<PAGE>
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, 1998
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 (IRS Employer incorporation
or organization) Identification No.)
50 Tannery Road, Unit 2
North Branch, New Jersey 08876
(Address of principal executive offices) (Zip Code)
(908) 534-2111
(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 14, 1998, there
were 4,743,500 shares of common stock outstanding.
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BATTERIES BATTERIES, INC.
FORM 10-Q FOR THE PERIOD ENDED June 30, 1998
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Consolidated Financial Statements
Consolidated Balance sheets...................................... 3
June 30, 1998 (unaudited) and December 31, 1997
Consolidated Statements of Operations ........................... 4
For the three and six months ended June 30, 1998
(unaudited) and 1997 (unaudited)
Consolidated Statements of Cash Flows ........................... 5
For the three and six months ended June 30, 1998 (unaudited) and
1997 (unaudited)
Notes to the Consolidated Financial Statements................... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 9
PART II - OTHER INFORMATION......................................................... 15
</TABLE>
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DRAFT
BATTERIES BATTERIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 540 $ 709
Accounts receivable 7,638 6,452
Inventories 11,932 10,108
Prepaid expenses and other current assets 581 1,267
Current deferred income taxes 219 219
--- ---
Total current assets 20,910 18,755
------ ------
PROPERTY AND EQUIPMENT - Net 1,328 1,447
EXCESS OF COST OVER NET ASSETS ACQUIRED 5,905 5,210
OTHER ASSETS 395 319
--- ---
TOTAL $ 28,538 $ 25,731
------ ------
LIABILITIES AND STOCKHOLDERS' EOUITY
CURRENT LIABILITIES:
Current portion of term loan facility $ 600 $ 600
Accounts payable 3,108 4,756
Accrued expenses 2,350 1,293
Obligations under capital leases 8 0
----- -----
Total current liabilities $ 6,066 6,649
------ -----
10,742 8,835
LONG-TERM BANK DEBT - NET
STOCKHOLDERS' EQUITY
Preferred Stock, par value $0.001, 1,000,000 shares authorized
no shares issued or outstanding -- --
Common Stock, par value $.00l, 10,000,000 shares
authorized, 4,743,500 shares, issued and outstanding 5 5
Additional paid-in capital 10,716 10,716
Retained earnings (Deficit) 1,009 (474)
------ ------
Total stockholders' equity 11,730 10,247
------ ------
TOTAL $ 28,538 $ 25,731
------ ------
</TABLE>
See notes to consolidated financial statements.
.
3
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DRAFT
BATTERIES BATTERIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30,1997 JUNE 30,1998 JUNE 30,1997 JUNE 30,1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $12,795 $12,599 $25,573 $25,713
COST OF SALES 8,932 9,241 18,047 18,474
------- ------- ------- -------
Gross profit 3,863 3,358 7,526 7,239
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,383 4,390 6,435 8,338
RESTRUCTURING CHARGES 0 640 0 640
------- ------ ------ ------
INCOME (LOSS) FROM OPERATIONS 480 (1,672) 1,091 (1,739)
INTEREST EXPENSE, NET 173 193 313 395
-------- ----- ------ ------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES 307 (1,865) 778 (2,134)
PROVISION (BENEFIT) FOR INCOME TAXES 143 (526) 345 (651)
-------- ------- ------ -------
NET INCOME (LOSS) 164 (1,339) 433 (1,483)
PREFERRED STOCK DIVIDEND 0 -- 15 --
-------- ------- ------ -------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS 164 (1,339) 418 (1,483)
-------- ------- ------ --------
NET INCOME (LOSS) PER SHARE -
BASIC AND DILUTED $ 0.04 $(0.28) $ 0.09 (0.31)
-------- ------- -------- --------
WEIGHTED AVERAGE NUMBER OF COMMON &
COMMON EQUIVALENT SHARES OUTSTANDING 4,656,049 4,743,500 4,603,314 4,743,500
--------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements
4
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BATTERIES BATTERIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In 000's)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1998
------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $433 $(1,483)
Adjustments to reconcile net income (Loss) to net cash
provided by operating activities:
Depreciation & amortization expense 288 386
Deferred income tax (8) --
Non cash restructuring charge -- 575
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable (742) 1,186
Inventories (484) 1,824
Prepaid expenses and other assets 31 (686)
