SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/ X /ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1998
OR
/ /TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No. 0-12595
MicroENERGY, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 36-3262274
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
350 Randy Road
Carol Stream, Illinois 60188
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (630) 653-5900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Series A Cumulative Preferred Stock
Class A Preferred Stock Purchase Warrants
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirement for the past 90 days.
Yes X No
EXHIBIT INDEX IS AT PAGE 41
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of
filing. (See definition of affiliate in Rule 405).
On September 8, 1998, the bid and ask prices for the Registrant's Common
Stock, $.01 par value, on the OTC Bulletin Board Market, were $0.4375 and
$0.59375 per share; for the Series A Cumulative Preferred Stock, on the OTC
Bulletin Board Market, were $0.28125 and $0.4375 per share. Based upon the
average of the bid and ask price quoted for the two securities, the aggregate
market value, as of September 8, 1998
of the two securities, held by non-affiliates was $387,186. The prices
referred to represent prices between dealers and do not include retail
mark-up, mark-down, or commissions. They do not represent actual
transactions. "Non-affiliates" includes all shareholders of the Registrant
other than its officers, directors and owners of more than ten percent of its
outstanding Common Stock.
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date.
As of September 8, 1998, there were outstanding 1,966,064 shares of
Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
Item 1 BUSINESS
MicroENERGY, Inc., was incorporated in Delaware on November 30, 1983.
The Company designs and manufactures highfrequency 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 800 watts.
All of the Company's products are customized to satisfy the unique
requirements of each customer's application.
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. A DC-to-DC converter converts direct current of one
value into direct current of another value. The power supply or converter
regulates the DC voltage to a constant so as to make the performance of
electronic circuits predictable. A conventional linear power supply regulates
the DC output by throwing-off excess input power as heat. A switching power
supply regulates the DC output by briefly turning off the input power when the
voltage becomes excessive. In this way the switching power supply saves
energy and operates more efficiently than a linear power supply.
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 300 companies which identify switching power supplies
in their product line portfolio, and no company dominates the market.
Switchers are divided in two basic market categories: standardized switchers
and custom designs. The Company competes only in the custom-design market at
this time. In that market the principal method of competing is by emphasis on
design ability, manufacturing quality, and timely delivery. Regarding the
manufacturing quality, the Company in August 1995, subjected its quality
system to audit, and at that time achieved ISO 9001 registration.
MicroENERGY's product/market strategy began with the development of
AC-to-DC products in the 75 to 300 watt output range. Later in 1984 the
Company added DC-to-DC converters to its product line. The switching
frequencies at which the transformers operate range from 80 Khz-250 Khz
depending on the application. The generic product series are modifiable to
meet a wide variety of specific customer requirements.
The Company's Research and Development effort is located in
Longwood Florida. The Company's research and development efforts include
advancing the state-of-the-art in the design of power supplies, meeting
current customers technological requirements and the methods employed in
manufacturing such power supplies. For the immediate future, the Company's
research and development will continue to focus on these items. During the
fiscal year ended June 30, 1998 the Company spent $1,408,582 on
Company-sponsored research and development. During the fiscal years ended
June 30, 1997 and 1996, the Company spent $1,266,011 and $1,174,322 on
Company-sponsored research and development. The Company has no material
patents, but does rely on trade secret protection.
The Company principally markets its products through independent
manufacturers representatives. At the present time, the Company's products
are offered by ten representatives, whose territories include all or part of
twenty-one states. In fiscal 1998 the Company had three customers who were
each responsible for over 10% of the Company's sales. These customers
accounted for approximately 23%, 18% and 14% of the total sales. However, the
first major customer is comprised of four autonomous purchasing units. If
considered separately, two units would be considered a major customer with 11%
and 10% respectively of total sales. In fiscal year 1997 and 1996 the Company
had three and two customers respectively that accounted for more than 10% of
the Company's sales. The principal goal of the Company's marketing efforts
continues to be to expand the customer base, so as to make the Company less
dependent on a small group of customers.
In the fiscal year ended June 30, 1998, export sales amounted to
approximately 35% of the Company's total revenues, compared to 41% in 1997 and
48% in 1996. Export sales principally went to Canada and the United Kingdom
for all three periods. All export sales are denominated in U.S. currency.
Due to the custom nature of the products exported and the time involved in
developing these products, short-term foreign currency fluctuations have no
adverse impact. Any long-term strengthening of the dollar may have an adverse
impact on the Company's revenues.
As of September 21, 1998, MicroENERGY had a backlog of released orders of
$2.1 million. These orders constitute a firm commitment to take delivery of
the Company's product. Delivery of products and receipt of revenues from
these production orders will extend well into the current fiscal year.
MicroENERGY had a backlog of released orders of $5.5 million, in the prior
year.
The raw materials for the Company's products are primarily standardized
components which are readily available from an adequate number of suppliers.
Those raw materials which must be customized for the Company are also readily
available from a number of qualified component manufacturers. Currently, the
Company has one vendor from which it purchases more than 10% of its total
purchases. Purchases from this vendor approximate 11.0% of total purchases.
While the material is readily available, a change in these suppliers could
cause a delay in manufacturing. During fiscal 1989, the Company acquired 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. In March of this fiscal year the company sold its interest
in Tru-Way. It is expected that Tru-Way will continue as a supplier to the
Company, although there is no contractual agreement to do so. See "Item 13-
Certain Relationships and Related Transactions"
The Company currently has 106 full-time employees (including 75
production employees), two of whom are officers of the Company. During the
remainder of fiscal 1999 the Company expects no substantial increases in the
Company's non-direct labor force.
The Company expects no negative effect from current environmental laws or
regulations.
The Company has reviewed it exposure to the Year 2000 software readiness
problem and does not anticipate it will incur any significant costs in that
regard.
Item 2 PROPERTY
The Company currently has four locations. The Company's general
offices are located in a 3,150 square foot office facility in Carol Stream,
IL. The lease on this facility terminates January 31, 2003. The Company's
manufacturing operations are located in a leased facility in Quincy, Illinois
and an owned facility in Memphis, Missouri. The total space in Quincy is
59,555 square feet, and 9,600 square feet in Memphis Missouri. The lease on
the Quincy facility terminates August 31, 2001. 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
Longwood Florida facility, which contains the Research and Development center
is a 10,129 square foot leased facility. The term of the lease expires June
30, 2002.
Item 3 LEGAL PROCEEDINGS
Not Applicable.
Item 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
Item 5 MARKET FOR THE COMPANY'S
COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Company's Common Stock is traded in the over-the- counter market and
is on the OTC Bulletin Board. The market price ranges during the quarterly
periods from July 1, 1996 through June 30, 1998, as reported by the OTC
Bulletin Board, were as follows:
Common Stock par value $ .01
Fiscal 1998 Fiscal 1997
High Low High Low
Quarter Ended Bid Bid Bid Bid
September 30 $1.50 $0.75 $ 4.50 $2.75
December 31 0.63 0.31 2.75 2.00
March 31 0.31 0.16 2.25 1.13
June 30 0.44 0.16 2.50 1.13
The Company's Series A Cumulative Preferred Stock was traded on the
NASDAQ SmallCap Market through June 16, 1998. Since that date the stock has
traded on the OTC Bulletin Board. The stock began trading on July 11, 1996,
the market price ranges during the quarterly periods from July 11, 1996
through June 30, 1998, as reported by NASDAQ and the OTC Bulletin Board, were
as follows:
Series A Cumulative Preferred Stock
Fiscal 1998 Fiscal 1997
High Low High Low
Quarter Ended Bid Bid Bid Bid
September 30 $2.75 $1.50 $10.00 $6.38
December 31 2.50 0.81 7.88 2.63
March 31 1.06 0.63 5.50 3.25
June 30 0.63 0.25 5.63 2.13
The foregoing quotations represent prices between dealers and do not
include retail mark-up, mark-down, or commissions, and may not necessarily
represent actual transactions.
The closing high bid and low asked prices of Common Stock on September 8,
1998 as reported by OTC Bulletin Board, were $0.44 and $0.59, respectively.
The closing high bid and low asked prices of the Series A Preferred Stock on
September 8, 1998, as reported by the OTC Bulletin Board were $0.28 and $0.44,
respectively.
On September 8, 1998 the number of shareholders of record of the Common
Stock was 3,046 and the number of shareholders of record of the Series A
Cumulative Preferred Stock was 11. Based upon information provided by the
recordholders of the Series A Preferred Stock, the Company believes that there
are at least 300 holders of the Series A Preferred Stock, and all such stock
is held in street name accounts.
No dividends have been paid by the Company on the Common Stock. For the
foreseeable future the Company intends that it will not pay any dividends on
the Common Stock. The Series A Cumulative Preferred Stock includes a dividend
which is cumulative from the date of issuance and is payable semi-annually at
a rate of 8% per annum. The Company, at is sole discretion may pay each
dividend in either 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 combination of cash and Common Stock. Dividends were paid January 1,
1997, and July 1, 1997. Both dividends were paid in Common Stock. For the two
dividend periods, the Company issued 104,230 shares and 96,140 shares of the
Common Stock, par value $.01. Dividends were not declared during fiscal year
1998. Accordingly, at June 30, 1998, $276,920 of cumulative preferred stock
dividends are in arrears.
