SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended November 30, 1995 Commission File Number 0-1738
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GENERAL KINETICS INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-0594435
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
14130-C Sullyfield Circle, Chantilly, VA 22021
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code 703-802-9300
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Indicate by checkmark 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
(* Further amendment may be required to Form 8-K to add audit report
regarding acquisition financial statements previously filed)
The number of shares of Registrant's Common Stock outstanding as of December 30,
1995 6,508,925 Shares
<PAGE>
GENERAL KINETICS INCORPORATED
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Six Months Ended November 30, 1995, Compared to Six Months Ended November 30,
1994
Net sales for the six months ended November 30, 1995 were $9.3 million as
compared to net sales of $4.8 million for the six months ended November 30,
1994. In the Secure Communications Division ("SCD"), net sales increased by
approximately $2.2 million, from $2.2 million for the first halfof fiscal 1994
to $4.4 million in the first half of fiscal 1995. The increase in SCD sales was
primarily attributable to deliveries totaling $2.6 million on a contract to
Bosch Telecom, a supplier of fax machines to the German Government.
Approximately $0.5 million of the contract remained in backlog at November 30,
1995.
The Electronic Enclosure Division's ("EED") net sales increased from $2.0
million for the six months ended November 30, 1994, to $4.6 million for the six
months ended November 30, 1995. This increase was due to an increase in demand
for the six months ending November 30, 1995 as compared to the same period in
the prior fiscal year.
Operating expenses for the six months ended November 30, 1995 were
approximately $2.0 million compared with $1.9 million for the comparable six
months in fiscal year 1995.
For the six months ended November 30, 1995, the Company showed an operating
profit of approximately $148,000 compared to a $1.0 million operating loss for
the comparable six months of the prior fiscal year. The improvement in operating
results was primarily due to the increase in sales discussed above as well as a
significant increase in the gross margin in EED. Productivity improvements which
started in the second half of fiscal 1995along with efforts to target new
contracts with higher profit margins resulted in the significant improvement in
EED gross profits for the first half of fiscal 1996 as compared to the
corresponding period of the prior fiscal year.
Interest expense for the six months ended November 30, 1995 was $186,700
compared to an interest expense of $202,500 for the six months ended November
30, 1994.
Three Months Ended November 30, 1995, Compared to Three Months Ended November
30, 1994
Net sales for thethree months ended November 30, 1995 were $4.4 million as
compared to net sales of $2.5 million for the three months ended November 30,
1994. In SCD, net sales increased by approximately $0.9 million, from $1.2
million for the second quarter of fiscal 1995 to $2.1 million in the second
quarter of fiscal 1996. The increase in SCD sales was primarily attributable to
deliveries totaling $1.0 million on a contract to Bosch Telecom, a supplier of
fax machines to the German Government.
EED's net sales increased from $1.3 million for the quarter ended November
30, 1994, to $2.3 million for the quarter ended November 30, 1995, or by 77%.
This increase was due to an increase in customer demand for the second quarter
of fiscal 1996 as compared to the corresponding quarter of the prior fiscal
year.
Operating expenses were approximately $1.0 million in the second quarter of
fiscal 1995 as compared to approximately $1.0 in the second quarter of the
current fiscal year.
For the three months ended November 30, 1995, the Company showed an operating
loss of approximately $112,000 compared to a $529,000 operating loss for the
comparable quarter of the prior year. The improvement in operating results was
primarily due to the increase in sales discussed above as wellas a significant
increase in the gross margin in EED. Productivity improvements which started in
the second half of fiscal 1995 along with efforts to target new contracts with
higher profit margins resulted in the significant improvement in EED gross
profits for the second quarter of fiscal 1996 as compared to the corresponding
period of the prior fiscal year.
Interest expense for the three months ended November 30, 1995, was $75,000
compared to an interest expense of $69,000 for the three months ended November
30, 1994.
Liquidity and Capital Resources
The Company has suffered recurring losses from operations and has a net capital
deficiency that raise substantial doubt about the Company's ability to continue
as a going concern. However, the operatingloss for fiscal 1995 showed
significant improvement over the prior three fiscal years, and the Company had
unaudited net income of approximately $134,000 in the fourth quarter of fiscal
1995. In addition, the unaudited net loss of approximately $38,900 for the first
half of fiscal 1996 showed significant improvement over the loss of
approximately $1.2 million for the same period in the prior fiscal year. To
achieve overall profitability for fiscal 1996, the Company must continue to
increase revenues andgross profit margins. In the Secure Communications
Division, successful operations will depend, to a large extent, on the
division's ability to market the secured communications products overseas and to
domestic markets. The division is currently developing new products, including a
secure tactical facsimile machine which is expected to complete final
development in fiscal 1996, to increase net sales. The Division must be able to
update its secure product line in order to meet current market demands
anddevelop an adequate sales level for profitable operations. In the enclosure
division, productivity improvements in the second half of fiscal 1995 along with
efforts to target new contracts with higher profit margins resulted in a
significant improvement in gross profits for the 1995 fiscal year and the first
half of fiscal 1996 as compared to the prior two fiscal years. The division must
continue to market electronic enclosure products to government and commercial
markets, and enter into contracts with favorable profit margins which can be
produced within budget to achieve profitability in fiscal 1996. Management
believes that it has taken significant steps towards returning the Company to
profitability; however, there can be no assurance that revenues will increase or
that the Company will be able to generate revenues or margins sufficient to
achieve profitability in fiscal 1996.
On December 12, 1995, the Company entered into a preliminary understanding in
principle to sell its Secure Communications Division to an undisclosed third
party. The proposed transaction, expected to be at a significant premium over
book value, remains subject to conclusion and execution of a definitive
agreement, receipt of any required approvals, and other contingencies.
The Company anticipates that implementation of the 1-for-3 reverse stock split
approved by shareholders at the Annual Meeting held November 14, 1995 would be
delayed until after the closing of the proposed transaction.
Following GKI's discussions with the Defense Investigative Service ("DIS")
regarding foreign ownership issues affecting the Company, the facility clearance
for GKI has been revalidated and on that basis GKI expects to confirm extension
of the memorandum of agreement between the Company and the National Security
Agency ("NSA") which had expired in September 1995. In that connection, the DIS
has indicated that, if the potential sale of GKI's Secure Communications
Division mentioned above did not occur, it would expect to proceed with
implementation of the Company's previous proposals to resolve such ownership
issues.
Management believes that cash on hand as of November 30, 1995 ($385,300),
careful management of operating costs and cash disbursements, and accounts
receivable financing to alleviate short term cash requirements should enable the
Company to meet its cashrequirements through May 31, 1996.
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.
GENERAL KINETICS INCORPORATED
Date: January 18, 1996 /s/ LARRY M. HEIMENDINGER
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Larry M. Heimendinger
Chairman of the Board
(Principal Executive Officer)
Date: January 18, 1996 /s/ SANDY B. SEWITCH
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Sandy B. Sewitch
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
