UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File Number 0-27994
BATTERIES BATTERIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-383-5420
(State of other jurisdiction (I.R.S. Employer)
incorporation or organization) Identification No.)
200 Madison Avenue
2nd Fl.
New York, New York 10016
(Address of principal executive offices) (Zip Code)
(212) 953-0100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
As of August 9, 1996, there were 4,000,000 shares of common stock
outstanding.
<PAGE>
BATTERIES BATTERIES, INC.
FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996
INDEX
<TABLE>
<CAPTION>
Page No.
---------
<S> <C>
PART I - FINANCIAL INFORMATION
Financial Statements
Consolidated Balance Sheet ............................................... 3
January 31, 1996 and June 30, 1996 (unaudited)
Consolidated Statements of Income......................................... 4
For the three months and six months ended
June 30, 1995 (unaudited) and June 30, 1996 (unaudited)
Consolidated Statements of Cash Flows..................................... 5
For the six months ended June 30, 1995 (unaudited)
and June 30, 1996 (unaudited)
Notes to the Consolidated Financial Statements ........................... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................... 12
PART II - OTHER INFORMATION ................................................................ 17
</TABLE>
<PAGE>
BATTERIES BATTERIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN 000'S)
<TABLE>
<CAPTION>
JANUARY 31, JUNE 30,
1996 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 946 $ 2,342
Accounts receivable .......................................... 2,517 2,831
Inventories .................................................. 3,979 4,182
Prepaid expenses and other current assets .................... 129 248
Current deferred income taxes ................................ 103 52
------------- -----------
Total current assets ...................................... 7,674 9,655
------------- -----------
PROPERTY AND EQUIPMENT--Net .................................... 508 666
EXCESS OF COST OVER NET ASSETS ACQUIRED ........................ 588 627
OTHER ASSETS ................................................... 335 221
------------- -----------
TOTAL .......................................................... $9,105 $11,169
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt .............................................. $ 755 $ 590
Accounts payable ............................................. 1,258 923
Accrued expenses ............................................. 202 395
Redeemable Preferred Stock ................................... -- 750
Due to former stockholders of Merger Companies ............... -- 91
Preferred dividends payable .................................. 53 65
Current portion of long-term debt ............................ 51 12
Current portion of obligations under capital leases .......... 41 24
------------- -----------
Total current liabilities ................................. 2,360 2,850
------------- -----------
LONG-TERM DEBT ................................................. 160 13
OBLIGATIONS UNDER CAPITAL LEASES ............................... 23 23
DEFERRED INCOME TAXES AND OTHER DEFERRED CREDITS .............. 28 9
STOCKHOLDERS' EQUITY
Preferred Stock, par value $.001, 2,000,000 shares authorized,
1,000,000 shares issued and outstanding ..................... 1 --
Class A Common Stock, par value $.001, 2,000,000 shares
authorized, 517,990 shares and none shares, respectively
issued and outstanding ...................................... 1 --
Common Stock, par value $.001, 10,000,000 shares authorized,
222,010 shares and 4,000,000 shares, respectively, issued and
outstanding ................................................. -- 4
Additional paid-in capital ................................... 1,507 8,001
Retained earnings ............................................ 5,025 269
------------- -----------
Total stockholders' equity ................................ 6,534 8,274
------------- -----------
TOTAL ........................................................ $9,105 $11,169
============= ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
BATTERIES BATTERIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(000'S)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1996 1995 1996
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
NET SALES ..................... $4,890 $6,197 $9,738 $12,376
COST OF SALES ................. 3,482 4,173 6,832 8,267
-------- -------- -------- ---------
Gross profit .............. 1,408 2,024 2,906 4,109
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ..... 1,240 1,837 2,353 3,641
-------- -------- -------- ---------
INCOME FROM OPERATIONS ........ 168 187 553 468
INTEREST EXPENSE (INCOME), NET 19 (5) 47 13
-------- -------- -------- ---------
INCOME BEFORE PROVISION FOR
INCOME TAXES ................. 149 192 506 455
PROVISION FOR INCOME TAXES ... -- 74 33 156
-------- -------- -------- ---------
NET INCOME .................... 149 118 473 299
PREFERRED STOCK DIVIDEND
REQUIREMENTS ................. 7 10 7 30
-------- -------- -------- ---------
NET INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS .......... $ 142 $ 108 $ 466 $ 269
======== ======== ======== =========
</TABLE>
Operating results of a closely held predecessor company through April 12,
1996 have been combined without adjustment for income taxes, salaries or
other items that are included in the operating results of the taxable
predecessor companies. Pro forma net income results have been presented,
reflecting an estimated effective income tax rate of 41%. See Note 4 for
Unaudited Pro Forma Income Tax Information. See Note 5 for Unaudited Pro
Forma Information for acquisition and mergers, including pro forma net income
and per share net income available to common stockholders.
