PAGE
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE OF 1934
For the quarter period ended March 31, 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 Number 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 No.)
350 Randy Road, Carol Stream, IL 60188
(Address of Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (630) 653-5900
Indicated 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 report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
As of March 31, 1998 there were outstanding 1,966,063 shares of Common
Stock, $.01 par value.
MICROENERGY, INC.
INDEX
Part 1 - Financial Information
Item 1 - Financial Statements
Condensed Balance Sheets
March 31, 1998 (unaudited) and June 30, 1997
Condensed Statements of Operations (unaudited) for the
quarter and nine months ended March 31, 1998 and
March 31, 1997.
Condensed Statements of Cash Flows (unaudited) nine months
ended March 31, 1998 and March 31, 1997.
Notes to condensed Financial Statements (unaudited)
Item 2 - Management Discussion and Analysis of Financial Condition
and Results of Operations.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
<PAGE>
MICROENERGY, INC.
CONDENSED BALANCE SHEETS
3rd Quarter
Ended Year Ended
03/31/98 6/30/97
(unaudited) (audited)
ASSETS
<TABLE>
<S> <C> <C>
Current assets:
Cash $ 4,678 $ 110,086
Accounts receivable 1,733,694 2,122,302
Inventories 2,841,919 4,068,524
Other current assets 59,044 586,870
Total current assets 4,639,335 6,887,782
Machinery and equipment 4,726,338 6,225,214
Accumulated depreciation (3,333,790) (3,869,092)
1,392,548 2,356,122
Other assets, net 64,025 102,275
$ 6,095,908 $9,346,179
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ --
Current portion of long-term obligations 548,687 948,326
Accounts payable 641,392 1,579,539
Accrued expenses 163,357 455,563
Total current liabilities 1,353,436 2,983,428
Long-term obligations 3,894,334 3,873,622
Total liabilities 5,247,770 6,857,050
Stockholders' equity:
8% Cumulative Series A Preferred Stock,
$7.00 liquidation preference, 844,500
shares authorized and 494,500 outstanding 2,605,282 2,605,282
Common Stock, $.01 par value - 4,000,000
shares authorized; 1,966,063 shares
outstanding in 1998 and 421,477 in 1997 19,691 20,218
Additional paid-in capital 4,642,812 6,423,535
Accumulated deficit (5,255,998) (5,255,998)
Unearned restricted stock
compensation (note 2) 0 (1,347,550)
Common Stock Purchase Warrants, 75 75
Preferred Stock Purchase Warrants, 112,725 112,725
Treasury Stock, at cost, 1,898 shares (16,386) (16,386)
Unrealized loss on marketable securities (52,772) (52,772)
Current Year Earnings/(Loss) (1,207,291) --
Total Stockholders' Equity 848,138 2,489,129
$ 6,095,908 $9,346,179
</TABLE>
MICROENERGY, INC.
STATEMENTS OF OPERATIONS
3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
03/31/98 03/31/97 03/31/98 03/31/97
<TABLE>
<S> <C> <C> <C> <C>
Sales $ 2,717,830 $ 4,135,276 $ 9,562,830 $11,840,667
Expenses:
Facility, pre-
production and
production 2,773,062 3,293,167 8,328,137 9,469,109
Research and
Development 344,038 316,815 1,048,211 959,720
Selling, Gen and
Administrative 476,079 424,575 1,257,069 1,209,180
Operating Income\(Loss) (875,349) 100,719 (1,070,587) 202,658
(Loss) on Sale of
Subsidiary (236,901) 0 (236,901) 0
Interest Expense 115,655 81,594 333,508 222,813
Net Income\(Loss)
Before Extraordinary
Item (1,227,905) 19,125 (1,640,996) (20,155)
Extraordinary item-
gain (note 2) 0 0 433,705 0
Net Income\(Loss) $(1,227,905) $ 19,125 $(1,207,291) $(20,155)
For Earnings Per Share Calculation:
Net Income\(Loss) $(1,227,905) $ 19,125 $(1,207,291) $(20,155)
Preferred Stock
Dividend (note 3) (69,230) (104,230) (207,690) (312,690)
Net Income\(Loss)
available to common
shareholders $(1,297,135) $ (85,105) $(1,414,981) $(332,845)
Net Income\(Loss) per
Common Share:
Before Extraordinary
Item $( .651) $( .202) $( .928) $( .790)
Extraordinary Item - - .218 -
Total $( .651) $ .202 $( .710) $( .790)
Weighted avg number
of shares of
common stock 1,992,297 421,477 1,992,297 421,477
</TABLE>
<PAGE>
MICROENERGY, INC.
