<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter ended March 31, 1996 COMMISSION FILE NUMBER 0-1817
NETWORKS ELECTRONIC CORP.
-----------------------------------------------------
(exact name of registrant as specified in its charter)
CALIFORNIA 95-1770469
----------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation of organization) Number)
9750 DeSoto Avenue, Chatsworth, California 91311
------------------------------------------------
(Address or principal executive offices)
(818) 341-0440
---------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of business of
CLASS 1,671,221
- - ----------------------------- -----------------------------
Common Stock - $.25 par value Outstanding at March 31, 1996
1
<PAGE> 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
NETWORKS ELECTRONIC CORP.
BALANCE SHEET
March 31, 1996 and June 30, 1995
<TABLE>
<CAPTION>
Mar. 31, 1996 June 30, 1995
(unaudited) (audited)
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 291,115 $ 117,494
Accounts receivable - net 532,765 538,984
Receivable from officer - 27,228
Receivable from insurance company - 234,687
Other receivables 1,009 5,500
Inventories 1,263,603 1,061,946
Prepaid expenses and deposits 76,069 8,040
Deferred income taxes 15,096 15,096
---------- ----------
Total current assets 2,179,657 2,008,975
---------- ----------
PROPERTY AND EQUIPMENT, AT COST:
Land 131,773 131,773
Building and improvements 1,999,695 1,994,439
Machinery and equipment 4,383,026 4,345,213
---------- ----------
6,514,494 6,471,425
Less accumulated depreciation 5,646,649 5,553,265
---------- ----------
Property and equipment, net 867,845 918,160
---------- ----------
DEFERRED INCOME TAXES,
NON-CURRENT PORTION 161,106 248,306
---------- ----------
Total assets $3,208,608 $3,175,441
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
2
<PAGE> 3
NETWORKS ELECTRONIC CORP.
BALANCE SHEET
March 31, 1996 and June 30, 1995
<TABLE>
<CAPTION>
Mar. 31, 1996 June 30, 1995
(unaudited) (audited)
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
CURRENT LIABILITIES:
Notes payable and current
maturities of long-term debt $ 120,000 $ 121,953
Note payable, related party -
current portion 50,667 50,667
Accounts payable 459,522 417,773
Customer advances and deposits - 11,585
Curr. portion of pre-petition debt:
Adjudication award payable 52,525 52,525
Accrued pension liability 182,754 28,800
Other payables 20,000 20,000
Income taxes payable - 6,276
Other accrued expenses 161,175 171,608
--------- ----------
Total current liabilities 1,046,643 881,187
--------- ----------
LONG-TERM DEBT:
Long-term debt, less current
maturities 1,815,620 1,863,363
Note payable, related party 42,222 80,222
Accrued pension liability 202,653 382,931
---------- -----------
Commitments and Contingencies - -
---------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS):
Common stock, par value $.25 per
share; authorized 10,000,000 shares,
issued and outstanding 1,671,221
and 1,596,221 shares, respectively 417,805 399,055
Additional paid-in capital 280,985 285,672
Accumulated deficit (470,586) (604,318)
Stock subscriptions receivable (14,063) -
Pension liability adjustment (112,671) (112,671)
----------- -----------
Total stockholders' equity
(deficiency in assets) 101,470 (32,262)
----------- -----------
Total liabilities and
stockholders' equity
(deficiency in assets) $ 3,208,608 $ 3,175,441
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
NETWORKS ELECTRONIC CORP.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
---------------------- ----------------------
<S> <C> <C> <C> <C>
Sales $ 930,536 $ 935,221 $2,955,155 $2,080,073
Cost of sales 672,846 639,295 2,029,228 1,550,570
----------- --------- ---------- ----------
Gross profit 257,690 295,926 925,927 529,503
Selling, adminis-
trative and other
operating expenses 200,546 174,444 530,979 586,346
----------- --------- ---------- ----------
Operating
income (loss) 57,144 121,482 394,948 (56,843)
Other income (exp.):
Gain (loss) on
disposition
of property - - (7,273) 530,857
Insurance reimb. - 100,000 - 150,000
Interest and non-
operating expense,
net (55,671) (73,773) (164,443) (182,820)
---------- --------- ---------- ----------
Income
before
income taxes 1,473 147,709 223,232 441,194
Income tax provision
(benefit) (300) - 89,500 20,800
---------- --------- ---------- ----------
Net income $ 1,773 $ 147,709 $ 133,732 $ 420,394
