UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
incorporation or organization) Identification No.)
Two Main Street
Melrose, Massachusetts 02176
(Address of principal executive offices) (Zip Code)
(781) 321-2300
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report.)
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 requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares of Common Stock
(par value $1) outstanding at April 30, 1998 is 2,459,749 shares.
<PAGE> Page 1
ARMATRON INTERNATIONAL, INC.
File No. 1-4433
____________________________
PAGE(S)
-------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets -
March 31, 1998 and 1997, and September 30, 1997 3 - 4
Consolidated Condensed Statements of
Operations for the three and six months
ended March 31, 1998 and 1997 5
Consolidated Condensed Statements of
Cash Flows for the six months ended
March 31, 1998 and 1997 6
Notes to Consolidated Condensed Financial
Statements 7 - 11
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12 - 17
PART II - OTHER INFORMATION
Item 6(b) Reports on Form 8-K 18
SIGNATURES 19
<PAGE> Page 2
ARMATRON INTERNATIONAL, INC.
Consolidated Condensed Balance Sheets
March 31, 1998 and 1997, and September 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31, September 30,
1998 1997 1997
---- ---- ----
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 328 $ 80 $1,126
Trade accounts receivable,net 2,637 3,769 2,389
Inventories 3,433 2,970 2,711
Deferred taxes 113 130 113
Prepaid and other current assets 248 277 165
------ ------ ------
Total Current Assets 6,759 7,226 6,504
PROPERTY AND EQUIPMENT, NET 540 670 589
OTHER ASSETS 107 107 171
------ ------ ------
Total Assets $7,406 $8,003 $7,264
====== ====== ======
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
<PAGE> Page 3
ARMATRON INTERNATIONAL, INC.
Consolidated Condensed Balance Sheets
March 31, 1998 and 1997, and September 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31, September 30,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable 1,390 1,540 695
Other current liabilities 1,989 1,564 1,825
Current portion under capital
lease obligations 19 - 18
Notes payable - 625 -
------ ------ ------
Total Current Liabilities 3,398 3,729 2,538
------ ------ ------
LONG-TERM DEBT, RELATED PARTIES 4,715 4,754 4,715
------ ------ ------
LONG-TERM CAPITAL LEASE OBLIGATIONS,
NET OF CURRENT PORTION 20 - 30
------ ------ ------
DEFERRED RENT, NET OF CURRENT PORTION 28 66 38
------ ------ ------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, par value $1 per
share, 6,000,000 shares author-
ized; 2,606,481 shares issued
at March 31, 1998 and 1997,
and September 30, 1997 2,606 2,606 2,606
Additional paid-in capital 6,770 6,770 6,770
Accumulated deficit (9,745) (9,536) (9,047)
------ ------ ------
(369) (160) 329
Less:
Treasury stock at cost,146,732
shares at March 31, 1998 and
1997, and September 30, 1997 386 386 386
------ ------ ------
Total Stockholders'(Deficiency)
Equity (755) (546) (57)
------ ------ ------
Total Liabilities and
Stockholders' (Deficiency)
Equity $7,406 $8,003 $7,264
====== ====== ======
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
<PAGE> Page 4
ARMATRON INTERNATIONAL, INC.
Consolidated Condensed Statements of Operations
for the Three and Six Months Ended March 31, 1998 and 1997
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Six Months
Ended March 31, Ended March 31,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $3,198 $3,868 $4,412 $5,083
Cost of products sold 2,446 3,074 3,845 4,459
Selling, general and
administrative expenses 580 668 1,041 1,177
Interest expense-related parties 118 118 238 238
Interest expense-third parties 8 12 16 19
Other (income) expense - net (13) (7) (30) (35)
------ ------ ------ ------
Net income (loss) $ 58 $ 3 $ (698) $ (775)
====== ====== ====== ======
Per Share:
Net income (loss) $ .02 $ .00 $ (.28) $ (.31)
====== ====== ====== ======
Weighted average number of
common shares outstanding 2,459,749 2,459,749 2,459,749 2,459,749
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
<PAGE> Page 5
ARMATRON INTERNATIONAL, INC.
