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 December 31, 1997
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 December 31, 1997 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
December 31, 1997 (unaudited) and June 30, 1997
Condensed Statements of Operations (unaudited) for the
quarter and six months ended December 31, 1997 and
December 31, 1996.
Condensed Statements of Cash Flows (unaudited) six months
ended December 31, 1996 and December 31, 1995.
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
2nd Quarter
Ended Year Ended
12/31/97 6/30/97
(unaudited) (audited)
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ASSETS
Current assets:
Cash $ 3,753 $ 110,086
Accounts receivable 2,218,2722,122,302
Inventories 3,888,925 4,068,524
Other current assets 163,811 586,870
Total current assets 6,274,761 6,887,782
Machinery and equipment 6,337,411 6,225,214
Accumulated depreciation (4,249,822) (3,869,092)
2,087,589 2,356,122
Other assets, net 103,275 102,275
$ 8,465,625 $9,346,179
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
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<S> <C> <C>
Current liabilities:
Notes payable $ -- $ --
Current portion of long-term obligations 857,842 948,326
Accounts payable 1,095,974 1,579,539
Accrued expenses 393,073 455,563
Total current liabilities 2,346,889 2,983,428
Long-term obligations 4,042,693 3,873,622
Total liabilities 6,389,582 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 1997 and 421,477 in 1996 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) 20,614 --
Total Stockholders' Equity 2,076,043 2,489,129
$ 8,465,625 $9,346,179
</TABLE>
MICROENERGY, INC.
STATEMENTS OF OPERATIONS
3 Months 3 Months 6 Months 6 Months
Ended Ended Ended Ended
12/31/97 12/31/96 12/31/97 12/31/96
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<S> <C> <C> <C> <C>
Sales $ 3,150,187 $ 4,262,401 $ 6,845,000 $ 7,705,391
Expenses:
Facility, pre-
production and
production 2,678,715 3,432,205 5,555,075 6,175,942
Research and
Development 345,873 330,971 704,173 642,905
Selling, Gen and
Administrative 332,755 371,741 780,990 784,581
Operating Income\(Loss) (207,156) 127,484 (195,238) 101,963
Interest Expense 108,307 69,543 217,848 141,219
Net Income\(Loss)
Before Extraordinary
Item (315,463) 57,941 (413,086) (39,256)
Extraordinary item-
gain (note 2) 433,700 0 433,700 0
Net Income\(Loss) $ 118,237 $ 57,941 $ 20,614 $(39,256)
For Earnings Per Share Calculation:
Net Income\(Loss) $ 118,237 $ 57,941 $ 20,614 $(39,256)
Preferred Stock
Dividend (note 3) (69,230) (104,230) (138,460) (208,460)
Net Income\(Loss)
available to common
shareholders $ 49,007 $ (46,289) $(117,846) $(247,716)
Net Income\(Loss) per
Common Share:
Before Extraordinary
Item $( .191) $( .110) $( .273) $( .588)
Extraordinary Item .215 - .215 -
Total $ .024 $( .110) $( .058) $( .588)
Weighted avg number
of shares of
common stock 2,018,531 421,477 2,018,531 421,477
</TABLE>
MICROENERGY, INC.
STATEMENTS OF CASH FLOWS
Six Months Six Months
Ended Ended
12/31/97 12/31/96
Cash flows from operating
activities:
<TABLE>
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Net (losses) earnings $ 20,614 $ (39,256)
Adjustments to reconcile net
(losses) earnings to net cash
provided by operations:
Depreciation 380,730 311,482
Changes in assets and
liabilities:
Accounts receivable (95,970) (368,838)
Inventories 179,599 (117,574)
Other current assets 422,059 (20,146)
Accounts payable (483,565) (440,079)
Accrued expenses (62,490) (192,915)
Net cash provided (used) by
operating activities 360,977 (867,326)
Cash flows (used in) provided by
investing activities:
Additions to equipment (112,197) (282,754)
Cash flows provided by (used in)
financing activities:
Notes Payable -- (296,019)
Long-term debt, net of payments 78,587 (1,280,744)
Equity Transactions (note 2) (433,700) 2,717,228
Net cash provided by (used in)
financing activities (355,113) 1,140,465
Net increase (decrease) in cash (106,333) (9,615)
Cash at beginning of period 110,086 19,615
Cash at end of period $ 3,753 $ 10,000
</TABLE>
MICROENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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1. CONDENSED FINANCIAL STATEMENTS
The condensed Balance Sheet as of December 31, 1997, the Consolidated
Statements of Income for the three and six month periods ended December 31,
1997 and December 31, 1996 and the Condensed Statements of Cash Flows for
the six month periods ended December 31, 1997 and December 31, 1996 have
been prepared by the Company, without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and changes
in financial position at December 31, 1997 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 December 31, 1997 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, in order to conserve cash. However, as a result
of a depressed common stock price at the payable date, 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 six months ended December 31, 1997 were
$3,150,187 and $6,845,000 respectively, as compared to $4,262,401 and
$7,705,391 for the comparable periods in the prior year, representing
decreases of $1,112,214 and $860,391 for the quarter and six months
respectively. Sales for the six months were adversely impacted by
approximately $3 million primarily due to new business that failed to
materialize to levels projected by its customers. Historically, the
Company had been engaged exclusively in business development initiatives
stating 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
eighteen month period ending December 31, 1997, only $5.5 million has been
sold, causing a significant and unexpected shortfall in second quarter and
six month revenues. During the quarter, the Company has completed a
marketing review and based on customer feedback believes third and fourth
quarter revenues will remain below expectation and slightly below second
quarter levels.
