<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 December 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)
CALIFORNIA 95-2303687
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20401 PRAIRIE STREET, CHATSWORTH, CALIFORNIA 91311
(Address of principle 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
----- -----
Number of shares outstanding of each of the issuer's classes of common stock,
as of the December 31, 1995 date was 2,914,799.
<PAGE> 2
CALNETICS CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page Number
- ------------------------------ -----------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
Three Months and Six Months Ended December 31, 1995 and 1994 . . . . . . . . . 3
Condensed Consolidated Balance Sheets (Unaudited)
December 31, 1995 and June 30, 1995 . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended December 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 . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
Page 2 of 15
<PAGE> 3
PART I - FINANCIAL INFORMATION
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- ------------------------------
1995 1994 1995 1994
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $7,627,663 $6,275,591 $16,398,938 $12,922,762
Cost of Sales 5,829,512 4,696,488 12,637,091 9,753,858
---------- ---------- ----------- -----------
Gross Profit 1,798,151 1,579,103 3,761,847 3,168,904
---------- ---------- ----------- -----------
Selling, general
and administrative
expenses 1,219,614 1,135,308 2,551,887 2,302,195
Other expense, including
interest 115,308 139,060 239,827 266,281
---------- ---------- ----------- -----------
Total costs and
expenses 1,334,922 1,274,368 2,791,714 2,568,476
Income from operations
before income taxes 463,229 304,735 970,133 600,428
Provision for
income taxes 192,300 125,223 403,000 251,223
---------- ---------- ----------- -----------
Net income $ 270,929 $ 179,512 $ 567,133 $ 349,205
========== ========== =========== ===========
Earnings per common
share and common
share equivalent $ 0.09 $ 0.06 $ 0.19 $ 0.12
Weighted average common
shares and common
share equivalents
outstanding 3,059,416 3,045,093 3,063,260 3,035,546
========== ========== =========== ==========
</TABLE>
No dividends were paid during the period set forth above.
See accompanying notes to condensed consolidated financial statements.
Page 3 of 15
<PAGE> 4
CALNETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1995
----------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 956,171 $ 1,580,974
Accounts receivable, net 4,159,165 4,448,526
Inventories 5,311,491 4,962,037
Prepaid expenses 308,445 312,996
Deferred income taxes 272,000 272,000
----------- -----------
Total current assets 11,007,272 11,576,533
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
(at cost):
Land 466,288 466,288
Buildings and improvements 2,204,992 2,204,992
Machinery and equipment 4,123,720 3,752,505
Furniture and fixtures 244,196 224,251
----------- -----------
7,039,196 6,648,036
Less--Accumulated depreciation
and amortization 3,089,370 2,776,164
----------- -----------
Property, plant and equipment,
net 3,949,826 3,871,872
----------- -----------
Deposits and other assets 250,418 201,205
Goodwill 1,437,268 1,472,968
----------- -----------
Total assets $16,644,784 $17,122,578
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 15
<PAGE> 5
CALNETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1995
----------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of
long-term debt $ 259,003 $ 338,000
Accounts payable 2,502,815 2,650,651
Customer deposits 46,070 150,004
Accrued liabilities 966,537 1,145,300
Income taxes payable (134,979) 58,193
----------- -----------
Total current liabilities 3,639,446 4,342,148
----------- -----------
LONG-TERM DEBT,
net of current portion 5,209,059 5,551,284
----------- -----------
DEFERRED INCOME TAXES 93,000 93,000
----------- -----------
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 December 31, 1995
and 2,914,799 at June 30, 1995 2,397,635 2,397,635
Retained earnings 5,305,644 4,738,511
----------- -----------
Total shareholders' equity 7,703,279 7,136,146
----------- -----------
Total liabilities and
shareholders' equity $16,644,784 $17,122,578
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5 of 15
<PAGE> 6
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 567,133 $ 349,205
--------- ---------
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Provision for doubtful accounts 11,000 21,000
Depreciation and amortization 303,703 351,856
Changes in operating assets and
liabilities, net of effects
from acquisitions:
Accounts receivable 278,361 530,103
Inventories (349,454) (787,583)
Prepaid expenses 4,551 (131,302)
Deposits and other assets (49,213) (20,538)
Accounts payable (147,836) 40,319
Customer deposits (103,934) (11,073)
Accrued liabilities (178,763) (592,042)
Income taxes payable (193,172) (130,145)
--------- ---------
Total adjustments (424,757) (729,405)
--------- ---------
Net cash provided by (used in)
operating activities 142,376 (380,200)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (345,957) (166,719)
--------- ---------
Net cash used in investing activities (345,957) (166,719)
--------- ---------
</TABLE>
Page 6 of 15
<PAGE> 7
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------------
1995 1994
---------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $ (421,222) $ (468,095)
Net proceeds from issuance of
common stock --- 8,628
---------- -----------
Net cash used in financing
activities (421,222) (459,467)
---------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (624,803) (1,006,386)
CASH AND CASH EQUIVALENTS,
beginning of period 1,580,974 1,853,091
---------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 956,171 $ 846,705
========== ===========
Supplemental disclosures of cash flow
information:
Interest paid $ 243,790 $ 234,910
========== ===========
Income taxes paid $ 597,000 $ 381,000
========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 7 of 15
<PAGE> 8
CALNETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
December 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 December 31, 1995, the results of its operations for the three and
six months ended December 31, 1995 and 1994 and the cash flows for the six
months ended December 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, 1995 Form 10-K.
