<PAGE>
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------
For the quarter ended June 30, 1995 Commission File Number 1-8355
HELIONETICS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-2629097
(State of incorporation) (IRS Employer ID No.)
or organization)
6849 Hayvenhurst Avenue, Van Nuys, CA 91406
(Address of principal executive offices)
(818) 778-0000
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common stock, no par value American Stock Exchange, Inc.
Trading of the common stock was halted by the American Stock Exchange on
November 22, 1994 and such trading halt continues to date. On January 6, 1995,
trading began on the OTC Bulletin Board as a non designated security.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO ______
Shares of common stock outstanding as of June 30, 1995: 40,722,926
(SHOULD TRADING OF HELIONETICS COMMON STOCK BE RESUMED ON THE AMEX 12,845,368
SHARES WOULD BE SUBJECT TO AMEX APPROVAL)
- ------------------------------------------------------------------------------
<PAGE>
HELIONETICS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page #
--------------------- ------
Item 1. Financial Statements
--------------------
Statements of Operations 1
Balance Sheets 2-4
Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. None
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
(dollars in thousands except share data)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $ 41,579 $ 35,207 $ 24,152 $ 18,899
-------- -------- -------- --------
COSTS AND EXPENSES
Cost of sales 33,487 27,314 19,857 14,921
Selling, general and administrative 9,067 5,677 3,954 2,806
Interest 313 141 147 62
-------- -------- -------- --------
42,867 33,132 23,958 17,789
-------- -------- -------- --------
OTHER INCOME (EXPENSE): 148 --- 147 (38)
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES (1,140) 2,075 341 1,072
Provision for income tax (Note 5) (155) (557) (155) (455)
-------- -------- -------- --------
NET INCOME (LOSS) $ (1,295) $ 1,518 $ 186 $ 617
-------- -------- -------- --------
-------- -------- -------- --------
EARNING PER COMMON AND COMMON
EQUIVALENT SHARE (Note 1):
PRIMARY $ (0.04) $ 0.06 $ 0.01 $ 0.02
-------- -------- -------- --------
-------- -------- -------- --------
FULLY DILUTED $ (0.04) $ 0.06 N/A $ 0.02
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
---- ----
(unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 7,027 $ 5,464
Accounts receivable, less allowance of $728
in 1995 and $643 in 1994 21,701 11,866
Notes receivable from officers 40 40
Inventories (Note 1) 10,125 8,174
Prepaid expenses and other 1,493 1,714
--------- ---------
Total current assets 40,386 27,258
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
at cost:
Leasehold improvements 1,376 1,345
Machinery and equipment 8,446 6,600
--------- ---------
9,822 7,945
Less--Accumulated depreciation and amortization (6,739) (4,886)
--------- ---------
3,083 3,059
--------- ---------
OTHER ASSETS:
Patent costs (Note 1) 312 331
Excess of cost over net assets of acquired
companies, net (Note 1) 13,449 11,367
Notes receivable and other assets (Note 1) 1,005 1,636
--------- ---------
14,766 13,334
--------- ---------
$ 58,235 $ 43,651
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
2
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
---- ----
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Line of credit (Note 3) $ 2,973 $ 3,005
Current maturities of long-term debt (Note 2) 183 254
Current maturities of notes and loans payable
to proponents and shareholders (Note 4) 25 25
Accounts payable 21,440 14,813
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,165 754
Accrued payroll and payroll taxes 2,044 1,612
Accrued liabilities 3,787 $ 2,441
------- -------
Total current liabilities 33,617 22,904
------- -------
LONG-TERM DEBT, net of current maturities (Note 2) 1,968 735
------- -------
NOTES and LOANS PAYABLE to proponents and
shareholder (Note 4) 3,267 4,520
------- -------
MINORITY INTEREST 5,247 4,171
------- -------
MANDATORILY REDEEMABLE COMMON STOCK 500 500
------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value
Authorized--2,000,000 shares; none outstanding --- ---
Class A and B convertible preferred stock
No stated value
Authorized--150,000 shares of each
Outstanding --
51,175 shares of Class A in 1995 and 1994 and