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended March 31, 1998 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
March 31,
-------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (698) $ (775)
Adjustments to reconcile net loss
to net cash flows from operating activities:
Depreciation and amortization 150 147
Loss on disposal of equipment 1
Change in operating assets and liabilities (130) (1,633)
------ -------
Net cash flow used for operating activities: (678) (2,260)
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for machinery and equipment (111) (190)
------ -------
Net cash flow used for investing activities: (111) (190)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payment) under
commercial finance company line of credit - 625
Borrowings on long-term debt - third
parties - 56
Payment on capital lease obligations (9) -
------ -------
Net cash flow used for financing activities: (9) 681
------ -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (798) (1,769)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,126 1,848
------ -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 328 $ 80
====== =======
SUPPLEMENTAL INFORMATION:
Interest paid - related parties $ - $ -
Interest paid - third parties $ 16 $ 19
Income taxes paid $ - $ -
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
<PAGE> Page 6
ARMATRON INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
1. NATURE OF BUSINESS
- ----------------------
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
leafeaters, bugkillers, yard carts, storage sheds and dog houses which
comprised 92% and 97% of the Company's net sales for the six months ended
March 31, 1998 and for the year ended September 30, 1997, respectively. 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 manufactures electronic obstacle avoidance systems for
transportation and automotive applications and markets these systems under
the trademark "ECHOVISION". There are no intercompany sales between
segments.
2. OPINION OF MANAGEMENT
- -------------------------
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments(including normal
recurring adjustments) necessary to present fairly the consolidated
financial position as of March 31, 1998 and 1997, and September 30, 1997,
and the consolidated statements of operations for the three and six months
ended March 31, 1998 and 1997 and the consolidated statements of cash flows
for the six months ended March 31, 1998 and 1997. Certain reclassifications
have been made to prior period amounts to conform with the current period
presentation. These financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended September 30, 1997. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The year-end balance sheet data
was derived from audited financial statements, but does not include
disclosures required by generally accepted accounting principles. The
accompanying unaudited, consolidated condensed financial statements are not
necessarily indicative of future trends or the Company's operations for the
entire year.
3. REVENUE RECOGNITION
- -----------------------
Revenue from product sales is recognized at the time the products are
shipped. Following industry trade practice, the Company's Consumer Products
segment offers extended payment terms for delivery of seasonal items. Sales
terms for the Industrial Products segment are 30 days net.
Provisions, based upon historical experience, are recorded for estimated
sales allowances and incentives related to volume and program incentives
offered to the Company's various customers.
<PAGE> Page 7
ARMATRON INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
4. 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.
5. CONCENTRATION OF CREDIT RISK
- --------------------------------
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of trade accounts
receivable. If any of the Company's major customers fail to pay the Company
on a timely basis, it could have a material adverse effect on the Company's
business, financial condition and results of operations.
For the six months ended March 31, 1998, Sears, Roebuck and Co. and Home
Depot, Inc. accounted for approximately 27% and 15% of the Company's net
sales, respectively. At March 31, 1998, these customers accounted for
approximately 54% of the Company's trade accounts receivable balance.
For the year ended September 30, 1997, Sears, Roebuck and Co. and Home
Depot, Inc. accounted for approximately 32% and 10% of the Company's net
sales, respectively. At September 30, 1997, these customers accounted for
approximately 57% of the Company's trade accounts receivable balance.
For the six months ended March 31, 1997, Sears, Roebuck and Co. and Home
Depot, Inc. accounted for approximately 35% and 10% of the Company's net
sales, respectively. At March 31, 1997, these customers accounted for
approximately 53% of the Company's trade accounts receivable balance.
6. MAJOR SUPPLIERS
- -------------------
The Company currently purchases its plastic storage sheds, yard carts and
dog houses from one supplier. This supplier manufactures these products in
accordance with the Company's designs and specifications. The Company
believes that other suppliers could provide the required products although
comparable terms may not be realized. A change in suppliers could cause a
delay in scheduled deliveries of the products to the Company's customers and
a possible loss of revenue, which would adversely affect the Company's
results of operations.
<PAGE> Page 8
ARMATRON INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
7. YEAR 2000 DATE CONVERSION
- -----------------------------
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000
date are a known risk. The Company is addressing this risk to the
availability and integrity of financial systems and the reliability of
operational systems. The Company is evaluating the risks and costs
associated with this problem. The computing portfolio was identified, an
initial assessment has been completed, and initial conversion efforts are
underway. The cost of achieving Year 2000 compliance is estimated to be
approximately $100,000 over the cost of normal software upgrades and
computer equipment replacements and will be incurred through fiscal 1999.
The Company intends to finance substantially all such costs through leasing
arrangements.
8. CASH
- --------
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.
9. INVENTORIES
- ---------------
Inventories are stated on a first-in, first-out (FIFO) method at the lower
of cost or market and consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
(Unaudited) (Audited)
March 31 September 30,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Purchased Components $2,042 $2,144 $1,680
Work in Process 25 120 21
Finished Goods 1,366 706 1,010
------ ------ ------
$3,433 $2,970 $2,711
====== ====== ======
</TABLE>
10. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
- ---------------------------------------------------
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. Leasehold improvements are
amortized over the lesser of the term of the lease or the estimated useful
life of the related assets. Tooling and molding costs are charged to a
deferred cost account, prepaid tooling, as incurred, until the tool or mold
is completed. Upon completion the costs are transferred to a
property/equipment account.
