1995
Annual Report
ARMATRON INTERNATIONAL INC.
ARMATRON INTERNATIONAL, INC. AND SUBSIDIARY
- -------------------------------------------
FINANCIAL HIGHLIGHTS
Years Ended September 30,
1995 1994 1993
- ---------------------------------------------------------------------------------------
Net Sales $ 12,017,000 $ 13,286,000 $ 16,174,000
- ---------------------------------------------------------------------------------------
Operating Loss $ (1,159,000) $ (934,000) $ (1,106,000)
- ---------------------------------------------------------------------------------------
Net Loss $ (1,557,000) $ (1,212,000) $ (1,548,000)
- ---------------------------------------------------------------------------------------
Stockholders' Equity $ 724,000 $ 2,281,000 $ 3,493,000
- ---------------------------------------------------------------------------------------
Stockholders' Equity Per Common Share $ .29 $ .93 $ 1.42
- ---------------------------------------------------------------------------------------
Weighted Average Number of Common
Shares Outstanding 2,459,749 2,459,754 2,459,754
- ---------------------------------------------------------------------------------------
Loss Per Share of Common Stock:
Net Loss $ (.63) $ (.49) $ (.63)
============================================
- ---------------------------------------------------------------------------------------
TO OUR STOCKHOLDERS
Sales in the lawn and garden market decreased during the 1995 fiscal
year. Sales were down 9.6%, $12,017,000 compared to $13,286,000 in the
1994 fiscal year, and the consolidated loss increased to $1,557,000
compared to $1,212,000 for the prior fiscal year.
A significant contributing cause of lower sales was precipitated by
tooling delays for the lawn and garden storage shed resulting in an
inability to capture the major portion of the selling season. Our first
shipment occurred in August and the acceptance in the market place has
been strong. We anticipate the new shed will make a major contribution to
the 1996 fiscal year. We will introduce additional lawn and garden
products during this year which augurs well for the current period.
Production of the ECHOVISION automotive obstacle detection system will
commence in January of 1996. The expanded and continued testing by various
customers has resulted in the acceptance of the program by a major
national company which will be integrated into a significant portion of
their fleet of trucks. The product is in various stages of testing with
other major fleet users and based on the results, as reported by
customers, it appears that this product has a significant future. We are
confident as we enter into the production and sales stage and wind down
the development except for an on-going continuing program for improvements
and for special use customers. Certain proprietary rights integrated into
this product line could enable Armatron to capture a major share of the
market for this new technology.
Experiencing another loss year has caused our Company to fall below
certain eligibility requirements for listing on the American Stock
Exchange; therefore, we will not renew our membership. We expect the stock
will continue to be publicly traded.
Your Management is disappointed with the results of the year but is
encouraged and confident in the potential growth for the future of our
Company.
/s/ CHARLES J. HOUSMAN
Charles J. Housman
President & Chairman of the Board
ARMATRON INTERNATIONAL, INC. AND SUBSIDIARY
- --------------------------------------------
ASSETS (Note 6)
September 30,
1995 1994
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 1,322,000 $ 3,006,000
Trade accounts receivable (less allowance for doubtful
accounts of $179,000 in 1995 and $100,000 in 1994) 2,189,000 2,414,000
Current portion of other receivable 32,000 14,000
Inventories (Note 2) 2,225,000 2,937,000
Deferred tax asset (Note 8) 165,000 165,000
Prepaid and other current assets 122,000 266,000
--------------------------
Total Current Assets 6,055,000 8,802,000
PROPERTY AND EQUIPMENT, net (Note 3) 952,000 599,000
OTHER ASSETS (Note 4) 249,000 198,000
--------------------------
$ 7,256,000 $ 9,599,000
==========================
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30,
1995 1994
CURRENT LIABILITIES:
Current portion of long-term debt $ -- $ 1,000
Accounts payable 1,112,000 1,387,000
Accrued liabilities (Note 5) 705,000 790,000
--------------------------
Total Current Liabilities 1,817,000 2,178,000
--------------------------
LONG-TERM DEBT including $4,715,000 due to related
parties in 1995 and $5,140,000 in 1994 (Note 6) 4,715,000 5,140,000
--------------------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 7):
Common stock, par value $1 per share; authorized
6,000,000 shares; issued 2,606,481 shares in
1995 and 1994 2,606,000 2,606,000
Additional paid-in capital 6,770,000 6,770,000
Accumulated deficit (8,266,000) (6,709,000)
--------------------------
1,110,000 2,667,000
Less:
Treasury stock at cost--146,732 shares in 1995
and 146,727 in 1994 386,000 386,000
--------------------------
Total Stockholders' Equity 724,000 2,281,000
--------------------------
$ 7,256,000 $ 9,599,000
==========================
The accompanying notes are an integral part of the consolidated financial
statements.
