<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1995 COMMISSION FILE NUMBER 0-1817
NETWORKS ELECTRONIC CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-1770469
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
9750 DE SOTO AVENUE
CHATSWORTH, CALIFORNIA 91311
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (818) 341-0440
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
<S> <C>
NONE NONE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK $0.25 PAR VALUE
TITLE OF CLASS
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 / /
THE AGGREGATE MARKET VALUE OF THE SHARES OF COMMON STOCK (BASED ON THE
CLOSING SALES PRICE
OF THESE SHARES ON SEPTEMBER 29, 1995) HELD BY NONAFFILIATES OF THE REGISTRANT
WAS $892,078.
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, $.25 PAR
VALUE, WAS 1,596,221 AT
SEPTEMBER 29, 1995.
<PAGE> 2
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PART I
ITEM 1. BUSINESS
Principal Business
The Principal business of Networks Electronic Corp., hereinafter called the
"Company" or "Networks", is the design, fabrication, assembly and sale of high
technology components for aerospace and U.S. Government defense prime
contractors. The Company was incorporated in the State of California in October
1953. The Company operates two divisions: (1) U.S. Bearing Division whose
products are spherical, self-aligned, self-lubricating and specialized bearings
used chiefly in the aerospace industry, and (2) Ordnance Division whose products
include miniaturized electro-pyrotechnic devices such as switches,
initiator-igniters for missile subsystems, thermal relay switches, and
glass-to-metal seals used solely in the defense and aerospace industries. The
products of each division are sold by Company-employed sales engineers and
representatives to domestic and overseas customers.
Competition
The Company encounters varied degrees of competition depending upon the division
involved. The Bearing Division sells its product lines in competitive markets,
on the basis of a combination of price, delivery, and product quality. Many of
the Division's competitors are divisions or segments of large diversified
companies with financial resources greater than those of Networks. The Ordnance
Division sells its products on a less competitive basis than does the Bearing
Division, although they do compete with about 4-6 ordnance component
manufacturers similar in size and capacity to Networks' Ordnance Division. The
Company's two divisions sell a number of products for which they are the sole
source. See section entitled "Patents."
Customer Dependency
The Company is not entirely dependent upon any single customer.
Its Bearing Division manufactures specialized bearings for sale to the defense
and aerospace industries either directly to the U.S. Government or to Government
prime contractors, such as: Rockwell International, McDonnell Douglas and
Lockheed Martin. Only the Department of Defense (46%) and Industria Engineering
(11%) contributed 10% or more of the Bearing Division's revenues during the
fiscal year ended June 30, 1995.
The Ordnance Division of the Company manufactures electro-pyrotechnic devices
for the defense and aerospace industries. Its products are sold to a few prime
contractors such as: Eagle-Picher Industries and Hughes Aircraft, Defense, and
Missile Systems. These customers accounted for 45%, and 17%, respectively, of
the Ordnance Division's revenues for the fiscal year ended June 30, 1995. No
other customer accounted for 10% or more of the Ordnance Division's revenues.
Backlog
The Company's backlog of unfilled orders at June 30, 1995 was approximately
$2,800,000, compared with $2,000,000 at June 30, 1994.
Raw Materials
The principal raw materials used by the Company are readily available from many
sources. However, the Company is dependent upon the ability of its suppliers to
meet raw material specification requirements, quality standards, and delivery
schedules in order to fulfill the Company's commitments to its customers. To
date, the Company has not experienced any shortages of raw materials nor has it
stockpiled a significant amount of raw materials in anticipation of shortages.
Patents
Although the Company does have a substantial number of patents, it depends
primarily upon technical know-how, product technology and service to its
customers to protect its position.
Research and Development
During the last three fiscal years, the Company has engaged in limited
Company-sponsored research and development activities. The estimated amount
spent during the years ended June 30, 1995, 1994, and 1993 on such activities
was approximately $2,000, $24,000, and $9,000, respectively.
Environmental Contingent Liabilities
Federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, have had no adverse effect on
capital expenditures, earnings or the competitive position of the Company since
the previous year.
Employees
At June 30, 1995, the Company had approximately 59 employees, as compared with
50 at June 30, 1994.
Material Changes in Business
There have been no material changes in business done by the Company since the
previous year.
Lines of Business
The Company has been engaged in more than one line of business during its last
five fiscal years.
2
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Corporate Summary of Results by Division (In Thousands)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Bearing Division:
Sales* $1,895 $1,530 $3,067 $4,346 $6,743
Pretax income (loss)** 1,117 (398) (1,407) (224) 825
Identifiable assets 2,133 1,759 2,399 3,639 4,560
Ordnance Division:
Sales* 1,112 1,253 1,543 2,249 1,425
Pretax income (loss)** 633 (146) (173) 157 (382)
Identifiable assets 1,042 844 1,283 1,845 1,922
Capital expenditures of each segment:
Bearings 28 2 37 34 149
Ordnance 17 3 7 6 4
</TABLE>
*No intersegment sales.
**Does not include interest expense in any of the five years presented.
- --------------------------------------------------------------------------------
Parents
Mr. Mihai D. Patrichi was the beneficial owner (directly or indirectly) of
895,053 shares of the Company's common stock, which represented approximately
56% of the Company's outstanding voting securities (common stock only) as of
June 30, 1994. By reason of his ownership of such common stock, Mr. Patrichi was
deemed to be a parent of the Company for the purposes of the Securities Act of
1934, as amended. When he passed away November 1, 1994, 790,383 of these shares
entered his estate, and are to be distributed to his heirs. After distribution
of these shares, his daughter, Ileana Wachtel, will beneficially own 173,353
shares (approximately 10.9%) and his son, Radu Patrichi, will beneficially own
171,457 shares (approximately 10.7%). There is no such other person who owns 10%
or more of the Company's common stock, and who might be deemed a "parent" of the
Company.
ITEM 2. PROPERTIES
The Company's administrative, engineering and manufacturing activities are all
carried on from an 85,000 square foot building located on 7.25 acres of land in
a light industrial area of Chatsworth, California. The Company also owns a
residential condominium in Orlando, Florida, which is not used in the business
and which the Company is currently attempting to sell.
ITEM 3. LEGAL PROCEEDINGS
See Note 16 of the notes to financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
3
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Price Range of Common Stock
The following table shows the range of transaction prices for trades of the
common stock in the over-the-counter market for the fiscal quarters indicated,
as reported by NASDAQ, the National Quotation Bureau, and the OTC electronic
bulletin board.
- --------------------------------------------------------
<TABLE>
<CAPTION>
YEAR HIGH LOW
<S> <C> <C>
- -----------------------------------------------
1993
1st Quarter 2 3/8 1 3/8
2nd Quarter 1 3/4 0 3/4
3rd Quarter 1 3/4 1
4th Quarter 1 3/4 0 1/8(#)
1994 (##)
1st Quarter 0 5/16 0 1/16
2nd Quarter 0 5/16 0 1/16
3rd Quarter 0 5/16 0 1/16
4th Quarter 0 5/16 0 1/16
1995 (##)
1st Quarter 0 1/4 0 1/16
2nd Quarter 0 3/16 0 1/16
3rd Quarter 0 7/16 0 1/16
4th Quarter 0 5/8 0 1/16
</TABLE>
- ------------
(#) Quote provided by the National Quotation Bureau.
(##) Quotes obtained from the OTC Electronic Board System.
Networks Electronic Corp. stock was formerly listed on NASDAQ, the
over-the-counter market, as NWRK. As of May 7, 1993, the stock has been quoted
on the OTC electronic bulletin board.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
RECORD HOLDERS (AS OF
TITLE OF CLASS SEPTEMBER 29, 1995)
<S> <C>
- -----------------------------------------------------
Common stock, $.25 par value 984*
</TABLE>
- ------------
* Included in the number of stockholders of record are shares held in "nominee"
or "street" name.
- ------------------------------------------------------------
Dividends
The Company has never paid cash dividends on its common stock. During each of
the years ended June 30, 1993 and 1992, respectively, a 5% common stock dividend
was declared and distributed to stockholders. No common stock dividends were
declared during the years ended June 30, 1995 and 1994. Payment of future
dividends will be within the discretion of the Company's Board of Directors and
will depend, among other factors, on retained earnings, capital requirements and
the operating and financial condition of the Company.