57,629 shares of Class B in 1995 and 1994,
respectively --- ---
Class C convertible preferred stock,
$3.50 stated value
Authorized--2,800,000 shares
Outstanding--308,714 shares in 1994 and 340,793
shares in 1993 708 793
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
3
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
---- ----
(unaudited)
<S> <C> <C>
SHAREHOLDERS' EQUITY (cont'd)
Class D convertible preferred stock
$10.00 stated value
Authorized--100,000 shares
Outstanding--none --- ---
Class E convertible preferred stock
$10.00 stated value
Authorized--90,000 shares
Outstanding--none --- ---
Class F convertible preferred stock
no stated value
Authorized--2,800,000 shares
Outstanding--52,700 shares in 1995
and 93,700 in 1994 116 206
Class H convertible preferred stock
1,150,000 shares to be authorized
None outstanding --- ---
Common stock
No par value
Authorized--50,000,000 shares
Outstanding--26,641,911 shares in 1995
and 26,576,572 shares in 1994 70,467 70,292
Common stock subscribed (Note 4) 4,665 555
Additional paid-in capital 2,674 2,674
Accumulated deficit (64,994) (63,699)
------- -------
13,636 10,821
------- -------
Total shareholders' equity (Note 7) $58,235 $43,651
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
4
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $(1,295) $ 1,518
Adjustment to reconcile net income to net cash
cash provided by (used in) operating activities
of continuing operations--
Depreciation and amortization 724 367
Minority interest 98 293
Interest -- proponent 78 ---
Change in operating assets and liabilities 1,548 (4,572)
------ -------
Net cash provided by (used in) operations 1,153 (2,394)
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (114) (362)
Cash (paid) acquired in business acquisition (1,250) 150
Deferred product costs --- (1,017)
Other assets 401 (1,590)
------ -------
Net cash provided by (used in) investing activities $(963) $(2,819)
------ -------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
(dollars in thousands except share data)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in note payable, net $ --- $ ---
Increase (decrease) in long term debt, net (284) (1,286)
Increase (decrease) in notes payable to
proponents and shareholders, net 1,675 (264)
Proceeds from exercise of Series F warrants --- 55
Proceeds from sales of common stock, net --- 10,698
Payment in lieu of issuance of redeemable
common stock --- (1,000)
Net cash provided by (used in) financing
activities 1,373 8,203
-------- -------
Net increase (decrease) in cash and
equivalents 1,563 2,990
Cash and equivalents at beginning of period 5,464 2,969
-------- -------
Cash and equivalents at end of period $ 7,027 $ 5,959
-------- -------
-------- -------
Interest paid $ 313 $ 141
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
(1) Summary of Significant Accounting Policies
------------------------------------------
The unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
and are unaudited except for the balance sheet as of December 31, 1994. Certain
information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K. In the opinion of management the
accompanying financial statements contain all adjustments necessary to present
fairly the Company's financial position and the results of operations for the
periods presented. The results of operations for the three and six months ended
June 30, 1995, are not necessarily indicative of the results to be expected for
the full year.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries. Upon consolidation all material
intercompany transactions and accounts have been eliminated.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or estimated net realizable value. Costs include direct material, direct labor
and applicable manufacturing and engineering overhead.
Other Assets
Patent costs are amortized on a straight-line basis over the shorter of
the estimated periods to be benefitted or the term of the patent. Accumulated
amortization at June 30, 1995 and December 31, 1994, amounted to approximately
$139,000 and $111,000, respectively.
Excess of cost over net assets of acquired companies is amortized on a
straight-line basis over ten to thirty years.
Earnings Per Share
Earnings per common share is based upon the weighted average number of
shares outstanding during each period including common equivalent shares.
