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, 1998
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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
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ARMATRON INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-1052250
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Main Street, Melrose, MA 02176
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 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 Value
---------------
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 [ ].
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 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of common stock held by nonaffiliates on
December 1, 1998 was $433,109.
The number of shares of the Registrant's common stock outstanding on
December 1, 1998 was 2,606,481.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed pursuant
to Regulation 14A not later than 120 days after the end of the Company's
fiscal year end (September 30, 1998) are incorporated by reference in Part
III.
PART I
Item 1. Business
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(a) General Development of Business:
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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.
In 1994 the Company's Automatic Radio Division completed field testing of
its ultrasonic collision avoidance/obstacle detection system for automotive
applications which is marketed under the trademark "Echovision". Echovision
devices monitor back blind spots and side blind spots to detect objects and
alert operators to potential hidden hazards and features: intuitive audible
warnings, visual warnings, automatic activation, easy installation on any type
vehicle and a continuous system self-test. The advantages of using Echovision
devices include: increased driver awareness which is expected to result in
fewer accidents, and potentially lower damages and public liability costs and
increased driver awareness. The device generally sells in a range of $200 to
$300 per system. The Company warrants that the product is delivered defect
free. Production of these systems began in the first quarter of 1996.
The Company's main Division, Flowtron Outdoor Products, manufactures and
distributes: insect control devices including electronic bugkillers and
biomisters, environmental products including mulching leaf-eaters and compost
bins, and storage and handling products including plastic yard carts and
plastic storage sheds. All Consumer Products segment products distributed
in fiscal 1998 are in full production. These products undergo periodic
model changes and product improvements.
(b) Financial Information about Industry Segments:
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The information required by this item is set forth in Note 19 of the Notes
to Consolidated Financial Statements on page 27 of this Form 10-K.
(c) Narrative Description of Business:
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The Company operates principally in two segments, the Consumer Products
segment and the Industrial Products segment. There are no intercompany
sales between segments.
Operations in the Consumer Products segment involve the manufacture and
distribution of Flowtron leaf-eaters, bugkillers, yard carts, compost bins,
biomisters, storage sheds, and doghouses which comprised 93%, 97% and 94% of
the Company's net sales for the years ended September 30, 1998, 1997 and
1996, 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 the Company's sales
in fiscal 1998 and accounts receivable as of September 30, 1998 related to
business activities with such retailers.
For the year ended September 30, 1998, Sears, Roebuck and Co., and Home
Depot, Inc. accounted for approximately 29% and 11% of the Company's net
sales, respectively and represented approximately 31% and 12% of the Consumer
Products segment net sales, respectively. As of September 30, 1998, Sears,
Roebuck and Co., and Home Depot, Inc. accounted for approximately 44% and 2%,
respectively, 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 and represented approximately 34% and 10% of the Consumer
Products segment net sales, respectively. As of September 30, 1997, Sears,
Roebuck and Co., and Home Depot, Inc. accounted for approximately 53% and 4%,
respectively, of the Company's trade accounts receivable balance.
For the year ended September 30, 1996, Sears, Roebuck and Co., accounted for
approximately 18% of the Company's net sales and represented approximately
19% of the Consumer Products segment net sales. As of September 30, 1996,
this customer accounted for approximately 33% of the Company's trade
accounts receivable balance.
The Industrial Products segment manufactures electronic obstacle avoidance
systems for transportation and automotive applications and markets these
systems under the trademark "Echovision." The products are manufactured at
the Company's Melrose facility using components that the Company believes are
available from a variety of sources. The Company's marketing strategy is to
focus on identifying potential customers and marketing directly to them.
Net sales to one customer in the Industrial Products Segment accounted for
approximately $762,000, or 6%, of consolidated net sales in fiscal 1998 as
compared to net sales to one customer of approximately $320,000 or 2%, of net
sales in fiscal 1997. Sales to this customer accounted for approximately 84%
and 77% of the Industrial Products segment net sales for the years ended
September 30, 1998 and 1997, respectively. The loss of this customer would
have a material adverse effect on the Industrial Products Segment.
The Company began initial marketing of its collision avoidance/obstacle
detection system in 1995. Production began in the first quarter of 1996.
The raw materials used by the Company vary widely with many sources
available to meet normal product requirements. The Company had purchased
its plastic storage sheds, yard carts, compost bins and dog houses from one
supplier. In July 1998, the Company transferred its production molds for its
yard carts to another supplier and, in November 1998, the Company transferred
its production molds for its storage sheds and compost bins to this new
supplier. The new supplier has begun production runs for the yard carts,
storage sheds and compost bins and has not experienced any significant
difficulties in meeting scheduled deliveries. The suppliers manufacture
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.
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. Management believes this
self-test function will be an important feature when customers consider
alternative obstacle detection systems.
Heavy shipments in spring and early summer of electronic insect killing
devices, yard carts and biomisters complement Flowtron storage sheds and
leafeaters which are shipped primarily in the late summer and fall. The
Company's plastic doghouses are generally sold throughout the year.
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.
The Company's largest customers are Sears, Roebuck and Co. and Home Depot,
Inc. Sears, Roebuck and Co., accounted for $3,736,000, $4,336,000 and
$2,486,000 or 29%, 33% and 18%, of consolidated net sales in fiscal 1998, 1997
and 1996, respectively. Home Depot, Inc. accounted for $1,408,000 and
$1,244,000 or 12% and 10% of the Company's consolidated net sales in fiscal
1998 and 1997, respectively. The Company anticipates that sales to these
customers will continue in fiscal 1999 at approximately the fiscal 1998 levels.
The loss of either of these customers would have a material adverse effect
on the Consumer Products segment and the financial operations of the
Company.
Shipment backlog is not a significant factor in the Company's
operations.
Active competition exists in all product lines in the Consumer Products
Division, each with a number of well-established companies that 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.
The amount spent on Company-sponsored research and development was not
significant in any of the three years in the period ended September 30,
1998.
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 issued a
Corrective Action Order (CAO) against the Company and a former subsidiary.
The CAO required the Company and a former subsidiary to comply with a
Cleanup and Abatement Order that 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.
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
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Operations and Export Sales:
----------------------------
The Company's export sales were not significant in any of the three years in
the period ended September 30, 1998.
Item 2. Properties
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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. The Company believes that it will be
able to negotiate an extension of its lease with approximately the same
conditions as the current lease.
Item 3. Legal Proceedings
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An action was filed in U.S. District Court, Central District of California
in late 1996 relating to the foreign arbitration award described below.
The Company was first joined as a party to such action by the first amended
petition filed on March 3, 1997. The second amended petition was filed on
June 27, 1997.
The action seeks confirmation and enforcement of a foreign arbitration award
in favor of Alsthom, currently and formerly Chantiers de L'Atlantique
("Alsthom"), and Assurances Generales de France ("AGF") (collectively
"Petitioners") against Respondents J.C. Carter Company, Inc. ("JCC III"),
the Company, Armatron-JCC, Inc., formerly known as J.C. Carter Company, Inc.