4
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL HISTORY
(In thousands of dollars except per share data)
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<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
<S> <C> <C> <C> <C> <C>
----------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------
Operations
Sales $3,007 $ 2,783 $ 4,610 $6,595 $8,168
------ ------- ------- ------ ------
Net income (loss) 1,767 (800) (1,885) 260 67
------ ------- ------ ------ ------
Net income (loss) per common share 1.11 (.50) (1.18) (.16)* .04**
------ ------- ------ ------ ------
Financial position
Working capital (deficiency) $1,128 $(1,004) $(2,173) $ (659) $1,550
------ ------- ------- ------ ------
Stockholders' equity (deficit) (32) (1,877) (887) 991 1,270
------ ------- ------ ------ ------
Total assets 3,175 2,603 3,682 5,484 6,482
------ ------- ------ ------ ------
Long-term debt 2,327 1,966 25 26 2,226
------ ------- ------ ------ ------
</TABLE>
No cash dividends have been paid or accrued during the past five years.
- ----------
* Restated to reflect a 5% common stock dividend issued during the year ended
June 30, 1993.
** Restated to reflect 5% common stock dividends issued during the years ended
June 30, 1993 and 1992.
Reference is made to the financial statements and notes thereto included
elsewhere herein.
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ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1995 and 1994
Results of Operations
A number of factors converged in November 1994 as the Company's manufacturing
operations reached a low ebb. The lingering devastation caused by the Northridge
Earthquake continued to affect the Bearing Division through the idling of a
large portion of the plant. The chapter 11 bankruptcy filing hurt relationships
with important vendors, who required COD payments when shipping essential
materials, thereby delaying production, curtailing revenue generation, and
depleting the Company's liquid asset base. Furthermore, on November 1, 1994 the
Company's founder and board chairman, Mihai Patrichi, passed away.
Coincident with the court affirmation of the Company's chapter 11 reorganization
plan, a new management team came on board and implemented a three-phase plan to
bring the Company back to profitability. With the help of a $152,000 loan, the
Company began the first phase of it business plan, the survival phase, by
jump-starting production and accelerating the shipping of its existing backlog.
In the months ahead the Company was successful in achieving the phase's
goals - that of reaching an operational break-even point and avoiding the
foreclosure of the Company's Chatsworth property by the bank.
In looking at the Company's overall revenue picture, sales improved by
approximately 8% to $3,007,000 during the year ended June 30, 1995 from
$2,783,000 in 1994. Most notably, however, under the new management team,
approximately $1,863,000 (62%) of sales for the 1995 year occurred during the
six month period between January 1, 1995 and June 30, 1995, which also
represented an increase of approximately $620,000 from the comparable six month
period of the prior year.
The Company still felt the effects of cutbacks in defense spending and the
aerospace industry. In spite of these pressures, the Company's combined backlog
increased about 40% to approximately $2,800,000 at June 30, 1995 from $2,000,000
at June 30, 1994, boosted in large measure by management's efforts to revive
past relationships.
The Company continued with its austerity program in compliance with its chapter
11 reorganization plan, reducing its general, administrative and selling
expenses by approximately 51% ($560,000) from amounts incurred in the 1994 year.
Almost $400,000 of this reduction reflected considerable savings in legal costs
due to the winding down of court filings related to the Company's chapter 11
status, as well as a significant decline in staff payroll expenses, primarily in
the executive compensation area. These cost reductions were seen as principal
factors behind the Company reporting its first operating profit in four years
during the year ended June 30, 1995, in the amount of approximately $47,000.
This return to profitability, in fact, marked the entrance by the Company into
the stabilization phase (i.e., second phase) of its long range business plan.
Other objectives in this phase include the continuing service of debt and staff
wage normalization.
Although costs and fees associated with the Company's chapter 11 reorganization
should continue to decrease, the overall downward trend in general and
administrative expenses is expected to reverse in the upcoming fiscal year. The
Company plans to change its focus by concen-
5
<PAGE> 6
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trating on expanding its book-to-bill ratio and its market share in both
divisions through the addition of sales personnel. The anticipated increase in
sales volume over the year ahead should, in turn, fuel the need for new
administration positions. Also, the cost of hiring a full-time CEO and the
ongoing process of normalizing staff wages will impact operations to a greater
degree during the year ending June 30, 1996.
Interest expense was approximately 6% lower in 1995 than that of the previous
year and approximately 15% lower than 1993 levels. The rate of decline was
smaller in 1995, because a reduction in average aggregate borrowings was largely
offset by a higher effective interest rate on the Company's mortgage note. As
the Company continues to pay down its mortgage and related party debt, net
interest expense should continue to decrease, so long as the interest rate
environment remains positive and no unfavorable debt contingencies occur (see
discussion of pension plan funding waiver request below). During the year ending
June 30, 1996, the Company plans to fully repair the damage caused to its
Chatsworth building by the Northridge Earthquake. An $800,000 commitment from
the Community Redevelopment Agency, received for this purpose, is comprised of a
$680,000 interest-free loan and a $120,000 grant.
A series of non-recurring income items contributed approximately $1,700,000 to
pre-tax income during 1995. Specifically, the Company had a lawsuit judgment
reduced from approximately $820,000 to $53,000 and settled other litigation at
or below expected amounts. The Company also sold raw land in Palm Desert for
approximately $581,000, resulting in a pre-tax profit of about $537,000, and its
insurance carrier agreed to settle claims arising from the Northridge Earthquake
for approximately $385,000. Although these items will not be repeated next year,
they did serve to immensely improve the Company's financial condition and
liquidity.
In emerging from bankruptcy, the Company is aware that it must develop new
strategies if it is to be successful. In this regard, it is undertaking new
projects in the Ordnance Division which will more efficiently utilize Company
resources. The Company believes that its Bearing Division is well positioned to
take advantage of the fact that replacement of existing aircraft parts
(including bearing assemblies) should begin to increase at an accelerated pace,
as industry inventories have now been reduced to historically low levels through
delayed re-stocking by users.
The final phase of management's three phase plan is the growth phase. Once
operations have attained a stabilized level of production and profitability,
hopefully within two years, the Company will employ more of its resources toward
new product development. Additionally, once its north building is repaired, the
Company is considering leasing portions of the premises, which should greatly
enhance future cash flows.
Financial Condition
The Company had working capital of approximately $1,128,000 at June 30, 1995 as
compared to a working capital deficit of approximately $1,004,000 at June 30,
1994, which represented a turnaround of $2,132,000. The marked improvement was
primarily due to the non-recurring items discussed above, plus the
reclassification of approximately $383,000 of the Company's pension plan
obligation as a long-term liability. Most importantly, the Company had a current
ratio greater than 2.0 at June 30, 1995, providing a comfortable cushion with
which to meet its short term obligations. With the Community Development Agency
loan commitment, management believes that the company can generate enough
earnings to meet medium term financing needs.
One caveat here pertains to the Company's pension plan contributions, which are
currently set at $2,400 per month ($28,800 per year) in accordance with the
chapter 11 reorganization plan. The IRS minimum funding standard requires the
current year's annual contribution to be approximately $240,000. The Company has
recently applied for a waiver from the IRS to defer payment of the full minimum
funding standard amount by amortizing it over a five year period. Although the
Company's cash reserves subsequent to June 30, 1995 have climbed to over
$300,000, due to collections of a receivable relating to the aforementioned
insurance claim and a recent time and materials billing, failure of the IRS to
grant the pension plan waiver could inevitably result in the Company having to
obtain new short-term financing which, in all probability, would have the
immediate consequence of deflecting the Company from its course of recovery.
1994 and 1993
Results of Operations
The Company's sales declined by approximately 40% to $2,783,000 during the year
ended June 30, 1994 from $4,610,000 in 1993, with the Bearing Division suffering
a 50% decline and the Ordnance Division a 19% decrease. Overall profit margins
increased 27% in fiscal 1994 from 11% the previous year, due primarily to better
management and control of production costs in the Bearing Division, which saw
margins jump to 25% from (3)% the year before. However, substantially reduced
sales volume was such that large operating losses were still sustained. The
Northridge Earthquake in January 1994 impacted the Bearing operations to a
significant degree, resulting in repairs and idle plant overhead costs totalling
almost $275,000 during the year. Structural damage to the building caused the
Company to move production to another part of the plant.
6
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The Company still felt the effects of cutbacks in defense spending and the
cancellation of a large Bearing contract by the Air Force in February of 1993.
Accordingly, the Company continued with its austerity program, reducing its
general, administrative and selling expenses by 13% ($168,000) from amounts
incurred in the 1993 year.
