UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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) (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 November 12, 1996, there were 4,000,000 shares of common stock
outstanding.
<PAGE>
BATTERIES BATTERIES, INC.
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Financial Statements
Consolidated Balance Sheets
January 31, 1996 and September 30, 1996
(unaudited)................................. 3
Consolidated Statements of Income
For the three months and nine months ended
September 30, 1995 (unaudited) and 1996
(unaudited)................................. 4
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1995
(unaudited) and September 30, 1996 (unaudited) 5
Notes to the Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ........... 13
PART II - OTHER INFORMATION .............................. 17
<PAGE>
BATTERIES BATTERIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN 000'S)
<TABLE>
<CAPTION>
JANUARY 31, SEPTEMBER 30,
1996 1996
------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 946 $ 2,283
Accounts receivable 2,517 2,551
Inventories 3,979 4,555
Prepaid expenses and other current assets 129 253
Current deferred income taxes 103 39
------------- ---------------
Total current assets 7,674 9,681
------------- ---------------
PROPERTY AND EQUIPMENT -Net 508 641
EXCESS OF COST OVER NET ASSETS ACQUIRED 588 621
OTHER ASSETS 335 280
------------- ---------------
TOTAL $9,105 $11,223
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 755 $ 590
Accounts payable 1,258 850
Accrued expenses 202 469
Redeemable Preferred Stock -- 750
Preferred dividends payable 53 80
Current portion of long-term debt 51 9
Current portion of obligations under capital leases 41 15
------------- ---------------
Total current liabilities 2,360 2,763
------------- ---------------
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 and 750,000 shares,
respectively, 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,
222,000 shares and 4,000,000 shares, respectively, issued
and outstanding -- 4
Additional paid-in capital 1,507 8,001
Retained earnings 5,025 410
------------- ---------------
Total stockholders' equity 6,534 8,415
------------- ---------------
TOTAL $9,105 $11,223
============= ===============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
BATTERIES BATTERIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(000'S)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, SEPT. 30,
------------------------- -------------------
1995 1996 1995 1996
-------- --------------- --------- --------
<S> <C> <C> <C> <C>
NET SALES $5,311 $6,521 $15,049 $18,897
COST OF SALES 3,703 4,534 11,148 13,439
-------- --------------- --------- --------
Gross profit 1,608 1,987 3,901 5,458
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 964 1,741 2,704 4,744
-------- --------------- --------- --------
INCOME FROM OPERATIONS 644 246 1,197 714
INTEREST EXPENSE (INCOME),
NET (15) (7) 32 6
-------- --------------- --------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 659 253 1,165 708
PROVISION FOR INCOME TAXES 54 97 87 253
-------- --------------- --------- --------
NET INCOME 605 156 1,078 455
PREFERRED STOCK DIVIDEND
REQUIREMENTS 25 15 32 45
-------- --------------- --------- --------
NET INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ 580 $ 141 $ 1,046 $ 410
======== =============== ========= ========
</TABLE>
Operating results of a closely held Subchapter S 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. Also see Note 5 for unaudited pro
forma information with respect to acquisitions and mergers, including pro forma
net income and per share net income available to common
stockholders.
See notes to combined financial statements.