ARMATRON INTERNATIONAL, INC. AND SUBSIDIARY
- --------------------------------------------
STATEMENTS OF CONSOLIDATED OPERATIONS
For the Years Ended September 30, 1995, 1994 and 1993
1995 1994 1993
Net Sales $ 12,017,000 $ 13,286,000 $ 16,174,000
Cost of products sold 10,570,000 11,253,000 13,428,000
-----------------------------------------------
Gross margin 1,447,000 2,033,000 2,746,000
Selling, general and administrative expenses 2,541,000 3,113,000 3,836,000
Provision for (recovery of) bad debts 65,000 (146,000) 16,000
-----------------------------------------------
Operating Loss (1,159,000) (934,000) (1,106,000)
-----------------------------------------------
Other Income (Expense):
Interest expense--third parties (41,000) (6,000) (7,000)
Interest expense--related party (488,000) (494,000) (548,000)
Other income--net 131,000 57,000 113,000
-----------------------------------------------
Other income (expense)--net (398,000) (443,000) (442,000)
-----------------------------------------------
Loss before income taxes (1,557,000) (1,377,000) (1,548,000)
Income tax benefit (Note 8) -- (165,000) --
Net Loss $ (1,557,000) $ (1,212,000) $ (1,548,000)
===============================================
Net Loss per Share of Common Stock $ (.63) $ (.49) $ (.63)
===============================================
Weighted Average Number of Common Shares
Outstanding 2,459,749 2,459,754 2,459,754
===============================================
The accompanying notes are an integral part of the consolidated financial
statements.
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Years Ended September 30, 1995, 1994 and 1993
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,557,000) $ (1,212,000) $ (1,548,000)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 453,000 616,000 744,000
Deferred tax benefit -- (165,000) --
Provision (recovery) for bad debts 65,000 (146,000) 16,000
Loss on disposal of equipment -- 35,000 --
(Increase) decrease in:
Accounts receivable 160,000 (42,000) 540,000
Inventories 712,000 315,000 2,255,000
Prepaid and other current assets 144,000 (124,000) 32,000
Other assets (32,000) (105,000) --
Increase (decrease) in:
Accounts payable (275,000) 576,000 (124,000)
Other current liabilities (85,000) (37,000) (287,000)
--------------------------------------------
Net Cash Flow from (used for) Operating Activities (415,000) (289,000) 1,628,000
--------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchases of equipment and patents (780,000) (146,000) (348,000)
--------------------------------------------
Net Cash Flow used for Investing Activities (780,000) (146,000) (348,000)
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt--related party -- -- 250,000
Payments on long-term debt--third parties (1,000) (16,000) (13,000)
Payments on long-term debt--related party (425,000) (110,000) (1,000,000)
Loan origination costs (63,000) -- --
--------------------------------------------
Net Cash Flow used for Financing Activities (489,000) (126,000) (763,000)
--------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,684,000) (561,000) 517,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,006,000 3,567,000 3,050,000
--------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,322,000 $ 3,006,000 $ 3,567,000
============================================
SUPPLEMENTAL INFORMATION:
Interest paid--third parties $ 41,000 $ 6,000 $ 8,000
Interest paid--related party $ 528,000 $ 454,000 $ 548,000
Income taxes paid $ -- $ -- $ --
The accompanying notes are an integral part of the consolidated financial
statements.
