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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 December 31, 1997
[ ] 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 0-13403
AMISTAR CORPORATION
(Exact name of registrant as specified in its Charter)
- --------------------------------------------------------------------------------
California 95-2747332
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
237 Via Vera Cruz 92069-2698
San Marcos, CA (Zip Code)
(Address of principal executive offices)
Area Code (760) 471-1700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
--------------------------------
Common Stock, Par Value
$.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES ( X ) NO ( )
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 the 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 )
Aggregate market value of voting stock held by non-affiliates of the
registrant as of the close of business on February 27, 1998: $8,243,625.
The number of shares outstanding of registrant's Common Stock as of
February 27, 1998: 3,236,500 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference:
PART III Definitive Proxy Statement for Annual Meeting of
Shareholders to be held May 6, 1998 filed with the Securities
and Exchange Commission.
1
AMISTAR CORPORATION AND SUBSIDIARIES
FORM 10-K
TABLE OF CONTENTS
PART I
1. Business.................................................................. 3
2. Properties................................................................ 8
3. Legal Proceedings......................................................... 8
4. Submission of Matters to a Vote of Security Holders....................... 8
PART II
5. Market for Registrant's Common Stock and Related Stockholder Matters.......9
6. Selected Financial Data...................................................10
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ....................................................11
8. Financial Statements and Supplementary Data...............................15
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .....................................................27
PART III
10. Directors and Executive Officers of the Registrant........................27
11. Executive Compensation....................................................27
12. Security Ownership of Certain Beneficial Owners and Management............27
13. Certain Relationships and Related Transactions............................27
PART IV
14. Exhibits, Financial Statement Schedule and Reports on Form 8-K............27
2
PART I
ITEM 1. BUSINESS
Amistar Corporation (the Company) designs, develops, manufactures, markets
and services a variety of automatic equipment used to assemble electronic
components to printed circuit boards. Amistar's Manufacturing Services Division
(AMS) provides manufacturing services to companies who outsource the
manufacturing of their electronic products.
Printed circuit assemblies, which are the basis for most all-electronic
products, start with a printed circuit board (PCB), to which electronic
components are assembled. PCB's are commonly used by manufacturers of a wide
variety of electronic systems and products to interconnect components.
Typically, these boards contain conductive layers, holes that receive the leads
of "through hole" components, pads on the board surface that provide a
connection point for "surface mounted" components and interconnect layers that
connect the various components to form an electrical network.
The development of programmable and computer-controlled assembly equipment
which offer increased speed and accuracy of assembly has resulted in general
acceptance of electronics factory automation by electronic manufacturers of all
sizes. The improved output and low insertion or placement error rate associated
with assembly automation provide a cost-effective alternative to manual
assembly.
The physical characteristics of modern electronic devices and printed
circuit boards are diverse. As a result, the design and manufacture of automatic
assembly equipment is highly specialized. The majority of electronic devices
fall into two general categories: surface mount devices (SMD) and leaded through
hole components. Boards populated with surface mount devices are the most
significant and fastest growing segment of the circuit assembly marketplace.
Components come in a large range of sizes and configurations. Further, current
printed circuit board designs are complex and use numerous component types that
must be densely placed to minimize wasted space. Accordingly, automatic assembly
equipment must be sufficiently flexible to adjust to a wide variety of
components and product designs.
Financial Information Relating to Industry Segments
- ---------------------------------------------------
The Company's operations include two business segments: manufacture and
distribution of machines and accessories for assembly of electronic products and
contract electronic manufacturing services.
Information concerning the Company's operations for the two segments are
found in note 10 to the consolidated financial statements.
Products
- --------
The Company's current machine product line features six models designed for
the latest SMD assembly technologies. Amistar's machine model specifications
were chosen to serve a broad range of market requirements. Each model offers a
wide range of application-specific tools, device handlers, feeders and placement
heads. Different models offer a range of production speeds, software and
investment levels to meet a user's unique needs. This flexibility enables a user
to order the model and features best suited to his assembly requirements.
The Company's product line consists of manufactured products and
distributed private label products. The primary manufactured products are the
PlaceMaster(R) line, feeders utilized on the private label line and through-hole
machine spare parts. The primary distributed products are the private label
LaserPro(R) and PlacePro(R) lines. The private label products are distributed
under an OEM supply agreement with a manufacturer in Japan, and as a result, has
significant supply dependence. A change in the supplier's price or delivery
could cause a loss of sales, changes in gross margins, or other consequences
that could adversely affect operating results. The Company also distributes
other products such as solder reflow ovens, solder paste printers, and conveying
equipment.
3
Primary Surface Mount Assembly Machinery
- ----------------------------------------
Product Characteristics Target Market
- -------------------------------- ------------------------------- -------------------------------
PlaceMaster(R) Systems Two robust models featuring OEMs in Aerospace, Commercial
integrated software for Avionics, Defense and
control, management High-value assembly.
information and process Customers range from large
control and data collection. companies to small research
Together, these machines can laboratories.
place virtually any surface
mount component.
- -------------------------------- ------------------------------- -------------------------------
PlacePro(R)Systems Four models that range from Contract Assemblers ranging
an "entry level" surface from start-ups to high
mount capability to an volume, single product
accurate and moderately fast contractors with demanding
machine favored by Memory quality requirements. These
Device card assemblers. machines are also attractive
to smaller OEMs with a
relatively limited product
line.
- -------------------------------- ------------------------------- -------------------------------
PlaceMaster(R) Systems
PlaceMaster(R)/CP
- -----------------
The PlaceMaster(R)/CP is a high speed SMD assembly system introduced in
1996. After extensive product redevelopment in response to a sluggish initial
response from the marketplace, the PlaceMaster(R)/CP realized its first sale
(to a Fortune 500 corporation) in late 1997. Network ready, the
PlaceMaster(R)/CP offers customers a unique combination of integrated software,
speed, placement accuracy and machine reliability that is of interest to
higher-end market segments such as aerospace and avionics.
PlaceMaster(R)/FP
- -----------------
The PlaceMaster(R)/FP is a versatile SMD assembly machine that is among the
most accurate machines available today. With the same software as the
PlaceMaster(R)/CP, the PlaceMaster(R)/FP is particularly attractive to defense
and space OEMs who are more concerned about process accuracy than throughput.
Introduced in 1993, sales dropped after an initial rush due primarily to a
shift in marketing focus and attention. Resuming with one sale in late 1997,
the demonstration rate for this machine has equaled that of the
PlaceMaster(R)/CP.
Amistar Manufacturing Services (AMS)
- ------------------------------------
Amistar Manufacturing Services, a division of Amistar, provides electronic
manufacturing services to OEMs in various product industries, such as medical,
computer peripherals, audio/video, industrial, data networking, and
telecommunications. The Company offers turnkey solutions by providing
engineering services, materials procurement and management, surface mount board
assembly, all levels of testing, final product and systems build, distribution
and warranty depot support. Production volumes range from prototype and
pre-production assemblies to thousands per month. Today, the Company operates
two facilities, one in Anaheim, CA and one at the corporate facility in San
Marcos, CA.
4
Product Development
- -------------------
The Company's products are marketed to an industry that is subject to rapid
technological change and increasingly complex methods of manufacturing.
Amistar's ability to compete and operate successfully depends, among other
things, upon its ability to react to such change. Accordingly, the Company is
committed to the continuing enhancement of its current products to allow their
use in a wider variety of applications, and development of new products to
further reduce labor costs and increase manufacturing efficiency.
