 31
1998 1997
------ ------
<S> <C> <C>
ASSETS
Current Assets
Cash $160,000 $321,000
Cash restricted (Note 7) - 300,000
Notes and accounts receivable,
less allowance for doubtful accounts
of $11,000 in 1998 and $14,000 in 1997 (Note 4) 556,000 759,000
Inventories (Notes 1, 2 and 4) 1,685,000 1,442,000
Prepaid expenses and other assets 34,000 47,000
--------- ---------
Total current assets 2,435,000 2,869,000
Property and equipment Net (Notes 1 and 3) 102,000 107,000
Other assets 67,000 59,000
--------- ---------
$(2,604,000) $(3,035,000)
============ ============
1998 1997
---- ----
<S> <C> <C>
LIABLITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable (Notes 4 and 11) $(750,000) $(725,000)
Accounts payable and accrued expenses (Note 11) 297,000 681,000
Accrued payroll, payroll taxes and amounts
withheld from employees 95,000 98,000
Customer deposits 26,000 17,000
-------- ---------
Total current liabilities 1,168,000 1,521,000
Convertible subordinated debt (Notes 6 and 11) 1,150,000 600,000
Commitments and contingencies (Note 7) - -
Stockholders' equity (Note 8)
Cumulative convertible preferred stock, 51/2%,
par value $5 per share; authorized and
outstanding, 11,033 in 1998 and 1997 55,000 55,000
Common stock, par value $1 per share, authorized
3,000,000 shares; issued and outstanding,
1,807,419in 1998 and 1,804,319 in 1997 2,509,000 2,509,000
Additional paid-in capital 5,099,000 5,099,000
Accumulated deficit (7,377,000) (6,749,000)
----------- -----------
286,000 914,000
----------- -----------
$(2,604,000) $(3,035,000)
============ ============
See notes to financial statements.
<PAGE>
STATEMENT OF CASH FLOWS
-----------------------
(Amounts in thousands)
</TABLE>
<TABLE>
Year ended December 31
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) $(625) $(132) $(653)
Adjustments to reconcile net (loss)
to net cash (used for) provided by
operating activities:
Depreciation and amortization 26 54 46
Provision for losses on accounts receivable (3) - 8
Change in assets and liabilities:
Decrease in cash restricted 300 - -
Decrease (increase) in accounts receivable 206 (290) (345)
(Increase) decrease in inventory (243) 466 102
Decrease (increase) in prepaid expenses 13 (5) 19
(Increase) decrease in other assets (8) - 61
(Decrease) increase in accounts payable and
accrued expenses (387) 86 152
Increase (decrease) in customer deposits 9 (7) (7)
------ ------ ------
Net cash (used for) provided by
operating activities (712) 172 73
CASH FLOW FROM OPERATING ACTIVITIES:
Capital expenditures (21) (46) (10)
Proceeds from disposal of Division - - 16
----- ----- -----
Net cash (used for) investing activities (21) (46) 6
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowing(repayments)under line-of-credit 25 75 (245)
Proceeds from issuance of Long-Term Notes 550 - -
Dividends paid (3) (3) (3)
----- ----- -----
Net cash provided by (used for) financing
activities 572 72 (248)
------ ------ ------
Net(decrease)increase in cash and cash
equivalents (161) 198 (169)
Cash and cash equivalents at beginning of year 321 123 292
----- ----- ------
Cash and cash equivalents at end of year $160 $321 $123
====== ===== ======
See notes to financial statements.
<PAGE>
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
(Amounts in thousands)
</TABLE>
<TABLE>
Cumulative
convertible Additional
preferred Common paid-in Accumulated
stock stock capital deficit
---------- ------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $55 $2,509 $5,099 $(5,958)
Cash dividend on preferred stock
$.275 per share - - - (3)
Net loss for year - - - (653)
---------- ------ --------- -----------
Balance at December 31, 1996 55 2,509 5,099 (6,614)
Cash dividend on preferred stock
$.275 per share - - - (3)
Net loss for year - - - (132)
---------- ------ --------- -----------
Balance at December 31, 1997 55 2,509 5,099 (6,749)
Cash dividend on preferred stock
$.275 per share - - - (3)
Net loss for year - - - (625)
--------- ------ -------- ----------
Balance at December 31, 1998 $55 $2,509 $5,099 $(7,377)
========= ====== ========= ==========
See notes to financial statements.
NOTE TO FINANCIAL STATEMENTS
----------------------------
December 31, 1998, 1997 and 1996
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,
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 amounts of assets and liabilities and disclosure of
contingent assets and lia-bilities 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.
Fair Value:
Unless otherwise indicated, the fair values of all reported assets and
liabilities which represent financial instruments (none of which are held for
trading purposes) approximate carrying values of such amounts.
