As filed with the Securities and Exchange Commission on April 24, 1996
Registration No. 333-1835
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
AMENDMENT NO 1
to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
______________________
MICROENERGY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 3679 36-3262274
(State of Incorporation) (S.I.C) (IRS Employer Identification No.)
ROBERT G. GATZA, Chairman of the Board
MicroENERGY, Inc.
350 Randy Road
Carol Stream, Illinois 60188
(708) 653-5900
(Address and telephone of Registrant's principal executive offices,
principal place of business, and agent for service of process)
______________________
Copies to
ROBERT BRANTL, ESQ. HARTLEY BERNSTEIN, ESQ
Bressler, Amery & Ross Bernstein & Wasserman, LLP
17 State Street 950 Third Avenue
New York, New York 10004 New York, NY 10022
Attorney for Issuer Attorney for Representative
212-425-9300 212-826-0730
212-425-9337 (fax) 212-371-4730 (fax)
______________________
Approximate date of commencement of public sale: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are
to be offered on a delayed or contest basis pursuant to Rule 415
under the Securities Act of 1933, check the following box. [x]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration number of the earlier effective registration
statement for the same offering. [ ].
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering[ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [x]
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further
amendment which specifically states that this registration
statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
Explanatory Note
This registration statement covers the primary offering of
securities by MicroENERGY, Inc. (the "Company") and the offering of other
securities by certain selling securityholders (the "Selling Securityhold-
ers"). The Company is registering, under the primary prospectus (the
"Primary Prospectus"), 494,500 shares of Series A Cumulative Convertible
Preferred Stock and 247,250 Class A Warrants. The Selling Securityholders
are registering, under an alternate prospectus (the "Alternate Prospec-
tus"), 880,000 Class A Warrants. The Alternate Prospectus pages, which
follow the Primary Prospectus, contain certain sections which are to be
combined with all of the sections contained in the Primary Prospectus, with
the following exceptions: the front and back cover pages, and the sections
entitled "the Offering" and "Selling Securityholders." In addition, the
section entitled "Concurrent Sales" from the Alternate Prospectus pages
will be added to the Alternate Prospectus. Furthermore, all references
contained in the Alternate Prospectus to "the offering" or "this offering"
shall refer to the Company's offering under the Primary Prospectus.
______________________<PAGE>
CALCULATIO OF REGISTRATION FEE
Proposed Proposed
Title of each Amount maximum maximum Amount of
class of to be offering aggregate registration
securities being registered price offering fee
registered per share price
Series A Cumula-
tive Convertible
Preferred Shares, 494,500
$5.00 par value (1) Shares $5.00 $2,472,500 $852.59
Class A Preferred
Stock Purchase 247,250
Warrants (1) Warrants $0.10 $24,725 $ 8.53
Common Shares, $.01 989,000
Par value (2) Shares -- -- --
Class A Preferred
Stock Purchase 880,000
Warrants (3) Warrants $0.10 $ 880 $ .30
Series A Preferred 1,127,250
Stock (4) Shares $5.25 $5,918,063 $2,040.71
Common Shares, $.01 2,254,500
Par Value (5) Shares -- -- --
Series A Cumula-
tive Convertible
Preferred Shares, 43,000
$5.00 par value Shares
Class A Preferred
Stock Purchase 21,500
Warrants (6) Warrants $12.24 $ 263,160 $ 90.74
Series A Preferred 21,500
Stock (7) Shares $ 5.25 $112.875 $ 38.92
Common Shares $.01 129,000
Par value (8) Shares -- -- --
Common Shares (9) 84,333 -- -- --
Shares
Total (10)...........................................$ 3,031.79
(1) Includes 64,500 shares of Series A Preferred Stock and
32,500 Class A Warrants subject to the Underwriter's
Overallotment Option.
(2) Represents maximum number of Common Shares into which
the Preferred Shares are convertible.
(3) Represents Class A Warrants to be offered by the
Selling Securityholders.
(4) Represents 247,250 Preferred Shares reserved for
issuance upon exercise of Class A Warrants sold by the
Company and 880,000 Preferred Shares reserved for
exercise of Class A Warrants sold by the Selling
Securityholders.
(5) Represents maximum number of Common Shares into which
the Preferred Shares issued on exercise of Class A
Warrants are convertible.
(6) Represents Securities issuable upon exercise of
Underwriters' Warrants.
(7) Represents Preferred Shares reserved for exercise of
Class A Warrants included in Underwriter's Warrants.
(8) Represents maximum number of Common Shares into which
the Preferred Shares included in the Underwriter's
Warrants and the Preferred Shares issued on exercise of
Class A Warrants included in the Underwriter's Warrants
are convertible.
(9) Represents the Registrant's good faith estimate of the number of
Common Shares which may be issued as dividends on the Preferred
Shares.
(10) Plus an undetermined number of Common Shares which may be issued in
the event that the anti-dilution provisions of the Warrants become
effective.
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Item 501(b)
Form S-1 Item Number and Heading Prospectus Heading
1. Forepart of the Registration State- Front Cover of Prospec-
ment and Outside Front Cover Page of tus
Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside
Pages of Prospectus Back Cover of Prospectus
3. Summary Information, Risk Factors, Prospectus Summary, Risk
Ratio of Earnings to Fixed Charges Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Underwriting
6. Dilution Not Applicable
7. Selling Security Holders Selling Securityholders
8. Plan of Distribution Underwriting
9. Description of the Securities to be Description of the
Registered Company's Securities
10. Interest of Named Experts and Counsel Legal Matters; Experts
11(a) Description of Business Business of the Company
11(b) Description of Property Business of the Company
11(c) Legal Proceedings Not Applicable
11(d) Market Price, Dividends Price Range of Common
Stock, Dividends
11(e) Financial Statements Financial Statements
11(f) Selected Financial Data Selected Financial Infor-
mation
11(g) Supplementary Financial Information Not Applicable
11(h) Management's Discussion Management's Discussion
11(i) Changes in and Disagreements With
Accountants Not Applicable
11(j) Directors and Executive Officers Management
11(k) Executive Compensation Management
11(l) Security Ownership Principal Shareholders
11(m) Certain Relationships and Related
Transactions Certain Transactions
12 Disclosure of Commission Position
on Indemnification Underwriting
<PAGE>
MICROENERGY, INC.
430,000 Shares of Series A Cumulative Convertible Preferred Stock
and 215,000 Redeemable Class A Warrants for Preferred Stock
The securities offered hereby consist of 430,000 shares of Series A
Cumulative Convertible Preferred Stock, $5.00 par value per share ("Preferred
Stock"), of MicroENERGY, Inc. (the "Company"), and 215,000 Redeemable Class
A Warrants for Series A Preferred Stock ("Class A Warrant"). The Preferred
Stock and Class A Warrants (collectively, the "Securities") may be purchased
separately and will be separately transferable immediately upon issuance.
The Preferred Stock is convertible, commencing 12 months after the date of
this Prospectus, and at any time thereafter that the Preferred Stock is
outstanding, into the Company's Common Stock at a rate of no less than 1
share and no more than 2 shares for every share of Preferred Stock, the
actual conversion ratio to be determined on the first anniversary of the date
hereof based upon the market price of the Common Stock at that time. The
Preferred Stock may be converted, at the Company's option, into Common Stock
at a rate of 1 share of Common Stock for each share of Preferred Stock either
(1) on ____________, 1999 or (2) during the 24 months following the first
anniversary of the date of this Prospectus if the closing bid price of the
Common Stock exceeds $7.00 for five consecutive trading days during that
period. In the event of the liquidation of the Company, holders of the
Preferred Stock will be entitled to a liquidation preference of $5.00 per
share, plus any accrued but unpaid dividends. Holders of the Preferred Stock
will be entitled to exercise one vote per share at all meetings of the
Company's shareholders. See "DESCRIPTION OF SECURITIES."
Each Class A Warrant entitles the holder to purchase one share of the
Company's Series A Preferred Stock at an exercise price of $5.25, subject to
adjustment, from , 1997 through ____________, 2000. In the
event that the Company has exercised its option to convert the Series A
Preferred Stock into Common Stock, each Class A Warrant will thereafter
entitle the holder to purchase one share of Common Stock. At any time that
the Class A Warrants are exercisable, the Warrants are also subject to
redemption by the Company on not less than 30 days notice at $.01 per
Warrant, provided the closing bid price of the Common Stock exceeds $7.00 per
share for five consecutive trading days ending within fifteen days prior to
the date on which notice is sent. See "DESCRIPTION OF SECURITIES".
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. AN INVESTMENT IN THESE SECURITIES SHOULD BE CONSIDERED ONLY BY
PERSONS CAPABLE OF SUSTAINING THE LOSS OF THEIR ENTIRE INVESTMENT. SEE:
"RISK FACTORS."
The registration statement of which this prospectus forms a part also
covers the offering of 880,000 Class A Warrants owned by six security-holders
(the "Selling Securityholders"). These Class A Warrants are identical to the
Class A Warrants being offered by the Company. The Securities held by the
Selling Securityholders may be sold concurrent with or after this Offering.
Sales of such securities or even the potential of such sales at any time may
have an adverse effect on the market prices of the securities offered hereby.
See "SELLING SECURITYHOLDERS".
Dividends on the Preferred Stock are cumulative from the date of issue
and are payable semi-annually at a rate of 8% per annum. At the Company's
option, the Company may pay each dividend, in whole or in part, either in
cash or in shares of the Company's Common Stock valued at the average closing
bid price for the ten days preceding the date for payment of the dividend.
The Company's Common Stock is currently quoted on the NASDAQ Bulletin
Board. There is currently no market for either the Preferred Shares or the
Class A Warrants. On May __, 1996, the closing bid price of the Common Stock
as quoted on the NASDAQ Bulletin Board was $___ per share. The Company has
applied to have the Preferred Stock, the Common Stock, and the Class A
Warrants listed on the NASDAQ SmallCap Market, and expects that listing to
occur on the effective date of this Offering.
This Prospectus also relates to the shares of Preferred Stock issuable
upon exercise of the Class A Warrants, the shares of Common Stock issuable
upon conversion of the Preferred Stock, and shares of Common Stock which may
be issued as dividends on the Preferred Stock. See "DESCRIPTION OF SECURI-
TIES."
_________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
Per Share.............$ 5.00 $ .50 $ 4.50
Per Class A Warrant...$ .10 $ .01 $ .09
Total (3).............$2,171,500 $217,150 $1,954,350
(1) Does not include additional underwriting compensation to be paid by the
Company to the Representative in the form of (a) non-redeemable warrants
to purchase 43,000 shares of Series A Preferred Stock at $6.00 per share
and 21,500 Class A Warrants at $.12 per Warrant, exercisable over a
period of four years commencing one year from the date of this
Prospectus (the "Representative's Purchase Warrants"); (b) a non-
accountable expense allowance (the "Non-Accountable Expense Allowance")
equal to three percent of the aggregate initial public offering price
of the Securities, namely $65,145 (or $74,917 assuming exercise in full
of the Over-Allotment Option, as defined below), $25,000 of which has
been advanced to the Representative, and (c) consulting fees of $48,000
payable to the Representative in full at the closing of the public
offering of the Securities. The Company and the Representative have
agreed to indemnify one another against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended. See
"UNDERWRITING".
(2) Before deducting expenses of this offering payable by the Company
estimated to be $233,000, including the Representative's non-accountable
expense allowance of $65,145 and the $48,000 financial consulting fee
referred to above. After deducting such expenses, the net proceeds to
the Company will be approximately $1,721,350. See "USE OF PROCEEDS".
(3) The Company has granted the Representative an option to purchase up to
an additional 64,500 shares of Preferred Stock and 32,250 Class A
Warrants at any time on or before 45 days from the date hereof solely
for the purpose of covering over-allotments (the "Over-Allotment
Option"). If the Over-Allotment Option is exercised in full, the total
price to the public will be $2,497,225, the total discounts and
commissions will be $249,723, and the estimated expenses of the Offering
will be $242,772. The net proceeds to the Company after deducting
expenses of the offering would then be $2,004,730. See: "USE OF
PROCEEDS".
I.A. RABINOWITZ & CO.
The date of this Prospectus is May__, 1996
<PAGE>
SHAREHOLDERS' REPORTS
The Company has not furnished its Shareholders with annual, quarterly
or other reports since 1991. The Company may in the future furnish holders
of its Common Stock and Preferred Stock with annual reports containing
audited financial statements examined and reported upon, with an opinion
expressed by the Company's independent certified public accountants, but no
determination to do so has been made.
______________________
The Securities are being offered subject to prior sale, when, as and if
delivered to and accepted by I.A. Rabinowitz & Co., and subject to certain
other conditions. The Representative reserves the right to withdraw, cancel
or modify such offer without notice and to reject orders in whole or in part.
It is expected that delivery of the Securities will be made on or about
________________, 1996.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS.
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURI-
TIES OTHER THAN THE SECURITIES TO WHICH THIS PROSPECTUS RELATES OR AN OFFER
TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
STOCK, COMMON STOCK OR THE WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT
WHICH OTHERWISE MIGHT PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . 1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . 6
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . 15
PRICE RANGE OF COMMON STOCK. . . . . . . . . . . . . . . 17
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . 17
DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . 20
SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . . 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 23
CERTAIN FEDERAL INCOME TAX EFFECTS
UPON THE COMPANY. . . . . . . . . . . . . . . . . . 27
BUSINESS OF THE COMPANY. . . . . . . . . . . . . . . . . 28
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . 34
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . 39
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . 41
DESCRIPTION OF THE COMPANY'S SECURITIES. . . . . . . . . 43
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO INVESTORS. . . . . . . . . . . . . . . . . . . . 49
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . 56
SELLING SECURITYHOLDERS. . . . . . . . . . . . . . . . . 59
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . 61
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . 61
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . 61
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . 63
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more
detailed information, financial statements and notes thereto
appearing elsewhere in this Prospectus. All references herein to
a number of shares of Common Stock have been adjusted to reflect
the 1-for-360 reverse stock split of the Company's Common Stock on
May , 1996, the date of this Prospectus.
The Company
MicroENERGY, Inc. ("MicroENERGY" or the "Company") has
been engaged since 1984 in the business of designing and manufac-
turing high-frequency power supplies and DC-to-DC converters for
original equipment manufacturers ("OEMs") who are engaged in the
telecommunications, computer, and instrumentation segments of the
electronics industry. Each of the Company's products is custom
designed to meet the specific needs of a customer within a power
output range of 25 watts to 2500 watts.
During the Company's eleven years of operations, the
Company has acquired a reputation in the marketplace for making
timely deliveries of high-quality power supplies which incorporate
state-of-the-art engineering. In recent years, however, the
Company's growth has been stagnant, as the Company's ability to
attract new customers has been hampered by the Company's high debt-to-assets
ratio, which has caused some potential customers to
question the Company's financial stability. Since a typical
customer order anticipates deliveries over an extended period of
time - often years - to meet the customer's manufacturing schedule,
OEM customers avoid any supplier whose ability to deliver over the
long term is in doubt. Thus, despite eleven years of timely
deliveries, customer doubts about MicroENERGY's financial stability
continue to hinder sales growth.
During the second and third quarters of fiscal 1996, two
events occurred which indicate that the Company may now enter a
period of significant growth. First, the Company received pre-production
orders for new product designs from eight OEM customers.
While none of these orders create binding obligations on the
customers, the Company expects to receive production orders from
each. If all eight customers give the Company the production
orders they have quoted, the eight new products will represent
$10.2 Million in annual sales beginning in July, 1996. See
"BUSINESS OF THE COMPANY - Marketing."
The second favorable recent event was the agreement of
AT&T Global Information Systems, which was the holder of $2.33
Million of the Company's long-term debt, to accept an immediate
payment of $1.33 Million in satisfaction of the debt. The Company
was able to effectuate that debt compromise by raising approximate-
ly $1.0 Million in debt financing and $330,000 in equity financing
from the officers of the Company and the Selling Securityholders.
In exchange for payment of these sums to AT&T, AT&T forgave the
remaining $1 Million of the debt. See "Capitalization - Debt
Compromise." The effect of the debt compromise and related
financing was to reduce the Company's total debt by $1.34 Million,
reduce the Company's debt-to-assets ratio from .88-to-1 as of
December 31, 1995 to .68-to-1, and increase the Company's net worth
by $1.3 Million, resulting in a positive shareholders equity for
the first time in several years.
The Company intends to use the net proceeds of this
offering to finance the expansion of operations necessitated by the
expected new orders and to repay some of its debt. See "USE OF
PROCEEDS." Management believes that the financial improvements
brought about by this offering and the anticipated sales it will
finance will enable the Company to compete more effectively and
facilitate a period of growth.
The Company's executive offices are located at 350 Randy
Road, Carol Stream, Illinois. Telephone: 708-653-5900.
Capitalization Currently Outstanding:
Common Stock: 415,143 shares
Series A Preferred Stock:
350,000 shares
The Offering by the Company
Securities Offered 430,000 shares of Series A
Preferred Stock, $5.00 par
value and 215,000 Class A
Warrants. The Securities may
be purchased separately and
will be separately
transferable immediately upon
issuance. See "DESCRIPTION OF
SECURITIES."
Representative's Compensation I.A. Rabinowitz & Co. (The
"Representative") will receive
as compensation for its ser-
vices in this offering a 10%
discount on the purchase price
of the Securities, a 3% non-accountable
expense allowance and an option to purchase
Securities equal to ten per-
cent of the Securities sold in
this offering. As part of the
underwriting arrangements, the
Company will enter into an
agreement retaining the Repre-
sentative as a financial con-
sultant to the Company for a
two-year period commencing as
of the close of the sale of
the securities offered hereby
at an annual fee of $24,000,
for a total of $48,000 payable
in full at the closing of the
Offering, and will pay an in-
vestment banking fee with re-
spect to any transaction in-
troduced and consummated, and
a 4% warrant solicitation fee.
See: "UNDERWRITING."
Preferred Stock
Payment of Dividends............. Dividends are cumulative from
the date of issue of shares of
Preferred Stock and are pay-
able semi-annually at a rate
of 8% per annum. The Company
may, at its sole discretion,
pay each dividend either in
cash or in shares of Common
Stock valued at the average
closing bid price for the ten
days preceding the record date
for the dividend or in a com-
bination of cash and Common
Stock. See "RISK FACTORS -
Restrictions on Payment of
Dividends."
Tax Consequences of Dividends.... To the extent that Common
Stock is distributed as divi-
dends on the Preferred Stock,
the amount distributed for
federal income tax purposes
(and consequently, subject to
certain exceptions, the amount
of dividend income) to the
holder of the Preferred Stock
would equal the fair market
value of such Common Stock on
the date of distribution and,
accordingly, may be greater or
less than the value of the
dividend as calculated in the
preceding section. See "RISK
FACTORS - Income Tax Consider-
ations - Distribution of Com-
mon Stock as Dividends" and
"CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS TO INVESTORS."
Redemption....................... The Preferred Stock is not
redeemable.
Conversion....................... The Preferred Stock is con-
vertible at the option of the
holder, commencing on the
first anniversary of the date
of this Prospectus. The con-
version rate will be based
upon the average closing bid
price for the Common Stock for
the twenty trading days pre-
ceding said anniversary date.
If that average exceeds $5.50,
each share of Preferred Stock
will be convertible into one
share of Common Stock. If the
average bid price is $4.51 to
$5.50, each Preferred Share
will be convertible into 1.25
Common Shares. If the average
bid price is $3.50 to $4.50,
each Preferred Share will be
convertible into 1 Common
Shares. If the average bid
price is less than $3.50, each
Preferred Share will be con-
vertible into 2 Common Shares.
Notwithstanding the foregoing,
each Preferred Share may be
converted at the Company's
option into one share of Com-
mon Stock either (1) on or
after _____________, 1999 or
(2) during the 24 months fol-
lowing the first anniversary
of the date of this Prospectus
if the closing price of the
Common Stock exceeds $7.00 for
five consecutive trading days
during that period.
Liquidation Preference........... Upon any liquidation, before
distribution is made to the
holders of Common Stock, hold-
ers of the Preferred Stock
will be entitled to receive
$5.00 per share, plus accrued
and unpaid dividends to the
date of distribution.
Voting........................... The holders of Preferred Stock
will be entitled to one vote
per share at any meeting of
the Company's shareholders.
Warrants
Terms of Class A Warrants Each Class A Warrant entitles
the holder to purchase one
share of the Company's Series
A Preferred Stock at a price
of $5.25, subject to adjust-
ment, during the three year
period beginning one year
after the date of this Pro-
spectus. After _________,
1997, the Class A Warrants are
subject to redemption by the
Company at any time during the
exercise period, on not less
than 30 days' notice at $.01
per Warrant provided the aver-
age closing price of the Com-
mon Stock exceeds $7.00 per
share for 5 consecutive trad-
ing days ending within 15 days
prior to the notice.
Proposed NASDAQ SmallCap
Market Symbols: Preferred Stock - MCREP
Common Stock - MCRE
Class A Warrants - MCREW
Risk Factors The securities are subject to
a high degree of risk. See:
"RISK FACTORS."
<PAGE>
Selected Financial Information
Six Months Ended
December 30
1995 1994
Income Data:
Revenues................ $6,721,421 $7,668,227
Operating Income........ 262,525 287,295
Net Income.............. 102,270 120,946
Net Income Per Share.... $.21 $.38
Years Ended
June 30
1995 1994 1993
Income Data:
Revenues............ $14,588,844 $12,771,067 $15,886,279
Operating Income.... 581,685 426,419 433,280
Net Income.......... 249,894 204,845 40,806
Net Income Per Share $.79 $.65 $.14
Balance Sheet Data:
As Adjusted to Reflect:
At Dec. 31, 1995 Debt Compromise(1) Public Offering(2)
Working Capital......... $ 393,657 $ 393,657 $1,628,007
Total Assets...............6,612,062 6,612,062 7,846,412
Long-Term Debt, Net........3,243,819 1,900,819 1,413,819
Stockholders
Equity/(Deficit).......... (857,711) 480,289 2,651,789
______________________________
(1) Reflects the effect of $1 Million reduction in debt to
AT&T and related financing transactions from January
through March of 1996. See "CAPITALIZATION - Debt
Compromise."
(2) Assumes no exercise of the Underwriters' Over-allotment
Option, and the use of $487,000 of net proceeds to
reduce long-term debt. See "USE OF PROCEEDS."
RISK FACTORS
In making comparisons with other investments or in
considering the success of other investments, one should bear in
mind that the success of any investment depends upon many factors
including opportunity, general economic conditions, experience
and competence of management. There is no representation that
the same positive factors are present in this Company which have
been present in like ventures that have been successful.
Any person who is considering the purchase of the
Securities offered herein should carefully consider the adverse
factors described below. Any one or more of these factors could
have a negative effect on the Company of such impact as to cause
the value of the Company's securities to be greatly diminished.
I. RISKS RELATING TO THE COMPANY
1. Poor Financial Condition; Negative Net Worth Due to
Losses Prior to 1993. At December 31, 1995 the Company had a
negative net worth of $857,711. The debt compromise that the
Company contracted for in late January, 1996 has improved the net
worth to approximately $400,000, but in the event of a
liquidation all of that net worth would be allocated to the Pre-
ferred Stock that was issued in connection with the debt compro-
mise.
Although the balance sheet of the Company at December
31, 1995 shows working capital of $393,657, that figure is
primarily the result of offsetting $4,225,954 in current liabili-
ties against $3,033,235 in inventory. Most of that inventory
consists of raw materials, much of which could not be liquidated
immediately, but will be used in the normal course of production
and shipment. The Company's cash position, therefore, is not
good, and the Company must depend on short-term borrowings to
finance its operations. This borrowing then exacerbates the
Company's poor debt-to-asset ratio, which gives the Company an
appearance of instability, which has had a serious negative
effect on the Company's ability to market its products. See
"BUSINESS OF THE COMPANY - Marketing."
The Company anticipates that the proceeds of this
public offering will be adequate to finance the Company until
cash flow from sales is sufficient for the operation of the
Company. If the Company is mistaken and a shortfall in cash flow
occurs, it will be difficult and perhaps impossible for the
Company to acquire additional financing, without which the
Company would most likely be forced to liquidate.
(2) Risks Attendant to Plans for Growth. The Company
intends to utilize a significant portion of the net proceeds of
this offering to make capital improvements and other investments
necessary to expand the Company's sales volume. Like any busi-
ness enterprise operating in a specialized and competitive
market, the Company is subject to many business risks which
include, but are not limited to, cancellation of significant
orders, failure of expected orders to be realized, inadequate
capital, competition, and technological advances by the Company's
competitors. Many of the risks inherent in the Company's busi-
ness may be unforeseeable or beyond the control of management.
There can be no assurance that the Company will successfully
implement its business strategies in a timely or effective
manner, or that management of the Company will be able to gener-
ate sufficient sales to produce significant growth or even
maintain the current levels of operations. See: "BUSINESS OF
THE COMPANY".
(3) Lack of Firm Orders. The Company is making this
public offering to acquire funds to enable it to finance an
anticipated expansion of operations based upon orders for newly
designed products received from eight OEM customers. However, as
is customary in the electronics industry, none of these orders
constitutes a firm commitment to take delivery of the Company's
products until the customer authorizes a release for shipment.
Such releases are customarily given to cover shipments for a few
months only. At January 26, 1996, the Company has released
orders from these eight customers totalling only $622,000. There
can be no assurance that the Company will receive any additional
orders. As of January 1, 1996 the Company's backlog (which
consists entirely of released orders) totalled $5,013,000, most
of which was scheduled for delivery in the Company's third fiscal
quarter. The Company's sales volume for the remainder of the
year will depend on follow-on sales of existing designs and sales
of newly designed products now in the pre-production and early
production phases. The Company cannot make any confident predic-
tion as to how much business it will receive from those sources,
and can give no assurance that sales will equal or exceed current
levels.
(4) Competition; Rapid Technological Change. The
electronics industry is populated by many companies, large and
small, with the technical expertise capable of producing rapid
and significant technological advances. These advances often
result in partial or total obsolescence of products within a
relatively short time. The Company sells its products in compe-
tition with many other companies, many of which are substantially
larger than the Company and have far greater financial and other
resources. These larger competitors are capable of committing
substantial resources to research and development of new prod-
ucts, which is crucial in the markets in which the Company will
compete. As technological developments occur in the electronics
industry, the Company's relatively small capital resources may
prevent it from making the investments in research and develop-
ment necessary to remain at the forefront of power supply techno-
logy. Any technological short-fall in the Company's products
would virtually eliminate its ability to compete successfully.