During 1997, 1996 and 1995, the Company's engineering, research and
development expenses were approximately $1,462,000, $1,234,000 and $951,000,
respectively. Development efforts were focused in 1997 on enhancements to the
PlaceMaster(R) models.
Customers and Marketing
- -----------------------
The Company's machine products are sold primarily to electronic
manufacturers, both directly and through distributors. The Company's marketing
strategy is to offer flexible equipment that fulfills a variety of customer
needs and to emphasize the advanced features, ease of use, price, performance,
and reliability.
Amistar markets its machine products in the United States through a network
of strategically located sales offices and regional sales managers, which
support independent manufacturer's representatives and direct sales personnel.
The Company maintained a direct sales office in Switzerland from 1981 until 1997
and in Germany from 1990 until 1997. Internationally, the Company's products are
also marketed through distributors who purchase the equipment for resale.
In addition to the main sales and service center at the Company's
headquarters in San Marcos, California, the Company maintains sales and service
offices in Westford, Massachusetts and Warrenville, Illinois. The Company
maintained sales and service offices in Wiesbaden, Germany and Wettingen,
Switzerland through December 1997. In December 1997, the Company decided to
pursue European activities through the use of independent distributors and as
such, closed its own direct sales and service offices in Germany and
Switzerland. Amistar employs regional managers who support the sales efforts of
distributors and representatives. In addition, the Company maintains a field
staff of applications specialists who support the sales force by responding to
complex technical and applications problems.
The Company's Amistar Manufacturing Services division is marketed through a
combination of Company personnel, electronics component distributors and outside
representatives.
Dependence on a Single Customer
- -------------------------------
During 1997 and 1996, machine sales of $3,751,000 (or 16%) and $3,623,000
(or 16%) of total sales were made to Smart Modular Technologies, respectively.
5
Foreign Sales
- -------------
A portion of the Company's machine sales has traditionally been to foreign
customers. Profitability and product mix of foreign sales are generally
comparable to domestic sales. The Company is subject to the usual risks of
international trade, including unfavorable economic conditions, foreign currency
risk, restrictive trade policies, controls on funds and political uncertainties.
The following table illustrates the Company's sales, expressed in dollars and as
a percentage of total sales, in major geographic markets over the last three
fiscal years.
(Dollars in thousands) 1997 1996 1995
-------------------- -------------------- --------------------
United States $17,348 76% $19,497 84% $18,724 74%
Europe 4,035 18% 3,350 14% 6,200 24%
South America\Canada 1,389 6% 240 1% 163 1%
Asia 68 0% 183 1% 274 1%
---------- ------- ---------- ------ ---------- ------
TOTALS $22,840 100% $23,270 100% $25,361 100%
========== ======= ========== ====== ========== ======
Additional information regarding foreign operations can be found in note 10
to the consolidated financial statements.
The Company's products can be freely exported to most countries under a
general destination (G-Dest) export license from the U.S. Department of
Commerce.
Service
- -------
The Company provides installation and service for all of its machines other
than those sold by certain distributors with qualified service personnel who
undertake the installation and service responsibility. The Company also provides
service personnel for its customers at the Company's San Marcos, California,
Warrenville, Illinois, Westford, Massachusetts, and Wettingen, Switzerland
(until December 1997) offices.
Machine Manufacturing
- ---------------------
Amistar's machines are complex devices that combine a number of electronic
and electromechanical technologies, and must function in difficult production
environments with a high degree of precision and reliability. Product designs
typically call for a high percentage of specially designed machine parts, many
of which are fabricated in-house, as well as standard, commercially available
parts. The Company operates a machine shop in San Marcos, California.
Those parts of the Company's products that are not manufactured directly by
Amistar are purchased from outside vendors. Most parts are available from more
than one supplier. While certain parts are presently purchased from single
sources, the Company believes it would be able to locate additional sources for
such parts without material adverse effect on its business. Amistar has never
experienced a major production delay due to a parts shortage or the loss of a
single-sourced part or its tooling.
Competition
- -----------
The Company competes with a number of domestic and foreign manufacturers of
electronic component placement or insertion equipment, many of whom have more
diverse product lines and greater financial and marketing resources than the
Company. The Company's primary domestic competitors are Universal Instrument
Corporation, a subsidiary of Dover Corporation, Zevatech and Quad. Amistar also
faces competition from foreign companies, including Panasonic, Fuji, Mydata,
Philips and Siemens.
The Company believes that the key factors affecting the choice of an
insertion or surface mount machine are reliability, speed, quality and speed of
service, ability to detect errors, range of components inserted or placed, ease
of programming and price.
There are numerous companies, both large and small, who provide contract
electronic circuit board assembly services.
6
Backlog
- -------
Customer machine order lead times are usually of a short duration. Current
practice is to wait to place the purchase order until just before the equipment
is required. The Company's private label inventory supply pipeline has been
adequate to fulfill machine orders in a short lead time. Therefore, backlog may
not necessarily be indicative of future sales. Order lead times for contract
manufacturing vary. The backlog at December 31, 1997 was $4,279,000, all of
which is expected to be shipped during the next 12 months. Backlog was
$2,460,000 at December 31, 1996.
Patents and Licenses
- --------------------
Amistar has been issued the following seven United States patents and has
two applications pending:
1) Tape Feeder for A Surface Mount Placement System
2) Surface Mount Placement System
3) Surface Mounted Component Transport System
4) Pneumatic Feed System for Axial Lead Components
5) Automatic Part Positioning System
6) Cartridge Feed Mechanism for Axial Lead Component Inserter
7) Multi-Jaw Centering Head Structure for Surface Mounted
Component Placement Machines
Although the Company believes that its patents have value, the Company also
believes that responding to the technological changes that characterize the
electronics industry, maintaining a strong marketing and service operation, and
continuing to produce quality products are of greater significance than patent
protection. Moreover, there can be no assurance that patents applied for will be
granted or that any patents presently held, or to be held, by the Company will
afford it commercially significant protection of its proprietary technology.
Employees
- ---------
During the week ending February 13, 1998, the Company had 167 full-time
employees and 26 temporary employees. Of the total employees, 143 were employed
in manufacturing, 27 in marketing and service, 13 in product development and 10
in administration and finance.
Year 2000 Issues
- ----------------
During 1997, the Company implemented a new enterprise-wide client-server
information system. This system has built-in features which are compatible with
Year 2000 dating. Accordingly, the Company does not expect the Year 2000 issues
to have a material impact to its operations or financial reporting system.
Forward Looking Statements
- --------------------------
This Annual Report, contains forward-looking statements within the meaning
of the Private Securities Reform Act of 1995, particularly statements regarding
market opportunities, success of research and development, customer acceptance
of products, gross margin and marketing expenses. These forward-looking
statements involve risks and uncertainties, and the cautionary statements set
forth below, identify important factors that could cause actual results to
differ materially from those in any such forward-looking statements. Such
factors include, but are not limited to, adverse changes in general economic
conditions, including changes in the specific markets for the Company's
products, product availability, decreased or lack of growth in the electronics
industry, adverse changes in customer order patterns, increased competition,
lack of acceptance of new products, pricing pressures, lack of success in
technological advancements, risks associated with foreign operations and other
factors.