See notes to consolidated financial statements.
4
<PAGE>
BATTERIES BATTERIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN 000'S)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1995 1996
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ..................................................... $ 473 $ 299
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation expense .......................................... 30 76
Deferred income taxes and other deferred credits .............. (18) 70
Changes in assets and liabilities:
Accounts receivable ........................................... 316 (314)
Inventories ................................................... 545 (203)
Prepaid expenses and other assets ............................. (129) 27
Accounts payable and accrued expenses ......................... (222) (224)
--------------- ---------------
Net cash provided by (used in) operating activities ......... 995 (269)
--------------- ---------------
INVESTING ACTIVITIES:
Purchase of property and equipment, net ........................ (2) (223)
Acquisition of Specific Energy Corporation, net of cash
acquired ...................................................... (720) (55)
--------------- ---------------
Net cash used in investing activities ....................... (722) (278)
--------------- ---------------
FINANCING ACTIVITIES:
Proceeds from private placement ................................ 1,500 --
Deferred financing costs ........................................ (271) --
Proceeds from initial public offering, net of expenses ........ -- 9,134
Payments to former stockholders of Merger Companies in
connection with mergers ....................................... -- (6,573)
Redemption of preferred stock .................................. -- (250)
Prepayment of note payable to minority stockholder ............ -- (180)
Payments on borrowings ......................................... (452) (188)
--------------- ---------------
Net cash provided by financing activities .................. 777 1,943
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ...................... 1,050 1,396
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................. 517 946
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................... $ 1,567 $ 2,342
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest ..................................................... $ 53 $ 48
=============== ===============
Income taxes ................................................. $ 28 $ 80
=============== ===============
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITY:
Preferred stock dividends accrued ............................. $ 30
===============
Amounts payable to former stockholders of Merger Companies ... $ 138
===============
Portion of purchase price of Specific Energy Corporation
which was financed by seller ................................. $180,000
===============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
BATTERIES BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION
In April 1996, Batteries Batteries, Inc. (the "Company") acquired, by
merger or stock acquisition (the "Mergers"), simultaneously with the closing
of its initial public offering of common stock and redeemable warrants (the
"Offering"), Advanced Fox Antenna, Inc. ("Advanced Fox") and Tauber
Electronics, Inc. ("Tauber"), (collectively, the "Merger Companies") for
common stock and cash. These three businesses are referred to herein as the
"Combined Companies." As a result of the substantial continuing interests in
the Company of the former stockholders of the Combined Companies, the
historical financial information of each of the Combined Companies has been
combined on a historical cost basis in accordance with generally accepted
accounting principles as if the Combined Companies had always been members of
the same operating group. In June 1995, the Company acquired 95% of the
outstanding common stock of Specific Energy Corporation ("Specific Energy") in
a business combination accounted for as purchase. (In June 1996, the Company
acquired the remaining minority 5% interest for cash). The accompanying
consolidated financial statements and related notes to the consolidated
financial statements are representative of what the financial position,
results of operations and cash flows would have been if the Combined
Companies, except for Specific Energy, which is included from June 1, 1995,
the effective date of its acquisition, had been combined at the beginning of
fiscal 1995. The assets and liabilities of the Combined Companies are
reflected at their historical amounts. As of the date of the Mergers, the
capital stock of Batteries Batteries, Inc. is presented as capital stock of
the Company and the capital stock of Advanced Fox and Tauber is included in
additional paid-in capital and their retained earnings have been reclassified
to additional paid-in capital.