========== ========= ========== ==========
Earnings
per share $ .00 $ .09 $ .08 $ .26
========== ========= ========== ==========
Average weighted
number of shares
outstanding 1,596,221 1,596,221 1,596,221 1,596,221
========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
NETWORKS ELECTRONIC CORP.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 133,732 $ 420,394
--------- ---------
Adjustments to reconcile net income
to net cash used in
operating activities:
Non-cash items included
in net income:
Depreciation and
amortization 93,384 129,726
Loss (gain) on disposition
of property 7,273 (530,857)
Deferred income taxes 87,200 -
Changes in:
Receivables 272,625 (13,700)
Inventories (201,657) (113,621)
Prepaid expenses and deposits (68,029) (32,407)
Accounts payable and
accrued expenses 31,316 56,690
Customer advances and deposits (11,585) (13,660)
Income taxes (6,276) 20,000
Accrued pension liability (26,324) 3,600
--------- ---------
Total adjustments 177,927 (494,229)
Net cash provided by (used in)
operating activities 311,659 (73,835)
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
NETWORKS ELECTRONIC CORP.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from investing
activities:
Capital expenditures $(114,969) $ (3,032)
Net proceeds from disposition
of property 64,627 574,453
--------- ---------
Net cash provided by (used in)
investing activities (50,342) 571,421
--------- ---------
Cash flows from financing
activities:
Credit line pay off - (570,000)
Proceeds from long-term borrowings 63,430 -
Mortgage debt reduction (113,126) (101,308)
Proceeds from note payable,
related party - 152,000
Payments on note payable,
related party (38,000) (12,667)
--------- ---------
Net cash used in
financing activities (87,696) (531,975)
--------- ---------
Net increase (decrease) in
cash and cash equivalents 173,621 (34,389)
Cash and cash equivalents
at beginning of period 117,494 164,786
--------- ---------
Cash and cash equivalents
at end of period $ 291,115 $ 130,397
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid $ 9,500 $ 800
========= =========
Interest paid $ 173,040 $ 200,739
========= =========
</TABLE>
6
<PAGE> 7
NETWORKS ELECTRONIC CORP.
NOTES TO FINANCIAL
March 31, 1996
1. In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly its
financial position and the results of its operations and cash flows
for the periods shown.
Certain prior period amounts have been reclassified to conform to the
current period's presentation.
The results of operations for the nine month period are not necessarily
indicative of the results to be expected for a full year of operations.
INVENTORIES
2. Inventories are valued at the lower of cost (FIFO) or
market. The inventories at March 31, 1996 and
June 30, 1995 consisted of the following:
<TABLE>
<CAPTION>
Mar. 31, June 30,
1996 1995
(unaudited) (audited)
----------- ----------
<S> <C> <C>
Raw materials $ 195,698 $ 162,352
Work in process 683,348 574,006
Finished goods and components 542,382 491,810
---------- ----------
1,421,428 1,228,168
Less progress payments (24,825) -
Less applied to customer deposit - (16,222)
Less reserve for obsolescence (133,000) (150,000)
---------- ----------
Total $1,263,603 $1,061,946
========== ==========
</TABLE>
7
<PAGE> 8
NETWORKS ELECTRONIC CORP.
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
3. LONG-TERM DEBT
At March 31, 1996 and June 30, 1995, the Company's long-term debt
consisted of the following:
<TABLE>
<CAPTION>
Mar. 31, June 30,
1996 1995
(unaudited) (audited)
----------- -----------
<S> <C> <C>
Note payable to bank, secured
by deed of trust on land and
building, with interest payable
monthly at a reference rate
(10.5% at March 31, 1996), and
principal payable in monthly
installments of $10,000 through
June 2000, at which time a
balloon payment of $1,342,528
will become due. $1,852,528 $1,942,528
Note payable to bank, secured
by real estate, payable in monthly
installments of $348 (including
interest at 10% per annum)
through September 2003. Balance
paid off in January 1996. - 23,126
Note payable to Community
Redevelopment Agency ("CRA"),
non-interest 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. 83,092 19,662
---------- ----------
1,935,620 1,985,316
Less current maturities 120,000 121,953
---------- ----------
Total $1,815,620 $1,863,363
========== ==========
</TABLE>
8
<PAGE> 9
NETWORKS ELECTRONIC CORP.