Earnings per common share, assuming full dilution, is based upon the
weighted average number of shares outstanding plus the common shares issuable
upon conversion in exercise of securities whose exercise as of January 1 would
reduce earnings per common and common equivalent share for that year.
7
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
The weighted average shares used in calculating earnings per share are
summarized as follows:
(amounts in thousands)
Three Months Six Months
------------ ----------
1995 1994 1995 1994
---- ---- ---- ----
Primary 36,662 25,186 31,698 24,233
Fully diluted 36,662 25,776 31,698 24,907
Reclassifications and Restatements
Certain account reclassifications have been made to the 1994 balances to
conform to the 1995 presentation.
(2) Long-Term Debt and Credit Facilities
------------------------------------
Notes and long-term debt at June 30, 1995 and December 31, 1994 were as
follows (in thousands):
1995 1994
---- ----
Convertible unsecured note payable bearing interest at 6%,
with interest payable quarterly beginning March 31, 1994
and principal and remaining accrued interest due on
December 31, 1996. $ 400 $ 400
Loan payable non-interest bearing of Self-Powered
Lighting, Inc. 79 83
Priority tax payable quarterly with interest ranging from
10% to 14% per annum 53 53
Laser Photonics, Inc:
Secured loans, with interest, payable quarterly at 9% and
principal due October 1999 with option (on $165,000) for
early payout at 50% discount 448 ---
Priority tax payable monthly with interest ranging
from 9% to 18% per annum 445 ---
Others 263 ---
------ -----
Sub-Total - Laser Photonics 1,156 ---
Others 463 453
------ -----
2,151 989
Less: Current maturities (183) (254)
------ -----
$1,968 $ 735
------ -----
------ -----
8
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
(3) Line of Credit
--------------
Tri-Lite, Inc. has a line of credit agreement with a bank which provides
for borrowings of up to $4 million based on 75% of eligible accounts receivable
and is subject to a forbearance agreement. The outstanding borrowings under
this agreement bear interest at 2% over the bank's prime rate and are
collateralized by substantially all of the assets of Tri-Lite, Inc. In July 14,
1995, Tri-Lite paid off this line of credit from proceeds of a new credit
facility of $5 million obtained from Star Bank of Cleveland, Ohio at more
favorable terms. The Company is a co-guarantor for this new line of credit and
assuming Tri-Lite issues its own stock for amount owing to Helionetics,
Helionetics will own approximately 64% of Tri-Lite.
(4) Notes and Loans Payable to Proponents and Shareholders
------------------------------------------------------
At June 30, 1995 and December 31, 1994, the Company had notes and loans
payable to proponents and shareholders totaling $3,292,000 and $4,545,000,
respectively. The notes and loans bear interest at rates ranging from 7 1/2
percent to 10 percent per annum. The notes and loans represent advances between
the Company and the proponents and are secured by the appropriate UCC-1 filings.
As of June 30, 1995, notes and loans of approximately $4,110,000 payable
to Ms. Barnes will be extinguished through the issuance of common stock of
approximately 12,845,368 shares. The value of the common stock which was based
on 60% of the market value of the stock at $0.53 per share is currently shown
under common stock subscribed. After the consummation of the exchange above,
the Company will be owing Ms. Barnes approximately $3,267,000 which included a
note of $2,054,500 which represents the consideration for the acquisition of
68.7% of AccuLase as a result of the inability of the Company to issue its
common stock due to AMEX not approving listing of such common stock. Ms.
Barnes, however, agreed to either be paid in cash or convert the debt to shares
of the Company's common stock at no more than the original number of shares the
Company had previously agreed to issue as consideration for the AccuLase shares.
Ms. Barnes has agreed and continue to loan funds to the Company.
(5) Income Taxes
------------
No provision for federal taxes was provided for the period as a result of
the taxable losses incurred. Through December 31, 1992, the Company accounted
for income taxes under Statement of Financial Accounting Standards No. 96
"Accounting for Income Taxes". This standard required income taxes to be
provided based upon a liability approach, under which deferred taxes were
recorded at the rates to be in effect when such taxes were due.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Under Statement
109, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. As permitted by Statement 109, the Company
has elected not to restate the consolidated financial statements of any prior
years. The effect of the change was not material to the consolidated financial
statements.