Item 6 SELECTED FINANCIAL DATA
($'s in 000's excluding per share info)
Operating Summary 6/30/98 6/30/97 6/30/96 6/30/95
6/30/94
Sales 11,870 15,683 14,386 14,589 12,771
Interest & Oth Income 1 1 2 1 1
Total Income 11,871 15,684 14,388 14,590 12,772
Cost of Mfg & Facility 10,526 12,272 11,913 11,567 10,054
Research & Development 1,409 1,266 1,174 949 920
Sllg,Gen & Admin 1,716 1,707 1,529 1,492 1,370
Interest & Oth Expense 709 344 420 332 223
Total Expense 14,360 15,589 15,036 14,340 12,567
Net Earnings/(loss)
Bef Extraordinary Item (2,489) 95 ( 648) 250 205
Extraordinary item -- -- 1,000 -- --
Net Earnings/(loss) (2,489) 95 352 250 205
Per Share Calculation
Basic & Diluted Net
Earnings/(loss) (2,489) 95 352 250 205
Pref Stock Dividend ( 277) ( 347) -- -- --
Basic & Diluted Net
Earnings/(loss)
Avail to Common
Shareholders (2,766) ( 252) 352 250 205
Basic & Diluted Net Earnings/(loss) Per Share:
Bef Extraordinary Item ( 1.40) ( .49) ( 1.80) .79 .64
Extraordinary Item -- -- 2.78 -- --
Total Per Share ( 1.40) ( .49) .98 .79 .64
Weighted Avg. # of Shares
Outstanding (in 000's) 1,973 510 360 317 320
Balance Sheet Summary
Working Capital(Def) ( 1,159) 3,904 ( 1,604) 443 273
Total Assets 5,150 9,346 7,279 6,148 6,302
Capitalized Lease 76 408 682 581 767
Long-Term Debt 97 3,874 874 3,514 3,954
Total Liabilities 5,097 6,857 7,517 7,144 7,641
Preferred Stock 2,605 2,605 -- -- --
Shareholders Equity(Def) 53 2,489 ( 237) ( 995) (1,339)
Item 7 MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Statements; No Assurances Intended
This report (including without limitation the following section regarding
Management's Discussion and Analysis of Financial Condition and Results of
Operations) contains certain forward looking statements (within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
exchange Act of 1933 and results of operations and business prospects. Words
such as "expects or believes" are intended to identify forward looking
statements in this report. Additionally, statements concerning future matters
such as the expectation of lower manufacturing cost in the future, the
anticipated sufficiency of cash flows, and other statements regarding matters
that are not historical are forward looking statements.
Although forward looking statements in this report reflect the good faith
judgement of the Company's management, such statements can only be based on
facts and factors currently known by the Company. Consequently, forward
looking statements are inherently subject to risks and uncertainties and
actual results and outcomes may differ materially from the results and
outcomes discussed or anticipated by forward looking statements. Factors that
could cause or contribute to such differences in results or outcomes include
without limitation those discussed in "Potential Fluctuations in Operating
Results" as well as those discussed elsewhere in this report. Readers are
urged not to place undue reliance on these forward looking statements in order
to reflect any event or circumstance that may arise after the date of this
Report. Readers are urged to carefully review and consider the various
disclosures made by the Company in this report, which attempt to advise
interested parties of the risks and factors that may affect the Company's
business, financial condition, results of operations and prospects.
Potential Fluctuations in Operating Results
The Company's revenues and operating results have varied significantly in
the past and may do so in the future. Factors affecting the Company's revenue
and operating results include, but are not limited to: the historical tendency
of the Company to receive during a given fiscal period, a small number of
relatively large custom customer orders, many for new systems, such that the
failure to recognize anticipated requirements from any such order in that
fiscal period may disproportionately and adversely affect the Company's
revenues and operating results for that fiscal period; customer cancellations
of blanket orders that yield recurring revenues or customers otherwise ceasing
their use of the Company's products; the lengthy sale cycle; the Company's
ability to successfully and timely develop, introduce and market new product
and product enhancements; the effect of competitive products and pricing, and
the ability to react to sudden changes in revenue with respect to the timing
and appropriate adjustments of operating expenses.
The Company expects that fluctuations in its operating results will
continue for the foreseeable future. Consequently, the Company believes that
period-to-period comparisons of its financial results should not be relied on
as an indication of future performance. Generally, the revenue of the Company
has been trending down for the past 12 months, primarily due to one major
customer that accounted for 36% of revenues during fiscal 1997 ($5.7 million)
as compared to 22% of revenues ($2.6 million) during fiscal 1998. This
customer's revenue for fiscal 1999 will be negligible. During the forthcoming
period, the Company may be unable to replace this customer with new business
sufficient in scope or to adjust spending to reflect the lower volume in order
to restore profitability on a quarterly or annual basis in the future.
Results of Operations
Year ended June 30, 1998 vs. Year ended June 30, 1997.
Net sales for the fiscal year ended June 30, 1998 were $11,870,050, or
approximately 24% lower than the $15,683,520 recorded in fiscal 1997. The
decrease was the result of a sales decline from one of the Company's major
customer's of $3.1 million. Sales to this customer were $2.6 million in fiscal
year 1998 as compared to $5.7 million in fiscal year 1997. It is expected
that this customers revenue in the coming fiscal year will be negligible.
Sales to this customer included three different models. One of the units came
to an earlier than expected end-of-life and the other two units were replaced
with lower cost off-shore products. New products for two different customers
which were intended to offset the reduction of these sales did not happen as
planned. The new customers' requirements changed and the revenues from these
programs were dramatically below anticipated levels.
Net Loss, exclusive of preferred dividends, for the fiscal year ended
June 30, 1998, was $2,488,842 as compared to a net earnings of $95,132 for the
prior year period. The primary reason for the earnings decrease was the
reduction in sales.
Manufacturing costs decreased by 14%, or $1.7 million. Relative to sales,
Manufacturing costs were 88.7% of sales as compared to 78.3% in the prior
year. This increase was primarily due to the allocation of the fixed cost
portion of Manufacturing costs over a much lower sales base. In the non-direct
cost areas, Research & Development increased by $142,000, as the Company
attempted to complete designs that could compete more effectively with the
off-shore competition and also complete the designs of other new products that
were intended to lessen the impact of the sales decline from the major
customer noted above. Selling, General & Administrative costs for the fiscal
year remained relatively constant as compared to the prior fiscal year. The
Company has reduced these costs for the coming fiscal year. The Company is
currently making the cost reductions required in each cost area to reflect the
lower sales level.
In order to lower the Company's debt level and refocus on its core
business, it divested its interest in the wholly-owned subsidiary Tru-Way,
Inc., and its minority interest in MicroEnergy India, Ltd. The Company
recorded losses of $236,901 and $47,140 on these transactions.
Interest costs for the current fiscal year were $424,358 as compared to
$343,330 for the prior year.
The Company expects revenues for the coming fiscal year to be
approximately 10% below this years level, although it has not yet received
sales commitments that would assure that level. The Company has put into
effect a plan that lowers cost levels in all areas of the Company,
Manufacturing, Research & Development, Selling, and General & Administrative.
As a result of these reductions, if the sales levels achieve the Company's
expectations, the Company anticipates it will return to operating
profitability in the second half of the fiscal year ending June 30, 1999.
There were no significant changes in the type of expenses incurred by the
Company in fiscal 1998 versus fiscal 1997.
Year ended June 30, 1997 vs. Year ended June 30, 1996
Net sales for the fiscal year ended June 30, 1997 were $15,683,520, or
approximately 9% higher than the $14,386,323 recorded in fiscal 1996. The $1.3
million increase was mainly due to sales of new products which had been
developed the prior fiscal year. The Company's backlog of released orders is
slightly behind the prior year period.
Net Earnings, exclusive of preferred dividends, for the fiscal year ended
June 30, 1997, were $95,132 as compared to $352,442 for the prior year
period. The prior year period net earnings included an extraordinary gain
resulting from debt restructuring of $1.0 million. When this item is removed
for comparison purposes the Company showed a positive swing totaling $743,185
on the sales increase of $1.3 million ($95,132 profit versus $648,053 loss
before extraordinary item).
The primary reason for the improvement in operational results from 1996
to 1997 was a decrease in Manufacturing costs to 78.2% of revenues as compared
to 82.8% the prior year. This decrease was primarily due to increased
productivity as a result of new manufacturing equipment, lower material
acquisition costs in the semi-conductor marketplace and improved product mix.
In the non-direct cost areas, Research & Development increased $91,689 to
$1,266,011, but declined as a percentage of revenue to 8.1% versus the prior
year of 8.2%. The Company will continue its commitment to Research &
Development as the Company expects to realize additional revenue as a result
of R & D dollars spent on both new programs and existing customer programs.