The results of operations for the three and six months ended December
31, 1995 are not necessarily indicative of the results of operations to be
expected for the full fiscal year ending June 30, 1996.
2. Receivables.
The following tabulation shows the elements of receivables:
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1995
----------------- -------------
<S> <C> <C>
Trade accounts receivable $4,433,180 $4,711,541
Less allowance for doubtful
accounts 274,015 263,015
---------- ----------
Total $4,159,165 $4,448,526
========== ==========
</TABLE>
Page 8 of 15
<PAGE> 9
3. Income Taxes.
Income taxes for the six-month period ended December 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 December 31, 1995 and June 30, 1995, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1995
----------------- -------------
<S> <C> <C>
Term loans payable to banks,
secured by inventory and
receivables, interest at the
banks' reference rate (8.5
percent at December 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 $3,249,967 $3,683,316
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 Issuer's
Weekly Adjustable Interest
Rates for Revenue Bonds
(5.3 percent at December 31,
1995), secured by a standby 1,455,000 1,455,000
letter of credit issued by a bank
with an annual fee of 1.25%
</TABLE>
Page 9 of 15
<PAGE> 10
Long-term debt. (cont'd)
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1995
----------------- -------------
<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
Mortgage payable to bank, secured
by the related building and
land, payable in monthly
installments of $1,665 plus
interest at the bank's
prime rate, (8.5% at December 31,
1995) plus .75%, with a balloon
payment of $201,415 due
March 5, 2000 284,675 294,663
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 a bank's prime
rate (8.5% at December 31, 1995)
plus 1% to 11.87 percent through
October 1998 76,378 54,263
---------- ----------
$5,468,062 $5,889,284
Current portion of long-term debt 259,003 338,000
---------- ----------
Long-term portion $5,209,059 $5,551,284
========== ==========
</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 December 31, 1995, the Company was in
compliance with all bank covenants.
Page 10 of 15
<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.
MANCHESTER ACQUISITION
In September 1989, the Company acquired Manchester. The acquisition
expanded the Company's operations to include the manufacturing of acrylic,
polycarbonate and polystyrene plastic sheet that serves the building materials
and industrial plastics industries. Prior to the acquisition, the Company was
primarily engaged in the manufacturing of molded plastic components by
injection, transfer and compression processes.
PSI ACQUISITION
On June 3, 1992, the Company acquired for cash substantially all of
the assets of PSI, a manufacturer of plastic injection molding components
located in Corona, California. The acquisition was accomplished through a
subsidiary of the Company, Ny-Glass, which continued the business of PSI, under
the Ny-Glass name in Corona, California.
The cash purchase price paid for the assets acquired amounted to
$320,100, $250,000 of which was obtained from a short-term bank loan, utilizing
the Company's then existing credit line of $1,000,000.
Current assets acquired as part of the acquisition amounted to
$354,182 and current liabilities assumed totaled $306,081.