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 less accumulated depreciation.
Improvements to leased property are amortized over the term of the lease.
Depreciation is provided on a straight-line basis over estimated useful lives
from 3 to 20 years.
(Loss) Per Common Share:
(Loss) per common share is based upon the weighted average number of common
shares outstanding during each period (1,807,419 in 1998 and 1,807,319 in 1997
and 1996) after giving effect to dividend requirements on the preferred stock.
No effect is given to stock options, as the impact would be anti-dilutive.
New Accounting Pronouncement:
The Company has adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" and 131, "Segment Financial Disclosures" during
the current year. The adoption of these standards did not have a material effect
on the accompanying financial statements.
Note 2-INVENTORIES:
Inventories were composed of the following amounts
as of December 31,
</TABLE>
<TABLE>
1998 1997
----- -----
<S> <C> <C>
Finished goods $1,625,000 $1,510,000
Work-in-progress 1,060,000 932,000
---------- ----------
$1,685,000 $1,442,000
========== ==========
Note 3-PROPERTY AND EQUIPMENT:
Property and equipment were composed of the following amounts as of December 31,
</TABLE>
<TABLE>
1998 1997
------ ------
<S> <C> <C>
Machinery and equipment $1,392,000 $1,374,000
Dies, jigs and fixtures 31,000 31,000
Leasehold improvements 71,000 68,000
---------- ----------
1,494,000 1,473,000
Less accumulated depreciation
and amortization 1,392,000 1,366,000
---------- ----------
$ 102,000 $ 107,000
========== ==========
Note 4 - NOTES PAYABLE:
At December 31, 1998 and 1997, the Company had a short-term borrowing agreement
with a bank. At December 31, 1998 and 1997, the Company also had short-term
notes for $400,000 and $325,000, respectively, with an affiliate company bearing
an interest rate of 10.75% per annum. The borrowing with the bank was
collateralized by essentially all the assets of the Company. The short-term
notes are collateralized by a second position on the same assets. The bank
agreement requires the maintenance of certain ratios pertaining to wotking
capital and debt to equity. It is to be evaluated for renewal on May 1, 1999.
A comparison of information with respect to notes payable to the financial
institutions at December 31, is as follows:
</TABLE>
<TABLE>
1998 1997
------ ------
<S> <C> <C>
Line of credit subject to
collateral available $750,000 $750,000
Outstanding loans 350,000 400,000
Unused credit available 8,000 145,000
Interest rate prime plus 2.5% 2.5%
Average interest rate at 12/31 10.25% 11.00%
Average during the year
Short-term borrowings $386,000 $382,000
Weighted average interest rate 10.50% 11.00%
Maximum month end short-term
borrowing during the year $460,000 $400,000
Note 5 - TAXES ON INCOME
As of December 31, 1998 and 1997, the Company has total deferred tax liabilities
of $0.00 and $31,000 and total deferred tax assets of $1,031,000 and $666,000,
respectively. The Company has recorded a valuation allowance for the amount by
which total deferred tax assets exceed total deferred tax liabilities, and as a
result, the Company has not recorded any liability or asset for deferred taxes
as of December 31, 1998 or 1997. Significant components of the Company's
deferred tax assets and liabilities as of December 31,1998 and 1997 are as
follows:
</TABLE>
<TABLE>
1998 1997
------ ------
<S> <C> <C>
Deferred tax assets
Allowance for doubtful accounts $5,000 $6,000
Inventory reserve 6,000 8,000
Accrued legal fees 10,000 70,000
Tax credit carryforward 82,000 82,000
Net operating loss carryforward 900,000 500,000
Inventory adjustment 28,000 -
------- -------
1,031,000 666,000
Valuation allowance 1,031,000 635,000
--------- -------
- 31,000
Deferred tax liabilities
Inventory adjustments - (31,000)
--------- --------
- (31,000)
--------- ---------
$ - $ -
========== =========
The federal regular and alternative minimum tax net operating loss carryforwards
totaling $2,417,000 and $2,116,000, respectively, expire at various dates from
2003 to 2018. The tax credit carryforwards expire in 1999 through 2001.
Note 6 - CONVERTIBLE SUBORDINATED DEBT
Convertible subordinated debt at December 31, consists of the following:
</TABLE>
<TABLE>
1998 1997
------ ------
<S> <C> <C>
91/2% convertible subordinated notes
due October 17, 2000 and
convertible into common stock at
$1.00 per share $600,000 $600,000
9% convertible subordinated notes
due January 15, 2000 $550,000 -
The convertible subordinated debt is generally subordinated to notes payable
and indebtedness to financial institutions now outstanding or subsequently
incurred. The maker of the 9% note has the right, at any time prior to June 30,
1999, to require the holder to exchange the note for 55,000 shares of Preferred
Stock of the Maker. The Company is requesting shareholder permission to amend
its Articles of Incorporation to include authorization of a new 6% cumulative
Preferred Stock. The Board of Directors of the Company has already approved the
option of the Company which requires the holder to exchange this note for the
new class of Preferred Stock as soon as approval is obtained from the
shareholders.