-4-
<PAGE>
BATTERIES BATTERIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $1,078 $ 455
Adjustment to reconcile net income to net cash provided by
operating activities
Depreciation expense 47 127
Deferred income taxes and other deferred credits (80) 83
Changes in assets and liabilities:
Accounts receivable 79 (34)
Inventories 326 (576)
Prepaid expenses and other assets (205) (103)
Accounts payable, accrued expenses and other liabilities (143) (158)
------------------ ------------------
Net cash provided by (used in) operating activities 1,102 (206)
------------------ ------------------
INVESTING ACTIVITIES:
Purchase of property and equipment, net (269) (243)
Acquisition of Specific Energy Corporation, net of cash
acquired (722) (55)
------------------ ------------------
Net cash used in investing activities (991) (298)
------------------ ------------------
FINANCING ACTIVITIES:
Proceeds from Private Placement 1,500 --
Deferred financing costs (271) --
Proceeds from initial public offering, net of expenses -- 9,135
Payments to stockholders of Merger Companies in connection with
mergers -- (6,664)
Redemption of preferred stock -- (250)
Repayment of note payable to minority stockholder -- (180)
Net payments on borrowings (309) (199)
------------------ ------------------
Net cash provided by financing activities 920 1,841
------------------ ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,031 1,337
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 517 946
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,548 $ 2,283
================== ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 76 $ 53
================== ==================
Income taxes $ 36 $ 134
================== ==================
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITY:
Preferred stock dividends accrued $ 45
==================
Portion of purchase price of Specific Energy Corporation which
was financed by seller $ 180
==================
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
BATTERIES BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 a purchase. (In June 1996, the Company
acquired the remaining minority 5% interest in 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 Merger, 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, 1996 and
1995 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 nine months ended September 30, 1996
include the results of Advanced Fox and Tauber for the three and nine months
ended September 30, 1996 and that of Batteries Batteries, Inc. for the three
and eight months ended September 30, 1996. The unaudited consolidated
statements of income and cash flows for the three and nine months ended
September 30, 1995 include the results of Advanced Fox and Tauber for such
periods and that of Batteries Batteries Inc. for the four month period from
June 1, 1995 (commencement of operations) to September 30, 1995.
The accompanying consolidated financial statements as of September 30,
1996 and the three and nine months ended September 30, 1996 and September 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
<TABLE>
<CAPTION>
<S> <C>
Changes in stockholders' equity were as follows:
(in 000's)
--------
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 (6,664)
Redemption of Preferred Stock ( 250)
Reclassification of Preferred Stock to Redeemable
Preferred Stock upon consummation of the Offering ( 750)
Preferred stock dividend requirements ( 45)
Net income 455
-------
Stockholders' equity at September 30, 1996 $ 8,415
=======
</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 paid
an additional $717,000 in cash to the former stockholders of the
Merger Companies in connection with the respective merger
agreements.
-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 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:
<TABLE>
<CAPTION>
(in 000's)
Three Months Ended Sept.30, Nine Months Ended Sept.30,
1995 1996 1995 1996
---------------------------- -------------------------------
<S> <C> <C> <C> <C>
Net income before pro forma adjustments,
per the consolidated statements of income $659 $253 $1,165 $708
Provision for income taxes 270 104 478 290
------ ----- ------- ----
Pro forma net income $ 389 $149 $ 687 $418
====== ==== ======= ====
</TABLE>
-9-
<PAGE>
As of April 12, 1996, the SubChapter S Corporation status has 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
September 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 nine months ended September 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 nine months ended September 30, 1995, 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 Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 5,311 $6,521 $16,115 $19,139
Cost of sales 3,703 4,534 11,771 13,580
--------- ------- ------- -------
Gross profit 1,608 1,987 4,344 5,559
Selling, general and
administrative expenses 995 1,741 3,313 4,900
-------- ------- ------- ------
Operating income 613 246 1,031 659
Interest expense (income) ( 15) ( 7) ( 45) ( 40)
-------- ------ ------- ------
Income before income taxes 628 253 1,076 699
Provision for income taxes 257 104 440 287
-------- ------ ------- ------
Net income 371 149 636 412
Preferred stock dividend
requirements 20 15 55 50
-------- ------ ------- ------
Net income available to common
stockholders $ 351 $ 134 $ 581 $362
======== ====== ======= ======
Per share net income available to
common stockholders $ .08 $ .03 $ .14 $.09
======== ====== ======= ======
</TABLE>
The computation of pro forma net income per share is based upon 4,200,000
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. OTHER
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 is to provide for a purchase price in
excess of $14,000,000 payable in cash, convertible preferred stock and 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.