("JCC II"), a former subsidiary of the Company, and ITT Corporation and ITT
Industries, Inc. (collectively "ITT"). The arbitration related to certain
cryogenic cargo pumps supplied in the 1970's by the J.C. Carter Company
Division of ITT ("JCC I") to Alsthom, which installed the pumps in two
liquid natural gas tanker ships, the Mourad Didouche and the Ramdane Abane.
The arbitration award was entered in favor of Alsthom and AGF, an insurer
subrogated to the rights of Alsthom, and against "J.C. Carter Company" or
J.C. Carter Company, Inc." by the International Chamber of Commerce in Paris
in 1995. The amount of the award as to AGF is 62,431,000 French francs
("FF") and as to Alsthom is 5,469,000 FF (an aggregate of approximately $7
million U.S. dollars at September 30, 1998), both with interest from January
30, 1993 at the "French official rate."
Petitioners' operative pleading in the legal action, its Second Amended
Petition, seeks confirmation of the award against JCC III and, in addition,
seeks its confirmation and enforcement against the other Respondents,
including the Company, on the theories of fraudulent conveyance, collateral
estoppel and virtual representation, judicial estoppel and equitable
estoppel, and alter ego and/or successor liability relating to events
transpiring from 1983 through the completion of the foreign arbitration
proceeding in 1997. In 1983, the Company and ITT were parties to an asset
sale transaction involving the business and assets of JCC I. JCC II, a now
inactive California corporation, was formed at that time for purpose of
acquiring the assets and certain liabilities of JCC I and ceased transacting
business after the 1987 asset sale transaction with JCC III.
The Company answered the Second Amended Petition denying any liability,
asserting various affirmative defenses and cross-claims against ITT for
contractual indemnity and for equitable indemnity. ITT and JCC III have
cross-claimed against the Company.
At the present time the Company is unable to determine the outcome of the
claims asserted by and against the Company in the legal action because the
case is still at an early stage of discovery and because of the existence of
disputed issues of fact bearing on the outcome of those claims. However,
there can be no assurance that the outcome of the proceedings will not have
an adverse effect on the financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
PART II
Item 5. Market for the Registrant's Common Equity
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and Related Stockholder Matters
--------------------------------
The approximate number of shareholders of record at December 1, 1998 was
1,093.
The following table indicates the fiscal quarterly high and low bid prices
as reported in the Over the Counter Bulletin Board for the Company's common
stock for fiscal 1998 and fiscal 1997.
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
Fiscal Quarter High Low High Low
- -------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First 5/8 1/4 3/8 3/8
Second 7/16 5/16 2 7/8 1/4
Third 7/16 3/8 2 1/4 1/4
Fourth 3/8 1/4 15/16 5/16
</TABLE>
Under its financing agreement with its commercial finance company, Congress
Financial Corporation, the Company is restricted from paying dividends for
the term of the agreement. The Company currently intends to retain earnings
rather than pay cash dividends.
Item 6. Selected Financial Data
- -------------------------------
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net Sales $12,885 $13,314 $13,750 $12,017 $13,286
Operating Income (Loss) $ 22 $ (244) $ 9 $(1,159) $ (934)
Net Loss $ (499) $ (286) $ (495) $(1,557) $(1,212)
Earnings (Loss) Per Share of
Common Stock:
Net Loss $ (.20) $ (.12) $ (.20) $ (.63) $ (.49)
===================================================
Total Assets $ 7,330 $ 7,264 $ 7,475 $ 7,256 $ 9,599
Long-Terms Obligations $ 4,743 $ 4,783 $ 4,715 $ 4,715 $ 5,140
</TABLE>
There were no dividends paid on common shares during any of the above years.
Under the financing agreement with its commercial finance company, Congress
Financial Corporation, the Company is restricted from paying dividends for
the term of that agreement.
Item 7. Management's Discussion and Analysis of Financial Conditions and
- ------------------------------------------------------------------------
Results of Operations
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OVERVIEW
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, compost bins, biomisters, storage sheds and
doghouses which comprised 93% and 97% of the Company's net sales during the
years ended September 30, 1998 and 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". Production of these systems began in fiscal 1996. There are
no intercompany sales between segments. For the year ended September 30,
1998, Sears Roebuck and Co. and Home Depot, Inc. accounted for approximately
29% and 11% of the Company's net sales, respectively. At September 30,
1998, Sears Roebuck and Co. and Home Depot, Inc. accounted for approximately
44% and 2%, respectively of the Company's trade accounts receivable
balance. 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 had
purchased its plastic storage sheds, yard carts, compost bins and dog houses
from one supplier. In July 1998, the Company transferred its production
molds for its yard carts to another supplier and, in November 1998, the
Company transferred its production molds for its storage sheds and compost
bins to this new supplier. The new supplier has begun production runs for
the yard carts, storage sheds and compost bins and has not experienced any
significant difficulties in meeting scheduled deliveries. The suppliers
manufacture 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 storage
sheds and yard carts 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 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 adversely affected.
* 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 Company is not successful in strengthening its relationships with
its customers, growing sales at targeted accounts, and expanding
geographically, operating results could be adversely affected.
* If the Company loses any of its major customers, operating results could
be adversely affected.
YEAR 2000 DATE CONVERSION
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, forecast production needs and the timing of raw material
purchases, send invoices, or engage in similar normal activities.
The Company has completed the analysis and evaluation phase of its Year 2000
project and has determined that it will be required to modify or replace
significant portions of its hardware and software so that its computer
systems will properly utilize dates beyond December 31, 1999. The Company
has also begun the process of upgrading and modernizing its major
information systems, including its operating and financial systems. The
replacement systems will be Year 2000 compliant. The Company expects to
begin using its new systems during the second quarter of fiscal 1999. The
Company will utilize both internal and external resources to reprogram or
replace, and test the software for Year 2000 modifications. The Company
plans to complete its Year 2000 project no later than July 31, 1999. The
total cost of upgrading the Company's major operating and financial systems,
including the Year 2000 project, for Fiscal years 1998 through 2000
is estimated at $100,000 and is being funded through operating cash flows
and leasing arrangements. Of the total project cost, approximately $80,000
has been expended is attributable to the purchase of new software and hardware.
The remaining $20,000 will be expensed as incurred.
There can be no assurance the systems of other companies on which the
Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have material adverse effect on the Company.
The Company has been in communication with its major vendors to ensure
compatibility of systems. If such systems do not function properly the Company
could experience delays in receipt of its raw materials which would result in
delays in scheduled deliveries of shipments by the Company.
The Company expects to begin developing contingency plans to determine what
actions the Company will take if its trading partners are not Year 2000
compliant. The Company expects the contingency plan to be completed by the
end of the third quarter of fiscal 1999.
The costs of the project and the date on which the Company plans to complete
the Year 2000 modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans
and other factors. However, there can be no assurance that these estimates
will be achieved and actual results could differ materially from those
plans. Specific factors that might cause such material differences include,
but are not limited to, the availability and cost of personnel trained in
this area, the ability to locate and correct all relevant computer codes,
and similar uncertainties.