Selling, General & Administrative increased to 10.9% of sales as compared to
10.6% the prior year. The Company does not expect significant increases in the
indirect cost areas of the Company.
Interest costs of $343,330 were comparable to the prior year period. The
Company had anticipated reduced interest expenses as it paid down debt with
the proceeds of its public offering of securities in 1996. However, the
productivity advantages of investing in new equipment became apparent (as
evidenced by the Company's improved gross margin), so the Company maintained
its debt level in order to purchase new equipment.
There were no significant changes in the type of expenses incurred by the
Company in fiscal 1997 versus fiscal 1996.
Liquidity and Capital Resources
Year ended June 30, 1998 vs. Year ended June 30, 1997
At June 30, 1998, the Company had negative working capital of $1,158,726
as compared to a working capital surplus of $3,904,354 at the end of the prior
fiscal year. The Company's borrowings from its major lender totaling
approximately $4.0 million were reclassed during the fourth quarter as current
liability due to covenant violations. The Company has come to an informal
arrangement with its bank and expects to be afforded additional time to either
remedy its covenant violations or secure a replacement facility. At this time
there are no additional funds available on the Company's revolving line of
credit.
The Company's ending accounts receivable balance at June 30, 1998 was
$1,610,145 as compared to $2,122,302 at June 30, 1997. The decrease of
$512,157 was due primarily to the lower sales level as compared to the prior
year. The Company has not currently experienced any significant losses from
Bad Debts and has maintained Bad Debt reserves of $45,000 for the years ended
June 30, 1998 and June 30, 1997. For the past two fiscal years the Company has
written off a total of $5,000 ($5,000 in fiscal year 1997, $0 in fiscal year
1998) for bad debts.
Inventories decreased by $1,813,644 to $2,073,735, primarily as a result
of lower manufacturing volumes and an increase in its Reserve for Excess and
Obsolescence of approximately $390,000 resulting from the cancellation of
certain customer orders.
The Company spent $0.1 million on equipment purchases as compared to $1.1
million in the prior year. The Company does not expect any major fixed asset
purchases in the coming year.
The Company's Accounts Payable declined by $1.1 million, reflecting the
lower sales volume and the Company's concerted effort to become more current
with its material suppliers.
The Company expects that cash flow expected from current
operations will be sufficient to service the Company's debt and fund
operations for the following fiscal year. During the coming fiscal year, the
Company is aggressively pursuing new customers, has reduced costs to more
fairly match its current level of sales, and continues to seek to stabilize
its lending arrangement with its major lender to establish an acceptable
financing plan.
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company does not invest in securities that are exposed to risk from
changes in interest rates, currency valuations, or commodity prices.
Item 8 FINANCIAL STATEMENTS AND
SUPPLEMENTAL DATA
INDEX TO FINANCIAL STATEMENTS
Financial Statements: Page
Report of Independent Auditors 12
Consolidated Balance Sheets at June 30, 1998
and 1997 13
Consolidated Statements of Operations for the
three years ended June 30, 1998 14
Consolidated Statements of Changes in Stock-
holders' Equity for the three years ended
June 30, 1998 15
Consolidated Statements of Cash Flows for the
three years ended June 30, 1998 16
Notes to Consolidated Financial Statements 18
Selden, Fox and Associates, Ltd.
Certified public Accountants and Consultants
619 enterprise Drive, Oak Brook, IL 60523
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Shareholders of MicroENERGY, Inc.
We have audited the accompanying balance sheet (consolidated in 1997) of
MICROENERGY, INC. AND SUBSIDIARY as of June 30, 1998 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the years ended
June 30, 1998, 1997 and 1996. 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 misstatement. 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 Subsidiary at June 30, 1998 and 1997, and the results of
their operations and cash flows for the years ended
June 30, 1998, 1997 and 1996, in conformity with generally accepted accounting
principles.
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has suffered significant operating losses
due to not meeting sales projections, is in violation of its debt covenants,
has an arrearage on its preferred stock dividends, and minimal capital, that
raise substantial doubt about its ability to continue as a going concern.
Management's plans are also described in Note 11. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Selden, Fox and Associates, Ltd.
Certified Public Accountants
August 21, 1998
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1998 and 1997
ASSETS 1998 1997
Current assets:
Cash $ 134,303 $ 110,086
Accounts receivable 1,610,145 2,122,302
Inventories 2,073,735 4,068,524
Other current assets 22,735 586,870
Total current assets 3,840,918 6,887,782
Property and equipment 4,732,401 6,225,214
Accumulated depreciation (3,455,867) (3,869,092)
1,276,534 2,356,122
Other assets, net 32,513 102,275
$ 5,149,965 $ 9,346,179
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
obligations $ 4,236,926 $ 948,326
Accounts payable 467,444 1,579,539
Cash overdraft - 82,055
Accrued expenses 295,274 373,508
Total current liabilities 4,999,644 2,983,428
Long-term obligations 97,262 3,873,622
Total liabilities 5,096,906 6,857,050
Commitments
Stockholders' equity (deficit):
8% cumulative Series A preferred stock,
4,000,000 shares authorized, 494,500
shares issued 2,605,282 2,605,282
Common stock, $.01 par value - 4,000,000
shares authorized; 1,966,064 shares
issued in 1998 and 2,021,847 shares
issued in 1997 19,661 20,218
Additional paid-in capital 4,642,842 6,423,535
Accumulated deficit (7,311,140) (5,255,998)
Unearned restricted stock compensation - (1,347,550)
Preferred stock warrants 112,725 112,725
Common stock purchase warrants 75 75
Treasury stock, at cost, 1,898 shares (16,386) (16,386)
Unrealized loss on marketable securities - (52,772)
Total stockholders' equity 53,059 2,489,129
$ 5,149,965 $ 9,346,179
See accompanying notes and independent auditor's report.
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1998, 1997 and 1996
1998 1997 1996
Net sales $ 11,870,050 $ 15,683,520 $ 14,386,323
Expenses:
Facility, preproduction
and production 10,526,285 12,272,184 11,912,736
Research and development 1,408,582 1,266,011 1,174,322
Selling and marketing 444,414 390,528 375,099
General and administrative 1,271,212 1,316,335 1,153,781
13,650,493 15,245,058 14,615,938
Operating income (loss) (1,780,443) 438,462 (229,615)
Interest expense, net 424,358 343,330 341,578
Loss on sale of subsidiary 236,901 - -
Foreign investment loss 47,140 - 76,860
Income (loss) before
extraordinary item (2,488,842) 95,132 (648,053)
Extraordinary item - gain on
debt restructuring - - 1,000,495
Net income (loss) $ ( 2,488,842) $ 95,132 $ 352,442
For earnings per share
calculation:
Net income (loss) $ ( 2,488,842) $ 95,132 $ 352,442
Preferred stock dividend ( 276,920) (346,922) -
Net income (loss)
available to common
stockholders $ ( 2,765,762) $ (251,790) $ 352,442
Basic and diluted earnings
(loss) per common share:
Before extraordinary item $ (1.4015) $ (.4933) $ (1.7997)
Extraordinary item - - 2.7785
Total $ (1.4015) $ (.4933) $ .9788
Weighted average number
of shares of common
stock outstanding 1,973,490 510,386 360,088
See accompanying notes and independent auditor's report.
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY(DEFICIT)
Additional
Common Paid-in Accumulated
Stock Capital Deficit
Net balance at June 30, 1995 $ 3,166 $5,789,714 $(5,356,650)
Amortization of restricted
stock awards - - -
Proceeds from preferred
stock subscription - - -
Issuance of 880,000 preferred
stock warrants @ $.10 - - -
Exercise of common stock
Class D warrants 972 42,779 -
Exercise of employee
stock options 21 7,679 -
Exercise of nonemployee
stock options 56 2,444 -
Net Income - - 352,442
Change in unrealized gain
on investment - - -
Net balance at June 30, 1996 4,215 5,842,616 (5,004,208)
Amortization of restricted
stock awards - - -
Proceeds from issuance of
494,500 shares of preferred
stock - - -
Proceeds from issuance of
247,250 preferred stock
warrants @ $.10 - - -
Conversion of 350,000
preferred shares to 1,400,000
common shares 14,000 236,000 -
Preferred stock dividend of
200,370 common shares 2,003 344,919 (346,922)
Net Income - - 95,132
Change in unrealized loss
on investment - - -
Net Balance at June 30,1997 20,218 6,423,535 (5,255,998)
Forfeiture of restricted
stock awards (528) (1,780,722) 433,700
Reverse Stock split rounding
adjustment (29) 29 -
Net Loss - - (2,488,842)
Change in unrealized loss
on investment - - -
Net Balance at June 30, 1998 $ 19,661 $4,642,842 $(7,311,140)
See accompanying notes and independent auditor's reports.