<PAGE> Page 9
ARMATRON INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
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.
1l. OTHER CURRENT LIABILITIES
- ------------------------------
Other current liabilities consist of the following as of:
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31, September 30,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Salaries, commissions
and benefits $ 400 $ 401 $ 399
Sales allowances and incentives 139 - 163
Professional fees 67 73 78
Warranty costs 51 66 37
Advertising costs 84 144 82
Interest 1,155 677 917
Other 93 203 149
------ ------ ------
$1,989 $1,564 $1,825
====== ====== ======
</TABLE>
12. DEBT
- ---------
LONG-TERM DEBT WITH RELATED PARTIES
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 at 10%, requires monthly payments of interest only, is payable
in full in October 1998, and is collateralized by all assets of the Company.
The Company had $4,715,000 outstanding under this line of credit at March
31, 1998. 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. At March 31, 1998 interest payments totaling $1,155,000
were in arrears for the period November 1, 1995 to March 31, 1998. The
Company plans to renew its line of credit with the realty trust operated for
the benefit of the Company's principal shareholders under terms and
conditions similar to existing terms and conditions prior to October 1998
and does not anticipate any problems or delays.
<PAGE> Page 10
ARMATRON INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
NOTE PAYABLE
The Company has a $3,500,000 revolving line of credit with a commercial
finance company which permits combined borrowings up to $3,500,000 in cash
and letters of credit. This line of credit is collateralized by all the
assets of the Company and expires in December 1999. The terms of this
agreement include a borrowing limit which fluctuates depending on the levels
of accounts receivable and inventory which collateralize the borrowings.
The agreement contains various covenants pertaining to maintenance of
working capital, net worth, restrictions on dividend distributions and other
conditions. Interest on amounts outstanding is payable on a monthly basis
at 1 3/4% over the commercial base rate. The commercial base rate was 8.5%
at March 31, 1998. At March 31, 1998 the Company was contingently liable
for outstanding letters of credit amounting to approximately $151,000 and
approximately $2,636,000 was available, pursuant to the borrowing formula,
under this credit agreement.
13. New Pronouncements
- -----------------------
The Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" which establishes standards for the
reporting and display of comprehensive income in general-purpose financial
statements. The Company has not assessed the impact of this Standard on its
financial statements.
The Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the reporting of operating segments in the
financial statements. The Company has not assessed the impact of this
Standard on its financial statements.
<PAGE> Page 11
ARMATRON INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
OVERVIEW
The Company operates principally in two segments, the Consumer Products
segment and Industrial Products segment. Operations in the Consumer
Products segment involve manufacture and distribution of Flowtron leaf-
eaters, bugkillers, yard carts, storage sheds, and dog houses which
comprised 92% and 97% of the Company's net sales for the six months ended
March 31, 1998 and for the year ended September 30, 1997, respectively. 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 manufactures electronic obstacle avoidance systems for
transportation and automotive applications and markets these systems under
the trademark "ECHOVISION". There are no intercompany sales between
segments.
For the six months ended March 31, 1998, Sears, Roebuck and Co. and Home
Depot, Inc. accounted for approximately 27% and 15%, respectively, of the
Company's net sales. At March 31, 1998, these customers accounted for
approximately 54% of the Company's trade accounts receivable. If any of the
Company's major customers fail to pay the Company on a timely basis, it
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company currently purchases its plastic storage sheds, yard carts and
dog houses from one supplier. This supplier manufacturers the products in
accordance with the Company's designs and specifications. The Company
believes that other suppliers could provide the required products although
comparable terms may not be realized. A change of suppliers could cause a
delay in scheduled deliveries of the products to the Company's customers and
a possible loss of revenue, which would adversely affect the Company's
results of operations.
FORWARD-LOOKING STATEMENTS
Management's discussion and analysis of the results of operations and
financial conditions and other sections of this report contain "forward-
looking statements" about its prospects for the future. Such statements are
subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Such risks and uncertainties
include, but are not limited to the following:
* The Company's consumer products business is cyclical and is affected by
weather and some of the same economic factors
<PAGE> Page 12
ARMATRON INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
that affect the consumer and lawn and garden industries generally, including
interest rates, the availability of financing and general economic
conditions. In addition, the lawn and garden products manufacturing
business is highly competitive. Actions of competitors, including changes
in pricing, or slowing demand for lawn and garden products due to general or
industry economic conditions or the amount of inclement weather could result
in decreased demand for the Company's products, lower prices received or
reduced utilization of plant facilities.
