Item 1. Business - ----------------
(a) General Development of Business: ------------------------------------
Armatron International (the "Company") was organized in 1920 as Automatic Radio. Until 1978, the Company was primarily involved in the design and manufacture of automobile radios.
In 1978 the Company began to concentrate its efforts primarily in manufacturing electronic insect killing devices in the Flowtron Outdoor Products Division which continued until fiscal 1984.
Between 1984 and 1987 the Company acquired several companies in order to grow and diversify. By the end of fiscal 1987 the Company had divested itself of these acquisitions.
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". Production of these systems began in the first quarter of 1996.
The Company's main Division, Flowtron Outdoor Products manufactures and distributes bugkillers, leaf-eaters, compost bins, biomisters, yard carts, storage sheds and dog houses for consumer use.
(b) Financial Information about Industry Segments: --------------------------------------------------
The information required by this item is incorporated herein by reference to Note 18 of the Notes to Consolidated Financial Statements on page 14 of the Company's 1997 Annual Report to Stockholders.
(c) Narrative Description of Business: --------------------------------------
(1)(i) The Company operates principally in two segments, the Consumer Products segment and the Industrial Products segment.
The Consumer Products segment involves the manufacture and distribution of Flowtron leaf-eaters, bugkillers, yard carts, compost bins, biomisters and storage sheds. One new product for the lawn and garden industry, a plastic dog house, was introduced for the 1996 season. The Company distributes its products primarily to major retailers throughout the United States, with some products distributed under customer labels. Substantially all of the Company's sales in fiscal 1997 and accounts receivable as of September 30, 1997 related to business activities with such retailers.
Net sales to two customers in the Consumer Products Segment accounted for approximately $5,592,000 or 42% of consolidated net sales in fiscal 1997, as compared to net sales to one customer of $2,486,000 or 18% in fiscal 1996 and net sales to one customer of $2,441,000 or 20% in fiscal 1995.
The Industrial Products segment consisted primarily of marketing and manufacturing of its ECHOVISION collision avoidance/obstacle detection system.
Net Sales to one customer in the Industrial Products Segment accounted for approximately $320,000 or 2% of consolidated net sales in fiscal 1997 as compared to net sales to one customer of approximately $770,000 or 6% of net sales in fiscal 1996.
(ii) All Flowtron Division products distributed in fiscal 1997 are in full production. These products undergo periodic model changes and product improvements.
The Company began initial marketing of its collision avoidance/obstacle detection system in 1995. Production began in the first quarter of 1996.
(iii) The raw materials used by the Company vary widely with many sources available to meet normal product requirements. The Company currently purchases its plastic storage sheds, yard carts and dog houses from one supplier. This supplier manufactures these products in accordance with the Company's designs and specifications. The Company believes that other suppliers could provide the required products although comparable terms may not be realized. A change in suppliers could cause a delay in scheduled deliveries of the products to the Company's customers and a possible loss of revenue, which would adversely affect the Company's results of operations.
(iv) Although the Company owns a number of design and mechanical patents in the U.S. and foreign countries relative to its Consumer Products Division, these patents are not believed to be material to the operations of the Company. The Company has been awarded three patents relative to the self-test function of its obstacle detection system. We believe this self-test will be important when customers consider alternatives.
(v) Heavy shipments in spring and early summer of electronic insect killing devices, yard carts and biomisters complement Flowtron storage sheds and leafeaters which are shipped primarily in the late summer and fall.
(vi) In an effort to counteract seasonal tendencies and to level production requirements, the Company follows the industry trade practice of offering its customers extended payment terms when shipments are accepted during certain limited periods, which results in seasonal fluctuations of working capital. Sales terms for the Company's other products are 30 days, net.
(vii) The Company's largest customers, Sears, Roebuck and Co., accounted for $4,336,000, or 32%, of consolidated net sales in fiscal 1997. The Company anticipates that sales to this customer will continue in fiscal 1998 at approximately the fiscal 1997 levels.
(viii) Shipment backlog is not a significant factor in the Company's operations.
(ix) Not applicable.
(x) Active competition exists in all product lines in the Consumer Products Division, each with a number of well-established companies which manufacture and sell products similar to those of the Company. Price, service, warranty and product performance are the bases of competition, with price becoming increasingly more important. With reference to the Industrial Products Division, the Company expects active competition and expects price and product performance will be the basis of such competition.
(xi) The amount spent on Company-sponsored research and development was not significant in any of the three years in the period ended September 30, 1997.
