<PAGE> 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 March 31, 1995
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 or registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 95-2303687
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
20401 PRAIRIE STREET, CHATSWORTH, CALIFORNIA 91311
(Address of principle executive offices) (zip code)
(818) 886-9819
Registrant's telephone number, including area code
N/A
(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
--- ---
Number of shares outstanding of each of the issuer's classes of common stock,
as of the March 31, 1995 date was 2,914,799.
<PAGE> 2
CALNETICS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Part I. Financial Information Number
- - - - ------------------------------ ------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
Three Months and Nine Months Ended March 31, 1995 and 1994 . . . . . . 3
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 1995 and June 30, 1994 . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
Page 2 of 14
<PAGE> 3
PART I - FINANCIAL INFORMATION
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------------- ------------------------------
1995 1994 1995 1994
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $7,704,812 $4,099,606 $20,627,574 $11,694,159
Cost of Sales 5,712,942 3,230,080 15,466,800 9,136,369
---------- ---------- ----------- -----------
Gross Profit 1,991,870 869,526 5,160,774 2,557,790
---------- ---------- ----------- -----------
Selling, general
and administrative
expenses 1,370,015 618,884 3,672,210 1,880,638
Other expense, including
interest 132,431 15,457 398,712 47,894
---------- ---------- ----------- -----------
Total costs and
expenses 1,502,446 634,341 4,070,922 1,928,532
Income from operations
before income taxes 489,424 235,185 1,089,852 629,258
Provision for
income taxes 209,721 99,800 460,944 262,800
---------- ---------- ----------- -----------
Net income $ 279,703 $ 135,385 $ 628,908 $ 366,458
========== ========== =========== ===========
Earnings per common
share and common
share equivalent $ 0.09 $ 0.05 $ 0.21 $ 0.13
Weighted average common
shares and common
share equivalents
outstanding 3,045,093 2,930,551 3,036,402 2,902,389
========== ========== =========== ===========
</TABLE>
No dividends were paid during the period set forth above.
See accompanying notes to condensed consolidated financial statements.
Page 3 of 14
<PAGE> 4
e CALNETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, 1995 June 30, 1994
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 924,113 $ 1,853,091
Accounts receivable, net 4,788,270 4,254,797
Inventories 4,854,286 4,176,531
Prepaid expenses 261,925 148,397
Deferred income taxes 232,000 232,000
----------- -----------
Total current assets 11,060,594 10,664,816
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
(at cost):
Land 466,288 466,288
Buildings and improvements 2,182,992 2,177,356
Machinery and equipment 3,764,379 3,521,932
Furniture and fixtures 220,094 190,558
----------- -----------
6,633,753 6,356,134
Less--Accumulated depreciation
and amortization 2,712,553 2,364,239
----------- -----------
Property, plant and equipment,
net 3,921,200 3,991,895
----------- -----------
Deposits and other assets 207,545 174,776
Goodwill 1,488,926 1,545,289
----------- -----------
Total assets $16,678,265 $16,376,776
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 14
<PAGE> 5
CALNETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1995 June 30, 1994
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of
long-term debt $ 371,913 $ 488,418
Accounts payable 2,624,254 1,880,127
Customer deposits 107,218 80,898
Accrued liabilities 785,233 1,229,961
Income taxes payable 110,967 195,966
------------ -----------
Total current liabilities 3,999,585 3,875,370
----------- -----------
LONG-TERM DEBT,
net of current portion 5,802,692 6,284,524
----------- -----------
DEFERRED INCOME TAXES 117,000 117,000
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock: authorized-
2,000,000 shares, none issued --- ---
Common stock, no par value:
Authorized - 20,000,000 shares;
Issued and outstanding --
2,914,799 at March 31, 1995
and 2,893,799 at June 30, 1994 2,397,635 2,367,437
Retained earnings 4,361,353 3,732,445
----------- -----------
Total shareholders' equity 6,758,988 6,099,882
----------- -----------
Total liabilities and
shareholders' equity $16,678,265 $16,376,776
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5 of 14
<PAGE> 6
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------
1995 1994
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 628,908 $ 366,458
--------- ---------
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Provision for doubtful accounts 61,500 32,670
Depreciation and amortization 520,548 255,366
Loss (gain) on sale of property --- (760)
Changes in operating assets and
liabilities, net of effects
from acquisitions:
Accounts receivable (594,973) (129,016)
Inventories (677,755) (86,097)
Prepaid expenses (113,528) 68,397
Accounts payable 744,127 264,930
Customer deposits 26,320 (44,128)
Accrued liabilities (444,728) 42,493
Income taxes payable ( 84,999) 17,801
--------- ---------
Total adjustments (563,488) 421,656
--------- ---------
Net cash provided by
operating activities 65,420 788,114
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property,
plant and equipment --- 4,000
Purchase of property, plant and equipment (393,490) (56,374)
Deposits and other assets (32,769) (9,037)
---------- ---------
Net cash used in investing activities (426,259) (61,411)
--------- ---------
</TABLE>
Page 6 of 14
<PAGE> 7
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-----------------------------
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $ (598,337) $(256,250)
Increase in long-term notes receivable --- (42,887)
Net proceeds from issuance of
common stock 30,198 81,565
---------- ---------
Net cash used in financing
activities (568,139) (217,572)
---------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (928,978) 509,131
CASH AND CASH EQUIVALENTS,
beginning of period 1,853,091 342,723
---------- ---------
CASH AND CASH EQUIVALENTS,
end of period $ 924,113 $ 851,854
========== =========
Supplemental disclosures of cash flow
information:
Interest paid $ 398,712 $ 6,493
========== =========
Income taxes paid $ 545,575 $ 245,000
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 7 of 14
<PAGE> 8
CALNETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
March 31, 1995
1. General:
In the opinion of the management of the Company, the accompanying
condensed unaudited financial statements contain all adjustments, consisting of
only normal recurring accruals, necessary to present fairly the financial
position at March 31, 1995, and June 30, 1994, the results of its operations
for the three and nine months ended March 31, 1995 and 1994 and the cash flows
for the nine months ended March 31, 1995 and 1994. 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, 1994 Form
10-K.