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
4. 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. The
outstanding loan balance at March 31, 1996 and June 30, 1995 was $92,889 and
$130,889, respectively.
5. PENSION PLAN
In January 1996, the Internal Revenue Service granted the Company its
requested waiver of the minimum funding requirement for its pension plan for
the plan year ended June 30, 1995. This amount is being amortized over a
five year period, beginning with the plan year ended June 30, 1996. Total
pension plan contributions required for the plan year ended June 30, 1996
and due by March 15, 1997 (including the prior year amortized portion) are
$182,754.
6. GAINS AND LOSSES ON DISPOSITIONS OF PROPERTY
During the nine months ended March 31, 1996, the Company sold fully
depreciated machinery for $13,500.
In January 1996, the Company completed the sale of its Florida condominium
property, recognizing a loss of $20,773. The net proceeds from the
transaction were approximately $51,000. Of this amount, approximately
$22,500 was utilized to pay off the related mortgage debt, with the balance
utilized for general and administrative purposes.
In September 1994, the Company sold its Palm Desert property, consisting
of two acres of unimproved land, for approximately $575,000 (net of
approximately $40,000 in fees and expenses), recognizing a gain of
approximately $530,000 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.
9
<PAGE> 10
NETWORKS ELECTRONIC CORP.
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
7. BANKRUPTCY EMERGENCE
The order confirming the Company's plan for reorganization under chapter 11
of the United States Bankruptcy Code was entered on November 9, 1994 and
contemplates full repayment of all pre-petition liabilities over a twelve
year period. These obligations, consisting primarily of a 1993 jury award
and the unfunded portion of the Company's defined benefit pension plan,
totalled approximately $1,200,000. Additionally, the Company's term bank
note was extended for six years. In June 1995, the Company received a
favorable adjudication ruling, effectively reducing its obligation on the
1993 jury award by more than $750,000.
8. STOCK OPTIONS EXERCISED
In October 1995, the Company's chief executive officer elected to exercise
75,000 options to purchase the Company's common stock at a price of $0.1875
per share.
9. SUBSEQUENT EVENTS
On about April 10, 1996 the United States Bankruptcy Apellate Panel of the
Ninth Circuit upheld the company's claim to cap Robert Bitter's award. This
affirmed the bankruptcy court's order of June 5, 1996, that limited this
claim to approximately $52,000.
10
<PAGE> 11
NETWORKS ELECTRONIC CORP.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Except for the historical information contained herein, the matters discussed
in this Management's Discussion and Analysis are forward looking statements
that involve risks and uncertainties and are based upon judgments concerning
various factors that are beyond the Company's control. Such factors include,
among other things, overall economic conditions, the impact of competition,
developments which may render the Company's products and services obsolete
or less attractive, and the Company's financial constraints. See "Factors That
May Affect Future Results and Financial Condition" below.
Results of Operations
Sales for the nine months ended March 31, 1996 increased 42% to $2,955,000 from
$2,081,000 for the comparable period of the prior year. The increase resulted
primarily from the continuance of the rebuilding program implemented by the new
management team. Ordnance sales were particularly affected, increasing by
approximately 53% from depressed prior-year levels, while Bearing Division
sales, comprising 60% of the total sales mix, increased by 35%. Overall sales
for the three months ended March 31, 1996 were flat when compared to prior year
totals. The slower sales pace during the March 1996 quarter was due in large
part to production being shut down for several days in February because of a
power failure resulting from an accident occurring at the plant. The Company
has subsequently expanded its production schedule to close the sales gap
created by having to defer shipments.
The Company's gross profit margins increased to approximately 31% during the
nine months ended March 31, 1996, from approximately 25% during the nine months
ended March 31, 1995. It is expected that the Company's overall positive trends
in both sales and profitability should continue through the end of the current
fiscal year, but at a less robust pace, as the Company adjusts internally to a
higher level of capacity utilization and shifts its resources to longer-term
production projects.
General, administrative and selling expenses declined by 9% (approximately
$55,000) compared to the nine month period ended March 31, 1995, due to
reductions in legal fees pertaining to the administration of the Company's
chapter 11 reorganization and to lower staff payroll costs. The March 1996
quarter, however, showed a 15% increase from the prior year, as the Company
hired additional personnel to accommodate the increased sales volume and
continued with its policy of staff wage normalization. Settlement costs
continue to be incurred related to the convenience cancellation of a time and
materials contract.