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY(DEFICIT)
Unearned Common
Restricted Preferred Preferred Stock
Stock Stock/ Stock Purchase
Compensation Subscription Warrants Warrants
Net balance at June 30, 1995 $(1,455,550) $ - $ - $ 75
Amortization of restricted
stock awards 54,000 - - -
Proceeds from preferred
stock subscription - 250,000 - -
Issuance of 880,000 preferred
stock warrants @ $.10 - - 88,000 -
Exercise of common stock
Class D warrants - - - -
Exercise of employee
stock options - - - -
Exercise of nonemployee
stock options - - - -
Net Income - - - -
Change in unrealized gain
on investment - - - -
Net balance at June 30, 1996 (1,401,550) 250,000 88,000 75
Amortization of restricted
stock awards 54,000 - - -
Proceeds from issuance of
494,500 shares of preferred
stock - 2,605,282 - -
Proceeds from issuance of
247,250 preferred stock
warrants @ $.10 - - 24,725 -
Conversion of 350,000
preferred shares to 1,400,000
common shares - (250,000) - -
Preferred stock dividend of
200,370 common shares - - - -
Net Income - - - -
Change in unrealized loss
on investment - - - -
Net Balance at June 30,1997 (1,347,550) 2,605,282 112,725 75
Forfeiture of restricted
stock awards 1,347,550 - - -
Reverse Stock split rounding
adjustment - - - -
Net Loss - - - -
Change in unrealized loss
on investment - - - -
Net Balance at June 30, 1998 $ - $2,605,282 $ 112,725 $ 75
See accompanying notes and independent auditor's reports.
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY(DEFICIT)
Unrealized
Gain(Loss) Stockholders
Treasury On Total Equity
Stock Investments (Deficit)
Net balance at June 30, 1995 $(16,386) $ 40,341 $ (995,290)
Amortization of restricted
stock awards - - 54,000
Proceeds from preferred
stock subscription - - 250,000
Issuance of 880,000 preferred
stock warrants @ $.10 - - 88,000
Exercise of common stock
Class D warrants - - 43,751
Exercise of employee
stock options - - 7,700
Exercise of nonemployee
stock options - - 2,500
Net Income - - 352,442
Change in unrealized gain
on investment - - (40,341)
Net balance at June 30, 1996 (16,386) - (237,238)
Amortization of restricted
stock awards - - 54,000
Proceeds from issuance of
494,500 shares of preferred
stock - - 2,605,282
Proceeds from issuance of
247,250 preferred stock
warrants @ $.10 - - 24,725
Conversion of 350,000
preferred shares to 1,400,000
common shares - - -
Preferred stock dividend of
200,370 common shares - - -
Net Income - - 95,132
Change in unrealized loss
on investment - (52,772) (52,772)
Net Balance at June 30,1997 (16,386) (52,772) 2,489,129
Forfeiture of restricted
stock awards - - -
Reverse Stock split rounding
adjustment - - -
Net Loss - - (2,488,842)
Change in unrealized loss
on investment - 52,772 52,772
Net Balance at June 30, 1998 $(16,386) $ - $ 53,059
See accompanying notes and independent auditor's reports.
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
Net income (loss) $(2,488,842) $ 95,132 $352,442
Adjustments to reconcile net
income (loss)to net cash from
operating activities:
Loss on sale of subsidiary 236,901 - -
Gain on lease termination ( 10,209) - -
Gain on debt restructuring - - (1,000,495)
Gain on sale of equipment ( 17,053) - -
Depreciation 669,031 667,660 597,099
Foreign investment loss 47,140 - 76,860
Compensation paid in common
stock, net of forfeiture - 54,000 59,301
Changes in:
Accounts receivable 426,963 ( 520,313) (407,994)
Inventories 1,813,644 ( 703,678) (652,622)
Other current assets 564,135 ( 535,327) 2,182
Other assets 1,144 ( 2,344) 19,273
Accounts payable (1,028,670) ( 338,985) 768,937
Cash overdraft ( 82,055) 11,172 70,883
Accrued expenses 994 ( 62,810) ( 19,888)
Net cash from
operating activities 133,123 (1,335,493) (134,022)
Cash flows from investing activities:
Additions to property and
equipment ( 120,784) (1,085,761) ( 353,944)
Proceeds from sale of subsidiary,
net of $82,821 cash balance 117,179 - -
Proceeds from sale of equipment 34,070 - -
Proceeds from sale of investment 35,000 - -
Net cash from
investing activities 65,465 (1,085,761) ( 353,944)
Cash flows from financing activities:
Proceeds from preferred stock
and warrants offering - 2,630,007 -
Proceeds from stock subscription - - 250,000
Proceeds from bridge financing - - 275,000
(Increase) decrease in public
offering fees - 176,971 ( 176,971)
Proceeds from other stock plans - - 48,650
Issuance of long-term obligations 963,646 4,109,094 145,478
Payment of long-term obligations (1,138,017) (2,528,974) (857,965)
Net change in notes payable - (1,875,373) 710,162
Net cash from
financing activities ( 174,371) 2,511,725 394,354
Net increase (decrease)in cash $ 24,217 $ 90,471 $(93,612)
(cont'd)
MicroENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont'd)
For the Years Ended June 30, 1998, 1997 and 1996
1998 1997 1996
Net increase (decrease) in cash $ 24,217 $ 90,471 $ (93,612)
Cash, beginning of the year 110,086 19,615 113,227
Cash, end of the year $ 134,303 $ 110,086 $ 19,615
Supplemental schedule of noncash investing
and financing activities:
Capital Leases
The Company entered into capital leases for certain equipment. In connection
with the capital leases, the Company recorded equipment and long-term
obligations of $42,042, $26,333 and $368,660, in 1998, 1997 and 1996,
respectively (see Note 5).
Other Supplemental Disclosures
Actual interest payments were $422,604, $337,651, and $339,040 for the years
ended June 30, 1998, 1997 and 1996, respectively.
Income tax payments were $3,942 and $4,680 for the years ended June 30, 1998
and 1997, respectively.
See accompanying notes and independent auditor's report.
MicroENERGY, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
MicroENERGY, Inc. (MicroENERGY) designs, manufactures and markets high
frequency power supplies which are used as components in the electronics
systems market. All of the Company's products are customized to satisfy the
unique requirements of each customer's application.
2. Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include
the accounts of MicroENERGY and its wholly-owned subsidiary, Tru-Way, Inc.
(Tru-Way). All significant intercompany balances and transactions have been
eliminated in consolidation.
On March 20, 1998, the Company sold 100% of its stock in Tru-Way to two
officer/shareholders of the Company and the operations manager of Tru-Way.
The transaction is summarized as follows:
Proceeds from sale $ 200,000
Book value at March 20, 1998:
Current assets (349,160)
Long-term assets (595,617)
Current liabilities 332,876
Long-term liabilities 175,000
Net loss on sale of subsidiary $ (236,901)
Operations of Tru-Way, net of intercompany transactions, included in the
consolidated financial statements through the date of sale are as follows:
For the Periods Ended June 30,
1998 1997 1996
Net Sales $ 1,210,897 $ 1,520,291 $ 1,346,767
Expenses 1,172,511 1,452,021 1,063,627
Operating income 38,386 68,270 283,140
Interest expense 33,660 45,007 47,255
Net income $ 4,726 $ 23,263 $ 235,885
Cash and Cash Equivalents - MicroENERGY considers all short-term deposits with
initial maturities of three months or less to be cash equivalents.
2.Summary of Significant Accounting Policies (cont'd)
Accounts Receivable - Accounts receivable for sales to customers are unsecured
and consist of the following:
1998 1997
Accounts receivable $ 1,655,145 $ 2,167,302
Less allowance for
doubtful accounts ( 45,000) ( 45,000)
$ 1,610,145 $ 2,122,302
There were no changes to the allowance for doubtful accounts during 1998 and
1996. During 1997, the allowance was reduced by $5,000 due to a writeoff of
an uncollectible customer balance.
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:
1998 1997
Raw materials $ 1,991,277 $ 2,440,044
Work in process 518,334 1,347,602
Finished goods 404,124 731,414
2,913,735 4,519,060
Less excess and obsolete
reserve ( 840,000) ( 450,536)
$ 2,073,735 $ 4,068,524
During 1998, the excess and obsolete reserve was increased by $389,464 because
of purchases of raw material for orders that were subsequently canceled.
There were no changes to the reserve during 1997 and 1996.
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 recovery method for tax reporting purposes. The components
of property and equipment are:
1998 1997
Land $ 24,500 $ 24,500
Building and improvements 72,161 72,161
Machinery and equipment 4,114,366 4,394,957
Leasehold improvements 317,633 397,678
Capitalized leases:
Building - 216,780
Equipment 203,741 1,119,138
$ 4,732,401 $ 6,225,214
2. Summary of Significant Accounting Policies (cont'd)
Research and Development - Expenditures for research and development
activities are charged to expense as incurred.