7
ITEM 2. PROPERTIES
The Company owns the building and 5.6 acres of land on which the building
is located in San Marcos, California. The Company's headquarters, principal
administration, machine manufacturing, electronic manufacturing services, and
research and development offices are located in this building of 80,000 square
feet which was completed in April of 1987.
The Company leases a 14,000 square foot facility in Anaheim, California for
a term of five years, expiring March 2001, at a current monthly rental rate of
$6,580. This facility is utilized for Amistar Manufacturing Services. The
Company also leases sales and services offices at the following locations:
Westford, Massachusetts, on a month-to-month term at a monthly rent rate of
$600, Warrenville, Illinois, with a term of five years, expiring August 2002, at
a current monthly rate of $2,177 and Wettingen, Switzerland with a term expiring
March 1998 at a current monthly rent rate of $5,358.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings
involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS AND DIRECTORS
Name Age Title
---- --- -----
Stuart C. Baker 66 Chairman of the Board, President and
Director
William W. Holl 67 Vice President of Finance, Treasurer,
Secretary and Director
Harry A. Munn 46 Vice President of Sales and Marketing
Daniel C. Finn 41 Vice President of Engineering
Carl C. Roecks 64 Director
Richard A. Butcher 57 Director
Gordon S. Marshall 78 Director
Mr. Baker, a founder of the Company, has served the Company as a Director
and President since its inception in 1971 and as Chairman of the Board since
1993.
Mr. Holl, a founder of the Company, has served the Company as a Director
and as Treasurer and Secretary since its inception in 1971, and as Vice
President of Finance since 1978.
Mr. Munn has served the Company since 1985 and as Vice-President since
1997.
Mr. Finn has served the Company since 1979 and as Vice President of
Engineering since 1995.
Mr. Roecks, a founder of the Company, has served the Company in various
engineering and management capacities since its inception in 1971. Since 1989
Mr. Roecks has been semi-retired, and serves the Company on a part-time basis.
Mr. Butcher was elected a Director of the Company in February 1984. From
1977 to the present, he has been a group managing Director of Marbaix (Holdings)
Ltd., an equipment manufacturer and distributor, and the Managing Director of
Automation Ltd., a wholly-owned subsidiary of Marbaix and the Company's
exclusive distributor in Great Britain and Ireland.
Mr. Marshall has served the Company as the Chairman of the Board from 1974
to 1993. Mr. Marshall is the founder and Chairman of the Board of Marshall
Industries, an electronics distribution company.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
From May 11, 1984, when Amistar had its initial public offering, until June
18, 1985, the Company's stock was traded on the NASDAQ over the counter market
under the symbol AMTA. Since June 18, 1985 the Company's stock has traded on the
NASDAQ/NMS (National Market System). The following table reflects the closing
prices per share for the last two years:
Quarter ended High Low
------------- ---- ---
Mar. 31, 1997 4-7/8 3
Jun. 30, 1997 6-3/16 3-1/2
Sep. 30, 1997 6-3/16 4
Dec. 31, 1997 4-3/8 3-1/8
Mar. 31, 1996 9-1/8 4-5/8
Jun. 30, 1996 5 3-3/4
Sep. 30, 1996 4-1/8 3
Dec. 31, 1996 4-1/4 3
* The prices indicated are as reported by the National Association of Security
Dealers.
The Company had approximately 100 shareholders of record on December 31,
1997, however, the Company believes there are over 1,000 beneficial owners based
on the number of requests for proxies.
The Company has not paid cash dividends on its common stock and does not
plan to pay cash dividends to its shareholders in the foreseeable future.
9
ITEM 6. SELECTED FINANCIAL DATA
Consolidated Statements of Earnings Data:
Year Ended December 31,
---------------------------------------------------------
(In thousands, except per share data)
1997 1996 1995 1994 1993
---------- ---------- ---------- ----------- ----------
Net sales $ 22,840 $ 23,270 $ 25,361 $ 17,978 $ 16,225
Cost of sales 14,738 14,634 16,732 11,584 9,891
---------- ---------- ---------- ----------- ----------
Gross profit 8,102 8,636 8,629 6,394 6,334
---------- ---------- ---------- ----------- ----------
Operating expenses:
Selling 4,155 4,402 4,109 3,526 3,082
General & administrative 1,014 1,145 1,171 920 893
Engineering, research & development 1,462 1,234 951 1,431 1,566
---------- ---------- ---------- ----------- ----------
6,631 6,781 6,231 5,877 5,541
Income from operations 1,471 1,855 2,398 517 793
Other income (expense):
Interest, net 86 (67) (99) (82) (65)
Miscellaneous 41 51 78 122 91
---------- ---------- ---------- ----------- ----------
Earnings before income taxes
and cumulative effect of change
in accounting principle 1,598 1,839 2,377 557 819
Income tax expense (benefit) 505 117 300 37 (81)
---------- ---------- ---------- ----------- ----------
Earnings before cumulative effect
of change in accounting principle 1,093 1,722 2,077 520 900
Cumulative effect of change in
accounting for income taxes - - - - 144
---------- ---------- ---------- ----------- ----------
Net earnings $ 1,093 $ 1,722 $ 2,077 $ 520 $ 1,044
========== ========== ========== =========== ==========
Basic and diluted earnings per
common share :
Earnings before cumulative
effect of change in accounting
principle $ 0.34 $ 0.53 $ 0.65 $ 0.17 $ 0.29
Cumulative effect of change
in accounting for income taxes - - - - 0.04
---------- ---------- ---------- ----------- ----------
Net earnings $ 0.34 $ 0.53 $ 0.65 $ 0.17 $ 0.33
========== ========== ========== =========== ==========
Weighted-average shares
outstanding (in thousands) 3,236 3,228 3,193 3,137 3,133
========== ========== ========== =========== ==========
Selected Consolidated Balance Sheet Data:
December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Working capital $12,632 $11,938 $10,815 $5,291 $8,738
Total assets 22,236 21,551 19,742 17,429 15,689
Long-term obligations 4,500 4,500 4,500 - 4,500
Retained earnings 10,573 9,480 7,758 5,682 5,161
Total shareholders' equity 15,448 14,338 12,613 10,485 9,914
10
ITEM 6. SELECTED FINANCIAL DATA (continued)
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarter Ended,
--------------------------------------------------
3/31 6/30 9/30 12/31
---------- ---------- ---------- ----------
(In thousands, except per share data)
1997
Net sales $ 6,415 $ 5,053 $ 4,454 $ 6,918
Gross profit 2,310 1,893 1,338 2,561
Net earnings (loss) 337 277 (129) 608
Basic and diluted earnings
(loss) per common share 0.10 0.09 (0.04) 0.19
1996
Net sales $ 4,873 $ 5,418 $ 5,806 $ 7,173
Gross profit 1,815 1,988 2,061 2,772
Net earnings 200 215 257 1,050
Basic and diluted earnings
per common share 0.06 0.07 0.08 0.32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
1997 Compared to 1996
- ---------------------
Sales decreased to $22,840,000, from $23,270,000 in 1996, a decrease of 2%.
During the third quarter of 1997, sales were negatively impacted by delays in
the delivery of the newest private label model from the Company's offshore
supplier. This delay in delivery resulted in a shortage of its highest volume
private label machine model. The Company also experienced sluggish sales in the
Mid-West region during 1997.
