1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number: 0-8767
CALNETICS CORPORATION
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-2303687
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20401 PRAIRIE STREET, CHATSWORTH, CALIFORNIA 91311
(Address of principal executive offices) (zip code)
(818) 886-9819
Registrant's telephone number, including area code
NA
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
The number of shares outstanding of the Registrant's Common Stock as of
September 30, 1996 was 2,969,799.
2
CALNETICS CORPORATION
INDEX
Part I. Financial Information Page Number
- ------------------------------ -----------
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 1996 and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated
Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 11
Part II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Page 2 of 18
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PART I - FINANCIAL INFORMATION
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
September 30
-----------------------------------
1996 1995
----------- -----------
Net sales $8,446,020 $8,771,275
Cost of sales 6,327,899 6,807,579
---------- ----------
Gross profit 2,118,121 1,963,696
---------- ----------
Selling, general and
administrative expenses 1,329,641 1,332,273
Other expense, net, including interest 88,771 124,519
---------- ----------
Total costs and expenses 1,418,412 1,456,792
Income from operations before income taxes 699,709 506,904
Provision for income taxes 296,000 210,700
---------- ----------
Net income $ 403,709 $ 296,204
========== ==========
Earnings per common share and common share
equivalent $ 0.13 $ 0.10
Weighted average common shares and common
share equivalents outstanding 3,128,140 3,066,881
========== ==========
No dividends were paid during the period set forth above.
See accompanying notes to condensed consolidated financial statements.
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CALNETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, 1996 June 30, 1996
------------------ -------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,396,089 $ 1,877,633
Accounts receivable, net 4,327,237 4,997,471
Inventories 5,959,683 5,470,710
Prepaid expenses 130,243 254,608
Deferred income taxes 342,000 342,000
----------- -----------
Total current assets 12,155,252 12,942,422
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
(at cost):
Land 466,288 466,288
Buildings and leasehold improvements 2,275,267 2,269,525
Machinery and equipment 4,965,389 4,587,322
Furniture and fixtures 256,396 248,220
----------- -----------
7,963,340 7,571,355
Less--Accumulated depreciation
and amortization 3,573,709 3,399,998
----------- -----------
Property, plant and equipment,
net 4,389,631 4,171,357
----------- -----------
Deposits and other assets 170,188 171,245
Goodwill 1,382,968 1,401,268
----------- -----------
Total assets $18,098,039 $18,686,292
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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CALNETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, 1996 June 30, 1996
------------------ -------------
CURRENT LIABILITIES:
Current portion of
long-term debt $ 257,154 $ 247,187
Accounts payable 2,789,306 3,214,786
Accrued liabilities 980,347 1,167,707
Income taxes payable 304,021 386,021
----------- -----------
Total current liabilities 4,330,828 5,015,701
----------- -----------
LONG-TERM DEBT,
net of current portion 4,419,351 4,740,820
----------- -----------
DEFERRED INCOME TAXES 57,000 57,000
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock: authorized-
2,000,000 shares, none issued --- ---
Common stock, no par value:
authorized - 20,000,000 shares;
issued and outstanding --
2,969,799 at September 30, 1996
and 2,959,799 at June 30, 1996 2,476,725 2,462,345
Retained earnings 6,814,135 6,410,426
----------- -----------
Total shareholders' equity 9,290,860 8,872,771
----------- -----------
Total liabilities and
shareholders' equity $18,098,039 $18,686,292
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
September 30,
------------------------------------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 403,709 $ 296,204
--------- ---------
Adjustments to reconcile net income to
net cash provided by
operating activities:
Provision for doubtful accounts --- 13,000
Depreciation and amortization 192,011 174,958
Changes in operating assets and
liabilities:
Accounts receivable 670,234 (39,141)
Inventories (488,973) (161,507)
Prepaid expenses 124,365 84,448
Deposits and other assets 1,057 (1,041)
Accounts payable (425,480) 197,558
Accrued liabilities (187,360) (366,503)
Income taxes payable (82,000) 87,528
--------- ---------
Total adjustments (196,146) (10,700)
---------- ---------
Net cash provided by
operating activities 207,563 285,504
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (391,985) (257,734)
---------- -----------
Net cash used in investing activities (391,985) (257,734)
---------- -----------
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CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
Three Months Ended
September 30,
------------------------------------
1996 1995
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $ (311,502) $ (213,098)
Net proceeds from issuance of
common stock 14,380 ---
---------- ----------
Net cash used in financing
activities (297,122) (213,098)
---------- ----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (481,544) (185,328)
CASH AND CASH EQUIVALENTS,
beginning of period 1,877,633 1,580,974
---------- ----------
CASH AND CASH EQUIVALENTS,
end of period $1,396,089 $1,395,646
========== ==========
Supplemental disclosures of cash flow
information:
Cash paid for interest $ 88,771 $ 119,962
========== ==========
Cash paid for income taxes $ 678,000 $ 124,000
========== ==========
See accompanying notes to condensed consolidated financial statements.