See "BUSINESS OF THE COMPANY - The Industry."
(5) Dependence on Major Customer. The Company has
been selling power supplies to various divisions of AT&T for
several years. The relationship expanded when AT&T acquired NCR
Corporation, as the Company had earlier acquired the NCR power
supply division and was a primary supplier of power supplies to
NCR. The Company's sales to AT&T accounted for approximately 39%
of the Company's total revenues in the first six months of fiscal
1996, 28% of the Company's total revenues in fiscal 1995, 18% of
the Company's total revenues in fiscal 1994, and 40% of the
Company's total revenues in fiscal 1993. Any termination or
significant reduction of this relationship would have a material
adverse effect on the business of the Company. There is no
binding contract between the Company and AT&T other than short-term purchase
orders. See "BUSINESS OF THE COMPANY - Marketing."
(6) Scarcity of Semiconductors. In order to manufac-
ture its power supplies, the Company must maintain a large
inventory of semiconductors. At the present time, the worldwide
supply of certain types of semiconductors does not meet the
worldwide demand for those components. Moreover, the problem
portends to be a factor in the industry for many years to come,
as the creation of a wafer fabrication plant to produce these
components entails an investment of $1 Billion to $2 Billion and
up to two years for completion. MicroENERGY enjoys a good
relationship with its suppliers of semiconductors. Nevertheless,
the Company has no guaranteed source of semiconductors. Any
shortage in the Company's inventory of semiconductors could delay
production of power supplies and adversely affect the Company's
sales and cash flow. See "BUSINESS OF THE COMPANY - Sources of
Components."
(7) Dependence on Key Personnel. The success of the
Company is dependent upon the services of its current management,
particularly Robert G. Gatza, Chairman of the Board and Chief
Executive Officer, and Robert J. Fanella, Chief Financial Offi-
cer. Although the Company has employment agreements with its
officers, those agreements do not assure the Company of the
officers' continued services. The Company has key man insurance
on Mr. Fanella's life, but has not insured Mr. Gatza's life.
There is no assurance that the Company would be able to locate
and retain qualified persons to replace any member of management.
The prolonged unavailability of any current member of senior
management, whether as a result of death, disability or other-
wise, could have an adverse effect upon the business of the
Company. See "MANAGEMENT."
The Company will also need to attract and retain
technologically-qualified personnel with backgrounds in engineer-
ing, production and marketing. There is keen competition for
such highly qualified personnel. The Company believes that its
current professional employees are of high caliber, and intends
to actively seek out additional highly qualified personnel as
needed. But there can be no assurance that the Company will be
successful in recruiting or retaining personnel of the requisite
caliber or in the requisite number to enable the Company to
conduct its business as proposed.
8. Related Party Transactions. At several times
throughout its history the Company has relied upon the financial
resources of its officers (Robert G. Gatza and Robert J. Fanella)
to facilitate certain corporate transactions and, on occasion, to
provide working capital. See "CERTAIN TRANSACTIONS." The
Company believes that all of these transactions have been made on
terms which were equal to or more favorable to the Company than
terms which might have been available in arms-length transac-
tions. The Company may borrow funds in the future from manage-
ment when needed for operations or in connection with major
transactions, or management may be called upon to provide their
personal guarantees of one or more of the Company's obligations.
If it appears to the Board of Directors that the officers should
be compensated for providing such guarantees, the Company will do
so.
9. Lack of Patent Protection. The Company has no
patents, and it is expected that most of its switching power
supply products will not be patented. The Company believes that
patent protection is not available for an entire power supply.
Although the Company has incorporated certain safeguards into the
designs for its power supplies, which will make them difficult to
copy, the designs can never be absolutely safeguarded.
10. No Dividends. The Company has paid no dividends
to its shareholders since its inception and does not plan to pay
dividends in the foreseeable future. Any earnings which it may
realize will be retained to finance the growth of the Company.
II. RISKS RELATED TO THE COMPANY'S SECURITIES
11. Effect of Issuance of Shares on Tax Attributes .
At June 30, 1995, the Company had net operating loss ("NOL")
carryforwards of approximately $3,700,000 and investment tax
credit, research and development credit, and minimum tax credit
("MTC") carryforwards totalling approximately $233,000, which,
absent an "ownership change" as described below, would generally
be available to offset future taxable income and tax liability of
the Company. The Company believes that it will experience an
"ownership change" within the meaning of Section 382 of the
Internal Revenue Code of 1986, as amended, no later than the
closing of this offering, and that, accordingly, a limitation
will be imposed under Section 382 of the Code on the utilization
of NOL and tax credit carryforwards. As a result, the Company
does not expect to be able to utilize its full NOL and tax credit
carryforwards to offset future taxable income and tax liability.
See "CERTAIN FEDERAL INCOME TAX EFFECTS UPON THE COMPANY". This
limitation would have a materially adverse effect on the Compan-
y's net income, if the Company were to generate taxable income or
tax liability materially in excess of the limitation.
12. Income Tax Considerations - Distribution of Common
Stock as Dividends. The receipt of a distribution of Common
Stock as a dividend with respect to Preferred Stock will be
taxable to the extent of the fair market value of the Common
Stock distributed on the date of the distribution, subject to
certain exceptions. Accordingly, payment of a dividend in Common
Stock may give rise to taxable income to holders of Preferred
Stock, for which taxes may be payable, notwithstanding that no
cash was distributed. See "CERTAIN FEDERAL INCOME TAX CONSIDER-
ATIONS TO INVESTORS."
13. Conflict of Interest in Negotiation of Terms of
Securities. During the past several years, the Company has from
time to time issued securities to Robert G. Gatza and Robert J.
Fanella in exchange for financial considerations they have
provided to the Company. SEE "Certain Transactions." Since
Messrs. Gatza and Fanella represent two of the three members of
the Company's Board of Directors, they had a conflict of interest
in connection with each of those transactions between their
interest in obtaining favorable terms for the Company and their
self-interest in obtaining the highest possible consideration for
the debt they undertook. Recently, in connection with the
financing of the Debt Compromise with AT&T, the Company agreed to
issue 350,000 shares of Series A Preferred Stock to Messrs Gatza
and Fanella in exchange for their payment of $250,000 and
guarantees of $800,000 in debt. SEE "Capitalization." The terms
of the Series A Preferred Stock to be issued to Messrs Gatza and
Fanella will be identical to the terms of the Series A Preferred
Stock issued in this offering. Accordingly, while negotiating
the terms of this offering with the Underwriter, Messrs. Gatza
and Fanella had a conflict of interest between their interest in
negotiating the best possible deal for the Company and their
interest in obtaining the most favorable terms for the Series A
Preferred Stock. Messrs Gatza and Fanella believe that the terms
of the transactions between them and the Company have been equal
to or more favorable to the Company than would have occurred in
arms-length transactions, but they have not made any
investigation to support their belief.
14. Restrictions on Payment of Dividends. As a
Delaware corporation, the Company is permitted to declare and pay
dividends only out of either (a) capital surplus or (b) net
profits for the fiscal year in which the dividend is declared or
the preceding fiscal year. If the Company's net worth does not
exceed its stated capital and it has not realized income in the
year a dividend is due or the preceding year, dividends may not
be paid by the Company on the Preferred Stock. Any dividends not
paid will accrue. No interest will be paid on any accrued but
unpaid dividends. The Company's ability to pay dividends will
depend on the success of its operations. There can be no assur-
ance that the Company will realize sufficient financial success
to be able to pay dividends on the Preferred Stock. See "DIVI-
DENDS" and "DESCRIPTION OF SECURITIES."
15. Mandatory Conversion of Preferred Stock Under
Certain Circumstances. In the event that, during the 24 months
after the first anniversary of the date of this Prospectus, the
market price of the Company's Common Stock exceeds $7.00 for five
consecutive trading days, each share of the Preferred Stock may
be converted, at the Company's option, into 1 share of Common
Stock. Conversion at that same rate will also happen at the
Company's option on the third anniversary of the date of this
Prospectus. Upon such a mandatory conversion, shareholders will
lose all of the benefits of owning the Preferred Stock, other
than the right to receive all dividends declared and unpaid up to
the date of conversion. The Company will have no obligation to
notify shareholders prior to the effective date of a mandatory
conversion, so holders of Preferred Stock may unknowingly be
deprived of the benefits of owning the Preferred Stock. See
"DESCRIPTION OF THE COMPANY'S SECURITIES - Preferred Stock:
Conversion."
16. Dilutive Effect of Stock Dividends on Preferred
Stock. The Preferred Stock will pay dividends on a semi-annual
basis. The Company has the option to pay the entirety of each
dividend in shares of Common Stock and expects that it will
exercise that option at times. The issuance of shares of Common
Stock as dividends will have a dilutive effect on the holders of
the Company's Common Stock and may have an adverse effect on the
market price for the Common Stock and the market price of the
Preferred Stock, which is convertible into Common Stock.
17. Possible Redemption of Warrants. The Company, at
its option, may redeem the Class A Warrants at $.05 per Warrant
if the average bid price of the Common Stock exceeds $7.00 at any
time that the Warrants are exercisable. In the event of the
Company's exercise of such option, holders of Warrants called for
redemption would no longer be able to benefit from any increase
in the value of the underlying Common Stock unless they exercised
their Warrants at the Warrant exercise price. See "DESCRIPTION
OF SECURITIES - Warrants."
18. Current Prospectus and State Blue Sky Registration
Required to Exercise Warrants. Purchasers of the Class A War-
rants will have the right to exercise the Warrants only if a
current prospectus relating to the shares underlying the Warrants
is then in effect and only if such shares are qualified for sale
under applicable state securities laws of the states in which the
various holders of the Warrants reside. There is no assurance
that the Company will be able to keep this Prospectus covering
such shares current. The Warrants may be deprived of any value
if a current prospectus covering the shares issuable upon exer-
cise thereof is not kept effective or if such shares are not
registered in the states in which holders of the Warrants reside.
See "DESCRIPTION OF SECURITIES--Warrants".
19. "Penny Stock" Regulations. The Securities and
Exchange Commission (the "Commission") has adopted regulations
which generally define "penny stock" to be an equity security
that has a market price (as defined) of less than $5.00 per share
or an exercise price of less than $5.00 per share, subject to
certain exceptions. Upon authorization of the Securities offered
hereby for quotation on NASDAQ, the Securities will initially be
exempt from the definition of "penny stock". The Company has
been advised that the Company's Securities will be listed on
NASDAQ upon the Effective Date of this offering. If, however,
the Securities offered hereby are not accepted for initial
listing by NASDAQ or are removed from NASDAQ, the Company's
securities may become subject to rules that impose additional
sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and
institutional accredited investors. For transactions covered by
these rules, the broker-dealer must make a special suitability
determination for the purchase of such securities and have
received the purchaser's written consent to the transaction prior
to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior
to the transaction, of a disclosure schedule prepared by the
Commission relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally,
monthly statements must be sent disclosing recent price information for
the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock"
rules may restrict the ability of broker-dealers to sell the
Company's securities and may affect the ability of purchasers in
the offering to sell the Company's securities in the secondary
market.
20. Thinly Traded, Volatile Market For Common Stock.
The market price of the Company's Common Stock will be a very
significant factor in determining the market price for the
Preferred Stock and the Warrants. For the past several years the
Company's Common Stock has been thinly traded, as no broker-dealer was
actively seeking new customers for the Common Stock.
The market price of the Company's Common Stock, therefore, has
been relatively volatile, however, and is subject to large
changes within a brief period of time. Investors considering the
purchase of the Securities cannot rely upon the market price of
the Common Stock as a stable basis for determining whether to
purchase or sell the Securities. Moreover, should an active
market for the Preferred Stock or the Warrants develop after this
Offering, it is possible that arbitrage activity by market makers
will increase the volatility of the market for the Company's
common stock.
21. Lack of Prior Market for Preferred Stock and War-
rants. Prior to this offering, no public trading market existed
for the Preferred Stock or the Warrants. There can be no assur-
ances that a public trading market for the Securities will
develop or that a public trading market, if developed, will be
sustained. The Company anticipates that upon completion of this
offering, the Preferred Stock, Common Stock and Warrants will be
eligible for inclusion on the National Association of Securities
Dealers Automated Quotation System SmallCap Market ("NASDAQ").
If for any reason, however, such Securities are not listed on
NASDAQ or a public trading market does not develop, purchasers of
the Securities may have difficulty in selling their Securities
should they desire to do so. In any event, due to the price of
the Company's securities, many brokerage firms will not effect
transactions in the Securities and it is unlikely that any bank
or financial institution will accept such Securities as collater-
al, which could have an adverse effect in developing or sustain-
ing any market for the Company's Common Stock or Warrants.
Although it has no legal obligation to do so, the Representative
from time to time may act as market maker and otherwise effect
transactions in the Company's securities. The Representative, if
it participates in the market, may become a dominating influence
in any market that might develop for any of the Company's securi-
ties. However, there is no assurance that the Representative
will continue to be a dominating influence. The prices and
liquidity of the Company's securities may be significantly
affected by the degree, if any, of the Representative's partici-
pation in the market, the Representative's dominating influence
on any market that may develop and the fact that a significant
number of the Securities may be sold to existing customers of the
Representative. The Representative may discontinue such activi-
ties at any time. Further, the market for, and liquidity of, the
Company's securities may be adversely effected by the fact that a
significant amount of the Securities may be sold to customers of
the Representative. Under the rules of the National Association
of Securities Dealers, Inc. ("NASD"), in order to qualify for
initial quotation of securities on NASDAQ, a company, among other
things, must have at least $4,000,000 in total assets, $2,000,000
in total capital and surplus, $1,000,000 in market value of
public float, a minimum bid price of $3.00 per share and at least
two (2) market makers. For continued listing, a company, among
other things, must have $2,000,000 in total assets, $1,000,000 in
total capital and surplus, $1,000,000 in market value of public
float and a minimum bid price of $1.00 per share. If the Company
is unable to satisfy the requirements for quotation on NASDAQ,
trading if any, in the Common Stock and Warrants offered hereby
would be conducted in the over-the-counter market in what are
commonly referred to as the "pink sheets" or on the NASD's
Electronic Bulletin Board. As a result, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as
to the price of, the Securities offered hereby. The above-described
rules may materially adversely affect the liquidity of
the market for the Company's Securities. See: "UNDERWRITING".
22. Restrictions on Marketmaking Activities During
Warrant Solicitation. To the extent that the Representative
solicits the exercise of Class A Warrants, the Representative may
be prohibited pursuant to the requirements of Rule 10b-6 under
the Exchange Act from engaging in marketmaking activities during
such solicitation and for a period of up to nine days preceding
such solicitation. As a result, the Representative may be unable
to continue to provide a market for the Company's securities
during certain periods while the Class A Warrants are exercis-
able. The Representative is not obligated to act as a marketmak-
er. See "UNDERWRITING".
23. Representative's Purchase Warrant. In connection
with this Offering, the Company will sell to the Representative,
for nominal consideration, a warrant to purchase 43,000 shares of
Series A Preferred Stock and 21,500 Class A Warrants (the
"Representative's Warrant"). The Representative's Warrant will
be exercisable commencing one year after the Effective Date and
ending four years after such date, at a price of $6.00 per share
and $.12 per warrant, subject to certain adjustments. The
holders of the Representative's Warrants will have the opportuni-
ty to profit from a rise in the market price of the Company's
securities, without assuming the risk of ownership. The Company
may find it more difficult to raise additional capital if it
should be needed for the business of the Company while the
Representative's Warrant is outstanding. At any time when the
holders thereof might be expected to exercise them, the Company
would probably be able to obtain additional capital on terms more
favorable than those provided by the Representative's Warrant.
See: "UNDERWRITING."
USE OF PROCEEDS
The net proceeds to be received by the Company from the
sale of the Securities being offered hereby, after the deduction
of the underwriting discounts and the expenses of this Offering,
are estimated at $1,721,350 (assuming that the Representative's
Over-Allotment Option is not exercised). The Company will not
receive any proceeds from the sale of Warrants by the Selling
Securityholders.
The Company intends to allocate the net proceeds of
this Offering in the approximate amounts set forth below:
Approximate Percentage
Approximate Amount of Net Proceeds
Capital Improvements (1) $500,000 29.0%
Financing New Sales (1) 400,000 23.2%
Repayment of Debt (2) 300,000 17.4%
Repayment of Bridge Debt (3) 187,000 10.7%
Working Capital (4) 334,350 19.4%
Total $1,721,350
_______________________________
(1) The Company has received pre-production orders for new
designs from 8 OEM customers which, if they turn into pro-
duction orders on the terms proposed by the customers, will
represent up to $10.2 Million in annual sales by the Compa-
ny. In order to satisfy those orders, should they occur,
the Company will have to purchase additional inventories of
raw material parts, pay labor costs and incur the other
upfront expenses of manufacturing the products. Moreover,
although the Company's factories have sufficient capacity to
fill the new orders, the Company will have to invest in
certain new equipment to meet the demands of the increased
sales volume.
(2) The Company will utilize a portion of the proceeds to reduce
its indebtedness on its credit line. The Company pays
interest on its credit line at a rate of prime plus 2.5%.
The line of credit is secured by all of the Company's as-
sets.
(3) Represents repayment of bridge financing consisting of
promissory notes bearing interest at 8% per annum which are
payable on the earlier of (a) April 1, 1997 or (b) the date
on which this Offering closes. See: "CAPITALIZATION -
Bridge Financing." The Company used the proceeds of the
Bridge Financing to help finance its compromise of its
largest outstanding debt. See "CAPITALIZATION."
(4) Working Capital will be used for general corporate purposes,
such as salaries and purchase of inventory.
Any additional proceeds received from the purchase of addi-
tional Securities by the Underwriter to cover overallotments or
from the exercise of the Warrants will be added to working capi-
tal.
The foregoing represents the Company's best estimate of the
allocation of net proceeds of this offering based upon the
Company's current business plan and current economic and industry
conditions. The estimate is subject to reapportionment among the
categories listed above or to new categories in response to,
among other things, changes in the Company's plans and changes in
industry conditions.
Pending application of the net proceeds, such proceeds will be
invested in certificates of deposit, government debt instruments,
and/or other short-term investments.
PRICE RANGE OF COMMON STOCK
The following table sets forth the prices for the Company's
Common Stock as quoted on the NASDAQ Bulletin Board. The prices
take into account the 1-for-360 reverse stock split on the date
of this prospectus, as the actual prices have been multiplied by
360. It should be noted, however, that quotations for securities
priced in dollars tend to show smaller differentials between bid
and asked prices than quotations for securities priced in pen-
nies. The prices listed below, therefore, may not constitute an
accurate representation of what the market for the Common Stock
would have been if the reverse stock split had occurred prior to
July 1, 1993, but are simply a mathematical extrapolation of the
market as it existed prior to the reverse stock split.
Bid Asked
Quarter Ending High Low High Low
December 31, 1995 $18.00 $ 1.80 $36.00 $ 9.00
September 30, 1995 $16.20 $ .90 $28.80 $ 3.60
June 30, 1995 $ 2.88 $ .36 $ 9.00 $ 2.70
March 31, 1995 $ 1.80 $ 1.08 $ 5.40 $ 3.24
December 31, 1994 $ 5.40 $ .36 $ 8.10 $ 3.60
September 30, 1994 $ 7.20 $ 1.80 $18.00 $ 5.40
June 30, 1994 $ 4.68 $ 1.80 $11.25 $ 5.40
March 31, 1994 $ 4.68 $ 1.80 $10.80 $ 5.40
December 31, 1993 $ 7.20 $ 1.80 $18.00 $ 5.40
September 30, 1993 $10.80 $ 3.60 $16.20 $ 9.90
The foregoing quotations represent prices between deal-
ers and do not include retail mark-up, mark-down, or commissions,
and may not necessarily represent actual transactions.
As of April 23, 1996, the Company had 3,133 holders of
record of the Common Stock.
CAPITALIZATION
The following table sets forth the capitalization of the
Company and its consolidated subsidiaries. The first column sets
forth the capitalization at December 31, 1995. The second column
sets forth the capitalization as adjusted to reflect the effect
of "Debt Compromise" described immediately below and the related
financing activities. The third column shows the effect of
further adjustment to give effect to the sale of the Securities
offered hereby and the intended of the net proceeds therefrom.
December 31, 1995
Before After Debt After
Offering Compromise Offering
Long-term Debt (1) $ 3,243,819 $ 1,900,819 $ 1,413,819
Shareholders Equity:
Common Stock - Par Value $.01
Per Share, Authorized -
4,000,000 Shares; Out-
standing - 415,143 Shares (2) 4,151 4,151 4,151
Preferred Stock- Par Value,
no Per Share, Authorized -
4,000,000 Shares; Outstanding -
350,000; To Be Outstanding -
780,000 Shares. Liquidation
Preference of $250,000 pro
forma and $2,400,000 after Offering 250,000 2,400,000
Additional Paid In Capital 5,837,379 5,837,379 5,837,379
Accumulated Deficit (5,356,650) (4,356,650) (4,356,650)
Unearned Restricted Stock Comp. (1,428,550) (1,428,550) (1,428,550)
Stock Purchase Warrants 75 88,075 109,575
Treasury Stock, at cost ( 16,386) ( 16,386) ( 16,386)
Unrealized Gain on Securities 102,270 102,270 102,270
Total Stockholders Equity/(Deficit) (857,711) 480,289 2,651,789
Total Capitalization $ 2,386,108 $ 2,381,108 $ 4,065,608
- ------------------------------
(1) See Note 5 to Consolidated Financial Statements.
(2) Does not include (i) Class C Warrants to purchase 56,944 shares at
$22.68 per share held by Robert G. Gatza and Robert J. Fanella
(See "CERTAIN TRANSACTIONS"), (ii) shares of Preferred Stock
issuable upon exercise of the 880,000 Class A Warrants currently
outstanding (See "SELLING SECURITYHOLDERS AND PLAN OF DIS-
TRIBUTION") and the 215,000 Class A Warrants to be sold in this
offering, (iii) 43,000 shares of Preferred Stock issuable upon
exercise of the Representative's Purchase Warrant, (iv) 21,500
shares of Preferred Stock issuable upon exercise of Class A War-
rants which are issuable upon exercise of Representative's Pur-
chase Warrants, (v) 13,292 shares of Common Stock which are issu-
able upon the exercise of outstanding stock options, or (vi)
shares which will become issuable if the Representative exercises
its Over-Allotment Option.
Debt Compromise
At December 31, 1995 the Company was indebted to a competitor in
the amount of $2,332,495 arising from the Company's acquisition in 1991
of certain assets used by that competitor in the manufacture of power
supplies. The debt was non-interest-bearing with monthly payments in
ascending amounts extending through December 1, 2002.
On January 31, 1996 the Company reached an agreement with the
debt-holder to compromise the debt. The Company paid the debt-holder
$1,332,000 in cash, and the debt-holder forgave the $1 Million balance
of the obligation. The effect of the debt compromise was to reduce the
Company's debt-load by approximately $1.3 Million (net of loans taken to
finance the debt compromise), increase shareholders equity by
approximately $1 Million, and to cause the Company to realize
approximately $1.0 Million in extraordinary income during the third
quarter of fiscal 1996.
The Company obtained the funds necessary to pay the debt-holder by
(1) obtaining $275,000 from the Bridge Financing described immediately
below, (2) agreeing to issue 350,000 shares of Series A Preferred Stock
to Robert G. Gatza and Robert J. Fanella, the Company's officers, in
exchange for their payment of $250,000 and their personal guarantees of
approximately $800,000 in loans to the Company, and (3) utilizing
$43,750 paid by Messrs Gatza and Fanella in December of 1995 upon their
exercise of Class D Warrants for Common Stock. "CERTAIN TRANSACTIONS."
Bridge Financing
In March, 1996 the Company obtained bridge financing from six
lenders in the amount of $275,000. The lenders are the individuals
identified in this Prospectus as "Selling Securityholders." In exchange
for the $275,000, the Company gave the Selling Securityholders non-negotiable
promissory notes in the aggregate principal amount of
$187,000 plus 880,000 Class A Warrants. The notes accrue interest at a
rate of 8% per year. Principal and interest are payable on the earlier
of (a) April 1, 1997 or (b) the date on which this offering closes.
The outstanding principal of the notes will be repaid from the net
proceeds of this Offering. The proceeds of the Bridge Financing were
used by the Company to fund the debt compromise described immediately
above.
The Company's agreement with the Selling Securityholders provided
that the Company would include in this registration statement a
prospectus covering the Class A Warrants owned by the Selling
Securityholders and the underlying Preferred Stock. Accordingly, the
registration statement, of which this Prospectus is a part, also covers
the offering of the Class A Warrants acquired by the Selling
Securityholders in the bridge financing, as well as the Preferred Stock
issuable upon exercise of those Class A Warrants. See: "SELLING
SECURITYHOLDERS."
DIVIDENDS
The Preferred Stock is entitled to cumulative annual dividends of
8% of the $5.00 issue price per share. The annual dividend requirement
on the Preferred Stock sold in this Offering will be $176,000, and that
amount will increase if the Over-Allotment Option is exercised or if any
of the Class A Warrants are exercised for Preferred Stock. The dividend
on the 350,000 shares of Preferred Stock issued to Messrs Gatza and
Fanella (SEE "Capitalization - Debt Compromise") will total $140,000.
At the Company's option, all or part of each dividend may be paid in
shares of the Company's Common Stock valued at 100% of the average
closing bid price of the Common Stock as reported on NASDAQ (or such
exchange or quotation service as the Common Stock may be quoted on, if
it ceases to be quoted on NASDAQ) for the ten trading days before the
record date for the dividend.
The Company is not a party to any agreement or arrangement that
restricts or limits its ability or authority to declare and pay
dividends other than as provided by law. As a Delaware corporation, the
Company is permitted to declare and pay dividends only out of either (a)
capital surplus or (b) net profits for the fiscal year in which the
dividend is declared or the preceding fiscal year. If the Company's net
worth does not exceed its stated capital and it has not realized income
in the year a dividend is due or the preceding year, dividends will not
be paid by the Company on the Preferred Stock. Any dividends not paid
will accrue. No interest will be paid on any accrued but unpaid
dividends.
