UNITED STATES 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
For the fiscal year ended September 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number: 1-4433.
ARMATRON INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter).
Massachusetts 04-1052250
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2 Main Street, Melrose MA 02176
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 321-2300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 Par
[X] 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 of
this form 10K or any amendment to this Form 10K.
[ ] Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirement for the past 90
days. Yes [X] No [ ].
The aggregate market value of common stock held by nonaffiliates on
December 2, 1996 was $472,775.
The number of shares of the Registrant's common stock outstanding on
December 2, 1996 was 2,606,481.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the Annual
Meeting of Stockholders to be held on January 16, 1997, to be filed pursuant
to Regulation 14A not later than 120 days after the end of the fiscal year
(September 30, 1996) are incorporated by reference in Part III. Portions of
the Registrant's Annual Report to Stockholders for the fiscal year ended
September 30, 1996 are incorporated by reference in Parts I, II, and III.
PART I
Item 1. Business
- -------------------
(a) General Development of Business:
Armatron International (the "Company") was organized in 1920 as
Automatic Radio. Until 1978, the Company was primarily involved
in the design and manufacture of automobile radios.
In 1978 the Company began to concentrate its efforts primarily in
manufacturing electronic insect killing devices in the Flowtron
Outdoor Products Division which continued until fiscal 1984.
Between 1984 and 1987 the Company acquired several companies in
order to grow and diversify. By the end of fiscal 1987 the
Company had divested itself of these acquisitions.
The Company's Automatic Radio Division supplied AMC/Chrysler
Corp. from 1986 to 1990 with radios for its JEEP. During fiscal
1990 the Company was notified by Chrysler Corporation that they
would terminate their supply agreement for radios. In 1994 this
Division completed field testing of its ultrasonic collision
avoidance/obstacle detection system for automotive applications
which is to be marketed under the trademark "ECHOVISION".
Production began in the first quarter of 1996.
The Company's main Division, Flowtron Outdoor Products
manufactures and distributes bugkillers, leaf-eaters, compost
bins, biomisters, yard carts and storage sheds for consumer use.
(b) Financial Information about Industry Segments:
The information required by this item is incorporated herein by
reference to Note 11 of the Notes to Consolidated Financial
Statements on page 12 of the Company's 1996 Annual Report to
Stockholders.
(c) Narrative Description of Business:
(1)(i) The Company operates principally in two segments, the
Consumer Products segment and the Industrial Products segment.
The Consumer Products segment involves the manufacture and
distribution of Flowtron leaf-eaters, bugkillers, compost bins
and biomisters. Two new products for the lawn and garden
industry, a yard cart and a storage shed, were introduced for the
1995 season. The Company distributes its products primarily to
major retailers throughout the United States, with some products
distributed under customer labels. Substantially all of the
Company's sales in fiscal 1996 and accounts receivable as of
September 30, 1996 related to business activities with such
retailers.
Net sales to one customer in the Consumer Products Segment
accounted for approximately $2,486,000 or 18% of consolidated net
sales in fiscal 1996, as compared to net sales to one customer of
$2,441,000 or 20% in fiscal 1995 and net sales to one customer of
$4,125,000 or 31% in fiscal 1994.
The Industrial Products segment consisted primarily of marketing
and manufacturing of its ECHOVISION collision avoidance/obstacle
detection system.
Net sales to one customer in the Industrial Products Segment
accounted for approximately $770,000 or 6% of consolidated net
sales in fiscal 1996.
(ii) All Flowtron Division products distributed in fiscal 1996
are in full production. These products undergo periodic model
changes and product improvements.
The Company began initial marketing of its collision
avoidance/obstacle detection system in 1995. Production began in
the first quarter of 1996.
(iii) The raw materials used by the Company vary widely with
many sources available to meet normal product requirements.
(iv) Although the Company owns a number of design and mechanical
patents in the U.S. and foreign countries relative to its consumer
products division, these patents are not believed to be material
to the operations of the Company. The Company has been awarded
three patents relative to the self test function of its obstacle
detection system. We believe this self test will be important when
customers consider alternatives.
(v) Heavy shipments in spring and early summer of electronic
insect killing devices, yard carts and biomisters complement
Flowtron storage sheds which are shipped primarily in the late
summer and fall.
(vi) In an effort to counteract seasonal tendencies and to level
production requirements, the Company follows the industry trade
practice of offering its customers extended payment terms when
shipments are accepted during certain limited periods, which
results in seasonal fluctuations of working capital. Sales terms
for the Company's other products are 30 days, net.
(vii) The Company's largest customers, Sears, Roebuck and Co.,
accounted for $2,486,000, or 18%, of consolidated net sales in
fiscal 1996. The Company anticipates that sales to this customer
will increase in fiscal 1997.
(viii) Shipment backlog is not a significant factor in the
Company's operations.
(ix) Not applicable.
(x) Active competition exists in all product lines in the
consumer products division, each with a number of well-established
companies which manufacture and sell products similar to those of
the Company. Price, service, warranty and product performance are
the bases of competition, with price becoming increasingly more
important. With reference to the industrial products division the
company expects active competition and expects price and product
performance will be the basis of such competition.
(xi) The amount spent on Company-sponsored research and
development was not significant in any of the three years in the
period ended September 30, 1996.
(xii) The Company's compliance with federal, state and local
environmental regulations had no material effect upon the
expenditures, earnings or competitive position of the Company and
its subsidiaries.
In January 1991, the California Department of Health Services
(DHS) issued a Corrective Action Order (CAO) against the Company
and a former subsidiary. The CAO required the Company to comply
with a Cleanup and Abatement Order which had been issued in 1990
against the Company for soil contamination at the site of the
former subsidiary. To date, no determination has been made with
regard to the extent of any environmental damage and who may be
liable. The Company does not believe, based on the information
available at this time, that the outcome of this matter will have
a material adverse effect on its financial position or results of
operations.
(xiii) The number of persons employed by the Company varies from
60 to 130 due to the seasonal production cycle of the Company's
products. Management believes relations with employees are
satisfactory.
(d) Financial Information about Foreign and Domestic Operations
and Export Sales:
The Company's export sales were not significant in any of the
three years in the period ended September 30, 1996.