Accounts payable and accrued expenses 204 591
----- -----
Net cash provided (used) by operating activities (278) 2,393
----- -----
INVESTING ACTIVITIES:
Purchase of property and equipment, net (192) (309)
Acquisition of Cliffco of Tampa Bay, net of cash acquired (942) 0
Acquisition of Battery Network, net of cash acquired (10,596) 0
------- -------
Net cash used in investing activities (11,730) (309)
------- -------
FINANCING ACTIVITIES:
Borrowings under Term Loan Facility 3,000 0
Payments under Term Loan Facility (250) (300)
Net borrowings (payments) under Revolving Credit Facility 6,820 (1,607)
Redemption of Preferred Stock (750) 0
Issuance of Common Stock to stockholders of Battery Network
and Cliffco of Tampa Bay 2,716 0
Financing costs relating to the Battery Network acquisition an
Cliffco of Tampa Bay acquisition (179) 0
Payments on debt and capital lease obligations (1,186) (8)
------ ------
Net cash provided by (used) financing activities 10,171 (1,915)
------ ------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,837) 169
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,609 540
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 772 $709
------ ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 271 $449
----- -----
Income taxes $ 247 $362
----- ----
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
BATTERIES BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
1. BUSINESS
Batteries Batteries, Inc. (the "Company" or "Batteries Batteries") was founded
in May 1995 to create a nationwide battery distribution business serving the
commercial, industrial and retail markets. Through a series of acquisitions for
cash, notes and securities, Batteries Batteries acquired (i) in June 1995
Specific Energy, Inc. ("Specific Energy") based in Phoenix, Arizona, (ii) in
April 1996, Advanced Fox Antenna, Inc. ("Advanced Fox") based in Philadelphia,
Pennsylvania and Tauber Electronics, Inc. ("Tauber") based in San Diego,
California, (iii) in January 1997 Battery Network, Inc. and affiliate companies
("Battery Network") based in Chicago, Illinois, North Branch, New Jersey and
Escondido, California, and (iv) in May 1997 Cliffco of Tampa Bay, Inc. ("CTB")
based in Tampa, Florida.
The Company's operations are organized into two business groups: batteries and
cellular products.
The Battery Group is headquartered in Escondido, California and is comprised of:
o Tauber Electronics which engineers, manufactures, and distributes battery
packs and battery systems to original equipment manufacturers throughout
the United States.
o Battery Network is a national distributor of specialty batteries to the
commercial, industrial, and government/institutional markets.
o Specific Energy Corporation, aka, Batteries Batteries for Everything,
distributes specialty battery products through four retail stores located
in the greater Phoenix, Arizona metropolitan area.
The Cellular Products Group is headquartered in Huntingdon Valley, Pennsylvania
and is comprised of:
o Advanced Fox Cellular, based in Huntingdon Valley, Pennsylvania with a
warehouse in Miami, Florida, distributes over 1,600 cellular accessory
products, including batteries, chargers, and antennas to customers
throughout North and South America.
o Cliffco of Tampa Bay, Florida is a distributor of cellular products to
a variety of customers including the large communication carriers.
6
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The accompanying consolidated financial statements as of June 30, 1998 and the
three and six months ended June 30, 1998 and June 30, 1997, 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 Annual
Report on Form 10-K for the year ended December 31, 1997.
2. ACQUISITIONS AND LOAN FACILITY
On January 7, 1997, effective January 1, 1997 the Company acquired (the "BN
Acquisition") the business and related assets of Battery Network which operates
principally in California, New Jersey and Illinois. The purchase price of
approximately $11.2 million consisted of (i) approximately $8.3 million in cash,
subject to adjustment to the extent that the net worth, as defined of Battery
Network, exceeded or was less than $7.3 million; (ii) 550,000 shares of Common
Stock valued at a price of $4.125 per share and five year options to purchase an
additional 225,000 shares at an exercise price of $4.50 per share, and (iii)
approximately $590,000 in transaction costs.
On May 12, 1997, the Company acquired the business and related assets of CTB.