ARMATRON INTERNATIONAL, INC. AND SUBSIDIARY
- --------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the Years Ended September 30, 1995, 1994 and 1993
Common Treasury
Stock Stock Total
--------------------- Paid-In Accumulated --------------------- Stockholders'
Shares Amount Capital Deficit Shares Amount Equity
------ ------ ------- ----------- ------ ------ -------------
Balance,
September 30, 1992 2,606,481 $2,606,000 $6,770,000 $(3,949,000) (146,727) $(386,000) $ 5,041,000
Net loss -- -- -- (1,548,000) -- -- (1,548,000)
- ------------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1993 2,606,481 2,606,000 6,770,000 (5,497,000) (146,727) (386,000) 3,493,000
Net loss -- -- -- (1,212,000) -- -- (1,212,000)
- ------------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1994 2,606,481 2,606,000 6,770,000 (6,709,000) (146,727) (386,000) 2,281,000
Increase in treasury stock -- -- -- -- (5) -- --
Net loss -- -- -- (1,557,000) -- -- (1,557,000)
- ------------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1995 2,606,481 $2,606,000 $6,770,000 $(8,266,000) (146,732) $(386,000) $ 724,000
========================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
Armatron International, Inc. and its wholly owned subsidiary. All
intercompany balances and transactions have been eliminated in
consolidation.
Revenue Recognition
Revenue from product sales is recognized at the time the products
are shipped. Following industry trade practice, the Company offers
extended payment terms for delivery of seasonal items.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with
an original maturity of less than three months to be cash
equivalents. The Company invests excess funds in short-term,
interest-bearing obligations, including reverse repurchase
agreements and commercial paper. On September 30, 1994, the Company
purchased $475,000 of U.S. Government securities under agreements to
resell on October 3, 1994. At September 30, 1994, the Company held
$2,500,000 in commercial paper which matured in October 1994. Due to
the short-term nature of these investments, the Company did not take
possession of the securities, which were instead held in the
Company's safekeeping account at a bank.
The Company has no requirements for compensating balances. The
Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits and in deposit accounts at its
commercial finance company. The Company has not experienced any
losses in such accounts. The Company believes it is not exposed to
any significant credit risk on cash and cash equivalents.
Inventories
Inventories are stated on a first-in, first-out (FIFO) basis at the
lower of cost or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
based upon the estimated useful lives of the various assets using
the straight-line method with annual rates of depreciation of 10 to
33-1/3%. Capitalized tooling costs are amortized over three years.
Depreciation expense was $426,000, $616,000 and $744,000 for fiscal
1995, 1994 and 1993, respectively. Tooling and molding costs are
charged to a deferred cost account as incurred, prepaid tooling,
until the tool or mold is completed. Upon completion the costs are
transferred to a property/equipment account.
Maintenance and repairs are charged to operations as incurred.
Renewals and betterments which materially extend the life of assets
are capitalized and depreciated. Upon disposal, the asset cost and
related accumulated depreciation are removed from their respective
accounts. Any resulting gain or loss is reflected in earnings.
Advertising
The Company expenses advertising as incurred. Advertising expense
was $295,000, $248,000 and $354,000 for fiscal 1995, 1994 and 1993,
respectively.
Income Taxes
Effective October 1, 1993 the Company adopted Financial Accounting
Standard No. 109 (SFAS No. 109) "Accounting for Income Tax". SFAS
No. 109 changes the Company's method of accounting for income taxes
from the income statement approach, recognized by Accounting
Principles Board No. 11 to an asset and liability approach. As
permitted by SFAS No. 9 the Company opted not to restate the
financial statements for prior periods.
Deferred income taxes are provided for temporary differences between
financial statement and income tax reporting principally from the
carryforward of unused net operating losses, tax credits, and
alternative minimum taxes.
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.
Changes in Presentation
Certain reclassifications have been made to prior year amounts to
conform with the 1995 presentation with no effect on net income.
2. INVENTORIES
Inventories consist of the following at September 30:
1995 1994
Raw Materials $ 1,606,000 $ 1,959,000
Work in Process 84,000 160,000
Finished Goods 535,000 818,000
--------------------------
$ 2,225,000 $ 2,937,000
==========================
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30:
1995 1994
Land and buildings $ 80,000 $ 80,000
Furniture and fixtures 391,000 391,000
Machinery and equipment 1,902,000 2,404,000
Capitalized tooling costs 3,773,000 5,852,000
--------------------------
6,146,000 8,727,000
Less accumulated depreciation and amortization 5,194,000 8,128,000
--------------------------
$ 952,000 $ 599,000
==========================
The capitalized cost of equipment under capital leases was $125,000
at September 30, 1995 and 1994 with related accumulated amortization
of $125,000 and $122,000, respectively.