Income Taxes - MicroENERGY uses the asset-liability approach of accounting for
income taxes (Note 8).
Earnings Per Share - In February 1997, the Financial Accounting Standards
Board issued Statement Number 128, which establishes revised standards for
computing and presenting EPS. The statement is effective for financial
statements issued for periods ending after December 31, 1997.
Basic earnings per common share (EPS) are computed based on the weighted
average number of common shares outstanding during each period. Dilutive
earnings per share gives effect to all dilutive potential common shares
outstanding during the period. Dividends on cumulative preferred stock,
whether or not declared, reduces net income (increases net loss) to arrive at
earnings (loss) available to common shareholders.
The Company has common stock options and common stock warrants (Note 6) that
could potentially dilute basic EPS in the future. However, they were not
included in the computation of diluted EPS because to do so would have been
antidilutive for the periods presented.
Pervasiveness of Estimates - The preparation of financial statements in
accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities and operations and the related disclosures at the date of the
financial statements and during the reporting period. Actual results could
differ from those estimates. Certain significant estimates used in the
preparation of these financial statements include the following:
MicroENERGY has estimated that a $45,000 allowance for uncollectible accounts
is adequate. This conclusion is based on the current status and age of
accounts receivable.
MicroENERGY has estimated a reserve for excess and obsolete inventory of
$840,000. This conclusion is based on the current status and age of
inventories and estimates of future orders.
For each of the aforementioned estimates, it is reasonably possible that the
recorded amounts or related disclosures could significantly change in the near
future as new information is available.
3.Foreign Investment
During 1995, MicroENERGY received 5,007,000 shares of stock of MicroENERGY
(India) Limited (INDIA) 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. At June 30, 1996, the fair
value of this investment declined to $82,140. During 1996, no production had
taken place. Accordingly, the $76,860 unrealized loss had been recorded as a
permanent decline in the statement of operations. At June 30, 1997, fair
value was $29,368 and the $52,772 unrealized loss had been recorded as a
separate component of stockholders' equity. During 1998, the Company sold the
stock for $35,000 and recorded a realized loss of $47,140 in its statement of
operations.
4.Notes Payable and Long-term Obligations
Notes Payable - During 1996, MicroENERGY had a line of credit agreement with a
bank, payable on demand, at an interest rate of prime (8.25% at June 30, 1996)
plus 1.75%. The weighted average interest rates for the year ended June 30,
1996 was 11.0%. At June 30, 1996, the outstanding balance was $1,875,373.
The line of credit was secured by a primary interest in accounts receivable
and inventory and a subordinate interest in all other assets. On July 17,
1996, this line of credit agreement was canceled.
Long-term Obligations - On July 17, 1996, the Company entered into a new
financing agreement with a bank, which replaced the line of credit agreement
discussed under notes payable above. The revolving line of credit agreement
is at an interest rate of prime (8.5% at June 30, 1998) plus .25%. The
weighted average interest rate was 8.75% and 9.18% for 1998 and 1997,
respectively. In October 1997, the agreement was modified to permit the
Company to borrow a maximum of the lesser of $4,000,000 ($3,000,000 in 1997)
or the borrowing base. The borrowing base was redefined as the sum of (a) an
eighty-five percent (eight-five percent in 1997) advance against eligible
receivables that are ninety days or less from the date of invoice, and (b) a
fifty percent (forty percent in 1997) advance against eligible inventory as
defined, not to exceed $1,500,000 ($1,000,000 in 1997) and eighty percent
(none in 1997) of the value of fixed assets as defined, not to exceed
$1,921,248. The line of credit agreement is due and payable on November 1,
1999. The line of credit was fully utilized at June 30, 1998. The line is
secured by a primary interest in all assets, wherever located (including those
owned by a related partnership in 1997, see Note 5). This first position
security interest only pertains to those assets not pledged under duly
authorized and validly
4.Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
perfected purchase money equipment leases already existing. Under these lease
scenarios, the bank's security interest would be subject to the existing
lessor's interest. In addition, two stockholders of the Company have
guaranteed the debt, limited to $400,000 each ($300,000 in 1997).
The Company is subject to certain debt covenants in the financing agreement,
as defined, relating to minimum tangible net worth, net income, cash flow
coverage, and current ratios, and a maximum leverage ratio. In addition, the
Company cannot declare or pay dividends except for the 8% cumulative preferred
stock; cannot make loans or advances to officers, shareholders or directors;
cannot grant further security interests in the bank's collateral; cannot incur
further indebtedness, except for renewals or extensions; and must submit
financial statements and borrowing base certificates, as specified. The
Company was in violation of certain of these covenants as of June 30, 1998 and
1997. A waiver has not been obtained for the fiscal 1998 violations and
accordingly, all borrowings with this bank have been classified as current
liabilities at June 30,1998. At June 30, 1997, the necessary waivers had been
obtained.
The components of debt obligations are as follows:
June 30,
1998 1997
Revolving line of credit, per above $ 3,450,000 $ 2,486,354
The bank financing agreement also
allows for an $800,000 term loan.
Principal payments of $13,333,
plus interest at the prime rate
plus .25%, are payable monthly.
Full payment of amounts due is
payable on July 1, 2001. The term
loan is secured and guaranteed
under the same terms as the
aforementioned line of credit
agreement, and is subject to the
same debt covenants. 506,667 666,667
Two 9% notes payable to bank, with
original balances of $400,000 and
$350,000. The notes are due in
monthly principal installments of
(cont'd)
4. Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
June 30,
1998 1997
$8,333 and $7,292, respectively,
plus interest. The $400,000 note
was amended to include an additional
$200,000 payment to be made in March
1998 and changed the final payment
to be due March 1, 1999. The note
for $350,000 had a balance of
$328,125 at June 30, 1997 and was
repaid due to the sale of the
Company's subsidiary. The remaining
note is secured and guaranteed under
the same terms as the aforementioned
line of credit agreement and are
subject to the same debt covenants. $ 75,000 $ 703,125
3% note payable to the City of
Quincy, Illinois, due in monthly
principal and interest payments of
$4,660 through December 1, 1998.
The note is secured by a subordinate
interest in accounts receivable,
inventories and equipment. 27,717 81,919
3% note payable to the City of
Quincy, Illinois, due in monthly
principal and interest payments
of $4,265 through December 1, 1998.
The note is secured by a subordinate
interest in accounts receivable,
inventories and equipment. 25,369 74,980
3% note payable to the City of
Quincy, Illinois, due in monthly
principal and interest payments of
$6,516 through December 1, 1998.
The note is secured by a subordinate
interest in accounts receivable,
inventories and equipment, and is
guaranteed by certain shareholders. 38,757 114,552
Note payable to bank with interest
at prime plus 2%, due in monthly
(cont'd)
4.Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
June 30,
1998 1997
payments of $5,250 principal plus
interest through December 1, 1998.
The note is secured by a subordinate
interest in accounts receivable,
inventories,and machinery and
equipment. The City of Quincy,
Illinois has guaranteed the lesser
of $230,000 or 36.5% of the debt. $ 36,750 $ 99,750
Note payable to bank at 5%, due
in monthly principal and interest
payments of $1,200. Final balloon
payment due in December 2000. The
note is secured by real estate
located in Memphis, Missouri. 76,236 88,420
Note payable to bank at 5%, due
in monthly principal and interest
payments of $472. Final balloon
payment due in January 2001. The
note is secured by all equipment
located in Memphis, Missouri. 17,882 20,872
Note payable to bank at 9.5%, due
in monthly principal and interest
payments of $497 through February
1999. The note is secured by a
certain vehicle. 3,834 9,145
Installment contract payable at
7.95%, due in monthly principal
and interest payments of $1,160.
Final payment made February 1998. - 34,171
Installment contract payable at
9.6%, due in monthly principal
and interest payments of $1,149,
Final payment made November 1997. - 34,094
Capital lease obligations 75,976 407,899
Total debt $ 4,334,188 $ 4,821,948
(cont'd)
4.Notes Payable and Long-term Obligations (cont'd)
Long-term Obligations (cont'd)
June 30,
1998 1997
Total debt $ 4,334,188 $ 4,821,948
Less current portion (4,236,926) ( 948,326)
Long-term obligations $ 97,262 $ 3,873,622
Future maturities of debt obligations are as follows:
Year Ending
June 30, Amount
1999 $ 4,236,926
2000 30,103
2001 67,159
$ 4,334,188
During 1996, the Company amended a note payable from the acquisition of a
power systems division which required a final payment of $1,332,000 in July
1996 with $1,000,495 of the debt forgiven. The amount forgiven was recorded
as an extraordinary gain from debt restructuring during the year ended June
30, 1996.
5. Leased Property
Capital Leases - MicroENERGY has capital lease arrangements for certain
property, machinery and equipment. Until March 1998, these arrangements
included certain leases for its Tru-Way manufacturing facility, machinery and
equipment that were with a partnership consisting of officers of the Company.
The 1994 agreement for building and certain equipment was leased from the
partnership over a 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 which expired in November 1996 and
payments of $3,025 continued on an informal month to month basis.
