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
December 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 December 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 - December 28, 1996
and June 29, 1996 ................................... 3
Consolidated Statements of Operations - Three Months
and Six Months Ended December 28, 1996, and
December 23, 1995.................................... 4
Consolidated Statements of Cash Flows
Six months Ended December 28, 1996 and
December 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)
Dec. 28, June 29,
1996 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 168 $ 464
Trade receivables, net 4 233
Inventories 751 902
Other current assets 99 82
Total current assets 1,022 1,681
Property, plant and equipment, net 2,920 3,136
$3,942 $4,817
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $4,191 $3,752
Long-term debt classified as current - 611
Short-term debt 4,896 4,896
Accounts payable 404 394
Accrued salaries and related expenses 256 212
Other accrued expenses 220 298
Due to related parties, net 2,525 2,587
Total current liabilities 12,492 12,750
Stockholders' deficit:
Common stock $.10 par value 2,231 2,231
Additional paid-in capital 58,805 58,805
Accumulated deficit (69,586) (68,969)
Total stockholders'
deficit (8,550) (7,933)
$ 3,942 $ 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 Six Months Ended
Dec. 28, Dec. 23, Dec. 28, Dec. 23,
1996 1995 1996 1995
Net Sales $ 692 $ 1,123 $ 1,483 $ 2,141
Cost and expenses:
Cost of products sold 584 881 1,299 1,638
Research, development
and engineering 50 56 104 116
Selling and administration 140 176 321 353
774 1,113 1,724 2,107
Income (Loss) from
operations (82) 10 (241) 34
Other deductions (income):
Interest expense 191 239 385 476
Other (income) expense, net (4) (21) (9) (53)
187 218 376 423
Net earnings (loss) $ (269) $ (208) $ (617) $ (389)
Net earnings (loss) per
common and common
equivalent share $ (0.01) $ (0.01) $ (0.03) $ (0.02)
Average common shares
outstanding 22,313 22,313 22,313 22,313
See accompanying notes to consolidated financial statements.
NATIONAL MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Six Months Ended
Dec. 28, Dec. 23,
1996 1995
Cash flows from operating activities:
Net income (loss) $ (617) $ (389)
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 216 300
Retirements of property and equipment - 94
Changes in operating assets and liabilities:
Decrease (Increase) in trade receivables 229 50
Decrease (Increase) in inventories 151 101
Decrease (Increase) in other current assets (17) (100)
Increase (Decrease) in accounts payable
and accrued expenses (24) (40)
Increase (Decrease) in due to related parties (62) 262
Net cash provided (used) by
operating activities (124) 278
Cash flows from financing activities:
Purchases of equipment - (12)
Repayment on long-term debt (172) (159)
Net cash provided from (used by)
financing activities (172) (171)
Net increase (decrease) in cash and cash
equivalents (296) 107
Cash and cash equivalents at beginning
of period 464 538
Cash and cash equivalents at end of period $ 168 $ 645
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
December 28, 1996 and the results of operations for the three
month periods and six month periods ended December 28, 1996 and
December 23, 1995 and changes in cash flows for the six month
periods then ended.
The results of operations for the six month period ended
December 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 fourth
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):
December 28, 1996 June 29, 1996
Finished goods $ 618 $ 793
Work in process 36 25
Raw materials and supplies 97 84
$ 751 $ 902
3. Debt payments totalling $2,321,000 due during September 1996 and
previously had not been paid to the primary lending
institution.
As a result of a formal Demand for Payment issued by the bank,
the Company made a principal payment of $161,000 on November 15,
1996. The Company arranged for renewal of a stand-by letter of
credit as loan collateral on November 19, 1996. The bank
rescinded the Demand for Payment upon the occurrence of the two
events noted. Loan agreement amendments were entered into
effective November 26, 1996. The amendments will lower the
interest rate by 1% and there will be no required principal
payments before the November 26, 1997 maturity date. The loans
can be extended through November 26, 2001 if the Company
continues to obtain a new irrevocable letter of credit each year
and does not default on other loan terms. Based upon terms, all
debt payments are 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 and dilutive common
equivalent shares outstanding during the respective quarters.
At December 28, 1996 and December 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.
Six Months Ended In December
Income and Expense
Items as percent Percent Change
of sales in dollars
1996 1995 from 1995-1996
Net Sales 100% 100% (31%)
Cost of products sold 88 77 (21)
Gross Profit (loss) 12 23 (63)
Research, development & engineering 7 5 (10)
Selling and administration 22 16 (9)
Other deductions (income) 25 20 (11)
Net earnings (loss) (42)% (18)% (59)%
Sales volume has decreased 31% 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. Although
this cost has decreased 9% compared to the prior year, it represents
22% of net sales as a result of the historically low volume.
The consolidated balance sheet at December 28, 1996 reflects a
$400,000 decrease in net working capital since fiscal year-end.
Within the components of working capital, cash decreased by $300,000
and trade receivables by $200,000 due to lower sales. The cash was
used to repay bank debt of $161,000 and to offset continued losses.
Liquidity and Capital Resources
The consolidated balance sheet at December 28, 1996 reflects a
$172,000 reduction of long-term debt for the six month period. The
Company is in compliance with its lending agreements as of December
28, 1996. The Company had not made payments totalling $2,321,000 due
the primary lender periodically since June 30, 1995. As a result of
a formal Demand for Payment issued by the bank, the Company made a
principal payment of $161,000 on November 15, 1996. The Company
arranged for renewal of a stand-by letter of credit as loan
collateral on November 19, 1996. The bank rescinded the Demand for
Payment upon the occurrence of the two events noted. The Company
has subsequently negotiated acceptable terms with the bank and
entered into revised term loan and revolving credit agreements
effective November 26, 1996.
The loan agreement amendments reduce the interest rate on the
revolving credit from prime to prime -1% and on the term loan from
prime plus 1% to prime. The revised loans require no principal
payments and mature on November 26, 1997. The maturity dates can be
extended to November 26, 2001 if the Company continues to obtain a
new irrevocable letter of credit each year and does not default on
other loan terms.
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
Dr. Yoon H. Choo
President, Chief
Executive Officer
and Treasurer
(Principal Financial
Officer)
Dated: February 1, 1997
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