On December 31, 1995 the Company had no capital surplus, and at
the present time the Company has very little capital surplus. There can
be no assurance that the Company will maintain sufficient capital
surplus to be able to pay dividends on the Preferred Stock. The
Company's ability to pay dividends in the future will depend on whether
the Company is profitable. If the Company incurs large losses which
impair its financial resources, the Company could quickly become unable
to pay dividends. In any case it is likely that the Company will from
time-to-time or always determine that it is in the best interests of the
Company to retain its cash assets, and pay the entirety of a dividend in
shares of Common Stock, particularly if the market value of the Common
Stock is high. Such a payment could have an adverse effect on the
market prices of the Company's Common Stock and Preferred Stock.
Holders of Common Stock are entitled to receive such dividends as
may be declared by the Board of Directors of the Company. To date, the
Company has neither declared nor paid any dividends on its Common Stock
nor does the Company anticipate that such dividends will be paid in the
foreseeable future. Rather, the Company intends to apply any earnings to
the expansion and development of its business. Any payment of cash
dividends on its Common Stock in the future will be dependent upon the
prior payment of required dividends on Preferred Stock, the Company's
earnings, financial condition, capital requirements and other factors
which the Board of Directors deems relevant.
<PAGE>
SELECTED FINANCIAL INFORMATION
($'S in 000's)
Fiscal Fiscal fiscal Fiscal Fiscal
Year Year Year Year Year
Ended Ended Ended Ended Ended
June 30 June30 June 30 June 30 June 30
1995 1994 1993 1992 1991
Operating
Summary
Sales 14,589 12,772 15,886 20,197 8,113
Interest and
Other Income 1,240 999 3,161 5,257 5,727
Total Income 14,590 12,772 15,889 20,202 8,119
Cost of
Manufacturing
And Facility 11,567 10,054 2,475 7,289 5,682
Research &
Development 949 920 1,247 2,279 1,055
Selling
General
& Admin. 1,492 1,370 1,731 2,027 1,271
Interest &
0ther Expense 333 223 396 799 310
Total
Expenses 14,340 12,567 15,849 22,394 8,318
Net Earnings/
(Loss) 250 205 41 (2,192) (198)
Net Earnings/
(Loss)
per share (in $'s) .002 .002 .000 (.019) (.002)
Weighted
Average
Number of
Shares Outstanding
(in thousands) 114,037 115,112 114,545 113,878 113,732
As At As At As At As At As At
Balance Sheet June 30 June30 June 30 June 30 June 30
Summary 1995 1994 1993 1992 1991
Working
Capital 443 73 412 (2,262) 431
Total Assets 6,149 6,302 6,090 8,916 4,065
Capitalized
Lease 581 767 232 316 358
Long-term
Debt 3,514 3,954 3,945 1,542 1,301
Total
Liabilities 7,144 7,641 7,665 10,595 3,619
Shareholders
Equity/
(Deficit) (995) (1,339) (1,576) (1,678) 447
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ending December 31, 1995 vs.
Six Months Ending December 31, 1994
Net sales for the six months ended December 31, 1995 totalled
$6,721,421, a reduction of $946,806 (8%) from net sales in the first six
months of fiscal 1995. The primary cause of the reduction was the
termination of sales to one particular customer, as that customer
downgraded the overall quality of its product, which permitted it to
purchase the lower cost power supplies available from several
manufacturers. This termination was not offset by increased sales, as
the Company's poor financial condition has made it difficult to generate
new OEM customers. See "BUSINESS OF THE COMPANY - Marketing." Most of
the Company's sales during the first six months of fiscal 1996 were to
established customers.
The Company at January 1, 1996 had backlog of $5,013,000, which may
be compared to backlog of $3,550,300 at January 1, 1995. This backlog
consists entirely of firm released orders, most of which will be shipped
during the third quarter of fiscal 1996. The combination of that
backlog with non-binding production schedules that the Company has
received on existing customer projects, as well as the preproduction
orders and early production orders for new projects that the Company
received from eight OEM customers near the end of its second quarter,
all indicate that the shortfall in sales compared to fiscal 1995 will be
eliminated in the second half of the fiscal year.
Despite the reduction in net sales of $946,806, operating income
fell only $24,670 from the first half of fiscal 1995 to the first half
of fiscal 1996. The Company was able to offset the drop in revenues by
cutting manufacturing costs significantly. For this reason, facility,
preproduction and production expense in the first half of fiscal 1996
was almost 14% lower than in the first half of 1995, although net sales
fell by only 8%. Likewise, selling, general and administrative expense
fell by 13% from the 1995 period to the 1996 period, exceeding the
percentage reduction in net sales and so contributing to the
preservation of operating income. The increased operational efficiency
evidenced in the first half of fiscal 1996 should prove beneficial to
the Company's operating statements if the anticipated increase in net
sales in the second half of the year is realized, as a larger percentage
of those net sales should survive as net income than has been the
Company's experience in the past.
<PAGE>
Year Ending June 30, 1995 vs.
Year Ending June 30, 1994
Net sales for the twelve month ended June 30, 1995 were $14,58-
8,844, as compared to net sales of $12,771,067 in the fiscal year ending
June 30, 1994. This represents a 14% increase in revenues on a year to
year basis. The primary reason for the increase was a $1.8 Million in-
crease in sales to AT&T, the Company's largest customer, whose orders
represented 18% of sales in fiscal 1994 and 29% of sales in fiscal 1995.
The Company continues to do business with AT&T, with sales to it during
the first six months of fiscal 1996 representing 39% of the Company's
total net sales. One reason for this public offering, however, is to
provide funds to enable the Company to expand its customer base, which
will reduce the Company's dependence on this one customer.
Operating income in fiscal 1995 increased by $155,266 from $426,419
to $581,685, representing an increase of 36%. The primary reason for
the increase was the fact that research and development expense
increased by 3% while net sales increased by 22%. The reason for the
small relative increase in research and development expense was the
Company's lack of cash resources to devote to research and development,
and does not represent Company policy. The Company intends to expand its
research and development activities as its business expands to insure
that it remains in the forefront of power supply technology.
The increase in operating income was also due in part to the
relatively small increase in "general and administrative" expense, which
rose only 5% between fiscal 1994 and fiscal 1995. The small increase
relative to net sales is attributable to the fact that the Company has
established its management and accounting systems and other corporate
infrastructure, and is capable of handling expanded operations without a
significant expansion of infrastructure. Indeed, management has
estimated that the Company could expand to a level of $40 Million in
sales without major additions to facilities or senior management. This
situation should prove financially advantageous if the anticipated
increase in sales in fiscal 1997 is realized.
The other elements of operating expense necessarily increased in
proportion to the increase in net sales. Facility, preproduction and
production expenses in fiscal 1995 were 79.3% of net sales in that year,
as compared to 78.7% of net sales in the prior year. The change was
primarily due to product mix and, to a smaller extent, increased costs
in the electronic component cost areas, especially semiconductors.
Selling & marketing expenses increased by 18% from $418,830 $494,000.
The increase in sales & marketing was due to the increased commissions
paid to the Company's independent manufacturers representatives as a
result of the higher sales level. Moreover, the Company spent funds in
building and solidifying its network of independent manufacturer
representatives. At the same time, the amount spent on advertising was
reduced slightly.
Net income for the fiscal year ended June 30, 1995 was $249,894,
a 22% increase over the $204,845 recognized in fiscal 1994. In fiscal
1994, however, the Company's net income had been increased by $100,000
due to the reversal in 1994 of a reserve taken in 1992 in connection
with the Company's investment in an Indian power supply manufacturer.
See "Note 4 to the Consolidated Financial Statements." Accordingly, the
increase in net income from fiscal 1994 to fiscal 1995, excluding the
extraordinary item relating to the India investment, totalled $145,049
or 138%.
Year Ending June 30, 1994 vs.
Year Ending June 30, 1993
Net sales for the fiscal year ended June 30, 1994 were $12,771,067,
as compared to net sales of $15,886,279 in the fiscal year ended June
30, 1993. The reduction in sales was a result of the Company's
continuing effort to remove low margin business. Specifically the
Company's sales to its largest customer were reduced by almost $4
Million. The Company had been supplying power supplies in a wide
variety of specifications and performance criteria to six divisions of
this customer. The Company is now focusing on selling only high
performance power supplies to one division. That focus will have the
immediate effect of reducing net sales, but the long term effect of in-
creasing profitability, particularly as increased sales to this division
with favorable margins are expected.
Since the Company reorganized its operational structure in 1992,
there has been an ongoing effort to reduce expenses until a sustainable
increase in net sales justifies expansion. In connection with that
program, most of the areas of indirect expense were reduced. Research &
development was $326,000 less in fiscal 1994 than in fiscal 1993.
Selling & marketing expense was $97,000 less in fiscal 1994 than in
1993. And General & Administration expense was $264,000 less, compared
to fiscal 1993. Production costs remained stable, representing 78.7% of
net sales in the 1994 fiscal year as compared to 78.5% of net sales in
the prior fiscal year.
Since expenses were reduced in proportion to net sales, there was
no significant change in operating income between fiscal 1993 and fiscal
1994. Net income, however, increased by $164,039 from $40,806 in 1993
to $204,845 in 1994. The two reasons for the increase were (1) the
$100,000 reversal of a reserve against the Company's investment in India
(discussed in the preceding section) and (2) a $101,584 reduction in
interest cost achieved by renegotiating the terms of several of the
Company's loans.
Liquidity and Capital Resources
At December 31, 1995, the Company had working capital of $393,657,
which was not significantly different from the $443,359 it held at June
30, 1995, the end of its last fiscal year. In calculating working
capital, however, the Company includes $3,033,235 of inventory, most of
which consists of raw material parts held for use in manufacturing power
supplies. The current assets which will readily turn into cash, cash
and accounts receivable, were, then, considerably exceeded by the
Company's current liabilities. The debt compromise which the Company
effected after the end of the second quarter had the effect of reducing
the Company's current and long-term liabilities by a total of
approximately $1.3 Million. See "CAPITALIZATION - Debt Compromise."
Nevertheless, the Company will require the proceeds of this offering to
achieve a cash reserve suitable for its current plan of operations.
Because of the Company's high debt-to-assets ratio, debt service
remains a significant drain on cash resources. During fiscal 1995 the
Company used $781,831 for debt service, approximately equal to the debt
service for fiscal 1994. In the first six months of fiscal 1996, debt
service totalled $420,494. The debt compromise had the effect of
reducing debt service considerably. Moreover, the Company intends to
utilize approximately $520,000 from the proceeds of this offering to
reduce debt (including the Bridge Financing debt), which will have the
effect of further reducing debt service. Nevertheless, the Company
projects that after completion of this offering its debt service for
fiscal 1997 will be approximately $885,000.
The Company's primary source of operating funds has been its credit
line. The primary bank lender, Comerica Bank, has an asset-based loan
facility of up to $2,000,000 dependent on predetermined formulas
involving the Company's accounts receivable and inventories. The
balance outstanding on the credit line at December 31, 1995 was
$1,656,091. The total amount available to borrow at that date was
$1,667,091.
The Company's inventory at December 31, 1995 totalled $3,033,235,
as compared to $2,712,224 at June 30, 1995. The 12% increase in
inventory was due to the effect of capacity planning for the third and
fourth fiscal quarters. In anticipation of the orders for new customer
programs, the Company brought in inventory for existing programs earlier
than normal so that the existing programs could be built earlier and
inventoried, thereby releasing manufacturing capacity to be utilized in
the start-up of the new programs.
The Company's accounts receivable at December 31, 1995 totalled
$1,500,700, which was higher than at any time since 1993. The increase
of 26% in the first half of 1996 was primarily a result of a faulty
year-end wire transfer from one customer of $256,000, which arrived in
January. After adjusting the balance for the effect of the wire
transfer, the average days outstanding remained relatively constant with
the fiscal year end average of 38 days. The Company does not believe
the increase represents a trend, and expects the growth of accounts
receivable to be proportionate to the growth in net sales in the future.
The Company expects that the available borrowings from the asset-based
line of credit when combined with the cash flow expected from
current operations will be sufficient to service the Company's debt and
fund operations for the following fiscal year.
CERTAIN FEDERAL INCOME TAX EFFECTS UPON THE COMPANY
At December 31, 1995, for United States federal income tax
purposes, the Company had consolidated NOL carryforwards of
approximately $3.7 Million due to expire commencing in 2000. The
Company also had investment tax credit ("ITC") and research and
development credit ("RDC") of approximately $ due to expire
commencing in 1999, and MTC credit carryforwards of approximately $
. The availability of these carry-forwards to reduce or offset future
taxable income and tax liability of the Company is subject to various
limitations under the Internal Revenue Code of 1986, as amended (the
"Code"). In particular, the Company's ability to utilize the carry-
forwards would be restricted upon the occurrence of an "ownership
change" within the meaning of section 382 of the Code.
Although the determination of whether an ownership change has
occurred is subject to factual and legal uncertainties, the Company
believes that an ownership change will occur no later than the closing
of this Offering. As a result of the "ownership change," the Company
will generally be permitted to utilize NOL carryforwards (available on
the date of such change) in any year thereafter to reduce its income to
the extent that the amount of such income does not exceed the product of
(the "Section 382 Limit") (i) the fair market value of the Company's
outstanding equity at the time of the ownership change (reduced by the
amount of certain capital contributions such as those received pursuant
to this Offering) and (ii) a long-term tax-exempt rate published by the
Internal Revenue Service (currently 5.31% for ownership changes
occurring in March of 1996). Further, the Company's ability to utilize
its ITC, RDC and MTC carryforwards will also be limited as a result of
the ownership change in an amount determined by reference to the Section
382 limit. As a result, the Company does not expect to utilize its full
NOL and tax credit carryforwards to offset future taxable income and tax
liability. This limitation would have a materially adverse effect on
the Company's net income, if the Company were to generate taxable income
(or tax liability) materially in excess of the limitation on the
utilization of NOL and tax credit carryforwards.
In addition, the issuance of the Preferred Stock in this Offering
(if an ownership change occurred prior to such issuance), the exercise
of the Class A Warrants, the issuance of Common Stock as dividends, and
the conversion of the Preferred Stock into Common Stock or any other
issuance of equity securities by the Company may each contribute to the
occurrence of subsequent ownership changes. Any such subsequent
ownership changes could have the effect of further limiting the Compa-
ny's ability to utilize its NOL, ITC, RDC and MTC carryforwards.
BUSINESS OF THE COMPANY
MicroENERGY, Inc., was incorporated in Delaware on November 30,
1983. The Company designs and manufactures high frequency power
supplies and DC-to-DC converters for OEM customers who are engaged in
the telecommunications, computer, and instrumentation segments of the
electronics industry. The Company currently offers single and multiple
output switching power supplies and DC-to-DC converters in the power
output range of 25 watts to 2500 watts. All of the Company's products
are customized to satisfy the unique requirements of each customer's
application.
Power Supplies and DC-to-DC Converters
A power supply is a component of electrically-powered products
which converts alternating current ("AC"), the generally-available form
of electricity, into direct current ("DC"), which is required for
electronic circuits to function. Since the electric energy available is
seldom in a form usable by electrical apparatus, most incorporate a
power supply. For example, modern microprocessors require 5 VDC (volts
direct current) to operate, while 120 VAC (volts alternating current) is
generally available. Many large electronics manufacturers maintain
"captive" power supply producers to manufacture what the OEM needs. As
the technology has in the past decade become more and more
sophisticated, the percentage of power supplies which are manufactured
"in-house" by captive producers has fallen. Today almost half of the
power supplies used in electronic equipment are purchased from
independent vendors.
A DC/DC converter is an electronic sub-system that converts one DC
input voltage into one or more DC output voltages. DC/DC converters are
used in conjunction with power supplies, such as those manufactured by
MicroEnergy.
The principal application for the DC/DC converters designed by
MicroEnergy is the telecommunications industry. For example, a smart
telephone (i.e., a telephone with a memory), will utilize a DC/DC
converter to change the 48 VDC which powers its motor to 5 VDC, the
output necessary to power its memory chips. If a small DC/DC converter
were not available in each telephone, it would be necessary to run a 5
VDC wire from a central location to each telephone.
A similar application is made in robotics systems. The converter
is installed in each robot sensor and converts the DC voltages used to
operate the robot's motors into the lower voltage needed to power the
robot's microprocessors. The use of DC/DC converters in this fashion
facilitates the development of efficient "intelligence" in robot
systems.
The Industry
Because of emerging technology, the size and growth of the market,
and the unique design requirements of each customer, the market is
fragmented. There are approximately 100 companies which identify
switching power supplies in their product line portfolio, and no one of
them dominates the market. The largest manufacturer of switchers is
Astec, Inc., a subsidiary of the British company, BSR. Astec
manufactures standard and customized switcher units.
Other large U.S. manufacturers include AT&T, Lambda, Delta
Products, Shindengen, and Lorain Products, each of which has annual
sales worldwide in excess of $260 Million. The competitors in this DC-to-DC
converter market are primarily the same as those in the switching
power supply market, with the significant addition of General Instrument
Corporation and General Electric Corporation. All of these manufactur-
ers, however, concentrate on sales of standardized power supplies.
Their strategy is to provide a line of inexpensive models that are
within the range of the existing specifications of OEMs.
MicroENERGY, on the other hand, provides state-of-the-art custom
units to meet exact specifications on short notice at competitive
prices. In that market the principal method of competing is by emphasis
on design ability and timely delivery. MicroENERGY's technology and
reputation for service have allowed it to compete successfully in this
market for over ten years despite limited financial resources.
Marketing
MicroEnergy's products are marketed to manufacturers of electronic
equipment by independent manufacturers representatives. At the present
time, the Company's products are offered by 10 representative firms,
whose territories include all or part of 36 states plus Puerto Rico.
The lag time from initial contact with a prospective OEM customer to
receipt of a purchase order is typically 6 months. An additional 3-4
months is usually required before actual shipment can begin. Since each
customer requires a unique customization of one of the Company's basic
product series, much of the lag time from initial customer contact to
purchase order is attributable to customization and technical review by
the customer.
Prior to placing purchase orders, customers evaluate the Company's
technology and other capabilities, as well as their own requirements.
At this point, assuming that their level of interest is high, the firm
will send a request for quotation ("RFQ") for price and delivery of
specific power supplies. The RFQ's generally cover the customer's
requirements for 12 months. The average age of these quotes is 45 days.
Actual orders are received by the Company in two forms. The
Company's customers have generally given the Company a "preproduction"
order for several units for initial evaluation. The entry of
preproduction order indicates a considerable level of interest, since
the Company normally includes an upfront charge for nonrecurring
engineering in the cost. Generally some, but not all, of the Company's
preproduction orders result in production orders.
The final stage in the ordering process is the production order.
These orders constitute a firm commitment to take delivery of the
Company's products only when the customer authorizes a release for ship-
ment.
Backlog
The Company generally advises customers that the Company can
deliver product within twelve weeks after the production order is
placed. Accordingly, most customers place orders for one quarter at a
time, although most customers are ordering for production programs that
will extend over a much longer period of time. For that reason, the
Company's current backlog of released orders of $5,013,000 is a reliable
indication that (1) the Company will deliver approximately that much
during the next twelve weeks, and (2) the programs which its customers
are ordering for are approximately 42% larger than was the case a year
earlier, when backlog totalled only $3,550,300. Based on its
extrapolation from backlog as well as the production schedules which the
Company receives from its customers, the Company is generally able to
plan its production schedules, including purchasing of necessary compo-
nents and related engineering, for six to eight months in advance.
Near the end of 1995 the Company received preproduction orders for
new power supply designs from eight customers. The RFQ's received from
these customers projected annual power supply requirements which, if met
by the Company, would represent a total of approximately $10.2 Million
in sales. Indications from four of the customers designated as new
projects show that annual production quantities for these four in fiscal
year 1997 should approximate $8.0 Million. The Company believes that it
may be awarded all of these orders, although there is never a certainty
of an order until the release for shipment is given by the customer.
Three of the customers have given the Company production orders; the
remainder are still in the preproduction stage. The Company has
sufficient confidence that it will receive a significant portion of
these orders that it has already begun to increase its raw materials
inventory in anticipation of the expanded business and is allocating the
greater portion of the net proceeds of this offering to financing of the
new business.
There can be no assurance, however, that any amount of these orders will
be realized and completed by the Company.
Major Customer; Export Sales
The Company has only one customer that represents more than 10% of
the Company's net sales. The Company's sales to various divisions of
AT&T Inc. accounted for approximately 39% of the Company's total
revenues in the first six months of fiscal 1996, 28% of the Company's
total revenues in fiscal 1995, 18% of the Company's total revenues in
fiscal 1994, and 40% of the Company's total revenues in fiscal 1993.
During fiscal year 1995, the Company had $5,250,000 in export sales.
In the fiscal year ended June 30, 1995 the Company's export sales
amounted to approximately 36% of the Company's total revenues, compared
to 38% in 1994 and 24% in 1993. All export sales by the Company are
denominated in U.S. Dollars. Due to the fact that the Company's
products are customized and require a substantial lead-time for
production, short-term foreign currency fluctuations generally have no
effect on the Company's sales. Any long-term strengthening of the
Dollar, however, could adversely affect export sales.
The MicroENERGY Technology
The Company's research and development efforts have been focused on
advancing the state-of-the-art in the design of power supplies and the
method employed in manufacturing such power supplies. For the immediate
future, the Company's research and development will continue to focus on
that subject. During the fiscal year ended June 30, 1995 the Company
spent $949,002 on Company-sponsored research and development. During
the fiscal year ended June 30, 1994 the Company spent $920,391 on
Companysponsored research and development. During the fiscal year ended
June 30, 1993, the Company spent $1,246,965 on Company-sponsored
research and development.
Among the more significant results of this research and development
activity has been the Company's ability to vertically integrate Surface
Mounted Technology ("SMT") into its entire manufacturing operation.
SMT, which was developed by a number of electronics manufacturers in the
1980s, represents a major miniaturization of electronic components by
elimination of the external packaging of components. A component
produced using SMT technology, such as a transistor, consists of only
the device itself with no capsule surrounding it. The SMT component is
placed directly onto the printed circuit board (which itself is greatly
reduced in size). The Company utilizes this technology in its
manufacturing processes, which enables the Company to provide more power
in a smaller power supply, thus expanding the engineering capabilities
of our customer, and facilitating more applications for our power
supplies.
Recently the Company's on-going efforts to be at the forefront of
its industry were recognized by the primary accrediting organization
for the industry. The International Standards Organization ("ISO") is
based in Geneva, Switzerland, and was organized to create
internationally recognized standards for design and manufacturing
processes. During 1995 the Company was granted ISO 9001 status by
Underwriters Laboratories. The ISO 9001 designation will indicate to
potential customers that MicroENERGY has achieved the state-of-the-art
in power supply design and manufacturing.
Sources of Components
The raw materials for the Company's products are primarily
standardized components which are available from an adequate number of
suppliers. Those raw materials which must be customized for the Company
are also available from a number of qualified component manufacturers.
During fiscal 1989, the Company increased its access to components by
acquiring all of the capital stock of Tru-Way, Inc., an Illinois
corporation engaged in the business of manufacturing fabricated metal
parts used in the Company's principal product.
One problem in raw material procurement which has caused
significant concern in the power supply industry in recent years is the
worldwide shortage of semi-conductor components. At the present time,
the worldwide supply of certain types of semi-conductors does not meet
the worldwide demand for those components. Moreover, the problem
portends to be a factor in the industry for many years to come, as the
creation of a wafer fabrication plant to produce these components
entails an investment of $1 Billion to $2 Billion and up to two years
for completion.
MicroENERGY anticipated the shortage in semi-conductors many years
ago, and has positioned itself well to withstand the effects. Several
years ago MicroENERGY adopted a policy of purchasing its semi-conductors
from distributors rather than manufacturers. That policy occasionally
resulted in increased raw material costs. But as a result, MicroENERGY
now enjoys a priority relationship with its suppliers of semi-conductors.
Even if manufacturers are allocating their production among
their customers, thus causing shortages for all, the distributors from
whom MicroENERGY purchases its semi-conductors have made a practice of
meeting all of MicroENERGY's orders in timely fashion. Indeed, the
Company experienced relatively few component shortages during 1995,
which indicates the efficacy of its strategy. Although there is no
contract binding any supplier to continue to satisfy MicroENERGY'S
semi-conductor requirements, the existing relationship, as long as it
continues, provides MicroENERGY the ability to meet the shipment
schedules of its own customers at a time when many of its competitors
are experiencing difficulty doing so due to the shortage of semi-conductors.
Employees
The Company is located in a "Research Corridor" west
of Chicago, in which a substantial portion of the Midwest's electronics
industry is located. The presence of Bell Laboratories, Motorola, Inc.,
and Zenith Corporation, among others, as well as Illinois Institute of
Technology and Northwestern University, means that the Company can
recruit its employees from a large local pool of talented individuals.
Moreover, since experienced technicians and engineers are generally
available, the Company has not experienced any material "lag time" in
training new employees.
The Company currently has 216 full-time employees (including 175
production employees), two of whom are officers of the Company. During
the remainder of fiscal 1996 the Company expects no substantial
increases in the Company's non-direct labor force. None of the
Company's employees belongs to a union. The Company believes that its
relationships with its employees is good.
Properties
The Company currently has five locations. The Company's
general offices are located in a 3,100 square foot office facility in
Carol Stream, Illinois. The Company's manufacturing operations are
located in a leased facility in Quincy, Illinois and a Company-owned
facility in Memphis, Missouri, which are located approximately 70 miles
from each other. The total space in Quincy is 59,555 square feet and in
Memphis is 9,600 square feet. The Quincy and Memphis facilities are
located in a good labor market and are large enough to meet the expected
capacity requirements of the Company for the foreseeable future. The
Company's Longwood, Florida facility contains the research and
development center in a 13,002 square foot leased facility. The metal
fabrication business conducted by the Company's subsidiary, Tru-Way,
Inc., is located in a 10,800 square foot facility in Northlake,
Illinois.
The table set forth below identifies the properties leased by the
Company and its subsidiaries for an annual rental of $10,000 or more.
The Company believes that these facilities are adequate for its
operations as presently structured.
Term and
Annual
Company Lessor Premises Rental
MicroENERGY Nardi Asset 350 Randy Road Through
Management Carol Stream, IL 12/31/97
$38,600
MicroENERGY Guardtree Ltd 1400 N. 30th St. Through
Quincy, IL 8/31/01
$193,590
MicroENERGY Pizzuti Inc. 745 W.State Road 434 Through
Suite J 2/28/97
Longwood, FL $146,628
Tru-Way, Inc. ARQUBE(1) 36 West Lake Street Through
Northlake, IL 7/30/98
$54,000
__________________________________
(1) ARQUBE is a partnership, whose partners are Robert G. Gatza and
Robert J. Fanella, the officers of the Company. See "CERTAIN
TRANSACTIONS."