Item 2. Properties
- ---------------------
The Company's principal executive offices and main manufacturing
plant are leased facilities located at 2 Main Street, Melrose,
Massachusetts, a Boston suburb. The Company manufactures
bugkillers, leafeaters and biomisters at this facility. The Company
leases 84,000 sq. ft. of this facility, which has been occupied by
the Company since 1964. The lease for the operating facility
expires in September 2000.
Item 3. Legal Proceedings
- ----------------------------
There are no material outstanding legal proceedings at this time.
Item 4. Submission of Matters to a Vote of Security Holders.
- ---------------------------------------------------------------
Not applicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
- ----------------------------------------------------------------------------
The information required by this item is set forth under the
captions "Selected Financial Data" and "Common Stock Information"
on page 18 of the Company's 1996 Annual Report to Stockholders,
and is incorporated herein by reference. Under its financing
agreement, as set forth in Footnote 6 on Page 9 of the Company's
1996 Annual Report to Stockholders, the Company is restricted
from paying dividends for the three-year term of the agreement.
The Company currently intends to retain earnings rather than pay
cash dividends.
Item 6. Selected Financial Data
- ----------------------------------
The information required by this item is set forth under the
caption "Selected Financial Data" on page 18 of the Company's
1996 Annual Report to Stockholders, and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
- ----------------------------------------------------------------------------
The information required by this item is set forth under the
caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 16 through 17 of
the Company's 1996 Annual Report to Stockholders, and is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- -------------------------------------------------------
The following financial statements and supplementary data of the
Company are located on pages 2 through 15 of the Company's 1996
Annual Report to Stockholders and are incorporated herein by
references:
Consolidated Balance Sheets September 30, 1996 and 1995.
Statements of Consolidated Operations for the Years Ended
September 30, 1996, 1995 and 1994.
Statements of Consolidated Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Reports of Independent Accountants.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- ---------------------------------------------------------------------------
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- -------------------------------------------------------------
The information required by this item is set forth under the
captions "Election of Directors; Security Ownership of
Management" and "Other Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance on pages 2 through 4,
and page 9 of the Company's Proxy Statement dated December 30,
1996, and is incorporated herein by reference.
Item 11. Executive Compensation
- ---------------------------------
The information required by this item is set forth under the
captions "Executive Compensation" and "Benefit Plans" on
pages 5 through 8 of the Company's Proxy Statement dated
December 30, 1996 and is incorporated herein by reference.
Item 12. Security Ownership of certain Beneficial Owners and Management.
- ---------------------------------------------------------------------------
The information required by this item is set forth under the
captions "Election of Directors' Security Ownership of
Management" and "Principal Shareholder" on pages 2 through 4 of
the Company's Proxy Statement dated December 30, 1996, and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- ----------------------------------------------------------
The information required by this item is set forth under the
caption, "Certain Transactions" on page 7 of the Company's Proxy
Statement dated December 30, 1996, and in Footnote 6 to the
Company's 1996 Annual Report to Stockholders on page 9 and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ---------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements
All financial statements of the Registrant as set forth under
Item 8 of this report on Form 10-K.
(2) Financial Statement Schedules
<TABLE>
<CAPTION>
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
-------------------------------------------------------------
<S> <S> <C>
Report of Independent Accountants 7
VIII Valuation & Qualifying Accounts 8
</TABLE>
All other financial statement schedules not listed have been
omitted because they are either not required, not applicable, or
the information has been included elsewhere in the financial
statements or notes thereto.
Columns omitted from schedules filed have been omitted because
the information is not applicable.
(3) Exhibits (numbered in accordance with Item 601 of
Regulation S-K):
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
---------------------------------------------------------------------------------
<C> <S> <C>
3.1 Restated Articles of Organization of January 23, 1984 ***
3.2 By-laws, as amended, through December 20, 1989 ***
10.1 Revolving Line of Credit *****
10.2 1981 Non-qualified Stock Option Plan ***
10.7 Loan and Security Agreement *
10.8 Armatron International Inc./Dreyfus 401(k) Profit
Sharing Plan and Trust: Summary Plan Description ******
10.9 Facility Lease ******
11.0 Not Applicable
13.0 Annual Report to Stockholders for FY 1996
19.1 $7,000,000 Line of Credit with a Related Party **
21.0 List of Subsidiaries
23.0 Consent of Independent Accountants
<FN>
<F1> * Filed as an Exhibit to the Company's Annual Report on Form 10K for
the fiscal year ended September 30, 1994.
<F2> ** Filed as an Exhibit to the Company's Form 10-Q for the quarter ended
March 31, 1990.
<F3> *** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1990 and incorporated herein by
reference.
<F4> ***** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993 and incorporated herein by
reference.
<F5> ****** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1995 and incorporated herein by
reference.
</TABLE>
(b) Reports on Form 8-K
No reports were filed on Form 8-K for the last quarter of the
Company's fiscal year ended September 30, 1996.
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders
of Armatron International, Inc.:
Our report on the consolidated financial statements of Armatron
International, Inc. has been incorporated by reference in this Form 10-K
from page 15 of the 1996 Annual Report to Stockholders of Armatron
International, Inc. In connection with our audits of such financial
statements, we have also audited the related financial statement schedules
listed in the index on page 6 of this Form 10-K.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required to
be included therein.
Needham, Massachusetts
December 9, 1996 R. J. GOLD & COMPANY P.C.
December 20, 1996 as to Note 13
ARMATRON INTERNATIONAL, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended September 30, 1994:
Allowance for doubtful accounts $292,000 $(146,000) $ 46,000 $100,000
Warranty costs 90,000 (34,000) 43,000 40,000
-------- --------- -------- --------
$382,000 $(180,000) $ 89,000 $140,000
======== ========= ======== ========
Year Ended September 30, 1995:
Allowance for doubtful accounts $100,000 $ 65,000 $(14,000) $179,000
Warranty costs 40,000 71,000 47,000 64,000
-------- --------- -------- --------
$140,000 $ 136,000 $ 33,000 $243,000
======== ========= ======== ========
Year Ended September 30, 1996:
Allowance for doubtful accounts $179,000 $ 2,000 $ 5,000 $176,000
Warranty costs 64,000 77,000 101,000 40,000
-------- --------- -------- --------
$243,000 $ 79,000 $106,000 $216,000
======== ========= ======== ========
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARMATRON INTERNATIONAL, INC.