5. Leased Property (cont'd)
Capital Leases (cont'd)
Actual payments to the partnership totaled $175,725, $362,050 and $106,550 in
1998, 1997 and 1996, respectively. Due to the sale of Tru-Way, the capital
lease arrangements with the Partnership were terminated. Accordingly, in
1998, the Company recorded a $10,209 gain on the forgiveness of the lease
obligation.
The Company has capital lease arrangements for equipment with an unrelated
party that generally extend over a thirty-six month period. These leases have
monthly payments aggregating $6,176 at June 30, 1998 and mature at various
dates from July 1998 through November 2000.
Property and equipment and related accumulated depreciation under these
capital leases was $203,741 and $38,807 at
June 30, 1998, respectively and $1,335,918 and $814,689 at June 30, 1997,
respectively. Amortization charges related to capitalized assets are included
in depreciation expense.
Operating Leases - MicroENERGY leases its main 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 $367,006,
$362,070 and $384,773 in 1998, 1997 and 1996, respectively.
Future minimum lease payments under capital and operating leases with
commitments beyond one year are as follows:
Capital Operating
Year Ending June 30, Leases Leases
1999 $ 62,441 $ 366,255
2000 15,045 367,468
2001 5,015 368,726
2002 - 188,710
2003 - 27,241
Total minimum lease payments 82,501 $ 1,318,400
Imputed interest ( 6,525)
$ 75,976
6. Stockholders' Equity
Restricted Stock Grant Program - In 1990, certain key employees received
58,333 shares of restricted stock of the Company which vests ratably from July
1, 1993 through 2026. 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.
During 1998, the key employees forfeited their restricted stock and donated it
back to the Company. Accordingly, the par, additional paid-in capital and
related unearned stock compen- sation amounts were eliminated as shown in the
statement of changes in stockholders' equity. The net difference of $433,700,
which represented accumulated amortization of the unearned compensation
account, was recorded as an increase to retained earnings.
Prior to forfeiture, compensation expense was being amortized over the period
in which participants perform services and the restrictions on the stock
awards lapse.
Stock Purchase Warrants - Stock purchase warrants were issued to certain
officers of the Company in consideration for personal 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 56,944 shares of
common stock at an exercise price ($22.68) approximating market value at the
date of the grant. The warrants became exercisable on April 10, 1992, and
expired on April 10, 1998.
On December 13, 1994, MicroENERGY issued Class D warrants, which give certain
officers the right to convert such warrants to 97,222 shares of common stock
at an exercise price of $.45, which approximated 125% of market value at the
date of the grant. The warrants become exercisable on December 13, 1995.
During 1996, all of these warrants were exercised.
On November 14, 1997, in exchange for certain guarantees of the Company's
debt, MicroENERGY issued Class E warrants, which give certain officers the
right to convert such warrants to 100,000 shares of common stock at an
exercise price of .375, which approximated the market value at date of the
grant. The warrants become exercisable on November 14, 1998 and expire on
November 14, 2004.
6. Stockholders' Equity (cont'd)
Stock Option Plans - The stockholders of MicroENERGY have approved four
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. Two of these plans have expired, however, options
remain outstanding under those plans. A total of 63,889 shares of common
stock are reserved for issuance upon exercise of options granted under the
plans. Options for 3,639, 4,611 and 5,319 shares were outstanding at June 30,
1998, 1997 and 1996, respectively. During 1998, no options were granted or
exercised, and 972 options were canceled. During 1997, no options were
granted or exercised, and 708 options were canceled. During 1996, no options
were granted, 2,139 options were exercised, and 278 options were canceled.
The options have exercise prices ranging from $3.60 to $16.20, with an average
price of $6.00 ($5.50 at June 30, 1997). 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 the
grant. At June 30, 1998, 3,639 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 5,556 shares of common stock at an exercise price of $.45.
During 1996, all of these options were exercised.
The Company accounts for its aforementioned stock compensa- tion plans using
the intrinsic value based method. No stock compensation transactions were
entered into during 1997 or 1996. Due to the low price of the Company's stock,
the difference between the intrinsic value based method and the fair value
based method for warrants issued in 1998 is not considered significant.
Preferred Stock Subscription - In January 1996, the Company received $250,000
from certain officers of the Company as a preferred stock subscription. The
subscription was for 350,000 shares of Series A Cumulative Preferred Stock,
and were identical to the terms of the preferred stock described below under
"Securities Offering," except that the officers have agreed to waive the
semiannual dividends in excess of $.40 per share.
In June 1997, the Board of Directors approved the conversion of the 350,000
shares of Series A Cumulative Preferred Stock into 1,400,000 shares of common
stock.
6. Stockholders' Equity (cont'd)
Preferred Stock Warrants - In March 1996, the Company obtained bridge
financing from six lenders in the amount of $275,000 in anticipation of the
preferred stock public offering. The lenders are the individuals identified
in the Prospectus as "Selling Securityholders." In exchange for the $275,000,
the Company gave the Selling Security- holders nonnegotiable promissory notes
in the aggregate principal amount of $187,000, which were repaid in July 1996
with the proceeds from the offering, plus 880,000 Redeemable Class A Preferred
Stock Warrants at $.10 per warrant. The Redeemable Class A Warrants acquired
by the Selling Securityholders in the bridge financing are identical to those
described below under "Preferred Stock".
Preferred Stock - Effective July 10, 1996, the Company offered 494,500 shares
of Series A Cumulative Preferred Stock and 247,250 Redeemable Class A Warrants
for Series A Preferred Stock.
The Preferred Stock is currently not convertible into any other security.
Dividends on the Preferred Stock are cumulative from the issue date, and are
payable semiannually at the rate of 8% per annum. At the Company's option,
the dividends may be paid 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 dividend payment date.
The Company did not declare any preferred stock dividends during 1998.
Accordingly, at June 30, 1998, $276,920 of cumulative preferred stock
dividends are in arrears. In December 1996 and June 1997, the Company
declared the preferred stock dividends to be paid with common stock. The
dividend declared in June 1997 was paid in July 1997.
Each Class A Warrant entitles the holder to purchase one share of the
Company's Series A Preferred Stock at an exercise price of $7.00, subject to
adjustment, from July 10, 1997 through July 9, 2000. At any time 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 Preferred Stock exceeds $9.00 per share for five
consecutive trading days ending fifteen days prior to the date notice is sent.
7.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 years ended June 30, 1998, 1997 and 1996 totaled $24,102,
$34,731, and $24,504, respectively.
8.Income Taxes
The Company uses the 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 following is a reconciliation of income taxes at the federal statutory
rate:
For the Year Ended
June 30,
1998 1997
Computed income taxes at the
federal statutory rate of 34% $ (846,206) $ 32,344
State taxes, net of federal benefit (119,082) 14,950
Effect of graduated rates - ( 265)
Permanent differences 14,180 11,991
Temporary differences for which
deferred taxes not recognized 4,810 75,474
Tax loss carryforward for which
deferred taxes not recognized 782,340 -
Effect of change in deferred tax
effective rate 163,958 -
Benefit of tax loss carryforward - (134,494)
Total provision for income taxes $ - $ -
At June 30, 1998, the cumulative net operating loss carryforward available to
MicroENERGY for income tax purposes was approximately $5,340,000. If not used
to offset future taxable income, the net operating loss carryforwards will
expire in various years beginning in 2001 and continuing through 2013. In
addition, the Company has investment tax credit, research and development
credit, and AMT credit carryforwards of approximately $18,000, $203,000 and
$15,600, respectively, at June 30, 1998. 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
$1,690,000 at
June 30, 1998 and $1,348,000 at June 30, 1997 has been offset by
a valuation allowance in an equal amount.
8.Income Taxes (cont'd)
The Company's ability to utilize the carryforwards would be restricted upon
the occurrence of an "ownership change" within the meaning of Section 382 of
the Internal Revenue Code of 1986. Although the determination of whether an
ownership change has occurred is subject to factual and legal uncertainties,
the Company believes that an ownership change occurred at the closing of the
securities offering as discussed in Note 6. As a result of the ownership
change, the Company will generally be permitted to utilize net operating loss
carryforwards in any year thereafter to reduce its income to the extent that
the amount of such income does not exceed the product of (1) the fair market
value of the Company's 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 (2) a long-term tax-exempt rate published by the
Internal Revenue Service (5.78% for ownership changes occurring in July
1996). Further, the Company's ability to utilize its ITC, RDC and AMT
carryforwards will also be limited as a result of the ownership change in an
amount determined by reference to the Section 383 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 could 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
limitations.
In addition to the benefit of tax carryforward items, deferred taxes are also
recorded based upon temporary differences between the financial statement
basis and tax basis of assets and liabilities.