The table on page 14 shows that sales of Amistar produced machines, parts,
and service continued to decline during 1997, as in 1996. The decrease in sales
of Amistar produced products is partially offset by an increase of $228,000 in
feeders which are compatible with the Company's private label machine line. The
Company has continued to experience difficulty marketing its surface mount
machine models during 1997, as in 1996. The Company continues to evaluate the
marketability of its products and establishes appropriate inventory allowances
for obsolescence as required. If the PlaceMaster(R) models experience an adverse
market acceptance in the future, this could result in discontinuance from the
Company's product line and have a significant effect upon earnings and stock
price. The Company expanded its marketing effort, and accordingly, increased
expenditures in 1997. The Company believes there is a market for the
PlaceMaster(R) line, and will continue its marketing efforts. The Company's
through-hole machines in the field generate a significant portion of parts and
service sales. These through-hole models were discontinued from the product line
in 1996. As the population of the Company's through-hole technology machines
have declined in the field, demand for spare parts and out-of-warranty field
service has continued to follow a parallel trend. The Company's primary sales
and gross margin contributions have come from the distributed private label
machine line for each of the years in the three-year period ended December 31,
1997.
Sales generated from the Amistar Manufacturing Services division increased
28% in 1997 as compared to an increase of 29% in 1996. The addition of the
Anaheim facility in 1996 has contributed to the Amistar Manufacturing Services
division sales growth. No portion of sales is attributable to inflation for
1997.
Gross margin percentage decreased 1.5% in 1997. This was due to the greater
mix of Amistar Manufacturing Services sales, partially offset by the favorable
effects of improved dollar/yen exchange rate on private label machine purchases.
Gross margin dollars decreased $535,000 in 1997 due to lower sales and the
factors mentioned above. In addition, gross margin dollars contributed by the
Amistar Manufacturing Services division declined in 1997 compared to 1996 due to
costs related to the additional facility and increased mix of turn-key sales,
which earn lower margins.
11
Results of Operations-1997 Compared to 1996 (continued)
- -------------------------------------------------------
The Company's primary foreign currency risk is due to exchange rate
fluctuations on purchases of the private label machine products, and as a
result, can significantly affect gross margins.
Selling expenses decreased $247,000 in the current year due to lower
machine sales volume and the resulting lower commission expense incurred, which
generally ranges from 7% to 12% of selling price. Costs of approximately
$120,000 related to closing the Company's direct sales and service facilities in
Europe have been accrued in 1997.
General and administrative expenses decreased $131,000 in 1997, compared to
1996, primarily due to lower levels of management bonuses earned in the current
year.
Engineering, research and development increased $228,000 in 1997, due to
additional development projects related to the PlaceMaster(R) models. The
Company does not have any firm commitments to continue funding product research
and development, however, management anticipates that spending on development
will continue at existing levels during 1998.
Interest income increased $154,000 in 1997, due to the settlement of a
contract with a customer from the Company's German subsidiary and increased
contract receivables. Gain on the sale of assets and dividends from workers
compensation insurance represent the majority of miscellaneous income during
1997 and 1996.
The effective income tax rate in 1997 was 31.6% compared to 6.4% in 1996,
when the Company recognized a deferred income tax benefit.
1996 Compared to 1995
- ---------------------
Sales decreased to $23,270,000, a decrease of 8% from $25,361,000 in 1995.
During the first half of 1996, sectors of the industry experienced a slow-down
due to product oversupply, and as a result, incurred excess capacity. The table
on page 14 shows that sales of Amistar produced machines, parts, and service
declined 37% from 1995 as through-hole technology machines experienced
diminished demand and development of a competitive surface mount machine
continued. Also, the table on page 14 shows that sales of Amistar Manufacturing
Services increased 29% which is partially due to the addition of the Anaheim
facility. None of the increase in sales was attributable to inflation.
Gross margin percentage has increased 3% over 1995 primarily due to the
effects of improved dollar/yen exchange rate on private label purchases.
Selling expenses increased in 1996, due to a higher mix of sales in which
commissions were earned, personnel additions, and promotional costs.
Engineering, research and development increased $283,000 in 1996 over 1995, due
to additional development projects.
Gain on the sale of assets and dividends from workers compensation
insurance represent the majority of miscellaneous income during 1996 and 1995.
The effective Federal income tax rate in 1996 was 6.4% due to recognition
of a deferred income tax benefit.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity steadily improved during each of the three years
ended December 31, 1997. This improvement is supported by the favorable trend in
working capital. Operating activities generated $1.4 million, $.7 million and
$1.7 million in cash flow during the years ended 1997, 1996 and 1995,
respectively. The $694,000 current year increase in working capital was
favorably impacted by a decrease of $327,000 in accounts receivable and
partially offset by an increase of $234,000 in contracts receivable. Accounts
payable increased $120,000 during the current year to support additional turnkey
orders from Amistar Manufacturing Services division customers. Accrued
liabilities decreased $211,000 primarily related to the payment of 1996
management performance bonuses in 1997. Inventories increased $200,000 while
demonstration equipment decreased $236,000. The Company periodically transfers
demonstration equipment to inventory to support sales orders. Cash balances
increased $630,000 during 1997 compared to a decrease of $91,000 in 1996.
Surplus cash is invested in money market accounts.
12
Liquidity and Capital Resources-continued
- -----------------------------------------
During 1997, the Company set aside cash to finance additional machine sales
with contracts receivable. The Company believes these financing arrangements
will provide increased interest income and additional sales advantages. A
significant portion of the contacts receivable balance at December 31,1997
originated from sales to customers that the Company believes is of moderate
risk. The Company regularly evaluates the collectability associated with these
balances and provides allowances as deemed necessary.
As in 1996, investment activities consisted primarily of capital
expenditures to support its growing Amistar Manufacturing Services division.
Additional expenditures were also made related to the implementation of the
Company's new enterprise wide information system and upgrades to facilities.
The Company has financed its 80,000 square foot manufacturing and office
facility located in San Marcos, California through $4,500,000 of bonds issued by
the Industrial Development Authority of the City of San Marcos. The bonds carry
a variable interest rate and mature in December 2005. Payments of principal and
interest are unconditionally guaranteed by an irrevocable letter of credit
issued by the Company's bank. The terms of the present irrevocable letter of
credit required the Company in 1995 to establish a $1,329,000 interest-bearing
cash collateral account in order to meet a required loan to value ratio.
The Company's primary sources of liquidity consisted of cash, working
capital, and a two million-dollar line of credit with its bank, which was
available but not utilized. The line of credit expires December 31, 1998. The
Company believes that cash provided from operations, cash balances at December
31, 1997, and available drawings from its line of credit will be adequate to
support its operating and investing requirements through 1998.
New Accounting Standards
- ------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. All items that are required to be recognized under
accounting standards as components of comprehensive income must be reported in a
financial statement with the same prominence as other financial statements. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Adoption of this Statement is not expected to have a material impact on the
Company.