The purchase price of approximately $615,000 consisted of (i) cash of
approximately $75,000 (ii) 193,000 shares of common stock valued at $2.35 per
share or $446,985 and (iii) approximately $93,000 in transaction costs. In
addition, the Company assumed liabilities of $1,162,000. As part of its
assumption of liabilities, the Company paid at the closing indebtedness of CTB
of approximately $560,000. The CTB agreement provided the president and sole
stockholder of the seller with a three-year employment agreement. The operations
of CTB have been included in the consolidated results of operations of the
Company from the date of its acquisition.
The cash portion of the purchase price of each transaction, as well as the
repayment of CTB debt of $560,000 to its collateralized lender was funded with a
portion of the proceeds of a borrowing pursuant to a Revolving Credit, Term Loan
and Security Agreement, dated January 6, 1997, as amended May 13, 1997, (the
"Loan Facility"), between IBJ Schroder Bank & Trust Company, as Agent ("IBJ")
and the Company and all its subsidiaries. The Loan Facility consists of a
$3,000,000 Term Loan (the "Term Loan") payable in 35 monthly installments of
$50,000 each with the balance to be paid at maturity and a Revolving Credit
Facility (the "Revolver Loan") of up to $10,000,000 to be advanced at the rate
of 80% of eligible accounts receivable and 50% of inventories. The Revolver
Loans bears interest at the rate of 1/4 of 1% plus the higher of (i) the base
commercial lending rate of IBJ or (ii) the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers plus 1/4 of 1%, or, at the option of the
Company at the Eurodollar rate plus 2%. The Eurodollar rate is defined as Libor
for a designated period divided by one less the aggregate reserve requirements.
The interest on the Term Loan is 1/2% higher than the interest rate on the
Revolver Loans. The Loans Facility is secured by a pledge of the assets of the
borrowers and a pledge of the outstanding capital stock of the subsidiaries of
the Company. As of June 30, 1998, the principal amounts outstanding of Term
Loans was $2,150,000 and the Revolver Loans was $7,285,000.
The Loan Facility contains certain covenants that include maintenance of
certain financial ratios, maintenance of certain amounts of working capital and
net worth as well as other affirmative and negative covenants. At December 31,
1997, the Company was not in compliance with certain of these covenants. On
April 14, 1998, the Company entered into an amended credit agreement whereby the
non-compliance at December 31, 1997 was waived, and the financial covenants
through December 31, 1998 were amended. At March 31, 1998, the company was not
in compliance with two of the covenants. On May 20, 1998 the Bank waived
compliance with such covenants. At June 30, 1998, the company was not in
compliance with five of the covenants. On August 18, 1998 the Company entered
into an amended credit agreement whereby the non-compliance at June 30, 1998 was
waived, and the financial covenants through June 30, 1999 were amended.
7
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3. MANAGEMENT AGREEMENT
In February 1998, the Management Agreement with Founders Management Services,
Inc. ("Founders") was revised by mutual consent to delete provisions relating to
the rights of Founders to a incentive fee and to an origination fee (thereby
limiting its fees to an annual management fee of $150,000) and to move up the
expiration date of the Agreement to April 30, 1999. On May 5, 1998, both active
principals of Founders resigned as officers and directors of the Company,
effectively terminating the relationship between the Company and Founders.
.
4. RESTRUCTURING CHARGES .
During the second quarter of 1998, the company made the decision to exit the
retail battery business and explore the possibility of a sale of Specific Energy
Corporation in Phoenix, Arizona. On August 6, 1998, the Company executed an
Asset Purchase Agreement with a closing date set for on or about August 31,
1998. In accordance with FASB Statement 121 - "Accounting for the Impairment of
Long-Lived Assets and Assets to be Disposed of", the Company reduced the
carrying amount of" the retail assets of Specific Energy to its net realizable
value in the second quarter of 1998 by $575,000 which principally represented
the remaining goodwill resulting from the Specific Energy acquisition in 1995.
In addition, the Company incurred certain charges to relocate its Redmond,
Washington and McHenry, Illinois Battery Network divisions. In connection
therewith, the Company incurred severance and other relocation costs of
$65,000 during the second quarter of 1998.