December 26, 1996 By:/s/ Charles J. Housman
--------------------------------
Charles J. Housman
Chairman of the Board,
President and Director
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 on December 26, 1996, in the capacities indicated.
By: /s/ Edward L. Housman By: /s/ Charles J. Housman
- -------------------------------- --------------------------------
Edward L. Housman Charles J. Housman
Director Chairman of the Board,
President and Director
By: /s/ Elliot J. Englander
- --------------------------------
Elliot J. Englander
Director
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
-----------------------------------------------------------------------------
<C> <S> <C>
3.1 Restated Articles of Organization as of ***
January 23, 1989
3.2 By laws, as amended, through December 20, 1989 ***
10.1 Revolving Line of Credit *****
10.2 1981 Non-qualified Stock Option Plan ***
10.7 Loan and Security Agreement *
10.8 Armatron International, Inc./Dreyfus 401(k)
Profit Sharing Plan and Trust: Summary Plan
Description ******
10.9 Facility Lease ******
13.0 Annual Report to Stockholders for FY 1996
19.1 $7,000,000 Line of Credit with a Related Party **
21.0 List of Subsidiaries
23.0 Consent of Independent Accountants
<FN>
<F1> * Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1994 and incorporated herein by
reference.
<F2> ** Filed as an Exhibit to the Company's Form 10-Q for the quarter ended
March 31, 1990.
<F3> *** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1990 and incorporated herein by
reference.
<F4> ***** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993 and incorporated herein by
reference.
<F5> ****** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1995 and incorporated herein by
reference.
</TABLE>
1996
Annual Report
ARMATRON INTERNATIONAL INC.
/
/ ARMATRON INTERNATIONAL, INC. AND SUBIDIARY
- ---------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended September 30,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 13,750,000 $ 12,017,000 $ 13,286,000
- ---------------------------------------------------------------------------------------------------------
Operating Profit (Loss) $ 13,000 $ (1,159,000) $ (934,000)
- ---------------------------------------------------------------------------------------------------------
Net Loss $ (495,000) $ (1,557,000) $ (1,212,000)
- ---------------------------------------------------------------------------------------------------------
Stockholders' Equity $ 229,000 $ 724,000 $ 2,281,000
- ---------------------------------------------------------------------------------------------------------
Stockholders' Equity Per Common Share $ .09 $ .29 $ .93
- ---------------------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares Outstanding 2,459,749 2,459,749 2,459,754
- ---------------------------------------------------------------------------------------------------------
Loss Per Share of Common Stock:
Net Loss $ (.20) $ (.63) $ (.49)
=========================================================================================================
</TABLE>
TO OUR STOCKHOLDERS
New product introduction and increased sales of ECHOVISION grew the fiscal
year's sales by 14.3% from $12,017,000 to $13,750,000 and decreased the
comparative loss from $1,557,000 to $495,000.
We're disappointed despite the improved performance. Production problems
experienced in the introduction of the garden shed negatively affected the
opportunity for additional market penetration and the recent relocation of our
molding facility has caused further production delays. Additional equipment and
a larger storage area has resolved this problem and we anticipate continued
growth with this new product.
ECHOVISION, like many new technology/new market products, has undergone
changes in response to user feedback. The original ECHOVISION products required
the driver, in a tractor/trailer application, to separately connect and
disconnect the system. These products also required too much driver
interpretation of the warning signals. Second generation ECHOVISION products
have incorporated driver friendly information algorithms and have eliminated the
necessity for the driver to make extra connections significantly increasing
driver acceptance.
FEDERAL EXPRESS ordered ECHOVISION systems installed on all new pick-up
and delivery vans manufactured from January 1, 1996 through the end of November.
Driver feedback has been overwhelmingly positive and early accident data
indicates safety effectiveness exceeding program objectives. The program is
currently undergoing a comprehensive evaluation at FEDERAL EXPRESS.
Mr. William Welsh, a member of the Board of Directors since 1982, has
decided to retire. We thank Bill for his dedicated service to Armatron and wish
him well.
With the support of our Board and management team, we have every
confidence in Armatron and the challenges ahead. We are buoyed by the continued
and loyal efforts of our associates and the support of our customers and
stockholders. We will continue to work hard to justify your trust.