* Increased costs of raw materials can result in reduced margins, as can
higher transportation and shipping costs. Historically, the Company has
been able to pass some of the higher raw material and transportation
costs through to the customer. Should the Company be unable to recover
higher raw material and transportation costs from price increases of its
products, operating results could be lower than projected.
* If progress in manufacturing of products is slower than anticipated or if
demand for products produced does not meet current expectations,
operating results could be adversely affected.
* If the success of the Company in strengthening its relationship with its
customers, growing sales at targeted accounts, and expanding
geographically area not realized, operating results could be adversely
affected.
* If the Company's loses any of its major customers, operating results
would be adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for operating expenses,
including labor costs, raw material purchases and funding of accounts
receivable. Historically, the Company's sources of cash have been
borrowings from banks and finance companies and notes from a realty trust
which is operated for the benefit of the Company's Principal shareholders.
During the six months ended March 31, 1998, operating activities used cash
of approximately $678,000 primarily due to an increase in accounts
receivable of $248,000, an increase of inventories of $722,000 offset by
increases in accounts payable of $695,000 and accrued expenses of $164,000
and the net loss of $698,000.
<PAGE> Page 13
ARMATRON INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
The Company Consumer Products segment is subject to seasonal fluctuations.
The Company manufacturers its products primarily in the first three quarters
of its fiscal year with most shipments of the products occurring in the
third and fourth quarters of the Company's fiscal year. Due to this timing
as to the production and shipment of the Company's products it is common for
the accounts receivable to increase during the first six months of the
fiscal year as sales during these six months generally have been offered
extended payment terms. Inventories are also built up during the first six
months of the fiscal year such that the Company will have the necessary
products available for timely shipments to its customers during the
Company's third and fourth quarters of its fiscal year. In addition,
accounts payable and accrued expenses increase during the first six months
of the fiscal year due to the increased purchasing activities of the Company
in support of its inventory buildup.
The Company deferred approximately $30,000 of period costs during the first
quarter of fiscal 1998. These period costs were primarily indirect costs
related to staging and marshalling inventory items. These deferred costs
have been absorbed in the second quarter of fiscal 1998 and the Company
does not anticipate such deferrals in future periods.
The Company has a revolving line of credit agreement with a commercial
finance company which permits combined borrowings up to $3,500,000 in cash
and letters of credit. This line of credit is collateralized by all assets
of the Company and expires in December 1999. At March 31, 1998 the Company
was contingently liable for outstanding letters of credit amounting to
approximately $151,000 and approximately $2,636,000 was available, pursuant
to the borrowing formula, under this credit agreement.
The Company has a $7,000,000 line of credit with a realty trust which is
operated for the benefit of the Company's principal shareholders. These
principal shareholders include the Company's President, a Director who is
also President of the Company's subsidiary (Automatic Radio International,
Inc.). This line of credit, with interest payable at 10%, requires monthly
payments of interest only, is payable in full in October 1998 and is
collateralized by all assets of the Company. Interest payments for the
period November 1, 1995 through March 31, 1997 are in arrears. The Company
had $4,715,000 outstanding under this line of credit on March 31, 1998. The
Company plans to renew its line of credit with the realty trust which is
operated for the benefit of the principal shareholders under terms and
conditions similar to existing terms and conditions prior to October 1998
and does not anticipate any problems or delays with such renewal.
<PAGE> Page 14
ARMATRON INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Following industry trade practice, the Consumer Product segment offers
extended payment terms for delivery of existing seasonal products such as
the Flowtron bugkiller, leaf-eater, compost bin, yard cart and storage shed.
Sales terms for the Industrial Products segment are 30 days net.
The Company made investments of $111,000 in capital expenditures during the
six months ended March 31, 1998. These expenditures were primarily for
tooling and dies used in production of the Company's Consumer Products. As
of March 31, 1998 the Company has commitments of approximately $62,000 for
capital expenditures of which approximately $56,000 relates to computer
equipment replacements and approximately $6,000 relates to tooling and dies
used in production.
In 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 was 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.
The Company believes that its present working capital, credit arrangements
with a commercial finance company and its line of credit with a realty trust
which is operated for the benefit of the Company's principal shareholders
and other sources of financing will be sufficient to finance its seasonal
borrowing needs, operations and investment in capital expenditures in fiscal
1998. Other sources of financing, primarily provided by the Company's
principal shareholders, are available to finance any working capital
deficiencies.