Temporary differences as of June 30, 1998 and 1997 are as follows:
June 30,
1998 1997
Total Deferred Total Deferred
Amount Tax Amount Tax
Current:
Inventory:
Uniform capi-
talization $ 498,000 $136,000 $ 748,300 $285,600
Obsolescence
and excess
reserve 840,000 229,300 476,000 181,700
Allowance for
bad debts 45,000 12,300 45,000 17,200
Accrued expenses 120,500 32,800 118,600 45,200
(cont'd)
8.Income Taxes (cont'd)
June 30,
1998 1997
Total Deferred Total Deferred
Amount Tax Amount Tax
Long-term:
Foreign investment $ - $ - $ 76,900 $ 29,400
Depreciation (65,500) (17,900) (75,900) (29,000)
Capital lease - - 31,700 12,100
Stock benefit
plans - - 432,000 164,900
$1,438,000 $392,500 $1,852,600 $707,100
The deferred tax assets totaling $392,500 at June 30, 1998 and $707,100 at
June 30, 1997 have been offset by a valuation allowance in an equal amount.
The effective rate for calculation of deferred taxes was reduced from 38.17%
in 1997 to 27.3% in 1998.
9. Significant Concentrations
Customers - Revenues are generated from sales to OEM customers who are
engaged in the telecommunications, computer, and instrumentation segments of
the electronics industry.
During 1998, net sales to three customers were 23%, 18% and 14%, respectively,
of total net sales. However, the first major customer is comprised of four
autonomous purchasing units. If considered separately, two units would be
considered major customers with 11% and 10%, respectively, of total net sales.
During 1997, net sales to three customers were 36%, 12% and 10%, respectively,
of total net sales. However, the first major customer is comprised of four
autonomous purchasing units. If considered separately, one unit would be
considered a major customer with 17% of total net sales.
During 1996, net sales to two customers were 40% and 13%, respectively, of
total net sales. However, the first major
customer is comprised of four autonomous purchasing units. If considered
separately, one unit would be considered a major customer with 30% of total
net sales.
Accounts receivable from these customers totaled $929,674 and $1,276,216 at
June 30, 1998 and 1997, respectively.
9. Significant Concentrations (cont'd)
Export Sales - During 1998, 1997 and 1996, export sales, principally to
Europe, Canada and Australia, were 35%, 41% and 48%, respectively, of total
net sales. Of the 35% in 1998, sales to Canada and the United Kingdom were
25% and 10%, respectively. Of the 41% in 1997, sales to the United Kingdom
and Canada were 23% and 18%, respectively. Of the 48% in 1996, sales to the
United Kingdom and Canada were 32% and 16%, respectively.
Vendors - The Company currently buys certain production material from two
vendors. Purchases from these two companies approximated 11% and 9.75% of
total purchases for the year ended June 30, 1998. (16.4% and 14.9% for the
year ended June 30, 1997, and 17.7% and 12.6% for the year ended June 30,
1996.) A change in suppliers could cause a delay in manufacturing and a
possible loss of sales, which could adversely affect operating results.
10.Fair Value of Financial Instruments
Cash, Accounts Receivable and Accounts Payable - The carrying amounts
approximate fair value.
Long-term Debt - The fair value of long-term debt is estimated by discounting
expected cash flows at the rates currently offered to the Company for debt of
the same remaining maturities, as advised by the Company's various lenders.
The carrying value of all long-term debt approximates fair value.
11. Going Concern Issues
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. During the year ended June 30,
1998, the Company experienced a net loss of $2,488,842 due to a dramatic drop
in sales. In addition, the Company sold its subsidiary which historically had
represented approximately 10% of net sales. Further, the Company has a
preferred stock arrearage of $276,920. During 1997, the Company had proceeds
from a preferred stock and warrants offering of $2,630,007. However, current
year losses have reduced total equity to $53,059.
During 1998, the Company successfully negotiated an increase in its revolving
line of credit agreement, allowing it to stay current on its other long-term
debt obligations. The Company has $550,000 of its line available at June 30,
1998. Some of the Company's long-term debt matures in 1999, which will reduce
1999 debt repayments approximately $700,000 from 1998's level, exclusive of
any reductions to the line of credit balance. However, the Company was not
in compliance with certain
11. Going Concern Issues (cont'd)
covenants of the line of credit and certain term loans with a bank.
Borrowings with that bank totaled $4,031,667 at June 30, 1998. Waivers of the
covenant violations could not be obtained. Accordingly, all outstanding
borrowings with this bank have been classified as current liabilities.
The Company is aggressively pursuing new customers, has reduced costs to more
fairly match the current level of sales, and is actively negotiating with its
current significant lender alternate means of financing the Company's
operations. The Company's continuation as a going concern is dependent upon
its ability to generate sufficient cash flow to meet its obligations on a
timely basis, to obtain financing or refinancing as may be required, to comply
with the terms of its financing agreements, and ultimately to attain
profitability.
<PAGE>
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Name, Age
and Positions Business Experience
and Offices During past 5 Years
Held With and Principal Director
Registrant Occupations Since
Robert G. Gatza, 1983-Present: President 1983
Age 56 and Chief Executive
Chairman of the Board, Officer of MicroEnergy.
President
Robert J. Fanella, 1983-Present: Chief 1987
Age 48 Financial Officer of
Executive Vice Presi- MicroEnergy.
dent, Secretary,
Treasurer, Director
Compliance With Section 16(a) of the Exchange
Act
During the 1998 fiscal year no directors, officers
or beneficial owners of more than 10 percent of the Company's common stock
failed to file on a timely basis reports required by Section 16(a) of the
Exchange Act.
Item 11 EXECUTIVE COMPENSATION
Table I sets forth all compensation awarded to, earned by, or paid by the
Company to the following persons for service rendered in all capacities during
each of the fiscal years ended June 30, 1998 ,1997, and 1996:
(1) the Registrant's Chief Executive Officer (CEO), and (2) each of the other
executive officers whose total salary and bonus for the fiscal year ended June
30, 1998 exceeded $100,000.
Table II sets forth certain information on stock options or warrants held
by Officers of the Company on June 30, 1998.
There were no stock options or warrants acquired by the officers of the
Company during the year ended June 30, 1998.
I. SUMMARY COMPENSATION TABLE
Name and Principal Fiscal Option All oth
Position Year Salary Bonus Shares Comp *
Robert G. Gatza 1998 $385,700 -- -- $1,500
CEO 1997 $381,125 -- -- $1,500
1996 $275,134 -- -- $ 750
Robert J. Fanella 1998 $383,575 -- -- $1,500
1997 $376,300 -- -- $1,500
1996 $269,112 -- -- $ 750
* Represents Company matching contribution to 401(K) Plan
II. AGGREGATED FISCAL YEAR OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal at Fiscal Year-End ($)
Year-End (#)
Robert G. Gatza 50,000 Not Exercisable $ 0
Robert J. Fanella 50,000 Not Exercisable $ 0
Compensation Plans
The Company has no compensation plans, other than 401K and life and
medical plans which are available to all employees.
Restricted Stock Grant Program
On May 19, 1989, the shareholders of the Company adopted a Restricted
Stock Grant Program, pursuant to which 58,333 shares of common stock were
reserved for issuance. On July 3, 1989, 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 and
directors. In December 1997, Messrs. Gatza and Fanella forfeited the shares
of stock received under the Restricted Stock Grant Program and returned the
shares to the Company. The accounting result of this forfeiture was to
increase Retained Earnings for the amount that was charged to expense in the
prior years of $433,700.
Incentive Stock Option Plans
On December 6, 1984 the shareholders of the Company approved the 1984
Incentive Stock Option Plan and the 1985 Incentive Stock Option Plan for 8,333
shares; and on February 24,1992 the share holders of the Company approved the
1992 Incentive Stock Option Plan for 5,556 shares; and on May 7, 1996 the
shareholders of the Company approved the 1996 Incentive Stock Option Plan for
50,000 shares. Options granted under the Plans are intended to qualify as
"incentive stock options", as defined in Section 422A of the Internal Revenue
Code. The 1984 and 1985 plans expired with options for 5,319 shares
outstanding. There were 278 shares not granted under the expired 1984 and
1985 plans and they will not be eligible for grant under terms of the two
plans. A total of 5,556 shares of common stock are reserved for issuance upon
exercise of options granted under the 1992 Plan. A total of 50,000 shares of
common stock are reserved for issuance upon exercise of options granted under
the 1996 Plan. Options for a total of 6,376 shares have been granted to
employees of the Company under the 1984 and 1985 Plans. Options for 2,736
shares have been exercised to date at an average purchase price of $10.16.
Options for 1,679 shares have been canceled as employees who received these
options failed to exercise them after their terminations. No options have been
issued to any person who is currently an officer or director of the Company.
The average exercise price of the options which are outstanding is $6.00.
Other Compensation
The two persons who were officers of the Company during the last
fiscal year did not receive non-cash compensation exceeding in aggregate 10
percent of their aggregate cash compensation.
Compensation of Directors
During the fiscal year ended June 30, 1998, the Company paid no fees or
other cash compensation to directors for service on the Board. Mr. George M.