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 related parties.
During the year ended September 30, 1998, operating activities provided
$1,715,000 in cash primarily due to a decrease in trade accounts receivable
of $554,000 and a decrease in inventories of $623,000, as well as increases
in accounts payable of $107,000 and interest due to related parties of
$478,000. The decrease in accounts receivable and inventories was primarily
due to management's focus on cash management during fiscal 1998.
Other current liabilities increased $17,000, or 1.8%, to $925,000 at
September 30, 1998 as compared to $908,000 at September 30, 1997. The
increase was primarily due to an increase of $127,000 in professional fees
attributable to estimated legal defense costs associated with product
liabilities, offset by a decrease of $54,000 for sales allowances and
incentives due to the Company's decreased sales in fiscal 1998 and a
decrease of $73,000 for various other current liabilities, primarily rents
and utilities.
The Company has a $3,500,000 revolving line of credit agreement with a
commercial finance company. This credit agreement is collateralized by all
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 and other conditions. Interest on amounts
outstanding is payable at 1 3/4% over the commercial base rate. The
commercial base rate was 8.5% at September 30, 1998. At September 30, 1998,
the Company did not have letters of credit or borrowings outstanding and
approximately $1,168,000 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 operated for
the benefit of the Company's principal shareholders. This line of credit,
with interest at 10%, requires monthly payments of interest only, and is
collateralized by all assets of the Company. In October 1998, the Company
renewed this line of credit with the realty trust under the same terms and
conditions and extended the maturity date to October 1, 1999. Therefore this
line of credit has been classified as long-term on the accompanying balance
sheet. The Company had $4,715,000 outstanding under this line of credit at
September 30, 1998 and 1997. Repayment of this line of credit is
subordinate to the repayment of any and all balances outstanding on the
revolving line of credit from the commercial finance company. At September
30, 1998, interest payments of $1,395,000 associated with this line were in
arrears for the period November 1, 1995 to September 30, 1998.
On November 24, 1998, the Company received a waiver for the covenant
violation as to the interest payments. The waiver extends the due date as
to the interest payments until September 30, 1999.
Sales terms for the Industrial Products segment are 30 days net. Following
industry trade practice, the Consumer Products segment offers extended
payment terms for delivery of seasonal product items such as the bugkillers,
electric leaf-eater, biomister, compost bin, yard carts and storage sheds,
resulting in fluctuating requirements for working capital.
In January 1991, the California Department of Health Services issued a
corrective action order (CAO) against the Company and a former subsidiary to
comply with a Cleanup and Abatement order which had been issued in 1990.
The CAO requires the Company and a former subsidiary to comply with a
cleanup and abatement order that 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 upon 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.
An action was filed in U.S. District Court, Central District of California
in late 1996 relating to the foreign arbitration award described below.
The Company was first joined as a party to such action by the first amended
petition filed on March 3, 1997. The second amended petition was filed on
June 27, 1997.
The action seeks confirmation and enforcement of a foreign arbitration award
in favor of Alsthom, currently and formerly Chantiers de L'Atlantique
("Alsthom"), and Assurances Generales de France ("AGF") (collectively
"Petitioners") against Respondents J.C. Carter Company, Inc. ("JCC III"),
the Company, Armatron-JCC, Inc., formerly known as J.C. Carter Company, Inc.
("JCC II"), a former subsidiary of the Company, and ITT Corporation and ITT
Industries, Inc. (collectively "ITT"). The arbitration related to certain
cryogenic cargo pumps supplied in the 1970's by the J.C. Carter Company
Division of ITT ("JCC I") to Alsthom, which installed the pumps in two
liquid natural gas tanker ships, the Mourad Didouche and the Ramdane Abane.
The arbitration award was entered in favor of Alsthom and AGF, an insurer
subrogated to the rights of Alsthom, and against "J.C. Carter Company" or
J.C. Carter Company, Inc." by the International Chamber of Commerce in Paris
in 1995. The amount of the award as to AGF is 62,431,000 French francs
("FF") and as to Alsthom is 5,469,000 FF (an aggregate of approximately $7
million U.S. dollars at Septemebr 30, 1998), both with interest from January
30, 1993 at the "French official rate."
Petitioners' operative pleading in the legal action, its Second Amended
Petition, seeks confirmation of the award against JCC III and, in addition,
seeks its confirmation and enforcement against the other Respondents,
including the Company, on the theories of fraudulent conveyance, collateral
estoppel and virtual representation, judicial estoppel and equitable
estoppel, and alter ego and/or successor liability relating to events
transpiring from 1983 through the completion of the foreign arbitration
proceeding in 1997. In 1983, the Company and ITT were parties to an asset
sale transaction involving the business and assets of JCC I. JCC II, a now
inactive California corporation, was formed at that time for purpose of
acquiring the assets and certain liabilities of JCC I and ceased transacting
business after the 1987 asset sale transaction with JCC III.
The Company answered the Second Amended Petition denying any liability,
asserting various affirmative defenses and cross-claims against ITT for
contractual indemnity and for equitable indemnity. ITT and JCC III have
cross-claimed against the Company.
At the present time the Company is unable to determine the outcome of the
claims asserted by and against the Company in the legal action because the
case is still at an early stage of discovery and because of the existence of
disputed issues of fact bearing on the outcome of those claims. However,
there can be no assurance that the outcome of the proceedings will not have
a material adverse effect on the financial condition of the Company.
In November 1998, the Company was advised that it had been named as a
defendant in a lawsuit brought by a consumer of one of the Company's
products. The consumer claims that the product caused personal injury and
other damages. The Company believes that it has valid defenses. The
Company has insurance coverage for such claims and has accrued its insurance
deductible amount in fiscal 1998 to cover the estimated defense costs
associated with this matter.
During the year ended September 30, 1998, the Company made cash investments
of $147,000 in capital expenditures primarily for tooling and dies used in
production of bugkillers ($21,000) and Echovision products ($53,000), computer
equipment ($42,000) and manufacturing equipment ($28,000). As of September
30, 1998, the Company has commitments of approximately $20,000 for future
capital expenditures.
The Company believes that its present working capital, credit arrangements
with a commercial finance company and related parties, and other sources of
financing will be sufficient to finance its seasonal borrowing needs,
operations and investment in capital expenditures in fiscal 1999. Other
sources of financing, provided by the Company's principal stockholders, are
available to finance any working capital deficiencies.
RESULTS OF OPERATIONS
Year ended September 30, 1998
- -----------------------------
The results of consolidated operations for the year ended September 30, 1998
resulted in a net loss of $499,000, or $.20 per share, as compared with a net
income of $286,000, or $.12 per share for fiscal 1997.
Sales decreased $429,000, or 3.2%, to $12,885,000 for the year ended
September 30, 1998, as compared to $13,314,000 for the corresponding period
in the previous year. The decrease in sales was primarily attributable to a
7.1% decrease in sales of Consumer Products offset by a 117% increase in
sales of Industrial Products.