The results of operations of the Combined Companies reflect the
combined historical operating results of closely held Subchapter S and C
corporations through the effective date of the Mergers, and do not include pro
forma adjustments for income taxes, officers' salaries or other items
necessary for combining Subchapter S and C corporations through such date.
(See Notes 4 and 5.)
Batteries Batteries, Inc. has previously reported on a fiscal year
ending January 31, 1997, Advanced Fox and Tauber have previously reported on a
fiscal year ending December 31, 1996. As such, the accounts of Tauber and
Advanced Fox for their respective fiscal quarters ending March 31, previously
had been combined with the accounts of Batteries Batteries, Inc. for the
quarter ended April 30, 1996 and 1995. During the second quarter of fiscal
1996, Batteries Batteries, Inc. changed its fiscal year end to December 31,
1996 to conform with that of Advanced Fox and Tauber.
-6-
<PAGE>
Therefore, the unaudited consolidated statements of income and cash flows
presented herein for the three and six months ended June 30, 1996 include the
results of Advanced Fox and Tauber for the three and six months ended June 30,
1996 and that of Batteries Batteries, Inc. for the two and five months ended
June 30, 1996. The unaudited consolidated statements of income and cash flows
for the three and six months ended June 30, 1995 include the results of
Advanced Fox and Tauber for such periods and that of Batteries Batteries, Inc.
for the one month period from June 1, 1995 (commencement of operations) to
June 30, 1995.
The accompanying consolidated financial statements as of June 30,
1996 and the three and six months ended June 30, 1996 and June 30, 1995 are
unaudited; but in the opinion of management, the information contained herein
reflects all adjustments necessary to make the results of operations for the
interim periods a fair statement of such operations. All such adjustments are
of a normal recurring nature. Operating results for interim periods are not
necessarily indicative of results which may be expected for the year as a
whole. These consolidated financial statements should be read in conjunction
with the audited financial statements and footnotes thereto included in the
Company's Registration Statement on Form S-1 (No. 33-80939) declared effective
by the Securities and Exchange Commission on April 8, 1996 (the "Registration
Statement") which related to the Offering.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following supplements the significant accounting policies
referred to in the Notes to the Combined Financial Statements included in the
Registration Statement.
a. Net income per share - Historical net income per share has
not been presented as it is not meaningful due to the S
Corporation status through April 12, 1996 of one of the
Merger Companies. See Note 4 for pro forma net income per
share.
b. Statement of Financial Accounting Standards No. 123 - In
October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which is effective
for the Company beginning January 1, 1996. SFAS No. 123
requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair
value of the equity instrument awarded. Companies are
permitted, however, to continue to apply APB Opinion No. 25,
which recognizes compensation cost based on the intrinsic
value of the equity instrument awarded. The Company will
continue to apply APB Opinion No. 25 to its stock based
compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per
share in its annual financial statements.
-7-
<PAGE>
c. Statement of Financial Accounting Standards No. 121 - The
Company adopted the provisions of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed of,." during the first quarter of fiscal
1996. There was no impact in the consolidated financial
statements from adoption of this statement.