STATEMENTS OF CASH FLOWS
Nine Months Nine Months
Ended Ended
03/31/98 03/31/97
<TABLE>
<S> <C> <C>
Cash flows from operating
activities:
Net (losses) earnings $ (1,207,291) $ (20,155)
Adjustments to reconcile net
(losses) earnings to net cash
provided by operations:
Depreciation 535,302 477,223
Changes in assets and
liabilities:
Accounts receivable 388,608 (788,365)
Inventories 1,266,605 (144,734)
Other current assets 566,076 1,426
Accounts payable (938,147) (588,022)
Accrued expenses (292,206) (171,157)
Net cash provided (used) by
operating activities 318,947 (1,233,784)
Cash flows (used in) provided by
investing activities:
Additions to equipment (192,592) (969,704)
Cash flows provided by (used in)
financing activities:
Notes Payable -- (1,875,373)
Long-term debt transactions 201,937 1,414,825
Equity Transactions (note 2) (433,700) 2,654,121
Net cash provided by (used in)
financing activities (231,763) 2,193,573
Net increase (decrease) in cash (105,408) (9,915)
Cash at beginning of period 110,086 19,615
Cash at end of period $ 4,678 $ 9,700
/TABLE
<PAGE>
MICROENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED FINANCIAL STATEMENTS
The condensed Balance Sheet as of March 31, 1998, the Consolidated
Statements of Income for the three and nine month periods ended March 31,
1998 and March 31, 1997 and the Condensed Statements of Cash Flows for the
nine month periods ended March 31, 1998 and March 31, 1997 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 March 31, 1998 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, 1997 Form 10K report.
The results of operations for the period ended March 31, 1998 is not
necessarily indicative of the operating results for the full year.
2. Common Stock Forfeiture
On December 31, 1997, two officers of the Company forfeited common stock
received under the May, 1989 Stock Grant Program. This forfeiture resulted
in an extraordinary gain of $433,700 and canceled the debit balance of
$1,347,500 of Unearned Restricted Stock Compensation in the equity section
of the balance sheet, and reduced the balances in Common Stock par value
and Additional-Paid-In-Capital by the original value of the stock grant of
$1,781,250.
3. Cumulative Dividend Non-payment
On January 1, 1998 the dividend of $138,430 was due on the 8% Cumulative
Series A preferred Stock. The Company has made its two previous dividend
payments with common stock. However, as a result of financial
considerations the Board of Directors determined that it was appropriate to
accrue the dividend expense and make a determination at a future date
regarding a distribution.
The Earnings Per Share Calculation does include the impact of the Preferred
Dividend.
<PAGE>
Part 1
Item 2
MICROENERGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the three months and nine months ended March 31, 1998 were
$2,717,830 and $9,562,830 respectively, as compared to $4,135,276 and
$11,840,667 for the comparable periods in the prior year, representing
decreases of $1,417,446 and $2,277,837 for the quarter and nine months
respectively. Sales for the nine months were adversely impacted by
approximately $4 million primarily due to new business that failed to
materialize to purchase levels as originally projected by its customers.
Historically, the Company had been engaged exclusively in business
development initiatives starting with the design and development of
preproduction orders leading to large production contracts. Consequently,
revenues were derived from a few large contacts resulting from customer
acceptance of designs created by the Company based on customer
specifications. Near the end of 1995, the Company received preproduction
orders valued at over $10 million on an annual basis for new power supply
designs from eight customers. For the twenty-one month period ending
March, 31, 1998, only approximately $5.5 million has been sold, causing a
significant shortfall in third quarter and nine month revenues. The
Company has completed a marketing review and based on customer feedback
believes fourth quarter revenues will remain below expectation and slightly
below third quarter levels. Revenue levels for the first two fiscal
quarters of fiscal year 1999 are expected to show improvement as a result
of additional orders received from new and existing customers of the
Company.