13
The following table sets forth indicated items of cost in the consolidated
statements of earnings as a percentage of net sales:
Percentage of Net Sales
-----------------------
1997 1996 1995
----------- ------------ ----------
Net sales 100.0 100.0 100.0
Cost of sales 64.5 63.0 66.0
----------- ------------ ----------
Gross profit 35.5 37.0 34.0
Operating expenses:
Selling 18.2 18.8 16.2
General & administrative 4.5 4.9 4.6
Engineering, research &
development 6.4 5.3 3.8
----------- ------------ ----------
29.1 29.0 24.6
----------- ------------ ----------
Income from operations 6.4 8.0 9.4
Other income (expense):
Interest, net .4 (.3) (.4)
Miscellaneous .2 .2 .4
----------- ------------ ----------
Earnings before income taxes 7.0 7.9 9.4
Income taxes 2.2 0.5 1.2
----------- ------------ ----------
Net earnings 4.8 7.4 8.2
=========== ============ ==========
The following table sets forth sales (in thousands) by product classification:
1997 1996 1995
-------------------- ------------------- ---------------------
Amistar machines,
parts and service $ 5,532 24% $ 6,140 26% $ 9,676 38%
Private label machines 11,869 52% 12,894 56% 12,398 49%
Manufacturing services 5,439 24% 4,236 18% 3,287 13%
----------- -------- ---------- -------- ----------- -------
$ 22,840 100% $ 23,270 100% $ 25,361 100%
=========== ======== ========== ======== =========== =======
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
Amistar Corporation:
We have audited the accompanying consolidated balance sheets of Amistar
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of earnings and retained earnings, and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 Amistar Corporation
and subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
San Diego, California
February 10, 1998 By:/s/ KPMG Peat Marwick LLP
15
AMISTAR CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 1998
- --------------------------------------------------------------------------------------------
ASSETS (notes 3 & 4)
Current assets:
Cash and cash equivalents $ 2,521,449 $ 1,891,518
Trade accounts receivable, less allowance for
doubtful accounts of $276,126 in 1997 and
$202,756 in 1996 5,574,366 5,901,504
Inventories
Raw materials 884,494 899,536
Work in process 2,669,525 2,061,751
Finished goods 1,772,790 2,165,756
--------------- ---------------
Total inventories 5,326,809 5,127,043
--------------- ---------------
Demonstration equipment 531,251 766,762
Prepaid expenses 271,402 306,595
Deferred income taxes (note 5) 695,000 658,000
--------------- ---------------
Total current assets 14,920,277 14,651,422
--------------- ---------------
Property and equipment, at cost
Land 981,875 981,875
Building 3,989,919 3,899,354
Machinery and equipment 5,925,015 5,511,021
Computer equipment 670,830 514,071
Leasehold improvements 7,425 24,855
--------------- ---------------
11,575,064 10,931,176
Less accumulated depreciation and amortization (6,428,851) (5,981,737)
--------------- ---------------
Net property and equipment 5,146,213 4,949,439
--------------- ---------------
Contracts receivable (note 2) 699,945 465,742
Restricted cash (note 4) 1,329,000 1,329,000
Other assets 140,693 154,963
--------------- ---------------
$ 22,236,128 $ 21,550,566
=============== ===============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 659,679 $ 539,455
Accrued payroll and related costs 263,392 416,520
Accrued liabilities 517,510 728,973
Estimated product installation and warranty costs 125,000 150,000
Accrued commissions 505,954 601,116
Income taxes payable (note 5) 216,408 276,937
--------------- ---------------
Total current liabilities 2,287,943 2,713,001
Industrial development bonds (note 4) 4,500,000 4,500,000
Shareholders' equity (note 6):
Preferred stock, $.01 par value. Authorized 2,000,000
shares; none outstanding - -
Common stock, $.01 par value. Authorized 20,000,000
shares; 3,236,500 shares issued and outstanding in
1997 and 3,228,250 in 1996 32,365 32,282
Additional paid-in capital 4,843,244 4,825,405
Retained earnings 10,572,576 9,479,878
--------------- ---------------
Total shareholders' equity 15,448,185 14,337,565
--------------- ---------------
Commitments (Note 7)
$ 22,236,128 $ 21,550,566
=============== ===============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
AMISTAR CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings and Retained Earnings
Years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------
Net sales $ 22,839,985 $ 23,270,402 $ 25,360,959
Cost of sales 14,738,210 14,633,993 16,732,141
------------- ------------- -------------
Gross profit 8,101,775 8,636,409 8,628,818
Operating expenses:
Selling 4,154,762 4,402,427 4,109,327
General & administrative 1,014,350 1,144,561 1,170,599
Engineering, research & development 1,461,524 1,234,212 951,267
------------- ------------- -------------
6,630,636 6,781,200 6,231,193
------------- ------------- -------------
Income from operations 1,471,139 1,855,209 2,397,625
Other income (expense):
Interest expense (172,461) (171,061) (193,790)
Interest income 257,706 103,616 95,034
Miscellaneous 41,314 51,015 77,683
------------- ------------- -------------
Earnings before income taxes 1,597,698 1,838,779 2,376,552
Income taxes (note 5) 505,000 117,000 300,000
------------- ------------- -------------
Net earnings 1,092,698 1,721,779 2,076,552
Retained earnings, beginning of year 9,479,878 7,758,099 5,681,547
------------- ------------- -------------
Retained earnings, end of year $ 10,572,576 $ 9,479,878 $ 7,758,099
============= ============= =============
Basic and diluted earnings per common share $ 0.34 $ 0.53 $ 0.65
============= ============= =============
Weighted-average shares
outstanding (in thousands) 3,236 3,228 3,193
============= ============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
AMISTAR CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 1,092,698 $ 1,721,779 $ 2,076,552
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 610,571 439,056 377,155
Gain on sale of equipment (39,368) (8,700) (24,410)
Provision for deferred income taxes (37,000) (658,000) -
Changes in assets and liabilities:
Trade accounts receivable 327,138 (1,356,048) (308,941)
Inventories (199,766) (124,335) 439,935
Demonstration equipment 235,511 783,084 (1,001,310)
Prepaid expenses 35,193 (72,633) (14,270)
Contracts receivable (234,203) (134,853) (74,389)
Other assets 14,270 (7,346) 75,571
Accounts payable 120,224 28,479 (122,156)
Accrued payroll and related costs (153,128) 17,623 105,928
Accrued liabilities (211,463) (64,283) 250,403
Customer deposits - (105,356) (502,946)
Estimated product installation and warranty costs (25,000)
Accrued commissions (95,162) 208,454 237,530
Income taxes payable (60,529) (1,062) 215,631
--------------- --------------- ---------------
Net cash provided by operating activities 1,379,986 665,859 1,730,283
Cash flows from investing activities:
Proceeds from sale of equipment 44,919 8,700 24,410
Capital expenditures (812,896) (768,180) (48,185)
--------------- --------------- ---------------
Net cash used in investing activities (767,977) (759,480) (23,775)
Cash flows from financing activities:
Restricted cash - - (1,329,000)
Industrial development bond costs - - (118,372)
Common stock issued upon exercise of stock options 17,922 2,656 51,937
--------------- --------------- ---------------
Net cash provided by (used in) in financing activities 17,922 2,656 (1,395,435)
Net increase (decrease) in cash 629,931 (90,965) 311,073
Cash at the beginning of the year 1,891,518 1,982,483 1,671,410
--------------- --------------- ---------------
Cash at the end of the year $ 2,521,449 $ 1,891,518 $ 1,982,483
=============== =============== ===============
Interest $ 171,012 $ 172,904 $ 193,790
=============== =============== ===============
Income taxes $ 602,529 $ 777,000 $ 86,973
=============== =============== ===============
Supplemental disclosure of non-cash investing activities:
The Company transferred inventory valued $129,191 to property and equipment
during 1996.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
AMISTAR CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three years ended December 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
- -----------------------
Amistar Corporation (the Company) manufactures and markets
productivity-enhancement machinery for the electronics industry. In addition,
the Company is a contract assembler of printed circuit board assemblies,
operating as a separate industry segment as Amistar Manufacturing Services
(AMS). The Company's customers are predominately located in the United States
and Europe. The Company's headquarters and primary manufacturing facility is
located in San Marcos, California. The Company's raw materials are readily
available, and the Company is not dependent on a single supplier or only a few
suppliers, except for the Private Label Equipment line as disclosed in Note 11.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Amistar AG (a Swiss corporation), Amistar GmbH (a
German corporation) and Amistar Ltd., a foreign sales corporation (FSC). In
December 1997, the Company decided to pursue European activities through the use
of independent distributors and as such, closed its own direct sales and service
offices in Germany and Switzerland. All significant inter-company balances and
transactions have been eliminated in consolidation.