MANAGEMENT
The following table sets forth certain information regarding the
officers and directors of the Company as of April 23, 1996:
Name Age Position
Robert G. Gatza 53 Chairman of the Board,
President,
Chief Executive Officer
Robert J. Fanella 45 Chief Financial Officer,
Secretary, Director
George M. Bradshaw 49 Director
Directors hold office until the annual meeting of the Company's
shareholders and the election and qualification of their successors.
Officers hold office, subject to removal at any time by the Board, until
the meeting of directors immediately following the annual meeting of
shareholders and until their successors are appointed and qualified.
Background of Management
Robert G. Gatza was a co-founder of MicroENERGY in 1983, and has
served as its Chief Executive Officer since that founding. Prior to
forming MicroENERGY, Mr. Gatza was employed by Motorola, Inc. as
Director of Operations for its cathode ray tube business. Mr. Gatza was
awarded a Master of Science degree in Mathematics and a Master of
Science degree in Operations Management, both by Witchita State
University.
Robert J. Fanella was a co-founder of MicroENERGY in 1983, and has
served as its Chief Financial Officer since that founding. Prior to
founding MicroENERGY, Mr. Fanella was employed by Motorola Inc as
Controller of a Business Group. Mr. Fanella was awarded a Master of
Business Administration degree by the University of Chicago, and is a
Certified Public Accountant.
George M. Bradshaw has served as an attorney for MicroENERGY since
it was founded. He has served on its Board of Directors since 1988.
Mr. Bradshaw is an attorney with the firm of Huck, Bouma, Martin,
Charlton & Bradshaw in Wheaton, Illinois, specializing in corporate,
real estate and commercial law.
Executive Compensation
The following table sets forth all compensation awarded to, earned
by, or paid by the Company to the following persons for services
rendered in all capacities to the Company during each of the fiscal
years ended June 30, 1995, 1994 and 1993: (1) the Company's Chief
Executive Officer, and (2) each of the other executive officers whose
total salary and bonus for the fiscal year ended June 30, 1995 exceeded
$100,000.
SUMMARY COMPENSATION TABLE
(a) (e) (f)
Name and (b) (c) (d) Option All Other
Principal
Position Year Salary Bonus Shares Comp. *
Robert G, Gatza 1995 $210,001 - 21,000,000 $1,500
Chief Executive 1994 $212,281 - - $2,100
Officer 1993 $208,950 - - $2,100
Robert J. Fanella 1995 $203,801 - 14,000,000 $1,500
Chief Financial 1994 $204,301 - - $2,000
Officer 1993 $201,150 - - $2,000
_________________________
* Represents Company matching contribution to 401(k) Plan.
Employment Agreements
In 1996 the Company entered into employment agreements with Robert
G. Gatza and Robert J. Fanella. The employment agreements are
substantially identical to each other. The agreements provide for full-time
employment and include a covenant that the officer will not compete
with the Company for one year after his employment terminates. The
agreements terminate on January 31, 2000. They provide that each
officer will be paid a salary determined by the Board, but that his
annual salary shall be no less than his average salary for the preced-
ing two years.
Restricted Stock Grant Program
On May 19, 1989, the shareholders of the Company adopted a
Restricted Stock Grant Program (the "Program"), pursuant to which 58,333
shares of common stock were reserved for issuance. On July 3, 1989, a
portion of the reserved shares were issued to two "Grantees", namely
Robert G. Gatza (34,722 shares) and Robert J. Fanella (18,056 shares).
Messrs. Gatza and Fanella are the Company's officers.
The shares issued under the terms of the Program are subject to the
following restrictions:
1. The shares granted under the Program cannot be sold, assigned,
pledged, transferred or hypothecated in any
manner, by operation of law or otherwise, other than by writ or the laws
of descent and distribution, and shall not be subject to execution,
attachment or similar process. This restriction shall lapse, with
respect to 3 % of the number of shares granted under the Program, and
those shares will become unrestricted stock, on the last day of the
Company's 1996 fiscal year. The restriction shall lapse with respect to
each additional 3 % of such number of shares on the last day of each
successive fiscal year of the Company, until the 27th year in which the
final 13 % will vest.
2. The restriction shall also lapse as to all shares granted to a
Grantee on the first to occur of (i) the termination of that Grantee's
employment with the Company by reason of his disability, (ii) the
Grantee's death, (iii) termination of the Grantee's employment by the
Company without good reason, or (iv) a change of control of the Company.
The Program defines "Change of Control" as an acquisition by a person or
group of more than 50% of the Company's outstanding shares, a transfer
of the Company's property to an entity of which the Company does not own
at least 50%, or the election of directors constituting a majority of
the Board who have not been approved by the existing Board.
3. Shares which have not become unrestricted under the
circumstances referred to in Item 1 or Item 2 above shall be forfeited
to the Company upon termination of the Grantee's employment with the
Company.
4. During any tax year in which a Grantee realizes taxable income
by reason of the lapse of the restrictions on the shares granted under
the Program, the Company shall pay to such Grantee a "Gross-Up Bonus" in
cash equal to the aggregate of (i) the additional federal, state and
local income taxes incurred by Grantee as a result of realization of
such taxable income, and (ii) the federal, state and local income tax
incurred by the Grantee as a result of the Gross-Up Bonus. In no event
shall the Gross-Up Bonus exceed the aggregate of (i) the amount of the
tax deduction for which the Company receives a benefit for the tax year
of the Company beginning during the tax year of the Grantee in which he
realizes taxable income by virtue of the lapse of the restrictions
referred to in Item 1 above, and (ii) the amount of the tax deduction
for which the Company receives a benefit for such tax year of the
Company by virtue of the Gross-Up Bonus.
Incentive Stock Option Plan
On December 6, 1984 the shareholders of the Company approved the
1984 Incentive Stock Option Plan and the 1985 Incentive Stock Option
Plan. The 1984 and 1985 Plans expired after ten years, but options for
7736 shares of Common Stock remain outstanding under those Plans.
On February 24, 1992 the shareholders of the Company approved the
1992 Incentive Stock Option Plan, and On May 7, 1996 the shareholders
approved the 1996 Incentive Stock Option Plan. The 1992 Plan and the
1996 Plan, together, are authorized to issue options for a total of
55,555 shares, none of which are presently outstanding.
Options granted under the Plans are intended to qualify as
"incentive stock options", as defined in Section 422A of the Internal
Revenue Code. No options have been issued under any Plan to any
present officer or director of the Company. The average exercise price
of the options which are outstanding is $.0149.
The following tables set forth certain information regarding the
stock options or warrants acquired by the officers of the Company during
the year ended June 30, 1995 and those options or warrants held by them
on June 30, 1995.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Percent Potential Realizable
Of total Value at Assumed
Options Annual Rates of
Granted Stock Price
To Appreciation
Employees Exercise For Option Term
In Fiscal Price Expiration
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
Robert G.
Gatza
Number of
Securities
Underlying
Option
Granted (#)
21,000,000 60% $.00125 12/31/01 $3,297 $14,673
Robert J.
Fanella
Number of
Securities
Underlying
Option
Granted (#)
14,000,000 40% $.00125 12/31/01 $2,198 $9.782
AGGREGATED FISCAL YEAR OPTION VALUES
Numbers of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Options at Fiscal
Name Year-End (#) Year-End($)
Robert G. Gatza 13,800,000 Exercisable $0
21,000,000 Unexercisable $141,750
Robert J. Fanella 6,700,000 Exercisable $0
14,000,000 Unexercisable $94,500
Remuneration of Directors
The Directors of the Company receive no compensation for their
services, but are reimbursed for out-of-pocket expenses incurred on the
Company's behalf.
Limitation of Liability
The Company's Articles of Incorporation contain a provision
stating that no officer or director of the Company will be liable
personally to the Company for damages for breach of fiduciary duty as a
director or officer unless he is responsible for payment of an illegal
dividend or for acts or omissions which involve a knowing violation of
law, intentional misconduct, or fraud.
Representative's Right to Appoint Director
The Underwriting Agreement between the Company and I.A.
Rabinowitz & Co. (the "Representative") provides that for three years
after the completion of this Offering, the Representative will have the
right to nominate one person to serve on the Company's Board of
Directors, and upon such nomination the Board shall take the action
necessary to cause the Representative's nominee to be elected to the
Board. If the Representative does not exercise this right, it may
appoint an advisor, who will be entitled to attend all meeting of the
Board of Directors. To date, the Representative has not advised the
Company as to whether it intends to exercise either right.
CERTAIN TRANSACTIONS
Transactions Relating to Tru-Way, Inc.
On December 30, 1988, Robert Gatza and Robert Fanella, who are
directors and officers of the Company (together referred to as the
"Partners") formed an Illinois partnership called ARQUBE. Under the
terms of their partnership agreement, the ownership interest of the
Partners in ARQUBE is as follows:
Robert Gatza - 66.67%
Robert Fanella - 33.33%
ARQUBE was formed for the purpose of acquiring the land and fixed
assets owned by Tru-Way, Inc. an Illinois corporation engaged in the
business of manufacturing fabricated metal parts used in the Company's
products. The assets purchased by ARQUBE included all of the machinery
and equipment and an industrial building in Stone Park, Illinois. The
total purchase price was $350,000. ARQUBE obtained a loan for the
amount of $350,000. The loan is personally guaranteed by the Partners.
The land and industrial building were placed in trust with the lender
and secure ARQUBE's obligation.
Subsequent to ARQUBE's acquisition of Tru-Way's land and fixed
assets, the Company purchased all of the capital stock of TRU-Way, Inc.
On July 1, 1990 the Company caused Tru-Way to enter into a lease with
ARQUBE for the Stone Park facility.
On July 22, 1993 the Stone Park facility was sold and ARQUBE purchased a
larger facility in Northlake, Illinois (10,800 square feet versus 5,100
square feet). At this date the operations of Tru-Way were consolidated
into this larger facility, the July 1, 1990 lease between ARQUBE and
Tru-Way was terminated and new leases for the facility and equipment
were entered into. The lease for the facility is for a five year
period, with monthly rental payments of $4,500, and the equipment lease
is for a five year period, with monthly payments of $12,000. The two
leases will expire on July 30, 1998. On December 1, 1993, a lease for
additional metal fabricating equipment was entered into between ARQUBE
and Tru-Way. The terms of this lease were $3,025 per month, for a
period of three years. The Company has recorded these three leases as
capital leases.
Transactions Relating to Acquisition of Power Supply Assets
On July 1, 1991 the Company acquired from a competitor certain
assets used in the manufacture and sale of power supplies. The total
purchase price for the assets consisted of $3,553,063 plus a 3% royalty
on certain sales. In order to finance the acquisition, the Company
increased its bank line of credit, and borrowed $750,000 from the
Illinois Department of Commerce and Community Affairs ("DCCA") and
$400,000 from the City of Quincy, Illinois. DCCA and the City of Quincy
each required that Robert Gatza and Robert Fanella personally guarantee
the Company's debt, and DCCA also required that Messrs. Gatza and
Fanella guarantee a previously outstanding debt of $115,600.
In order to induce Messrs. Gatza and Fanella to provide the
personal guarantees, the Board of Directors granted to Mr. Gatza a Class
C Warrant to purchase up to 38,333 shares of common stock between April
10, 1992 and April 10, 1998, and granted to Mr. Fanella a Class C
Warrant to purchase up to 18,611 shares of common stock during the same
period. The Class C Warrants were exercisable at $22.68 per share,
which was 101% of the market bid price on April 10, 1991, the date of
grant.
Transactions Relating to Debt Renegotiation
In 1994 the Company was forced to renegotiate the terms of all of
its term debt due to cash flow inadequacies. The renegotiated debt
included the debts to the City of Quincy and the DCCA, both of which
were personally guaranteed by Messrs. Gatza and Fanella. The City of
Quincy loan payout was extended approximately two years and the DCCA
loan one year beyond the original term. The total amount outstanding at
the time of renegotiation was $357,000 for the City of Quincy loan and
$435,000 for the DCCA loan. As part of the renegotiations, the personal
guarantees needed to be extended for the additional time.
In order to induce Messrs. Gatza and Fanella to provide the
extension of the personal guarantees, the Board of Directors granted to
Mr. Gatza a Class D Warrant to purchase up to 58,333 shares of common
stock between December 13, 1995 and December 13, 2001, and granted to
Mr. Fanella a Class D warrant to purchase up to 38,889 shares of common
stock during the same period. The Class D Warrants are exercisable at
$.45 per share, which was 125% of the market bid price on December 13,
1994, the date of grant. The market value at the date of grant was
equal to approximately 6% of the amount guaranteed at the time of
renegotiation.
In December of 1995 Messrs Gatza and Fanella exercised their
Class D Warrants, purchasing a total of 97,222 shares of Common Stock
for a total purchase price of $43,750.
Transaction Relating to Debt Compromise
In January, 1996 the Company reached agreement with its major
creditor to compromise a long-term debt of approximately $2,350,000 by
the immediate payment of $1,323,000. The compromise was intended to
improve the Company's financial condition, and to increase the net worth
of the Company sufficiently that upon the completion of this offering
the Company will be eligible to have its securities listed on the NASDAQ
SmallCap Market.
In order to obtain the funds needed to finance the debt
compromise, the Company raised $275,000 in the Bridge Financing. See
"CAPITALIZATION - Bridge Financing." The Company also sold 350,000
shares of Series A Preferred Stock in equal parts to Messrs Gatza and
Fanella in exchange for their cash payment of $250,000 and their
personal guarantees of a loan of $800,000. The Series A Preferred Stock
issued to Messrs Gatza and Fanella is identical to that which is being
sold in this offering.
The Company believes that the terms of all of the transactions
discussed in this section were no less favorable to the Company than
those which could have been obtained from non-affiliated parties.
PRINCIPAL SHAREHOLDERS
The following table sets forth the equity securities of the
Company beneficially owned by any person who, to the knowledge of the
Company, owned beneficially more than 5% of either class of voting stock
as of April 23, 1996, by all directors of the Company, and by the
directors and officers of the Company as a group. The table also
indicates the number of votes to which each person would be entitled in
the event of a shareholders meeting and the percentage of the total
voting power represented thereby. None of the persons identified below
owns any securities of the Company other than the Common Stock and the
Series A Preferred Stock listed below.
<PAGE>
Amount and
Name of Nature of
Title of Beneficial Beneficial Percentage Voting
Class Owner Ownership Of class Votes Power(1)
Common
Stock 134,407
$.01 par Robert G. shares of
value Gatza( 4) record(2)(3) 29.6% 134,407 16.7%
Series A
Preferred
Stock 175,000
$5.00 par Robert G. shares of
value Gatza (4) Record 50.0% 175,000 21.8%
Common Stock 87,662
$.01 par Robert J. shares of
value Fanella(4) Record(2) 20.2% 87,662 11.2%
Series A
Preferred
Stock 175,000
$5.00 par Robert J. shares of
value Fanella(4) Record 50.0% 175,000 22.3%
Common Stock 7,699
$.01 par George M. shares of
value Bradshaw Record 0.2% 7,699 0.1%
Common All officers
Stock and directors 229,767
$.01 par as a group shares of
value (3 persons) record(1) 48.1% 229,767 27.8%
Series A All officers
Preferred and directors 350,000
Stock as a group shares of
$5.00 par (3 persons) record 100.0% 350,000 42.3%
value
(1) In determining the percentage of outstanding shares or the
percentage of voting power, all presently-exercisable options
owned by the shareholder or the group are treated as having been
exercised.
(2) Include shares of Common Stock issued pursuant to the Restricted
Stock Grant Program as follows: Robert G. Gatza - 34,722 shares,
Robert J. Fanella - 18,056 shares. See "MANAGEMENT - Restricted
Stock Grant Program." Also includes Class C Warrants to purchase
shares of Common Stock at $22.68 per share as follows: Robert G.
Gatza - 38,333 shares, Robert J. Fanella - 18,611 shares. See
"CERTAIN TRANSACTIONS."
(3) Does not include 18,192 shares owned by Carol Ann Gatza, Mr.
Gatza's wife. Mr. Gatza does not share voting power or investment
power with respect to those shares and, accordingly, disclaims
beneficial ownership of them.
(4) The business address of Messrs. Gatza and Fanella is c/o
MicroENERGY, Inc., 350 Randy Road, Carol Stream, Illinois 60188.
DESCRIPTION OF THE COMPANY'S SECURITIES
The authorized capital stock of the Company consists of 4,000,000
shares of Common Stock and 4,000,000 shares of Preferred Stock. On the
date of this Prospectus, the Company had 415,143 shares of Common Stock
outstanding and 350,000 shares of Preferred Stock outstanding.
Common Stock
Holders of the Common Stock are entitled to one vote for each share
in the election of directors and in all other matters to be voted on by
the stockholders. There is no cumulative voting in the election of
directors. Holders of Common Stock are entitled to receive such
dividends as may be declared from time to time by the Board of Directors
with respect to the Common Stock out of funds legally available therefor
and, in the event of liquidation, dissolution or winding up of the
Company, to share ratably in all assets remaining after payment of
liabilities. The holders of Common Stock have no preemptive or conver-
sion rights and are not subject to further calls or assessments. There
are no redemption or sinking fund provisions applicable to the Common
Stock. The Common Stock currently outstanding is, and the Common Stock
issuable upon exercise of the Warrants (described below) will, when
issued, be validly issued, fully paid and nonassessable.
Preferred Stock
The Company is authorized to issue 4,000,000 shares of preferred
stock, no par value. The preferred stock could, without action by the
shareholders of the Company, be issued by the Board of Directors from
time to time in one or more series for such consideration and with such
relative rights, privileges and preferences as the Board may determine.
Accordingly, the Board has the power to fix the dividend rate and to
establish the provisions, if any, relating to voting rights, redemption
rate, sinking fund, liquidation preferences and conversion rights for
any series of preferred stock issued in the future. It is not possible
to state the actual effect of the authorization of any other series of
preferred stock upon the rights of holders of the Common Stock or the
Series A Cumulative Convertible Preferred Stock until the Board
determines the specific rights of the holders of any series of preferred
stock.
The only series of Preferred Stock presently outstanding is the
Series A Preferred Stock, $5.00 par value, of which 350,000 shares were
issued by the Company to Robert G. Gatza and Robert J. Fanella in
connection with its financing of the recent debt compromise. See
"CAPITALIZATION - Debt Compromise." The Company has no present plans to
issue any shares of preferred stock other than the Series A Cumulative
Convertible Preferred Stock being sold in this offering.
Series A Cumulative Convertible Preferred Stock
This offering includes shares of Series A Cumulative Convertible
Preferred Stock (the "Preferred Stock"). The Board of Directors of the
Company has designated the following rights, privileges and preferences
for the Series A Cumulative Convertible Preferred Stock.
Dividend Rights
Holders of shares of Preferred Stock are entitled to receive, out
of the assets of the Company legally available for the payment of
dividends, dividends payable semi-annually on the 1st day of each Janu-
ary and July after issuance. Dividends upon the Preferred Stock are
cumulative and accrue from the date of original issue. No cash dividend
may be declared and paid or set apart for payment upon the Common Stock
until any past quarterly dividend on any outstanding series of Preferred
Stock has been fully paid or declared and set apart for payment. See
"Risk Factors - Restrictions on Payment of Dividends."
At the Company's option, the Company may pay all or part of each
dividend in shares of Common Stock. The Common Stock so issued will be
valued based on 100% of the average closing bid price of the Common
Stock as reported on NASDAQ (or such exchange or quotation service as
the Common Stock may be quoted on, if it ceases to be quoted on NASDAQ)
for the ten trading days before the record date for the dividend.
Voting Rights
The holder of each share of Preferred Stock will be entitled to
cast one vote at any meeting of the shareholders of the Company, as will
the holder of each share of Common Stock. Upon completion of this
offering (without exercise of the Over-Allotment Option) there will be
415,143 shares of Common Stock outstanding and 780,000 shares of
Preferred Stock. Accordingly, at a shareholders meeting held
immediately after completion of this offering, there would be 1,195,143
votes authorized, of which the holders of Preferred Stock would be
entitled to cast 780,000.
Conversion
Each share of Preferred Stock may be voluntarily converted by the
record holder thereof into Common Stock on the terms described below.
Each share of Preferred Stock is also subject to "mandatory" conversion
into Common Stock, at the Company's option, upon the occurrence of
circumstances described below. In the event that a share of Preferred
Stock is automatically converted into Common Stock, the holder thereof
will lose the right of voluntary conversion with respect to that share.
Voluntary Conversion. After _____________, 1997 , each share of
the Preferred Stock is convertible, at the option of the holder thereof,
into between one and two shares of Common Stock. The number of shares of
Common Stock into which each share of Preferred Stock is convertible
(the "Voluntary Conversion Rate") will be determined on the first
anniversary of the date of this prospectus. The Voluntary Conversion
Rate will be based upon the average of the closing bid prices for the
Common Stock as reported on NASDAQ (or such exchange or quotation
service as the Common Stock may be quoted on, if it ceases to be quoted
on NASDAQ) for the twenty trading days preceding said anniversary date
(the "Closing Average"), as follows:
Each Share of
Preferred Stock
If the Closing Will Be Convertible Into
Average is Shares of Common Stock
Over $5.50 1.00
$4.51 to $5.50 1.25
$3.50 to $4.50 1.75
Under $3.50 2.00
A holder of Preferred Stock may convert his shares to Common Stock
by surrendering to American Stock Transfer & Trust Company (the "Ex-
change Agent") each certificate covering shares to be converted together
with a statement of the name or names in which the shares of Common
Stock shall be registered upon issuance. Such a notice of election to
convert shall have the effect of creating a contract between the share-
holder and the Company whereby the shareholder shall be deemed to have
agreed to surrender the shares of Preferred Stock and to release the
Company from all further obligation thereon, and whereby the Company
shall be deemed to have agreed to issue the appropriate number of shares
of Common Stock upon the surrender of the shares of Preferred Stock.
The conversion right will terminate at the close of business of the
redemption date as to any shares of Preferred Stock being redeemed on
that date.
Mandatory Conversion. In the event that during the first 24 months
after the first anniversary of the date of this Prospectus the closing
bid price of the Company's Common Stock exceeds $7.00 for five
consecutive trading days, each share of the Preferred Stock may, at the
Company's option, be converted after the fifth such day into 1 share of
Common Stock (the "Mandatory Conversion Rate"). Likewise, after the
third anniversary of the date of this Prospectus, each share of the Pre-
ferred Stock may, at the Company's option, be converted into 1 shares of
Common Stock. Holders of the Preferred Stock will receive notice of the
conversion of their shares promptly after the conversion takes place.
The following provisions apply with respect to either Voluntary
Conversion or Mandatory Conversion.
All dividends declared and unpaid up to the date of conversion
shall be paid by the Company at the time of conversion unless that
payment date has not yet occurred, in which event the dividend shall be
paid upon the payment date for such dividend set forth in the Preferred
Stock certificate. Any such unpaid dividends must be paid in full to
the holder prior to the declaration and payment of any other dividend or
distribution by the Company with respect to its Common Stock and must be
paid pari passu to the holder with payment of any other dividend or
distribution by the Company with respect to the Preferred Stock. The
Company will not issue any note or other evidence of indebtedness with
respect to unpaid dividends. If the Company does not make payment of
any dividends when due, the remedy of a Preferred Stockholder will be to
undertake a legal action in a court of competent jurisdiction.
The Voluntary Conversion Rate and the Mandatory Conversion Rate are
both subject to adjustment upon the occurrence of the following events:
the issuance of shares of Common Stock or other securities of the
Company as a dividend or distribution on shares of Common Stock of the
Company to the holders of all of its outstanding shares of Common Stock;
subdivisions, combinations, or certain reclassifications of shares of
Common Stock of the Company; or the distribution to the holders of
shares of Common Stock of the Company generally of evidences of
indebtedness or assets (excluding cash dividends and distributions made
out of current or retained earnings) or rights, options, or warrants to
subscribe for securities of the Company other than those mentioned
above. No adjustment in the conversion rates will be required to be made
with respect to the Preferred Stock until cumulative adjustments amount
to one percent or more; however, any such adjustment not required to be
made will be carried forward and taken into account in any subsequent
adjustment. In lieu of fractional shares of Common Stock, there will be
paid to the holder of the Preferred Stock at the time of conversion an
amount in cash equal to the same fraction of the current market value of
a share of Common Stock of the Company.
In the event of any consolidation with or merger of the Company
into another corporation, or sale of all or substantially all of the
properties and assets of the Company to any other corporation, or in
case of any reorganization of the Company, each share of Preferred Stock
would thereupon become convertible only into the number of shares of
stock or other securities, assets or cash to which a holder of the
number of shares of Common Stock of the Company issuable (at the time of
such consolidation, merger, sale or reorganization) upon conversion of
such share of Preferred Stock would have been entitled upon such
consolidation, merger, sale or reorganization.
Liquidation Preference
In the event of a voluntary or involuntary liquidation or winding
up of the Company, the holders of Preferred Stock will be entitled to
receive out of the assets of the Company available for distribution to
shareholders $5.00 per share plus all accrued and unpaid dividends
before any distribution is made to the holders of Common Stock or any
other class or series of stock ranking junior to the Preferred Stock as
to distribution of assets.
After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of shares of Preferred Stock will
not be entitled to any further participation in any distribution of
assets by the Company. The foregoing liquidation rights shall not be
operative in the event of (i) any consolidation or merger of the Company
with or into any other corporation, (ii) any dissolution, liquidation,
winding up or reorganization of the Company immediately followed by
reincorporation of a successor corporation or creation of a successor
partnership or (iii) a sale or other disposition of all or substantially
all of the Company's assets to another corporation or a partnership if,
in each case, effective provision is made in the certificate of
incorporation of the resulting or surviving corporation or the articles
of partnership of the resulting partnership or otherwise, for the
protection of the rights of the holders of the Preferred Stock.
Preemptive Rights
Holders of Preferred Stock shall have no preemptive right to
purchase any securities of the Company.