Management is continuing the process of refocusing its long-standing
marketing strategy to gain access to new markets. The Company has
continued implementing sales and marketing reorganization initiatives to
position itself to compete in the aftermarket of higher volume systems
using more conventional power supplies. In the future, the Company will
reduce its sole dependence on research and development for new designs and
supplement its marketing efforts into those markets.
Manufacturing costs for the nine month period increased to 87.1% of
revenues as compared to 80.0% in the prior year period. Included in the
Manufacturing costs was a writedown of labor inventory of $589,000, due to
the lower sales volumes and the related labor content of inventory. This
writedown accounted for virtually all the increase as a percentage of
revenue. The percentage of manufacturing costs to revenues would have been
80.9% without the writedown. Research and Development increased by $88,491
for the nine month period, a 9.2% increase. The company believes that it
must continue its investment in Research and Development in order to
increase its revenue base. SG&A increased by $47,889 for the nine month
period. A major cost increase in these areas is related to the
significantly higher cost of medical insurance. Costs for the nine month
period are more than $200,000 higher than the previous year. The company
is continuing its effort to review various options to reduce this cost for
the following fiscal year.
Interest expense for the nine month period increased by $110,695 to
$333,508. The increase was due to higher average borrowing on the line of
credit as a result of the lower revenue levels and interest from certain
new term debt related to fixed asset acquisitions in fiscal year 1997.
On March 20, 1998, the company divested its ownership in its wholly owned
subsidiary, Tru-Way, Inc. The reason for the divestiture was the company's
need to reduce debt on its balance sheet. The company received cash of
$200,000 and discharged liabilities for approximately $515,000. The
$200,000 in cash was used to reduce bank debt. The transaction resulted in
a loss of $236,901.
The resulting loss for the current three month period was $1,227,905
($402,004 from operations, $589,000 for the inventory writedown and
$236,901 for the sale of the subsidiary). The loss for the nine month
period is $1,207,291, as compared to a loss of $20,155 for the prior year
period.
Liquidity and Capital Resources
At March 31, 1998, the Company had positive working capital of $3,285,899
as compared to a working capital of $3,904,354 at June 30, 1997.
Inventories were down by $1,226,605, $185,000 of the decrease was related
to the sale of the subsidiary, 589,000 was related to the inventory
writedown, and the remaining $450,000 reduction was due to the lower
operating levels. Accounts receivable declined by $388,608, approximately
$50,000 related to the subsidiary divestiture and $300,000 as a result of
the lower revenues. Likewise, Accounts payable declined by $938,147,
approximately $92,000 related to the subsidiary and the remainder as a
result of the lower operating levels. At March 31, 1998 the Company had
$217,000 available on the line of credit.
The Company is current with all of its debt obligations. Management
expects that its current cash and working capital position, combined with
cash expected to be generated from operations will be sufficient to service
the Company's debt and fund the Company for the fiscal year.
Part 1
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no market rate sensitive instruments.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date May 14, 1998 By(s) Robert G. Gatza
Robert G. Gatza
President and CEO
Date May 14, 1998 By(s) Robert J. Fanella
Robert J. Fanella
Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 4,678
<SECURITIES> 0
<RECEIVABLES> 1,783,694
<ALLOWANCES> (50,000)
<INVENTORY> 2,841,919
<CURRENT-ASSETS> 4,639,335
<PP&E> 4,726,338
<DEPRECIATION> (3,333,790)
<TOTAL-ASSETS> 6,095,908
<CURRENT-LIABILITIES> 1,353,436
<BONDS> 0
0
2,605,282
<COMMON> 19,691
<OTHER-SE> 112,725
<TOTAL-LIABILITY-AND-EQUITY> 6,095,908
<SALES> 9,562,830
<TOTAL-REVENUES> 9,562,830
<CGS> 8,328,137
<TOTAL-COSTS> 10,870,318
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 333,508
<INCOME-PRETAX> (1,640,996)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,640,996)
<DISCONTINUED> 0
<EXTRAORDINARY> 433,700
<CHANGES> 0
<NET-INCOME> (1,207,291)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> (.71)