8
<PAGE>
Item 2. MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
RESULTS OF OPERATIONS
The following table represents the Company's statement of operations data
expressed as a percentage of net sales for the respective periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 69.8 73.3 70.6 71.8
------ ----- ----- -----
Gross Profit 30.2 26.7 29.4 28.2
------ ----- ----- -----
Selling, General &
Administrative Expenses 26.4 34.8 25.2 32.4
------ ----- ----- -----
Restructuring and Charges -- 5.1 -- 2.5
------ ----- ----- -----
Operating Income (Loss) 3.8 (13.3) 4.2 (6.8)
------ ----- ----- -----
Interest expense, net 1.4 1.5 1.2 1.5
------ ----- ----- -----
Income (Loss) before provision (benefit)
for income taxes: 2.4 (14.8) 3.0 (8.3)
------ ----- ----- -----
Income tax provision (benefit) 1.1 (4.2) 1.3 (2.5)
------ ----- ----- -----
Net Income (Loss) 1.3 (10.6) 1.7 (5.8)
------ ----- ----- -----
</TABLE>
9
<PAGE>
Three Months ended June 30, 1998 ("1998") Compared to Three Months ended June
30, 1997 ("1997").
Net sales decreased 1.6% from $12.8 million in 1997 to $12.6 million in 1998.
The overall decline of 1.6% is a combination of a 37% increase in Cellular
Products sales and a 31% decline in the sales of Battery Network. Contributing
to the Cellular Products increase was a 16% growth in the sales of Advanced Fox
Cellular and a full quarter's sales contributed by Cliffco which was acquired
in May 1997. Battery Network's sales decline was substantially caused by a
sharp drop in sales immediately following a planned shut down of the Midwest
and Washington offices in May and the consolidation of these offices with
Battery Network's operations in Escondido, California. The sales for Tauber
Electronics and Specific Energy in 1998 were approximately unchanged from the
prior year.
Gross profit decreased by $.5 million from $3.9 million in 1997 to $3.4 million
in 1998, and as a percentage of sales decreased from 30.2% to 26.7%. The
decrease in gross profit was primarily due to a decline of $914,000 in Battery
Networks gross profit during the three months and flat gross profit of CTB
inspite of significantly higher sales. Both Battery Network and CTB's gross
margin were negatively impacted by additional reserves of approximately
$300,000 in the quarter in conjunction with a management decision to
discontinue and sell off certain product and product lines as part of an
inventory reduction program. The negative margin results in both CTB and
Battery Network operations were partially offset by an increase in Advanced Fox
gross profit that contributed $440,000 for the three months.
Selling, general and administrative (SG & A) expenses increased by $1.0 million
from $3.4 million in 1997 to $4.4 million in 1998, and as a % of sales from
26.4% to 34.8%. The increase was due to:
(i) the acquisition of CTB in May, 1997 resulting in additional marketing,
selling and occupancy (move into a new and bigger facility) to develop the
business (ii) an increase in SGA costs at Battery Network, resulting from an
increase in management and sales payroll incurred in connection with the
restructuring of Battery Network, as well as the sales decrease incurred by
Battery Network and (iii) an increase in marketing, selling and distribution
expenses incurred by Advanced Fox and Tauber which were only partially offset by
reductions in general and administrative costs of Specific Energy.
During the second quarter of 1998, the company made the decision to exit the
retail battery business and explore the possibility of a sale of Specific Energy
Corporation in Phoenix, Arizona. On August 6, 1998, the Company executed an
Asset Purchase Agreement with a closing date set for on or about August 31,
1998. In accordance with FASB Statement 121 - "Accounting for the Impairment of
Long-Lived Assets and Assets to be Disposed of", the Company reduced the
carrying amount of" the retail assets of Specific Energy to its net realizable
value in the second quarter of 1998 by $575,000 which principally represented
the remaining goodwill resulting from the Specific Energy acquisition in 1995.
In addition, the Company incurred certain charges to relocate its Redmond,
Washington and McHenry, Illinois Battery Network divisions. In connection
therewith, the Company incurred severance and other relocation costs of
$65,000 during the second quarter of 1998.
Interest expense increased from $172,000 thousand in 1997 to $192,000 in 1998
due primarily to increased borrowings under the Loan Facility in connection with
the acquisition of CTB in May, 1997, the redemption in April, 1997 of
outstanding 750,000 shares of series A Preferred Stock and general operating
needs.
