<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 September 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 November 14, 1998, there were 4,743,500 shares of
common stock outstanding.
<PAGE>
BATTERIES BATTERIES, INC.
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Consolidated Financial Statements
Consolidated Balance sheets...................................... 3
September 30, 1998 (unaudited) and December 31, 1997
Consolidated Statements of Operations............................ 4
For the three and nine months ended September 30, 1998
(unaudited) and 1997 (unaudited)
Consolidated Statements of Cash Flows ........................... 5
For the nine months ended September 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>
<PAGE>
BATTERIES BATTERIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and Cash Equivalents $ 540 $ 867
Accounts receivable 7,638 6,775
Inventories 11,932 9,326
Prepaid expenses and other current assets 581 1,013
Current deferred income taxes 219 215
--- ---
Total current assets 20,910 18,196
------ ------
PROPERTY AND EQUIPMENT - Net 1,328 1,279
EXCESS OF COST OVER NET ASSETS ACQUIRED 5,905 5,150
OTHER ASSETS 395 278
--- ---
TOTAL $ 28,538 $ 24,903
------ ------
LIABILITIES AND STOCKHOLDERS' EOUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of term loan facility $ 600 $ 600
Accounts payable 3,108 3,479
Accrued expenses 2,350 1,438
Obligations under capital leases 8 0
------ -----
Total current liabilities $ 6,066 5,517
------ -----
LONG-TERM BANK DEBT - NET 10,742 9,100
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, respectively, issued and outstanding 5 5
Additional paid-in capital 10,716 10,716
Retained earnings (Deficit) 1,009 (435)
------ ------
Total stockholders' equity 11,730 10,286
------ ------
TOTAL $ 28,538 $ 24,903
------ ------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
DRAFT
BATTERIES BATTERIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
NET SALES $14,109 $13,126 $39,682 $38,839
COST OF SALES 9,773 8,869 27,820 27,343
----- ----- ------ ------
Gross Profit 4,336 4,257 11,862 11,496
----- ----- ------ ------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,779 3,902 10,214 12,240
RESTRUCTURING AND OTHER CHARGES 0 0 0 640
----- ----- ------ ------
INCOME (LOSS) FROM OPERATIONS 557 355 1,648 (1,384)
INTEREST EXPENSE, NET 211 213 524 608
----- ----- ------ ------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES 346 142 1,124 (1,992)
PROVISION (BENEFIT) FOR INCOME TAXES 200 102 545 (548)
----- ----- ------ -------
NET INCOME (LOSS) 146 40 579 (1,444)
PREFERRED STOCK DIVIDEND
REQUIREMENTS 0 0 15 0
----- ----- ----- ------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ 146 $ 40 $ 564 $ (1,444)
----- ----- ----- -------
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED $ 0.03 $ 0.01 $ 0.12 (0.30)
----- ----- ----- -------
WEIGHTED AVERAGE NUMBER OF COMMON &
COMMON EQUIVALENT SHARES OUTSTANDING 4,743,500 4,743,500 4,700,000 4,743,500
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
BATTERIES BATTERIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In 000's)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
------------------ -------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $579 $(1,444)
Adjustments to reconcile net income (Loss) to net cash
provided by operating activities:
Depreciation & amortization expense 452 594
Deferred income tax (8) (8)
Non cash restructuring charge 0 575
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable (1,091) 863
Inventories (1,157) 2,221
Prepaid expenses and other assets (4) (542)
Accounts payable and accrued expenses 338 (541)
--- ---
Net cash provided (used) by operating activities (891) 1,718
--- -----
INVESTING ACTIVITIES:
Proceeds from sale of Specific Energy Assets 0 715
Purchase of property and equipment, net of Disposition (387) (464)
Acquisition of Cliffco of Tampa Bay, net of cash acquired (942) 0
Acquisition of Battery Network, net of cash acquired (10,656) 0
------- ---
Net cash (provided) in investing activities (11,985) 251
------- ---
FINANCING ACTIVITIES:
Borrowings under Term Loan Facility 3,000 0
Payments under Term Loan Facility (400) (450)
Net borrowings (payments) under Revolving Credit Facility 7,865 (1,192)
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 (178) 0
Payments on debt and capital lease obligations (1,191) 0
------ ------
Net cash provided by (used) financing activities 11,062 (1,642)
------ ------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (1,814) 327
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,609 540
----- ----
CASH AND CASH EQUIVALENTS, END OF PERIOD $795 $867
---- ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $468 $662
==== ====
Income taxes $340 $420
==== ====
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
BATTERIES BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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, which effective September 14, 1998, curtailed
its distribution of specialty battery products through four retail stores
located in the greater Phoenix, Arizona metropolitan area as a result of a
sale of its retail assets on that date.