3. STOCKHOLDERS' EQUITY
Changes in stockholders' equity were as follows:
<TABLE>
<CAPTION>
(in 000's)
----------
<S> <C>
Stockholders' equity at January 31, 1996 $6,534
Issuance of 2,300,000 shares of common stock at $5.00 per share and
2,300,000 redeemable common stock purchase warrants at $.10 per
warrant in the Offering, net of underwriting discounts and offering
costs 9,135
Use of portion of proceeds of Offering to pay the
cash portion of the merger consideration (6,573)
Additional amounts payable (net) to the former stockholders
of Merger Companies based on merger agreements (91)
Reclassification of the Preferred Stock to Redeemable
Preferred Stock upon consummation
of the Offering (1,000)
Preferred stock dividend requirements (30)
Net income 299
------
Stockholders' equity at June 30, 1996 $8,274
======
</TABLE>
a. The Mergers
Simultaneously with the closing of the Offering, the Company
issued 960,000 shares of common stock and options to
purchase 50,000 shares of common stock and paid $5,916,000
in cash to the former stockholders of the Merger Companies.
In addition, the Company owed an additional $91,000 in cash
to the former stockholders of the Merger Companies in
connection with the respective merger agreements.
Approximately $657,000 of this amount was paid in the second
quarter of 1996 and the remainder will be paid on or prior
to September 30, 1996. Such amount has been reflected as a
reduction of stockholders' equity and been credited as an
amount due to stockholders.
-8-
<PAGE>
b. Preferred Stock
Pursuant to its terms, the outstanding shares of preferred
stock are to be redeemed on April 12, 1997 at $1.00 per
share with accrued dividends at 8% per annum. The Company
voluntarily redeemed 250,000 of the original 1,000,000
shares in May 1996.
c. Class A Common Stock
Upon the consummation of the Offering, the outstanding
shares of Class A Common Stock were converted into a like
number of shares of Common Stock in accordance with their
terms .
d. Stock Options
In 1996, the Company granted stock options to purchase
185,000 shares to certain employees and an option to
purchase 50,000 shares of Common Stock in connection with
the Mergers at $5.00 per share. In addition, the Company
had outstanding previously issued options to purchase
20,720 shares which were granted to two directors
at $2.89 per share.
e. Warrants
Each Warrant is exercisable at a price of $5.00 per share
after April 8, 1997 and is redeemable thereafter at a price
of $.01 per warrant upon not less than 30 days' prior
written notice if the last sale price of the Common Stock
has been at least $7.50 per share on the 20 consecutive
trading days ending on the third day prior to the date on
which the notice of redemption is given.
4. UNAUDITED PRO FORMA INCOME TAX INFORMATION
The following unaudited pro forma income tax information is presented in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," as if Advanced Fox, a subchapter S corporation
prior to its merger with the Company, had been subject to federal income taxes
throughout the periods presented :
(in 000's)
<TABLE>
<CAPTION>
Three Months Ended June 30th Six Months Ended June 30th
1995 1996 1995 1996
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net income before pro forma adjustments,
per the consolidated statements of income $149 $192 $506 $455
Provision for income taxes 61 79 207 186
---- ---- ---- ---
Pro forma net income $ 88 $113 $299 $269
==== ==== ==== ====
</TABLE>
-9-
<PAGE>
As of April 12, 1996, the SubChapter S Corporation status terminated. The
pro forma adjustment reflects an increase in the provisions for income taxes
to an effective rate of 41%. While this effective rate represents the Combined
Companies pro forma tax rate based on the historic earning trends in the
respective tax jurisdictions, this rate may change in the future.
5. UNAUDITED PRO FORMA INFORMATION FOR ACQUISITION AND MERGERS
On June 6, 1995, effective June 1, 1995, the Company acquired 95% of
the outstanding common stock of Specific Energy for approximately $1,013,000,
including $770,000 in cash, a note payable in the amount of $180,000, and
acquisition related expenses of approximately $63,000 (the "Acquisition"). In
June 1996, the Company acquired the remaining 5% minority interest for
approximately $55,000 and prepaid the note payable of $180,000. The
Acquisition was accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16. The purchase price was allocated to the
underlying assets and liabilities based upon their respective fair values. The
allocation of the purchase price included the assignment of approximately
$640,000 to excess of cost over net assets acquired. The results of Specific
Energy are included in the consolidated financial statements from the
effective date of Acquisition.