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CALNETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996
1. General.
In the opinion of the management of Calnetics Corporation (the
"Company"), the accompanying condensed consolidated unaudited
financial statements contain all adjustments, consisting of only
normal recurring accruals, necessary to present fairly the Company's
financial position at September 30, 1996, the results of its
operations for the three months ended September 30, 1996 and 1995 and
the cash flows for the three months ended September 30, 1996 and 1995.
Certain information and footnote disclosures normally included in
financial statements that would have been prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, although management of the Company believes that
the disclosures in these financial statements are adequate to make the
information presented therein not misleading. It is suggested that
these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's
June 30, 1996 Form 10-K filed with the Securities and Exchange
Commission.
The results of operations for the three months ended September
30, 1996 are not necessarily indicative of the results of operations
to be expected for the full fiscal year ending June 30, 1997.
2. Receivables.
The following tabulation shows the elements of receivables:
September 30, 1996 June 30, 1996
------------------ -------------
Trade accounts receivable $4,643,237 $5,313,471
Less allowance for doubtful
accounts 316,000 316,000
---------- ----------
Total $4,327,237 $4,997,471
========== ==========
3. Income taxes.
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Income taxes for the three-month period ended September 30, 1996 were
computed using the effective tax rate estimated to be applicable for the
full fiscal year. This rate is subject to ongoing evaluation and review
by management.
4. Long-term debt.
At September 30, 1996 and June 30, 1996, long-term debt
consisted of the following:
September 30, 1996 June 30, 1996
------------------ -------------
Term loans payable to banks,
unsecured by inventory and
receivables, interest at the
banks' reference rate (8.25
percent at September 30, 1996)
plus .75 percent, due in
various monthly install-
ments of principal and
interest through July 1,
1999, with balloon payments
totaling $1,458,462 due on
August 1, 1999 $2,645,799 $2,949,948
Industrial revenue bonds payable,
principal due in annual
sinking fund installments
ranging from $15,000 to
$130,000 through December
2021, plus interest due
monthly based on the Issuer's
Weekly Adjustable Interest
Rates for Revenue Bonds
(3.4 percent at September 30,
1996), secured by a standby
letter of credit issued by a
bank with an annual fee of
1.25 percent 1,440,000 1,440,000
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Long-term debt (cont'd).
September 30, 1996 June 30, 1996
------------------ -------------
Loans payable to former Agricultural
Products, Inc.'s shareholders,
unsecured, interest payable
semi-annually at 7.50 percent,
principal payable in three equal
annual installments through
June 1999 301,532 301,532
Mortgage payable to bank, secured
by the related building and
land, payable in monthly
installments of $1,665
plus interest at bank's prime
rate (8.25 percent at September
30, 1996), with a balloon
payment of $201,415 due on
March 5, 2000 269,692 274,687
Other 19,482 21,840
---------- ----------
$4,676,505 $4,988,007
Current portion of long-term debt 257,154 247,187
---------- ----------
Long-term portion $4,419,351 $4,740,820
========== ==========
The term loans and notes payable include certain restrictive
financial and non-financial covenants, including certain cash
restrictions and limitations on payment of cash dividends and
redemption of stock.