At June 30, 1995, the Company believes it has significant net operating
loss carryforwards for federal and state income tax purposes. Such amounts
would be available to reduce future federal and state income tax liabilities as
appropriate and, to the extent not used, would expire through 2009. As a result
of various stock transactions during the past two years, certain of these net
operating loss carryforwards are subject to annual limitations of approximately
$1,400,000 to be used in future periods. The provision at June 95 reflects the
estimated state income tax for KSWI.
9
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
(6) Acquisitions
------------
Effective December 1, 1994, the Company purchased an additional 68.7%
of the outstanding stock of AccuLase, Inc. for $2,055,000 in notes. The Company
now owns 76.1% of AccuLase's outstanding common stock. The Company accounted
for this transaction using the purchase method of accounting. The excess of
approximately $2,599,000 of the purchase price over the net assets acquired has
been capitalized as goodwill. The owneship interest by the Company of Acculase
was part of the purchase price of Laser Photonics, Inc. as described below.
The U.S. Bankruptcy Court, on May 22, 1995, confirmed the plan of
reorganization of Laser Photonics, Inc. ("LPI"), a Florida company, in which the
Company received 75% of the common stock of LPI in exchange for capital infusion
of $1 million and the transfer to LPI of all of the common stock of AccuLase,
Inc. owned by the Company. LPI is a publicly-traded company with the symbol
LAZR, and will continue to trade separately. LPI is a FDA GMP(Good
Manufacturing Practices) manufacturer of medical laser devices. The Company's
primary reason for the acquisition is to enable AccuLase access to the
manufacturing expertise of its excimer laser. AccuLase's excimer laser has
various medical applications. The excess of approximately $2 million of cost
over LPI's net assets has been capitalized as goodwill.
The unaudited pro-forma effects of LPI's results of operations on the
consolidated results of operations as though the acquisitions had occurred
January 1, 1994, are as follows (in thousands except share data):
1995 1994
---- ----
Revenues $42,850 $37,316
Net income (loss) 3,658(1) 257
Income (loss) per share 0.11 0.01
Weighted average shares 31,698,000 24,233,000
(1) Include gain from reorganization of $5,927,000.
(7) Subsequent Events
-----------------
In August 1995, the Company announced its decision to distribute as
dividend to its shareholders its approximately 80% interest in KSWI, subject to
KSWI board of directors. Following is a proforma balance sheet and results of
operations, on a stand-alone basis, of KSWI as of June 30, 1995 (in thousands):
Sales $22,703
Income before tax and goodwill amortization 776
Goodwill amortization 160
Provision for income tax 349
Net income $ 267
Current assets $21,433
Property and equipment 688
Cost in excess of net assets of
business acquired 4,701
Other assets 894
Total assets $27,716
Current liabilities $15,979
Shareholders' equity $11,737
10
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
--------------------------
Liquidity and Capital Resources
Working capital increased by $3,097,000 for the quarter ended June 30,
1995 after a decrease in March 31, 1995 of $682,000 from December 31, 1994.
Working capital stand at $6,769,000 at June 30, 1995 compared with $4,354,000 at
December 31, 1994. For the six months ended June 1995, cash and equivalents
increased by $1,563,000 whereas receivables and inventories increased by a
combined total of $11,786,000. Trade payables and accrued liabilities, including
billings in excess of costs and estimated earnings in uncompleted contracts,
combined increased by $10,816,000. Capital expenditures are minimal and totalled
$114,000 for the six months period. No major capital expenditures is anticipated
for the balance of 1995.
Approximately $6,951,000 of the total consolidated cash of $7,027,000
is from KSWI and Tri-lite. Both subsidiaries either has loan covenants and
bonding requirements that restrict transfers of their cash to the parent company
and its other subsidiaries.