Operating profit is the result of deducting operating expenses excluding
interest expense, general corporate expenses, and income taxes from total
revenue.
Sales and operating profit for the Consumer Products segment in the year
ended September 30, 1998 were approximately $11,983,000 and $731,000,
respectively, as compared to $12,898,000 and $52,000, respectively, in the
previous year. Sales decreased $915,000, or 7.1%, primarily due to a
decrease in sales of bugkillers and storage sheds. Product lines within the
Consumer Products segment are subject to seasonal fluctuations, with most
shipments occurring in the spring and summer seasons. The Company anticipates
that sales of the Consumer Product segment will continue at approximately the
same levels in fiscal 1999.
Sales and operating profit for the Industrial Products segment for the year
ended September 30, 1998 were $902,000 and $52,000, respectively, as
compared to sales of $416,000 and operating loss of $244,000, in the
previous year. The increase in net sales for the Industrial Products
segment of $486,000, or 117%, was primarily due to additional volume of
shipments of the Company's Echovision systems to an existing customer.
Selling, general and administrative expenses decreased $74,000, or 3.0%, to
$2,418,000 for the year ended September 30, 19987, as compared to $2,492,000
for the year ended September 30, 1997 due to lower sales and the Company's
cost containment efforts. Selling, general and administrative expenses, as a
percentage of sales, were 18.8% in fiscal 1998 as compared to 18.7% in fiscal
1997.
Additional tax benefits from losses on operations for the year ended September
30, 1998 were offset by changes to the related valuation allowance.
Year ended September 30, 1997
- -----------------------------
The results of consolidated operations for the year ended September 30, 1997
resulted in a net loss of $286,000, or $.12 per share, as compared to a net
loss of $495,000, or $.20 per share for fiscal 1996. Sales decreased
$436,000, or 3.2%, to $13,314,000 for the year ended September 30, 1997, as
compared to sales of $13,750,000 for the year ended September 30, 1996. The
decrease in sales was primarily due to a decrease in sales volume of the
Industrial Products segment.
Sales and operating profit for the Consumer Products segment for the year
ended September 30, 1997 were approximately $12,898,000, and $631,000,
respectively, as compared to sales of $12,910,000 and operating profit of
$750,000 for the year ended September 30, 1996. The decrease in operating
profit was primarily due to the underutilization of this segment's
facilities due to the decrease sales of bugkillers.
Sales for the Industrial Products segment during the year ended September
30, 1997 were $416,000 and its operating loss was $244,000 for the year
ended September 30, 1997, as compared to sales of $840,000 and operating
profit of $29,000 for the year ended September 30, 1996. The decrease in
sales was primarily due to a customer delaying shipments of the Company's
obstacle avoidance systems while the customer tested and evaluated the
Company's systems for a period of six months. This customer, a major
express courier and delivery service company, completed its testing in July
1997 and has determined that the Company's obstacle avoidance systems will
be placed on each of its newly acquired pick-up and delivery walk-in
vehicles as they are placed in service. The decrease in operating profit
was primarily due to the decreased sales and the underutilization of this
segment's facilities.
Selling, general and administrative expenses decreased $133,000, or 5.1%, to
$2,492,000 for the year ended September 30, 1997 as compared to $2,625,000
for the year ended September 30, 1996. As a percentage of sales, selling,
general and administrative expenses were 18.7% in fiscal 1997 as compared to
19.1% in fiscal 1996. This decrease was due to the Company's continuing
efforts to contain costs.
In fiscal 1989 the Company sold one of its wholly owned subsidiaries and
pursuant to the sales agreement, the Company would receive an additional
payment of $450,000 if this subsidiary was subsequently resold. In the
fourth quarter of fiscal 1997, the former subsidiary was resold and the
Company received $450,000 in cash and recognized this gain as an usual item.
Additional tax benefits from the losses on operations for the year ended
September 30, 1997 were offset by changes to the related valuation
allowance.
The Company believes inflation did not have a material effect on its results
of operations for fiscal 1998, 1997 or 1996.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company is not subject to market risk associated with risk sensitive
instruments as the Company does not transact its sales denominated in other
than United States dollars, does not invest in investments other than United
States instruments and has not entered into hedging transactions.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
The following financial statements and supplementary data of the Company
sets forth the information required by this item.
ARMATRON INTERNATIONAL, INC.
Consolidated Balance Sheets
September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $2,677,000 $1,126,000
Trade accounts receivable, (less allowance for doubtful
accounts of $65,000 in 1998 and $116,000 in 1997) 1,799,000 2,389,000
Inventories 2,088,000 2,711,000
Deferred taxes 37,000 113,000
Prepaid and other current assets 141,000 165,000
------------------------
Total Current Assets 6,742,000 6,504,000
Property and equipment, net 449,000 589,000
Other assets 139,000 171,000
------------------------
Total Assets $7,330,000 $7,264,000
========================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable $ 802,000 $ 695,000
Other current liabilities 925,000 908,000
Interest payable to related parties 1,395,000 917,000
Current portion under capital lease obligations 21,000 18,000
------------------------
Total Current Liabilities 3,143,000 2,538,000
------------------------
Long-term debt, related parties 4,715,000 4,715,000
------------------------
Long-term capital lease obligations, net of current portion 10,000 30,000
------------------------
Deferred rent, net of current portion 18,000 38,000
------------------------
Stockholders' Equity (Deficiency):
Common stock, par value $1 per share, 6,000,000 shares authorized;
2,606,481 shares issued at September 30, 1998 and 1997 2,606,000 2,606,000
Additional paid-in capital 6,770,000 6,770,000
Accumulated deficit (9,546,000) (9,047,000)
------------------------
(170,000) 329,000
Less: Treasury stock at cost - 146,732 at September 30, 1998 and 1997 386,000 386,000
------------------------
Total Stockholders' Equity (Deficiency) (556,000) (57,000)
------------------------
Total Liabilities and Stockholders' Equity (Deficiency) $7,330,000 $7,264,000
========================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
ARMATRON INTERNATIONAL, INC.