Warrants
The Redeemable Class A Warrants are immediately transferable. Each
Redeemable Class A Warrant entitles the holder thereof to purchase one
share of Series A Preferred Stock at an exercise price of $5.25 from
_____________, 1997 until ____________, 2000, subject to certain
adjustments. In the event that the Company has exercised its option to
convert the Series A Preferred Stock into Common Stock, each Class A
Warrant will thereafter entitle the holder to purchase one share of
Common Stock. The Redeemable Warrants may be exercised in whole or in
part.
The Redeemable Warrants will be issued under a warrant agreement
dated as of the closing date of this offering (the "Warrant Agreement")
between the Company and American Stock Transfer & Trust Company (the
"Warrant Agent"). The following is a general summary of certain
provisions contained in the Warrant Agreement and is qualified in its
entirety by reference to the Warrant Agreement, a copy of which as been
filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
The Board of Directors of the Company has the right to amend the
terms of the Warrant Agreement at its discretion to, among other things,
reduce the exercise price or extend the exercise period of the Warrants;
provided, however, that no amendment adversely affecting the rights of
the holders of Warrants may be made without the approval of the holders
of a majority of the affected Warrants.
At any time during the exercise period (but not before ___________,
1997) the Company has the right to redeem all the Class A Warrants at a
price of $.05 per Warrant upon not less than 30 days' prior written
notice; provided that before any redemption of Class A Warrants can take
place, the average closing bid price of the Company's Common Stock as
reported on NASDAQ shall have been $7.00 per share for 5 consecutive
trading days ending within 15 days prior to the date on which notice of
redemption is sent.
In order for a holder to exercise his or her Redeemable Warrants,
and as required in the Warrant Agreement, there must be a current
registration statement on file with the Securities and Exchange
Commission and various state securities commissions to continue
registration of the shares of Common Stock underlying such warrants.
The Company will be required to file post-effective amendments when
events require such amendments. There can be no assurance that the
registration statement can be kept current. If it is not kept current
for any reason, the Redeemable Warrants will not be exercisable and will
be deprived of any value. The Company has agreed to use its best
efforts to maintain a current registration statement to permit the
issuance of the Preferred Stock upon exercise of the Redeemable
Warrants.
Holders of the Redeemable Warrants will be protected against
dilution of the interest represented by the underlying shares of
Preferred Stock upon the occurrence of certain events, including, but
not limited to, stock dividends, stock-splits, reclassifications and
mergers. In the event of the complete liquidation and dissolution of
the Company, the Redeemable Warrants terminate. Holders of the
Redeemable Warrants will not have voting power and will not be entitled
to dividends. In the event of liquidation, dissolution or winding up of
the Company, holders of the Redeemable Warrants will not be entitled to
participate in the Company's assets.
Pursuant to the Underwriting Agreement, the Company has agreed to
pay to the Representative and/or any registered broker-dealer which is a
member of the National Association of Securities Dealers, Inc. ("NASD")
a commission equal to four percent of the exercise price of each
Redeemable Warrant exercised provided: (1) at least one year has
elapsed from the date of this Prospectus; (2) the market price for the
Preferred Stock is greater than the exercise price of the Redeemable
Warrants; (3) the Representative or such other NASD broker-dealer member
has solicited the holder to exercise the Redeemable Warrant with such
solicitation being confirmed in writing by each holder; and (4) the
compensation arrangements were disclosed to the holder at the time of
exercise, such disclosure being confirmed in writing by said holder.
The commission is further conditioned upon the Company's warrant agent
being furnished by the Representative or NASD broker-dealer member with
a certificate stating that:
(i) the Redeemable Warrants exercised were not held in a
discretionary account;
(ii) the Representative or the NASD member did not, within 10
business days immediately preceding the solicitation of the
exercise of the Redeemable Warrant or the date of such exercise,
bid for or purchase the Preferred Stock of the Company or any
securities of the Company immediately convertible into or
exchangeable for the Preferred Stock (including the Redeemable War-
rants) or otherwise engage in any activity that would be prohibited
by Rule 10b-6 under the Securities Exchange Act of 1934, as
amended, to one engaged in a distribution of the Company's securi-
ties; and
(iii) in connection with the solicitation, the Representative
and/or the NASD member disclosed the compensation it would receive
upon exercise of the Redeemable Warrant.
Transfer Agent/Warrant Agent
The Company's transfer agent for the Preferred Stock, Common Stock
and the Warrants is American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York 10005. American Stock Transfer & Trust
Company also serves as the Warrant Agent for the Warrants.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS TO INVESTORS
The following discussion is a summary of the opinion of Bressler,
Amery & Ross, counsel to the Company, regarding the material federal
income tax consequences of acquiring, holding and disposing of the
Securities, based on the law as it exists on the date hereof. It does
not purport to be a complete discussion of all tax considerations
possibly relevant to potential investors.
The term "Common Stock" as hereinafter used in this "Certain
Federal Income Tax Considerations" section refers only to the Common
Stock issued (i) on conversion of the Preferred Stock, (ii) on the
exercise of the Class A Warrants or (iii) as dividends with respect to
the Preferred Stock. This discussion does not address federal income tax
considerations relevant to persons in special tax situations including
life insurance companies, banks, tax-exempt entities, securities
dealers, S corporations, foreign corporations and nonresident alien
individuals. This discussion is addressed to investors who will hold
the Preferred Stock, the Common Stock and the Class A Warrants as "capi-
tal assets" within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the "Code"). This discussion does not address
any state, local or foreign tax considerations which may be relevant to
an investor and is based on relevant provisions of the Code, the
Treasury Regulations promulgated thereunder (the "Regulations"), and
administrative and judicial interpretations thereof, as in effect at the
date of this Registration Statement.
There can be no assurance that future changes in applicable law,
including changes in applicable law pursuant to legislative proposals
currently under consideration, or administrative and judicial
interpretations thereof will not adversely affect the tax consequences
described herein. TAX CONSEQUENCES OF AN INVESTMENT IN THE SECURITIES
MAY VARY DEPENDING ON EACH HOLDER'S PARTICULAR SITUATION. POTENTIAL
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF THE PREFERRED STOCK,
THE COMMON STOCK OR THE WARRANTS IN THEIR PARTICULAR CIRCUMSTANCES,
INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE OR LOCAL TAX LAWS
AND ESTATE AND GIFT TAX CONSIDERATIONS.
Distributions on Preferred Stock and Common Stock
Distributions by the Company with respect to the Preferred Stock or
the Common Stock will be characterized as dividends for federal income
tax purposes to the extent of the Company's current or accumulated
earnings and profits allocable to such distributions. To the extent
that Common Stock is distributed with respect to the Preferred Stock
("Distributed Common Stock"), the amount distributed shall be the fair
market value of the Distributed Common Stock on the date of such
distribution and such amount distributed would be characterized as a
dividend for federal income tax purposes to the extent of the Company's
current or accumulated earnings and profits allocable to such
distribution. Since the amount distributed with respect to a
distribution of Distributed Common Stock is based on the fair market
value of such Distributed Common Stock on the date of such distribution,
and is not based on the pre-record date average trading price of the
Common Stock, such amount distributed (and, subject to the existence of
earnings and profits allocable to such distribution, the amount of
dividend income) may be greater or less than $.40 per share which is
stated as the amount of the annual dividend. See "Dividends." In
general, distributions classified as dividends for federal income tax
purposes constitute ordinary income and are taxable in the year of re-
ceipt. A distribution in excess of the Company's current or accumulated
earnings and profits allocable to such distribution (including the fair
market value of any Distributed Common Stock in excess of the Company's
current or accumulated earnings and profits allocable to such
distribution) would be treated first as a nontaxable recovery of any
basis in the stock with respect to which such distribution was made and
then would be treated as capital gain from the sale or exchange of such
stock. Any such gain would be long-term capital gain if the taxpayer's
holding period for such stock exceeds one year. The amount of the
Company's current or accumulated earnings and profits depends, in part,
upon the Company's results of operations and cannot be predicted.
Accordingly, there can be no assurance that all or any portion of a
distribution with respect to the Preferred Stock or the Common Stock
would be classified as a dividend for federal income tax purposes.
Dividends Received Deduction -- Corporate Shareholders
Dividends received by corporate holders with respect to the
Preferred Stock and the Common Stock may be eligible for the 70%
dividends received deduction (80%, if the Company is a "20% owned
corporation" with respect to the corporate stockholder, within the
meaning of Section 243 of the Code). To be eligible for the dividends
received deduction, a corporate holder must hold its shares of Common
Stock or Preferred Stock with respect to which dividend distributions
are made for certain minimum periods (generally 46 days) and must meet
certain other requirements. A holder's holding period, for this
purpose, is generally reduced for periods during which the holder's risk
of loss with respect to the stock on which dividend distributions are
made is diminished. The dividends received deduction may be reduced or
eliminated if a holder's shares of Preferred Stock or Common Stock are
deemed to be debt-financed portfolio stock within the meaning of Section
246A of the Code. Under the adjusted current earnings rules of the
alternative minimum tax provisions of the Code, and depending upon a
corporate holder's particular tax situation, up to 75% of any dividends
received deduction may be added back in the computation of alternative
minimum taxable income.
Under Section 1059 of the Code, a corporate holder may be required
to reduce its adjusted basis (or, upon disposition, recognize additional
gain) for a share of stock in an amount generally equal to the dividends
received deduction allowable with respect to an "extraordinary dividend"
on such share of stock, if such share were held for not more than 2
years before the "dividend announcement date" for such extraordinary
dividend. An extraordinary dividend is, generally, a dividend in excess
of 5% or 10% of a holder's basis for (or, at the holder's election, the
fair market value of) a share of Preferred Stock or Common Stock,
respectively. For this purpose, dividends having ex-dividend dates
within the same 85 day period are aggregated. Additionally, dividends
with respect to a share of stock having ex-dividend dates within the
same 365 day period are treated as extraordinary if such dividends
exceed 20% of a holder's basis for (or, electively, the fair market
value determined on a weighted average basis, of) such share of stock.
Due to the existence of options on the part of both the Company and the
holders of Preferred Stock to convert the Preferred Stock to Common
Stock and the absence of relevant authority, no opinion can be given as
to whether the rules applicable under Section 1059 of the Code to
preferred stock or to common stock would be applicable to the Preferred
Stock.
Under Section 1059(f) of the Code, dividends with respect to
"disqualified preferred stock" are subject to the basis reduction rules
of Section 1059 of the Code without the regard to the period the
taxpayer has held the stock or the amount of the dividend. Disqualified
preferred stock includes any stock which is preferred as to dividends if
the "issue price" of such stock exceeds it "liquidation rights." Since
the exercise price of a Class A Warrant ($5.25) exceeds the amount of
the liquidation preference of a share of Preferred Stock ($5.00),
Section 1059(f) of the Code may be applicable to dividends received by
holders (including holders other than the initial holders) of shares of
Preferred Stock issued upon the exercise of the Class A Warrants
("Exercise Preferred Shares"). In such event, holders of Exercise
Preferred Shares may be required to reduce the adjusted basis for an
Exercise Preferred Share by the amount, of any dividends received
deduction with respect to such Exercise Preferred Share; possibly below
the amount of the liquidation preference of such Exercise Preferred
Share. Further, if the allocation of the offering price of the
Preferred Stock and the Class A Warrants as set forth in this offering
were not respected (see Tax Treatment of Class A Warrants) and the
"issue price" of Preferred Stock issued pursuant to this offering were
treated as being in excess of the amount of the "liquidation rights"
with respect to such Preferred Stock, Section 1059(f) of the Code could
possibly apply to require a reduction in the adjusted basis of such
Preferred Stock. Due to the existence of options on the part of both
the Company and the holders of Preferred Stock to convert the Preferred
Stock to Common Stock and the absence of relevant authority with respect
to the application of Section 1059(f) and the terms "issue price" and
"liquidation rights" to convertible preferred stock issued upon exercise
of a stock warrant, no opinion can be given as the application to
Section 1059(f) to Exercise Preferred Shares or Preferred Stock.
If, in the event of a redemption of Preferred Stock, a holder is
treated as having received a distribution taxable as a dividend (see
discussion of Sale or Redemption of Preferred Stock, below), such holder
may be subject to the basis reduction requirements of Section 1059 of
the Code without regard to the amount of such deemed distribution or the
holder's holding period for the redeemed Preferred Stock.
Recently proposed legislation would, if enacted into law, reduce
the dividends received deduction percentage. It cannot be known at the
present time whether such legislation will be enacted or, if enacted,
the form such legislation will ultimately take. A corporation
considering an investment in the Securities is urged to consult its tax
advisor regarding the application of the dividends received deduction
and related rules to its particular situation, and the effect of any
potential legislation on such application.
Sale or Redemption of Preferred Stock
A sale or redemption of Preferred Stock for cash would be a taxable
event. The sale of Preferred Stock would generally be treated as a
taxable sale or exchange resulting in the recognition of capital gain or
loss equal to the difference between the amount realized and the
holder's adjusted tax basis for the Preferred Stock sold. The
redemption of Preferred Stock for cash may be treated as a taxable sale
or exchange resulting in the recognition of capital gain or loss in an
amount equal to the difference between the amount of cash received and
the holder's adjusted tax basis for the Preferred Stock redeemed. Gain
or loss resulting from the redemption (if treated as a sale or exchange)
or sale of Preferred Stock would be long-term capital gain or loss if
the holding period for the Preferred Stock were to exceed one year at
the time of such redemption or sale. Under certain circumstances,
however (such as where a stockholder's interest in the Company is not
sufficiently reduced), a redemption of Preferred Stock would not be
treated as a sale or exchange, and the entire amount of the cash
received upon redemption of the Preferred Stock would be treated as a
distribution by the Company. Such distribution would be subject to the
rules described above with respect to distributions on Preferred Stock
and Common Stock. A redemption of Preferred Stock would be treated as a
sale or exchange and not as a distribution as to a stockholder who
completely terminates his interest in the Company (taking into account
shares deemed owned by the stockholder by reason of the constructive
ownership rules set forth in Section 302(c) of the Code) as a result of
such redemption. A redemption of Preferred Stock would generally be
treated as a sale or exchange and not as a distribution as to a
stockholder who, after the redemption (taking into account such
constructive ownership rules) owns less than (i) 50% of the total
combined voting power of all classes of stock of the Company, (ii) 80%
of the percentage of the voting stock of the Company that such
stockholder owned immediately before the redemption, and (iii) 80% of
the percentage of the common stock of the Company that such stockholder
owned immediately before the redemption. Further, a redeemed holder of
Preferred Stock whose relative stock interest in the Company is minimal
(for example, an interest of less than 1%) and who exercises no control
over the Company's affairs, should be treated as having sold or
exchanged his stock if such holder experiences an actual reduction in
his proportionate interest in the Company (taking into account the
constructive ownership rules mentioned above). Additionally, sale or
exchange treatment may be available to a redeeming holder of Preferred
Stock under other circumstances.
Distributed Common Stock
A holder's initial tax basis in Distributed Common Stock would be
the fair market value thereof on the date of distribution and a holder's
holding period for such Distributed Common Stock would commence on the
date after the date of distribution.
Tax Treatment of Class A Warrants
The exercise of a Class A Warrant would not be taxable. The tax
basis of the shares of Preferred Stock received upon such exercise would
equal the adjusted tax basis of the Class A Warrants exercised, plus the
exercise price paid. The holding period of the Preferred Stock received
would begin upon the date of exercise. On redemption, sale or expira-
tion of a Warrant, the holder would recognize gain or loss equal to the
difference between the amount realized on the redemption, sale or
expiration and the holder's tax basis in the Warrant. Such gain or loss
generally would be capital gain or loss and would be long-term capital
gain or loss if the holding period for the Warrant were to exceed one
year.
Although the Offering provides that the offering price of a share
of Preferred Stock is $5.00 and the offering price of a Class A Warrant
is $.10, since the Preferred Stock and the Class A Warrants are not
offered separately, no assurance can be given that the Internal Revenue
Service would not challenge such allocation. If the Internal Revenue
Service were to challenge such allocation and were to prevail with
respect to such challenge, then a holder would be required to adjust the
tax basis for the Preferred Stock and the Class A Warrants accordingly.
<PAGE>
Conversion of Preferred Stock to Common Stock
The conversion of the Preferred Stock into shares of Common Stock,
whether pursuant to the option of the holder or the Company, generally
would not be taxable. However, if cash is received in exchange for a
fractional share of Common Stock the holder should be treated as if the
holder had received the fractional share of Common Stock in exchange for
which cash was received and then had such fractional share of Common
Stock redeemed for cash.
The tax basis for the shares of Common Stock received upon
conversion would be equal to the adjusted tax basis of the Preferred
Stock converted, reduced by the portion of such basis allocable to any
fractional interest exchanged for cash. The holding period for the
shares of Common Stock received upon conversion would include the
holding period of the Preferred Stock converted.
Adjustment of Conversion Price
Section 305 of the Code and Regulations issued thereunder may treat
holders of the Preferred Stock or Class A Warrants as having received a
constructive distribution taxable as a dividend to the extent of the
current or accumulated earnings and profits of the Company allocable to
such constructive distribution, upon any adjustment in the conversion
ratio to reflect certain distributions with respect to the Common Stock
into which the Preferred Stock or Class A Warrants are convertible. The
amount of the distribution would be determined, pursuant to the
applicable Regulations, based upon the fair market value of the increase
in the proportionate interest in the Company of the person to whom the
constructive distribution is deemed to have been made.
Backup Withholding
Under Section 3406 of the Code and applicable Regulations, a holder
of Preferred Stock or Common Stock may be subject to backup withholding
at the rate of 31% with respect to dividends paid on, or the proceeds of
a sale, exchange or redemption of, the Preferred Stock or Common Stock.
If (i) the holder ("payee") fails to furnish a taxpayer identification
number ("TIN") to the Company (or other payor), (ii) the Internal
Revenue Service notifies the Company (or other payor) that the TIN
furnished by the payee is incorrect, (iii) there has been a "notified
payee underreporting" described in Section 3406 of the Code or (iv)
there has been a failure of the payee to certify under penalty of
perjury that the payee is not subject to withholding under Section
3406(a)(1)(C) of the Code, the Company (or other payor) will be required
to withhold an amount equal to 31% of any dividend or redemption payment
made with respect to the Preferred Stock or Common Stock. Amounts paid
as backup withholding do not constitute an additional tax and can be
credited against the holder's federal income tax liabilities.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement by and between the Company and the Representative
("Underwriting Agreement"), the Company has agreed to sell to the
Underwriters, as set forth below, for whom I.A. Rabinowitz & Co. is the
Representative, on a "firm commitment" basis, a total of 430,000 shares
of Preferred Stock, $.01 par value, and 215,000 Class A Redeemable
Common Stock Purchase Warrants, as follows:
Underwriters Preferred Shares Class A Warrants
I.A. Rabinowitz & Co.
[ ]
Total
The Company has agreed to sell the Securities to the Underwriters
at a discount of ten percent of the public offering price thereof. The
Company has also agreed to pay the Representative a nonaccountable
expense allowance in the amount of 3% of the offering price of the
Securities, including Securities purchased pursuant to the Over-Allotment
Option, of which $25,000 has been advanced to the
Representative. In addition, the Company has agreed to pay all costs of
issuance of the Securities, including blue sky fees and related counsel
fees but not including fees and expenses of the Representative's
counsel. The Company estimates that it will incur costs of $120,000 in
connection with this Offering, not including the Representative's 3%
non-accountable expense allowance and the $48,000 financial consulting
fee payable to the Representative. As part of the underwriting arrange-
ments, the Company will enter into a contract to retain the
Representative as a financial consultant to the Company for a two-year
period commencing as of the close of the sale of the Securities offered
hereby at an annual fee of $24,000, for a total of $48,000, payable in
full at the closing of this offering. The Company has agreed to pay the
Representative an investment banking fee for future consummated
transactions, if any, introduced by the Representative including
mergers, acquisitions and joint ventures during the five years following
the completion of the Offering equal to 5% of the first $4,000,000 of
consideration involved in the transaction, 4% of the next $1,000,000, 3%
of the next $1,000,000, and 2% of the excess, if any, over $6,000,000.
The Company has agreed to indemnify the Representative against certain
liabilities which may be incurred in connection with this offering,
including certain civil liabilities under the Securities Act of 1933, as
amended, and where such indemnification is not available, to contribute
to the payments the Representative may be required to make in respect of
such liabilities. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers
or persons controlling the Company pursuant to the foregoing provisions,
the Company has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
The Underwriting Agreement further provides that for three years after
the completion of this Offering, the Representative will have the right
to nominate one person to serve on the Company's Board of Directors, and
upon such nomination the Board shall take the action necessary to cause
the Representative's nominee to be elected to the Board. If the
Representative does not exercise this right, it may appoint an advisor,
who will be entitled to attend all meetings of the Board of Directors.
The Company's officers and directors have agreed not to issue,
sell, offer to sell or otherwise dispose of any shares of the Company's
Common Stock, or securities convertible into Common Stock owned by them,
for a period of 24 months from the date of this Prospectus without the
prior written consent of the Representative.
The Company has granted the Representative an Over-Allotment
Option, which is exercisable for 45 days from the date hereof, to
purchase up to an aggregate of 64,500 shares of Preferred Stock and an
additional 32,250 Class A Warrants, all at the offering price, less the
underwriting discount, set forth on the cover page of this Prospectus.
The Representative may exercise the Over-Allotment Option solely for the
purpose of covering over-allotments incurred in the sale of Securities
offered hereby.
The Representative has advised the Company that sales to certain
dealers may be made at a public offering price less a concession not in
excess of 5%. The Representative does not intend to confirm sales of
more than one percent of the Securities offered hereto to any accounts
over which it exercises discretionary authority.
There has been no previous established trading market for the
Preferred Stock or the Class A Warrants. The major factors considered
by the Company and the Representative in determining the public offering
price of the Securities and the exercise price of the Class A Warrants,
in addition to prevailing market conditions, were the existing market
for the Common Stock, the Company's financial condition, historical
performance and growth rates; an assessment of the Company's management,
technology, business potential and earnings prospects; the present state
of the Company's development and the above factors in relation to market
valuations of other similar technology-based companies. The public
offering price may not bear any relationship to the assets or book
value, net worth or other criteria of value of or applicable to the
Company.
The Company has agreed, upon completion of this offering, to sell
to the Representative or its nominee for a total of $64.50 Repre-
sentative's Purchase Warrants to purchase 43,000 shares of Series A
Preferred Stock and 21,500 Class A Warrants. The Representative's
Warrants will be exercisable for a four-year term, commencing one year
after the date of this Prospectus, at an exercise price of $6.00 per
share and $.12 per warrant, i.e. 120% of the public offering price of
the Securities. The Class A Warrants underlying the Representative's
Warrants will have the same terms as the Class A Warrants offered hereby
to the public. The Representative's Warrants will be restricted from
exercise, sale, transfer (except to officers of the Representative or of
any other broker-dealer which participates in this Offering), assignment
or hypothecation, for a period of one year from the date of this
Prospectus. The Representative's Warrants also provide that on two
occasions, upon the request of the Representative or holders of a
majority of the Representative's Warrants or underlying securities, at
any time during the four-year period commencing one year after the
Effective Date, the Company will prepare and file a post-effective
amendment or new registration statement permitting the sale of the
Representative's Warrants and/or underlying securities and use its best
efforts to keep the registration statement effective for a nine-month
period following the effective date of such post-effective amendment or
new registration statement. The Company will bear the cost of the first
such registration statement, but the holders will bear all costs
incident to the second such registration statement. If the Company
files a registration statement relating to an equity offering under the
provisions of the Securities Act at any time during the five-year period
commencing on the date of this Prospectus, the holders of the Repre-
sentative's Warrants or underlying securities will have the right,
subject to certain conditions, to include in such registration
statement, at the Company's expense, all or part of the underlying
securities at the request of the holders. The number of securities
covered by the Representative's Warrants and the exercise price are
subject to adjustment upon certain events to prevent dilution.
For the life of the Representative's Warrants, the holders thereof
will have the opportunity to profit from a rise in the market price of
the Securities with a resulting dilution in the interests of other
stockholders. The Representative's registration rights may result in
substantial expense to the Company at a time when it may not be able to
afford such expense and may impede future financing. The Company may
find that the terms on which it could obtain additional capital may be
adversely affected while the Representative's Warrants are outstanding.
The Company has also agreed to pay the Representative a warrant
solicitation fee equal to 4% of the Warrant exercise price for any of
the publicly held Warrants, when exercised, at any time commencing one
year after the date of this Prospectus, provided that the Representative
or any NASD member firm has solicited such exercise, as evidenced in
writing signed by the warrant holder, and that (a) the market price of
the Preferred Stock on the date that any such Warrant is exercised is
greater than the exercise price of the Warrant; (b) the Warrantholder
represents in writing that the Representative or NASD member firm
solicited the exercise of such Warrant; (c) prior specific written
approval for exercise is received from the customer if the Warrant is
held in a discretionary account; (d) disclosure of this compensation
arrangement is made prior to or upon the exercise of such Warrant; (e)
solicitation of the exercise is not in violation of Rule 10b-6 of the
Exchange Act; and (f) solicitation of the exercise is in compliance with
NASD Notice to Members 81-38. In addition, unless granted an exemption
by the Commission from Rule 10b-6 under the Exchange Act, the
Representative will be prohibited from engaging in any market making
activities or solicited brokerage activities with respect to the
Company's Securities for the period from nine business days prior to any
solicitation of the exercise of any Warrant or nine business days prior
to the exercise of any Warrant based on a prior solicitation until the
later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right the Representative may
have to receive a fee for the exercise of the Warrants following such
solicitation. As a result, the Representative may be unable to continue
to provide a market for the Company's Securities during certain periods
while the Warrants are exercisable. See: "Description of Securities -
Warrants".
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus is a part also
relates to the offer and sale of 880,000 Class A Warrants (the "Bridge
Securities") to be offered by the Selling Securityholders. All of such
securities are expected to become tradeable on or about the date of this
Prospectus. Sales of the Warrants being offered by Selling
Securityholders, or even the potential of such sales, would likely have
an adverse effect on the market prices of the Securities being offered
for sale by the Company.
The following table sets forth the beneficial ownership of the
securities of the Company held by each person who is a Selling
Securityholder and by all Selling Securityholders as a group prior to
the Offering and after the Offering, assuming all of the Warrants owned
by the Selling Securityholders are sold.