Financial Condition
The Company had a working capital deficit of $1,004,000 at June 30, 1994 as
compared to a deficit of $2,173,000 at June 30, 1993, which represented an
improvement of $1,169,000. Although the Company incurred a net loss of $800,000
during the year ended June 30, 1994, it was finally able to come to terms with
its bank on a new financing arrangement (as part of its chapter 11
reorganization plan), allowing for the reclassification of approximately
$1,940,000 in debt from short-term to long-term.
ITEM 8. FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Report of Independent Certified Public Accountant 8
Balance Sheets -- Assets 9
Balance Sheets -- Liabilities and Stockholders' Deficiency in Assets 9
Statements of Operations 10
Statement of Stockholders' Equity (Deficiency in Assets) 10
Statements of Cash Flows 11
Notes to the Financial Statements 12
</TABLE>
7
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
I have audited the accompanying balance sheets of Networks Electronic Corp. as
of June 30, 1995 and 1994 and the related statements of operations,
stockholders' equity (deficiency in assets) and cash flows for each of the three
years in the period ended June 30, 1995. My audits also included the financial
statement schedules listed in the Index at Item 14. These financial statements
and financial statement schedules are the responsibility of the Corporation's
management. My responsibility is to express an opinion on these financial
statements and financial statement schedules based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, such financial statements present fairly, in all material
respects, the financial position of Networks Electronic Corp. as of June 30,
1995 and 1994, and the results of its operations and its cash flows for each of
the three years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles. Also, in my opinion, such financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/ HURLEY & COMPANY
---------------------
HURLEY & COMPANY
September 15, 1995
Granada Hills, California
8
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NETWORKS ELECTRONIC CORP.
BALANCE SHEETS
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<TABLE>
<CAPTION>
JUNE 30,
--------------------------
Assets 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 117,494 $ 164,786
---------- ----------
Receivables:
Trade accounts receivable 543,984 460,114
Less allowance for doubtful accounts 5,000 5,000
---------- ----------
538,984 455,114
---------- ----------
Receivable from officer 27,228 25,370
Receivable from insurance company 234,687 -
Other receivables 5,500 -
Inventories, less reserve for obsolescence of $150,000 and $224,000,
respectively 1,061,946 849,251
Prepaid expenses and deposits 8,040 15,450
Deferred income taxes 15,096 -
---------- ----------
Total current assets 2,008,975 1,509,971
---------- ----------
INVESTMENT IN UNIMPROVED LAND, AT COST - 43,596
---------- ----------
PROPERTY AND EQUIPMENT, AT COST:
Land 131,773 131,773
Buildings and improvements 1,994,439 1,955,772
Machinery and equipment 4,345,213 4,474,029
---------- ----------
6,471,425 6,561,574
Less accumulated depreciation 5,553,265 5,511,953
---------- ----------
918,160 1,049,621
---------- ----------
DEFERRED INCOME TAXES, NON-CURRENT PORTION 248,306 -
---------- ----------
$3,175,441 $2,603,188
========== ==========
Liabilities and Stockholders' Deficiency in Assets
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt $ 121,953 $ 691,767
Note payable, related party -- current portion 50,667 -
Accounts payable 417,773 255,440
Customer advances and deposits 11,585 21,551
Curr. portion of pre-petition debt:
Adjudication award payable 52,525 819,651
Accrued pension liability 28,800 483,612
Other payables 20,000 -
Accrued income taxes payable 6,276 -
Other accrued expenses 171,608 242,104
---------- ----------
Total current liabilities 881,187 2,514,125
---------- ----------
LONG-TERM DEBT:
Long-term debt, less current maturities 1,863,363 1,965,653
Note payable, related party 80,222 -
Long-term portion of accrued pension liability 382,931 -
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTES 12 AND 16) - -
---------- ----------
STOCKHOLDERS' DEFICIENCY IN ASSETS:
Common stock -- par value $.25 per share; authorized 10,000,000 shares,
issued and outstanding 1,596,221 shares in 1995 and 1994, respectively 399,055 399,055
Additional paid-in capital 285,672 285,672
Accumulated deficit (604,318) (2,371,232)
Pension liability adjustment (112,671) (190,085)
---------- ----------
Total stockholders' deficiency in assets (32,262) (1,876,590)
---------- ----------
$3,175,441 $2,603,188
========== ==========
</TABLE>
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The accompanying notes are an integral part of these financial statements.
9
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NETWORKS ELECTRONIC CORP.
STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $3,007,473 $2,783,065 $4,609,826
COST OF SALES 2,421,310 2,043,834 4,121,948
---------- ---------- ----------
GROSS PROFIT 586,163 739,231 487,878
SELLING, ADMINISTRATIVE AND OTHER 539,523 1,099,795 1,268,103
---------- ---------- ----------
OPERATING INCOME (LOSS) 46,640 (360,564) (780,225)
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (239,661) (255,013) (281,450)
Reduction of jury award 726,126 - -
Assessment of jury award - - (819,651)
Gain on disposition of assets 545,007 - -
Insurance and legal settlements 384,687 80,000 -
Earthquake expense - (273,498) -
Other, net 6,789 10,330 19,400
---------- ---------- ----------
1,463,948 (438,181) (1,081,701)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) 1,510,588 (798,745) (1,861,926)
INCOME TAX PROVISION (BENEFIT) (256,326) 800 23,072
---------- ---------- ----------
NET INCOME (LOSS) $1,766,914 $ (799,545) $(1,884,998)
========== ========== ===========
NET INCOME (LOSS) PER SHARE $ 1.11 $ (.50) $ (1.18)
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,596,221 1,596,221 1,598,498
========== ========== ==========
</TABLE>
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Years Ended June 30, 1995, 1994, and 1993
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON STOCK PAID-IN (ACCUMULATED ADJUSTMENTS
SHARES AMOUNT CAPITAL DEFICIT) TO EQUITY TOTAL
---------- -------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1992 1,526,559 $381,640 $ 200,521 $ 428,154 $ (19,108) $ 991,207
Net loss - - - (1,884,998) - (1,884,998)
Common stock purchased (6,900) (1,725) (10,552) - - (12,277)
Common stock dividend issued 76,562 19,140 95,703 (114,843) - -
Pension liability adjustment - - - - 19,108 19,108
--------- -------- --------- ---------- --------- -----------
Balance, June 30, 1993 1,596,221 399,055 285,672 (1,571,687) - (886,960)
Net loss - - - (799,545) - (799,545)
Pension liability adjustment - - - - (190,085) (190,085)
--------- -------- ---------- ---------- --------- -----------
Balance, June 30, 1994 1,596,221 399,055 285,672 (2,371,232) (190,085) (1,876,590)
Net income - - - 1,766,914 - 1,766,914
Pension liability adjustment - - - - 77,414 77,414
--------- -------- ---------- ---------- --------- -----------
Balance, June 30, 1995 1,596,221 $399,055 $ 285,672 $ (604,318) $(112,671) $ (32,262)
========= ======== ========== ========== ========= ==========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 11
- --------------------------------------------------------------------------------
NETWORKS ELECTRONIC CORP.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,766,914 $(799,545) $(1,884,998)
----------- --------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Noncash items included in net income (loss):
Depreciation and amortization 176,048 222,184 296,191
Deferred income taxes (263,402) - 48,447
Gain on disposition of assets (545,007) - -
Changes in:
Accounts receivable and refundable income taxes (325,915) 206,863 669,403
Inventories (212,695) 249,234 678,820
Prepaid expenses and deposits 7,410 29,996 (7,455)
Accounts payable and accrued expenses (643,480) (7,416) 818,296
Customer advances and deposits (9,966) (260,874) 282,425
---------- --------- ----------
Total adjustments (1,817,007) 439,987 2,786,127
---------- --------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (50,093) (359,558) 901,129
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (44,587) (4,935) (44,170)
Proceeds from disposition of assets 588,603 - -
---------- --------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 544,016 (4,935) (44,170)
---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Credit line pay-off (570,000) - -
Mortgage debt reduction (121,766) (12,015) (817,756)
Proceeds from revolving line of credit and long-term
borrowings 19,662 900 -
Proceeds from note payable, related party 152,000 - -
Payment on note payable, related party (21,111) - -
Purchase of common stock of the Company - - (12,277)
----------- ---------- -----------
NET CASH USED IN FINANCING ACTIVITIES (541,215) (11,115) (830,033)
----------- ---------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (47,292) (375,608) 26,926
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 164,786 540,394 513,468
----------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 117,494 $ 164,786 $ 540,394
=========== ========= ===========
</TABLE>
- ----------
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
In the fiscal year ended June 30, 1995, the Company reduced an additional
minimum pension liability previously recognized (representing the excess of the
accumulated benefit obligation over the fair value of plan assets and
liabilities already accrued) by $77,414 and increased stockholders' equity for
the same amount.