In September 1996, the Company reached an agreement in principle to
acquire Cliffco, Inc. a cellular products distributor. The acquisition is
subject to a formal agreement which is to provide for a purchase price of
approximately $1,700,000, payable in cash and shares of common stock of the
Company. Its unaudited revenues in the calendar year ended December 31, 1995
were approximately $4,500,000.
The Company, on September 12, 1996, entered into an agreement dated as
of September 6, 1996 with Donald L. Luke pursuant to which he resigned as
Chief Executive Officer and a Director of the Company and from all positions
with its subsidiaries. The agreement provides for Mr. Luke's engagement as a
part-time consultant to the Company through August 31, 1997 at a rate of $500
per month. Pursuant to the agreement, Mr. Luke was paid $104,000 and his
employment agreement was terminated.
-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 for the three and nine months ended September 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 historical and pro forma results
are due to the: (i) inclusion of the results of operations of Specific Energy,
which was acquired in June 1995 for all the periods, (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 compensation for other executives 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 four months ended
September 30, 1995.
<TABLE>
<CAPTION>
Three Months ended Sept. 30, Nine Months ended Sept. 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 69.7 69.5 69.7 69.5 74.1 71.1 73.0 71.0
------ ----- ------ ----- ------ ------ ----- ------
Gross Margin 30.3 30.5 30.3 30.5 25.9 28.9 27.0 29.0
Selling, general and
administrative expenses 18.2 26.7 18.8 26.7 18.0 25.1 20.5 25.6
------- ----- ------ ------ ------- ------ ------ ------
Income from operations 12.1 3.8 11.5 3.8 7.9 3.8 6.5 3.4
Interest expense (income) ( .3) ( .1) ( .3) ( .1) .2 .1 ( .2) ( .2)
------- ----- ------ ----- ------ ------ ----- ------
Income before provision
for income taxes 12.4% 3.9% 11.8% 3.9% 7.7% 3.7% 6.7% 3.6%
====== ===== ====== ===== ===== ===== ===== ======
</TABLE>
-13-
<PAGE>
Historical Three Months Ended September 30, 1996 ("1996") Compared to
- ---------------------------------------------------------------------
Historical Three Months Ended September 30, 1995 ("1995")
- --------------------------------------------------------
Net sales increased 22.8% from $5.3 million in 1995 to $6.5 million in
1996. The increase was primarily due the continued growth of Advanced Fox's
cellular accessory business (up 55.4% as compared to 1995), as well as an
increase in Specific Energy retail sales, partially offset by a 4.8% decline
in Tauber's value added and distribution sales.
Gross profit increased from $1.6 million in 1995 to $2.0 million in 1996
and as a percentage of sales increased from 30.3% in 1995 to 30.5% in 1996.
The increases were primarily due to the sale increases in the Advanced Fox
cellular business and Specific Energy, particularly its retail sales which
are effected at significantly higher margins, offset by a decline in Tauber
margins due to competitive pressures..
Selling, general and administrative ("SG&A") expenses increased from
$1.0 million in 1995 to $1.7 million in 1996 and as a percentage of sales
increased from 18.2% in 1995 to 26.7% in 1996. The increases were
substantially due to (i) an increase in marketing, selling and distribution
costs incurred by Advanced Fox, which resulted in increased revenues (ii)
contract termination costs relating to the resignation of the Chief Executive
Officer, (iii) addition of management employees and (iv) general and
administrative expenses associated with the company being publicly held.
Historical Nine Months Ended September 30, 1996 ("1996") Compared to
- ---------------------------------------------------------------------
Historical Nine Months Ended September 30, 1995 ("1995")
- --------------------------------------------------------
Net sales increased 25.6 % from $15.0 million in 1995 to $18.9 million
in 1996. The increase was primarily due to (i) the inclusion of eight months
revenues of Specific Energy revenues in the period ending September 30, 1996
(as compared to four month in the period ending September 30, 1995) resulting
in incremental revenues of $1.1 million and (ii) the continued growth of
Advanced Fox's cellular accessory business (up 47.2%).