Revenue Recognition
- -------------------
The Company recognizes sales revenues upon shipment of machinery and parts and
upon performance of billable service labor. At the time of shipment, the Company
also provides for all estimated non-billable installation, training and warranty
repair costs to be incurred subsequent to the date of revenue recognition.
Cash and cash equivalents
- -------------------------
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
- -----------
Inventories are valued at the lower of cost (first-in, first-out) or market (net
realizable value) and are reviewed regularly for obsolescence.
Demonstration Equipment
- -----------------------
Demonstration equipment represents short-term transfers of inventory for
purposes of participating in trade shows and demonstrations with customers. This
equipment is typically sold or returned to inventory within six months.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is recorded using the
straight-line method over the estimated useful lives of the assets as follows:
Building 40 years
Machinery and equipment 4-7 years
Computer equipment 3 years
Leasehold improvements Shorter of lease term or useful live
Deferred Bond Refinancing Costs
- -------------------------------
Costs incurred in connection with refinancing the Industrial Development Bonds
are amortized on the effective interest method basis over the life of the bonds.
Deferred costs are included in prepaid expenses and other assets.
Research and Development Costs
- ------------------------------
Research and development costs are expensed in the period incurred.
19
AMISTAR CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
- ------------
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Earnings per Common Share
- -------------------------
In December 1997, the Company adopted the provisions of SFAS No. 128, "Earnings
per Share". SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15
(APB No. 15) and replaces "primary" and "fully diluted" earnings per share (EPS)
under APB No. 15 with "basic" and "diluted" EPS. Unlike primary EPS, basic EPS
excludes the dilutive effects of options, warrants and other convertible
securities. Diluted EPS reflects the potential dilution of securities that could
share in the earnings of the Company's net earnings per common share. Options
with a dilutive effect of 13,750 and 12,000 shares were previously included in
the computation of net earnings per share for the years ended December 31, 1997
and 1996, respectively. However, under SFAS No. 128, these options had no impact
on basic earnings per share.
Use of Estimates
- ----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities and revenues and expenses, and
the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Foreign Currency Translation
- ----------------------------
The accounts of foreign subsidiaries are measured using the U.S. dollar as the
functional currency. Gains and losses are not significant and are included in
general and administrative expenses in the Consolidated Statements of Earnings
and Retained Earnings.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amount of cash, trade receivables, trade accounts payable and
accrued expenses approximate fair values because of the short maturity of those
instruments. The carrying amount of contracts receivable approximate fair value
because the contract interest rates reflect market rates on similar instruments.
The carrying amount of the Company's Industrial Development Bonds approximate
fair value due to the variable interest rate provision, which effectively
re-prices the instruments to market values on a monthly basis.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
- -----------------------------------------------------------------------
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of the
assets to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
20
AMISTAR CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Enterprise Segments
- -------------------
In June 1997, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This Statement establishes standards for
the manner in which public business enterprises report information about
operating segments in interim and annual financial statements, and the related
disclosures about products and services, geographic areas and major customers.
(2) CONTRACTS RECEIVABLE
The Company sells machines to certain customers with payment terms extending
beyond one year. The Company charges interest on these sales contracts, at rates
ranging from 9% to 13%. The Company regularly evaluates the collectability
associated with these balances and provides allowances as deemed necessary.
(3) REVOLVING CREDIT LINE
In October 1995, the Company established a $2,000,000 revolving line of credit
with a bank to finance short-term working capital. The terms provide for
interest payable at the bank reference rate (8.5% at December 31,1997) plus 1%.
The line is secured by substantially all assets of the Company and matures in
December 1998. During 1997, 1996 and 1995, no amounts had been advanced on this
line.
(4) INDUSTRIAL DEVELOPMENT BONDS
The Company financed the construction of a manufacturing and office facility in
San Marcos, California through $4,500,000 of bonds issued by the Industrial
Development Authority of City of San Marcos on December 19, 1985. The bonds
originally matured in December 1995. In October 1995, the Company secured an
extension of the maturity date to December 2005. The bonds bear interest at a
variable rate (4.0% at December 31, 1997), with interest payable monthly. The
bonds are guaranteed by an irrevocable letter of credit, which is secured by
substantially all assets of the Company. The terms of the irrevocable letter of
credit required the Company to establish a $1,329,000 interest-bearing cash
collateral account in order to meet a loan-to-value ratio covenant. Costs
incurred in connection with the bond refinancing primarily consists of loan
origination fees, broker's commission, legal and other fees, which have been
capitalized and included in prepaid expenses and other assets. The bond costs
will be amortized over the term of the bonds. Deferred bond refinancing costs
were $110,000 and $125,000 at December 31, 1997 and 1996, respectively. Ongoing
fees related to the bonds and the irrevocable letter of credit will approximate
2% of the bond principal annually.
21
AMISTAR CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Income Taxes
Income tax expense (benefit) consists of the following:
Federal State Foreign Total
------------ ------------- ------------ -------------
1997 Current $ 323,000 $ 85,000 $ 134,000 $ 542,000
Deferred (29,000) (8,000) - (37,000)
------------ ------------- ------------ -------------
$ 294,000 $ 77,000 $ 134,000 $ 505,000
============ ============= ============ =============
1996 Current $ 564,000 $ 165,000 $ 46,000 $ 775,000
Deferred (505,000) (153,000) - (658,000)
------------ ------------- ------------ -------------
$ 59,000 $ 12,000 $ 46,000 $ 117,000
============ ============= ============ =============
1995 Current $ 264,000 $ 7,000 $ 29,000 $ 300,000
Deferred - - - -
------------ ------------- ------------ -------------
$ 264,000 $ 7,000 $ 29,000 $ 300,000
============ ============= ============ =============
Actual income taxes for 1997, 1996 and 1995 differ from "expected" income taxes
for those years (computed by applying the U.S. federal statutory rate of 34% to
earnings before taxes) as follows:
1997 1996 1995
------------- ------------- -------------
Income taxes (federal statutory rate) $ 543,000 $ 625,000 $ 808,000
State and foreign income taxes, net of federal
income tax benefit 67,000 54,000 34,000
Change in valuation allowance - (641,000) (420,000)
Other, net (105,000) 79,000 (122,000)
------------- ------------- -------------
$ 505,000 $ 117,000 $ 300,000
============= ============= =============
The tax effects of significant temporary differences, which comprise deferred
tax assets and liabilities consist of the following:
1997 1996
------------ ------------
Deferred tax assets:
Allowance for doubtful accounts $ 160,000 $ 81,000
Reserve for returns 30,000 30,000
Warranty reserves 50,000 60,000
Inventory reserves 182,000 381,000
Depreciation and amortization 72,000 75,000
Accrued vacation 18,000 16,000
Other 18,000 19,000
State income taxes 26,000 -
Foreign tax credits 139,000 -
------------ ------------
Gross deferred tax assets 695,000 662,000
Deferred tax liabilities-other - 4,000
------------ ------------
Net deferred tax assets $ 695,000 $ 658,000
============ ============
22
AMISTAR CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) INCOME TAXES (CONTINUED)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
amount and timing of scheduled reversal of deferred tax liabilities, projected
future taxable income and projections for future taxable income over the
periods, which the deferred tax assets are deductible. Management believes it is
more likely than not that the Company will realize the benefits of these
deductible differences.