In the fiscal year ended June 30, 1994, the Company recognized an additional
minimum pension liability in the amount of $190,085 by reducing stockholders'
equity for the same amount.
In the fiscal year ended June 30, 1993, the Company reversed an additional
minimum pension liability in the amount of $170,203 that had been previously
recorded along with an intangible asset of $151,095 and a charge to
stockholders' equity of $19,108. The liability represented the excess of the
accumulated benefit obligation over the fair value of plan assets and
liabilities accrued at June 30, 1992.
11
<PAGE> 12
- --------------------------------------------------------------------------------
NETWORKS ELECTRONIC CORP.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit and highly liquid
debt instruments with original maturities of three months or less. Substantially
all cash is on deposit with one financial institution.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Property and Equipment
Depreciation is computed by using the declining-balance and straight-line
methods over the estimated service lives of the assets which range from three
years for tooling to forty years for the building. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts, and any resulting gain or loss is recognized in income for
the period. The cost of maintenance and repairs is charged to income as
incurred; significant renewals and improvements are capitalized. Deduction is
made for retirements resulting from renewals or improvements.
Income Taxes
Deferred income taxes are provided for the estimated tax effects of timing
differences between financial and taxable income with respect to depreciation,
pension costs, California franchise tax, reserve for inventory obsolescence,
capitalized inventory costs, and other items. During the year ended June 30,
1993, the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. The cumulative effect of implementing SFAS
No. 109 was not material.
Pension Plan
The Company funds accrued pension costs on its noncontributory pension plan
covering substantially all employees. Unrecognized prior service cost,
previously amortized over thirty years, was expensed in the year ended June 30,
1993, due to the fact that participants' accrued benefits under the plan were
frozen as of August 31, 1992. (See Note 9).
Net Income (Loss) Per Share
Net income (loss) per share has been computed based on the weighted average
common shares outstanding during each year.
Research and Development
Research and development expenditures are expensed in the period incurred.
Reclassifications
Certain amounts from prior years have been reclassified to conform to the
current year's presentation.
2. BASIS OF PRESENTATION AND
PROCEEDINGS UNDER CHAPTER 11
On July 8, 1993 ("the petition date"), Networks Electronic Corp. filed a
voluntary petition for reorganization under chapter 11 of the United States
Bankruptcy Code ("chapter 11") in the United States Bankruptcy Court for the
Central District of California and has been operating its business as a
debtor-in-possession, subject to the supervision of the Bankruptcy Court. The
chapter 11 filing was the result of a cash shortfall resulting from the
Company's inability to refinance its bank term note and credit line, as well as
meet its immediate litigation liability arising from a jury verdict rendered in
June, 1993 (See Notes 5 and 16).
The order confirming the Company's plan for reorganization was entered on
November 9, 1994, contemplating full repayment of all pre-petition liabilities
(totalling approximately $1,200,000) over a twelve year period. Additionally,
the Company's term note was extended for six years.
The Company's financial statements for the year ended June 30, 1994 were
prepared on a going concern basis, assuming continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. However, due to the continuing losses from operations, such
realization of assets and liquidation of liabilities were subject to
uncertainty, raising substantial doubt about the Company's continued existence.
Such concerns have been alleviated during the fiscal year ended June 30, 1995.
The Company has continued to adhere to its reorganization plan; and management,
under its new chief executive officer, has succeeded in generating positive
operating income during the full year for the first time since 1991. A positive
cash flow trend is also developing, whereby the Company has begun to build up
its depleted cash reserves. Furthermore, the Company has received a favorable
adjudication ruling, effectively reducing its obligation on the 1993 jury award
by more than $750,000. Other litigation issues have been settled, as well, and
total liabilities are now more than $1,200,000 below June 30, 1994. Overall,
these improved circumstances are sufficient to remove the uncertainty sur-
12
<PAGE> 13
NETWORKS ELECTRONIC CORP.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
rounding the Company's ability to function as a going concern.
3. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
<S> <C> <C>
1995 1994
- ---------------------------------------------------------------
Raw materials $ 162,352 $ 151,778
Work in process 574,006 476,594
Finished goods and components 491,810 531,866
---------- ----------
1,228,168 1,160,238
Less applied against customer
deposit (16,222) (86,987)
Less reserve for obsolescence (150,000) (224,000)
---------- ----------
$1,061,946 $ 849,251
========== ==========
</TABLE>
4. LONG-TERM DEBT, NOTES PAYABLE
Long-term debt and notes payable consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
<S> <C> <C>
1995 1994
- ---------------------------------------------------------------
Note payable to bank on line of
credit, secured by deed of trust on
land and building, payable interest
only at a reference rate (8.75% at
pay-off date). Note paid in full in
September 1994 (See Notes 5 and 14) $ - $ 570,000
Note payable to bank, secured by deed
of trust on land and building,
principal payable in monthly
installments of $10,000 through June
2000, with interest payable monthly
at a reference rate (11.25% at June
30, 1995)
(See Note 5) 1,942,528 2,062,528
Note payable to bank, secured by real
estate, payable in monthly
installments of $348 (including
interest at 10% per annum) through
September 2003 23,126 24,892
Note payable to Community
Redevelopment Agency, ("CRA"),
noninterest bearing, secured by real
estate, no principal payments
required through June 1996, at which
time the Note is to be converted
into a long-term CRA construction
loan 19,662 -
---------- ----------
1,985,316 2,657,420
Less current maturities 121,953 691,767
---------- ----------
$1,863,363 $1,965,653
========== ==========
</TABLE>
Maturities of long-term debt in each of the next five years are as follows:
<TABLE>
<S> <C>
Year ending June 30,:
1996 $ 121,953
1997 122,000
1998 122,000
1999 123,000
2000 1,465,528
Thereafter 30,835
----------
$1,985,316
==========
</TABLE>
5. CREDIT AGREEMENTS
The Company's original bank line of credit agreement, established in January
1990, was secured by a trust deed on the Company's land and building and
provided for short term borrowings of up to $3,000,000, with interest payable at
the bank's prime rate. The bank modified the terms of the loan in 1992 and
raised the interest rate to the bank's prime rate plus one percent, with no
further advances on the unused portion of the line to be allowed. The Company
paid off the remaining outstanding balance of the line totalling $570,000 in
September 1994.
The Company reached a new agreement with its bank, as confirmed by the Company's
plan for reorganization entered on November 9, 1994. The new terms include the
payment of interest at the bank's reference rate plus 2.25% (currently 11.25%),
$10,000 per month principal payments until maturity, and a balloon payment of
$1,342,528 in June 2000. Additionally, in the event of default, the entire
outstanding principal balance of the note will become immediately due and
payable and will bear interest equal to 4 percentage points above the applicable
interest rate as defined above.
The Los Angeles City Council approved the funding of $800,000 through the
Community Redevelopment Agency for the rehabilitation of the damaged building at
the Chatsworth site. The damage was sustained as a result of the Northridge
Earthquake in January 1994. Of the total commitment, 15% ($120,000) is a grant
and 85% ($680,000) is an interest-free loan to be repaid over 20 years,
beginning 5 years from the date of the loan. A predevelopment loan agreement was
entered into on June 21, 1995 in the amount of $98,925, to pay the Company's
costs incurred in preparing construction drawings and related documents, as well
as in obtaining necessary approvals and permits. At June 30, 1995, total
advances on this predevelopment loan agreement were $19,662.
No interest is being charged on the loan, and it is expected that the
outstanding principal balance will roll over into the full $680,000 loan package
once the loan contract is finalized.
The Company's average aggregate borrowings were $2,217,000, $2,658,000 and
$3,047,000 at weighted average interest rates of 10.7%, 9.6% and 9.2% in 1995,
1994, and 1993, respectively. The average aggregate borrowings and weighted
average interest rate computations include a note payable to a related party
during the year ended June 30, 1995. Interest paid amounted to $242,196,
$252,640, and $281,694 during the fiscal years ended June 30, 1995, 1994, and
1993, respectively.