KSWI and Tri-Lite accounted for an approximate 96% of the consolidated
revenues, and each is being funded primarily from cash generated by its
operations. Tri-Lite, due to its improved operations and new management, has
replaced its existing line of credit in July 1995 with a three year $5 million
asset-based credit facility on favorable terms. Tri-Lite's line of credit served
as its primary source of credit and working capital. Tri-Lite's inventory
requirements continue to be financed by its credit facilities with its offshore
suppliers. KSWI funds its operations internally and has the ability to obtain
additional funding through borrowings, if needed. KSWI believes it has
significant borrowing capability due to absence of any long-term obligations in
its balance sheet and the strength of its operations.
In May 1995 the Company acquired, from a Chapter 11 proceeding, 75% of
Laser Photonics, Inc., ("LPI") a Florida based company. LPI is a manufacturer of
various laser products. As part of the acquisition, the Company contributed its
approximately 76% ownership of AccuLase, Inc. ("AccuLase") and cash totalling
approximately $1 million. LPI was acquired to be the manufacturer of the
AccuLase excimer laser applications. The cash portion of the acquisition was
obtained from a loan from Ms. Susan Barnes, the Company's principal shareholder.
Funding of the combined AccuLase and LPI operations will be provided by the
Company either from sales of assets or equity and from loans from Ms. Barnes.
Moreover, LPI, being a public company of its own, has the ability to acquire
necessary funding from the equity market.
The remaining operations of the Company, primarily, Sentinel and the DECC
Division will rely on loans to be provided by Ms. Susan Barnes and possibly the
sale of the Company's Tri-Lite holding, if a favorable price can be obtained.
As approved by the Board of Directors of the Company, loans totalling
$4,110,518 of Ms. Barnes were exchanged, effective April 21, 1995, for shares of
the Company's common stock at the discount rate of 60% of $0.53 per share, the
fair market value, as of that date, of the Company's common stock. The discount
(40%) is in recognition of the restriction in transferability of the stock and
20% lower than previous similar exchanges. The amount of the exchange is shown
under common stock subscribed in the June 1995 financial statements.
The Company, in August 1995, announced its decision to distribute as
dividend to its shareholders its approximately 80% interest in KSWI, subject to
KSWI board of directors approval. The Company is anticipating to complete the
distribution by year end and the formation of a new publicly-owned company.
KSWI's net worth is approximately $12 million and might be worth substantially
more than the current total market capitalization of the Company.
The class-action lawsuit against the Company was settled effective in June
1995, subject to court approval and the availability of funds to pay the legal
fees of both the Company's and plaintiff's counsel. The availability
11
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
of funds required by the settlement agreement is subject to the pledging and
disposing of certain assets held by Ms. Barnes to guarantee such payments. Ms
Barnes neither received nor requested any consideration from the Company for the
pledging and placing at risk of her personal assets including her home. The
agreement calls for the issuance of 2,000,000 shares and 2,000,000 common stock
purchase warrants at 1 5/8 for two years, 1,000,000 of which is exercisable if
the Company's common stock resume trading at the American Stock Exchange
("AMEX").
Results of Operations
The Company reported income from operations of $186,000 in the quarter
June 1995 compared with a loss from operations of $1,481,000 in March 1995. The
results reflect the Company's transition to profitability and the results of the
restructuring that began in the fourth quarter of 1994. Revenues for the six
months ended June 30, 1995 and 1994 were $41,579,000 and $35,207,000
respectively, or a growth of 18% ($6.4 million) compared to the same period last
year. Revenues for the three months June 1995 and 1994 were $24,152,000 and
$18,899,000 respectively, a 28% increase ($5.2 million) from 1994. The increase
for the six months and three months ended June 30, 1995 as compared with the
comparable periods in 1994 were accounted as follows: Tri-Lite contributed $5.6
million and $530,000 respectively; KSWI reported an increase of $1.7 million and
$5.4 million, respectively. These increases were offset by a decrease in the
revenues of the power conversion products group. Revenues for the six months of
1995 included $292,000 from LPI, acquired effective May 22, 1995. The increase
in revenue of KSWI in the second quarter of 1995 reflects its transition from
the temporary decline in revenues in the first quarter of 1995 and the effect of
its work from its increased backlog.