4. OTHER ASSETS
Other assets consists of the following at September 30:
1995 1994
Other receivable, net of current portion $ 104,000 $ 91,000
Note receivable--employee, due under terms of an
annual renewable note, interest payable monthly
at an annual rate of 6%, secured by a second
mortgage 100,000 100,000
Other 45,000 7,000
---------------------
$ 249,000 $ 198,000
=====================
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following as of September 30:
1995 1994
Salaries, commissions and benefits $ 321,000 $ 355,000
Professional fees 52,000 119,000
Warranty costs 64,000 40,000
Advertising costs 135,000 177,000
Other 133,000 99,000
----------------------
$ 705,000 $ 790,000
======================
6. DEBT
Long-term debt consists of the following as of September 30:
1995 1994
Notes payable to related parties $ 4,715,000 $ 5,140,000
Equipment notes, at interest rates ranging
from 11-1/8% to 12-3/4% -- 1,000
--------------------------
4,715,000 5,141,000
Less amount due within one year -- 1,000
--------------------------
$ 4,715,000 $ 5,140,000
==========================
The Company has a $7,000,000 line of credit with a realty trust
operated for the benefit of the Company's principal shareholders.
This line of credit, with interest payable at 10%, requires monthly
payments of interest only, is payable in full in October 1997 and is
collateralized by all assets of the Company. The Company had
$4,715,000 outstanding under this line of credit at September 30,
1995. The maximum borrowings against this line during fiscal 1995
were $5,140,000. Repayment of this line of credit is subordinate to
the repayment of any and all balances outstanding on the revolving
line of credit described below. Interest expense incurred in the
years ended September 30, 1995 and 1994 were $488,000 and $494,000,
respectively.
The Company has a revolving line of credit with a commercial finance
company which permits combined borrowings of up to $3,500,000 in
cash and letters of credit. This line of credit expires in December
1996 and is collateralized by all assets of the Company. The terms
of this agreement include a borrowing limit which fluctuates
depending on the levels of account receivable and inventory which
collateralize the borrowings. Interest on amounts outstanding is
payable on a monthly basis at an annual rate of 2-1/4% over the
prime rate which was 8-3/4% at September 30, 1995. As of September
30, 1995 the Company had outstanding letters of credit amounting to
approximately $146,000 under this agreement. The loan agreement
contains various covenants pertaining to the maintenance of working
capital, net worth and other conditions. The Company is required to
maintain continuing working capital of $4,800,000 and net worth of
$400,000. At September 30, 1995, working capital was $4,238,000,
which is in violation of the loan agreement. On January 5, 1996 the
Company received a waiver for the covenant violation. (See Note 13.)
The Company had a revolving line of credit with a bank which
permitted borrowings of up to $1,000,000 in cash and allowed the
Company to have a maximum of $1,500,000 of letters of credit
outstanding which expired January 1, 1995. Interest on amounts
outstanding was payable at a rate of 1% over the commercial base
rate. The commercial base rate was 7-3/4% at September 30, 1994. As
of September 30, 1994, the Company had outstanding letters of credit
amounting to approximately $304,000 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, 1995, 1994 and 1993 is as follows:
1995 1994 1993
Average borrowings during year $ 394,129 $ -- $ --
Average interest rate during year 11.25% 7.5% 7.0%
Maximum borrowings during year $1,330,000 $ -- $ --
Unused line of credit at September 30 $3,354,000 $2,196,000 $2,236,000
7. STOCK OPTIONS
The Company's incentive stock option plan terminated December 1,
1990. Options were granted to officers and key employees to purchase
common shares at prices not less than the fair market value on the
date of grant. Options are exercisable in varying installments and
expire in varying periods which may not exceed ten years from the
date of the grant.
Information concerning stock options for the years ended September
30, 1995, 1994 and 1993 is summarized below:
Options Outstanding
Shares Price Range
September 30, 1993 25,500 $1.75--$2.50
Granted -- --
Exercised -- --
Canceled 5,500 $2.50
--------------------------
September 30, 1994 20,000 $1.75--$2.50
Granted -- --
Exercised -- --
Canceled -- --
--------------------------
September 30, 1995 20,000 $1.75--$2.50
==========================
At September 30, 1995 and 1994, options for 20,000 shares were
exercisable. The expiration dates of the options range from 1995 to
1999. The average exercise price of outstanding options is $2.27.
8. INCOME TAXES
As discussed in the summary of significant accounting policies the
Company adopted Statement of Financial Accounting Standards No. 109
as of October 1, 1993. The adoption of this change did not have a
cumulative effect on the financial position or the net results of
operations.