Statements of Consolidated Operations
for the years ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C>
Net sales $12,885,000 $13,314,000 $13,750,000
Cost of products sold 10,409,000 11,126,000 11,054,000
-----------------------------------------
Gross margin 2,477,000 2,188,000 2,696,000
Selling, general and administrative expenses 2,418,000 2,492,000 2,625,000
Provision for (recovery of) bad debts 36,000 (60,000) 62,000
-----------------------------------------
Operating profit (loss) 22,000 (244,000) 9,000
-----------------------------------------
Other income (expense):
Interest expense-third parties (30,000) (57,000) (49,000)
Interest expense-related parties (478,000) (478,000) (480,000)
Interest income 63,000 62,000 57,000
Unusual item - 450,000 -
Other income - net - (2,000) 3,000
-----------------------------------------
Other income (expense) - net (445,000) (25,000) (469,000)
-----------------------------------------
Loss before income taxes (423,000) (269,000) (460,000)
Provision for income taxes 76,000 17,000 35,000
-----------------------------------------
Net loss $ (423,000) $ (286,000) $ (495,000)
=========================================
Net loss per share of common stock $ (.20) $ (.12) $ (.20)
=========================================
Weighted average number of common
shares outstanding 2,459,749 2,459,749 2,459,749
=========================================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
ARMATRON INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
for the Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
--- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (499,000) $ (286,000) $ (495,000)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization 287,000 333,000 395,000
Amortization of deferred rent (20,000) (18,000) -
Deferred taxes 76,000 17,000 35,000
Provision (recovery) for bad debts 36,000 (60,000) 62,000
Loss on disposal of equipment - - 1,000
Unusual item - (450,000) -
Change in operating assets and liabilities:
Accounts receivable 554,000 (208,000) 6,000
Inventories 623,000 (362,000) (124,000)
Prepaid and other current assets 24,000 64,000 (26,000)
Other assets 32,000 (18,000) 9,000
Accounts payable 107,000 (476,000) 59,000
Interest due to related parties 478,000 478,000 439,000
Other current liabilities 17,000 42,000 141,000
Deferred rent - - 75,000
----------------------------------------
Net cash flow from (used for) operating activities 1,715,000 (944,000) 577,000
----------------------------------------
INVESTING ACTIVITIES
Proceeds from sales of equipment - 2,000 -
Payments for machinery and equipment (147,000) (222,000) (50,000)
Proceeds from sale of former subsidiary 450,000 -
----------------------------------------
Net cash flow from (used for) investing activities (147,000) 230,000 (50,000)
----------------------------------------
FINANCING ACTIVITIES
Payments on capital lease obligations (17,000) (9,000) -
----------------------------------------
Net cash flow from (used for) financing activities (17,000) (9,000) -
----------------------------------------
Net increase (decrease) in cash and cash equivalents 1,551,000 (723,000) 527,000
Cash and cash equivalents at beginning of year 1,126,000 1,849,000 1,332,000
----------------------------------------
Cash and cash equivalents at end of year $2,677,000 $1,126,000 $1,849,000
========================================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
ARMATRON INTERNATIONAL, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
For the Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Total
Common Stock Treasury Stock Stockholders'
---------------------- Paid-In Accumulated ---------------------- Equity
Shares Amount Capital Deficit Shares Amount (Deficiency)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Net Loss - - - (286,000) - - (286,000)
________________________________________________________________________________________________________________________
Balance, September 30, 1997 2,606,481 2,606,000 6,770,000 (9,047,000) (146,732) (386,000) (57,000)
Net Loss - - - (499,000) - - (499,000)
________________________________________________________________________________________________________________________
Balance, September 30, 1998 2,606,481 $2,606,000 $6,770,000 $(9,546,000) (146,732) $(386,000) $(556,000)
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
ARMATRON INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
1. NATURE OF BUSINESS
The Company operates principally in two segments, the Consumer Products
segment and the Industrial Products segment. There are no intercompany sales
between segments.
Operations in the Consumer Products segment involve the manufacture and
distribution of Flowtron leaf-eaters, bugkillers, yard carts, biomisters,
storage sheds, compost bins and doghouses which comprised 93% and 97% of the
Company's sales for the years ended September 30, 1998 and 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".
2. 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.
Certain reclassifications have been made to prior year amounts to conform to
current year presentations.
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 Company's Industrial products segment are 30 days net. A
provision is recorded for sales allowances and incentives related to volume
and program incentives offered to the Company's various customers.
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. 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 as incurred, prepaid tooling, until the tool or mold
is completed. Upon completion the costs are transferred to a
property/equipment account. Depreciation expense was $287,000, $325,000 and
$363,000 for fiscal 1998, 1997 and 1996, respectively. Maintenance and
repairs are charged to operations as incurred. Renewals and betterments
that 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 related to the Company's
operating facility over the term of the lease on a straight-line basis.
Advertising
The Company expenses advertising as incurred. Advertising expense was
$308,000, $213,000 and $322,000 for fiscal 1998, 1997 and 1996,
respectively.
Income Taxes
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.
3. NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosure about Segments of an Enterprise and
Related Information." These pronouncements are effective for fiscal years
beginning after December 15, 1997. The Company does not believe that these
new pronouncements will have a material effect on its financial statements.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." The Company does not believe that
this pronouncement will have a material impact on its business or results of
operations.
4. YEAR 2000 DATE CONVERSION
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, forecast production needs and the timing of raw material
purchases, send invoices, or engage in similar normal activities.
The Company has completed the analysis and evaluation phase of its Year 2000
project and has determined that it will be required to modify or replace
significant portions of its hardware and software so that its computer
systems will properly recognize dates beyond December 31, 1999. The Company
has also begun the process of upgrading and modernizing its major
information systems, including its operating and financial systems. The
replacement systems will be Year 2000 compliant. The Company expects to
begin using its new systems during the second quarter of fiscal 1999. The
Company will utilize both internal and external resources to reprogram or
replace, and test the software for Year 2000 modifications. The Company
plans to complete its Year 2000 project no later than July 31, 1999. The
total cost of upgrading the Company's major operating and financial systems,
including the Year 2000 project, for Fiscal years 1998 through 2000 is
estimated at $100,000 and is being funded through operating cash flows
and leasing arrangements. Of the total project cost, approximately $80,000
has been expended is attributable to the purchase of new software and
hardware. The remaining $20,000 will be expensed as incurred.
There can be no assurance the systems of other companies on which the
Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have material adverse effect on the Company. The
Company has been in communication with its major vendors to ensure
compatibility of systems. If such systems do not function properly the
Company could experience delays in receipt of its raw materials which would
result in delays in scheduled deliveries of shipments by the Company.
The Company expects to begin developing contingency plans to determine what
actions the Company will take if its trading partners are not Year 2000
compliant. The Company expects the contingency plan to be completed by the
end of the third quarter of fiscal 1999.
The costs of the project and the date on which the Company plans to complete
the Year 2000 modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans
and other factors. However, there can be no assurance that these estimates
will be achieved and actual results could differ materially from those
plans. Specific factors that might cause such material differences include,
but are not limited to, the availability and cost of personnel trained in
this area, the ability to locate and correct all relevant computer codes,
and similar uncertainties.
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 year ended September 30, 1998, Sears, Roebuck and Co. and Home Depot,
Inc. accounted for approximately 29% and 11% of the Company's net sales,
respectively. At September 30, 1998, Sears, Roebuck and Co. and Home Depot,
Inc. accounted for approximately 44% and 2%, respectively, 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%, respectively, of the
Company's net sales. At September 30, 1997, Sears, Roebuck and Co. and Home
Depot, Inc. accounted for approximately 53% and 4%, respectively, of the
Company's trade accounts receivable balance.
For the year ended September 30, 1996, Sears, Roebuck and Co., accounted for
approximately 18% of the Company's net sales. As of September 30, 1996,
this customer accounted for approximately 33% of the Company's trade
accounts receivable balance.