Net interest expense fell by about 10% to approximately $165,000 during the
nine months ended March 31, 1996, as compared to $183,000 for the nine months
ended March 31, 1995. A lower outstanding aggregate loan balance more than
offset a higher effective interest rate on the Company's installment mortgage
note.
11
<PAGE> 12
NETWORKS ELECTRONIC CORP.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (continued)
Research and development programs in the Ordnance Division have started to
produce results. In December 1995, the Company successfully completed R&D and
on a line of squib switches that were qualified and shipped in the second
quarter. The Company continued to employ significant resources toward
proprietary R&D programs during the March 1996 quarter.
Backlog as of March 31, 1996 was approximately $1,400,000 for the Bearing
Division and approximately $400,000 for the Ordnance Division. Overall, this
represents a decline of about $1,000,000 from levels attained at June 30, 1995.
In an effort to bolster the Company's in house Sales and Marketing efforts the
company is attempting to forge strategic alliances with external
representatives, distributors and its customer base in order to better position
is products and services.
Financial Condition
The Company had working capital of approximately $1,133,000 at March 31, 1996,
as compared to $1,128,000 at June 30, 1995. The improvement of only $5,000 was
due primarily to the fact that pre-tax income (excluding depreciation) of
approximately $317,000 generated during the nine months ended March 31, 1996
was counter-balanced by the re-classification of $120,000 of the Company's
mortgage note and approximately $183,000 of the Company's pension plan
liability from long to short-term. With the Community Redevelopment Agency loan
commitment, management believes that the Company can continue to generate
enough earnings to meet medium-term financing needs.
The Company's cash position increased by approximately $174,000 from June 30,
1995 levels, to about $291,000 at the March 31, 1996 balance sheet date. The
increase was largely related to the collection of a settlement amount from the
Company's insurance carrier resulting from water damage sustained in the 1994
Northridge Earthquake.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
Potential risks and uncertainties that could affect the Company's
future operating results and financial condition include, without limitation,
the following factors:
HISTORY OF LOSSES; VARIABILITY OF OPERATING RESULTS
The Company is in the process of emerging from bankruptcy protection.
Despite historical losses, the Company experienced its first operating profit
in four years during the year ended June 30, 1995, in the amount of
approximately $47,000. The Company's revenues and operating results have
varied substantially from period to period. There can be no assurance that the
Company will be profitable in the future or that future revenues and operating
results will not also vary substantially. New management has expended and
continues to expend substantial time and resources in attempting to resolve
problems arising from the Company's financial condition and to restore
confidence in the Company. Although the research and development expenditures
of the Company have increased, its financial condition limits its ability to
engage in large scale research and development. Also, the Company's financial
condition has limited the ability of the Company to modernize its plant and
equipment which hinders the Company's marketing efforts. Future revenues and
profits, if any, will depend upon various factors, including, but not limited
to, management's ability to restore confidence in the Company, continued market
acceptance of the Company's current products, the ability of the Company to
develop distribution and marketing channels and develop and introduce new
products or to develop new markets for its existing products and the successful
implementation of its planned marketing strategies. If the Company is not able
to achieve its operating objectives, the Company may find it necessary to
reduce its expenditures for sales, marketing, and research and development, or
undertake other such actions as may be appropriate, and may be otherwise unable
to achieve its goals or continue its operations.
COMPETITION
Certain of the Company's existing and potential competitors have
substantially greater financial, marketing and other resources than the
Company. These competitors have also been able to market their products
successfully to the Company's existing and potential customers in the defense
and aerospace industries. Increased competition could result in price
reductions, reduced margins and loss of market share, all of which could
materially adversely affect the Company. The Company has determined to follow
a strategy of continuing product development to the extent permitted by the
financial resources of the Company to protect its competitive position to the
extent practicable. There can be no assurance that the Company will be able to
maintain its position in the field or continue to compete successfully against
current and future sources of competition or that the competitive pressures
faced by the Company will not adversely affect its profitability or financial
performance.
TECHNOLOGICAL CHANGE
The markets for specialized bearings and ordnance products are
characterized by advances in technology. Accordingly, the Company's ability to
compete in those markets may depend in large part on its success in enhancing
its existing products and in developing new products. There can be no
assurance that the Company will succeed in such efforts or that any of its
products will not be rendered obsolete or uneconomical by technological
advances made by others.