/s/ CHARLES J. HOUSMAN
Charles J. Housman
President & Chairman of the Board
/
/ ARMATRON INTERNATIONAL, INC. AND SUBIDIARY
- ---------------------------------------------
ASSETS (Note 6)
<TABLE>
<CAPTION>
September 30,
1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1).............................................. $ 1,849,000 $ 1,322,000
Trade accounts receivable (less allowance for doubtful accounts of $176,000 in
1996 and $179,000 in 1995)..................................................... 2,121,000 2,189,000
Current portion of other receivable............................................. 39,000 32,000
Inventories (Note 2)............................................................ 2,349,000 2,225,000
Deferred tax asset (Note 8)..................................................... 130,000 165,000
Prepaid and other current assets................................................ 148,000 122,000
--------------------------
Total Current Assets .................................................... 6,636,000 6,055,000
PROPERTY AND EQUIPMENT, net (Note 3).............................................. 637,000 952,000
OTHER ASSETS (Note 4)............................................................. 202,000 249,000
$ 7,475,000 $ 7,256,000
==========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30,
1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................................... $ 1,171,000 $ 1,112,000
Accrued liabilities (Note 5)............................................... 1,285,000 705,000
--------------------------
Total Current Liabilities ............................................. 2,456,000 1,817,000
--------------------------
LONG-TERM DEBT related parties (Note 6)...................................... 4,715,000 4,715,000
--------------------------
DEFERRED RENT (Note 1) ...................................................... 75,000 --
--------------------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 7):
Common stock, par value $1 per share; authorized 6,000,000 shares; issued
2,606,481 shares in 1996 and 1995......................................... 2,606,000 2,606,000
Additional paid-in capital................................................. 6,770,000 6,770,000
Accumulated deficit........................................................ (8,761,000) (8,266,000)
--------------------------
615,000 1,110,000
Less:
Treasury stock at cost--146,732 shares in 1996 and 1995.................... 386,000 386,000
--------------------------
Total Stockholders' Equity ............................................ 229,000 724,000
--------------------------
$ 7,475,000 $ 7,256,000
==========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
/
/ ARMATRON INTERNATIONAL, INC. AND SUBIDIARY
- ---------------------------------------------
STATEMENTS OF CONSOLIDATED OPERATIONS
For the Years Ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net Sales ............................................... $ 13,750,000 $ 12,017,000 $ 13,286,000
Cost of products sold.................................... 11,054,000 10,570,000 11,253,000
--------------------------------------------
Gross margin............................................. 2,696,000 1,447,000 2,033,000
Selling, general and administrative expenses............. 2,625,000 2,541,000 3,113,000
Provision for (recovery of) bad debts.................... 62,000 65,000 (146,000)
--------------------------------------------
Operating Profit (Loss) ................................. 9,000 (1,159,000) (934,000)
--------------------------------------------
Other Income (Expense):
Interest expense--third parties.......................... (49,000) (41,000) (6,000)
Interest expense--related party.......................... (480,000) (488,000) (494,000)
Other income--net........................................ 60,000 131,000 57,000
--------------------------------------------
Other income (expense)--net.............................. (469,000) (398,000) (443,000)
--------------------------------------------
Loss before income taxes ................................ (460,000) (1,557,000) (1,377,000)
Income tax (benefit) expense (Note 8).................... 35,000 -- (165,000)
--------------------------------------------
Net Loss ................................................ $ (495,000) $ (1,557,000) $ (1,212,000)
============================================
Net Loss per Share of Common Stock ...................... $ (.20) $ (.63) $ (.49)
============================================
Weighted Average Number of Common Shares Outstanding..... 2,459,749 2,459,749 2,459,754
============================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Years Ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $ (495,000) $ (1,557,000) $ (1,212,000)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization............................. 395,000 453,000 616,000
Deferred tax (benefit) expense............................ 35,000 -- (165,000)
Provision (recovery) for bad debts........................ 62,000 65,000 (146,000)
Loss on disposal of equipment............................. 1,000 -- 35,000
(Increase) decrease in:
Accounts receivable..................................... 6,000 160,000 (42,000)
Inventories............................................. (124,000) 712,000 315,000
Prepaid and other current assets........................ (26,000) 144,000 (124,000)
Other assets............................................ 9,000 (32,000) (105,000)
Increase (decrease) in:
Accounts payable........................................ 59,000 (275,000) 576,000
Other current liabilities............................... 580,000 (85,000) (37,000)
Deferred rent........................................... 75,000 -- --
-------------------------------------------
Net Cash Flow from (used for) Operating Activities.... 577,000 (415,000) (289,000)
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchases of equipment and patents.............. (50,000) (780,000) (146,000)
-------------------------------------------
Net Cash Flow used for Investing Activities........... (50,000) (780,000) (146,000)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt--third parties................... -- (1,000) (16,000)
Payments on long-term debt--related party................... -- (425,000) (110,000)
Loan origination costs...................................... -- (63,000) --
-------------------------------------------
Net Cash Flow used for Financing Activities........... -- (489,000) (126,000)
-------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......... 527,000 (1,684,000) (561,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............... 1,322,000 3,006,000 3,567,000
-------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ..................... $ 1,849,000 $ 1,322,000 $ 3,006,000
===========================================
SUPPLEMENTAL INFORMATION:
Interest paid--third parties................................ $ 49,000 $ 41,000 $ 6,000
Interest paid--related party................................ $ 41,000 $ 528,000 $ 454,000
Income taxes paid........................................... $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
/
/ ARMATRON INTERNATIONAL, INC. AND SUBIDIARY
- ---------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Treasury Stock Total
---------------------- Paid-In Accumulated --------------------- Stockholders'
Shares Amount Capital Deficit Shares Amount Equity
--------- ---------- ---------- ------------ --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1993........ 2,606,481 $2,606,000 $6,770,000 $(5,497,000) (146,727) $(386,000) $ 3,493,000
Net loss.................... -- -- -- (1,212,000) -- -- (1,212,000)
- ----------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1994........ 2,606,481 2,606,000 6,770,000 (6,079,000) (146,727) (386,000) 2,281,000
Increase in treasury stock.. -- -- -- -- (5) -- --
Net loss.................... -- -- -- (1,557,000) -- -- (1,557,000)
- ----------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1995........ 2,606,481 2,606,000 6,770,000 (8,266,000) (146,732) (386,000) 724,000
Net loss.................... -- -- -- (495,000) -- -- (495,000)
- ----------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1996........ 2,606,481 $2,606,000 $6,770,000 $(8,761,000) (146,732) $(386,000) $ 229,000
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Armatron
International, Inc. and its wholly owned subsidiary. All intercompany
balances and transactions have been eliminated in consolidation.
Revenue Recognition
Revenue from product sales is recognized at the time the products are
shipped. Following industry trade practice, the Company offers extended
payment terms for delivery of seasonal items.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an
original maturity of less than three months to be cash equivalents. The
Company invests excess funds in short-term, interest-bearing obligations,
including reverse repurchase agreements and commercial paper.
The Company has no requirements for compensating balances. The Company
maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits and in deposit accounts at its commercial finance
company. The Company has not experienced any losses in such accounts. The
Company believes it is not exposed to any significant credit risk on cash
and cash equivalents.
Inventories
Inventories are stated on a first-in, first-out (FIFO) basis at the lower
of cost or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed based
upon the estimated useful lives of the various assets using the
straight-line method with annual rates of depreciation of 10 to 33-1/3%.
Capitalized tooling costs are amortized over three years. Depreciation
expense was $363,000, $426,000 and $616,000 for fiscal 1996, 1995 and
1994, respectively. Tooling and molding costs are charged to a deferred
cost account as incurred, prepaid tooling, until the tool or mold is
completed. Upon completion the costs are transferred to a
property/equipment account.
Maintenance and repairs are charged to operations as incurred. Renewals
and betterments which materially extend the life of assets are capitalized
and depreciated. Upon disposal, the asset cost and related accumulated
depreciation are removed from their respective accounts. Any resulting
gain or loss is reflected in earnings.