The provision for income taxes for continuing operations consists of
the following:
(000's)
Year Ended September 30,
1995 1994 1993
CURRENT TAX PROVISION
Federal $ -- $ -- $ --
State -- -- --
--------------------------
TOTAL CURRENT PROVISION -- -- --
--------------------------
DEFERRED TAX BENEFIT
Federal -- (127) --
State -- (38) --
--------------------------
TOTAL DEFERRED BENEFIT $ -- $ (165) $ --
--------------------------
INCOME TAXES BENEFIT $ -- $ (165) $ --
==========================
The following significant components of deferred tax assets and
liabilities are included on the balance sheet at September 30, 1995:
1995 1994
Doubtful Receivables $ 80,000 $ 45,000
Inventory Obsolescence and Shrinkage 177,000 312,000
Sales Allowances 26,000 99,000
Warranties 28,000 18,000
Non-qualified Executive Retirement Plan 130,000 135,000
Tax Loss Carryforwards 6,381,000 5,600,000
Tax Credit Carryforwards 459,000 439,000
Less Valuation Allowance (7,116,000) (6,483,000)
--------------------------
NET DEFERRED TAX ASSETS $ 165,000 $ 165,000
==========================
For income tax purposes the Company has unused Federal operating
loss carryforwards of $15,997,000 expiring through 2009 and State
operating loss carryforwards of $13,304,000 expiring through 2000.
In addition to the loss carryforwards the Company has research and
development and investment tax credit carryovers of $124,000 and
$335,000 respectively through 2001 which are available to reduce
future tax liabilities.
9. BENEFIT PLANS
The Company has a 401(k) Savings Plan whereby employees may
voluntarily defer a portion of their compensation and the Company
matches a portion of the employee deferral. All employees with at
least one year of continuous service are eligible for the plan.
Company contributions vest 100% after five years. For fiscal 1995,
1994 and 1993, the Company's contributions amounted to $0, $22,000
and $63,000, respectively.
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, 1995, the unfunded benefit obligation of this
retirement plan was approximately $291,000. The Company has made no
contributions to this retirement plan in each of the three years
ended September 30, 1995.
10. COMMITMENTS AND CONTINGENCIES
The Company was obligated at September 30, 1995 under certain
operating leases for various types of equipment and the Company's
operating facility. The lease for the operating facility expires in
September 2000. Rental expense for fiscal 1995, 1994 and 1993 was
$450,000, $625,000, and $569,000, respectively. The future minimum
lease commitments total $1,547,000 as follows: $261,000 in fiscal
1996, $332,000 in 1997, $324,000 in 1998, $315,000 in 1999, and
$315,000 in 2000.
In January 1991, the California Department of Health Services (DHS)
issued a Corrective Action Order (CAO) against the Company and a
former subsidiary. The CAO requires the Company and a former
subsidiary to comply with a Cleanup and Abatement Order which had
been issued in 1990 against the Company for soil contamination at
the site of the former subsidiary. To date, no determination has
been made with regard to the extent of any environmental damage and
who may be liable. The Company does not believe, based on the
information available at this time, that the outcome of this matter
will have a material adverse effect on its financial position or
results of operations.
11. BUSINESS SEGMENT INFORMATION
The Company operates principally in two segments, the Consumer
Products segment and the Industrial Products segment. Operations in
the Consumer Products segment involve the manufacture and
distribution of Flowtron leaf-eaters, bugkillers, yard carts and
storage sheds. The Company distributes its consumer products
primarily to major retailers throughout the United States, with some
products distributed under customer labels. Substantially all of
this segment's sales and accounts receivable related to business
activities with such retailers. The Industrial Products segment has
developed an electronic obstacle avoidance system for automotive
applications. This product completed field testing in fiscal 1994
and is ready for distribution. There are no intercompany sales
between segments. Operating profit is total revenue less operating
expenses excluding interest expense, general corporate expenses and
income taxes. Identifiable assets by industry segment are those
assets that are identified in the operation of each of the Company's
segments. Corporate assets are principally cash and other assets.