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
<PAGE>
The accompanying consolidated financial statements as of September 30, 1998 and
the three and nine months ended September 30, 1998 and September 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 (on
November 16, 1998, the Company agreed to apply $360,000 of proceeds from
a sale of its Specific Energy assets on September 14, 1998 against the
"Term Loan" in the inverse order of its maturities) 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 September 30, 1998, the principal
amounts outstanding of Term Loans was $2,000,000 and the Revolver Loans was
$7,700,000.
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 14, 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. On
November 16, 1998, the Company entered into an agreement whereby the Bank
agreed to waive risk-compliance with those covenants. Additionally, the
agreement provides that the proceeds from the sale of Specific Energy in the
amount of approximately $715,000 would be applied as follows:
o $360,000 to principal installments of the Term Loan in the inverse order of
maturities.
o $355,000 to Revolving Advances under the Revolving Credit Facility.
7
<PAGE>
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 quarter ended June 30, 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. 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. On September 14, 1998, the Company sold
the retail assets in a cash purchase of $715,000, which was the approximate
carrying value of the net assets sold and applicable transaction costs.
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 Nine Months Ended
------------------ ------------------
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 69.3 67.6 70.1 70.4
---- ---- ---- ----
Gross Profit 30.7 32.4 29.9 29.6
---- ---- ---- ----
Selling, General &
Administrative Expenses 26.8 29.7 25.7 31.5
Restructuring and Other Charges 1.6
---- ---- ---- ----
Operating Income (Loss) 3.9 2.7 4.2 (3.6)
---- ---- ---- ----
Interest expense, net 1.5 1.6 1.3 1.5
---- ---- ---- ----
Income (Loss) before provision (benefit)
for income taxes: 2.4 1.1 2.9 (5.1)
---- ---- ---- ----
Income tax provision (benefit) 1.4 .8 1.4 (1.4)
---- ---- ---- ----
Net Income (Loss) 1.0% .3% 1.5% (3.7)%
---- ---- ---- ----
</TABLE>
Three Months ended September 30, 1998 ("1998") Compared to Three Months ended
September 30, 1997 ("1997").
Net sales decreased 7.5% from $14.1 million in 1997 to $13.1 million in 1998.
The overall decline of 7.5% is a combination of 33% decline in Battery Network
sales and 41% drop in Specific Energy (retail assets were sold on September 14,
1998) partially offset by a 30% increase in Tauber sales and a 9% increase in
Cellular products. The Tauber sales were bolstered by large increases in its
OEM sales and contributing to the cellular product increase was a 7% increase
in Advanced Fox and a 15% increase in Cliffco's sales.
9
<PAGE>
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.
Gross profit decreased by $81,000, but as a percentage of sales increased from
30.7% in 1997 to 32.4% in 1998. Declines of over $600,000 in Battery Network,
and $150,000 at Specific Energy (division sold in September 14, 1998) were
mostly offset by a substantial increase in cellular products gross margin. Both
Advanced Fox and Cliffco substantially improved their gross margin % due in the
most part to the consolidation of purchasing efforts.