Management is in the process of refocusing its long-standing marketing
strategy to gain access to new markets. The Company has begun a sales and
marketing reorganization initiative to position itself to compete for a
market share 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 six month period increased to 81.1% of revenues
as compared to 80.1% in the prior year period. The actual dollars
decreased by $620,867, 10.1% from the prior year period, on a sales decline
of 11.2%. Research & Development increased by $61,268 as compared to the
prior year six month period and SG&A remained flat as compared to the prior
year period. A major cost increase included in these figures was the
current year cost of medical health insurance. Due to a bad claim year in
fiscal 1997 the premiums and accruals were increased dramatically in fiscal
1998. Manufacturing costs for the six month period included an increase of
approximately $140,000 and R&D and SG&A were impacted by an increase of
approximately $30,000 combined. The Company is looking at various options
to attempt to lower these costs for fiscal year 1999.
Interest costs for the six month period increased by $76,629 to $217,848.
The increase was due to higher average borrowings on the line of credit and
interest from certain new term debt related to fixed asset acquisitions in
fiscal year 1997.
Net Income Before Extraordinary Item were losses of $315,463 and $413,086
for the current three and six month periods as compared to a gain of
$57,941 for the prior year three month period and a loss of $39,256 for the
prior year six month period.
The Company reported an extraordinary gain of $433,700 in the quarter.
This gain was the result of the two officers of the Company forfeiting
common stock received under the May 1989 Stock Grant Program. This gain
combined with current operations resulted in a profit of $118,237 and
$20,614 for the three and six month period ended December 31, 1997.
Liquidity and Capital Resources
At December 31, 1997, the Company had positive working capital of
$3,927,872 as compared to a working capital of $3,904,354 at June 30, 1997.
Inventories were down by $179,599 and Accounts receivable were increased by
$95,970. Accounts payable declined by $483,565. In the current quarter,
the Company came to a modification Agreement with its major lender to
increase its line of credit to $4,000,000 and to extend the term of the
agreement an additional year to November 1999. At December 31, 1997 the
Company had $675,000 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 coming 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 February 5, 1998 By(s) Robert G. Gatza
Robert G. Gatza
President and CEO
Date February 5, 1998 By(s) Robert J. Fanella
Robert J. Fanella
Chief Financial Officer
and Treasurer
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,753
<SECURITIES> 0
<RECEIVABLES> 2,268,272
<ALLOWANCES> (50,000)
<INVENTORY> 3,888,925
<CURRENT-ASSETS> 6,274,761
<PP&E> 6,337,411
<DEPRECIATION> (4,249,822)
<TOTAL-ASSETS> 8,465,625
<CURRENT-LIABILITIES> 2,346,889
<BONDS> 0
0
2,605,282
<COMMON> 19,691
<OTHER-SE> 112,725
<TOTAL-LIABILITY-AND-EQUITY> 8,465,625
<SALES> 6,845,000
<TOTAL-REVENUES> 6,845,000
<CGS> 5,555,075
<TOTAL-COSTS> 7,040,238
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217,848
<INCOME-PRETAX> (413,086)
<INCOME-TAX> 0
<INCOME-CONTINUING> (413,086)
<DISCONTINUED> 0
<EXTRAORDINARY> 433,700
<CHANGES> 0
<NET-INCOME> 20,614
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