Bradshaw, a member of the Board of Directors until his resignation as of June
15, 1998, received $18,514 for legal services rendered to the Company prior to
his resignation.
Item 12 SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
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 September 8,
1998, 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 listed below.
Name and Amount and
Address of Nature of Percentage
Title of Beneficial Beneficial Percentage of Voting
Class Owner Ownership of Class Votes Power(1)
Common Robert G. 843,997 41.9% 843,997 33.6%
Stock Gatza(3) shares of
record(2)
Common Robert J. 815,813 40.5% 815,813 32.5%
Stock Fanella(3) shares of
record(2)
Common All officers 1,659,810 80.3% 1,659,810 64.8%
Stock and directors shares of
as a group record(2)
(2 persons)
(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) Includes Class E Warrants to purchase shares of Common stock at $0.37
per share as follows: Robert G. Gatza-50,000 shares, Robert J. Fanella-50,000.
(3) The business address of Messrs. Gatza and Fanella is c/o MicroENERGY,
Inc., 350 Randy Road, Carol Stream, Illinois 60188.
Item 13 CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Transactions Relating to Tru-Way, Inc.
On December 30, 1988, the Company purchased all the outstanding capital
stock of Tru-Way, Inc. for $200,000. On March 20, 1998 the Company completed
the sale of its wholly owned subsidiary, Tru-Way, Inc. The reason for the
sale was the Company's need to reduce bank debt. The purchasers were the
Gatza Family limited Partnership, the beneficiaries of which are members of
the family of the Registrant's Chief Executive Officer, Sandra Fanella, who is
the wife of the Registrant's Chief Financial officer, and the General Manager
of the Tru-Way operation. The consideration paid was $200,000 in cash and the
assumption of $508,000 of liabilities, for a total of $708,000. The amount of
consideration was based on an evaluation report of an independent business
broker that valued the business at $680,000. The divestiture resulted in a
reported loss of $236,901 for the Company. Tru-Way has continued as a
supplier to the Company. During the period after the divestiture, March 21,
1998, to June 30, 1998, the Company purchased a total of $212,000 worth of
fabricated metal products. The Company believes that the terms of these
purchases are equivalent to those available in arms-length transactions.
Tru-Way has certain leases with ARQUBE, an Illinois partnership.
ARQUBE's partners are Robert G. Gatza and Robert J. Fanella, who are officers
and directors of the Company. Details of the leases are contained in Note 5
of the Consolidated Financial Statements.
Transactions Relating to Debt Compromise
In January, 1996 the Company reached agreement with its major creditor to
compromise a long-term debt of $2,332,000 by the immediate payment of
$1,332,000. 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 the Series A Preferred Stock Offering the Company was
eligible to have the securities sold in that Offering listed on the NASDAQ
SmallCap Market.
In order to obtain the funds needed to finance the debt compromise, the
Company sold 350,000 shares of Series A Cumulative Preferred Stock in equal
parts to Messrs. Gatza and Fanella in exchange for their cash payment of
$250,000 and their agreement to give personal guarantees on a loan of
$800,000. The Series A Cumulative Preferred Stock issued to Messrs. Gatza and
Fanella is identical to that which was sold in the offering. Messrs. Gatza
and Fanella agreed, however, that while they held the Series A Cumulative
Preferred Stock they would waive the semi-annual dividends in excess of $.40
per share (the Series A preferred Stock pays $.56 per share).
In June of 1997, the Board of Directors approved the conversion of the
350,000 shares of Series A Cumulative Preferred Stock, held by Messrs. Gatza
and Fanella, into 1,400,000 shares of Common Stock, par value $.01. The
exchange ratio was determined on the basis of the relative equity value of the
two securities and a measure of the value of seven years of dividends on the
Series A Cumulative Preferred Stock. The Company thereby eliminated the
annual dividend obligation on those preferred shares.
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT
SCHEDULE AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Financial statements and financial statement schedules
(a) The Financial Statements of MicroENERGY, Inc. and
the Independent Auditors' Report of Selden, Fox
and Associates, Ltd. are set forth in the index to Item 8.
(b) Financial Statement Schedules: The supplemental
financial information listed in the index to Item 8
is filed as part of this 10-K and should be read in
conjunction with the financial statements.
Schedules not included with this additional
information have been omitted either because they
are not applicable or because the required
information is shown in the financial statements or
notes thereto.
(b) 8-K Reports -Report dated April 20,1998, reporting the sale of the
wholly-owned subsidiary, Tru-Way, Inc.
-Report dated May 28, 1998, Amendment No.1 to 8K filed April
20, 1998, relating to the sale of the wholly owned subsidiary, Tru-Way, Inc.
(c) Exhibits:
3(a) Certificate of Incorporation, as amended has been filed as an
Exhibit to the Company's S-18 Registration Statement dated February 2, 1984
and is incorporated by reference herein as an exhibit hereto.
3(a)(1) Certificate of Amendment to Certificate of Incorporation dated
February 12, 1987 - has been filed as an Exhibit to the Company's Annual
Report on Form 10K for the fiscal year ended June 30, 1987 and is 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 is incorporated by reference as
an exhibit hereto.
3(a)(3) Certificate of Amendment to Certificate of Incorporation dated
May 13, 1996 and Certificate of Correction dated June 3, 1996- filed as an
exhibit to the Company's Registration Statement on Form S-1 (333-1835) and
incorporated herein by reference.
3(a)(4) Certificate of Designation of Series A Preferred Stock, dated
July 11, 1996- filed as an exhibit to the Company's Registration Statement on
Form S-1 (333-1835) and incorporated herein by reference.
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.
10(a) Lease for premises at 350 Randy Road, Carol Steam, Illinois have
been filed as an Exhibit to the Company's Annual Report on form 10K for the
fiscal year ended June 30, 1993, and are incorporated by reference as an
exhibit hereto.
10(a)(1) Amendment to lease for premises at 350 Randy Road, dated
August 25, 1997-filed herewith.
10(b) 1992 Incentive Stock Option Plan- filed with the Company's proxy
materials used in connection with the Annual Meeting on February 24, 1992 and
incorporated herein by reference.
10(c) 1996 Incentive Stock Option Plan- filed with the Company's proxy
materials used in connection with the Special Meeting of shareholders on April
23, 1996 and incorporated herein by reference.
10(d) 1985 Incentive Stock Option Plan - filed with the Form 10K for
fiscal year ended June 30, 1984 and incorporated herein by reference.
10(e) 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(e)(1) Amendment to Lease for premises in Quincy,
Illinois- filed with the Form 10K for fiscal year ended June 30, 1993 and
incorporated herein by reference.
10(f) 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(g) 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(h) Credit Agreement between the Company and Boatmen's Bank of Quincy
- - has been filed as an Exhibit to the Company's Annual Report on Form 10K for
the fiscal year ended June 30, 1988 and is incorporated by reference as an
exhibit hereto.
10(i) Restricted Stock Grant Program - filed with the Company's proxy
materials used in connection with the Annual Meeting on May 19, 1989 and is
incorporated herein by reference.
10(j). 1991 financing documents related 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 is incorporated
by reference as an exhibit hereto.
10(j)(1). 1994 and 1995 amendments to financing documents
related to the 1991 State of Illinois and the City of Quincy loan agreements.
- -filed as an exhibit to the Company's Annual Report on Form 10K for the fiscal
year ended June 30, 1995 and is incorporated by reference as an exhibit
hereto.
10(k). Employment agreements dated February 1, 1996, with Robert G.
Gatza and Robert J. Fanella- filed as an exhibit to the Company's Registration
Statement on Form S-1 (333-1835) and incorporated herein by reference.
10(l). Commercial Loan and Security Agreement with Promissory Notes,
dated July 17, 1996, between the Company and Marquette National Bank.- filed
as an exhibit to the Company's Annual report on Form 10K for the fiscal year
ended June 30, 1997 and is incorporated herein by reference.
10(l)(1) Loan Modification Agreements dated March 11, 1997 and
October 11, 1997 to the Commercial Loan and Security Agreement with Promissory
Notes dated July 17, 1996- filed herewith.
10(m). Class E Warrants for 100,000 shares of common stock issued to
Robert G. Gatza (50,000) and Robert J. Fanella (50,000) in return for personal
guarantee increases on certain of the Company's debt- filed herewith
10(n) Capital Stock Redemption Agreement between the Company and
Tru-Way, divesting the wholly owned subsidiary Tru-Way, Inc.- filed with Form
8K on April 20, 1998 and is incorporated by reference as an exhibit hereto.
(22) Subsidiaries - None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MicroENERGY, INC.
(Registrant)
By /s/ Robert G. Gatza
Robert G. Gatza
President
Date: September 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Robert G. Gatza
Robert G. Gatza
President (Principal Executive Officer), Director
Date: September 26, 1998
/s/ Robert J. Fanella
Robert J. Fanella
Treasurer (Principal Financial Officer)
(Principal Accounting Officer), Director
Date: September 26, 1998