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5. Earnings per common share and common share equivalent.
Earnings per common share and common share equivalent are
based on the weighted average number of shares of common stock and
common stock equivalents (dilutive stock options) outstanding during
the related periods. The weighted average number of common stock
equivalent shares includes shares issuable upon the assumed exercise
of stock options less the number of shares assumed purchased with the
proceeds available from such exercise. Fully diluted net income per
share does not differ materially from net income per common share and
common share equivalent.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial condition.
There were no significant changes in current assets or current
liabilities or the overall financial condition of the Company between September
30, 1996, the end of the first quarter, and June 30, 1996.
Liquidity and Capital Resources.
At September 30, 1996, the Company's working capital was
$7,824,424, compared with $7,276,577 at the same time a year ago.
The Company has a working capital agreement with a bank under
which the Company may borrow up to $2,500,000 on an unsecured basis and as of
September 30, 1996, the entire amount of $2,500,000 was available under this
credit arrangement, which expires on December 31, 1996.
The Company has no immediate plans for any significant capital
expenditures and the Company believes that its available funds and internally
generated cash from operations will be sufficient to meet its working capital
needs in fiscal 1997. Certain loan agreements limit capital expenditures to
$1,000,000 in the fiscal year ending June 30, 1997 and thereafter.
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Results of Operations.
Three Months ended September 30, 1996 compared to three months ended September
30, 1995
Net sales decreased approximately 4% from $8,771,275 for the
three month period ended September 30, 1995 to $8,446,020 for the three month
period ended September 30, 1995. The decrease in revenue is attributed to a
decline in shipments at the Company's Manchster Plastics Co. subsidiary.
Cost of sales as a percentage of sales decreased from 77.6%
during the the three month period ended September 30, 1995 to 74.9% for the
three month period ended September 30, 1996. The decrease is primarily
attributed to improvements of profit margins at the Company's Ny-Glass Plastics
Co. subsidiary.
Selling, general and administrative expenses decreased to
$1,329,641 as compared with $1,332,273 for the same period in the prior year.
Net income for the current three-month period was $403,709 as
compared with $296,204, for the prior three month period after provisions for
income taxes of $296,000 and $210,710 respectively. Earnings per share
increased to $0.13 from $0.10 per share for the three months ended September
30, 1996 and 1995, respectively. The increase in net income is attributed to
improved profit margins and a decline in interest expense.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
------- -----------
3.1 Amended and Restated Articles of
Incorporation of Calnetics (Exhibit
3.1 to Form 10-K filed September
25, 1989).
3.2 Bylaws of Calnetics (Exhibit 1.2
to Form 10-K filed September 21,
1978).
3.3 Amendment to Bylaws of Calnetics
(Exhibit 3 to Form 8 filed September
28, 1989).
10.1 Lease dated November 22, 1989 between
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Manchester and Tom Schneider and Arlene
Schneider and Amendment to said lease
dated December 5, 1989 (Exhibit 10.12
to Form 10-K dated June 30, 1991).
10.2 Lease dated June 2, 1992 by and between
Honey Protas and Ny-Glass (Exhibit 10.19
to Form 10-K dated June 30, 1992).
10.3 Addendum No. 1 to Lease dated June 2,
1992 (Exhibit 10.20 to Form 10-K
dated June 30, 1992).
10.4 Lease Guaranty Agreement entered into as
of June 2, 1992 by Calnetics (Exhibit 10.21
to Form 10-K dated June 30, 1992).