Deferred Rent
Deferred rent results from amortizing the lease for its operating facility
over the term of the lease on a straight-line basis.
Advertising
The Company expenses advertising as incurred. Advertising expense was
$322,000, $295,000 and $248,000 for fiscal 1996, 1995 and 1994,
respectively.
Income Taxes
Effective October 1, 1993 the Company adopted Financial Accounting
Standard No. 109 (SFAS No. 109) "Accounting for Income Tax". SFAS No. 109
changes the Company's method of accounting for income taxes from the
income statement approach, recognized by Accounting Principles Board No.
11 to an asset and liability approach. As permitted by SFAS No. 109 the
Company opted not to restate the financial statements for prior periods.
Deferred income taxes are provided for temporary differences between
financial statement and income tax reporting principally from the
carryforward of unused net operating losses, tax credits, and alternative
minimum taxes.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents and long-term debt
approximate their fair value based on instruments with similar terms and
maturities.
Use of Estimates
The presentation 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.
Earnings (Loss) Per Share
Earnings (loss) per share of common stock is computed on the basis of
weighted average number of common shares outstanding in each year.
2. INVENTORIES
Inventories consist of the following at September 30:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Raw Materials....................... $ 1,632,000 $ 1,606,000
Work in Process..................... 65,000 84,000
Finished Goods...................... 652,000 535,000
--------------------------
$ 2,349,000 $ 2,225,000
==========================
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land and buildings.................................... $ 80,000 $ 80,000
Furniture and fixtures................................ 396,000 391,000
Machinery and equipment............................... 1,830,000 1,902,000
Capitalized tooling costs............................. 3,808,000 3,773,000
-------------------------
6,114,000 6,146,000
Less accumulated depreciation and amortization........ 5,477,000 5,194,000
-------------------------
$ 637,000 $ 952,000
=========================
</TABLE>
4. OTHER ASSETS
Other assets consists of the following at September 30:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Other receivable, net of current portion................. $ 89,000 $ 104,000
Note receivable--employee, due under terms of an annual
renewable note, interest payable monthly at an annual
rate of 6%, secured by a second mortgage................ 100,000 100,000
Other.................................................... 13,000 45,000
---------------------
$ 202,000 $ 249,000
=====================
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following as of September 30:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Salaries, commissions and benefits............... $ 365,000 $ 321,000
Warranty costs................................... 40,000 64,000
Advertising costs................................ 145,000 135,000
Interest......................................... 439,000 --
Other............................................ 296,000 185,000
--------------------------
$ 1,285,000 $ 705,000
==========================
</TABLE>
6. DEBT
Long-term debt consists of the following as of September 30:
<TABLE>
<CAPTION>
1996 1995
<C> <C>
$ 4,715,000 $ 4,715,000
=========================
</TABLE>
The Company has a $7,000,000 line of credit with a realty trust operated
for the benefit of the Company's principal shareholders. This line of
credit, with interest payable at 10%, requires monthly payments of
interest only, is payable in full in October 1997 and is collateralized by
all assets of the Company. The Company had $4,715,000 outstanding under
this line of credit at September 30, 1996 and 1995. The maximum borrowings
against this line during fiscal 1996 were $4,715,000. Repayment of this
line of credit is subordinate to the repayment of any and all balances
outstanding on the revolving line of credit described below. Related
interest expense incurred in the years ended September 30, 1996, 1995 and
1994 were $480,000, $488,000 and $494,000, respectively. At September 30,
1996 interest payments totaling $439,000 for the period November 1, 1995
to September 30, 1996 were in arrears. On December 11, 1996 the Company
received a waiver for the covenant violation. The period of this waiver
extends through October 1, 1997.
The Company has a revolving line of credit with a commercial finance
company which permits combined borrowings of up to $3,500,000 in cash and
letters of credit. This line of credit expires in December 1996 and is
collateralized by all assets of the Company. The terms of this agreement
include a borrowing limit which fluctuates depending on the levels of
account receivable and inventory which collateralize the borrowings.
Interest on amounts outstanding is payable on a monthly basis at an annual
rate of 2-1/4% over the prime rate which was 8-1/4% at September 30, 1996.
As of September 30, 1996 the Company had outstanding letters of credit
amounting to approximately $331,000 under this agreement. This instrument
approximates its fair value as the underlying interest rate is tied to
market rates. The loan agreement contains various covenants pertaining to
the maintenance of working capital, net worth and other conditions. The
Company is required to maintain continuing working capital of $4,800,000
and adjusted net worth, as defined in the loan agreement of $400,000. At
September 30, 1996, working capital was $4,180,000, which is in violation
of the loan agreement. On December 20, 1996 the Company received a waiver
for the covenant violation and renewed this revolving credit line. (See
Note 13.)
A summary of borrowings on commercial finance company and bank revolving
credit agreements and unused lines of credit for the years ended September
30, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Average borrowings during year................... $ 313,638 $ 394,129 $ --
Average interest rate during year................ 10.67% 11.25% 7.5%
Maximum borrowings during year................... $ 1,365,000 $ 1,330,000 $ --
Unused line of credit at September 30............ $ 3,169,000 $ 3,354,000 $ 2,196,000
</TABLE>
7. STOCK OPTIONS
The Company's incentive stock option plan terminated December 1, 1990.
Options were granted to officers and key employees to purchase common
shares at prices not less than the fair market value on the date of grant.
Options are exercisable in varying installments and expire in varying
periods which may not exceed ten years from the date of the grant.
Information concerning stock options for the years ended September 30,
1996, 1995 and 1994 is summarized below:
<TABLE>
<CAPTION>
Options Outstanding
Shares Price Range
<C> <C> <C>
September 30, 1994........................ 20,000 $1.75--$2.50
Granted................................. -- --
Exercised............................... -- --
Canceled................................ -- --
----------------------
September 30, 1995........................ 20,000 $1.75--$2.50
Granted................................. -- --
Exercised............................... -- --
Canceled................................ -- --
----------------------
September 30, 1996........................ 20,000 $1.75--$2.50
======================
</TABLE>
At September 30, 1996 and 1995, options for 20,000 shares were
exercisable. The expiration dates of the options range from 1998 to 1999.