The Company has foreign tax credits totaling $139,000, which are expected to
begin expiring in 1999.
(6) STOCK OPTIONS
In February, 1984, the Company's Board of Directors and common shareholders
approved the 1984 Employee Stock Option Plan, which permitted the issuance to
employees of the Company and its subsidiaries of up to 340,000 incentive stock
options or non-qualifying stock options. Specific terms of the options were
determined by a committee of the Board; however, no options could be granted at
less than the fair market value of the common stock, nor for terms exceeding ten
years, or ten years and one month for non-qualifying stock options. This plan
expired in February 1994. At December 31, 1997, there were no options
outstanding under this plan.
In May 4, 1994, shareholders approved the 1994 Employee Stock Option Plan, which
succeeded the 1984 plan. The 1994 plan permits the issuance to employees of the
Company and its subsidiaries of up to 310,000 incentive stock options at no less
than the fair market value of the common stock. Specific terms of the options
are similar to that of the 1984 plan.
The Company adopted the disclosure-only option under SFAS No. 123. Under APB No.
25, no compensation cost was recognized for the Company's stock option plans.
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant date for awards in 1997 consistent with the
provisions of this statement, the effect on net earnings and basic and diluted
earnings per share would not have been material.
Stock option activity during the periods indicated is as follows:
Year Ended December 31,
---------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
No. of Exercise No. of Exercise No. of Exercise
Shares Price Shares Price Shares Price
---------- ----------- ---------- ----------- ---------- -----------
Beginning balance 12,000 $ 2.2552 13,250 $ 2.2429 50,500 $ 1.7850
Options granted 10,000 3.0000 - 5,000 2.4375
Options exercised (8,250) 2.1250 (1,250) 2.4375 (37,250) 1.7187
Options expired - - (5,000) 1.7187
---------- ----------- ---------- ----------- ---------- -----------
Ending balance 13,750 $ 2.8466 12,000 $ 2.2552 13,250 $ 2.2429
========== =========== ========== =========== ========== ===========
Balance exercisable 1,250 8,250 45,750
========== ========== ==========
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.4375-$3.00 and 5 years,
respectively.
23
AMISTAR CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) COMMITMENTS
The Company leases certain offices and plant facilities under operating leases.
Rental expense for operating leases approximated $189,000 for 1997, $242,000 for
1996, and $241,000 for 1995.
A summary of future minimum lease payments under non-cancelable operating leases
follows:
Year Ending December 31:
------------------------
1998 $ 122,000
1999 113,000
2000 113,000
2001 50,000
2002 20,000
-------------
$ 418,000
=============
(8) RELATED PARTY TRANSACTIONS
The Company purchases certain electronic components from Marshall Industries.
Gordon Marshall, a director of the Company, is Chairman of the Board of Marshall
Industries. During 1997, 1996, and 1995, such purchases totaled $637,000,
$683,000 and $652,000, respectively. Accounts payable to Marshall was $59,000 as
of December 31, 1997 and $63,000 at December 31, 1996. The Company acts as a
subcontractor to Marshall Industries through its Amistar Manufacturing Services
division. Sales to Marshall were $1,215,000, $924,000 and $504,000 in 1997, 1996
and 1995, respectively. Accounts receivable from Marshall as of December 31,
1997 and 1996 was $46,000 and $87,000, respectively.
The Company sells its products to Automation, Ltd., the Company's exclusive
distributor for Great Britain and Ireland. Richard A. Butcher, a Director of the
Company, is Managing Director of Automation, Ltd. Net sales to Automation, Ltd.
aggregated $73,000, $82,000 and $115,000 for 1997, 1996 and 1995, respectively.
Accounts receivable from Automation, Ltd. was $17,000 at December 31, 1997, and
$24,000 at December 31, 1996.
(9) 401(k)
In 1982, the Company established a 401(k) plan for the benefit of its employees.
The plan permits eligible employees to contribute to the plan up to 10% of
annual compensation subject to the maximum allowable under the limits of
Internal Revenue Code Sections 415, 401(k) and 404. The Company makes a matching
contribution to the plan equal to 50% of the first 6% of compensation
contributed by each participant. Amounts contributed in 1997, 1996, and 1995
were $73,000, $73,000, and $59,000, respectively.
24
AMISTAR CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION
The following table summarizes the Company's two operating segments: Machine Sales and Service, and Amistar
Manufacturing Services. The Company identifies reportable segments based on the unique: nature of operating
activities, customer base and marketing channels. Information is also provided by major geographical area.
Mfg.
Machine Sales and Service Services
----------------------------------------- --------
United Rest of United
States Europe World Total States Corporate Total
-------- -------- -------- -------- -------- --------- --------
Year Ended December 31, 1997:
Net sales to unaffiliated
customers $11,909 $ 4,035 $ 1,457 $17,401 $ 5,439 $ - $22,840
======== ======== ======== ======== ======== ======== ========
Earnings before
income taxes 1,255 217 75 1,547 (76) 127 1,598
======== ======== ======== ======== ======== ======== ========
Depreciation and
amortization 70 24 - 94 382 135 611
======== ======== ======== ======== ======== ======== ========
Total assets 9,099 1,581 31 10,711 2,226 9,299 22,236
======== ======== ======== ======== ======== ======== ========
Additions to long-lived
assets 85 6 - 91 483 239 813
======== ======== ======== ======== ======== ======== ========
Year Ended December 31, 1996:
Net sales to unaffiliated
customers 15,261 3,350 423 19,034 4,236 - 23,270
======== ======== ======== ======== ======== ======== ========
Earnings before
income taxes 1,478 267 34 1,779 76 (16) 1,839
======== ======== ======== ======== ======== ======== ========
Depreciation and amortization 53 7 - 60 264 115 439
======== ======== ======== ========= ======== ======== ========
Total assets 9,929 2,080 37 12,046 1,665 7,840 21,551
======== ======== ======== ========= ======== ======== ========
Additions to long-lived
assets 47 - - 47 517 204 768
======== ======== ======== ========= ======== ======== ========
Year Ended December 31, 1995:
Net sales to unaffiliated
customers 15,437 6,200 437 22,074 3,287 - 25,361
======== ======== ======== ========= ======== ======== ========
Earnings before
income taxes 1,634 587 41 2,262 136 (21) 2,377
======== ======== ======== ========= ======== ======== ========
Depreciation and amortization 86 2 - 88 177 112 377
======== ======== ======== ========= ======== ======== ========
Identifiable assets 8,655 1,768 18 10,441 2,200 7,101 19,742
======== ======== ======== ========= ======== ======== ========
Additions to long-lived
assets $ 40 $ - $ - $ 40 $ - $ 8 $ 48
======== ======== ======== ========= ======== ======== ========
Occupancy costs related to the Company's San Marcos, CA facility totaling
$67,500 were allocated to the Amistar Manufacturing Services division from the
Machine Sales and Service division during 1997, 1996 and 1995. This occupancy
allocation is based on square feet utilized.