10.5 Memorandum of Lease with Right of First
Refusal and Option to Purchase dated
May 22, 1992 (Exhibit 10.22 to
Form 10-K dated June 30, 1992).
10.6 Side Letter Agreement re Standard
Industrial Commercial Single Tenant
Lease by and between Honey Protas as
lessor and Ny-Glass as lessee dated
May 22, 1992 (Exhibit 10.23 to Form
10-K dated June 30, 1992).
10.7 Calnetics Corporation 1988 Employee
Stock Option Plan (Exhibit 10.25 to
Form 10-K dated June 30, 1993).
10.8 Calnetics Corporation 1993 Nonstatutory
Stock Option Plan (Exhibit 10.26 to
Form 10-K dated June 30, 1993).
10.9 Business Loan Agreement dated June 28,
1993 among Bank of America National
Trust and Savings Association, Calnetics,
Manchester and Ny-Glass (Exhibit 10.27 to
Form 10-K dated June 30, 1993).
10.10 First Amendment to Business Loan Agreement of
June 28, 1993 dated as of June 20, 1994 among
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Bank of America National Trust and Savings
Association, Calnetics, Manchester and
Ny-Glass (Exhibit 10.17 to Form 10-K dated
June 30, 1994).
10.11 Stock Purchase Agreement among Calnetics and
the Selling Shareholders of API effective as
of April 30, 1994. (Exhibit 2 to Form 8-K
filed June 24, 1994).
10.12 Business Loan Agreement dated June 20, 1994
among The Bank of California, N.A., Calnetics,
Manchester, Ny-Glass and API (Exhibit 10.19 to
Form 10-K dated June 30, 1994).
10.13 Security Agreement (Receivables and Inventory)
dated June 20, 1994 between Calnetics and The
Bank of California, N.A. (Exhibit 10.20 to
Form 10-K dated June 30, 1994).
10.14 Security Agreement (Receivables and Inventory)
dated June 20, 1994 between Ny-Glass and The
Bank of California, N.A. (Exhibit 10.21 to Form
10-K dated June 30, 1994).
10.15 Security Agreement (Receivables and Inventory)
dated June 20, 1994 between Manchester and The
Bank of California, N.A. (Exhibit 10.22 to
Form 10-K dated June 30, 1994).
10.16 Security Agreement (Receivables and Inventory)
dated June 20, 1994 between API and The Bank
of California, N.A. (Exhibit 10.23 to Form 10-K
dated June 30, 1994).
10.17 Term Loan Note dated June 20, 1994 among
The Bank of California, N.A., Calnetics,
Manchester, Ny-Glass and API (Exhibit 10.24
to Form 10-K dated June 30, 1994).
10.18 Business Loan Agreement dated June 20, 1994
among Bank of America National Trust and
Savings Association, Calnetics, Manchester,
Ny-Glass and API (Exhibit 10.25 to Form 10-K
dated June 30, 1994).
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10.19 Security Agreement dated June 20, 1994
between Calnetics and Bank of America
National Trust and Savings Association (Exhibit 10.26
to Form 10-K dated June 30, 1994).
10.20 Security Agreement dated June 20, 1994
between Ny-Glass and Bank of America
National Trust and Savings Association
(Exhibit 10.27 to Form 10-K dated June 30, 1994).
10.21 Security Agreement dated June 20, 1994
between Manchester and Bank of America
National Trust and Savings Association
(Exhibit 10.28 to Form 10-K dated June 30, 1994).
10.22 Security Agreement dated June 20, 1994
between API and Bank of America National
Trust and Savings Association (Exhibit 10.29
to Form 10-K dated June 30, 1994).
10.23 Noncompetition and Noninterference Agreement
dated June 20, 1994 among Calnetics, API
and Lon Schultz, individually and as trustee
of the Lon Schultz Charitable Remainder
Unitrust (Exhibit 10.31 to Form 10-K dated
June 30, 1994).