Note 7 - COMMITMENTS AND CONTIGENCIES
Aggregate rental commitments under operating leases at December 31, 1998 for
property are as follows: $92,000 (1999) and $55,000 (2000).
The total rental expense under all leases was $82,000 for all three years, 1998,
1997 and 1996.
The Company was engaged in a lawsuit which dated back to 1990. In May 1993, a
jury awarded the persons filing the suit net damages of approximately $265,000
against the Company. Upon filing an appeal, the Company provided a supersedeous
bond secured by a $300,000 certificate of deposit which was classified as cash
restricted on the balance sheet for 1997.
After several years of court reviews, hearings and rehearings, the case was
finally settled during 1998 for $55,000. Reserves for this settlement were
established in prior years and after paying the $55,000 settlement cost, the
remaining amount of cash - restricted was returned to the Company's working
capital.
Note 8 - Stockholders' Equity
The 51/2% 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 a basis of 1.15 shares of common stock for each share of preferred stock.
During 1998 and 1997, there were no shares of preferred stock converted to
common stock. As of December 31, 1998, 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 the 91/2% convertible
subordinated notes.
In the event of liquidation, the holders of the preferred stock have
preferential rights to the Company's assets.
The Company has two Employee Incentive Stock Option Plans which were adopted in
1984 and 1996. Under the 1984 and 1996 plans, the Company has reserved 26,000
and 100,000 shares of common stock for purchase by officers and key employees.
At December 31, 1998, under the 1984 plan, 26,000 shares are both outstanding
and exercisable at $1.00 per share. At December 31, 1998 under the 1996 plan,
20,000 shares are outstanding at $1.00 per share and 5,000 shares are exerci-
sable. Grants under both plans are made by a committee consisting of two members
of the Board of Directors.Exercise price of options may not be less than the
fair market value of the common stock at the time of grant. The options are
exercisable in annual installments, commencing one year after the date of grant
and expiring five years after the date of grant.
In addition, the Company had reserved 40,000 shares of common stock for purchase
by its Executive Vice President under a non-qualified stock option plan at $1.00
per share. The option is immediately exercisable and expires five years after
date of grant.
The Company adopted FASB Statement No. 123, "Accounting for Stock-Based
Compensation", effective for 1996. Under this pronouncement, the Company
has elected to follow Accounting principles Board Opinion No. 25," Accounting
for Stock Issued to Employees" (APB 25) and related interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock option equals the market price of the
underlying stock on the date of grant, no compensa-tion expense is recognized.
Pro forma information regarding net income and earnings per share as required by
Statement 123 has not been presented as the amounts are immaterial.
Note 9 - STATEMENT OF CASH FLOW
Supplemental disclosures of cash flows information:
</TABLE>
<TABLE>
Cash paid during
the year for: 1998 1997 1996
- ----------------- ----- ------ ------
<S> <C> <C> <C>
Interest $137,000 $133,000 $163,000
Income taxes $ 1,000 $ 1,000 $ 1,000
Note 10 - Significant Customer
Sales, as a percent of total sales, to the Company's largest customer was 38%
in both 1998 and 1997.
Note 11 - RELATED PARTY TRANSACTIONS
The Company's Chairman of the Board and a major shareholder is the President,
Director and a principal shareholder of Addmaster Corporation. During 1998, 1997
and 1996, the Company and Addmaster engaged in the transactions as summarized
below:
a:The Company sold Addmaster nonrecourse rights to receive royalties under a
royalty agreement with an unrelated party for $130,000 in 1997 and $387,000
in 1996. At December 31, 1998, Addmaster has been fully paid by the unrelated
party.
b:During 1996 and 1997, Addmaster loaned the Company $325,000 and $75,000,
respectively under two separate 103/4% secured promissory notes. The loans
are secured by a second position to a bank on all the assets of the Company
and are due on April 16, 1999.
c:The Company purchased inventory items from Addmaster amounting to $603,000
in 1998 and $544,000 in 1997.
d:During 1995 and 1998, Addmaster loaned the Company $400,000 and $550,000,
respectively. The $400,000 in 1995 was in exchange for $400,000 91/2%
convertible subordinated debentures due October 2000. The $550,000 in 1998
was in exchange for a $550,000 9% convertible subordinated note due January
31, 2000.