API ACQUISITION
In fiscal 1994, the Company completed the acquisition of all of the
outstanding
Page 11 of 15
<PAGE> 12
stock of API of Ontario, California from the API shareholders effective as of
April 30, 1994. The purchase price was $4,402,144, consisting of cash of
$4,000,102 and unsecured promissory notes payable to the selling shareholders
of $402,042. API, which was a closely held private company, is a manufacturer
of plastic water handling products, including tubing, filters and drip system
accessories with manufacturing plants in Ontario, California and Winter Haven,
Florida.
Net assets acquired totaled $3,528,341, resulting in recording of
goodwill of $873,803 which is being amortized on a straight-line basis over 20
years.
Financial condition.
There were no significant changes in current assets or current
liabilities of the Company between December 31, 1995, the end of the second
quarter, and June 30, 1995 except for the voluntary payment of $150,000,
representing three monthly installments, of the Company's long term bank loan,
the payment of which was in addition to the regular scheduled monthly payments.
Liquidity and Capital Resources.
At December 31, 1995, the Company's working capital was
$7,367,826, compared to $6,901,774 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
December 31, 1995, 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 1995. Certain loan agreements limit capital expenditures to
$750,000 in 1996 and $500,000 in 1997 and thereafter.
Results of Operations.
Three months ended December 31, 1995 compared to three months ended December
31, 1994
Net sales for the three-month period ended December 31, 1994
increased 22% from $6,275,591 in 1994, to $7,627,663 in 1995; the increase is
attributed to the addition of new customers, increases in selling prices and
improved business
Page 12 of 15
<PAGE> 13
conditions.
Cost of sales as a percentage of sales increased to 76.4%,
during the period October 1, 1995 to December 31, 1995, as compared to 74.8%
for the same period in the prior year. The increase is attributed to higher
resin price costs in the current period.
Selling, general and administrative expenses increased to
$1,219,614 as compared with $1,135,308 for the same period in the prior year,
an increase of 7%; the increase due mainly to increased sales volume.
Net income for the current three-month period was $270,929 as
compared with $179,512, after provisions for income taxes of $192,300 and
$125,223 for the three months ended December 31, 1995 and 1994, respectively.
Earnings per share increased to $0.09 from $0.06 per share for the three months
ended December 31, 1995 and 1994, respectively. The increase in net income is
attributed to increased sales volume during the three months ended December 31,
1995.
Six Months ended December 31, 1995 compared to six months ended December 31,
1994
Net sales for the six-month period ended December 31, 1995
increased 27% from $12,922,762 in 1994, to $16,398,938 in 1995; the increase is
attributed to the addition of new customers, increases in selling prices and
improved business conditions.
Cost of sales as a percentage of sales increased to 77.1%,
during the period July 1, 1995 to December 31, 1995, as compared to 75.5% for
the same period in the prior year. The increase is attributed to the higher
resin costs in the current period.
Selling, general and administrative expenses increased to
$2,551,887 as compared with $2,302,195 for the same period in the prior year.
The increase was mainly attributed to increased sales volume.
Net income for the current six-month period was $567,133 as
compared with $349,205, after provisions for income taxes of $403,000 and
$251,223 for the six months ended December 31, 1995 and 1994, respectively.
The improvement in net income is attributed to increased sales volume in the
current period.
Page 13 of 15
<PAGE> 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None.
Page 14 of 15
<PAGE> 15
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: January 30, 1996 /s/ Clinton G. Gerlach
------------------------------
Clinton G. Gerlach
President
Dated: January 30, 1996 /s/ Teresa S. Louie
------------------------------
Teresa S. Louie
Treasurer
Page 15 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 956,171
<SECURITIES> 0
<RECEIVABLES> 4,433,180
<ALLOWANCES> 274,015
<INVENTORY> 5,311,491
<CURRENT-ASSETS> 11,007,272
<PP&E> 7,039,196
<DEPRECIATION> 3,089,370
<TOTAL-ASSETS> 16,644,784
<CURRENT-LIABILITIES> 3,639,446
<BONDS> 5,302,059
<COMMON> 2,397,635
0
0
<OTHER-SE> 5,305,644
<TOTAL-LIABILITY-AND-EQUITY> 16,644,784
<SALES> 7,627,663
<TOTAL-REVENUES> 7,627,663
<CGS> 5,829,512
<TOTAL-COSTS> 1,208,614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11,000
<INTEREST-EXPENSE> 115,308
<INCOME-PRETAX> 463,229
<INCOME-TAX> 192,300
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270,929
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