The average exercise price of outstanding options is $2.27.
8. INCOME TAXES
As discussed in the summary of significant accounting policies the Company
adopted Statement of Financial Accounting Standards No. 109 as of October
1, 1993. The adoption of this change did not have a cumulative effect on
the financial position or the net results of operations.
The provision for income taxes for continuing operations consists of the
following:
<TABLE>
<CAPTION>
(000's)
Year Ended September 30,
1996 1995 1994
<S> <C> <C> <C>
CURRENT TAX PROVISION
Federal....................................... $ -- $ -- $ --
State......................................... -- -- --
----------------------------
TOTAL CURRENT PROVISION......................... -- -- --
----------------------------
DEFERRED TAX (BENEFIT)/EXPENSE
----------------------------
Federal....................................... (160) (545) (127)
State......................................... (39) (297) (38)
----------------------------
TOTAL DEFERRED (BENEFIT)/EXPENSE................ (199) (842) (165)
----------------------------
CHANGE IN VALUATION ALLOWANCE................... 234 842 --
----------------------------
INCOME TAXES (BENEFIT)/EXPENSE.................. $ 35 $ -- $ (165)
============================
</TABLE>
The significant items comprising the deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred Tax Assets:
Doubtful Receivables............................ $ 78,000 $ 80,000
Inventory Obsolescence and Shrinkage............ 225,000 177,000
Sales Allowances................................ 32,000 26,000
Warranties...................................... 18,000 28,000
Non-qualified Executive Retirement Plan......... 147,000 130,000
Tax Loss Carryforwards.......................... 6,595,000 6,386,000
Tax Credit Carryforwards........................ 439,000 459,000
Other........................................... 215,000 223,000
--------------------------
Subtotal........................................ 7,749,000 7,509,000
--------------------------
Deffered Tax Liabilities:
Excess of Tax over Book Depreciation............ (114,000) (73,000)
--------------------------
Net Deferred Tax Assets......................... 7,635,000 7,436,000
Less Valuation Allowance........................ (7,505,000) (7,271,000)
--------------------------
NET DEFERRED TAX ASSETS......................... $ 130,000 $ 165,000
==========================
</TABLE>
A reconciliation of the federal tax rate to the Company's effective tax
rate for 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
% of Pretax Income
1996 1995 1994
<S> <C> <C> <C>
Federal income tax at statutory rate on loss before taxes..... 35.0% 35.0% 35.0%
Reduction due to valuation allowance.......................... (29.08) (35.0) (44.22)
------------------------------
Income tax credit at effective rate........................... 5.92% 0% (9.22)%
==============================
</TABLE>
For income tax purposes the Company has unused Federal operating loss
carryforwards of $16,491,000 expiring through 2011 and State operating
loss carryforwards of $13,399,000 expiring through 2001.
In addition to the loss carryforwards the Company has research and
development and investment tax credit carryovers of $104,000 and $335,000
respectively through 2001 which are available to reduce future tax
liabilities.
The realization of the net deferred tax asset of $130,000 is dependent on
the Company's ability to generate sufficient taxable income in the future.
In recognizing its net deferred tax assets the Company has used certain
assumptions about future levels of pretax income.
9. BENEFIT PLANS
The Company has a 401(k) Savings Plan whereby employees may voluntarily
defer a portion of their compensation and the Company matches a portion of
the employee deferral. All employees with at least one year of continuous
service are eligible for the plan. Company contributions vest 100% after
five years. The Company's contributions amounted to $0 in fiscal years
1996 and 1995 and $22,000 in 1994.
The Company also has a retirement plan for certain senior executives. The
benefits payable under this retirement plan are based upon a formula which
allows for the offset of benefits under other offered retirement plans and
Social Security benefits. At September 30, 1996, the unfunded benefit
obligation of this retirement plan was approximately $331,000. The Company
has made no contributions to this retirement plan in each of the three
years ended September 30, 1996.
10. COMMITMENTS AND CONTINGENCIES
The Company was obligated at September 30, 1996 under certain operating
leases for various types of equipment and the Company's operating
facility. The lease for the operating facility expires in September 2000.
Rental expense for fiscal 1996, 1995 and 1994 was $420,000, $450,000, and
$625,000, respectively. The future minimum lease commitments total
$1,287,000 as follows: $332,000 in fiscal 1997, $325,000 in 1998, $315,000
in 1999, and $315,000 in 2000.
Commitments for the purchase of molds at September 30, 1996 totalled
$60,000.
In January 1991, the California Department of Health Services (DHS) issued
a Corrective Action Order (CAO) against the Company and a former
subsidiary. The CAO requires the Company and a former subsidiary to comply
with a Cleanup and Abatement Order which had been issued in 1990 against
the Company for soil contamination at the site of the former subsidiary.
To date, no determination has been made with regard to the extent of any
environmental damage and who may be liable. The Company does not believe,
based on the information available at this time, that the outcome of this
matter will have a material adverse effect on its financial position or
results of operations.
11. BUSINESS SEGMENT INFORMATION
The Company operates principally in two segments, the Consumer Products
segment and the Industrial Products segment. Operations in the Consumer
Products segment involve the manufacture and distribution of Flowtron
leaf-eaters, bugkillers, yard carts and storage sheds which comprise 94
percent of the Company's sales for 1996. The Company distributes its
consumer products primarily to major retailers throughout the United
States, with some products distributed under customer labels.
Substantially all of this segment's sales and accounts receivable related
to business activities with such retailers. The Industrial Products
segment has developed an electronic obstacle avoidance system for
automotive applications. Production of this unit began in fiscal 1996.
There are no intercompany sales between segments. Operating profit is
total revenue less operating expenses excluding interest expense, general
corporate expenses and income taxes. Identifiable assets by industry
segment are those assets that are identified in the operation of each of
the Company's segments. Corporate assets are principally cash and other
assets. The Company export sales are not significant. Net sales to a
single customer accounted for $2,486,000, or 18%, of net sales in fiscal
1996, $2,441,000, or 20%, of net sales in fiscal 1995, and $4,125,000, or
31% of net sales in fiscal 1994. At September 30, 1996 the accounts
receivable due from this customer was $703,000 or 33% of net trade
accounts receivable.
