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 PERIOD ENDED
September 28, 1996.
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 0-7207
National Micronetics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 14-1507019
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
71 Smith Avenue
Kingston, New York 12401
( Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 338-0333
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 filing requirements for
the past 90 days.
Yes X No
As of September 28, 1996, the registrant had 22,312,524 shares
of Common Stock issued and outstanding.
NATIONAL MICRONETICS, INC.
INDEX
Part I. Financial Information:
Consolidated Balance Sheets - September 28, 1996
and June 29, 1996 ................................... 3
Consolidated Statements of Operations - Three Months
Ended September 28, 1996, and
September 23, 1995 ................................... 4
Consolidated Statements of Cash Flows
Three Months Ended September 28, 1996 and
September 23, 1995 ................................... 5
Notes to Consolidated Financial Statements ............ 6
Management's Discussion and Analysis of the
Financial Condition and Results of Operations ........ 7,8
Part II. Other Information ................................ 8
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
Sept. 28, June 29,
1996 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 398 $ 464
Trade receivables, net 73 233
Inventories 751 902
Other current assets 65 82
Total current assets 1,287 1,681
Property, plant and equipment, net 3,028 3,136
$4,315 $4,817
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
and lease obligations $4,355 $3,752
Long-term debt classified as current - 611
Short-term debt 4,896 4,896
Accounts payable 414 394
Accrued salaries and related expenses 236 212
Other accrued expenses 288 298
Due to related parties, net 2,407 2,587
Total current liabilities 12,596 12,750
Stockholders' deficit:
Common stock $.10 par value 2,231 2,231
Additional paid-in capital 58,805 58,805
Accumulated deficit (69,317) (68,969)
Total stockholders'
deficit (8,281) (7,933)
$ 4,315 $ 4,817
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
Three Months Ended
Sept. 28, Sept. 23,
1996 1995
Net Sales $ 791 $ 1,018
Cost and expenses:
Cost of products sold 715 757
Research, development
and engineering 54 60
Selling and administration 181 177
950 994
Income (Loss) from
operations (159) 24
Other deductions (income):
Interest expense 194 237
Interest income (3) (15)
Other (income) expense, net (2) (17)
189 205
Net loss $ (348) $ (181)
Net loss per common share $ (0.02) $ (0.01)
Average common shares
outstanding 22,313 22,313
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Three Months Ended
Sept. 28, Sept. 23,
1996 1995
Cash flows from operating activities:
Net income (loss) $ (348) $ (181)
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 108 153
Retirements of property and equipment - 94
Changes in operating assets and liabilities:
Decrease (Increase) in trade receivables 160 40
Decrease (Increase) in inventories 151 (23)
Decrease (Increase) in other current assets 17 22
Increase (Decrease) in accounts payable
and accrued expenses 34 1
Increase (Decrease) in due to related parties (180) 114
Net cash provided (used) by
operating activities (58) 220
Cash flows from financing activities:
Repayment on long-term debt and
capitalized lease obligations (8) (11)
Net cash provided (used) by
financing activities (8) (11)
Net increase (decrease) in cash and cash
equivalents (66) 209
Cash and cash equivalents at beginning
of period 464 538
Cash and cash equivalents at end of period $ 398 $ 747
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments
necessary to present fairly the financial position as of
September 28, 1996 and the results of operations for the three
month periods ended September 28, 1996 and September 23, 1995
and changes in cash flows for the three month periods then
ended.
The results of operations for the three month period ended
September 28, 1996 are not necessarily indicative of the results
to be expected for the full year.
The accounting policies followed by the Company are set forth
in Note (1) to the Company's fiscal year 1996 financial
statements which have been incorporated in form 10-K filed for
the year ended June 29, 1996.
2. Inventories consisted of the following (in thousands):
September 28, 1996 June 29, 1996
Finished goods $ 631 $ 793
Work in process 42 25
Raw materials and supplies 78 84
$ 751 $ 902
3. Debt payments totalling $1,611,000 due during June 1996 and
previously, have not been paid and a waiver has not been
obtained from the primary lending institution. As a result of
a formal Demand for Payment issued by the bank, the Company has
agreed to make a principal payment of $161,000 on November 15,
1996. The Company is arranging for renewal of a stand-by letter
of credit as loan collateral which is due by November 19, 1996.
The bank has agreed to rescind the Demand for Payment upon the
occurrence of the two events noted and revised repayment terms
continue to be discussed. Based upon terms, all debt payments
are overdue or due within one year and have been classified as
current liabilities.
4. Earnings per common share has been determined on the basis of
the weighted average number of common shares outstanding during
the respective quarters. At September 28, 1996 and September
23, 1995 there was no dilutive effect from common stock options
or warrants.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated the
relative percentages that certain items in the Company's Consolidated
Statements of Operations bear to net sales.
Three Months Ended In September
Income and Expense
Items as percent Percent Change
of sales in dollars
1996 1995 from 1995-1996
Net Sales 100% 100% (22)%
Cost of products sold 90 74 (6)
Gross Profit (loss) 10 26 (71)
Research, development & engineering 7 6 (10)
Selling and administration 23 18 2
Other deductions (income) 24 20 (8)
Net earnings (loss) (44)% (18)% (92)%
Sales volume has decreased 22% from the same period in the prior
year. Production volume has remained at a level where it is unable
to absorb significant overhead. A significant increase in volume
would be required for the Company to reach breakeven for net
earnings.
The Company continues to perform technical and market research on
products that could be sold by the Company. Spending on research,
development and engineering has decreased 10% from the same period
in the prior year.
Efforts have been made to reduce selling and administration costs as
much as possible while maintaining all necessary services. This cost
has increased 2% from the prior year and represents 23% of net sales
as a result of the historically low volume.
The consolidated balance sheet at September 28, 1996 reflects an
approximate decrease of $240,000 in net working capital since fiscal
year-end. This decrease is the result of many small changes none of
which are individually significant. Within the components of working
capital, due to related parties decreased by $180,000 as a result of
payment for merchandise recently sold to customers offset by
increases in interest expense on related party debt remaining
unpaid.
Trade receivables decreased by $160,000 as a result of prompt payment
by customers and declining sales. Inventories decreased by $151,000
due to the sale of goods in transit at year-end.
Liquidity and Capital Resources
The consolidated balance sheet at September 28, 1996 reflects an
$8,000 reduction of long-term debt for the three month period. The
Company is not in compliance with its lending agreements as of
September 28, 1996. The Company has not made payments totalling
$1,611,000 due the primary lender periodically since June 30, 1995.
As a result of a formal Demand for Payment issued by the bank, the
Company has agreed to make a principal payment of $161,000 on
November 15, 1996. These funds will be made available from an
existing certificate of deposit. The Company is arranging for
renewal of a stand-by letter of credit as loan collateral which is
due by November 19, 1996. The bank has agreed to rescind the Demand
for Payment upon the occurrence of the two events noted. The Company
continues efforts to negotiate acceptable repayment terms with the
bank.
The Company is hopeful that funds generated by operations and
received from Newmax will be adequate to fund debt service and other
operational needs. Although there is no firm commitment, related
parties are expected to advance funds on a short-term as needed basis
to offset operational cash shortfalls. Management believes that the
combination of reduction in overhead spending and development of
distribution markets for non-manufactured products will enable the
Company to remain viable for the next twelve months.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
Exhibit No. Description
27 Financial data schedule
Reports on Form 8-K - None
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.
NATIONAL MICRONETICS, INC.
By
Dr. Yoon H. Choo
President, Chief
Executive Officer
and Treasurer
(Principal Financial
Officer)
Dated: November 1, 1996
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