Selling, general and administrative (SG&A) expenses increased by $.1 million
from $3.8 million in 1997 to $3.9 million in 1998, and as a % of sales from
26.8% to 29.7%. The expense increase was due to an increase in marketing,
selling and distribution expenses incurred by Advanced Fox and Tauber which
were mostly offset by reductions in general and administrative costs of
Specific Energy, and Battery Network. The increase as a percentage of sales is
primarily attributable to the sales decline at Battery Network which did not
have corresponding drops in SG&A expenses.
Interest expense increased slightly from $211,000 in 1997 to $213,000 in 1998.
The company's effective income tax rate increased from 57.8% to 71.8% during
1998 due to the non-deductibility of the loss on the sale of specific Energy
assets, as well as an increase in state income taxes resulting from a greater
proportion of taxable income in higher rate states.
Nine Months ended September 30, 1998 ("1998") Compared to Nine Months ended
September 30, 1997 ("1997").
Net sales decreased by .9 million from $39.7 million in 1997 to $38.8 million
in 1998. The decrease of $.9 million was primarily the result of decreases in
Battery Network sales of approximately $4.7 million and Specic Energy of $.5
million partially offset by 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 $.4
million.
Gross profit decreased from $11.9 million in 1997 to $11.5 million in 1998 and
as a percentage of sales decreased from 29.9% to 29.6%. The decrease was
primarily the result of a decline in gross profit of $2.2 million in Battery
Network and $.3 million in Specific Energy for the nine months, offset by
increases in Advanced Fox of $1.0 million and Tauber of $.3 million, the
acquisition of CTB in May 5, 1997 that contributed approximately $600,000 in
gross profit for the January 1, to May 12, 1998 period with an additional
increase of $.2 million in the September, 1998 quarter. 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 decision to discontinue and sell off certain products and product
lines as part of the company's Inventory Reduction program.
Selling, General and Administrative (SG&A) expenses increased by $2.0 million
from $10.2 million in 1997 to $12.2 million in 1998, as a % of sales increased
from 25.7% to 31.5%. The increase was attributable to (i) the acquisition of
Cliffco in May 1997, (approximately $750,000)
10
<PAGE>
(ii) a small 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 large 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.
During the quarter ended June 30, 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. In accordance with FASE 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. On September 14, 1998, the Company sold
the retail assets in a cash purchase of $715,000, which was the approximate
carrying value of the net assets sold and applicable transaction costs.
In addition, the company incurrred certain chargers 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 $524,000 for the first nine months of 1997 to
$608,000 for the first nine months of 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 offset in a small part by the sale
of Specific Energy retail assets for $715,000 on September 14, 1998.
The Company's effective income tax rate increased from 48.5% to 73.5% during
1998 primarily due to the non-deductibility of the loss on the sale of specific
Energy assets, as well as an increase in state income taxes resulting from a
greater proportion of taxable income in higher rate states.
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 the Battery Network and CTB acquisitions and in 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 Company sold the retail assets of "Specific Energy" on September 14, 1998
for approximately $715,000 in cash.
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 September 30, 1998 was $12.7 million. For
the nine months ended September 30, 1998, net cash provided by operating
activities was $1.6 million. Net cash provided from operations was comprised of
a net loss of ($1.4 million) offset by depreciation and amortization of $594
thousand, non-cash restructuring charges of $575 thousand and a net decrease in
assets and liabilities of $2.1 million. The net decrease in assets and
liabilities was comprised of decreased accounts receivable and inventory
balances, and accounts payable and increased 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 nine
months ended September 30, 1997, net cash used by operating activities was $891
thousand. Net cash used in operations was comprised of net income of $579
thousand and depreciation and amortization of $452 thousand, offset by a net
increase in assets and liabilities of $1.9 million. The net increase in assets
and liabilities in 1997 was comprised of increased accounts receivable,
inventory and prepaid expenses and decreased accounts payable.