The results of operations for the three and nine months ended March
31, 1995 are not necessarily indicative of the results of operations to be
expected for the full fiscal year ending June 30, 1995.
2. Receivables.
The following tabulation shows the elements of receivables:
<TABLE>
<CAPTION>
March 31, 1995 June 30, 1994
-------------- -------------
<S> <C> <C>
Trade accounts receivable $5,013,054 $4,452,797
Less allowance for doubtful
accounts 224,784 198,000
---------- ----------
Total $4,788,270 $4,254,797
========== ==========
</TABLE>
Page 8 of 14
<PAGE> 9
3. Income Taxes.
Income taxes for the nine-month period ended March 31, 1995
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 March 31, 1995 and June 30, 1994, long-term debt consisted
of the following:
<TABLE>
<CAPTION>
March 31, 1995 June 30, 1994
-------------- -------------
<S> <C> <C>
Term loans payable to banks,
secured by inventory and
receivables, interest at the
banks' reference rate (9.00
percent at March 31, 1995)
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 $3,989,719 $4,500,000
Industrial revenue bond 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 Issuers
Weekly Adjustable Interest
Rates for Revenue Bonds
(totaling 5.65 percent at
March 31, 1995) 1,440,000 1,470,000
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Page 9 of 14
<PAGE> 10
Long-term debt. (cont'd)
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<CAPTION>
March 31, 1995 June 30, 1994
-------------- -------------
<S> <C> <C>
Loans payable to former API
shareholders, unsecured,
interest payable semi-annually
at 7.50 percent, principal
payable in four equal annual
installments beginning June
1996 402,042 402,042
Mortgages payable to bank, secured
by the related building and
land, payable in monthly
installments of $1,090 and
$544 plus interest at one
percent over the bank's
prime rate, with balloon
payments of $169,617 and
$98,404 due March 1997 and
April 1996, respectively 299,619 314,336
Equipment term notes payable to banks,
secured by the related equipment,
due in equal monthly installments
of principal and interest ranging
from $214 to $780, interest at
rates ranging from 1.0 percent
over the bank's prime rate to
11.87 percent through October
1998 43,225 86,564
---------- ----------
Total Long-term debt $6,174,605 $6,772,942
Current portion of long-term debt 371,913 488,418
---------- ----------
Long-term portion $5,802,692 $6,284,524
========== ==========
</TABLE>
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. At March 31, 1995, the Company was in compliance
with all bank covenants.
Page 10 of 14
<PAGE> 11
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
General developments.
On June 3, 1992, the Company completed a cash acquisition of
substantially all of the assets of Plastic Science, Inc. ("PSI"), a
manufacturer of plastic injection molding components located in Corona,
California. The acquisition was accomplished through a subsidiary of the
Company, Ny-Glass Plastics, Inc. ("Ny-Glass") which continued the business of
PSI under the Ny-Glass name in Corona, California. At the time of the
acquisition, Ny-Glass entered into a ten (10) year building lease with respect
to the premises formerly occupied by PSI.
In September 1992, the Ny-Glass division of the Company,
located in Paramount, California, moved to Corona, California and consolidated
with the Ny-Glass subsidiary.
As of April 30, 1994, Calnetics acquired all of the capital
stock of Agricultural Products, Inc. ("API") for $4,402,144 by payment of
$4,000,102 in cash obtained from long-term bank financing, and $402,042 in
unsecured notes payable to the API shareholders. API owns two plants,
consisting of 50,000 square feet in Ontario, California and 30,000 square feet
in Winter Haven, Florida. API's executive offices are located on site with the
plant in Ontario, California.
Financial condition.