DEPENDENCE ON KEY CUSTOMERS
During fiscal years 1993, 1994 and 1995, sales to the Department of
Defense by the Company constituted 35%, 24% and 29%, respectively, of the
Company's sales. In addition, sales to Eagle-Picher Industries accounted for
approximately 18% of the Company's 1994 sales and 17% of its 1995 sales. A
significant decline in sales to any of these key customers would adversely
affect the Company.
DEPENDENCE UPON DEFENSE INDUSTRY
The Company has been supplying components for United States defense
programs for over [40] years. Reliance upon defense programs has certain
inherent risks, including the uncertainty of economic conditions, dependence
on Congressional appropriations and administrative allotment of funds, changes
in governmental policies that may reflect military and political developments
and other factors characteristic of the defense industry. The Company is
unable to predict the impact, if any, of recent or impending Congressional
elections on defense appropriations for programs in which the Company's
products are incorporated.
PRODUCT LIABILITY AND RISK MANAGEMENT
As a manufacturer of ordnance products and specialized bearings for
the defense and aerospace industries, the Company is subject to the risk of
claims arising from injuries to persons or property. The Company maintains
general liability insurance but does not maintain product liability insurance.
Although the Company has instituted quality control procedures that it believes
produce products of the highest quality, the Company may become subject to
future proceedings alleging defects in it products.
NO EARTHQUAKE INSURANCE
The Company's principal executive offices are located in a facility
owned by the Company in Chatsworth, California--an area which was damaged in
the 1994 Northridge, California earthquake. The Company does not currently
carry insurance against earthquake-related risks. The Company suffered
approximately $1.2 million in damages costs and renovations to its facility
resulting from that earthquake, and recovered only approximately $384,000 from
insurers as a result of insured flood damage caused by the earthquake.
KEY PERSONNEL
The Company's success is highly dependent on the efforts and abilities
of its Chairman, David Wachtel. The loss of services of Mr. Wachtel could
have a material adverse effect on the Company.
CONTROL OF COMPANY
The Mihai D Patrichi Trust (the "Trust") presently owns of record
approximately 47.3% of the Company's outstanding voting stock. Accordingly,
the Trust is able to control the election of a majority of the directors, and,
therefore, the business and affairs of the Company and approve or disapprove
any corporate action submitted to a vote of the Company's shareholders, in each
case regardless of how other shareholders of the Company may vote. The
provisions of the Trust provide that the trustees act in a prudent manner to
dispose of the Trust's interest in the Company. In the matter of In Re: Mihai
D. Patrichi Trust (Case No. BP03796), now pending in the Superior Court of
California for the county of Los Angeles, Michael Patrichi, one of the
beneficiaries of the Trust is attempting to remove and replace the co-trustees
of the Trust, Ileana Wachtel and Rodica Patrichi. Sale by the Trust of its
interest in the Company would effect a change in the control of the Company.
Sales of substantial amounts of Common Stock in the public market under Rule
144 or otherwise, or even the potential for such sales, could adversely affect
the prevailing market prices for the Common Stock and could impair the ability
to raise capital through the sale of its equity securities.
CONTRACTS
The Company generates substantially all of its revenues pursuant to
procurement contracts for custom designed or manufactured bearings or ordnance
products. The ability of the Company to generate additional revenues will
depend upon its ability to obtain additional contracts. Substantially all of
the Company's contracts are on a fixed-fee basis. Accordingly, the Company is
subject to the risk of cost overruns. Because the Company manufactures
ordnance and specialized bearings for the defense and aerospace industries, the
Company is subject to extremely stringent quality control standards and
testing. These standards are implemented through internal operational quality
control procedures of the Company and through customer audits. Furthermore,
lot acceptance test procedures("LATs") are required by the Company's
customers. These LATs include environmental testing and detonation and
non-detonation tests. Generally, the Company's ordnance products are
manufactured in batches and then subjected to LATs under standards that result
in rejection of an entire manufactured batch if a single unit fails. From time
to time, the Company has experienced LATs failures resulting from human error
or technical problems. Occurrence of LATs failures of this type on large
contracts could adversely impact the revenues of the Company and no assurance
can be given that such failures will not occur in the future.