The company's effective income tax rate in calculating the benefit in 1998 based
on the loss for the period was 28.2% as compared to a tax rate of 46.6% in 1997.
The substantial difference in tax rate is attributable to the $575,000 estimated
loss on the sale of the retail operation, which is not expected to generate a
tax benefit.
Six Months ended June 30, 1998 ("1998") Compared to Six Months ended June 30,
1997 ("1997").
Net sales increased by .5% from $25.6 million in 1997 to $25.7 million in 1998.
The increase was primarily the result of the continued growth of Advanced Fox
($1.0 million ) and to the acquisition of CTB, effective May 12, 1997 that
contributed approximately $2.2 million of sales for the comparable period up to
May 12, 1998, coupled with sales increases for the balance of the period of $.2
million offset by decreases in Battery Network sales of approximately $3
million.
Gross profit decreased from $7.5 million in 1997 to $7.2 million in 1998 and as
a % of sales decreased 29.4% to 28.2%. The decrease was primarily the result of
a decline of $1.5 million in Battery Network's gross profit during the six
months and flat gross profit from CTB in the second quarter in spite of
signficant higher sales. Both Battery Network's and CTB's gross margins were
negatively impacted by additional reserves of approximately $300,000 taken in
the second quarter in conjunction with a management discision to discontinue and
sell off certain products and product lines as part of the company's Inventory
Reduction program. The results were partially offset by an increase in gross
profit in Advanced Fox of $700,000 and the acquisition of CTB in May 9, 1997
that contributed approximately $600,000 in gross profit for the January 1 to May
12, 1998 period.
Selling, General and Administrative (S,G & A) expenses increased by $1.9 million
from $6.4 million in 1997 to $8.3 million in 1998, as a % of sales increased
10
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from 25.2% to 32.4%. The increase was attributable to (i) the acquisition of
Cliffco in May 1997 (approximately $750,000) for the period and increase in
marketing, selling and occupancy expense (move to larger facility) to grow the
business and (ii) an increase in SG&A costs at Battery Network, resulting from
an increase in management and sales payroll incurred in connection with the
restructuring of Battery Network, as well as the sales decrease incurred by
Battery Network and (iii) an increase in marketing, selling and distribution
costs incurred by Advanced Fox and Tauber, which were only partially offset by
reduction in general and administrative expenses at Specific Energy.
Interest expense increased from $313,000 in 1997 to $395,000 in 1998 due
primarily to increased borrowing under the Loan Facility in connection with the
acquisition of CTB in May, 1997, the redemption in April, 1997 of outstanding
750,000 shares of Series A Preferred Stock and general operating needs.
The Company's effective income tax rate in 1998 based on the loss for the six
months was 30.5% as opposed to a tax rate of 44.3% in 1997. The substantial
difference in tax rate is mainly attributable to the $575,000 estimated loss on
the sale of the retail operation, which is not expected to generate a tax
benefit. The income tax benefit for the six months ended June 30, 1998 reflects
income taxes at an estimated annual rate.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's requirement for capital is to fund (i) sales growth, (ii) capital
equipment expenditures related to Year 2000 system compliance and manufacturing
tooling, and (iii) financing for acquisitions. The Company's primary sources of
financing during 1997 were bank borrowings and equity issuances in partial
payment of ("Battery Network") and ("CTB") aquisition and 1998 were bank
borrowings.
On January 7, 1997, effective January 1, 1997, the Company acquired the business
and related assets of Battery Network and on May 12, 1997 acquired the business
and related assets of ("CTB"), as discussed in Note 2 "Acquisition and Loan
Facility" to the Consolidated Financial Statements.
The Company redeemed in April 1997 the outstanding 750,000 shares of Series A
Preferred Stock at the redemption price of $1.00 per share plus accrued
dividends at 8% per annum, for a total of $800,000.
The Preferred Stock redemption and the cash payments made in connection with the
BN Acquisition and CTB Acquisition were funded under the Company's Revolving
Credit, Term Loan and Security Agreement, as amended on May 12, 1997.