Gross profit increased from $3.9 million in 1995 to $5.5 million in 1996
and as a percentage of sales increased from 25.9% in 1995 to 28.9% in 1996.
The increases are 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, and the substantial sales
increase in the Advanced Fox cellular accessory business which are effected at
significantly higher margins than the margins of Tauber sales.
-14-
<PAGE>
Selling, general and administrative ("SG&A") expenses increased from
$2.7 million in 1995 to $4.7 million in 1996 and as a percentage of sales
increased from 18.0% in 1995 to 25.1% 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 operates at a
higher percentage of net sales than Tauber and Advanced Fox (ii) an increase
in marketing, selling and distribution costs incurred by Advanced Fox, (iii)
contract termination costs relating to the resignation of the Chief Executive
Officer, (iv) addition of management employees and (v) general and
administrative expenses associated with the Company being publicly held.
Liquidity and Capital Resources
- --------------------------------
The Company's working capital as of September 30, 1996 was $6.9 million.
For the nine months ended September 30, 1995, net cash provided by operating
activities was $1.1 million and for the same period in 1996, cash used in
operating activities was $.2 million. The difference results from several
factors including the reduction in net income and changes in inventory,
accounts receivable, prepaid expenses and other assets. Cash used for
additions to property and equipment were $269,000 and $243,000 for 1995 and
1996, respectively. The cash provided by financing activities was $.9 million
in 1995, primarily the result of the issuance of $1.5 million of common and
preferred stock, the proceeds of which were used to finance the acquisition
of 95% of Specific Energy Corporation offset by amounts repaid to affiliates
and payments of short term borrowings. For the 1996 period cash provided by
financing activities was $1.8 million primarily due to the net proceeds from
the Offering. Of the $9.1 million net proceeds from the Offering, $6.7
million was paid to the former stockholders of the Merger Companies. The
Company had at September 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.
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 Corporation for $55,000.
-15-
<PAGE>
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 required repayments
of indebtedness and the redemption of Preferred Stock and to meet the working
capital needs of the Company and anticipated capital expenditures during the
next 12 months.
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 is to provide for a purchase price of approximately
$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.
In September 1996, the Company entered into an agreement in principle to
acquire Cliffco, Inc., a cellular products distributor. The acquisition is
subject to a formal agreement which is to provide for a purchase price of
approximately $1,700,000, payable in cash and shares of common stock of the
Company.
The Company expects to finance the cash portion of the aforementioned
anticipated purchases 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 that either 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 6. Exhibits and Reports on Form 8-K
a) Exhibits
27. Financial Data Schedule.
b) Reports on Form 8-K
A current report Form 8-K disclosing an agreement with Donald L. Luke
pursuant to which he resigned as Chief Executive Officer and a Director of the
Company and from all positions with its subsidiaries and the appointment of
Mr. Warren H. Haber, Chairman of the Board of Directors, as acting Chief
Executive Officer.
-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.
November 14, 1996 By: /s/ Ronald E. Badke
- ----------------- -------------------------------------
Date Ronald E. Badke
Vice President and Chief Financial
Officer
November 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 September 30, 1996 and the unaudited statement
of income for the nine months then ended contained in the report on Form 10-Q
for the three months September 30, 1996 of Batteries Batteries, Inc. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,283
<SECURITIES> 0
<RECEIVABLES> 2,629
<ALLOWANCES> 78
<INVENTORY> 4,555
<CURRENT-ASSETS> 9,681
<PP&E> 641
<DEPRECIATION> 123
<TOTAL-ASSETS> 11,223
<CURRENT-LIABILITIES> 2,763
<BONDS> 0
750
0
<COMMON> 4
<OTHER-SE> 8,415
<TOTAL-LIABILITY-AND-EQUITY> 11,223
<SALES> 18,897
<TOTAL-REVENUES> 18,897
<CGS> 13,439
<TOTAL-COSTS> 13,439
<OTHER-EXPENSES> 4,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 708
<INCOME-TAX> 253
<INCOME-CONTINUING> 455
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 455
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