10.24 Employment Agreement dated June 20, 1994
between API and Lon Schultz, an individual
(Exhibit 10.32 to Form 10-K dated June 30, 1994).
10.25 Parts Purchase and Supply Agreement dated
June 20, 1994 between API and Story Plastics,
Inc., a California corporation (Exhibit 10.33 to
Form 10-K dated June 30, 1994).
10.26 Loan Agreement dated December 31, 1991 between
California Statewide Communities Development
Authority and API (Exhibit 10.34 to Form 10-K
dated June 30, 1994).
10.27 Reimbursement Agreement dated December 1, 1991
between API and Union Bank (Exhibit 10.35 to
Form 10-K dated June 30, 1994).
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10.28 Standby Reimbursement Agreement dated
December 1, 1991 between API and The Bank of
California, N.A. (Exhibit 10.36 to Form 10-K
dated June 30, 1994).
10.29 Sixth Amendment to the Standby Reimbursement
Agreement of December 1, 1991 dated July
1, 1994 (Exhibit 10.37 to Form 10-K dated
June 30, 1994).
10.30 Renewal/Consolidation Promissory Note and
Security Agreement dated March 13, 1992
between API as borrower and First Union
National Bank of Florida as lender (Exhibit
10.38 to Form 10-K dated June 30, 1994).
10.31 Amendment dated November 30, 1994 to Business
Loan Agreement dated June 20, 1994 among Bank
of America National Trust and Savings Association,
Calnetics, Manchester, Ny-Glass and API. (Exhibit
10.25 to Form 10-K dated June 30, 1994).
10.32 Mortgage Modification, Consolidation, Spreader,
and Extension Agreement dated March 31, 1995
among First Union National Bank of Florida,
API and Calnetics. (Exhibit 10.32 to Form 10-K
Dated June 30, 1995).
10.33 API Profit Sharing Plan Adoption Agreement
dated November 21, 1991 (Exhibit 10.39 to
Form 10-K dated June 30, 1994).
10.34 API 401(k) Plan Adoption Agreement effective
as of January 1, 1993 (Exhibit 10.40 to Form
10-K dated June 30, 1994).
10.35 Nonstatutory Stock Option Agreement between
Calnetics and Michael A. Hornak dated
February 28, 1994 (Exhibit 10.41 to Form
10-K dated June 30, 1994).
10.36 Nonstatutory Stock Option Agreement between
Calnetics and Steven L. Strawn dated
February 28, 1994 (Exhibit 10.42 to Form 10-K
dated June 30, 1994).
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10.37 Nonstatutory Stock Option Agreement between
Calnetics and Lon Schultz dated July 18, 1994
(Exhibit 10.37 to Form 10-K dated June 30, 1995).
10.38 Amendment No.2 dated December 21, 1995 to
Business Loan Agreement dated June 20, 1994
among Bank of America National Trust and Savings
Association, Calnetics, Manchester, Ny-Glass and API.
(Exhibit 10.25 to Form 10-K dated June 30, 1994).
10.39 Amendment No.3 dated June 28, 1996 to
Business Loan Agreement dated June 20, 1994
among Bank of America National Trust and Savings
Association, Calnetics, Manchester, Ny-Glass and API.
(Exhibit 10.25 to Form 10-K dated June 30, 1994).
10.40 1995 Employee Stock Option Plan Dated September
27, 1995 (Exhibit 10.40 to Form 10-K dated June 30, 1996).
27.1* Financial Data Schedule
(b) Reports on Form 8-K
None.
- ----------------------
* Filed herewith
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CALNETICS CORPORATION
(Registrant)
Dated: October 31, 1996 /s/ Clinton G. Gerlach
-----------------------------------
Clinton G. Gerlach
President
Dated: October 31, 1996 /s/ Teresa S. Louie
---------------------------------------
Teresa S. Louie
Treasurer
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