The Company's working capital as of June 30, 1998 was $12.1 million. For the six
months ended June 30, 1998, net cash provided by operating activities was $2.4
million. Net cash provided from operations was comprised of a net loss of ($1.5
million) offset by depreciation and amortization of $386 thousand non-cash
restructuring charges of $575 thousand and a net decrease in assets and
liabilities of $2.9 million. The net decrease in assets and liabilities was
comprised of decreased accounts receivable and inventory balances, and increased
accounts payable and prepaid expense balances. The Company has implemented an
inventory reduction program designed to eliminate certain products and product
lines, rationalize and reduce other product lines, and to dispose of such
inventories in an expeditious manner. For the six months ended June 30, 1997,
net cash used by operating activities was $278 thousand. Net cash used in
operations was comprised of net income of $433 thousand and depreciation and
amortization of $288 thousand, offset by a net increase in assets and
liabilities of $991 thousand. The net increase in assets and liabilities in 1997
was comprised of increased accounts receivable, inventory and accounts payable
balances, and decreased prepaid expenses.
Net cash used in investing activities for the six months ended June 30, 1998 was
$309 thousand primarily for the purchase of property and equipment. Net cash
used in investing activities for the six months ended June 30, 1997 was $10.5
million for the acquisition of Battery Network in January, 1997, $.9 million for
the acquisition of Cliffco in May, 1997 and $192 thousand for the purchase of
property and equipment.
Cash used by financing activities for the six months ended June 30, 1998 was
$1.9 million comprised of $1.6 million net payments under the Revolving Credit
Facility and $300 thousand payments under the Term Loan Facility. Cash provided
by financing activities for the six months ended June 30, 1997 was $10.2 million
comprised primarily of $3.0 million borrowings under the Term Loan Facility,
$6.8 million borrowings under the Revolving Credit Facility and $2.7 million
from issuance of common stock to stockholders of Battery Network and Cliffco.
The Company had at June 30, 1998 cash and cash equivalents of approximately $709
thousand.
12
<PAGE>
The Loan Facility contains certain covenants that include maintenance of certain
financial ratios, maintenance of certain amounts of working capital and net
worth as well as other affirmative and negative covenants. At December 31, 1997,
the Company was not in compliance with certain of these covenants. On April 14,
1998, the Company entered into an amended credit agreement whereby the
non-compliance at December 31, 1997 was waived, and the financial covenants
through December 31, 1998 were amended to reflect the Company's current
projections. At June 30, 1998 the Company was not in compliance with certain of
these covenants. On August 18, 1998, the Company entered into an amended credit
agreement whereby the non-compliance at June 30, 1999 was waived and the
financial covenants through June 30, 1999 were amended to reflect the Company's
current projections.
The Company estimates that it will incur capital expenditures of approximately
$600,000 during the twelve months ended June 30, 1999, principally for the
procurement of a computer system and software to upgrade the Company's business
systems and to insure the Year 2000 compliance. The company has either committed
to or is in the process of committing to new computer software systems and has
purchased most of the requisite hardware necessary to install the systems. The
company intends to have this software which is fully year 2000 compliant
functional in each of its operations during the first quarter of 1999.
Based upon its present plans, management believes that operating cash flow,
available cash and available credit resources will be adequate to make the
repayments of indebtedness described herein, meet the working capital cash needs
of the Company and anticipated capital expenditure needs during the 12 months
ending June 30, 1999.
13
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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 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.
14
<PAGE>
PART II
Item 5 - Exhibits and Current Reports
(A) Exhibits
(1) Copy of Waiver and Amendment to Revolving Credit, Term Loan and
Security Agreement dated August 18, 1998 among IBJ Schroder Bank
and Trust Company as Agent, The Company and its subsidiaries.
(B) Current Reports -
(1) There was a Form 8-K filed on June 17, 1998. The election of Steven
Rade as President and CEO of Batteries Batteries, Inc. on June 5,
1998 replacing Alan Baldwin who resigned as President and CEO as of
June 4, 1998.
15
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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.