Class A Percent of Class A
Warrants Owned Warrants Owned
Name of Prior to After Prior to After
Beneficial Owner Offering Offering Offering Offering
Dune Holdings 400,000 -- 45.5% 0%
Rifky Weiner 208,000 -- 23.6% 0%
James R. Solakian 128,000 -- 14.5% 0%
Harold Pretter 48,000 -- 5.5% 0%
JM Holdings 48,000 -- 5.5% 0%
Robert Brantl 48,000 -- 5.5% 0%
Total 880,000 0 100.00% 0%
None of the Selling Securityholders is affiliated with the Company
in any capacity or has had any business relationship with the Company at
any time, except that Robert Brantl is of counsel to the firm of
Bressler, Amery & Ross, which has served as legal counsel to the Company
since it was founded.
Plan of Distribution
The securities offered thereby may be sold from time to time
directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time offer such securities through
underwriters, dealers or agents. The distribution of securities by the
Selling Securityholders may be effected in one or more transactions that
may take place on the over-the-counter market, including ordinary
broker's transactions, privately-negotiated transactions or through
sales to one or more broker-dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions
may be paid by the Selling Securityholders in connection with such sales
of securities. The Selling Securityholders and intermediaries through
whom such securities are sold may be deemed "underwriters" within the
meaning of the Act with respect to the securities offered, and any
profits realized or commissions received may be deemed underwriting
compensation.
At the time a particular offer of securities is made by or on
behalf of a Selling Securityholder, to the extent required, a prospectus
will be distributed which will set forth the number of securities being
offered and the terms of the offering, including the name or names of
any underwriters, dealers or agents, if any, the purchase price paid by
any underwriter for securities purchased from the Selling Securityholder
and any discounts, commissions or concessions allowed or reallowed or
paid to dealers, and the proposed selling price to the public.
Under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the regulations thereto, any person engaged in a
distribution of the securities of the Company offered by the Selling
Securityholders may not simultaneously engage in market-making activi-
ties with respect to such securities of the Company during the applica-
ble "cooling off" period (9 days) prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the
Selling Securityholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including without
limitation, Rule 10b-6 and 10b-7, in connection with transactions in
such securities, which provisions may limit the timing of purchases and
sales of such securities by the Selling Securityholders.
LEGAL MATTERS
The validity of the Securities offered hereby and of the Common
Stock issuable upon exercise of the Warrants has been passed upon for
the Company by Bressler, Amery & Ross, 17 State Street, New York, New
York. Robert Brantl, who is of counsel to Bressler Amery & Ross, is one
of the Selling Securityholders in this Offering. Certain legal matters
in connection with this Offering will be passed upon for the Underwriter
by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, New York.
EXPERTS
The Company's audited financial statements included herein and
elsewhere in the Registration Statement, of which this Prospectus is a
part, are included in reliance upon the report of Selden Fox and
Associates, Ltd., independent certified public accountants, with respect
to the financial statements as of and for the years ended June 30, 1995
and 1994, and upon the authority of said firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed at the office of the Securities and Exchange
Commission (the "Commission") in Washington, D.C. a Registration
Statement on Form SB-2 under the Act with respect to the Securities
offered hereby. This Prospectus, which is part of said Registration
Statement, does not contain all of the information set forth in the
Registration Statement, as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the
Securities, reference is made to the Registration Statement (including
amendments) and the exhibits and schedules filed therewith, which may be
inspected without charge and copied at prescribed rates at the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.<PAGE>
INDEX TO FINANCIAL STATEMENTS
I. Audited Financial Statements for the Years
Ended June 30, 1995 and 1994
Pages
Report of Certified Public Accountants dated
September 7, 1995 F-1
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in Stock-
holders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-7
II. Unaudited Financial Statements for the
Six Months Ended December 31, 1995 and 1994
Consolidated Balance Sheets F-21
Consolidated Statements of Operations F-22
Consolidated Statements of Cash Flows F-23
Notes to Consolidated Financial Statements F-24
<PAGE>
SELDON, FOX AND ASSOCIATES, LTD.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Shareholders of MicroENERGY, Inc.
We have audited the accompanying consolidated balance sheet of
MicroENERGY, Inc. and Subsidiary as of June 30, 1995 and 1994, and the
related consolidated statements of operations, changes in stockholders'
equity (deficit) and cash flows for the years ended June 30, 1995, 1994
and 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstate- ment. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of MicroENERGY, Inc. and its Subsidiary at June 30, 1995 and
1994, and the results of their operations and cash flows for the years
ended June 30, 1995, 1994 and 1993, in conformity with generally
accepted accounting principles.
Certified Public Accountants
September 7, 1995
F-1
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1995 and 1994
1995 1994
ASSETS
Current assets:
Cash $ 113,227 $ 45,792
Accounts receivable 1,193,995 1,253,619
Inventories 2,712,224 2,594,549
Other current assets 53,725 66,492
Total current assets 4,073,171 3,960,452
Property and equipment 4,390,516 4,217,383
Accumulated depreciation (2,604,333) (2,031,852)
1,786,183 2,185,531
Other assets, net 289,177 155,891
$ 6,148,531 $ 6,301,874
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 1,165,211 $ 1,200,849
Current portion of long-term
obligations 858,808 1,164,860
Accounts payable 1,149,587 803,554
Amounts due related parties - 109,770
Accrued expenses 456,206 408,066
Total current liabilities 3,629,812 3,687,099
Long-term obligations 3,514,009 3,954,150
Total liabilities 7,143,821 7,641,249
Commitments
Stockholders' deficit:
Convertible preferred stock, no par value -
800 shares authorized; 769 issued and
converted
Common stock, $.001 par value - 180,000,000
shares authorized; 113,961,563 shares
issued in 1995 and 114,111,563 in 1994 113,961 114,111
Additional paid-in capital 5,678,919 5,678,919
Accumulated deficit (5,356,650) (5,606,544)
Unearned restricted stock compensation (1,455,550) (1,509,550)
Common stock purchase warrants 75 75
Treasury stock, at cost, 683,159 shares ( 16,386) ( 16,386)
Unrealized gain on marketable securities 40,341 -
Total stockholders' deficit ( 995,290) (1,339,375)
$ 6,148,531 $ 6,301,874
See accompanying notes.
F-2<PAGE>
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1995, 1994 and 1993
1995 1994 1993
Net sales $ 14,588,844 $ 12,771,067 $ 15,886,279
Expenses:
Facility, preproduction
and production 11,566,567 10,054,423 12,474,737
Research and development 949,002 920,391 1,246,965
Selling and marketing 494,392 418,830 515,679
General and administrative 997,198 951,004 1,215,618
14,007,159 12,344,648 15,452,999
Operating income 581,685 426,419 433,280
Interest expense, net 331,791 321,574 423,158
Foreign investment income - (100,000) -
Gain on debt restructuring, net - - (30,684)
Net income $ 249,894 $ 204,845 $ 40,806
Net income
per share $ .0022 $ .0018 $ .0004
Weighted average number
of shares of common
stock outstanding 114,036,563 115,111,563 114,544,896
See accompanying notes.
F-3<PAGE>
MICROENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended June 30, 1995, 1994 and 1993
(Page 1 of 2)
Common Unearned
Stock Additional Restricted
Common Purchase Paid-in Stock
Stock Warrants Capital Compensation
Net balance at
June 30, 1992 $ 113,761 $75 $ 5,866,154 $ (1,789,763)
Amortization of
restricted
stock awards - - - 59,664
Issuance of
restricted stock 2,350 - - -
Net income - - -
Net balance at
June 30, 1993 116,111 75 5,866,154 (1,730,099)
Amortization of
restricted
stock awards - - - 54,000
Forfeiture of
restricted
stock award (2,000) - (187,000) 166,549
Net income - - -
Net balance at
June 30, 1994 114,111 75 5,678,919 (1,509,550)
Amortization of
restricted
stock awards - - - 54,000
Cancellation of
150,000 shares (150) - - -
Net income - - - -
Change in unrealized
gain on investment - - -
Net balance at
June 30, 1995$ $ 113,961 $ 75 $ 5,678,919 $(1,455,550)
F-4<PAGE>
MICROENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended June 30, 1995, 1994 and 1993
(Page 2 of 2)
Unrealized Stockholders'
Treasury Accumulated Gain On Total Equity
Stock Deficit Investments (Deficit)
Net balance at
June 30, 1992 $ (16,386) $ (5,852,195)$ - $ (1,678,354)
Amortization of
restricted
stock awards - - - 59,664
Issuance of
restricted stock - - - 2,350
Net income - 40,806 - 40,806
Net balance at
June 30, 1993 (16,386) 5,811,389 - (1,575,534)
Amortization of
restricted
stock awards - - - 54,000
Forfeiture of
restricted
stock award - - - (22,686)
Net income - 204,845 - 204,845
Net balance at
June 30, 1994 (16,386) (5,606,544) - 1,339,375
(1,509,550)
Amortization of
restricted
stock awards - - - 54,000
Cancellation of
150,000 shares - - - (150)
Net income - 249,894 - 249,894
Change in unrealized
gain on investment - - 40,341 40,341
Net balance at
June 30, 1995$ $ (16,386) $(5,356,650) $ 40,341 $ (995,290)
See accompanying notes.
F-4a<PAGE>
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1995, 1994 and 1993
1995 1994 1993
Cash flows from operating
activities:
Net income $ 249,894 $ 204,845 $ 40,806
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation 572,481 536,121 452,228
Property and equipment
write-off - 7,194 -
Amortization - 16,052 16,800
Foreign investment income - ( 100,000) -
Compensation paid in common
stock, net of forfeiture 53,850 31,315 62,014
Interest added to debt
principal - - 50,577
Changes in assets and
liabilities:
Accounts receivable 59,624 494,487 1,087,140
Inventories ( 117,675) ( 306,271) 1,421,313
Other current assets 12,767 ( 24,399) ( 18,761)
Other assets ( 33,946) 2,206 ( 857)
Accounts payable 346,034 121,658 (1,349,957)
Accrued expenses ( 61,630) ( 74,585) ( 132,889)
Net cash from
operating activities 1,081,399 908,623 1,628,414
Cash flows from investing activities:
Additions to property and
equipment ( 173,133) ( 152,392) ( 290,024)
Increase in foreign investment ( 59,000) - -
Net cash from
investing activities ( 232,133) ( 152,392) ( 290,024)
Cash flows from financing
activities:
Issuance of long-term obligations - - 1,104,108
Payment of long-term obligations ( 746,193) ( 498,432) ( 251,318)
Net payments of notes payable ( 35,638) ( 265,741) (2,360,346)
Net cash from
financing activities ( 781,831) ( 764,173) (1,507,556)
Net increase (decrease)
in cash 67,435 ( 7,942) ( 169,166)
Cash at beginning of year 45,792 53,734 222,900
Cash at end of year $ 113,227 $ 45,792 $ 53,734
F-5<PAGE>
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont'd)
Supplemental schedule of non-cash investing
and financing activities:
Capital Leases
In 1994, the Company entered into capital leases for a build-
ing and certain equipment (see Note 6). In connection with
the capital leases, the Company recorded property, equipment
and long-term obligations of $889,861 in 1994.
Other Supplemental Disclosures
Actual interest payments were $331,667, $357,218 and $368,531
for the years ended June 30, 1995, 1994 and 1993, respective-
ly.
See accompanying notes.
F-6<PAGE>
MicroENERGY, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
MicroENERGY, Inc. (MicroENERGY) designs, manufactures and
markets switching power supplies which are used as components
in the electronics systems market.
2. Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial
statements include the accounts of MicroENERGY and its whol-
ly-owned subsidiary, Tru-Way, Inc. All significant intercom-
pany balances and transactions have been eliminated in con-
solidation.
Cash and Cash Equivalents - MicroENERGY considers all short-term deposits
with initial maturities of three months or less to be cash equivalents.
Accounts Receivable - Accounts receivable for sales to cus-
tomers are unsecured and consist of the following:
1995 1994
Accounts receivable $ 1,243,995 $ 1,303,619
Less allowance for
doubtful accounts ( 50,000) ( 50,000)
$ 1,193,995 $ 1,253,619
Inventories - Inventories are stated at the lower of cost or
market. Cost is determined using the first-in, first-out
method. The components of inventories are:
1995 1994
Raw materials $ 1,852,373 $ 1,686,024
Work in process 937,533 963,733
Finished goods 372,854 395,328
3,162,760 3,045,085
Less excess and obsolete
reserve ( 450,536) ( 450,536)
$ 2,712,224 $ 2,594,549
F-7<PAGE>
2. Summary of Significant Accounting Policies (cont'd)
Property and Equipment - Property and equipment is stated at
cost. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets for
financial reporting purposes and the accelerated cost recov-
ery methods for tax reporting purposes. Expenditures for
repairs and maintenance are expensed as incurred. The compo-
nents of property and equipment are:
1995 1994
Machinery and equipment $ 3,072,601 $ 2,938,654
Leasehold improvements 386,496 347,310
Capitalized leases:
Building 216,780 216,780
Equipment 714,639 714,639
$ 4,390,516 $ 4,217,383
Research and Development - Expenditures for research and
development activities are charged to expense as incurred.
Income Taxes - Effective July 1, 1993, MicroENERGY adopted
the asset-liability approach of accounting for income taxes
(Note 9). In 1993 and prior, income taxes were recognized
for all items included in the income statement.
Earnings Per Share - Earnings per common share are computed
based on the weighted average number of common shares out-
standing during each period plus the dilutive effect, if any,
of outstanding common stock equivalents.
3. Management Review of Fiscal 1995
In fiscal year 1995, management finalized the renegotiation
of its debt agreement from the acquisition of a power systems
division from a major customer (Note 10) and note payable to
the State of Illinois as discussed in Note 5. These agree-
ments complete the restructuring management initiated in
1993. MicroENERGY remains current with all of its notes
payable and long-term obligations.
As a result of management's plan to grow the business by
expanding the independent sales representative organization,
sales grew by $1,817,777 or 14% over fiscal 1994. Profit-
ability increased by 22% due to the increase in sales as well
as management's philosophy of continuous improvement in
conjunction with cost containment.
F-8
3. Management Review of Fiscal 1995 (cont'd)
Based upon the history of profitable operating results for
1993, 1994 and 1995 and current sales levels, management
believes that the Company has the ability to continue to meet
its current obligations as they become due including all
scheduled debt repayments without further renegotiation of
debt or disposition of assets outside the ordinary course of
business.
4. Foreign Investment - In July 1988, MicroENERGY entered into
an agreement with MicroENERGY (India) Limited (INDIA), a
Private Limited Company registered under the Indian Companies
Act. MicroENERGY was to provide the technical and manufac-
turing knowledge and training with regards to the manufacture
of power supply products in exchange for $150,000.
MicroENERGY was to purchase a 20% equity interest in INDIA
with $50,000 of the proceeds. The net amount of $100,000 had
been recorded as a miscellaneous receivable from INDIA in
1989. During 1992, a $100,000 reserve was recorded as no
activity under the agreement had yet taken place.
On January 14, 1994, MicroENERGY entered into a revised
agreement with INDIA to again provide the technical and
manufacturing knowledge and training in exchange for $150,000
to be received when certain stipulations had taken place.
The proceeds are to be used to purchase a 7.9% equity inter-
est after the public offering of the stock of INDIA. The
public offering took place in August 1994 and the issue was
oversubscribed.
Coincident with the above, the allowance on the original
$100,000 INDIA receivable, classified under long-term assets,
had been eliminated and income from foreign investment had
been recorded during 1994.
During 1995, MicroENERGY received 5,007,000 shares of stock
at a purchase price of $159,000. This investment, included
in noncurrent other assets, is classified as an available for
sale security and accordingly recorded at fair value. The
gross unrealized gain of $40,341 is recorded as a separate
component of stockholders' equity (deficit).
Once production commences, MicroENERGY will be paid a commis-
sion of 5% of the export sales of INDIA or 3% of their total
sales, whichever is greater. During 1995, MicroENERGY re-
ceived $74,000 of revenue for consulting services performed
for INDIA.
F-9<PAGE>
5. Notes Payable and Long-term Obligations
Notes payable - MicroENERGY has a line of credit agreement
with a bank at an interest rate of prime (9% at June 30,
1995) plus 2.5%. In 1994, the interest rate was at prime
(7.25% at June 30, 1994) plus 3%. The agreement permits the
Company to borrow the lesser of defined percentages of out-
standing accounts receivable and inventory or $2,000,000.
Borrowings under the line of credit at June 30, 1995 and 1994
aggregated $1,165,211 and $1,200,849, respectively. At
June 30, 1995, $250,175 was available to borrow. The line of
credit is payable on demand, and secured by a primary inter-
est in accounts receivable and inventory and a subordinate
interest in all other assets.
Long-term Obligations - The components of debt obligations
are as follows:
June 30,
1995 1994
Note payable to bank with
interest at prime plus 2%,
originally due in quarterly
installments of $31,500,
including interest, through
March 1995. During 1994,
the terms were renegotiated
to monthly payments of
interest through December 15,
1993 and monthly payments
of $5,250 principal plus
interest from January 15,
1994 through December 15,
1998. The note is secured
by a primary interest in
certain machinery and
equipment and a subordinate
interest in accounts
receivable and inventories
and all other equipment.
The City of Quincy, Illinois
has guaranteed the lesser of
$230,000 or 36.5% of the
indebtedness. $220,500 $283,500
F-10
5.Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
June 30,
1995 1994
Note payable to bank with interest
at prime plus 2%, originally due
in monthly installments of $5,000,
plus interest. During 1994, the
terms were renegotiated to monthly
payments of $2,000 principal plus
interest through December 15, 1993
and $5,000 principal plus interest
from January 15, 1994 through
April 15, 1996. The note is secured
by a primary interest in certain
machinery and equipment and a
subordinate interest in accounts
receivable, inventories and all
other equipment. $ 65,000 $ 125,000
3% note payable to the City of Quincy,
Illinois, originally due in quarterly
installments of $27,015, including
interest. During 1994, the terms were
renegotiated to monthly interest
payments through December 31, 1993,
and monthly principal and interest
payments of $4,660 from January 1,
1994 through December 1, 1998. The
note is secured by a subordinate
interest in accounts receivable,
inventories and equipment. 185,572 235,115
3% note payable to the City of Quincy,
Illinois, originally due in monthly
installments of $4,625, including
interest. During 1994, the terms were
renegotiated to monthly interest
payments through December 31, 1993,
and monthly principal and interest
payments of $4,265 from January 1,
1994 through December 1, 1988. The
note is secured by a subordinate
interest in accounts receivable,
inventories and equipment. 169,852 215,198
F-11
5.Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
June 30,
1995 1994
3% note payable to the City of Quincy,
Illinois, originally due in monthly
installments of $7,187, including
interest. During 1994, the terms
were renegotiated to monthly interest
payments through December 31, 1993 and
monthly principal and interest payments
of $6,516 from January 1, 1994 through
December 1, 1998. The note is secured
by a subordinate interest in accounts
receivable, inventories and equipment
and guaranteed by certain
shareholders. $ 259,495 $ 328,773
Note payable to the State of Illinois,
originally due in monthly installments
of $17,842, including interest at 15%,
through August 21, 1996. During 1994,
the terms were renegotiated to add
$50,577 of accrued interest to the
loan balance and decrease the interest
rate to 5%. Monthly payments of
principal and interest of $13,053
were due with a balloon payment of
$446,711 due in May 1995. In May 1995,
the balloon payment was renegotiated to
be paid over a two year period at
monthly payments of $19,997 which
includes interest at 9.5% for the
first year and at prime rate thereafter.
The note is secured by a subordinate
interest in accounts receivable,
inventories and equipment and
guaranteed by certain shareholders. 418,970 556,104
Note payable to bank at prime plus
2%, due in monthly installments of
$3,833 principal plus interest, through
June 25, 1997, secured by a primary
interest in certain equipment and the
assignment of certain rents and leases
paid to the Quincy landlord. 99,772 145,772
F-12<PAGE>
5.Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
June 30,
1995 1994
Notes payable, acquisition of power
systems division. MicroENERGY had
an oral agreement for the note to be
non-interest bearing with monthly
payments of $41,042 for a five year
period beginning in August 1993.
However, final documents had not been
received and no payments were made
during 1994. On September 20, 1994,
the repayment terms were again
renegotiated to payments of $10,000 per
month from October 1, 1994 through
June 1, 1998; $37,824 per month from
July 1, 1998 through September 1, 2002
and $27,824 per month from October 1,
2002 through December 1, 2002. The
notes remain non-interest bearing.
These notes were classified at
June 30, 1994 according to their
revised terms. The notes are secured
by equipment purchased from the
creditor and a subordinate interest
in inventory and other equipment. $ 2,372,495 $ 2,462,495
Capital lease obligations 581,161 767,053
Total debt 4,372,817 5,119,010
Less current portion ( 858,808) (1,164,860)
Long-term obligations $ 3,514,009 $ 3,954,150
F-13<PAGE>
5.Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
Future maturities of debt obligations are as follows:
Year Ending
June 30 Amount
1996 $ 858,808
1997 804,137
1998 557,661
1999 593,608
2000 453,888
Thereafter 1,104,715
$ 4,372,817
6. Leased Property
Capital Leases - MicroENERGY has capital lease
arrangements for certain machinery and equipment,
including certain leases for its Tru-Way manufacturing
facility, machinery and equipment. The majority of the
lease agreements are with a partnership consisting of
officers of the Company.
During 1994, the partnership sold the facility occupied
by Tru-Way and purchased a new building for $390,000.
The net book value of the old building approximated the
remaining balance of the obligation under capital lease.
The new building is leased by Tru-Way over a five-year
term. The prior equipment lease was rewritten for a new
five year term. Minimum monthly lease payments for the
real estate and equipment total $16,500. In addition,
another equipment lease was entered into with the
partnership in December 1993 for a three year term with
minimum monthly lease payments of $3,025.
Actual payments to the partnership totalled $351,587 in
1995 and $259,600 in 1994. In 1993, lease payments to
the partnership totalled $162,000 which included $36,000
of contingent rent paid based on sales volume.
Property and equipment and related accumulated
depreciation under these capital leases was $931,419 and
$374,115, respectively, at June 30, 1995 and $931,419
and $177,535, respectively, at June 30, 1994.
Amortization charges related to capitalized assets are
included in depreciation expense.
F-14
6. Leased Property (cont'd)
Operating Leases - MicroENERGY leases its manufacturing
facility space under a ten year operating lease and its
office space under two five year operating leases.
Total rent expense under operating lease agreements
approximated $377,128, $355,534, and $406,265 in 1995,
1994 and 1993, respectively.
Future minimum lease payments under capital and
operating leases with commitments beyond one year are as
follows:
Year Ending June 30 Capital Operating
Leases Leases
1996 $ 236,331 $ 375,792
1997 213,125 328,980
1998 198,000 212,567
1999 16,500 191,838
2000 - 191,838
Thereafter - 223,811
Total minimum lease payments 663,956 $1,524,826
Imputed interest ( 82,795)
$ 581,161
Subsequent to June 30, 1995, MicroENERGY entered into a capi-
tal lease for certain equipment. The equipment and related
obligation will be recorded at $141,710. The lease has an
initial payment of $21,257 and thirty-five monthly payments
of $4,134 thereafter.
7.Stockholders' Equity
Restricted Stock Grant Program - The Company maintains a
restricted stock grant program. In 1990, certain key employ-
ees received 21,000,000 shares of restricted stock of the
Company. The restricted stock vests ratably beginning July
1, 1993 through 2026. The restrictions lapse in the event of
the key employee's death, permanent disability or termination
of employment by the Company without good reason, or a change
in control of the Company (as defined). The total market
value of the shares awarded under the plan as of the grant
date aggregating $1,968,750 was recorded as unearned
restricted stock award compensation and reported as a
separate component of stockholders' equity. 2,000,000 shares
were forfeited in 1994 as one of the employees resigned.
F-15
7.Stockholders' Equity (cont'd)
Restricted Stock Grant Program (cont'd)
Compensation expense is being amortized over the period in
which participants perform services and the restrictions on
the stock awards lapse. In 1993, an additional 2,350,000
shares of restricted stock were issued to employees and an
independent contractor. The total market value approximated
par value at the date of grant and was recorded as
compensation expense during the year.
Stock Purchase Warrants - Stock purchase warrants were issued
to certain officers of the Company in consideration for per-
sonal guarantees provided on certain debt. On April 10,
1991, MicroENERGY issued Class C warrants which give certain
officers the right to convert such warrants to 20,500,000
shares of common stock at an exercise price ($.063)
approximating market value at the date of grant. The
warrants became exercisable on April 10, 1992, and expire
April 10, 1998. In addition, the Company entered into a
contingent loan agreement with the warrant holders pursuant
to which the Company will lend the holders funds necessary to
exercise the Class C warrants in the event that a person or
group acquired 10% of the Company's common stock. None of
the warrants have been exercised to date.
On December 13, 1994, MicroENERGY issued Class D warrants
which give certain officers the right to convert such
warrants to 35,000,000 shares of common stock at an exercise
price of $.00125, which approximated 125% of market value at
date of grant. The warrants become exercisable on December
13, 1995 and expire December 13, 2001. None of the warrants
have been exercised to date.
Stock Option Plans - The stockholders of MicroENERGY have
approved three Incentive Stock Option Plans (the "plans").
Options granted under these plans are intended to qualify as
"incentive stock options," as defined by the Internal Revenue
Code. A total of 5,000,000 shares of common stock are re-
served for issuance upon exercise of options granted under
the plans. Options for 2,785,000, 1,755,000 and 2,005,000
shares were outstanding at June 30, 1995, 1994 and 1993,
respectively. During 1995, options for 1,120,000 shares were
granted, no options were exercised and 90,000 options were
cancelled. During 1994, options for 250,000 shares were
cancelled. During 1993, 1,430,000 options were granted, no
options exercised, and 1,000,000 options were cancelled. The
F-16
7.Stockholders' Equity (cont'd)
Stock Option Plans (cont'd)
options have exercise prices ranging from $.01 to $.0450,
with an average exercise price of the options outstanding of
$.0149. Options granted under the plans are not exercisable
until one year after the date of the grant, vest ratably over
a five year period and may only be exercised while the holder
is an employee of MicroENERGY. Options expire no later than
ten years after the date of grant. At June 30, 1995,
2,785,000 shares are exercisable.
On November 12, 1990, the Board of Directors of the Company
also approved a nonqualified stock option plan which granted
an outside Director the option to purchase up to 2,000,000
shares of common stock at an exercise price of $.033 which
exceeded market value at the date of grant. The options were
exercisable upon award and expire ten years from the date of
grant. At June 30, 1995, no options have been exercised.