Tri-Lite reported a loss of approximately $287,000 for the second
quarter of 1995 reflective of the loss in volume in NL Corporation and lower
margin at the Prolite subsidiary. The loss in volume stems from the delay in the
replacement of Tri-Lite's line of credit which did not consummate until July
1995. Tri-Lite, however, estimates s break-even operation for the current year
based on cost containment efforts still underway and resolution of its credit
line availabilities. The 1995 estimate compares favorably from a $4 million loss
incurred in 1994.
Income contribution by Tri-Lite and KSWI for the six months of the
current year were offset by the combined expenses of AccuLase and Sentinel
totalling approximately $866,000.
Cost of sales were 80% and 78% for the six months and 82% and 78% for
the three months of 1995 and 1994, respectively. The decline in margin was
partly attributed to KSWI which in 1995 does not have the same favorable
revenues mix as it had in its 1994 results. Tri-Lite's margin also declined
resulting from lower than anticipated revenues in the second quarter as a result
of delays in the completion of its credit line facilities. The second quarter
decrease offset gains experienced in the first quarter.
Selling, general and administrative expenses were $9,067,000 and
$5,677,000 for the six months and $3,954,000 and $2,806,000 for the three months
of 1995 and 1994, respectively. As a percent of revenue, these expenses were 22%
and 16% for the six months and 16% and 15% for 1995 and 1994, respectively.
Tri-Lite contributed $1.8 million and $479,000 increases for the six months and
three months, respectively, of which $1.3 million was NL Industries expenses,
acquired March 1, 1994. The balance of the increase was principally the expenses
of AccuLase ($387,000) and Sentinel ($422,000), increase in goodwill
amortization ($200,000) and expenses associated to the AIM filter marketing
($150,000). Selling, general and administrative expenses was favorably impacted
by a downward adjustment in a general litigation and miscellaneous reserve of
$400,000 based on current information.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On July 1, 1992, Definicon International Corporation (DIC) filed a
Complaint in Los Angeles Superior Court (Case No. LC 016711) against a former
officer of the corporation, Dr. Vincent P. Williams, alleging that Williams
12
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
had embezzled $270,000 from the corporation. DIC was acquired by Helionetics,
Inc. in June 1990. On October 23, 1992, Williams, who had also served for a
short time as an officer of Helionetics, and members of his family filed a
complaint in Orange County Superior Court (Case No. 698 766) against
Helionetics, Inc., DIC and others. A first amended complaint was filed on
February 17, 1993, seeking unspecified monetary damages, including punitive
damages, for breach of Williams' employment contract; indemnification with
respect to several personal guarantees Williams made for Helionetics and/or
Definicon loans; slander; conversion; and infliction of emotional distress.
This action is still in the midst of discovery and no trial date has been set.
According to Helionetics' trial counsel, although attempts are underway to
settle this matter with funds from Helionetics' insurance carriers, which
discussions with Plaintiff are currently being held, should this matter proceed
to trial there is the potential for a significant adverse judgment. The Company,
however, is prepared to go to trial and believes it will prevail. No assurance,
however, can be given that a successful negotiation with the Plaintiff can be
obtained nor the Company will prevail should a trial be required.
In the Orange County Superior Court (Case No. 698766), an action was
recently filed for declaratory relief by Commerce and Industry Insurance Company
("Commerce"), an insurer of Helionetics and its officers, seeking a declaration
that Commerce does not owe a duty to defend or indemnify Helionetics in the
Williams' litigation. Commerce has been paying, and continues to pay, for
defense of Helionetics in the Williams' litigation under a reservation of
rights. Commerce has agreed to stay its declaratory relief action, pending
resolution of the Williams litigation.