25
AMISTAR CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED)
Earnings before income taxes allocated to the Corporate segment for 1997, 1996
and 1995 consists of interest income, interest expense and miscellaneous income.
The basis for attributing revenue to the segments and geographical areas is
based on where products and services are sold.
Included in total assets are amounts due from foreign customers aggregating
$709,000 at December 31, 1997, $834,000 at December 31, 1996, and $1,088,000 at
December 31, 1995.
(11) BUSINESS CONCENTRATIONS
The Company distributes the majority of the Private Label products, which
represented 52% of total sales in 1997, 56% in 1996 and 49% in 1995 under a
long-term OEM supply agreement originally dated 1987 and revised in 1995, and as
a result, has significant dependence on this supplier. The agreement provides
the Company with exclusive rights to sell in North America and limited rights to
sell in Europe. A change in suppliers, however, could cause a possible loss of
sales and or change in gross margins, which could affect operating results
adversely.
Most of the Company's customers are located in the United States and Europe.
Sales to Smart Modular Technologies represented 16% of total sales in 1997 and
1996, and 10% in 1995. The Company estimates an allowance for doubtful accounts
based on the credit worthiness of its customers as well as general economic
conditions. Consequently an adverse change in those factors could effect the
Company's estimate of its bad debts.
26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated herein by reference the information from the
section entitled "Election of Directors" on pages 2 and 3 of the Company's
definitive Proxy Statement, dated March 24, 1998, filed with the Securities and
Exchange Commission. Reference is also made to the list of Executive Officers,
which is provided in Part I of this report under the caption "Executive Officers
and Directors."
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated herein by reference the information from the
section entitled "Compensation of Directors and Executive Officers" on pages 5
to 8 of the Company's definitive Proxy Statement, dated March 24, 1998, filed
with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated herein by reference the information from the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" on pages 3 and 4 of the Company's definitive Proxy Statement, dated
March 24, 1998, filed with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated herein by reference the information from the
section entitled "Certain Transactions" on page 10 of the Company's definitive
Proxy Statement, dated March 24, 1998, filed with the Securities and Exchange
Commission.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements of Amistar Corporation are set forth in
item 8 of this Annual Report on Form 10-K:
1. Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Earnings and Retained Earnings -
Years Ended December 31, 1997, 1996, and 1995.
Consolidated Statements of Cash Flows - Years Ended December
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements - Three Years
ended December 31, 1997
2. The following Consolidated Financial Statement Schedules as of and
for the years ended December 31, 1997, 1996 and 1995 are submitted
herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or not required.
3. Exhibits:
3.1 Restated Articles of Incorporation of Registrant, as amended.
3.2 Bylaws of Registrant, as amended.*
27
10.1 Lease dated July 30, 1982, between Registrant (Lessee) and
Skyway Business Park, 1978, a Limited Partnership (Lessor) with
respect to premises located at 3130 Skyway Business Park,
Building 2, Santa Maria, California 93454*
10.2 Export Distributorship Agreement dated August 17, 1981 between
the Registrant and Automation, Ltd. (England, Scotland, Wales
and Ireland).*
10.3 Form of Export Distributorship Agreement used in France, West
Germany, Switzerland, Liechtenstein and Australia.*
10.4 Form of Contract for Sales Representatives used in the United
States.*
10.5 Letter Agreement dated December 6, 1984, between Registrant and
First Interstate Bank of California.***
10.6 1984 Employee Stock Option Plan and related forms of Incentive
Stock Option Agreement and Non-Qualified Stock Option
Agreement.**
10.7 Deed of Trust with assignment of rents and promissory note dated
September 21,1984,with respect to the purchase of land in San
Marcos, California.***
10.8 Financing documents relative to $4,500,000 of bonds issued by
the Industrial Development Authority of the City of Sam Marcos
on December 19, 1985.***
10.9 Bank agreement dated November 19, 1984.*****
10.10 Amendments to the stock option plan.****
10.11 Form of Indemnity Agreement*****
10.12 1994 Employee Stock Option Plan******
22.1 List of Subsidiaries*
23.1 Independent Auditors' Consent and Report on Schedules
---------------------------
*These exhibits are incorporated by reference from the exhibits of
the same number in the Company's Registration Statement on form S-1
(No. 2-897782).
**This exhibit is incorporated by reference from the exhibits
numbered 28.1, 28.2 and 28.3 of the Company's Registration Statement on
Form S-8 (No. 2-94696).
****This exhibit is incorporated by reference from the exhibits of the
same number in the Company's Annual Report on form 10-K for Year ended
December 31, 1985.
****This exhibit is incorporated by reference from the exhibits of the
same number in the Company's Annual Report on form 10-K for Year ended
December 31, 1986.
*****This exhibit is incorporated by reference from the exhibits of the
same number in the Company's Annual Report on form 10-K for Year ended
December 31, 1987.
******This exhibit is incorporated by reference of the Company's
Registration Statement of Form- S-8 filed February 15, 1995.
28
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
AMISTAR CORPORATION
By: /s/ Stuart C. Baker
----------------------------
Stuart C. Baker
President
Date: March 12, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and the dates indicated.
By: /s/ Stuart C. Baker Principal Executive Officer March 12, 1998
------------------------ and Director
Stuart C. Baker
By: /s/ William W. Holl Vice President of Finance March 12, 1998
------------------------ and Administration, Treasurer,
William W. Holl Secretary and Director (Chief
Financial and Accounting Officer)
By: /s/ Carl C. Roecks Director March 12, 1998
------------------------
Carl C. Roecks
By: /s/ Gordon S. Marshall Director March 12, 1998
------------------------
Gordon S. Marshall
By: /s/ Richard A. Butcher Director March 12, 1998
------------------------
Richard A. Butcher
29
AMISTAR CORPORATION
AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
Three years ended December 31, 1997
Column A Column B Column C Column D Column E
- ------------------------------------- -------------------------------------- ------------
Additions
-------------------------
Balance at Charged to Charged Balance
beginning costs and to other at end
Description of period expenses accounts Deductions(a) of period
- ------------------------------------- ------------------------- ------------ ------------
Allowance for doubtful
accounts:
1997 $ 202,756 $ 70,000 $ 13,406 $ 10,036 $ 276,126
============ ============ ============ ============ ============
1996 $ 104,615 $ 100,000 $ 1,837 $ 3,696 $ 202,756
============ ============ ============ ============ ============
1995 $ 111,614 $ - $ 13,018 $ 20,017 $ 104,615
============ ============ ============ ============ ============
Estimated product installation and warranty costs (b):
1997 $ 150,000 $ 969,000 $ - $ 994,000 $ 125,000
============ ============ ============ ============ ============
1996 $ 150,000 $ 914,000 $ - $ 914,000 $ 150,000
============ ============ ============ ============ ============
1995 $ 150,000 $ 805,713 $ - $ 805,713 $ 150,000
============ ============ ============ ============ ============
(a) Accounts written off as uncollectible.
(b) Total cost of service, which includes trade shows, customer demonstrations,
product support and training, as well as warranty and installation expense.
30