Amounts due to Addmaster at December 31, are included in the following balance
sheet accounts:
</TABLE>
<TABLE>
1998 1997
------ ------
<S> <C> <C>
Notes payable $400,000 $325,000
Accounts payable and accrued
expenses $123,000 $227,000
Convertible subordinated debt $950,000 $400,000
S.E.C. Form 10-K Available
- --------------------------
Copies of the CompanyOs annual report on Form 10-K filed with Securities and
Exchange Commission are available to stockholders, without charge, by written
request addressed to the Secretary of the Company.
MARKET INFORMATION
- ------------------
As of December 31, 1998 there were approximately 1,700 shareholders of the
Company's Common Stock. The Common Stock is traded on the Pacific Stock Exchange
and the prices listed below reflect actual sales.
</TABLE>
<TABLE>
1998 1997
----------------------------
High Low High Low
---------- ----------
<S> <C> <C>
1st Quarter 13/16 5/8 7/8 5/8
2nd Quarter 7/8 11/16 3/4 1/2
3rd Quarter 13/16 1/2 3/4 1/2
4th Quarter 1 3/8 3/4 11/16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors and Stockholders
Clary Corporation
We have audited the accompanying balance sheets of Clary Corporation (a Califor-
nia corporation) as of December 31, 1998 and 1997, and the related statements of
operations, stockholdersO equity, and cash flows for the two years 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 audits.
We conducted our audits 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 misstate-
ment. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Clary Corporation as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Certified Public Accountants
Santa Monica, California
February 11, 1999
<PAGE>
SELECTED FINANCIAL INFORMATION
------------------------------
(Amounts in thousands excepts for per share data)
</TABLE>
<TABLE>
5 Year Summary
------------------------------------
Operating Results 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and other revenues $3,704 $4,657 $5,360 $6,401 $7,992
(Loss) earnings before income taxes $ (624) $ (131} $ (652) $ (189) $ (392)
Provision for income taxes 1 1 1 1 1
------ ------ ------ ------ -------
Net (loss) $ (625) $ (132) $ (653) $ (190) $ (393)
------ ------- ------- ------ -------
Net (loss) earnings per common share $(.35) $(.07) $(.36) $(.11) $(.22)
====== ====== ====== ====== =======
Balance Sheet Highlights
- ------------------------
Assets
Current assets $2,435 $2,869 $2,842 $3,501 $3,693
Property and equipment (net) 102 107 115 151 182
Other assets 67 59 59 120 146
------ ------ ------ ------ -------
Total assets $2,604 $3,035 $3,016 $3,772 $4,021
====== ====== ====== ====== =======
Liabilities and Equity
Current liabilities $1,168 $1,522 $1,367 $1,467 $2,123
Convertible subordinated debt 1,150 600 600 600 -
Equity 286 914 1,049 1,705 1,898
------- ------ ------ ------ ------
Total liabilities and equity $2,604 $3,035 $3,016 $3,772 $4,021
======= ====== ====== ====== ======
Working capital $1,267 $1,347 $1,475 $2,034 $1,570
======= ====== ====== ====== ======
See footnotes 1 and 9 to financial statements.
<PAGE>
OFFICERS
John G. Clary
Chairman of the Board, President and C.E.O.
Richard W. Henson
President and C.O.O.
Donald G. Ash
Treasurer and Assistant Secretary
John J. Guerin
Secretary
BOARD OF DIRECTORS
John G. Clary*
President, Addmaster Corporation
Donald G. Ash*
John P. Clary*
Vice-President, Addmaster Corporation
Hugh L. Clary**
Vice-President, Addmaster Corporation
Russell T. Gilbert**
Retired Founder, President and C.E.O.
Cimco, Inc.
John J. Guerin*
Attorney at Law
Richard W. Henson
President and C.O.O.
**Members of the Executive Committee
**Members of the Audit Committee
REGISTRAR AND TRANSFER AGENT
U.S. Stock Transfer Corporation, Glendale, California
LEGAL COUNSEL
OOMelveny & Myers, Los Angeles, California
AUDITORS
Stonefield Josephson, Inc.
Santa Monica, California
OFFICES
1960 South Walker Avenue
Monrovia, California 91016
Phone (626) 359-4486
Fax (626) 305-0254
LISTING
Pacific Stock Exchange
Symbol: CLY TT
Annual Meeting
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The Annual Meeting of the Shareholders of the Company will be held at the
Company's offices, 1960 South Walker Avenue, Monrovia, California on Thursday,
May 20, 1999 at 3:00 oOclock p.m. Pacific Daylight Time.
Dividend Information
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The Company has not paid a dividend on its Common Stock in recent years.
The Company has paid quarterly dividends at the annual rate of $.275 per share
on its Preferred Stock; the minimum rate these shareholders are entitled to on
a cumulative basis.
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