In March 1995, an action was instituted by Bo B. Sramek and Hevka H.
Sramek against Helionetics and Bernard B. Katz in the Superior Court of
California, Central Orange County District (Case No. 743947) alleging that about
June 15, 1994, Plaintiffs sold and delivered to Helionetics 2,404,333 shares of
the common stock of Cardio Dynamics, Inc. in exchange for 665,800 shares of
Helionetics' common stock which Helionetics has failed to deliver. The
Defendants intend to vigorously defend this action and have filed related cross
claims for fraud and deceit by both Srameks.
With respect to the other details of the Grodin action see Item
2-Management Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources.
Helionetics and its subsidiaries are also the defendants in lawsuits
involving trade creditors and others which may be deemed, separately or
collectively, immaterial and ordinary routine litigation incidental to its
business. Some of these lawsuits have proceeded to judgment. As of June 30,
1995, the Company had unpaid judgments and unresolved claims against it totaling
approximately $800,000-$1,000,000. The Company believes that these amounts can
be resolved for significantly less than originally claimed.
On March 31, 1993, the Company's subsidiary, Definicon International
Corporation, and its wholly owned subsidiary TrueTech, Inc. filed for relief
under Chapter 7 of the Bankruptcy Code. In April 1995, the Chapter 7 Trustee in
the U.S. Bankruptcy Court, Central District of California, brought several
adversary proceedings against transfers. Helionetics believes the adversary
proceedings have no merit.
The Company, on July 19, 1995, filed a civil complaint in Superior Court
of Los Angeles County, Case No. BC 131 749, against U.S. Surgical Corporation
and others. The Complaint seeks over $2,500,000 compensatory damages and
unspecified punitive damages. The Defendants removed the case to the U.S.
District Court for the Central District of California under Case No. 95-5513 RAP
(RNBx). The Company expects this to be a significant and protracted litigation.
The Company can give no assurance that it will prevail in this litigation
although management believes it has a meritorious cause of action. The Company
believes the cost of the litigation will have no material effect on subsequent
earnings of the Company. In connection with this litigation, the Company will be
seeking FDA approval to relocate its previously approved Phase 1 clinical trial
at an East coast university to another university where there will be no
conflicts of interest. The Company will be seeking regulatory FDA approval for
such action in the next thirty days.
The Company's counsel, Callahan, Blaine and Williams, as previously
announced, will be filing a lawsuit against the American Stock Exchange within
the next quarter for damages to the Company's shareholders as a result of their
suspension in trading of the Company's common stock.
13
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. None
B. None
14
<PAGE>
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.
HELIONETICS, INC.
DATE: August 21, 1995 /s/ E. Maxwell Malone
-----------------------
E. Maxwell Malone
Chief Executive Officer
DATE: August 21, 1995 /s/ Chaim Markheim
-----------------------
Chaim Markheim
Vice-President
DATE: August 21, 1995 /s/ Adrian Cayetano
-----------------------
Adrian Cayetano
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 7027
<SECURITIES> 0
<RECEIVABLES> 22469
<ALLOWANCES> 728
<INVENTORY> 10125
<CURRENT-ASSETS> 40386
<PP&E> 9822
<DEPRECIATION> (6739)
<TOTAL-ASSETS> 58235
<CURRENT-LIABILITIES> 33617
<BONDS> 0
<COMMON> 70467
500
824
<OTHER-SE> (57655)
<TOTAL-LIABILITY-AND-EQUITY> 58235
<SALES> 41579
<TOTAL-REVENUES> 41579
<CGS> 33487
<TOTAL-COSTS> 33487
<OTHER-EXPENSES> 8919
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 313
<INCOME-PRETAX> (1140)
<INCOME-TAX> 155
<INCOME-CONTINUING> (1295)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1295)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