The Company's export sales are not significant.
6. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's cash payments for interest and income taxes and the Company's
non-cash investing and financing activities for the years ended September
30, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest paid - related parties $ - $ - $49,000
Interest paid - third parties $30,000 $57,000 $41,000
Income taxes paid $ - $ - $ -
Non-cash investing and financing activities:
Capital expenditures financed by capital lease $ - $57,000 $ -
</TABLE>
7. MAJOR SUPPLIERS
The Company had purchased its plastic storage sheds, yard carts and compost
bins from one supplier. In July 1998, the Company transferred its
production molds for yard carts to a new supplier. In November 1998, the
Company transferred its production mold for compost bins and storage sheds
to the same new supplier. The new supplier has begun production runs for the
yard carts, storage sheds and compost bins and has not experienced any
significant difficulties in meeting scheduled deliveries. The suppliers
manufacture 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 products to the
Company's customers and a possible loss of revenue, which would adversely
affect the Company's results of operations.
8. INVENTORIES
Inventories consisted of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw Material, primarily purchased components $1,338,000 $1,680,000
Work in Process 29,000 21,000
Finished Goods 721,000 1,010,000
------------------------
$2,088,000 $2,711,000
========================
</TABLE>
9. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Leasehold improvements $ 141,000 $ 149,000
Furniture and fixtures 221,000 396,000
Machinery and equipment 1,752,000 1,828,000
Capitalized tooling cost 3,974,000 3,980,000
------------------------
6,088,000 6,353,000
Less accumulated depreciation and amortization 5,639,000 5,764,000
------------------------
$ 449,000 $ 589,000
========================
</TABLE>
10. OTHER ASSETS
Other assets consisted of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Other receivable, net of current portion $ 33,000 $ 64,000
Note receivable - employee, due under terms of an
annual renewal note, interest payable monthly at
an annual rate of 6%, secured by a second mortgage 100,000 100,000
Other 6,000 7,000
--------------------
$139,000 $171,000
====================
</TABLE>
11. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Retirement plan $313,000 $331,000
Salaries, commissions and benefits 62,000 68,000
Sales allowances and incentives 109,000 163,000
Professional fees 205,000 78,000
Warranty costs 57,000 37,000
Advertising costs 103,000 82,000
Other 76,000 149,000
---------------------
$925,000 $908,000
=====================
</TABLE>
12. DEBT
Long-term debt
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, and is
collateralized by all assets of the Company. In October 1998, the Company
renewed this line of credit with the realty trust operated for the benefit
of the Company's principal shareholders under the same terms and conditions
and extended the maturity date to October 1, 1999. Therefore this line of
credit has been classified as long-term on the accompanying balance sheet.
The Company had $4,715,000 outstanding under this line of credit at
September 30, 1998 and 1997. Repayment of this line of credit is
subordinate to the repayment of any and all balances outstanding on the
revolving line of credit from a commercial finance company which is further
described below. Related interest expense incurred in the years ended
September 30, 1998, 1997 and 1996 was $478,000, $478,000 and $480,000,
respectively. At September 30, 1998, interest payments of $1,395,000
associated with this line were in arrears for the period November 1, 1995 to
September 30, 1998. On November 24, 1998, the Company received a waiver for
the covenant violation as to the interest payments. The waiver extends the
due date as to the interest payments until September 30, 1999.
Note Payable
The Company has a revolving line of credit agreement with a commercial
finance company, Congress Financial Corporation, which permits combined
borrowings up to $3,500,000 in cash and letters of credit. This credit
agreement is collateralized by all 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 an annual rate of 1
3/4% over the commercial base rate. The commercial base rate was 8.5% at
September 30, 1998. At September 30, 1998, the Company did not have letters
of credit or borrowings outstanding and approximately $1,168,000 was
available, pursuant to the borrowing formula, under this credit agreement.
A summary of borrowings on commercial finance company and bank revolving
credit agreements and unused lines of credit for the years ended September
30, 1998, 1997, and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Average borrowings during the year - $ 96,000 $ 313,638
Average interest rate during the year - 10.25% 10.67%
Maximum borrowings during the year - $ 912,000 $1,365,000
Unused line of credit at September 30 $3,500,000 $3,283,000 $3,169,000
</TABLE>
13. 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, 1998,
1997 and 1996 is summarized below:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------
Shares Price Range
-----------------------
<S> <C> <C>
September 30, 1995 20,000 $1.75 - $2.50
Granted - -
Exercised - -
Canceled - -
September 30, 1996 20,000 $1.75 - $2.50
-----------------------
Granted - -
Exercised - -
Canceled - -
September 30, 1997 20,000 $1.75 - $2.50
-----------------------
Granted - -
Exercised - -
Canceled (5,000) $1.75
-----------------------
September 30, 1998 15,000 $2.38 - $2.50
=======================
</TABLE>
At September 30, 1998 and 1997, options for 15,000 and 20,000 shares,
respectively, were exercisable and these options expire in fiscal 1999. The
average exercise price of outstanding options is $2.44.
14. INCOME TAXES
The provision for income taxes for the years ended September 30, 1998, 1997,
and 1996 consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current Tax Provision
Federal $ - $ - $ -
State - - -
--------------------------------
Total Current Provision - - -
--------------------------------
Deferred Tax (Benefit)/Expense
Federal (20,000) 201,000 (160,000)
State (6,000) 137,000 (39,000)
--------------------------------
Total Deferred (Benefit)/Expense (26,000) 338,000 (199,000)
Change in Valuation Allowance 102,000 (321,000) 234,000
--------------------------------
Income Taxes (Benefit)/Expense $ 76,000 $ 17,000 $ 35,000
================================
</TABLE>
The significant items comprising the deferred tax assets and liabilities are
as follows at September 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred Tax Assets:
Doubtful receivables $ 29,000 $ 51,000
Inventory obsolescence and shrinkage 246,000 235,000
Sales allowances 80,000 46,000
Warranties 25,000 17,000
Non-qualified executive retirement plan 139,000 147,000
Tax loss carryforwards 6,609,000 6,620,000
Tax credit carryforwards 268,000 268,000
------------------------
Subtotal 7,396,000 7,384,000
Deferred Tax Liabilities:
Excess of tax over book depreciation (73,000) (87,000)
------------------------
Net Deferred Taxes 7,323,000 7,297,000
Less valuation allowance (7,286,000) (7,184,000)
------------------------
Net Deferred Tax Assets $ 37,000 $ 113,000
========================
</TABLE>
A reconciliation of the Federal tax rate to the Company's effective tax rate
for fiscal 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
% of Pretax Income
--------------------------
1998 l997 1996
--------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate on loss before taxes 35.0% 35.0% 35.0%
Reduction and adjustments of the valuation allowance (17.0) (28.6) (27.4)
-------------------------
Effective income tax rate 18.0% 6.4% 7.6%
=========================
</TABLE>
Changes in the valuation allowance are due to expiration of net operating
loss carryforwards, tax credit carryovers and the estimated future
realization of their tax benefits. The reduction of these tax benefits is
reflected in these financial statements as an income tax expense.