13
<PAGE> 14
NETWORKS ELECTRONIC CORP.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
6. NOTE PAYABLE, RELATED PARTY
In January 1995, the Company received a $152,000 loan from the estate of its
former president and chief executive officer, secured by specific machinery and
equipment. The loan is being repaid in equal monthly principal installments of
$4,222 (plus interest at 10%) over a three year period. A loan fee of $2,000 was
charged to consummate the transaction, and interest paid on the note through
June 30, 1995 amounted to $6,230. The outstanding loan balance at June 30, 1995
was as follows:
<TABLE>
<S> <C>
Total loan outstanding $130,889
Less current portion 50,667
--------
Long-term portion $ 80,222
========
The debt matures as follows:
Year ending June 30,:
1996 $ 50,667
1997 50,667
1998 29,555
--------
$130,889
========
</TABLE>
7. STOCK OPTION PLAN
The Company has a qualified stock option plan under which options to purchase up
to an aggregate of 185,200 shares of the Company's common stock may be granted
to key employees at a price not less than the fair market value at the date of
grant. Options issued under this plan will expire unless exercised within five
years of the grant date. During the year ended June 30, 1993, the Company issued
20,000 stock options (10,000 each) under this plan to an officer and director,
exercisable at a price of $1.00 per share. If not exercised, these options will
expire on May 13, 1998.
During the year ended June 30, 1995, the Company's Board of Directors awarded
75,000 fully vested stock options to its chief executive officer, exercisable at
a price of $0.1875 per share, and 2,500 additional stock options (500 each) to
five other key employees, exercisable at a price of $.25 per share. The exercise
price, in each instance, corresponded to the mid-point of the closing bid and
ask price of the Company's common stock on the date of grant, which was November
1, 1994 for the chief executive officer's options and March 31, 1995 for the
other key employees' options. The options awarded to the five key employees will
fully vest after three years of continuous employment. The options will all be
issued in conformity with a new or modified stock option plan and will expire if
not exercised within five years from the date of grant.
No other options are currently outstanding nor have any been previously granted.
8. INCOME TAXES
Income taxes (benefits) consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------
1995 1994 1993
- ---------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax (benefit) $(161,591) $ - $(21,358)
California franchise tax (benefit) (94,735) 800 44,430
--------- ---- --------
$(256,326) $800 $ 23,072
========= ==== ========
Current $ 7,076 $800 $(25,375)
Deferred (263,402) - 48,447
--------- ---- --------
$(256,326) $800 $ 23,072
========= ==== ========
</TABLE>
The differences between the effective income tax rate and the statutory federal
income tax rate are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------
1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Computed statutory federal
income tax (benefit) $ 513,600 $(271,573) $(633,055)
Increases (decreases)
resulting from:
California franchise tax,
net of federal tax
benefit 93,727 528 (4,176)
Rate differential due to
utilization of federal
NOL carryback to prior
year at lower effective
tax rate - - 11,750
Valuation allowance, due to
unlikelihood of future
realization of deferred
tax benefit (864,802) 270,464 647,196
Other 1,149 1,381 1,357
--------- --------- ---------
Income tax provision
(benefit) $(256,326) $ 800 $ 23,072
========= ========= =========
</TABLE>
Net income taxes paid (refunded) amounted to $800, $(34,814), and $(224,302)
during the fiscal years ended June 30, 1995, 1994, and 1993, respectively.
The Company's current income tax provision (benefit) is based on current period
taxable income (loss). The deferred income tax provision (benefit) is based on
the temporary differences between the book basis and tax basis of assets and
liabilities at the end of each year and the expected reversal of those
differences. The deferred
14
<PAGE> 15
NETWORKS ELECTRONIC CORP.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
tax provision (benefit) in 1995, 1994, and 1993 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------
1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Change in temporary
difference:
Depreciation $ (11,959) $ (27,076) $ (42,537)
Inventory obsolescence 32,042 (25,980) (71,012)
Pension plan 1,761 15,604 (98,750)
Litigation 347,321 (15,155) (354,909)
Other (510) (4,010) (404)
Accrued vacation and sick
leave (4,008) 2,258 14,268
Uniform capitalization 17,910 904 18,350
Alternative minimum tax
credits (6,276) - 9,820
California franchise tax (47,600) 53,734 135,536
Utilization of federal and
California NOL
carryforwards 272,719 - -
Benefit of federal and
California NOL
carryforwards - (270,743) (209,111)
Valuation allowance, due to
unlikelihood of future
realization (864,802) 270,464 647,196
--------- --------- ---------
Deferred inc. tax provision
(benefit) $(263,402) $ - $ 48,447
========= ========= =========
</TABLE>
At June 30, 1995 the Company had an unused federal net operating loss
carryforward of approximately $610,000, expiring in the year ending June 30,
2009. Also at June 30, 1995, the Company had an unused California net operating
loss carryforward of approximately $840,000, with $490,000 expiring in the year
ending June 30, 1998 and the balance of $350,000 expiring in the year ending
June 30, 1999.
Additionally, the Company has a federal general business credit carryover of
approximately $21,000 expiring in the year ending June 30, 2007, and a
California tax credit carryover of approximately $12,500, with $4,000 expiring
in the year ending June 30, 2006 and the remaining $8,500 expiring in the year
ending June 30, 2007.
Significant components of the Company's deferred tax liabilities and assets at
June 30, 1995 are:
<TABLE>
<S> <C>
- ------------------------------------------------------------
Liabilities
Depreciable property, plant and equipment $ 64,146
California franchise tax 49,754
---------
Gross deferred tax liabilities 113,900
---------
Assets
Inventory 85,050
Accounts receivable 2,165
Pension plan 120,140
Other employee benefits 21,216
Litigation 22,743
Alternative minimum tax credits 6,276
Other tax credits 33,481
NOL carryforwards 282,585
Other 3,646
---------
Gross deferred tax assets 577,302
---------
Deferred income tax asset 463,402
Valuation allowance (200,000)
---------
Deferred income tax asset -- net $ 263,402
=========
</TABLE>
The deferred tax benefit at the June 30, 1995 balance sheet date is presented as
follows:
<TABLE>
<S> <C>
Current portion $ 15,096
Non-current portion 248,306
---------
Total $ 263,402
=========
</TABLE>
9. EMPLOYEE RETIREMENT PLAN
The Company has a defined benefit pension plan covering substantially all of its
employees. The plan has been modified through amendment, with all participants'
accrued benefits frozen as of August 31, 1992. The freeze was necessitated
primarily as a means of reducing annual pension funding requirements, which had
risen sharply in recent years as a result of the Company having previously
increased maximum pension benefits from 33% to 40% of compensation.
Pension expense was $24,733, $10,628, and $264,520 for the years ended June 30,
1995, 1994, and 1993, respectively, and was determined in accordance with the
requirements of Statement of Financial Accounting Standards (SFAS) No. 87
"Employers' Accounting for Pension Plans." Pension expense for the year ended
June 30, 1993 included a non-recurring charge of $207,487 related to the benefit
freeze. Periodic pension costs for the years ended June 30, 1995, 1994, and 1993
are summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ - $ - $ 16,228
Interest cost 182,659 184,531 211,278
Actual return on plan
assets (283,845) (31,304) (190,105)
Net amortization and
deferral 125,919 (142,599) 19,632
Effect of 8/31/92 plan
curtailment - - 207,487
--------- --------- ---------
Total pension expense $ 24,733 $ 10,628 $ 264,520
========= ========= =========
</TABLE>
The status of the plan is as follows:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $(2,334,957) $(2,386,078)
Nonvested benefits (2,775) (142)
----------- -----------
Accumulated benefit obligation (2,337,732) (2,386,220)
Effect of future salary increases - -
----------- -----------
Projected benefit obligation (2,337,732) (2,386,220)
Fair value of plan assets 1,926,001 1,902,608
----------- -----------
Projected benefit obligation in
excess of fair value of plan
assets (411,731) (483,612)
Unrecognized net loss 112,671 190,085
----------- -----------
Accrued pension cost (299,060) (293,527)
Minimum pension adjustment (112,671) (190,085)
----------- -----------
Accrued pension liability $ (411,731) $ (483,612)
========== ==========
</TABLE>
A minimum pension liability equal to the excess of the accumulated benefit
obligation over the fair value of plan assets and liabilities already accrued
was reflected in the balance sheets at June 30, 1995 and 1994 through the
recording of a reduction to stockholders' equity in the amount of $112,671 and
$190,085, respectively.
15
<PAGE> 16
NETWORKS ELECTRONIC CORP.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The expected long-term rate of return on plan assets was 9% for both 1995 and
1994. The discount rate used in determining the actuarial present value of
accumulated benefit obligations was 8% for both 1995 and 1994. There was no rate
of increase in future compensation levels at both June 30, 1995 and June 30,
1994 because of the plan curtailment.