8. Employee Benefit Plan
The Company sponsors the MicroENERGY, Inc. Savings and
Investment Plan, a defined contribution 401(k) plan covering
all full-time employees who meet certain age and length of
service requirements. Employer matching contributions are at
the Company's sole discretion. Employer contributions
expensed for the year ended June 30, 1995, 1994 and 1993
totaled $26,211, $22,326 and $19,805, respectively.
9. Income Taxes
During 1994, the Company adopted FASB Statement Number 109,
"Accounting for Income Taxes". The statement requires the
use of an asset and liability approach for financial
accounting and reporting for income taxes. A valuation
allowance is recognized if it is more likely than not that a
deferred tax asset will not be realized. The adoption of
this statement had no effect on 1994 net income, nor was
there a cumulative effect of a change in accounting because
no provision had been recorded for federal or state income
taxes for the years ended June 30, 1993 and 1992 due to net
operating losses incurred in those years.
The following is a reconciliation of income taxes at the
federal statutory rate:
F-17
9. Income Taxes (cont'd)
For the Year Ended
June 30,
1995 1994
Computed income taxes
at federal statutory rate
of 34% $ 84,964 $ 69,647
State taxes, net of federal
benefit 16,872 7,088
Effect of graduated rates ( 469) ( 9,882)
Permanent differences 9,573 12,052
Temporary differences for which
deferred taxes had not been
recognized 24,868 (31,342)
Benefit of tax loss carryforward (135,808) (47,563)
Total provision for income
taxes $ - $ -
Provision for income taxes:
Current $ 135,808 $ 47,563
Benefit of tax loss
carryforward (135,808) (47,563)
$ - $ -
At June 30, 1995, the cumulative net operating loss
carryforward available to MicroENERGY for income tax purposes
was approximately $3,700,000. If not used to offset future
taxable income, the net operating loss carryforwards will
expire in various years beginning in 2000 and continuing
through 2008. In the event of a change in ownership of the
Company these net operating loss carryforwards may be
limited. In addition, the Company has investment tax credit,
research and development credit and AMT credit carryforwards
of approximately $18,000, $203,000 and $12,000, respectively,
at June 30, 1995. If not used to offset future taxes, the
carryforwards expire in years beginning in 1999 and
continuing through 2006. A deferred tax asset for these
carryforwards of approximately $1,660,000 at June 30, 1995
and $1,510,000 at June 30, 1994 has been offset by a
valuation allowance in an equal amount.
In addition to the benefit of tax carryforward items,
deferred taxes are also recorded based upon temporary
differences between the financial statement and tax basis of
assets and liabilities.
F-18
9.Income Taxes (cont'd)
Temporary differences as of June 30, 1995 and 1994 are as
follows:
June 30,
1995 1994
Total Deferred Total Deferred
Amount Tax Amount Tax
Current:
Inventory:
Uniform
capitalization $ 391,300 $151,300 $ 407,200 $130,300
Obsolescence and
excess reserve 732,600 283,300 732,600 234,500
Allowance for bad
debts 50,000 19,300 50,000 16,000
Accrued expenses 132,800 51,300 132,200 42,300
Long-term:
Depreciation (105,200) (40,700) (122,200) (39,100)
Capital lease 44,500 17,200 26,900 8,600
Stock benefit plans 324,000 125,300 270,100 86,400
$1,570,000$607,000 $1,496,800 $479,000
The deferred tax assets totalling $607,000 at June 30, 1995
and $479,000 at June 30, 1994 have been offset by a valuation
allowance in an equal amount.
F-19<PAGE>
10. Major Customers
Revenues are generated from sales to OEM customers who are
engaged in the telecommunications, computer, and instrumenta-
tion segments of the electronics industry.
During 1995, net sales to one customer was 28% of total net
sales. However, the major customer is comprised of five
autonomous purchasing units. If considered separately, one
unit would be considered a major customer with 26% of total
net sales.
During 1994, net sales to two customers were 19% and 11%,
respectively. However the first major customer is comprised
of ten autonomous purchasing units. If considered
separately, one unit would be considered a major customer
with 14% of total net sales. During 1993, net sales to one
customer totaled 41% of total net sales. The major customer
was comprised of eight autonomous purchasing units. If
considered separately, one unit would be considered a major
customer, with 10.6% of total net sales. Accounts receivable
from these customers totaled $470,341 and $376,045 at June
30, 1995 and 1994, respectively.
During 1995, 1994 and 1993, export sales, principally to
Europe and Canada, were 36%, 38% and 24%, respectively, of
total net sales.
F-20
MICROENERGY, INC.
CONDENSED BALANCE SHEETS
Six Months
Ending Year Ended
12/31/95 6/30/95
(unaudited) (audited)
ASSETS
Current assets:
Cash $ 9,618 $ 113,227
Accounts receivable 1,500,700 1,193,995
Inventories 3,033,235 2,712,224
Other current assets 50,433 53,725
Total current assets 4,593,986 4,073,171
Machinery and equipment 4,639,195 4,390,516
Accumulated depreciation (2,891,554) (2,604,333)
1,747,641 1,786,183
Other assets, net 270,435 289,177
$ 6,612,062 $6,148,531
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,656,090 $1,165,211
Current portion of long-term obligations 908,958 858,808
Accounts payable 1,397,327 1,149,587
Accrued expenses 263,579 456,206
Total current liabilities 4,225,954 3,629,812
Long-term obligations 3,243,819 3,514,009
Total liabilities 7,469,773 7,143,821
Stockholders' equity:
Convertible preferred stock, no par value -
800 shares authorized; 769 issued and
converted
Common stock, $.001 par value - 180,000,000
shares authorized in 1995 and 1994;
114,111,563 shares issued in 1995 and
116,111,563 in 1994 149,451 113,961
Additional paid-in capital 5,692,079 5,678,919
Accumulated deficit (5,356,650) (5,356,650)
Unearned restricted stock compensation (1,428,550) (1,455,550)
Common stock purchase warrants, 75 75
Treasury stock, at cost, 850,659 shares (16,386) (16,386)
Unrealized gain on marketable securities 40,341
Current Year Earnings 102,270
Total stockholders' equity (857,711) (995,290)
$ 6,612,062 $6,148,531
F-21
MICROENERGY, INC.
STATEMENTS OF OPERATIONS
3 Months 3 Months 6 Months 6 Months
Ended Ended Ended Ended
12/31/95 12/31/94 12/31/95 12/31/94
Sales $ 3,334,156 $ 3,991,362 $ 6,721,421 $ 7,668,227
Expenses:
Facility, pre-
production and
production 2,734,806 3,280,762 5,429,931 6,297,291
Research and
Development 182,538 190,739 402,677 364,979
Selling, Gen and
Administrative 295,792 363,541 626,288 718,762
Interest exp, net 81,967 84,628 160,255 166,249
Net Profit After Tax 39,053 71,692 102,270 120,946
Net earnings/(loss)
per share $ 0.001 $ 0.001 $ 0.001 $ 0.001
Weighted avg number
of shares of
common stock 114,350,451 114,111,563 114,350,451 114,111,563
F-22<PAGE>
MICROENERGY, INC.
STATEMENTS OF CASH FLOWS
6 Months 6 Months
Ending Ending
12/31/95 12/31/94
Cash flows from operating
activities:
Net (losses) earnings $ 102,270 $ 120,946
Adjustments to reconcile net
(losses) earnings to net cash
provided by operations:
Depreciation 287,221 286,722
Changes in assets and
liabilities:
Accounts receivable (306,705) (146,109)
Inventories (321,011) 142,307
Other current assets 22,034 (87,200)
Accounts payable 247,740 198,411
Accrued expens (192,627) 183,866
(263,348) 577,997
Net cash provided (used) by
operating activities (161,078) 698,943
Cash flows (used in) provided by
investing activities:
Additions to equipment (248,679) (116,771)
Cash flows provided by (used in)
financing activities:
Notes Payable 541,029 (462,948)
Long-term debt, net of payments (270,190) (179,937)
Equity Transactions 35,309 27,000
Net cash provided by (used in)
financing activities 306,148 (615,885)
Net increase (decrease) in cash (103,609) (33,713)
Cash at beginning of year 113,227 45,792
Cash at end of year $ 9,618 $ 12,079
F-23<PAGE>
MICROENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED FINANCIAL STATEMENTS
The condensed balance sheet as of December 31, 1995, the consoli-
dated statement of income for the three and six month periods
ending December 31, 1995 and December 31, 1994 and the condensed
statement of cash flows for the six month period ending December
31, 1995 and December 31, 1994 have been prepared by the Company,
without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and
changes in financial position at December 31, 1995 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these condensed statements be read in
conjunction with the financial statements and notes thereto
included in the Company's June 30, 1995 10K report. The results
of operations for the period ended December 31, 1995 is not
necessarily indicative of the operating results for the full
year.
2. NOTES TO THE CONDENSED FINANCIAL STATEMENTS
On December 12, 1995, MicroENERGY purchased a 9,600 square foot
industrial building on 1.34 acres in Memphis, Missouri. A bank
financed 100% of the purchase price with a loan for $80,000.00 at
5% interest. The loan requires monthly principal and interest
payments amortizing over ten (10) years with a five (5) year
maturity. The loan is secured with a first mortgage on the
building and land. The transformer, toroid and cable assembly
departments currently located in Quincy, Illinois will be moved
to this facility in early 1996.
On December 29, 1995, Officers of the Company exercised Class D
Stock Purchase Warrants for 35,000,000 shares of common stock at
an exercise price of $.00125 per share.
F-24
ALTERNATIVE PROSPECTUS
MICROENERGY, INC.
880,000 Redeemable Class A Preferred Stock Purchase Warrants
The securities offered hereby are 880,000 Redeemable Class A
Preferred Stock Purchase Warrants ("Class A Warrant") of MicroENE-
RGY, Inc., a Delaware corporation, ("MicroENERGY" or the "Company")
held by certain securityholders of the Company identified herein
(the "Selling Securityholders"). See: "THE SELLING SECURITYHOLDE-
RS." Each Class A Warrant entitles the holder to purchase one
share of the Company's Series A Preferred Stock, at an exercise
price of $5.25, subject to adjustment, from ____________, 1997
through ____________, 2000. In the event that the Company has
exercised its option to convert the Series A Preferred Stock into
Common Stock, each Class A Warrant will thereafter entitle the
holder to purchase one share of Common Stock. The Class A Warrants
are subject to redemption by the Company at any time after
______________, 1997 on not less than 30 days' notice at $.05 per
Warrant, provided the average closing price of the Common Stock for
5 consecutive trading days ending within 15 days prior to the
notice exceeds $7.00 per share. See "DESCRIPTION OF SECURITIES".
The Class A Warrants offered by this Prospectus may be sold from
time to time by the Selling Securityholders or their transferees.
No underwriting arrangements have been entered into by the Selling
Securityholders. The distribution of the Class A Warrants by the
Selling Securityholders may be effected in one or more transactions
that take place in the over-the-counter market including ordinary
broker's transactions, privately negotiated transactions, or
through sales to one or more dealers for resale of such shares as
principals at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specially negotiated brokerage fees
may be paid by the Selling Securityholders in connection with the
sale of the Class A Warrants.
On the date hereof the Company commenced a public offering of
430,000 shares of Series A Preferred Stock, $5.00 par value, and
215,000 Class A Warrant. See: "CONCURRENT SALES."
The Company will not receive any of the proceeds from the sale of
the Class A Warrants offered hereby by the Selling Securityholders.
All costs incurred in the registration of the Class A Warrants
being offered by the Selling Securityholders are being borne by the
Company. See: "SELLING SECURITYHOLDERS."
The Company's Common Stock is currently quoted on the NASDAQ
Bulletin Board. There is currently no market for either the
Preferred Shares or the Class A Warrants. On April __, 1996, the
closing bid price of the Common Stock as quoted on the NASDAQ
Bulletin Board was $___ per share. The Company has applied to have
the Preferred Stock, the Common Stock, and the Class A Warrants
listed on the NASDAQ SmallCap Market, and expects that listing to
occur on the effective date of this Offering.
An investment in the securities offered hereby involves a high
degree of risk and immediate substantial dilution. An investment
in these securities should be considered only by persons capable of
sustaining the loss of their entire investment. See "RISK
FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is May__, 1996
<PAGE>
THE OFFERING
Securities Offered 880,000 Class A Warrants. The
Class A Warrants offered hereby
are identical to the Class A
Warrants being offered by the
Company to the public in its
initial public offering. See
"DESCRIPTION OF SECURITIES".
Securities to Be Outstanding 415,143 shares of Common Stock
After Completion of the Offering 780,000 shares of Series A
(assuming no exercise of Over- Preferred Stock
Allotment Option) 1,095,000 Class A Warrants
(including 880,000 being offered
by Selling Securityholders).
Terms of Class A Warrants Each Class A Warrant entitles
the holder to purchase one
share of the Company's Series A
Preferred Stock at a price of
$5.25, subject to adjustment,
during the three year period
beginning one year after the
date of this Prospectus. After
_________, 1997, the Class A
Warrants are subject to redemp-
tion by the Company at any time
during the exercise period, on
not less than 30 days' notice
at $.05 per Warrant provided
the average closing bid price
of the Common Stock exceeds
$7.00 per share for 5 consecu-
tive trading day ending within
15 days prior to the notice.
Proposed NASDAQ SmallCap
Market Symbols: Preferred Stock - MCREP
Common Stock - MCRE
Class A Warrants - MCREW
Risk Factors The securities are subject to a
high degree of risk. See:
"Risk Factors."
Selected Financial Information
Six Months Ended
December 30
1995 1994
Income Data:
Revenues................ $6,721,421 $7,668,227
Operating Income........ 262,525 287,295
Net Income.............. 102,270 120,946
Net Income Per Share.... $.21 $.38
Years Ended
June 30
1995 1994 1993
Income Data:
Revenues............ $14,588,844 $12,771,067 $15,886,279
Operating Income.... 581,685 426,419 433,280
Net Income.......... 249,894 204,845 40,806
Net Income Per Share $.79 $.65 $.14
Balance Sheet Data:
As Adjusted to Reflect:
Public
At Dec. 31, 1995 Debt Compromise(1) Offering(2)
Working Capital................. $ 393,657 $ 393,657 $1,628,007
Total Assets.................... 6,612,062 6,612,062 7,846,412
Long-Term Debt, Net............. 3,243,819 1,900,819 1,413,819
Stockholders Equity/(Deficit) (857,711) 480,289 2,651,789
______________________________
(1) Reflects the effect of $1 Million reduction in debt to
AT&T and related financing transactions from January
through March of 1996. See "CAPITALIZATION - Debt
Compromise."
(2) Assumes no exercise of the Underwriters' Over-allotment
Option, and the use of $487,000 of net proceeds to reduce
long-term debt. See "USE OF PROCEEDS."
CONCURRENT SALES
On the date of this Prospectus, a Registration Statement
under the Securities Act with respect to an underwritten public
offering (the "Offering") of Securities by the Company was declared
effective by the Securities and Exchange Commission ("SEC") and the
Company commenced the sale of the Securities offered thereby. The
Securities consist of 430,000 shares of Series A Preferred Stock,
$5.00 par value, and 215,000 Class A Warrants to purchase Series A
Preferred Stock (without giving effect to the Over-Allotment Option
granted to the Underwriters of the Offering). Sales of securities
under this Prospectus by the Selling Security-holders or even the
potential of such sales would likely have an adverse effect on the
market price of the Company's securities.
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus is a
part also relates to the offer and sale of 880,000 Class A Warrants
(the "Bridge Securities") to be offered by the Selling Securityhol-
ders. All of such securities are expected to become tradeable on
or about the date of this Prospectus. Sales of the Warrants being
offered by Selling Securityholders, or even the potential of such
sales, would likely have an adverse effect on the market prices of
the Securities being offered for sale by the Company.
The following table sets forth the beneficial ownership
of the securities of the Company held by each person who is a
Selling Securityholder and by all Selling Securityholders as a
group prior to the Offering and after the Offering, assuming all of
the Warrants owned by the Selling Securityholders are sold.
Class A Percent of Class A
Warrants Owned Warrants Owned
Name of Prior to After Prior to After
Beneficial Owner Offering Offering Offering Offering
Dune Holdings 400,000 -- 45.5% 0%
Rifky Weiner 208,000 -- 23.6% 0%
James R. Solakian 128,000 -- 14.5% 0%
Harold Pretter 48,000 -- 5.5% 0%
JM Holdings 48,000 -- 5.5% 0%
Robert Brantl 48,000 -- 5.5% 0%
Total 880,000 0 100.00% 0%
None of the Selling Securityholders is affiliated with
the Company in any capacity or has had any business relationship
with the Company at any time, except that Robert Brantl is of
counsel to the firm of Bressler, Amery & Ross, which has served as
legal counsel to the Company since it was founded.
Plan of Distribution
The securities offered hereby may be sold from time to
time directly by the Selling Securityholders. Alternatively, the
Selling Securityholders may from time to time offer such securities
through underwriters, dealers or agents. The distribution of
securities by the Selling Securityholders may be effected in one or
more transactions that may take place on the over-the-counter
market, including ordinary broker's transactions, privately-negotiated
transactions or through sales to one or more broker-dealers for resale of
such securities as principals, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Securityholders in connection with such
sales of securities. The Selling Securityholders and intermediar-
ies through whom such securities are sold may be deemed "underwrit-
ers" within the meaning of the Act with respect to the securities
offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of securities is made by
or on behalf of a Selling Securityholder, to the extent required,
a prospectus will be distributed which will set forth the number of
securities being offered and the terms of the offering, including
the name or names of any underwriters, dealers or agents, if any,
the purchase price paid by any underwriter for securities purchased
from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, and the
proposed selling price to the public.
Under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the regulations thereto, any person
engaged in a distribution of the securities of the Company offered
by the Selling Securityholders may not simultaneously engage in
market-making activities with respect to such securities of the
Company during the applicable "cooling off" period (9 days) prior
to the commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Securityholders will be subject
to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, Rule 10b-6
and 10b-7, in connection with transactions in such securities,
which provisions may limit the timing of purchases and sales of
such securities by the Selling Securityholders.
<PAGE>
Part II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distributions
The following are the estimated expenses in connection
with the distribution of the securities being registered here
under:
S.E.C. Registration Fee. . . . . .$ 3,032
N.A.S.D. Filing Fee. . . . . . . . 1,379
Blue Sky fees. . . . . . . . . . . 17,000 *
Representative's Non-Accountable
Expense Allowance. . . . . . . . 65,145
Representative's Financial
Consulting Fee . . . . . . . . . 48,000
Accounting fees. . . . . . . . . . 24,000 *
Transfer Agent . . . . . . . . . . 2,000 *
Legal fees . . . . . . . . . . . . 42,000 *
Printing expenses. . . . . . . . . 30,000 *
Miscellaneous. . . . . . . . . . . 444 *
TOTAL . . . . . . . . . $233,000 *
____________________
* Estimated
Item 14. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State
of Delaware authorizes a corporation to provide indemnification to
a director, officer, employee or agent of the corporation, includ-
ing attorneys' fees, judgments, fines and amounts paid in settle-
ment, actually and reasonably incurred by him in connection with
such action, suit or proceeding, if such party acted in good faith
and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful as determined in accordance with the
statute, and except that with respect to any action which results
in a judgment against the person and in favor of the corporation
the corporation may not indemnify unless a court determines that
the person is fairly and reasonably entitled to the indemnifica-
tion.
Section 145 further provides that indemnification shall
be provided if the party in question is successful on the merits.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforce-
able. If a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a Director, officer or controlling person in connection
with the securities being registered) the Registrant will, unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdic-
tion the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities.
In February and March of 1996, the Company sold 880,000
Class A Warrants to the Selling Securityholders identified
elsewhere in this Registration Statement. The sale was exempt
pursuant to Section 4(2) of the Act since the sale was not made in
a public offering and was made to individuals who had access to
detailed information about the Company and were buying for their
own account. There were no underwriters.
Item 16. Exhibits and Financial Statement Schedules
Exhibits
1-a. Form of Underwriting Agreement. (1)
1-b Form of Agreement Among Underwriters. (1)
1-c Form of Selected Dealers Agreement. (1)
3-a. Certificate of Incorporation, as amended - filed as an
Exhibit to the Company's S-18 Registration Statement dated
February 2, 1984 and incorporated by reference herein as an
exhibit hereto.
3-a(1) Certificate of Amendment to Certificate of Incorporation
dated February 12, 1987 - filed as an Exhibit to the
Company's Annual Report on Form 10K for the fiscal year
ended June 30, 1987 and incorporated by reference as an
exhibit hereto.
3-a(2) Certificate of Amendment to Certificate of Incorporation
dated December 20, 1990 - filed as an Exhibit to the
Company's Annual Report on Form 10K for the fiscal year
ended June 30, 1991 and incorporated by reference as an
exhibit hereto.
3-a(3) Form of Certificate of Amendment to Certificate of Incorpo-
ration
3-a(4) Form of Certificate of Designation of Series A Preferred
Stock.
3-b. By-laws, as amended, have been filed as an Exhibit to the
Company's Annual Report on Form 10K for the fiscal year
ended June 30, 1984 and are incorporated by reference as an
exhibit hereto.
4-a. Specimen of Common Stock Certificate
4-b Specimen of Series A Preferred Stock Certificate
4-c. Specimen of Class A Warrant
4-d. Form of Warrant Agreement (1)
4-e. Form of Representative's Purchase Warrant (1)
5 Opinion of Bressler, Amery & Ross. (1)
7 Opinion of Bressler Amery & Ross on Liquidation Preference
8 Tax opinion of Bressler, Amery & Ross (1)
10-a Lease for premises at 350 Randy Road, Carol Steam, Illinois
- filed as an exhibit to the Company's Annual Report on
Form 10K for the year ended June 30, 1993 and incorporated
by reference as an exhibit hereto.
10-b 1992 Incentive Stock Option Plan and form of Stock Option
-- filed with the Company's proxy materials used in connec-
tion with the Annual Meeting on February 24, 1992 and
incorporated herein by reference.
10-c Lease dated August 20, 1986 for premises in Quincy,
Illinois - filed as an Exhibit to the Company's Report on
Form 10K for the year ended June 30, 1986 and incorporated
by reference as an exhibit hereto.
10-c(1) Amendment to Lease for premises in Quincy, Illinois - filed
as an Exhibit to the Company's Report on Form 10K for the
year ended June 30, 1993 and incorporated by reference as
an exhibit hereto.
10-d Loan and Development Agreement with Promissory Note dated
August 20, 1986 between the Company and the City of Quincy,
Illinois - filed as an Exhibit to the Company's Report on
Form 10K for the year ended June 30, 1986 and incorporated
by reference as an exhibit hereto.
10-e Promissory Note and Collateral Security Agreement dated
August 20, 1986 between the Company and Boatmen's Bank of
Quincy - filed as an Exhibit to the Company's Report on
Form 10K for the year ended June 30, 1986 and incorporated
by reference as an exhibit hereto.
10-f Credit Agreement between the Company and Boatmen's Bank of
Quincy - filed as an Exhibit to the Company's Annual Report
on Form 10K for the fiscal year ended June 30, 1988 and
incorporated by reference as an exhibit hereto.
10-g 1991 financing documents relating to the State of Illinois,
City of Quincy and Comerica Bank - filed as an Exhibit to
the Company's Annual Report on Form 10K for the fiscal year
ended June 30, 1991 and incorporated by reference as an
exhibit hereto.
10-g(1) 1994 and 1995 amendments to 1991 financing documents
relating to the State of Illinois, City of Quincy and
Comerica Bank - filed as an Exhibit to the Company's Annual
Report on Form 10K for the fiscal year ended June 30, 1995
and incorporated by reference as an exhibit hereto.
10-h Restricted Stock Grant Program - filed with the Company's
proxy materials used in connection with the Annual Meeting
on May 19, 1989 and incorporated by reference as an exhibit
hereto.
10-i Asset Purchase Agreement between the Company and NCR
Corporation dated July 1, 1990 - filed as an Exhibit to the
Company's Report on Form 10K for the year ended June 30,
1991 and incorporated by reference as an exhibit hereto.
10-i(1) Amendment to Agreement between the Company and NCR Corpora-
tion relating to Debt and Licensing Agreement contained in
the Asset Purchase Agreement - filed as an Exhibit to the
Company's Report on Form 10K for the year ended June 30,
1993 and incorporated by reference as an exhibit hereto.
10-i(2) Amendment to Agreement between the Company and NCR Corpora-
tion relating to payment terms - filed as an Exhibit to the
Company's Report on Form 10K for the year ended June 30,
1994 and incorporated by reference as an exhibit hereto.
10-i(3) Amendment to Agreement between the Company and NCR Corpora-
tion relating to payment terms dated January 31, 1996. (1)
10-j Class C Warrants - filed with the Company's proxy materials
used in connection with the Annual Meeting on February 24,
1992 and incorporated by reference as an exhibit hereto.
10-k Class D Warrants - filed as an Exhibit to the Company's
Report on Form 10K for the year ended June 30, 1995 and
incorporated by reference as an exhibit hereto.
10-l Employment Agreement with Robert G. Gatza dated February 1,
1996. (1)
10-m Employment Agreement with Robert J. Fanella dated February
1, 1996. (1)
10-n Leases for premises and equipment in Northlake, Illinois -
filed as an Exhibit to the Company's Report on Form 10K for
the year ended June 30, 1993 and incorporated by reference
as an exhibit hereto.
10-o Form of Financial Consulting Agreement (1)
10-p(1) Subscription Agreement dated February 1, 1996 between the
Company and Robert G. Gatza (1)
10-p(2) Subscription Agreement dated February 1, 1996 between the
Company and Robert J. Fanella (1)
22 Subsidiaries - Tru-Way, Inc., an Illinois corporation.
24 Consent of Selden Fox & Associates, Ltd. (1)
__________________
(1) Previously filed as an exhibit hereto.
Item 28. Undertakings
See Item 14 for the undertaking regarding the indemnification
of officers, directors and controlling persons.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, post-effective amendments to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the regis-
tration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggre-
gate, represent a fundamental change in the information
set forth in the registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amend-
ment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a Post-
Effective Amendment any of the securities being registered which
remain unsold at the termination of the offering.
SIGNATURES
In accordance with the requirements of the Securities Act
of 1933, the Company has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly autho-
rized, in the Town of Carol Stream and the State of Illinois on the
24th day of April, 1996.