For income tax purposes the Company has unused Federal operating loss
carryforwards of $16,516,000 expiring through 2013 and State operating loss
carryforwards of $12,407,000 expiring through 2003.
In addition to the loss carryforwards the Company has research and
development and investment tax credit carryovers of $54,000 and $214,000,
respectively, through 2001 which are available to reduce future tax
liabilities.
The realization of the net deferred tax assets of $37,000 is dependent on
the Company's ability to generate sufficient taxable income in the future.
The Company's expectations about realization of deferred tax assets could
change if near-term estimates of future taxable income during this
carryforward period are reduced.
15. BENEFIT PLANS
The Company has a 401(k) Savings Plan whereby employees may voluntarily
defer a portion of their compensation and the Company may elect to match a
portion of the employee deferral. All employees with at least one year of
continuous service are eligible for the savings plan. Company contributions
vest 100% after five years. The Company has made no contributions to this
savings plan in any of the three years in the period ended September 30,
1998.
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, 1998, the unfunded benefit
obligation of this retirement plan was approximately $313,000. The Company
has made no contributions to this retirement plan in any of the three years
in the period ended September 30, 1998.
16. COMMITMENTS AND CONTINGENCIES
The Company was obligated at September 30, 1998 under certain operating
leases for various types of equipment and the Company's operating facility.
Rental expense for fiscal 1998, 1997 and 1996 was $406,000, $366,000 and
$420,000, respectively. The future minimum lease commitments total $740,000
as follows: $350,000 in fiscal 1999, $343,000 in fiscal 2000, $25,000 in
fiscal 2001, $14,000 in fiscal 2002 and $8,000 in fiscal 2003. The lease for
the operating facility expires in September 2000.
Commitments for the purchase of capital expenditures at September 30, 1998
totaled $20,000.
In January 1991, the California Department of Health Services 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 that 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.
An action was filed in U.S. District Court, Central District of California
in late 1996 relating to the foreign arbitration award described below. The
Company was first joined as a party to such action by the first amended
petition filed on March 3, 1997. The second amended petition was filed on
June 27, 1997.
The action seeks confirmation and enforcement of a foreign arbitration award
in favor of Alsthom, currently and formerly Chantiers de L'Atlantique
("Alsthom"), and Assurances Generales de France ("AGF") (collectively
"Petitioners") against Respondents J.C. Carter Company, Inc. ("JCC III"),
the Company, Armatron-JCC, Inc., formerly known as J.C. Carter Company, Inc.
("JCC II"), a former subsidiary of the Company, and ITT Corporation and ITT
Industries, Inc. (collectively "ITT"). The arbitration related to certain
cryogenic cargo pumps supplied in the 1970's by the J.C. Carter Company
Division of ITT ("JCC I") to Alsthom, which installed the pumps in two
liquid natural gas tanker ships, the Mourad Didouche and the Ramdane Abane.
The arbitration award was entered in favor of Alsthom and AGF, an insurer
subrogated to the rights of Alsthom, and against "J.C. Carter Company" or
J.C. Carter Company, Inc." by the International Chamber of Commerce in Paris
in 1995. The amount of the award as to AGF is 62,431,000 French francs
("FF") and as to Alsthom is 5,469,000 FF (an aggregate of approximately $7
million U.S. dollars at September 30, 1998), both with interest from January
30, 1993 at the "French official rate."
Petitioners' operative pleading in the legal action, its Second Amended
Petition, seeks confirmation of the award against JCC III and, in addition,
seeks its confirmation and enforcement against the other Respondents,
including the Company, on the theories of fraudulent conveyance, collateral
estoppel and virtual representation, judicial estoppel and equitable
estoppel, and alter ego and/or successor liability relating to events
transpiring from 1983 through the completion of the foreign arbitration
proceeding in 1997. In 1983, the Company and ITT were parties to an asset
sale transaction involving the business and assets of JCC I. JCC II, a now
inactive California corporation, was formed at that time for purpose of
acquiring the assets and certain liabilities of JCC I and ceased transacting
business after the 1987 asset sale transaction with JCC III.
The Company answered the Second Amended Petition denying any liability,
asserting various affirmative defenses and cross-claims against ITT for
contractual indemnity and for equitable indemnity. ITT and JCC III have
cross-claimed against the Company.
At the present time the Company is unable to determine the outcome of the
claims asserted by and against the Company in the legal action because the
case is still at an early stage of discovery and because of the existence of
disputed issues of fact bearing on the outcome of those claims. However,
there can be no assurance that the outcome of the proceedings will not have
a material adverse effect on the financial condition of the Company.
In November 1998, the Company was advised that it had been named as a
defendant in a lawsuit brought by a consumer of one of the Company's
products. The consumer claims that the product caused personal injury and
other damages. The Company believes that it has valid defenses. The
Company has insurance coverage for such claims and has accrued its insurance
deductible amount in fiscal 1998 to cover the estimated defense costs
associated with this matter.
17. CAPITAL LEASE
In February 1997, the Company financed approximately $57,000 of leasehold
improvements under a 3 year lease financing agreement with a finance
company. This lease arrangement has been accounted for as a financing
transaction. The subject leasehold improvements are recorded as an asset
for financial statement purposes and are being depreciated accordingly.
The future minimum lease payments under this capital lease are as follows:
<TABLE>
<S> <C>
Fiscal 1999 $24,000
Fiscal 2000 $10,000
-------
$34,000
Imputed interest $(3,000)
-------
$31,000
=======
</TABLE>
18. RELATED PARTY TRANSACTIONS
The Company paid approximately $60,000 for legal services in each of the years
ended September 30, 1998, 1997 and 1996 to a law firm to which a Director of
the Company is a member.
As further described in footnote 12, the Company has a $7,000,000 line of
credit arrangement from a realty trust operated for the benefit of the
Company's principal shareholders.
19. BUSINESS SEGMENT INFORMATION
The Company operates principally in two segments, the Consumer Products
segment and the Industrial Products segment. There are no intercompany sales
between segments. Operations in the Consumer Products segment involve the
manufacture and distribution of Flowtron leaf-eaters, bugkillers, yard
carts, biomisters, storage sheds, compost bins and doghouses which comprised
93%, 97% and 94% of the Company's sales for the years ended September 30,
1998, 1997 and 1996, 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." Production of these systems
began in fiscal 1996.
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,
deferred taxes and other assets.