Since the court confirmation of its Chapter 11 reorganization plan in November
1994, the Company continues to make pension plan contributions in the amount of
$2,400 per month. A balloon payment of approximately $20,000 may have to be made
in March 1996 to prevent the assessment of a federal excise tax and further
penalties for the plan year ended June 30, 1994. Additionally, an application
for waiver of the minimum funding standard has been filed with the IRS for the
plan year ended June 30, 1995. If granted, this request would allow for the
deferral of approximately $240,000 in plan contributions (plus interest), which
would then be paid over a statutory five year period. If the waiver request were
not granted, the Company would undoubtedly have to borrow heavily at exorbitant
interest rates in order to meet the funding requirement. In any event, future
annual minimum contributions should decrease significantly over the next several
years, due to the expiration of the five year amortization period for actuarial
plan losses sustained in prior years.
10. BUSINESS SEGMENTS
The principal business of the Company is the design, fabrication, assembly and
sale of high technology assemblies for aerospace and defense prime contractors.
The Company operates two divisions: (1) U.S. Bearing Division whose products are
spherical, self-aligned, self-lubricating and specialized bearings used chiefly
in the aircraft and space industries, and (2) Ordnance Division whose products
include miniaturized electro-pyrotechnic devices such as switches,
initiator-igniters for missile subsystems, thermal relay switches, and
glass-to-metal seals used solely for the defense and aerospace industries.
<TABLE>
<CAPTION>
INCOME (LOSS) BEFORE
INCOME TAX PROVISION CAPITAL
SALES* (BENEFIT) ASSETS EXPENDITURES DEPRECIATION
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995:
Bearings $1,895,408 $ 1,116,982 $2,132,782 $ 28,090 $114,508
Ordnance 1,112,065 633,267 1,042,659 16,497 61,540
---------- ----------- ---------- -------- --------
$3,007,473 1,750,249 $3,175,441 $ 44,587 $176,048
========== ========== ======== ========
Interest expense 239,661
-----------
$ 1,510,588
===========
Year ended June 30, 1994:
Bearings $1,530,141 $ (397,826) $1,758,816 $ 2,302 $163,878
Ordnance 1,252,924 (145,906) 844,372 2,633 58,306
---------- ----------- ---------- -------- --------
$2,783,065 (543,732) $2,603,188 $ 4,935 $222,184
========== ======== ========
Interest expense 255,013
-----------
$ (798,745)
===========
Year ended June 30, 1993:
Bearings $3,067,404 $(1,407,049) $2,399,277 $ 37,215 $235,840
Ordnance 1,542,422 (173,427) 1,282,861 6,955 60,351
---------- ----------- ---------- -------- --------
$4,609,826 (1,580,476) $3,682,138 $ 44,170 $296,191
========== ========== ======== ========
Interest expense 281,450
-----------
$(1,861,926)
===========
</TABLE>
- ---------
* All sales were made to unaffiliated customers and there were no intersegment
sales.
11. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of fiscal 1993, the Company recorded significant
adjustments to its accounts which resulted in reducing net income (increasing
net loss) by approximately $400,000. The adjustments were principally to correct
the Company's year-end inventory accounts.
16
<PAGE> 17
NETWORKS ELECTRONIC CORP.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
12. EMPLOYMENT AGREEMENTS, RELATED PARTY RECEIVABLE
The Company has an employment agreement with David Wachtel, its President and
Chief Executive Officer. The agreement provides for minimum annual compensation
of $150,000 for a period of three years. The Company previously had an
employment agreement with Mihai D. Patrichi, the Company's Founder, and former
President and Chief Executive Officer, who passed away in November 1994. The
agreement provided for minimum compensation of $180,000 per year until the end
of Mr. Patrichi's life. However, effective September 1994, Mr. Patrichi took a
salary reduction to $153,000 per year as a condition of the Company's chapter 11
reorganization plan. The Board of Directors has also agreed to pay all medical
and dental insurance premiums for its corporate officers, plus the deductible
expense portions operative under the respective plans.
During the year ended June 30, 1995, the Company advanced funds to its president
(Mr. Patrichi) totalling $77, at an annual interest rate of 7%. The total
receivable at June 30, 1995 (with accrued interest) amounted to $27,228,
including unpaid advances outstanding from prior years of $25,370. Interest
earned on the officer receivable amounted to $1,781, $1,773, and $1,280 for the
fiscal years ended June 30, 1995, 1994, and 1993, respectively.
13. MAJOR CUSTOMERS
Sales to the Department of Defense accounted for approximately 29% of sales in
1995, 24% of sales in 1994 and 35% of sales in 1993. Sales to Eagle-Picher
Industries accounted for approximately 17% and 18% of sales in 1995 and 1994,
respectively. Industria Engineering accounted for approximately 10% of sales in
1994. No other customer had sales exceeding 10% of total revenue.
14. GAIN ON DISPOSITION OF PROPERTY
In September 1994, the Company sold its Palm Desert property, consisting of two
acres of unimproved land, for $580,603 (net of $34,397 in fees and expenses),
recognizing a gain of $537,007 on the transaction. The net proceeds from the
sale were used to fully pay off the Company's bank line of credit in the amount
of $570,000. The Company also reported a gain of $8,000 from the sale of a fully
depreciated automobile.
15. INSURANCE CLAIMS
During the year ended June 30, 1995, the Company recorded income from its
insurance carrier totalling $384,687, representing reimbursements in full
settlement of the Company's claim for losses sustained to its property
(primarily parts and tooling inventories). These losses resulted from water
damage to the Company's premises which had occurred following the Northridge
Earthquake. No receivable was previously booked at June 30, 1994, due to the
fact that covered amounts were not quantifiable or estimable until midway
through the year ended June 30, 1995.
16. LITIGATION
During the past several years, the Company has had litigation pending based upon
complaints filed by several former officers and employees of the Company
alleging wrongful termination and other causes of action. Such complaints sought
substantial general and punitive damages. In June of 1993, despite finding in
favor of the Company and its president on a claim of intentional infliction of
emotional distress, a jury awarded a former officer of the Company approximately
$820,000 for past and future earnings and benefits, after concluding that
Networks Electronic Corp. breached an implied employment agreement.
Conservatively, the full jury award was recorded in the financial statements,
although the verdict had not yet been entered as a judgment. Additionally, the
court entered a stay of enforcement of any judgment in this matter during the
pendency of the bankruptcy.
However, in May 1995, the Honorable Alan Ahart, United States Bankruptcy Judge
for the Central District of California, ruled, in any event, that damages
arising from a wrongful termination claim filed against a chapter 11 debtor are
limited to one year of compensation under the employment contract. Accordingly,
the Company has written-down its recognized obligation at June 30, 1995 by
approximately $767,000, resulting in an estimated total adjudication award
payable of $52,525.
Regarding the other claims, negotiated settlements have been reached. Networks
has agreed to settle these cases by making payments totalling $40,000 over a
period of one to three years.
In another matter, the Company was the plaintiff in a suit against a prime
contractor. This case was also settled, resulting in a pre-tax gain to the
Company of $100,000 for the year ended June 30, 1994.
17
<PAGE> 18
- --------------------------------------------------------------------------------
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
- ------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information as of June 30, 1995 is provided with respect to each
director:
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
EXPIRES IN
NAME OF DIRECTOR DECEMBER POSITION WITH
(2) AGE (1) COMPANY
<S> <C> <C> <C>
- ------------------------------------------------------------
David Wachtel(3) 35 1995 Chairman of the
Board, Chief
Executive Officer,
President, Chief
Financial Officer
Barry Bartholomew(4) 44 1995 None
Glenn Linderman(5) 36 1995 None
Ileana Wachtel(6) 35 1995 None
Rodica Patrichi(7) 56 1995 None
- ------------------------------------------------------------
</TABLE>
(1) Directors serve until the next annual meeting of stockholders and until
their successors are elected.
(2) See below with respect to business experience of executive officers of the
Company.
(3) Mr. Wachtel is the son-in-law of the Company's founder, Mihai Patrichi.
Until recently, he was the Managing Partner at InvesTech Systems, and was
previously president of Synergetic Solutions and Talsarn Pty. Ltd. He also
formerly served as MIS manager at the Company.
(4) Mr. Bartholomew is Managing Attorney of Barry Bartholomew & Associates.