-10-
<PAGE>
The following presents the unaudited pro forma results of operations
of the Company for the three and six months ended June 30, 1995 and 1996 as if
the Acquisition had been consummated at the beginning of fiscal year 1995 and
the operations of Batteries Batteries Inc. had been included for the three and
six months ended June 30, 1996, and includes certain pro forma adjustments
resulting from the Mergers and the Offering, including the amortization of
intangible assets, adjustments to executive compensation, an increase in
corporate overhead expenses and a reduction in interest expense. In addition,
the pro forma provision for income taxes is provided at an effective rate of
41%. (See Note 4).
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 5,329 $6,439 $10,804 $12,618
Cost of sales 3,739 4,314 7,454 8,408
------- ------ ------- -------
Gross profit 1,590 2,125 3,350 4,210
Selling, general and administrative
expenses 1,498 1,971 2,932 3,797
------- ------ ------ ------
Operating income 92 154 418 413
Interest expense (income) (62) (11) (30) (33)
------- ------ ------ ------
Income before income taxes 154 165 448 446
Provision for income taxes 62 68 183 183
------- ------ ------ ------
Net income $ 92 $ 97 $ 265 $ 263
Preferred stock dividend requirements 15 15 35 35
------- ------ ------ ------
Net income available to common
stockholders $ 77 $ 82 $ 230 $ 228
======= ====== ====== ======
Per share net income available to
common stockholders $ .02 $ .02 $ .05 $ .05
====== ====== ====== ======
</TABLE>
The computation of pro forma net income per share is based upon 4,300,000
weighted average shares of Common Stock outstanding, which includes (i) 740,000
shares outstanding prior to the Offering, including the shares issued upon
conversion of outstanding shares of Class A Common Stock, (ii) 2,300,000 shares
sold in the Offering, (iii) 960,000 shares issued to the former stockholders of
the Merger Companies as a portion of the consideration for the Mergers and (iv)
the dilution attributable to outstanding stock options and warrants in applying
the treasury stock method.
The pro forma results of operations are prepared for comparative purposes only
and do not necessarily reflect results that would have occurred had the
Acquisition and Mergers occurred at the beginning of fiscal year 1995 or the
results which may occur in the future.
-11-
<PAGE>
6. SUBSEQUENT EVENT
In August 1996, the Company entered into an agreement in principle to
acquire Battery Network Inc., Alexander Battery Co. Inc. and their affiliated
companies ("Alexander"). The acquisition is subject to the execution of a
formal agreement which will provide for a purchase price in excess of
$14,000,000 payable in cash, convertible preferred stock, shares of common stock
of the Company, and options to purchase additional shares of common stock.
Alexander is a national battery distributor and value added assembler
with operations in San Diego, California, McHenry, Illinois and North Branch,
New Jersey. Its unaudited revenues for the calendar year ended December 31,
1995 were approximately $23,000,000.
-12-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Introduction
- ------------
Prior to the Mergers, each of the three Combined Companies operated
as a separate independent entity. For all periods presented, the consolidated
financial statements include the accounts of the Combined Companies as if the
Combined Companies had always been members of the same operating group without
giving effect to the Mergers or the Offering. As a result, historical combined
results may not be comparable to or indicative of future performance. The
assets and liabilities of the Combined Companies are reflected at their
historical amounts.
Advanced Fox operated as a Subchapter S corporation under the
Internal Revenue Code of 1986, as amended through April 12, 1996, the effective
date of the merger. The Company will file as a consolidated group for federal
income tax purposes. The unaudited pro forma results included in the Notes to
the Consolidated Financial Statements reflect an income tax provision at an
effective rate of 41% calculated in accordance with SFAS No. 109. While this
effective rate represents the Combined Companies' pro forma tax rate based on
the historic earnings trends in the respective tax jurisdictions, this rate
may change in the future. See Note 4 of Notes to Consolidated Financial
Statements.
Results of Operations
- ---------------------
The following table sets forth various items as a percentage of net
sales revenues for the three and six months ended June 30, 1995 and 1996 on an
historical basis, as well as on a pro forma basis, giving effect to the Mergers.