(xii) The Company's compliance with federal, state and local environmental regulations had no material effect upon the expenditures, earnings or competitive position of the Company and its subsidiaries.
In January 1991, the California Department of Health Services (DHS) issued a Corrective Action Order (CAO) against the Company and a former subsidiary. The CAO required the Company 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.
(xiii) The number of persons employed by the Company varies from 60 to 130 due to the seasonal production cycle of the Company's products. Management believes relations with employees are satisfactory.
(d) Financial Information about Foreign and Domestic Operations and Export Sales: -------------------------------------------------------------------
The Company's export sales were not significant in any of the three years in the period ended September 30, 1997.
Item 2.
Item 2. Properties - ------------------
The Company's principal executive offices and main manufacturing plant are leased facilities located at 2 Main Street, Melrose, Massachusetts, a Boston suburb. The Company manufactures bugkillers, leafeaters and biomisters at this facility. The Company leases 84,000 sq. ft. of this facility, which has been occupied by the Company since 1964. The lease for the operating facility expires in September 2000.
Item 3.
Item 3. Legal Proceedings - -------------------------
There are no material outstanding legal proceedings at this time.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------
Not applicable.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. - -------------------------------------------------------------------------
The information required by this item is set forth under the captions "Selected Financial Data" and "Common Stock Information" on page 20 of the Company's 1997 Annual Report to Stockholders, and is incorporated herein by reference. Under its financing agreement, as set forth in Footnote 10 on Page 10 of the Company's 1997 Annual Report to Stockholders, 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.
Item 6. Selected Financial Data - -------------------------------
The information required by this item is set forth under the caption "Selected Financial Data" on page 20 of the Company's 1997 Annual Report to Stockholders, and is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations - ------------------------------------------------------------------------
The information required by this item is set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 17 through 19 of the Company's 1997 Annual Report to Stockholders, and is incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------
The following financial statements and supplementary data of the Company are located on pages 2 through 16 of the Company's 1997 Annual Report to Stockholders and are incorporated herein by references:
Consolidated Balance Sheets September 30, 1997 and 1996.
Statements of Consolidated Operations for the Years Ended September 30, 1997, 1996 and 1995
Statements of Consolidated Cash Flows for the Years Ended September 30, 1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity (Deficiency) for the Years Ended September 30, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. - -----------------------------------------------------------------------
Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant - -----------------------------------------------------------
The information required by this item is set forth under the captions "Election of Directors; Security Ownership of Management" and "Other Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" on pages 2 through 4 and page 9 of the Company's Proxy Statement dated December 30, 1997, and is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation - -------------------------------
The information required by this item is set forth under the captions "Executive Compensation" and "Benefit Plans" on pages 5 through 7 of the Company's Proxy Statement dated December 30, 1997 and is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of certain Beneficial Owners and Management. - ------------------------------------------------------------------------
The information required by this item is set forth under the captions "Election of Directors' Security Ownership of Management" and "Principal Shareholder" on pages 2 through 4 of the Company's Proxy Statement dated December 30, 1997, and is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------
The information required by this item is set forth under the caption, "Certain Transactions" on page 7 of the Company's Proxy Statement dated December 30, 1997, and in Footnotes 10 and 16 to the Company's 1997 Annual Report to Stockholders on pages 10 and 14, respectively, and is incorporated herein by reference.
PART IV
Item 14.
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 ---------------------------------
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):
(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, 1997.
REPORT OF INDEPENDENT ACCOUNTANTS ---------------------------------
To the Board of Directors and Stockholders of Armatron International, Inc. and Subidiary:
Our report on the consolidated financial statements of Armatron International, Inc. and subsidiary has been incorporated by reference in this Form 10-K from page 16 of the 1997 Annual Report to Stockholders of Armatron International, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on page 6 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
Needham, Massachusetts November 26, 1997 R. J. GOLD & COMPANY P.C.
ARMATRON INTERNATIONAL, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ARMATRON INTERNATIONAL, INC.
December 29, 1997 By: /s/ Charles J. Housman ---------------------------------------- Charles J. Housman Chairman of the Board, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant on December 29, 1997, in the capacities indicated.
By: /s/ Edward L. Housman By: /s/ Charles J. Housman - ------------------------------------ ---------------------------------------- Edward L. Housman Charles J. Housman Director Chairman of the Board, President and Director
By: /s/ Elliot J. Englander - ------------------------------------ Elliot J. Englander Director
EXHIBIT INDEX