Formerly, he was a partner at Knapp, Petersen & Clarke.
(5) Mr. Linderman is Vice President of Libra Investments Inc. He was previously
Vice President of Columbia Savings & Loan.
(6) Mrs. Wachtel is a trustee of the Mihai D. Patrichi Trust and is the daughter
of the Company's founder, Mihai D. Patrichi, and wife of David Wachtel. She
is a political consultant involved in political research and media strategy.
(7) Mrs. Patrichi was the wife of Mihai Patrichi and is a trustee of the Mihai
D. Patrichi Trust.
The names, ages and positions of all of the executive officers of the Company as
of June 30, 1995 are listed below, along with their business experience during
the past five years. Officers are appointed annually by the Board of Directors
at the meeting of Directors immediately following the annual meeting of the
shareholders. There are no arrangements or understandings between any officer
and any other person pursuant to which the officer was selected.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME, AGE AND POSITION DURING PAST FIVE YEARS
<S> <C>
- ------------------------------------------------------------
David Wachtel, 35 Chairman since 1994.
Chairman of the Board, Responsible primarily for the
Chief Executive Officer, formation of corporate policy
President, Chief including planning and finance,
Financial Officer research and development;
supervisor of client relations.
Edwin J. Turner, 62 Appointed in August 1983.
Executive Vice President, Responsible for the Bearing
Secretary Division sales and
administration; prior to this
was responsible for new product
engineering and development for
Valley Todeco from 1979 to
1982.
Mohammad Tabassi, 47 Vice President since 1994.
Vice President Manager of the Ordnance
Division since 1993. Other
duties include engineering and
price quoting functions. Joined
the Company in January 1987 as
Ordnance Quality Test Engineer.
</TABLE>
18
<PAGE> 19
- --------------------------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table provides an overview of each item of
compensation paid, earned, or awarded to the CEO and the other most highly paid
executive officers of the Company for the fiscal years ended June 30, 1995 and
1994:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- --------------------- --------
NAME OF INDIVIDUAL OTHER RESTRICTED
AND ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS PAYMENTS COMPENSATION
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Wachtel 1995 $ 35,884 $865 $ 16,283(1) $0 75,000 $0 $0
CEO
Mihai D. Patrichi 1995 71,849 0 19,445(2) 0 0 0 0
CEO (deceased) 1994 252,585 0 82,029(3) 0 0 0 0
1993 252,585 0 90,654(4) 0 0 0 0
Edwin J. Turner 1995 80,326 692 0 0 500 0 0
Executive Vice President 1994 81,864 0 0 0 0 0 0
1993 83,403 0 0 0 10,000 0 0
Mohammad Tabassi 1995 70,261 606 0 0 500 0 0
Vice President
No other executive officers were employed by the Company at June 30, 1995, 1994, or 1993.
</TABLE>
- ------------
(1) Includes consulting fees of $9,500, director fees of $4,000, and
medical-related benefits of $2,783.
(2) Includes medical-related benefits of $19,445.
(3) Includes medical-related benefits of $68,576 and other personal benefits of
$13,453.
(4) Includes medical-related benefits of $86,588 and other personal benefits of
$4,066.
- --------------------------------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
- ------------------------------------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
% OF TOTAL SECURITIES APPRECIATION FOR
OPTIONS/SARS UNDERLYING OPTION TERM
NAME OF INDIVIDUAL AND GRANTED TO EMPLOYEES OPTIONS/SARS EXERCISE OR ----------------
PRINCIPAL POSITION IN FISCAL YEAR GRANTED BASE PRICE EXPIRATION DATE 5% 10%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
David Wachtel 96.8% 75,000 $ 0.1875 November 1, 1999 $26,487 $35,578
CEO
Edwin J. Turner 0.6% 500 $ 0.2500 March 31, 2000 151 219
Executive Vice
President
Mohammad Tabassi 0.6% 500 $ 0.2500 March 31, 2000 151 219
Vice President
</TABLE>
- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
<S> <C> UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
NAME OF INDIVIDUAL FY-END FY-END
AND SHARES ACQUIRED VALUE ------------------------ ------------------------
PRINCIPAL POSITION ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
David Wachtel 0 $0 75,000/0 $18,750/$0
CEO
Edwin J. Turner 0 0 10,000/500 0/$94
Executive Vice President
Mohammad Tabassi 0 0 0/500 0/$94
Vice President
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE> 20
- --------------------------------------------------------------------------------
Retirement benefits payable under the Company's defined benefit pension plan
have been frozen since August 31, 1992. Accrued annual benefits payable at
retirement age under the plan are set forth in the following pension plan table,
which does not incorporate vesting or joint and survivor factors. Amounts
reported are straight-life annuity amounts, which are not offset by social
security.
<TABLE>
<CAPTION>
YEARS OF SERVICE
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30
- --------------------------------------------------------------------------------------
$ 50,000 $ 3,333 $ 6,667 $ 10,000 $ 13,333 $ 16,667 $ 20,000
75,000 5,000 10,000 15,000 20,000 25,000 30,000
100,000 6,667 13,333 20,000 26,667 33,333 40,000
125,000 8,333 16,667 25,000 33,333 41,667 50,000
150,000 10,000 20,000 30,000 40,000 50,000 60,000
175,000 11,667 23,333 35,000 46,667 58,333 70,000
200,000 13,333 26,667 40,000 53,333 66,667 80,000
225,000 15,000 30,000 45,000 60,000 75,000 90,000
250,000 16,667 33,333 50,000 66,667 83,333 100,000
</TABLE>
Additional pension benefits for credited service in excess of 30 years generally
do not accrue. Prospective benefits payable to executive officers under the
Company's defined benefit pension plan are applicable as follows:
<TABLE>
<CAPTION>
ESTIMATED
COVERED CREDITED
NAME OF INDIVIDUAL COMPENSATION SERVICE
<S> <C> <C>
- -------------------------------------------------------
David Wachtel $ 0(*) 0
Mihai D. Patrichi
(deceased) 235,527(**) 40
Edwin J. Turner 88,224 16
Mohammad Tabassi 53,962 6
</TABLE>
- ---------------
(* ) Not eligible for plan participation due to plan benefit freeze at August
31, 1992.
(**) Beneficiary (wife), a current director, is receiving $48,184 per year for
life, based on 100% joint and survivor factors.
COMPENSATION OF DIRECTORS
During the year ended June 30, 1995, the Board of Directors met four times. The
Company paid director fees totalling $13,000, which consisted of $5,000 to Barry
Bartholomew, $4,000 to David Wachtel (as noted above), $2,000 to Glenn
Linderman, and $1,000 each to Ileana Wachtel and Rodica Patrichi. In addition,
Glenn Linderman provided financial consulting services to the Company in the
amount of $9,281. During the year ended June 30, 1994, director fees totalled
$12,000, consisting of $6,000 each to Barry Bartholomew and David Wachtel.
During the year ended June 30, 1993, director fees paid were also $12,000,
consisting of $6,000 to Barry Bartholomew, $4,000 to David Wachtel, and $2,000
to William Allen. The Company also issued 10,000 stock options to Barry
Bartholomew, exercisable at $1.00 per share.
20
<PAGE> 21
- --------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At September 29, 1995 there were six persons known to the Company who owned of
record or beneficially as much as 5% of the outstanding shares of its voting
common stock, $.25 par value. The following table reflects these holdings, as
well as the number of the Company's common shares owned directly or indirectly
by each of the Company's directors, by each of the officers specified in the
summary compensation table above, and by all directors and officers as a group.