The Company export sales are not significant. Net sales to a single
customer accounted for $2,441,000, or 20%, of net sales in fiscal
1995, $4,125,000, or 31%, of net sales in fiscal 1994, and
$4,652,000, or 29% of net sales in fiscal 1993.
For the Years Ended September 30,
1995 1994 1993
Net sales to unaffiliated customers:
Consumer Products $ 11,920,000 $ 13,223,000 $ 16,125,000
Industrial Products 97,000 63,000 49,000
--------------------------------------------
Total net sales $ 12,017,000 $ 13,286,000 $ 16,174,000
============================================
Operating profit (loss)
Consumer Products $ (25,000) $ 542,000 $ 753,000
Industrial Products (410,000) (341,000) (411,000)
--------------------------------------------
(435,000) 201,000 342,000
General corporate expenses (724,000) (1,135,000) (1,448,000)
--------------------------------------------
Consolidated operating loss (1,159,000) (934,000) (1,106,000)
Interest expense (529,000) (500,000) (555,000)
Other income--net 131,000 57,000 113,000
--------------------------------------------
Loss before income taxes $ (1,557,000) $ (1,377,000) $ (1,548,000)
============================================
Identifiable assets:
Consumer Products $ 5,766,000 $ 6,412,000 $ 7,129,000
Industrial Products 61,000 74,000 163,000
Corporate 1,429,000 3,113,000 3,106,000
--------------------------------------------
Total assets $ 7,256,000 $ 9,599,000 $ 10,398,000
============================================
Depreciation:
Consumer Products $ 422,000 $ 610,000 $ 737,000
Industrial Products 4,000 6,000 7,000
Corporate -- -- --
--------------------------------------------
Total depreciation and amortization $ 426,000 $ 616,000 $ 744,000
============================================
Capital expenditures:
Consumer Products $ 780,000 $ 146,000 $ 348,000
Industrial Products -- -- --
--------------------------------------------
Total capital expenditures $ 780,000 $ 146,000 $ 348,000
============================================
12. INTERIM FINANCIAL REPORTING
The aggregate impact on the "Net Income" resulting from fourth
quarter adjustments relating to the reversal of reserves in the
amount of $77,000 which was material and had the effect of
increasing Net Income by $77,000 in the fourth quarter.
13. SUBSEQUENT EVENT
On January 5, 1996 the Company received a waiver from the commercial
finance company for the violation of certain loan covenants (Note 6).
The working capital requirements for the period from October 1, 1995
through May 31, 1996 were adjusted to a minimum level of $3,100,000.
These statements are presented on the basis that the Company is a
going concern which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The
accompanying financial statements show a loss from the consolidated
results of operations of $1,557,000 for the year ended September 30,
1995, and the Company has a consolidated accumulated deficit of
$8,266,000 at September 30, 1995.
On January 5, 1996 the Company's principal stockholder issued a
letter of guaranty to the Company pledging to advance any amounts
which may be required to maintain and support the Company's working
capital needs throughout the term of the Loan and Security Agreement
between the Company and its commercial lender which expires
December 19, 1996.
In this regard, certain assets of the principal shareholder have
been designated and set aside for purposes of satisfying the
obligations under the guaranty in an amount believed to exceed the
forecasted cash flow needs for the upcoming fiscal year.
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders and Directors of ARMATRON INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheets of Armatron
International, Inc. as of September 30, 1995 and 1994, and the related
consolidated statements of operations, cash flows and stockholders'
equity, for the years ended September 30, 1995 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audit. The consolidated statements of operations, cash flows
and stockholders' equity for the year ended September 30, 1993 were
audited by other independent accountants whose report dated November 24,
1993 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are
free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Armatron International, Inc. as of September 30, 1995 and 1994 and the
results of its operations and its cash flows for the years ended September
30, 1995 and 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for income taxes during the year
ended September 30, 1994.
/s/ R. J. GOLD & COMPANY, P.C.