<TABLE>
<CAPTION>
For the Years Ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Consumer Products............................... $ 12,910,000 $ 11,920,000 $ 13,223,000
Industrial Products............................. 840,000 97,000 63,000
------------------------------------------
Total net sales............................. $ 13,750,000 $ 12,017,000 $ 13,286,000
==========================================
Operating profit (loss)
Consumer Products............................... $ 750,000 $ (25,000) $ 542,000
Industrial Products............................. 29,000 (410,000) (341,000)
------------------------------------------
779,000 (435,000) 201,000
General corporate expenses........................ (770,000) (724,000) (1,135,000)
------------------------------------------
Consolidated operating loss....................... 9,000 (1,159,000) (934,000)
Interest expense.................................. (529,000) (529,000) (500,000)
Other income--net................................. 60,000 131,000 57,000
------------------------------------------
Loss before income taxes.......................... $ (460,000) $ (1,557,000) $ (1,377,000)
==========================================
Identifiable assets:
Consumer Products............................... $ 5,244,000 $ 5,766,000 $ 6,412,000
Industrial Products............................. 282,000 61,000 74,000
Corporate....................................... 1,949,000 1,429,000 3,113,000
------------------------------------------
Total assets................................ $ 7,475,000 $ 7,256,000 $ 9,599,000
==========================================
Depreciation:
Consumer Products............................... $ 359,000 $ 422,000 $ 610,000
Industrial Products............................. 4,000 4,000 6,000
Corporate....................................... -- -- --
------------------------------------------
Total depreciation and amortization......... $ 363,000 $ 426,000 $ 616,000
==========================================
Capital expenditures:
Consumer Products............................... $ 40,000 $ 780,000 $ 146,000
Industrial Products............................. 10,000 -- --
------------------------------------------
Total capital expenditures.................. $ 50,000 $ 780,000 $ 146,000
==========================================
</TABLE>
12. INTERIM FINANCIAL REPORTING
The aggregate impact on the "Net Loss" resulting from fourth quarter
adjustments relating to the reversal of reserves in the amount of $253,000
which was material and had the effect of decreasing the Net Loss by
$253,000 in the fourth quarter.
13. SUBSEQUENT EVENT
On December 11, 1996 the Company received a waiver from the realty trust
for the violation of certain loan covenants (Note 6).
On December 20, 1996 the Company received a waiver from the commercial
finance company for the violation of certain loan covenants (Note 6). The
Company renewed this line of credit which expires in December 1999.
Interest on amounts outstanding is payable on a monthly basis at an annual
rate of 1-3/4% over the prime rate. As of October 1, 1996 the Company is
required to maintain continuing working capital of not less than
$2,000,000 and adjusted net worth of not less than $2,500,000.
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders and Directors of ARMATRON INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheets of Armatron
International, Inc. as of September 30, 1996 and 1995, and the related
consolidated statements of operations, cash flows and stockholders' equity, for
the years ended September 30, 1996, 1995 and 1994. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Armatron
International, Inc. as of September 30, 1996 and 1995 and the results of its
operations and its cash flows for the years ended September 30, 1996, 1995 and
1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes during the year ended
September 30, 1994.
/s/ R. J. GOLD & COMPANY, P.C.
R. J. GOLD & COMPANY, P.C.
Needham, Massachusetts
December 9, 1996
December 20, 1996 as to Note 13.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1996, operating activities generated $577,000 in cash, which was due
primarily to an increase of other current liabilities of $580,000. Investing
activities consumed $50,000 for equipment purchases. As a result primarily of
these factors, cash and cash equivalents increased $527,000.
In fiscal 1996, 1995 and 1994, purchases of equipment and patents amounted to
$50,000, $780,000, and $146,000 respectively. These expenditures were mainly for
tooling and dies used in production of the Company's lawn and garden products.
The Company plans to spend approximately $465,000 for capital expenditures in
fiscal 1997. These expenditures will be mainly for tooling and dies for the
Company's lawn and garden products.
In December 1996, the Company renewed from a commercial finance company a
revolving line of credit which allows aggregate borrowings of $3,500,000 to be
used as working capital and which expires in December 1999. The interest rate on
loans shall be 1 3/4% over the prime rate. The interest rate on the revolving
line of credit which expires in December 1996 was 2 1/4% over the prime rate
which was 8 1/4% at September 30, 1996. Borrowings made against this line of
credit are collateralized by all assets of the Company. As of September 30,
1996, the Company was contingently liable for outstanding letters of credit of
approximately $331,000 under this line of credit agreement.
The Company has a $7,000,000 line of credit from a Realty Trust operated for the
benefit of the Company's principal shareholders. This line of credit, with
interest at 10%, requires monthly payments of interest only, is payable in full
in October 1997 and is collateralized by all assets of the Company, as noted in
Footnote 6. Interest payments for the period November 1, 1995 through September
30, 1996 are in arrears. The Company had $4,715,000 outstanding under this line
of credit at September 30, 1996. The maximum borrowings against this line of
credit is subordinate to the repayment of any and all balances outstanding on
the revolving line of credit with the commercial finance company.
Production of the ECHOVISION automotive obstacle detection system commenced in
January 1996. The financial requirements for the program have been adequately
provided for within the credit lines available.
At September 30, 1996, the Company had unused operating loss carryforwards of
approximately $16,491,000 for financial reporting purposes which are available
to be applied against taxable income for the years 1997 through 2011. As noted
in Footnote 7 Income Taxes, the Company recorded a Net Deferred Tax Asset of
$130,000. The Company expects to realize this asset through improved operating
performance achieved through the anticipated contribution of its new products.
Taxable income for fiscal 1997 must increase to approximately $317,000 in order
to fully realize the recorded net deferred tax asset.
In January 1991, the California Department of Health Services (DHS) issued a
Corrective Action Order (CAO) against the Company and a former subsidiary. The
CAO requires the Company and a former subsidiary to comply with a Cleanup and
Abatement Order which had been issued in 1990 against the Company for soil
contamination at the site of the former subsidiary. To date, no determination
has been made with regard to the extent of any environmental damage and who may
be liable. The Company does not believe, based on the information available at
this time, that the outcome of this matter will have a material adverse effect
on its financial position or results of operation.