Net cash provided by investing activities for the nine months ended September
30, 1998 was $251 thousand consisting of proceeds from the sale of Specific
Energy's retail assets of $715,000, less $464,000, for the purchase of property
and equipment. Net cash used in investing activities for the nine months ended
September 30, 1997 was $12.0 million consisting of $10.7 million for the
acquisition of Battery Network in January, 1997, $.9 million for the
acquisition of Cliffco in May, 1997 and $387 thousand for the purchase of
property and equipment.
12
<PAGE>
Cash used by financing activities for the nine months ended September 30, 1998
was $1.6 million comprised of $1.2 million net payments under the Revolving
Credit Facility and $450 thousand payments under the Term Loan Facility. Cash
provided by financing activities for the nine months ended September 30, 1997
was $11.1 million comprised primarily of $3.0 million borrowings under the Term
Loan Facility, $7.9 million borrowings under the Revolving Credit Facility and
$2.7 million from issuance of common stock to stockholders of Battery Network
and Cliffco offset in-part by redemption of preferred stock of $750,000 and
payments in debt payments of $1.2 million. The Company had at September 30,
1998 cash and cash equivalents of approximately $867 thousand.
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 14, 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 to reflect the Company's
current projections. At September 30, 1998, the Company was not in compliance
with two of these covenants. On November 16, 1998, the Company entered into an
agreement whereby the Bank agreed to waive non-compliance with those covenants.
Additionally, the agreement provides that the proceeds from the sale of
Specific Energy in the amount of approximately $715,000 would be applied as
follows:
o $360,000 to principal installments of the Term Loan in the inverse order of
maturities.
o $355,000 to Revolving Advances under the Revolving Credit Facility.
The Company estimates that it will incur capital expenditures of $500,000
during the twelve months ended September 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.
Additionally, the Company estimates that it will incur additional capital
expenditures of approximately $200,000 during the twelve months ended September
30, 1999 principally in office and warehouse improvements and acquisition of
machinery and equipment used in the assembly of battery packs.
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 September 30, 1999.
13
<PAGE>
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 4 - Exhibits and Current Reports
On September 26, 1998, the Company held its 1998 Annual Meeting of
Shareholders. At such meeting the shareholders voted upon two matters: (i) the
election of five directors, and (ii) a proposal to amend the Company's 1995
Stock Option Plan to increase the number of shares reserved for issuance
thereunder by 350,000 shares.
The voting with respect to the election of directors was as follows:
Nominee For Against Abstentions/Broker Non-Votes
- ------- --- ------- ----------------------------
Allan S. Kalish 3,917,912 257,503 0
Robert C. Meehan 3,917,912 257,503 0
Stephen Rade 3,917,912 257,503 0
William Schlessinger Sapp 3,917,912 257,503 0
Robert W. Tauber 3,917,912 257,503 0
The voting with respect to the amendment to the Stock Option Plan was
as follows:
For Against Abstentions/Broker Non-Votes
--- ------- ----------------------------
2,277,437 378,931 50,658
15
<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.
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 nine months ended September 30, 1998 of Batteries Batteries, Inc. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 867
<SECURITIES> 0
<RECEIVABLES> 7,440
<ALLOWANCES> 665
<INVENTORY> 9,326
<CURRENT-ASSETS> 18,196
<PP&E> 1,279
<DEPRECIATION> 549
<TOTAL-ASSETS> 24,903
<CURRENT-LIABILITIES> 5,517
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 10,286
<TOTAL-LIABILITY-AND-EQUITY> 24,903
<SALES> 38,839
<TOTAL-REVENUES> 38,839
<CGS> 27,343
<TOTAL-COSTS> 27,343
<OTHER-EXPENSES> 12,880
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 608
<INCOME-PRETAX> (1,992)
<INCOME-TAX> (548)
<INCOME-CONTINUING> (1,444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,444)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