R. J. GOLD & COMPANY, P.C.
Needham, Massachusetts
December 1, 1995
January 5, 1996 as to Note 13.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1995, operating activities consumed $415,000 in cash, which was
due primarily to a net loss of $1,557,000 and a decrease of $360,000 in
accounts payable and other current liabilities. These were partially
offset by reductions in: accounts receivable of $160,000, inventories of
$712,000 and other current and non-current assets of $112,000. Investing
activities consumed $780,000 for equipment purchases. Financing
activities consumed $426,000 for the payment of long-term debt and $63,000
for the payment of loan orgination costs. As a result primarily of these
factors, cash and cash equivalents decreased $1,684,000.
In fiscal 1995, 1994 and 1993, purchases of equipment amounted to
$780,000, $146,000, and $348,000 respectively. These expenditures were
mainly for tooling and dies used in production of the Company's lawn and
garden products. The Company plans to spend approximately $133,000 for
capital expenditures in fiscal 1996. These expenditures will be mainly
for tooling and dies for the Company's lawn and garden products.
In December 1994, the Company obtained from a commercial finance company a
revolving line of credit which allows aggregate borrowings of $3,500,000
to be used as working capital and which expires in December 1996. The
interest rate on loans shall be 2 1/4% over the prime rate which was 8
3/4% at September 30, 1995. Borrowings made against this line of credit
are collateralized by all assets of the Company. As of September 30,
1995, the Company was contingently liable for outstanding letters of
credit of approximately $146,000 under this line of credit agreement.
The Company has a $7,000,000 line of credit from a realty trust operated
for the benefit of the Company's principal shareholders. This line of
credit, with interest at 10%, requires monthly payments of interest only,
is payable in full in October 1997 and is collateralized by all assets of
the Company. The Company had $4,715,000 outstanding under this line of
credit at September 30, 1995. The maximum borrowings against this line
during fiscal 1995 were $5,140,000. Repayment of this line of credit is
subordinate to the repayment of any and all balances outstanding on the
revolving line of credit with the commercial finance company.
Following industry trade practice, the Company offers extended payment
terms for delivery of seasonal items such as the Flowtron leaf-eater,
bugkiller, chipper/shredder, and compost bin, resulting in seasonally
fluctuating requirements for working capital.
Production of the ECHOVISION automotive obstacle detection system will
commence in January 1996. The Company believes that the financial
requirements for the program have been adequately provided for within the
credit lines available.
At September 30, 1995, the Company had unused operating loss carryforwards
of approximately $15,997,000 which are available to be applied against
taxable income for the years 1996 through 2009. As noted in Footnote 7
Income Taxes, the Company recorded a Net Deferred Tax Asset of $165,000.
The Company expects to realize this asset through improved operating
performance achieved through the anticipated contribution of its new and
expanded product lines. Taxable Income for fiscal 1996 must increase to
approximately $400,000 in order to fully realize the recorded net deferred
tax asset.
In January 1991, the California Department of Health Services (DHS) issued
a Corrective Action Order (CAO) against the Company and a former
subsidiary. The CAO requires the Company and a former subsidiary to
comply with a Cleanup and Abatement Order which had been issued in 1990
against the Company for soil contamination at the site of the former
subsidiary. To date, no determination has been made with regard to the
extent of any environmental damage and who may be liable. The Company
does not believe, based on the information available at this time, that
the outcome of this matter will have a material adverse effect on its
financial position or results of operation.
Management is of the opinion that, unless there is a significant rise in
interest rates, inflation will not be an important factor in fiscal 1996.
The Company believes that its present working capital, lines of credit
from a commercial finance company and related party, and other sources of
financing will be sufficient to finance its seasonal borrowing needs,
operations and investments in capital expenditures in fiscal 1996. Other
sources of financing, provided by the Company's principal stockholder, are
available to finance any working capital deficiencies.
RESULTS OF OPERATIONS
Conditions contributing to the 9% decrease in sales are active competition
and a maturing product line which resulted in a decrease of approximately
2% in the average selling price and a reduction of 7% in sales volume.
Net sales to one customer accounted for approximately $2,441,000, or 20%,
of consolidated net sales in fiscal 1995, as compared to net sales to one
customer of $4,125,000, or 31%, in fiscal 1994, and $4,652,000, or 29%, in
fiscal 1993.
In fiscal 1995, selling, general and administrative expenses decreased
$572,000, or 18%, as compared to fiscal 1994, primarily due to the
decrease in sales. Selling, general and administrative expenses
decreased $723,000, or 19%, in fiscal 1994 as compared to fiscal 1993,
primarily due to the decrease in sales and our active expense reduction
program.