By: Steve Rade /s/
- ------------------------ --------------
Date Steve Rade
Chief Executive Officer
By: Ronald E. Badke /s/
- ------------------------ -------------------
Date Ronald E. Badke
Chief Operating Officer and Chief Financial
Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the unaudited
consolidated balance sheet as of March 31, 1998, and the unaudited statement of
income for the nine months then ended contained in the report on Form 10-Q for
the six months ended June 30, 1998 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 709
<SECURITIES> 0
<RECEIVABLES> 7,056
<ALLOWANCES> 604
<INVENTORY> 10,108
<CURRENT-ASSETS> 18,755
<PP&E> 1,447
<DEPRECIATION> 386
<TOTAL-ASSETS> 25,731
<CURRENT-LIABILITIES> 6,649
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 10,242
<TOTAL-LIABILITY-AND-EQUITY> 25,731
<SALES> 25,713
<TOTAL-REVENUES> 25,713
<CGS> 18,474
<TOTAL-COSTS> 18,474
<OTHER-EXPENSES> 8,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 395
<INCOME-PRETAX> (2,134)
<INCOME-TAX> (651)
<INCOME-CONTINUING> (1,483)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,483)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
<PAGE>
WAIVER AND AMENDMENT
TO
REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT
THIS WAIVER AND AMENDMENT ("Amendment") is entered into as of August 18,
1998, by and among Batteries Batteries, Inc. ("BATS"), Tauber Electronics, Inc.
("TEI"), Advanced Fox Antenna, Inc. ("AFA"), Specific Energy Corporation
("SEC"), W.S. Battery & Sales Company, Inc. ("WSBS"), Battery Network, Inc.
("BN"), Battery Acquisition Corp. ("BAC"), Cliffco of Tampa Bay, Inc. ("CTB")
(BATS, TEI, AFA, SEC, WSBS, BN, BAC and CTB, each a "Borrower" and collectively
the "Borrowers"), IBJ Schroder Business Credit Corporation (successor to IBJ
Schroder Bank & Trust Company) ("IBJS"), each of the other financial
institutions named in the Loan Agreement or which hereafter become parties
thereto (IBJS and such financial institutions, the "Lenders") and IBJS as agent
for the Lenders (IBJS in such capacity, the "Agent").
BACKGROUND
Borrowers, Agent and Lenders are parties to a Revolving Credit, Term Loan
and Security Agreement dated as of January 7, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Loan Agreement") pursuant to which
Lenders provide Borrowers with certain financial accommodations.
Borrowers have requested that Agent and Lenders (i) waive certain Events of
Default and (ii) amend certain provisions of the Loan Agreement, and Agent and
Lenders are willing to do so on the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of Borrowers by Agent and
Lenders, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the Loan Agreement.
2. Amendment to Loan Agreement. Subject to satisfaction of the conditions
precedent set forth in Section 4 below, the Loan Agreement is hereby amended as
follows:
2.1. Section 6.5 is amended in its entirety to provide as follows:
"6.5 Net Worth. Maintain at the end of each fiscal quarter set forth
below a Net Worth of least the amount set opposite such fiscal quarter
end below:
<PAGE>
Fiscal Quarter Ending Net Worth
--------------------- ---------
September 30, 1998 $10,250,000
December 31, 1998 $10,500,000
March 31, 1999 $10,750,000
June 30, 1999 $11,000,000
September 30, 1999 $11,250,000
December 31, 1999 $11,500,000"
2.2. Section 6.6 is amended in its entirety to provide as follows:
"6.6 Intentionally Omitted."