<TABLE>
<CAPTION>
For the Years Ended September 30,
-----------------------------------------
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Consumer Products $11,983,000 $12,898,000 $12,910,000
Industrial Products 902,000 416,000 840,000
-----------------------------------------
Total net sales $12,885,000 $13,314,000 $13,750,000
=========================================
Operating profit (loss)
Consumer Products $ 731,000 $ 631,000 $ 750,000
Industrial Products 52,000 (244,000) 29,000
-----------------------------------------
783,000 387 ,000 779,000
General corporate expenses (761,000) (631,000) (770,000)
-----------------------------------------
Consolidated operating profit (loss) 22,000 (244,000) 9,000
Interest expense (508,000) (535,000) (529,000)
Interest income 63,000 62,000 57,000
Unusual item - 450,000 -
Other income (expense) - (2,000) 3,000
-----------------------------------------
Loss before income taxes $ (423,000) $ (269,000) $ (460,000)
=========================================
Identifiable assets:
Consumer Products $ 4,111,000 $ 5,524,000 $ 5,012,000
Industrial Products 366,000 330,000 282,000
Corporate 2,853,000 1,410,000 2,181,000
-----------------------------------------
Total assets $ 7,330,000 $ 7,264,000 $ 7,475,000
=========================================
Depreciation:
Consumer Products $ 274,000 $ 301,000 $ 359,000
Industrial Products 13,000 5,000 4,000
Corporate - - - -
-----------------------------------------
Total depreciation and amortization $ 287,000 $ 306,000 $ 363,000
=========================================
Capital expenditures:
Consumer Products $ 96,000 $ 277,000 $ 40,000
Industrial Products 51,000 2,000 10,000
-----------------------------------------
Total capital expenditures $ 147,000 $ 279,000 $ 50,000
=========================================
</TABLE>
20. UNUSUAL ITEM
In fiscal 1989 the Company sold one of its wholly owned subsidiaries and
pursuant to the sales agreement, the Company would receive an additional
payment of $450,000 if this subsidiary was subsequently resold. In the
fourth quarter of fiscal 1997 the former subsidiary was resold and the
Company received $450,000 in cash and has recognized this gain as an unusual
item in the accompanying Statement of Operations for the year ended
September 30, 1997.
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 incorporated herein by reference to
the definitive proxy statement pursuant to Regulation 14A to be filed with
the Securities and Exchange Commission not later than 120 days from the
close of the Company's fiscal year ended September 30, 1998.
Item 11. Executive Compensation
- -------------------------------
The information required by this item is incorporated herein by reference to
the definitive proxy statement pursuant to Regulation 14A to be filed with
the Securities and Exchange Commission not later than 120 days from the
close of the Company's fiscal year ended September 30, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by this item is incorporated herein by reference to
the definitive proxy statement pursuant to Regulation 14A to be filed with
the Securities and Exchange Commission not later than 120 days from the
close of the Company's fiscal year ended September 30, 1998.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
The information required by this item is incorporated herein by reference to
the definitive proxy statement pursuant to Regulation 14A to be filed with
the Securities and Exchange Commission not later than 120 days from the
close of the Company's fiscal year ended September 30, 1998.
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
NUMBER DESCRIPTION
- --------------------------------------------------
<S> <C>
Reports of Independent Accountants
VIII Valuation & Qualifying Accounts
</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>
EXHIBIT INCORPORATED BY
NUMBER DESCRIPTION REFERENCE TO
- ---------------------------------------------------------------------------------------
<S> <C> <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 *****
10.10 $7,000,000 Line of Credit with Related Parties **
21.0 List of Subsidiaries
23.0 Consent of Independent Accountants
27.0 Financial Statement Schedule
- --------------------
<F*> Filed as an Exhibit to the Company's Annual Report on Form 10K for
the fiscal year ended September 30, 1994.
<F**> Filed as an Exhibit to the Company's Form 10-Q for the quarter
ended March 31, 1990.
<F***> Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1990.
<F****> Filed as an Exhibit to the Company's annual report on Form 10-K for
the fiscal year ended September 30, 1993.
<F*****> Filed as an Exhibit to the Company's annual report on Form 10K for
the fiscal year ended September 30, 1995.
<F+> Indicates a management compensation plan.
</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, 1998.
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders
of Armatron International, Inc. and Subsidiary:
Our report on the consolidated financial statements of Armatron
International, Inc. and subsidiary has been included in this Annual Report
on Form 10-K. In connection with our audits of such financial statements,
we have also audited the related financial statement schedules listed in the
index on page 34 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 R. J. GOLD & COMPANY P.C.
November 30, 1998
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, 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
=================================================
Year Ended September 30, 1997:
- ------------------------------
Allowance for doubtful accounts $176,000 $ - $ 60,000 $116,000
Sales allowances and incentives - 163,000 - 163,000
Warranty costs 40,000 64,000 67,000 37,000
-------------------------------------------------
$216,000 $227,000 $127,000 $316,000
=================================================
Year Ended September 30, 1998:
- ------------------------------
Allowance for doubtful accounts $116,000 $ 36,000 $ 87,000 $ 65,000
Sales allowances and incentives 163,000 220,000 274,000 109,000
Warranty costs 37,000 52,000 32,000 57,000
-------------------------------------------------
$316,000 $308,000 $393,000 $231,000
=================================================
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ARMATRON INTERNATIONAL, INC.
December 29, 1998 By: /s/ Charles J. Housman
----------------------
Charles J. Housman
Chairman of the Board,
President and Director
Chief Executive, Financial
and Accounting Officer
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 29, 1998, 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
Chief Executive, Financial
and Accounting Officer
By: /s/ Malcolm D. Finks
--------------------
Malcolm D. Finks
Director
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY
NUMBER DESCRIPTION REFERENCE TO
- -----------------------------------------------------------------------------------------------
<S> <C> <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 *****
10.10 $7,000,000 Line of Credit with Related Parties **
21.0 List of Subsidiaries
23.0 Consent of Independent Accountants
27.0 Financial Statement Schedule
- --------------------
<F*> Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994.
<F**> Filed as an Exhibit to the Company's Form 10-Q for the quarter
ended March 31, 1990.
<F***> Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1990.
<F****> Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993.
<F*****> Filed as an Exhibit to the Company's annual report on Form 10-K
for the fiscal year ended September 30, 1995.
<F+> Indicates a management compensation plan.
</TABLE>
EXHIBIT 21.0
LIST OF SUBSIDIARIES
Automatic Radio International Corp.
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 November 30, 1998 on our audit of
the consolidated financial statements and financial statement schedules of
Armatron International, Inc. as of September 30, 1998 and 1997, and for the
years ended September 30, 1998, 1997 and 1996 which report is included in this
Annual Report on Form 10-K.
Needham, Massachusetts R. J. GOLD & COMPANY P.C.
November 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,677
<SECURITIES> 0
<RECEIVABLES> 1,864
<ALLOWANCES> 65
<INVENTORY> 2,088
<CURRENT-ASSETS> 6,742
<PP&E> 6,088
<DEPRECIATION> 5,639
<TOTAL-ASSETS> 7,330
<CURRENT-LIABILITIES> 3,143
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> (3,162)
<TOTAL-LIABILITY-AND-EQUITY> 7,330
<SALES> 12,885
<TOTAL-REVENUES> 12,885
<CGS> 10,409
<TOTAL-COSTS> 2,454
<OTHER-EXPENSES> (63)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 508
<INCOME-PRETAX> (423)
<INCOME-TAX> 76
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (499)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