VOLATILITY OF WORKLOAD
To remain profitable, the Company is highly dependent on its ability
to maintain a suitably sized staff of qualified technical personnel
commensurate with a fluctuating volume of work. New contracts often arise at
unscheduled or unanticipated times. The Company endeavors to maintain adequate
staff to respond to these unscheduled opportunities. If the Company
overestimates its projected workload, the resulting financial burden can reduce
profitability. Occasionally, the Company is faced with the opposite problem -
a shortage of suitable technical personnel -- or the funds to pay premium rates
to obtain the necessary skilled labor that is in short supply, and is unable to
timely perform contracts, potentially resulting in cost overruns or late
delivery penalties.
GOVERNMENTAL REGULATION
The Company's operations are subject to, and substantially affected
by, extensive federal, state and local laws, regulations, orders and permits,
which govern environmental protection, health and safety, zoning and other
matters. These regulations may impose restrictions on the Company's operations
that could adversely affect the Company's results, such as limitations on the
expansion of metals plating facilities of the Company, limitations on or
banning disposal of certain categories of waste, or mandates regarding the
disposal of hazardous waste generated by the Company's operations. Because of
heightened public concern, companies in the metals plating business, including
the Company, may become subject to judicial and administrative proceedings
involving federal, state or local agencies. These governmental agencies may
seek to impose fines on the Company or to revoke or deny renewal of the
Company's waste generation and disposal permits or licenses for violations of
environmental laws or regulations or to require the Company to remediate
environmental problems resulting from its operations, all of which could have a
material adverse effect on the Company. The Company may also be subject to
actions brought by individuals or community groups in connection with the
permitting or licensing of its operations, any alleged violations of such
permits and licenses, or other such matters.
PREMISES BUILD-OUT
The Company has commenced retrofitting and repairing of the north
building of its Premises which was damaged in the Northridge Earthquake. This
project is being funded by loans and grants from the Community Redevelopment
Agency of the City of Los Angeles. The Company has entered into a construction
contract to accomplish the retrofit and repair of the north building and
anticipates that the funding procured from the Community Redevelopment Agency
will be sufficient to fund all anticipated costs under the contract. However,
the Company will be required to fund any unanticipated cost overruns from
operating reserves or with additional financing. There can be no assurance
that additional financing would be available on terms acceptable to the
Company. If the Company is required to fund construction with its cash
reserves, resulting cash constraints could limit the Company's ability to
improve the remainder of its plant and equipment and to fund other operating
requirements of the Company.
12
<PAGE> 13
NETWORKS ELECTRONIC CORP.
PART II
OTHER INFORMATION
Item 2. Shareholders Stock Information
Through January 4, 1993, Networks Electronic Corp.'s stock was traded in NASDAQ
OVER-THE-COUNTER MARKETS and was listed in NATIONAL MARKET ISSUES under NWRK.
Subsequent to that date, due to certain size and activity requirements, the
stock of Networks Electronic Corp. was removed from trading on the NASDAQ
national market system. The stock is currently traded on the OTC Electronic
Bulletin Board.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: There were no reports on Form 8-K filed for the three
months ended March 31, 1996.
13
<PAGE> 14
NETWORKS ELECTRONIC CORP.
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.
NETWORKS ELECTRONIC CORP. (Registrant)
BY: DAVID WACHTEL
___________________________
DAVID WACHTEL
Chairman of the Board,
Chief Executive Officer,
President, Chief Financial Officer
Date: May 3, 1996
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 291,115
<SECURITIES> 0
<RECEIVABLES> 533,774
<ALLOWANCES> 5,000
<INVENTORY> 1,263,603
<CURRENT-ASSETS> 2,179,657
<PP&E> 6,514,494
<DEPRECIATION> 5,646,649
<TOTAL-ASSETS> 3,208,608
<CURRENT-LIABILITIES> 1,046,643
<BONDS> 2,060,495
0
0
<COMMON> 417,805
<OTHER-SE> (316,335)
<TOTAL-LIABILITY-AND-EQUITY> 3,208,608
<SALES> 2,955,155
<TOTAL-REVENUES> 2,968,655
<CGS> 2,029,228
<TOTAL-COSTS> 2,560,207
<OTHER-EXPENSES> 20,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164,443
<INCOME-PRETAX> 223,232
<INCOME-TAX> 89,500
<INCOME-CONTINUING> 133,732
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,732
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