RESULTS OF OPERATIONS
Three months ended March 31, 1998
The results of consolidated operations for the three months ended March 31,
1998 resulted in net income of $58,000, or $.02 per share, as compared with
net income of $3,000 or $.00 per share in the same period of the previous
year.
Net sales decreased $670,000, or 17.3%, to $3,198,000 for the three months
ended March 31, 1998, as compared to $3,868,000 for the same period of the
previous year. The decrease in net sales was primarily attributable to the
decrease in sales of bugkiller products due to customers delaying scheduled
deliveries and orders.
<PAGE> Page 15
ARMATRON INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Operating profit is the result of deducting operating expenses excluding
interest expense, general corporate expenses, and income taxes from total
revenue.
Net sales and operating income for the Consumer Products segment for the
three months ended March 31, 1998 were approximately $3,030,000 and
$356,000, respectively, as compared to $3,852,000 and $406,000 in the
previous year. The decrease in net sales was primarily due a decrease in
sales of bugkiller products due to customers delaying deliveries and orders.
Product lines within the Consumer Products segment are subject to seasonal
fluctuations, with most shipments occurring in the third and fourth quarters
of the Company's fiscal year.
Net sales and operating loss for the Industrial Products segment for the
three months ended March 31, 1998 were approximately $167,000 and $1,000,
respectively, as compared to net sales of $16,000 and an operating loss of
$95,000 for the same period of the prior year. The increase in net sales
for the Industrial Products segment was due to additional volume of
shipments of the Company's Echovision systems.
Selling, general and administrative expenses decreased $88,000 or 13.2%, to
$580,000 for the three months ended March 31, 1998, as compared to $668,000
for the same period of the prior year. As a percentage of net sales,
selling, general, and administrative expenses were 18.1% of net sales for
the three months ended March 31, 1998 as compared to 17.3% of net sales for
the three months ended March 31, 1997.
Taxes were not provided during the three months ended March 31, 1998 as the
Company has net operating loss carry-forwards available to offset such
provisions.
Six months ended March 31, 1998
The results of consolidated operations for the six months ended March 31,
1998 resulted in a net loss of $698,000 or $.28 per share, as compared with
a net loss of $775,000, or $.31 per share in the same period of the previous
year. Net sales decreased $671,000, or 13.2%, to $4,412,000 for the six
months ended March 31, 1998, as compared to $5,083,000 for the corresponding
period in the previous year. The decrease in net sales was primarily
attributable to the decrease in sales of bugkiller products due to customers
delaying scheduled deliveries and orders.
Net sales and operating loss for the Consumer Products segment for the six
months ended March 31, 1998 were approximately $4,032,000 and $116,000,
respectively, as compared to net sales of $5,034,000 and operating losses of
$31,000 in the previous year. The decrease in net sales was primarily
attributable to the decrease in sales of bugkiller products due to customers
delaying scheduled deliveries and orders.
<PAGE> Page 16
ARMATRON INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Net sales and operating losses for the Industrial Products segment during
the six months ended March 31, 1998 were approximately $380,000 and $4,000,
respectively, as compared to net sales of $49,000 and an operating loss of
$179,000 for the same period of the prior year. The increase in net sales
for the Industrial Products segment was due to additional volume of
shipments of the Company's Echovision systems.
Selling, general and administrative decreased $136,000, or 11.6% to
$1,041,000. As a percentage of net sales, selling, general, and
administrative expenses were 23.6% of net sales for the six months ended
March 31, 1998 as compared to 23.2% of net sales for the six months ended
March 31, 1997.
Additional tax benefits from the losses on operations for the six months
ended March 31, 1998 were offset by changes to the related valuation
allowances.
New Pronouncements
The Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" which establishes standards for the
reporting and display of comprehensive income in general-purpose financial
statements. The Company has not assessed the impact of this Standard on its
financial statements.
The Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the reporting of operating segments in the
financial statements. The Company has not assessed the impact of this
Standard on its financial statements.
<PAGE> Page 17
ARMATRON INTERNATIONAL, INC.
PART II
Item 6b.
Reports on Form 8-K
The Company filed no Form 8-K's for the quarter ended March 31, 1998.
<PAGE> Page 18
ARMATRON INTERNATIONAL, INC.
File No. 1-4433
____________________________
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
ARMATRON INTERNATIONAL, INC.
(Registrant)
Date: May 11, 1998 /s/ Charles J. Housman
Charles J. Housman, President
and Treasurer
Date: May 11, 1998 /s/ Edward L. Housman
Director
Date: May 11, 1998 /s/ James M. Murphy
Controller
<PAGE> Page 19
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