The primary differences between the pro forma and historical results are due to
the (i) inclusion of the results of operations of Specific Energy, which was
acquired in June 1995, (ii) the adjustments to compensation expense resulting in
the renegotiation of the executive compensation agreements with the Presidents
of each of the Merger Companies, additional executives compensation and
contractual management fees, (iii) adjustment to interest expense resulting from
the use of proceeds from the Offering, (iv) the additional provision for income
taxes resulting from the elimination of Subchapter S corporation status
and (v) the inclusion of the operations of Batteries Batteries, Inc. for the
three and six months ended June 30, 1996.
<TABLE>
<CAPTION>
Three Months ended June 30 Six Months ended June 30
Historical Pro Forma Historical Pro Forma
------------------ ------------------ ----------------- -----------------
1995 1996 1995 1996 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 71.2 67.3 70.2 67.0 70.2 66.8 69.0 66.6
----- ----- ----- ----- ----- ----- ----- -----
Gross Margin 28.8 32.7 29.8 33.0 29.8 33.2 31.0 33.4
Selling, general and
administrative expenses 25.4 29.7 28.1 30.6 24.1 29.4 27.1 30.2
----- ----- ----- ----- ----- ----- ----- -----
Income from operations 3.4 3.0 1.7 2.4 5.7 3.8 3.9 3.2
Interest expense (income) .4 (.1) (1.2) (.2) .5 .1 (.3) (.3)
----- ----- ----- ----- ----- ----- ----- -----
Income before provision
for income taxes 3.0% 3.1% 2.9% 2.6% 5.2% 3.7% 4.2% 3.5%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
-13-
<PAGE>
Historical Three Months Ended June 30, 1996 ("1996") Compared to Historical
- ---------------------------------------------------------------------------
Three Months Ended June 30, 1995 ("1995")
- -----------------------------------------
Net sales increased 26.7% from $4.9 million in 1995 to $6.2 million
in 1996. The increase was primarily due to the inclusion in 1996 of Specific
Energy revenues for the two months ended June 30, 1996 as compared to only
June 1995 in the prior period resulting in a $.3 million increment and the
continued growth of Advanced Fox's cellular accessory business (up 37.2% as
compared to 1995) and a 5.5% increase in the Tauber's value added and
distribution sales.
Gross profit increased from $1.4 million in 1995 to $2.0 million in
1996 and as a percentage of sales increased from 28.8% in 1995 to 32.7% in
1996. The increases were primarily due to the inclusion of the longer period
in 1996 of the revenues and cost of sales of Specific Energy which operates at
higher gross profit margins, particularly its retail sales margins, and the
sales increase in the Advanced Fox cellular accessory business which are
effected at significantly higher margins than the margins of the Tauber
sales.
Selling, general and administrative ("SG&A") expenses increased from
$1.2 million in 1995 to $1.8 million in 1996 and as a percentage of sales
increased from 25.4% in 1995 to 29.7% in 1996. The increases were
substantially due to (i) the inclusion of the results of operations of
Specific Energy for the longer period in 1996 which due to its retail operations
has a higher percentage than Tauber's and Advanced Fox's percentages and (ii) an
increase in marketing, selling and distribution costs incurred by Advanced
Fox, which resulted in increased revenues.
Historical Six Months Ended June 30, 1996 ("1996") Compared to Historical
- --------------------------------------------------------------------------
Six Months Ended June 30, 1995 ("1995")
- ---------------------------------------
Net sales increased 27.1% from $9.7 million in 1995 to $12.4 million
in 1996. The increase was primarily due to (i) the inclusion of five months
revenues of Specific Energy in the period ending June 30, 1996 as compared to
one month in the period in 1995 resulting in an increment of revenues of $.9
million and (ii) the continued growth of Advanced Fox's cellular accessory
business (up 42.9%), partially offset by a decline of 6.8% in Tauber's sales.