2.3. Section 6.7 is amended in its entirety to provide as follows:
"6.7 Fixed Charge Coverage Ratio. Maintain as of the end of each fiscal
period set forth below a Fixed Charge Coverage Ratio of not less than
the ratio set opposite such fiscal period below:
Fiscal Period Fixed Charge Coverage Ratio
------------- ----------------------------
July 1, 1998 - September 30, 1998 1.50 to 1.00
July 1, 1998 - December 31, 1998 1.50 to 1.00
July 1, 1998 - March 31, 1999 1.50 to 1.00
July 1, 1998 - June 30, 1999 1.25 to 1.00
October 1, 1998 - September 30, 1999 1.25 to 1.00
January 1, 1999 - December 31, 1999 1.25 to 1.00"
2.4. Section 6.8 is amended in its entirety to provide as follows:
"6.8 EBITDA. Maintain as of the end of each fiscal period set forth
below, EBITDA of at least the amount set opposite such fiscal period
below:
Fiscal Period EBITDA
------------- ------
July 1, 1998 - September 30, 1998 $ 910,000
July 1, 1998 - December 31, 1998 $2,180,000
July 1, 1998 - March 31, 1999 $2,810,000
July 1, 1998 - June 30, 1999 $3,600,000
October 1, 1998 - September 30, 1999 $3,740,000
January 1, 1999 - December 31, 1999 $3,650,000"
3. Waiver. Subject to satisfaction of the conditions precedent set forth
in Section 4 below, Lender hereby waives the Events of Default that have
occurred as a result of Borrower's non-compliance with (a) Section 6.5 of the
Loan Agreement solely as respects the failure to maintain the minimum Net Worth
required pursuant to Sections 6.5 of the Loan Agreement for
2
<PAGE>
the fiscal quarters ending March 31, 1998 and June 30, 1998; (b) Section 6.6 of
the Loan Agreement solely as respects the failure to maintain a ratio of
Current Assets to Current Liabilities of not less than 3.0 to 1.0 for the
period ending June 30, 1998; (c) Section 6.7 of the Loan Agreement solely as
respects the failure to maintain a Fixed Charge Coverage Ratio of not less than
(i) .35 to 1.00 for the fiscal period commencing on July 1, 1997 and ending
June 30, 1998 and (ii) .75 to 1.00 for the fiscal quarter ending June 30, 1998;
(d) Section 6.8 of the Loan Agreement solely as respects the failure to
maintain an EBITDA of at least $1,450,000 for the fiscal period commencing on
July 1, 1997 and ending on June 30, 1998; and (e) Section 10.13 of the Loan
Agreement solely as respects the Change of Control arising out of the
resignation of Messrs. Haber and Teeger and four others from the Board of
Directors of BATS and the replacement thereof by two nominees of Steven Rade.
4. Conditions of Effectiveness. This Amendment shall become effective, when
and only when (a) Lender shall have received an original copy of this Amendment
duly executed by Borrower and (b) Lender shall receive a fee in the amount of
$30,000 which may be charged to Borrowers' loan account on the effective date
of this Amendment.
5. Representations and Warranties. Each Borrower hereby represents and
warrants as follows:
(a) This Amendment and the Loan Agreement, as amended hereby,
constitute legal, valid and binding obligations of each Borrower and are
enforceable against each Borrower in accordance with their respective terms.
(b) Upon the effectiveness of this Amendment, each Borrower
hereby reaffirms all covenants, representations and warranties made in the Loan
Agreement to the extent the same are not amended hereby and agree that all such
covenants, representations and warranties shall be deemed to have been remade
as of the effective date of this Amendment.
(c) No Event of Default or Default has occurred and is
continuing or would exist after giving effect to this Amendment.
(d) No Borrower has any defense, counterclaim or offset with
respect to the Loan Agreement.
6. Effect on the Loan Agreement.
(a) Upon the effectiveness of Section 2 hereof, each
reference in the Loan Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import shall mean and be a reference to the Loan
Agreement as amended hereby.
(b) Except as specifically amended herein, the Loan
Agreement, and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect, and
are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not,
3
<PAGE>
except as expressly provided in Section 3, operate as a waiver of any right,
power or remedy of Lender, nor constitute a waiver of any provision of the Loan
Agreement, or any other documents, instruments or agreements executed and/or
delivered under or in connection therewith.
7. Governing Law. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns and
shall be governed by and construed in accordance with the laws of the State of
New York.
8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
9. Counterparts. This Amendment may be executed by the parties hereto in
one or more counterparts, each of which shall be deemed an original and all of
which taken together shall be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and
year first written above.
BATTERIES BATTERIES, INC.
TAUBER ELECTRONICS, INC.
ADVANCED FOX ANTENNA, INC.
SPECIFIC ENERGY CORPORATION
BATTERY NETWORK, INC.
W.S. BATTERY & SALES COMPANY, INC.
BATTERY ACQUISITION CORP.
CLIFFCO OF TAMPA BAY, INC.
By:_______________________________
Name: _____________________________
The ________ of each of the foregoing
Corporations
IBJ SCHRODER BUSINESS CREDIT
CORPORATION, as Agent and as Lender
By:_______________________________
Name:_____________________________
Title:______________________________
4