In fiscal 1995, the operating loss increased $225,000 to $1,159,000 when
compared to fiscal 1994. The operating loss in fiscal 1994 was $934,000,
a decrease of $172,000 when compared to the operating loss of $1,106,000
in fiscal 1993.
Interest expense during fiscal 1995 increased $29,000 to $529,000 when
compared to fiscal 1994, and decreased $55,000 between fiscal 1994 and
fiscal 1993, as a result of more expensive borrowing terms related to the
new credit line.
Other income of $131,000 in fiscal 1995, $57,000 in fiscal 1994 and
$113,000 in fiscal 1993 consists primarily of income earned on short-term
investments.
The aggregate effect of all fourth quarter adjustments as described in
Footnote 12. of the financial statements, on current years reported
operations resulting from the reversal of reserves for accrued expenses
amount to $77,000. These reversals are not expected to have an impact
upon future operations.
The Company believes inflation did not have a material effect on its
results of operations for fiscal 1995, 1994 or 1993.
FIVE-YEAR FINANCIAL SUMMARY
SELECTED FINANCIAL DATA:
Years Ended September 30,
1995 1994 1993 1992 1991
(in thousands, except per share data)
Net Sales $ 12,017 $ 13,286 $ 16,174 $ 18,562 $ 23,624
Operating Income (Loss) $ (1,159) $ (934) $ (1,106) $ (929) $ 664
Income (Loss) before Extraordinary Item $ (1,557) $ (1,212) $ (1,548) $ (1,432) $ 166
Extraordinary Item $ -- $ -- $ -- $ -- $ 40
Net Income (Loss) $ (1,557) $ (1,212) $ (1,548) $ (1,432) $ 206
Earnings (Loss) Per Share of Common Stock:
Operating Income (Loss) $ (.47) $ (.38) $ (.45) $ (.38) $ .27
Income (Loss) before Extraordinary Item $ (.63) $ (.49) $ (.63) $ (.58) $ .06
Extraordinary Item $ -- $ -- $ -- $ -- $ .02
--------------------------------------------------------
Net Income (Loss) $ (.63) $ (.49) $ (.63) $ (.58) $ .08
========================================================
Total Assets $ 7,256 $ 9,599 $ 10,398 $ 13,120 $ 15,359
Long-Term Obligations $ 4,715 $ 5,140 $ 5,251 $ 6,016 $ 6,030
There were no dividends paid on common shares during any of the above
years. Under the financing agreement, as set forth in footnote 6 to the
company's financial statements the Company is restricted from paying
dividends for the two-year term of that agreement.
- ------------------------------------------------------------------------------
Common Stock Information:
The approximate number of shareholders of record at December 1, 1995 was 1,135.
The following table indicates the quarterly high and low prices for the
Company's common stock on the American Stock Exchange for the last two
years:
1995 1994
Quarter High Low High Low
First 1- 1/16 11/16 1-3/4 15/16
Second 1- 1/18 3/4 1-5/16 15/16
Third 1- 1/16 13/16 1-5/16 1
Fourth 15/16 9/16 1-1/4 15/16
BOARD OF DIRECTORS
Charles J. Housman
President, Treasurer & Chairman of the Board
Edward L. Housman
President, Automatic Radio International
Elliot J. Englander
Member, Englander, Finks, Ross, Cohen & Brander, P.C.
Attorneys at Law
Craig Spangenberg
Partner, Spangenberg, Shibley, Traci & Lancione
Attorneys at Law
William Welsh
Retired, former partner, Clayton Dubilier, Inc.
Financial Consultants
OFFICERS
Charles J. Housman, President, Treasurer
Sal DeYoreo, Vice President
Elliot J. Englander, Clerk
AUDITORS
R. J. Gold & Company, P.C.
GENERAL COUNSEL
Englander, Finks, Ross, Cohen & Brander, P.C.
TRANSFER AGENT
American Stock Transfer & Trust Co.
STOCK EXCHANGE
American Stock Exchange
FORM 10-K
A copy of the Company's Fiscal 1995 Annual Report on Form 10-K
to the Securities and Exchange Commission is available to
Stockholders, without charge, upon written request to the Company:
Armatron International, Inc.
Two Main Street
Melrose, MA 02176
ARMATRON
INTERNATIONAL INC.