Gross profit increased from $2.9 million in 1995 to $4.1 million in
1996 and as a percentage of sales increased from 29.8% in 1995 to 33.2% in
1996. The increases were primarily due to the inclusion for the longer period
in 1996 of the revenues and cost of sales of Specific Energy which operates at
higher gross profit margins, particularly its retail sales margins, and the
large sales increase in the Advanced Fox cellular accessory business which are
effected at significantly higher margins than the margins of the Tauber sales.
-14-
<PAGE>
Selling, general and administrative ("SG&A") expenses increased from
$2.4 million in 1995 to $3.6 million in 1996 and as a percentage of sales
increased from 24.1% in 1995 to 29.4% in 1996. The increase was substantially
due to (i) the inclusion for the longer 1996 period of the results of operations
of Specific Energy which due to its retail operations has a higher percentage
than Tauber's and Advanced Fox's percentages (ii) an increase in marketing,
selling and distribution costs incurred by Advanced Fox and (iii) the reduction
in sales by Tauber which was not fully offset by expense reductions.
Liquidity and Capital Resources
- --------------------------------
The Company's working capital as of June 30, 1996 was $6.8 million.
For the six months ending June 30, 1995, net cash provided by operating
activities was $.9 million and for the same period in 1996, cash used in
operating activities was $.3 million. The difference results from several
factors including the reduction in net income and changes in inventory,
accounts receivable, prepaid expenses and other assets including the payment a
$150,000 origination fee to Founders Management Services, Inc., an affiliate
of Messrs. Warren H. Haber, Chairman of the Board and John L. Teeger, a Vice
President and Director of the Company. Cash used for additions to property and
equipment were $2,000 and $223,000 for 1995 and 1996, respectively. The cash
provided by financing activities was $.8 million in 1995, primarily the result
of the issuance of $1.5 million of common and preferred stock net of placement
costs of $.2 million , the proceeds of which were used to finance the
acquisition of 95% of Specific Energy offset by amounts repaid to affiliates and
payments of short term borrowings. For the 1996 period cash provided by
financing activities was $1.0 million primarily due to the net proceeds from the
Offering. Of the $9.1 million net proceeds from the Offering, $6.6 million was
paid to the former stockholders of the Merger Companies. The Company had at June
30, 1996 cash and cash equivalents of approximately $2.3 million.
To effect the Mergers, the Company, in addition to the $6.6 million
cash payment, issued 960,000 shares of Common Stock and an option to purchase
an additional 50,000 shares at a price of $5.00 per share. Pursuant to the
related merger agreements, an additional $.1 million was to be paid to the
former stockholders of the Merger Companies (reflected as a reduction of the
stockholders equity and credited as a payable).
The Company redeemed in May 1996 from the net proceeds of the
Offering 250,000 of the 1,000,000 outstanding shares of Series A Preferred
Stock at the redemption price of $1.00 per share plus accrued dividends at 8%
per annum. Pursuant to their terms, the remaining 750,000 shares are to be
redeemed on April 11, 1997 at the redemption price. In June 1996, the Company
prepaid its 8% subordinated note for $180,000 and acquired the remaining 5% of
Specific Energy for $55,000.
-15-
<PAGE>
In addition, the Company expects to repay approximately $589,000 of
outstanding debt at June 30, 1996 during the balance of 1996.
The Company estimates that it will incur additional capital
expenditures of approximately $500,000 during the next twelve months in
connection with the new retail locations, expansion of office and warehouse
facilities and procurement of computer systems.
Management believes that operating cash flow, available cash and
available credit resources, will be adequate to make the repayments of
indebtedness described herein, to meet the working capital needs of the
Company and to meet anticipated capital expenditure needs during the next 12
months. Although the Company intends to issue shares of Common Stock as a
primary method of financing acquisitions, it anticipates that additional funds
will be required to implement successfully its acquisition program, and will
use various methods to finance acquisitions for this purpose.
