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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 September 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 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 September 30, 1998 there were outstanding 1,966,064 shares of Common
Stock, $.01 par value.
MICROENERGY, INC.
INDEX
Part 1 - Financial Information
Item 1 - Financial Statements
Condensed Balance Sheets for September 30, 1998
(unaudited) and June 30, 1998 (audited).
Condensed Statements of Operations (unaudited) for the
quarters ending September 30, 1998 and September 30, 1997.
Condensed Statements of Cash Flows (unaudited) for the
three months ending September 30, 1998 and September 30,
1997.
Notes to Condensed Financial Statements (unaudited)
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
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MICROENERGY, INC.
CONDENSED BALANCE SHEETS
1st Quarter
Ending Year Ended
9/30/98 6/30/98
ASSETS (unaudited) (audited)
Current assets:
Cash $ 7,491 $ 134,303
Accounts receivable 1,245,040 1,610,145
Inventories 2,019,137 2,073,735
Other current assets (23,620) 22,735
Total current assets 3,248,048 3,840,918
Property and equipment 4,752,882 4,732,401
Accumulated depreciation (3,527,867) (3,455,867)
1,225,015 1,276,534
Other assets, net 38,935 32,513
$ 4,511,998 $5,149,965
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 4,066,338 4,236,926
Accounts payable 437,995 467,444
Accrued expenses 523,605 295,274
Total current liabilities 5,027,938 4,999,644
Long-term obligations 90,428 97,262
Total liabilities 5,118,366 5,096,906
Stockholders' equity:
8% cumulative Series A preferred stock,
$7.00 liquidation preference,4,000,000
shares authorized, 494,500 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 in 1997 19,661 19,661
Additional paid-in capital 4,642,842 4,642,842
Accumulated deficit (7,311,140) (7,311,140)
Common stock purchase warrants, 75 75
Preferred stock warrants 112,725 112,725
Treasury stock, at cost 1,898 shares (16,386) (16,386)
Current Year Earnings/(Loss) (659,427) --
Total stockholders' equity (606,368) 53,059
$4,511,998 $5,149,965
MICROENERGY,INC
STATEMENTS OF OPERATIONS
Three Months Three Months
Ended Ended
9/30/98 9/30/97
(Unaudited) Unaudited)
Sales $2,076,254 $3,694,813
Expenses:
Facility, pre-production,
and production 1,901,761 2,876,360
Research and development 352,136 358,300
Selling,General and
Administrative 388,189 448,235
Operating Income/(Loss) (565,832) 11,918
Interest expense, net 93,595 109,541
Net Income/(Loss) $ (659,427) $ (97,623)
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For earnings per share calculation:
Net Income/(Loss) $ (659,427) $ (97,623)
Preferred stock dividends (69,230) (69,230)
Net Income/(Loss) available
to common shareholders $ (728,657) $(166,853)
========== =========
Net Income/(loss) per share $ (.37) $ (.08)
Weighted average number
of shares of common
stock outstanding 1,966,064 2,018,824
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MICROENERGY, INC.
STATEMENTS OF CASH FLOWS
Three Months Three Months
Ending Ending
9/30/98 9/30/97
(Unaudited) (Unaudited)
Cash flows from operating
activities:
Net (losses) earnings $ (659,427) $ (97,623)
Adjustments to reconcile net
(losses) earnings to net cash
provided by operations:
Depreciation 72,000 190,365
Changes in assets and
liabilities:
Accounts receivable 365,105 ( 42,638)
Inventories 54,598 41,201
Other assets 39,933 72,751
Accounts payable (29,449) (476,702)
Accrued expenses 228,331 ( 7,286)
Net cash provided (used) by
operating activities 71,091 (319,932)
Cash flows (used in) provided by
investing activities:
Additions to equipment (20,481) (22,975)
Cash flows provided by (used in)
financing activities:
Long-term debt, net of payments (177,422) 231,339
Equity Transactions 0 13,500
Net cash provided by (used in)
financing activities (177,422) 244,839
Net increase (decrease) in cash (126,812) ( 98,068)
Cash at beginning of period 134,303 110,086
Cash at end of period $ 7,491 $ 12,018
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MICROENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED FINANCIAL STATEMENTS
The condensed balance sheet as of September 30, 1998, the consolidated
statement of income for the three month periods ending September 30, 1998 and
September 30, 1997 and the condensed statement of cash flows for the three
month period ending September 30, 1998 and September 30, 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 September 30, 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, 1998 10K report. The results
of operations for the period ended September 30, 1998 are not necessarily
indicative of the operating results for the full year.
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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 ended September 30, 1998 were $2,076,254,
representing a 44% decrease over the prior year period of $3,694,813.
Approximately $1.0 million of the decrease was the result of a sales decline
from one of the Company's major customers. The sales to this customer for
the remainder of this fiscal year will be negligible. Approximately $450,000
of the decline is related to the divestiture of the wholly owned subsidiary,
Tru-Way. The subsidiary was divested in the third fiscal quarter of the prior
year. The remaining decline of approximately $170,000 was due to decline in
demand from the Company's customers. A net loss of $659,427 was incurred for
the current quarter as compared to the net loss of $97,623 in the prior year
period. The current year loss was a direct result of the lower revenues.
Manufacturing costs declined $974,599 or 34% from the prior year, as compared
to the 44% decrease in revenues. Research & Development declined slightly and
Selling, General, & Administrative was reduced by $60,046 or 13%. During the
quarter the Company instituted a cost reduction plan as a result of the lower
revenue levels. The impact from this action will begin to be realized in the
coming quarters, the impact in the current quarter was negligible.
Interest cost for the quarter was $93,595 as compared to $109,541 in the prior
year period. The major reason for the decline was the reduction of debt
related to the divested subsidiary.
Liquidity and Capital Resources
The Company at September 30, 1998, had a working capital deficit of $1.8
million as compared $1.2 million working capital deficit at the end of the
fiscal year June 30, 1998. The working capital deficit is a result of the
Company's term loans from its major lender, currently totaling approximately
$3.9 million, which were reclassed to current liabilities during the fourth
quarter of fiscal year 1997 due to covenant violations. The Company has come
to an informal arrangement with its bank and expects to be afforded additional
time to remedy its covenant violations. The Company expects to formalize
these plans in the next quarter. At this time there are no additional funds
available on the Company's revolving line of credit.
The Company's accounts receivable declined by $365,000 as a result of the
lower sales volume, and inventories declined by 54,000, or 3% as compared to
the fiscal year end.
The Company is current with all of its debt obligations. In the current
quarter, total debt was reduced by $177,000. Management expects that if it is
afforded time to remedy the violations of its bank loan covenants 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 coming fiscal year.
Forward Looking Statements; Potential Fluctuations in Operating Results
This report contains certain forward looking statements. While these
statements 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 outcomes may differ materially.
The Company's revenues and operating results have varied significantly in the
past and may do so in the future. The Company expects that these fluctuations
will continue, therefore, the Company believes that period-to-period
comparisons of its financial results should not be relied on as an indication
of future performance.
Item 3 Quantitative and Qualitative Disclosures About Risk
The Company does not invest in securities that are exposed to risk from
changes in interest rates, currency valuations, or commodity prices.<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: November 10, 1998 By(s) Robert G. Gatza
Robert G. Gatza
President and CEO
Date: November 10, 1998 By(s) Robert J. Fanella
Robert J. Fanella
Chief Financial Officer
and Treasurer
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