In addition, shares are deemed to be beneficially owned by a person if the
person has the right to acquire the shares (for example, upon exercise of an
option) within 60 days of the date as of which the information is provided; in
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially owned by such
person (and only such person) by reason of these acquisition rights. As a
result, the percentage of outstanding shares of any person as shown in the
following table does not necessarily reflect the person's actual voting power at
any particular date.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AMOUNT
NAME AND ADDRESS BENEFICIALLY PERCENTAGE
CATEGORY OF BENEFICIAL OWNER OWNED OF CLASS
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Director Ileana Wachtel 797,660(1)(2) 50.0%
2218 21st. Street
Santa Monica, CA 91311
Director Rodica Patrichi 795,764(2) 49.9%
10779 Bellagio Rd.
Los Angeles, CA 90077
Director/Officer David Wachtel 75,000(3) 4.5%
2218 21st. Street
Santa Monica, CA 91311
Director Barry Bartholomew 10,000(5) 0.6%
701 N. Brand Blvd.
Suite 800
Glendale, CA 91202
Director Glenn Linderman 0 0.0%
11766 Wilshire Blvd.
Suite 870
Los Angeles, CA 90025
Officer Edwin J. Turner 10,111(5) 0.6%
22015 Prairie St.
Chatsworth, CA 91311
Officer Mohammad Tabassi 111 0.0%
19442 Romar St.
Northridge, CA 91324
------------ -----
All directors and officers as a group
(7 persons)(7) 898,263 53.1%
------------ -----
Other 5% Radu Patrichi 171,457(2) 10.7%
beneficial holder 73095 Shadow Mt. Drive
Palm Desert, CA 92260
Other 5% Michael Patrichi 156,076(2) 9.8%
beneficial holder 17190 Strawberry Drive
Encino, CA 91436
Other 5% Alex Patrichi 156,076(2) 9.8%
beneficial holder 17190 Strawberry Drive
Encino, CA 91436
Other 5% Moldovita Romanian 90,909(6) 5.7%
beneficial holder Orthodox Church Inc.
24425 Woolsey Canyon
Chatsworth, CA 91311
</TABLE>
(Footnotes on following page)
21
<PAGE> 22
- --------------------------------------------------------------------------------
- ---------------
(1) Ileana Wachtel is the wife of David Wachtel, the CEO of Networks Electronic
Corp.
(2) For each of these individuals, approximately 156,076 shares (166,076 shares
for Ileana Patrichi) are being held in the Mihai D. Patrichi Trust (a total
of 790,383 shares) which currently has voting power over the holdings and in
which Ileana Wachtel and Rodica Patrichi are trustees.
(3) Includes 75,000 shares issuable upon exercise of currently exercisable
options, but does not include shares of common stock held by the Mihai D.
Patrichi Trust and controlled by trustees including Mr. Wachtel's spouse,
Ileana Wachtel, a beneficiary.
(4) Based on 1,596,221 shares of common stock outstanding as of September 29,
1995.
(5) Includes 10,000 shares issuable upon exercise of currently exercisable
options.
(6) Ileana Wachtel and Rodica Patrichi are co-trustees along with an unrelated
third party of a committee which has voting power over these shares.
(7) Includes 95,000 shares of common stock which are exercisable or which will
become exercisable within 60 days of September 29, 1995.
- --------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During each of the years ended June 30, 1994, 1993, respectively, the Company's
previous president charged the Company $3,000 for the use of space in his home
to exclusively conduct Company business.
- -------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statement schedules are included in Part II,
Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public
Accountants 8
Financial Statements:
Balance Sheets -- June 30, 1995 and 1994 9
Statements of Operations --
Years Ended June 30, 1995, 1994 and
1993 10
Statement of Stockholders' Equity
(Deficiency in Assets) --
Years Ended June 30, 1995, 1994 and
1993 10
Statements of Cash Flows --
Years Ended June 30, 1995, 1994 and
1993 11
Notes to the Financial Statements 12
</TABLE>
(2) The following financial statement schedules for the years 1995, 1994, and
1993 are submitted herewith:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule V - Property, Plant and Equipment 23
Schedule VI - Accumulated Depreciation,
Depletion and Amortization of
Property, Plant and Equipment 23
Schedule VIII - Valuation and Qualifying
Accounts 24
Schedule X - Supplementary Income Statement
Information 24
</TABLE>
All other schedules are omitted because they are not required, inapplicable, or
the information is otherwise shown in the financial statements or notes thereto.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Registrant during the last
quarter of the period covered by this report.
22
<PAGE> 23
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
Years Ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
BALANCE,
BEGINNING ADDITIONS BALANCE,
CLASSIFICATION OF YEAR AT COST RETIREMENTS TRANSFERS END OF YEAR
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
1995
Land $ 131,773 $ - $ - $ - $ 131,773
Buildings and improvements 1,955,772 38,667 - - 1,994,439
Machinery and equipment 4,474,029 5,920 134,736 - 4,345,213
---------- --------- --------- --------- -----------
Totals $6,561,574 $ 44,587 $ 134,736 $ - $ 6,471,425
========== ========= ========= ========= ===========
1994
Land $ 131,773 $ - $ - $ - $ 131,773
Buildings and improvements 1,955,772 - - - 1,955,772
Machinery and equipment 4,765,632 4,935 296,538 - 4,474,029
---------- --------- --------- --------- -----------
Totals $6,853,177 $ 4,935 $ 296,538 $ - $ 6,561,574
========== ========= ========= ========= ===========
1993
Land $ 131,773 $ - $ - $ - $ 131,773
Buildings and improvements 1,938,098 17,674 - - 1,955,772
Machinery and equipment 5,047,329 26,496 308,193 - 4,765,632
---------- --------- --------- --------- -----------
Totals $7,117,200 $ 44,170 $ 308,193 $ - $ 6,853,177
========== ========= ========= ========= ===========
</TABLE>
- --------------------------------------------------------------------------------
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
Years Ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
ADDITIONS
BALANCE, CHARGED TO
BEGINNING COSTS AND BALANCE,
CLASSIFICATION OF YEAR EXPENSES RETIREMENTS TRANSFERS END OF YEAR
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
1995
Buildings and improvements $1,243,175 $ 63,374 $ - $ - $ 1,306,549
Machinery and equipment 4,268,778 112,674 134,736 - 4,246,716
---------- -------- --------- --------- -----------
Totals $5,511,953 $176,048 $ 134,736 $ - $ 5,553,265
========== ======== ========= ========= ===========
1994
Buildings and improvements $1,179,880 $ 63,295 $ - $ - $ 1,243,175
Machinery and equipment 4,406,427 158,889 296,538 - 4,268,778
---------- -------- --------- --------- -----------
Totals $5,586,307 $222,184 $ 296,538 $ - $ 5,511,953
========== ======== ========= ========= ===========
1993
Buildings and improvements $1,115,855 $ 64,025 $ - $ - $ 1,179,880
Machinery and equipment 4,482,454 232,166 308,193 - 4,406,427
---------- -------- --------- --------- -----------
Totals $5,598,309 $296,191 $ 308,193 $ - $ 5,586,307
========== ======== ========= ======== ==========
</TABLE>
23
<PAGE> 24
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
BALANCE, CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE,
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
1995
Allowance for doubtful accounts $ 5,000 $ 2,250 $ - $2,250(1) $ 5,000
========= ======== ======== ====== =========
Reserve for slow-moving inventory $ 224,000 $(74,000) $ - $ - $ 150,000
========= ======== ======== ====== =========
1994
Allowance for doubtful accounts $ 5,000 $ - $ - $ - $ 5,000
========= ======== ======== ====== =========
Reserve for slow-moving inventory $ 164,000 $ 60,000 $ - $ - $ 224,000
========= ======== ======== ====== =========
1993
Allowance for doubtful accounts $ 5,000 $ - $ - $ - $ 5,000
========= ======== ======== ====== =========
Reserve for slow-moving inventory $ - $164,000 $ - $ - $ 164,000
</TABLE>
- ------------
(1) Uncollectible accounts receivable written off.
- --------------------------------------------------------------------------------
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
CHARGED TO COSTS AND
EXPENSES
-----------------------------------
<S> <C> <C> <C>
ITEM 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
Maintenance and repairs $45,720 $129,158 $72,583
======= ======== =======
Property and other taxes $37,940 $ 59,424 $61,717
======= ======== =======
</TABLE>
- ------------
Other items are not set forth inasmuch as they are disclosed elsewhere or do not
exceed 1% of sales as shown in the statement of operations.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Networks Electronic Corp. (Registrant) has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized:
NETWORKS ELECTRONIC CORP.
By: DAVID WACHTEL
----------------------------------
DAVID WACHTEL
Chairman of the Board,
Chief Executive Officer,
President, Chief Financial
Officer
Date: November 1, 1995
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
DAVID WACHTEL Director Date: November 1,1995
- ------------------------------------- ---------------------
David Wachte
BARRY BARTHOLOMEW Director Date: November 1, 1995
- ------------------------------------- ----------------------
Barry Bartholomew
GLENN LINDERMAN Director Date: November 1, 1995
- ------------------------------------- ----------------------
Glenn Linderman
ILEANA WACHTEL Director Date: November 1, 1995
- ------------------------------------- ----------------------
Ileana Wachtel
RODICA PATRICHI Director Date: November 1, 1995
- ------------------------------------- ----------------------
Rodica Patrichi
</TABLE>
25