In August 1996, the Company entered into an agreement in principle to
acquire Battery Network Inc., Alexander Battery Co. Inc. and their affiliated
companies ("Alexander"). The acquisition is subject to the execution of a
formal agreement which will provide for a purchase price in excess of
$14,000,000, payable in cash, convertible preferred stock, shares of common
stock of the Company and options to purchase additional shares of common stock.
The Company expects to finance the cash portion of the purchase price by means
of a private placement of debt, equity or a combination thereof. No assurance
can be given that the financing will be obtained or the acquisition will be
consummated.
Seasonality and Inflation
- -------------------------
The Company's net sales typically show no significant seasonal
variations, although net sales may be affected in the future by timing of
retail store openings or acquisitions.
The impact of inflation on the Company's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's
operating results.
-16-
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
During the quarter, the Company changed its fiscal year from
January 31 to December 31 to conform with the fiscal year end of its
subsidiaries.
The Company has agreed in principle to acquire the outstanding
capital stock or assets of Alexander Battery Company Inc, Battery Network Inc.,
and affiliated companies (collectively, the "Alexander Battery Companies") for
an aggregate purchase price in excess of $14 million to be satisfied by a cash
payment and the issuance of shares of a series of Preferred Stock convertible
into Common Stock with mandatory redemption and preferential dividends rights,
shares of Common Stock and five year options to purchase additional shares. The
Alexander Battery Companies conduct a national battery distribution and value-
added assembly business. The acquisition will be subject to the execution of a
definitive purchase agreement which will provide, among other things, that the
consummation of the purchase will be subject to the satisfaction by the sellers
and the Company of specified conditions including the accuracy of
representations and warranties to be made by the sellers of their combined
financial condition and operating results, the delivery of audited historical
financial statements and the lack of a material adverse change in their
financial condition and operating results, as well as the accuracy of
representations and warranties with respect to the Company. The Alexander
Battery Companies had combined revenues, based on unaudited information provided
to the Company, of approximately $23 million for the twelve months December 31,
1995.
The Company will require additional financing to effect the
acquisition, which financing may be effected through a private placement of
debt, equity or a combination of debt and equity. No assurance can be given that
an acquisition agreement will be concluded or that the financing and acquisition
will be successfully consummated.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27. Financial Data Schedule
b) Reports on Form 8-K
No current reports on Form 8-K were filed during the quarter ended
June 30, 1996.
-17-
<PAGE>
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.
August 14, 1996 By: /s/ Donaldl L. Luke
- --------------- ---------------------------------------
Date Donald L. Luke
President and Chief Executive Officer
August 14, 1996 By: /s/ Ronald E. Badke
- --------------- ---------------------------------------
Date Ronald E. Badke
Vice President and Chief Financial Officer
August 14, 1996 By: /s/ John L. Teeger
- --------------- ---------------------------------------
Date John L. Teeger
Vice President , Secretary and Director
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
BATTERIES BATTERIES, INC.
Financial Data Schedule
The schedule contains summary financial information extracted from the
unaudited consolidated balance sheet as of June 30, 1996 and the unaudited
statement of income for the six months then ended contained in the report on
Form 10-Q for the three months ended June 30, 1996 of Batteries Batteries, Inc.
and is qualified in its entirety by reference to such financial statements:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,342
<SECURITIES> 0
<RECEIVABLES> 2,904
<ALLOWANCES> 73
<INVENTORY> 4,182
<CURRENT-ASSETS> 9,655
<PP&E> 666
<DEPRECIATION> 76
<TOTAL-ASSETS> 11,169
<CURRENT-LIABILITIES> 2,850
<BONDS> 0
750
0
<COMMON> 4
<OTHER-SE> 8,274
<TOTAL-LIABILITY-AND-EQUITY> 11,169
<SALES> 12,376
<TOTAL-REVENUES> 12,376
<CGS> 8,267
<TOTAL-COSTS> 8,267
<OTHER-EXPENSES> 3,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> 455
<INCOME-TAX> 156
<INCOME-CONTINUING> 299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