There were no significant changes in current assets or current
liabilities of the Company between March 31, 1995,the end of the third quarter,
and June 30, 1994, except for (1) increases in receivables and inventory,
partially offset by an increase in accounts payable, all attributable to sales
increases and (2) the voluntary payment of $250,000, representing six monthly
installments, of one of the Company's long term bank loans, the payment of
which was in addition to the regular scheduled monthly payments.
Page 11 of 14
<PAGE> 12
Liquidity and Capital Resources.
At March 31, 1995, the Company's working capital was
$7,061,009, compared to $4,159,765 at the same time a year ago, representing an
increase of $2,901,244 primarily due to the acquisition by the Company of API
as of April 30, 1994.
The Company has a working capital agreement with a bank under
which the Company may borrow up to $2,000,000 on an unsecured basis. As of
March 31, 1995, the entire amount of $2,000,000 was available under this credit
arrangement, which expires on November 30, 1995.
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 1995. Certain loan agreements limit capital expenditures to
$700,000 in 1995 and $500,000 in 1996 and thereafter.
The Company continues to experience increases in raw material
resin costs and, in turn, is increasing selling prices. Profit margins could
be affected if the Company's competition fails to increase their selling
prices.
Results of Operations.
Three months ended March 31, 1995 compared to three months ended March 31, 1994
Net sales for the three-month period ended March 31, 1995
increased 88% from $4,099,606 in the same period in 1994, to $7,704,812 in
1995; the increase is partially attributed to the acquisition by the Company of
API in the fourth quarter of fiscal 1994.
Cost of sales as a percentage of sales decreased to 74.1%,
during the period January 1, 1995 to March 31, 1995, as compared to 78.8% for
the same period in the prior year. The improvement is primarilay attributed to
the inclusion of the more favorable profit margins of API resulting from its
acquisition by the Company.
Selling, general and administrative expenses for the three
month period ended March 31, 1995 increased to $1,370,015 as compared with
$618,884 for the same period in the prior year, an increase of 121%; the
increase due primarily to the API acquisition.
Page 12 of 14
<PAGE> 13
Net income for the current three-month period was $279,703 as
compared with $135,385, for the same period in the prior year, after provisions
for income taxes of $209,721 and $99,800 for the three months ended March 31,
1995 and 1994, respectively. Earnings per common share and common share
equivilant increased to $0.09 from $0.05 per share for the three months ended
March 31, 1995 and 1994, respectively. The increase in net income is
attributed primarily to the acquisition of API in the fourth quarter of fiscal
1994.
Nine Months ended March 31, 1995 compared to nine months ended March 31, 1994
Net sales for the nine-month period ended March 31, 1995
increased 76.4% from $11,694,159 in 1994, to $20,627,574 in 1995; the increase
is attributed primarily to the acquisition of API in the fourth quarter of
fiscal 1994.
Cost of sales as a percentage of sales decreased to 75%,
during the period July 1, 1994 to March 31, 1995, as compared to 78.1% for the
same period in the prior year. The improvement is primarily attributed to the
inclusion of the more favorable profit margins of API resulting from its
acquisition by the Company.
Selling, general and administrative expenses increased to
$3,672,210 for the nine-month period ended March 31, 1995 as compared with
$1,880,638 for the same period in the prior year. The increase is mainly
attributed to the acquisition of API in April, 1994.
Net income for the current nine-month period was $628,908 as
compared with $366,458, for the nine-month period ended March 31, 1994 after
provisions for income taxes of $460,944 and $262,800 for the nine months ended
March 31, 1995 and 1994, respectively. The improvement in net income was
primarily attributed to the acquisition of API in the fourth quarter of fiscal
1994.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None.
27.1 Financial Data Schedule
Page 13 of 14
<PAGE> 14
SIGNATURES
Pursuant to the requirements 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)
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<S> <C> <C>
Dated: April 26, 1995 /s/ Clinton G. Gerlach
-------------------------------
Clinton G. Gerlach
President
Dated: April 26, 1995 /s/ Teresa S. Louie
-------------------------------
Teresa S. Louie
Treasurer
</TABLE>
Page 14 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 924,113
<SECURITIES> 0
<RECEIVABLES> 5,013,054
<ALLOWANCES> 224,784
<INVENTORY> 4,854,286
<CURRENT-ASSETS> 11,060,594
<PP&E> 8,751,079
<DEPRECIATION> 4,829,879
<TOTAL-ASSETS> 16,678,167
<CURRENT-LIABILITIES> 3,999,585
<BONDS> 5,919,692
<COMMON> 2,397,635
0
0
<OTHER-SE> 4,361,353
<TOTAL-LIABILITY-AND-EQUITY> 16,678,167
<SALES> 20,627,574
<TOTAL-REVENUES> 20,627,574
<CGS> 15,466,800
<TOTAL-COSTS> 19,077,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 61,500
<INTEREST-EXPENSE> 398,712
<INCOME-PRETAX> 1,089,852
<INCOME-TAX> 460,944
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 628,908
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