Management is of the opinion that, unless there is a significant rise in
interest rates, inflation will not be an important factor in fiscal 1997.
The Company believes that its present working capital, lines of credit from a
commercial finance company and related party, and other sources of financing
will be sufficient to finance its seasonal borrowing needs, operations and
investments in capital expenditures in fiscal 1997. Other sources of financing,
provided by the Company's principal stockholder, are available to finance any
working capital deficiencies.
RESULTS OF OPERATIONS
The conditions contributing to the 14% increase in sales is an expanded product
line which resulted in an increase of approximately 4% in the average selling
price and an increase of 10% in sales volume.
Net sales to one customer accounted for approximately $2,486,000, or 18%, of
consolidated net sales in fiscal 1996, as compared to net sales to one customer
of $2,441,000, or 20%, in fiscal 1995, and $4,125,000, or 31%, in fiscal 1994.
In fiscal 1996, selling, general and administrative expenses increased $84,000,
or 3%, as compared to fiscal 1995, primarily due to the increase in sales.
Selling, general and administrative expenses decreased $572,000, or 18%, in
fiscal 1995 as compared to fiscal 1994, primarily due to the decrease in sales.
In fiscal 1996, the operating loss decreased $1,168,000 resulting in operating
income of $9,000 when compared to fiscal 1995. The operating loss in fiscal 1995
was $1,159,000, an increase of $225,000 when compared to the operating loss of
$934,000 in fiscal 1994. Interest expense during fiscal 1996 remained unchanged
when compared to fiscal 1995, and increased $29,000 to $529,000 between fiscal
1995 and fiscal 1994.
Other income of $60,000 in fiscal 1996, $131,000 in fiscal 1995 and $57,000 in
fiscal 1994 consists primarily of income earned on short-term investments.
The aggregate effect of all fourth quarter adjustments as described in Footnote
12 of the financial statements, on current years reported operations resulting
from the reversal of reserves for accrued expenses amounted to $253,000. These
reversals are not expected to have an impact upon future operations.
The Company believes inflation did not have a material effect on its results of
operations for fiscal 1996, 1995 or 1994.
FIVE-YEAR FINANCIAL SUMMARY
SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
Years Ended September 30,
1996 1995 1994 1993 1992
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net Sales......................................... $ 13,750 $ 12,017 $ 13,286 $ 16,174 $ 18,562
Operating Income (Loss)........................... $ 13 $ (1,159) $ (934) $ (1,106) $ (929)
Net Loss.......................................... $ (495) $ (1,557) $ (1,212) $ (1,548) $ (1,432)
Earnings (Loss) Per Share of Common Stock:
Operating Income (Loss)......................... $ .01 $ (.47) $ (.38) $ (.45) $ (.38)
Net Loss........................................ $ (.20) $ (.63) $ (.49) $ (.63) $ (.58)
========================================================
Total Assets...................................... $ 7,475 $ 7,256 $ 9,599 $ 10,398 $ 13,120
Long-Term Obligations............................. $ 4,715 $ 4,715 $ 5,140 $ 5,251 $ 6,016
</TABLE>
There were no dividends paid on common shares during any of the above years.
Under the financing agreement, as set forth in footnote 6 to the company's
financial statements the Company is restricted from paying dividends for the
three-year term of that agreement.
- --------------------------------------------------------------------------------
Common Stock Information:
The approximate number of shareholders of record at December 2, 1996 was 1,108.
The following table indicates the quarterly high and low prices for the
Company's common stock on the American Stock Exchange for 1995 and the high and
low bid prices as reported in Over the Counter Bulletin Board for 1996:
<TABLE>
<CAPTION>
1996 1995
Quarter High Low High Low
<S> <C> <C> <C> <C>
First.............................. 11/16 7/16 1-1/16 11/16
Second............................. 11/16 1/4 1-1/18 3/4
Third.............................. 2-7/8 1/4 1-1/16 13/16
Fourth............................. 1-1/8 5/8 15/16 9/16
</TABLE>
BOARD OF DIRECTORS
Charles J. Housman
President, Treasurer & Chairman of the Board
Edward L. Housman
President, Automatic Radio International
Elliot J. Englander
Member, Englander, Finks, Ross, Cohen & Brander, P.C.
Attorneys at Law
Craig Spangenberg
Partner, Spangenberg, Shibley, Traci & Lancione
Attorneys at Law
OFFICERS
Charles J. Housman, President, Treasurer
Sal DeYoreo, Vice President
Elliot J. Englander, Clerk
AUDITORS
R. J. Gold & Company, P.C.
GENERAL COUNSEL
Englander, Finks, Ross, Cohen & Brander, P.C.
TRANSFER AGENT
American Stock Transfer & Trust Co.
STOCK TRADING
Over the Counter Bulletin Board
FORM 10-K
A copy of the Company's Fiscal 1996 Annual Report on Form 10-K to the Securities
and Exchange Commission is available to Stockholders, without charge, upon
written request to the Company:
Armatron International, Inc.
Two Main Street
Melrose, MA 02176
ARMATRON
INTERNATIONAL INC.
EXHIBIT 21.0
LIST OF SUBSIDIARIES
Subsidiaries and Divisions
FLOWTRON OUTDOOR PRODUCTS DIVISION
VORNADO POWER PRODUCTS DIVISION
AUTOMATIC RADIO DIVISION
AUTOMATIC RADIO INTERNATIONAL CORP.
ECHOVISION
CORPORATE OFFICES
2 Main Street
Melrose, MA 02176
EXHIBIT 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Armatron International, Inc.:
We consent to the incorporation by reference in the Registration
Statements on Form S-3 (SEC File no. 2-80846 and SEC File No. 2-80950) and in
the Registration Statement on Form S-8 (SEC File No. 2-80846) of Armatron
International, Inc. of our reports dated December 9, 1996, on our audit of
the consolidated financial statements and financial statement schedules of
Armatron International, Inc. as of September 30, 1996 and 1995, and for the
years ended September 30, 1996 and 1995, which report is incorporated by
reference or included in this Annual Report on Form 10-K.
Needham, Massachusetts
December 20, 1996 R. J. GOLD & COMPANY P.C.
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