MICROENERGY, INC.
By:/s/Robert G. Gatza
Robert G. Gatza, Chief
Executive Officer
In accordance with to the requirements of the Securities
Act of 1933, this registration statement has been signed below by
the following persons in the capacities indicated on April 24,
1996.
Name Title
/s/Robert G. Gatza Chief Executive Officer and
Robert G. Gatza Chairman of the Board
/s/Robert J. Fanella Chief Financial Officer and
Robert J. Fanella Director
/s/George M. Bradshaw Director
George M. Bradshaw
<PAGE>
INDEX TO EXHIBITS
3-a(3) Form of Certificate of Amendment to Certificate of
Incorporation
3-a(4) Form of Certificate of Designation of Series A Preferred
Stock.
4-a. Specimen of Common Stock Certificate
4-b Specimen of Series A Preferred Stock Certificate
4-c. Specimen of Class A Warrant
7 Opinion of Bressler Amery & Ross on Liquidation
Preference
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MICROENERGY, INC.
MICROENERGY, INC., a corporation organized and
existing under the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the Board of Directors of the said
corporation, by the unanimous consent of its members, filed with
the minutes of the Board, adopted a resolution proposing and
declaring advisable the following amendment to the Certificate of
Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of
this corporation be amended by changing the Article
thereof numbered "FOURTH" so that, as amended, said
Article be and read as follows:
FOURTH: (A) The aggregate number of shares of
stock which the Corporation shall have the
authority to issue is eight million (8,000,000)
shares, consisting of four million (4,000,000)
shares of Common Stock with $.01 par value and
four million (4,000,000) shares of Preferred Stock
with no par value. The Board of Directors is
authorized, subject to limitations prescribed by
law and the provisions hereof, to provide for the
issuance from time to time of Preferred Stock in
one or more series, and by filing a certificate
pursuant to section 151 of the Delaware General Corpora-
tion Law, as amended and supplemented from time to
time, to establish the number of shares to be
included in each such series, and fix the voting
powers, designations, preferences, rights, quali-
fications, limitations and restrictions of the
shares of each such series not fixed hereby. The
aforesaid authorization of the Board shall include,
but not be limited to, the power to provide for the
issuance of shares of any series of Preferred Stock
convertible, at the option of the holder or of the
Corporation or both, into shares of any other class
or classes or of any series of the same or any
other class or classes.
(B) Reverse Stock Split. At 5:00 p.m., New York
City time, on ______________, 1996 (the "Reverse
Split Date"), each share of Common Stock issued and
outstanding immediately prior to the Reverse Split
Date (referred to in this Paragraph B as the "Old
Common Stock") automatically and without any action
on the part of the holder thereof will be
reclassified and changed into .00278 of a share of
Common Stock, par value $.01 per share (referred to
in this Paragraph B as the "New Common Stock",
which is the Common Stock authorized under
Paragraph A of this Article Fourth), subject to the
treatment of fractional share interests as
described below. Each holder of a certificate or
certificates that immediately prior to the Reverse
Split Date represented outstanding shares of Old
Common Stock (the "Old Certificates") will be
entitled to receive, upon surrender of such Old
Certificates to the Company's exchange agent (the
"Exchange Agent") for cancellation, a certificate
or certificates (the "New Certificate", whether one
or more) representing the number of whole shares of
the New Common Stock into which and for which the
shares of the Old Common Stock formerly represented
by such Old Certificates so surrendered are
reclassified under the terms hereof. From and
after the Reverse Split Date, Old Certificates
shall represent only the right to receive New
Certificates pursuant to the provisions hereof. No
certificates or scrip representing fractional share
interests in New Common Stock will be issued, and
no such fractional share interest will entitle the
holder thereof to vote, or to any rights of a
shareholder of the Company. The number of shares
to which a stockholder is entitled after the
recapitalization will be rounded to the nearest
integer such that holders of a fractional share of
.50 shares or greater will receive one additional
share in lieu of the fractional share, and holders
of a fractional share less than .50 shares will
receive no share in lieu of the fractional share.
Any holder of fewer than 360 shares of Old Common
Stock will receive 1 share of New Common Stock upon
surrender of the Old Certificate. If more than one
Old Certificate shall be surrendered at one time
for the account of the same stockholder, the number
of full shares of New Common Stock for which New
Certificates shall be issued shall be computed on
the basis of the aggregate number of shares
represented by the Old Certificates so surrendered.
In the event that the Company's Exchange Agent
determines that a holder of Old Certificates has
not tendered all his certificates for exchange, the
Exchange Agent shall carry forward any fractional
share until all certificates of that holder have
been presented for exchange. The Old Certificates
surrendered for exchange shall be properly endorsed
and otherwise in proper form for transfer, and the
person or persons requesting such exchange shall
affix any requisite stock transfer tax stamps to
the Old Certificates surrendered, or provide funds
for their purchase, or establish to the
satisfaction of the Exchange Agent that such taxes
are not payable. From and after the Reverse Split
Date the amount of capital represented by the
shares of the New Common Stock into which and for
which the shares of the Old Common Stock are
reclassified under the terms hereof shall be $.01
per share, and the difference between the capital
represented by the shares of Old Common Stock and
the shares of New Common Stock shall be
reclassified as capital surplus, until thereafter
reduced or increased in accordance with applicable
law."
SECOND: That the said amendment has been adopted
at a meeting of the shareholders of the corporation duly called for
that purpose by a favorable vote of the holders of the majority of
the issued and outstanding stock.
THIRD: That the aforesaid amendment was duly
adopted in accordance with the applicable provisions of Section 242
of the General Corporation Law of Delaware.
IN WITNESS WHEREOF, said MICROENERGY, INC. has
caused its corporate seal to be hereunto affixed and this
certificate to be signed by its President and Secretary this th
day of May, 1996.
MICROENERGY, INC.
By
Robert G. Gatza, President
Attest:
Robert J. Fanella, Secretary<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES A PREFERRED STOCK
OF
MICROENERGY, INC.
Pursuant to the provisions of Delaware General Corpora-
tion Law, Section 151(g) the undersigned officers do hereby
certify:
FIRST: That by the certificate of incorporation duly
filed in that State of Delaware, the total number of shares which
this Corporation may issue is stated by Article FOURTH to be as
follows:
(A) The aggregate number of shares of stock which the
Corporation shall have the authority to issue is eight
million (8,000,000) shares, consisting of four million
(4,000,000) shares of Common Stock with $.01 par value
and four million (4,000,000) shares of Preferred Stock
with no par value. The Board of Directors is autho-
rized, subject to limitations prescribed by law and the
provisions hereof, to provide for the issuance from
time to time of Preferred Stock in one or more series,
and by filing a certificate pursuant to Sectiom 151 of the
Delaware General Corporation Law, as amended and sup-
plemented from time to time, to establish the number of
shares to be included in each such series, and fix the
voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of the
shares of each such series not fixed hereby. The
aforesaid authorization of the Board shall include, but
not be limited to, the power to provide for the issu-
ance of shares of any series of Preferred Stock con-
vertible, at the option of the holder or of the Corpo-
ration or both, into shares of any other class or
classes or of any series of the same or any other class
or classes.
SECOND: That pursuant to the authority so vested in
the Board of Directors by the certificate of incorporation, the
Board of Directors at a meeting duly convened and held on May ,
1996 adopted the following resolution:
RESOLVED, that there be created a series of pre-
ferred stock to be designated as Series A Preferred
Stock, the number of shares of such series to be two
million and thirty-six thousand, two hundred and fifty
(2,036,250), which the Corporation may issue. The
designation, relative rights, preferences and limita-
tions of the Series A Preferred Stock shall be as
follows:
A. Dividend Rights
Holders of shares of Series A Preferred Stock are
entitled to receive, out of the assets of the Corpora-
tion legally available for the payment of dividends,
dividends payable semi-annually on the 1st day of each
January and July after issuance. Dividends upon the
Series A Preferred Stock are cumulative and accrue from
the date of original issue. No cash dividend may be
declared and paid or set apart for payment upon the
Corporation's Common Stock, $.01 par value (the "Common
Stock") until any past dividend on any outstanding
series of Series A Preferred Stock has been fully paid
or declared and set apart for payment.
At its option, the Corporation may pay all or part
of any such dividend in shares of the Common Stock,
based on 100% of the average closing price of the
Common Stock as reported on NASDAQ (or such exchange or
quotation service as the Common Stock may be quoted on,
if it ceases to be quoted on NASDAQ) for the ten trad-
ing days before the record dates for the dividends.
B. Liquidation Preference
In the event of a voluntary or involuntary liqui-
dation or winding up of the Corporation, the holders of
Series A Preferred Stock will be entitled to receive
out of the assets of the Corporation available for
distribution to shareholders $5.00 per share plus all
accrued and unpaid dividends before any distribution is
made to the holders of Common Stock or any other class
or series of stock ranking junior to the Series A
Preferred Stock as to distribution of assets. After
payment of the full amount of the liquidating distri-
bution to which they are entitled, the holders of
shares of Series A Preferred Stock will not be entitled
to any further participation in any distribution of
assets by the Corporation. The foregoing liquidation
rights shall not be operative in the event of (i) any
consolidation or merger of the Corporation with or into
any other corporation, (ii) any dissolution, liquida-
tion, winding up or reorganization of the Corporation
immediately followed by reincorporation of a successor
corporation or creation of a successor partnership or
(iii) a sale or other disposition of all or substan-
tially all of the Corporation's assets to another
corporation or a partnership if, in each case, effec-
tive provision is made in the certificate of incorpora-
tion of the resulting or surviving corporation or the
articles of partnership of the resulting partnership or
otherwise, for the protection of the rights of the
holders of the Series A Preferred Stock.
C. Conversion
Voluntary Conversion. After _____________, 1997 (the
"Anniversary Date"), each share of the Preferred
Stock is convertible, at the option of the holder thereof, into
between one and two shares of Common Stock. The number of shares
of Common Stock into which each share of Preferred Stock is
convertible (the "Voluntary Conversion Rate") will be determined
on the Anniversary Date. The Voluntary Conversion Rate will be
based upon the average of the closing bid prices for the Common
Stock as reported on NASDAQ (or such exchange or quotation
service as the Common Stock may be quoted on, if it ceases to be
quoted on NASDAQ) for the twenty trading days preceding said
Anniversary Date (the "Closing Average"), as follows:
Each Share of
Preferred Stock
If the Closing Will Be Convertible Into
Average is Shares of Common Stock
Over $5.50 1.00
$4.51 to $5.50 1.25
$3.50 to $4.50 1.75
Under $3.50 2.00
A holder of Preferred Stock may convert his shares to
Common Stock by surrendering to American Stock Transfer & Trust
Company (the "Exchange Agent") each certificate covering shares
to be converted together with a statement of the name or names in
which the shares of Common Stock shall be registered upon issu-
ance. Such a notice of election to convert shall have the effect
of creating a contract between the shareholder and the Company
whereby the shareholder shall be deemed to have agreed to surren-
der the shares of Preferred Stock and to release the Company from
all further obligation thereon, and whereby the Company shall be
deemed to have agreed to issue the appropriate number of shares
of Common Stock upon the surrender of the shares of Preferred
Stock. The conversion right will terminate at the close of
business of the redemption date as to any shares of Preferred
Stock being redeemed on that date.
Mandatory Conversion. In the event that during the
first 24 months after the Anniversary Date the closing bid price
of the Company's Common Stock exceeds $7.00 for five consecutive
trading days, each share of the Preferred Stock may, at the
Company's option, be converted after the fifth such day into 1
share of Common Stock (the "Mandatory Conversion Rate"). Like-
wise, after the second anniversary of the Anniversary Date, each
share of the Preferred Stock may, at the Company's option, be
converted into 1 shares of Common Stock. Holders of the Pre-
ferred Stock will receive notice of the conversion of their
shares promptly after the conversion takes place.
The following provisions apply with respect to either
Voluntary Conversion or Mandatory Conversion.
All dividends declared and unpaid up to the date of
conversion shall be paid by the Company at the time of conversion
unless that payment date has not yet occurred, in which event the
dividend shall be paid upon the payment date for such dividend
set forth in the Preferred Stock certificate. Any such unpaid
dividends must be paid in full to the holder prior to the decla-
ration and payment of any other dividend or distribution by the
Company with respect to its Common Stock and must be paid pari
passu to the holder with payment of any other dividend or distri-
bution by the Company with respect to the Preferred Stock. The
Company will not issue any note or other evidence of indebtedness
with respect to unpaid dividends.
The Voluntary Conversion Rate and the Mandatory Conver-
sion Rate are both subject to adjustment upon the occurrence of
the following events: the issuance of shares of Common Stock or
other securities of the Company as a dividend or distribution on
shares of Common Stock of the Company to the holders of all of
its outstanding shares of Common Stock; subdivisions, combina-
tions, or certain reclassifications of shares of Common Stock of
the Company; or the distribution to the holders of shares of
Common Stock of the Company generally of evidences of indebted-
ness or assets (excluding cash dividends and distributions made
out of current or retained earnings) or rights, options, or
warrants to subscribe for securities of the Company other than
those mentioned above. No adjustment in the conversion rates will
be required to be made with respect to the Preferred Stock until
cumulative adjustments amount to one percent or more; however,
any such adjustment not required to be made will be carried
forward and taken into account in any subsequent adjustment. In
lieu of fractional shares of Common Stock, there will be paid to
the holder of the Preferred Stock at the time of conversion an
amount in cash equal to the same fraction of the current market
value of a share of Common Stock of the Company.
In the event of any consolidation with or merger of the
Company into another corporation, or sale of all or substantially
all of the properties and assets of the Company to any other
corporation, or in case of any reorganization of the Company,
each share of Preferred Stock would thereupon become convertible
only into the number of shares of stock or other securities,
assets or cash to which a holder of the number of shares of
Common Stock of the Company issuable (at the time of such consol-
idation, merger, sale or reorganization) upon conversion of such
share of Preferred Stock would have been entitled upon such
consolidation, merger, sale or reorganization.
Reservation of Common Stock. The Corporation
shall at all times that there is outstanding and shares
of Series A Preferred Stock, maintain authorized but
unissued shares of Common Stock in an amount adequate
for any Voluntary or Mandatory Conversion hereunder.
THIRD: That the said resolution of the Board of
Directors, and the creation and authorization of issuance thereby
of said series of preferred stock and determination thereby of
the dividend rate, dividend payment dates, voting rights, liqui-
dation preference, and put option, were duly made by the Board of
Directors pursuant to authority as aforesaid and in accordance
with Section 151(g) of the General Corporation Law.
Signed on May , 1996 MICROENERGY, INC.
By:_________________________
Robert G. Gatza, President
By:_________________________
Robert J. Fanella, Secretary
STATE OF ILLINOIS )
)SS.:
COUNTY OF DUPAGE )
On May , 1996, personally appeared before me, a Notary
Public, for the State and County aforesaid, Robert G. Gatza, as
President of MicroENERGY, Inc., who acknowledged that he execut-
ed the above instrument.
______________________________
Notary Public
<PAGE>
MICROENERGY, INC.
Incorporated Under the Laws of the State of Delaware
NASDAQ: MCRE CUSIP: 594912
COMMON STOCK
This certifies that
is the owner of
fully paid and non-assessable shares of Common Stock of $.01 par
value of MicroEnergy, Inc. transferable on the books of the
Corporation in person of by attorney upon surrender of this
certificate duly endorsed or assigned. This certificate and the
shares represented hereby are subject to the laws of the State of
Delaware, and to the Certificate of Incorporation and Bylaws of
the Corporation, as now or hereafter amended. This certificate
is not valid until countersigned by the Transfer Agent
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
President:
Secretary:<PAGE>
For value received, hereby sell, assign and transfer
unto shares of the stock represented by this
Certificate, and do hereby irrevocably constitute and appoint
to transfer the said stock on
the books of the within Corporation with full power of substitu-
tion in the premises.
Dated:
The Corporation will furnish to any stockholder, upon request of
and without charge, a full statement of the designations, rela-
tive rights, preferences, and limitations of the shares of each
class and series authorized to be issued, so far as the same have
been determined and of the authority, if any, of the Board to
divide the shares into classes or series and to determine and
change the relative rights, preferences, and limitations of any
class or series. Such request may be made to the secretary of
the Corporation or to the transfer agent named on this certifi-
cate.<PAGE>
MICROENERGY, INC.
Incorporated Under the Laws of the State of Delaware
NASDAQ: MCREP CUSIP: 594912
SERIES A PREFERRED STOCK
This certifies that
is the owner of
fully paid and non-assessable shares of Series A Preferred Stock
of $5.00 par value of MicroEnergy, Inc. transferable on the books
of the Corporation in person of by attorney upon surrender of
this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the
State of Delaware, and to the Certificate of Incorporation and
Bylaws of the Corporation, as now or hereafter amended. This
certificate is not valid until countersigned by the Transfer
Agent
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
President:
Secretary:<PAGE>
For value received, hereby sell, assign and transfer
unto
shares of the stock represented by this
Certificate, and do hereby irrevocably constitute and appoint
to transfer the said stock on
the books of the within Corporation with full power of substitu-
tion in the premises.
Dated:
The Corporation will furnish to any stockholder, upon request of
and without charge, a full statement of the designations, rela-
tive rights, preferences, and limitations of the shares of each
class and series authorized to be issued, so far as the same have
been determined and of the authority, if any, of the Board to
divide the shares into classes or series and to determine and
change the relative rights, preferences, and limitations of any
class or series. Such request may be made to the secretary of
the Corporation or to the transfer agent named on this certifi-
cate.<PAGE>
MICROENERGY, INC.
Organized Under the Laws of the State of Delaware
CLASS A WARRANTS
Purchase Warrants CUSIP: 594912
This certifies that for value received
or registered assigns (the "Registered Holder") is owner of the
number of Class A Redeemable Preferred Stock Purchase Warrants
("Warrants") specified above. Each Warrant initially entitles
the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agree-
ment (as hereinafter defined), one fully paid and nonassessable
share of Series A Preferred Stock, $5.00 par value ("Preferred
Stock"), of MICROENERGY, INC., a Delaware corporation (the
"Company"), at any time between , 1997 and the
Expiration Date (as hereinafter defined), upon the presentation
and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office
of AMERICAN STOCK TRANSFER & TRUST COMPANY as Warrant Agent, or
its successor (the "Warrant Agent"), accompanied by payment of
$5.25 (the "Purchase Price") in lawful money of the United States
of America in cash or by official bank or certified check made
payable to MicroEnergy, Inc.
This Warrant Certificate and each Warrant hereby
are issued pursuant to and are subject in all respects to the
terms and conditions set forth in the Warrant Agreement (the
"Warrant Agreement") dated , 1996, by and between the
Company and the Warrant Agent.
In the event of certain contingencies provided for
in the Warrant Agreement, (a) the Purchase Price or the number of
shares of Preferred Stock subject to purchase upon the exercise
of each Warrant represented hereby are subject to modifications
or adjustment, and (b) the Registered Holder may receive Common
Stock upon exercise of the Warrant.
Each Warrant represented hereby is exercisable at
the option of the Registered Holder, but no fractional shares of
Stock will be issued. In the case of the exercise of less than
all the Warrants represented hereby, the Company shall cancel
this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certifi-
cates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M.
(New York time) on , 2000, or such earlier date as the
Warrants shall be redeemed. If such date shall in the State of
New York be a holiday or a day on which the banks are authorized
to close, then the Expiration Date shall mean 5:00 P.M. (New York
time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any
securities pursuant to the exercise of this Warrant unless a
registration statement under the Securities Act of 1933, as
amended, with respect to such securities is effective. The
Company has covenanted and agreed that it will file a registra-
tion statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current
while any of the Warrants are outstanding. This Warrant shall
not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the
surrender hereof by the Registered Holder at the corporate office
of the Warrant Agent, for a new Warrant Certificate or Warrant
Certificates of like tenor representing an equal aggregate number
of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with
any transfer fee in addition to any tax or other governmental
charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal
aggregate number of Warrants will be issued to the transferee in
exchange therefor, subject to the limitations provided in the
Warrant Agreement.
Prior to the exercise of any Warrant represented
hereby, the Registered Holder shall not be entitled to any rights
of a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends or other distributions,
and shall not be entitled to receive any notice of any proceed-
ings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the
Company, at a redemption price of $.05 per Warrant, at any time
after ______________, 1997, provided the Market Price (as defined
in the Warrant Agreement) for the securities issuable upon
exercise of such Warrant shall exceed $7.00 per share. Notice of
redemption shall be given not later than the thirtieth day before
the date fixed for redemption, all as provided in the Warrant
Agreement. On and after the date fixed for redemption, the
Registered Holder shall have no rights with respect to this
Warrant except to receive the $.05 per Warrant upon surrender of
this Certificate.
Prior to due presentment for registration of
transfer hereof, the Company and the Warrant Agent may deem and
treat the Registered Holder as the absolute owner hereof and of
each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware.
Dated:
President:
Secretary:<PAGE>
SUBSCRIPTION FORM
(To Be Executed by the Registered Holder in Order to Exercise
Warrants)
TO: MICROENERGY, INC.
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably
elects to exercise________ Warrants represented by this Warrant
Certificate and to purchase the securities issuable upon the
exercise of such Warrants, and request that certificates for such
securities shall be issued in the name of:
Please insert Social Security or
Other Identifying Number
and be delivered to:
(Please Print or Type Name and Address)
and if such number of Warrants shall not be all the Warrants
evidenced by this Warrant Certificate, that a new Warrant
Certificate for the balance of such Warrants be registered in the
name of, and delivered to, the Registered Holder at the address
stated below:
(Please Print or type Address)
Dated: , 19
(Signature (s)
Signature(s) Guaranteed (Social Security or Taxpayer
If this Warrant has been solicited Identification Number)
by a member of the National
Association of Securities Dealers,
Inc., the name of such firm is:
ASSIGNMENT
(To be Executed by the Registered Holder in Order to Assign
Warrants)
FOR VALUE RECEIVED the undersigned hereby sell(s), assigns(s) and
transfer(s) unto
Please insert Social
Security or other
Identification Number
(Please Print or type Name and Address)
represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints
of the Warrants
transfer this warrant Certificate on the books of the Company,
with full power of substitution in the premises.
Dated: , 19
Signature(s)
BRESSLER AMERY & ROSS
17 State Street
New York, NY 10004
212-425-9300
April 23, 1996
MicroENERGY, Inc.
350 Randy Road
Carol Stream, Illinois 60188
Gentlemen:
We have acted as counsel for
Microenergy, Inc., a Delaware corporation (the "Company") in
connection with the registration statement on Form S-1 (No 333-1835)
(the "Registration Statement") filed by the Company under
the Securities Act of 1933 with respect to the offering of
430,000 shares of Series A Preferred Stock, $5.00 par value (the
"Series A Preferred Stock"), and 215,000 Class A Warrants (the
"Class A Warrants"), all being issued and sold by the Company as
set forth in the Registration Statement.
As indicated in the Registration Statement, the only series of Preferred
Stock presently outstanding is the Series A Preferred Stock of which 350,000
shares were issued by the Company to Robert G. Gatza and Robert
J. Fanella.
We have examined such
documents, records and other instruments that we deemed necessary
as a basis for the opinion set forth below. In rendering this
opinion letter, we have assumed that factual statements and
information contained in the Registration Statement and other
documents, records and instruments supplied to us are correct.
The Commission has requested
that we render our opinion to you as to whether there are any
resulting restrictions on surplus, if the liquidation preference
of the Preferred Stock exceeds their par or stated value.
Additionally, the Commission has requested that we state any
remedies available to security holders before or after payment of
any dividend that would reduce surplus to an amount less than the
amount of such excess.
The form of Certificate of
Designation of the Series A Preferred Stock provides that in the
event of a voluntary or involuntary liquidation or winding up of
the Company, the holders of the Preferred Stock will be entitled
to receive out of the assets of the Company available for distribution
to shareholders $5.00 per share plus all accrued and
unpaid dividends before any distribution is made to the holders
of Common Stock or any other class or series of stock ranking
junior to the Preferred Stock as to distribution of assets.
For purposes of this Opinion, the applicable law is the Delaware
General Corporation Law (the "DGCL"), and case law construing the DGCL.
Section 170 of the DGCL authorizes a Delaware corporation to pay dividends
either (1) out of its surplus, or (2) in case there shall be no
surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. "Surplus"
is defined by Section 154 as the amount by which the "net assets"
of the corporation exceed its "capital." Both "net assets," as
set forth in Section 154, and "capital," as set forth in Sections
154 and 244, are determined without reference to the amount of
any liquidation preference of any class of stock.
Accordingly, the authorization set forth in Section 170 for the payment
of dividends out of surplus is not limited or restricted solely by reason of
the existence of a class of stock which has a liquidation preference
in excess of the par value of such stock.
We are aware of no controlling decision of any court of the State of
Delaware that addresses the question presented for our consideration, but we
believe that the courts of Delaware would adopt the reasoning set
forth herein should the question be litigated. We note that our
opinion as stated herein is supported by the discussion of the
Court in Bailey v. Tubize Rayon Corporation, 56 F Sup. 418, 423
(D. Del. 1944) (applying Delaware law).
Based upon and subject to
the foregoing, and subject to the limitations stated below, it is
our opinion that, solely as a matter of law, under the DGCL in
effect on the date hereof: (1) prior to a liquidation or winding
up of the affairs of the Company, there will be no restriction on
the surplus of the Company available for the payment of dividends
solely by reason of the fact that the liquidation preference of
the Series A Preferred Stock exceeds its par value; and (2) no
remedy would be available to the holders of the Series A Preferred Stock,
either before or after payment of any dividend,
prior to a liquidation or winding up of the affairs of the
Company, solely by the reason of the fact that payment of such
dividend reduces the surplus of the Company to an amount less
than the difference between the liquidation preference and the
par value of the Series A Preferred Stock.
The foregoing opinion is
based upon our analysis of the DGCL and case law which we deem
relevant as of the date hereof. No assurances can be given that
there will not be a change in the existing law, either prospectively or
retroactively, with regard to any of the matters upon
which we are rendering this opinion letter. We have not considered and
expressed no opinion of the effect of any other laws or
the laws of any other state or jurisdiction, including federal
laws regulating securities or other federal laws, or the rules
and regulations of stock exchanges or any other regulatory body.
Very truly yours,
BRESSLER, AMERY & ROSS, P.C<PAGE>
