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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 December 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 December 31, 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
December 31, 1998 (unaudited) and June 30, 1998
Condensed Statements of Operations (unaudited) for the
quarter and six months ended December 31, 1998 and
December 31, 1997.
Condensed Statements of Cash Flows (unaudited) for the six
months ended December 31, 1998 and December 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
MICROENERGY, INC.
CONDENSED BALANCE SHEETS
2nd Quarter
Ended Year Ended
12/31/98 6/30/98
(unaudited) (audited)
ASSETS
Current assets:
Cash $ 2,159 $ 134,303
Accounts receivable 1,186,815 1,610,145
Inventories 1,978,033 2,073,735
Other current assets 43,383 22,735
Total current assets 3,210,390 3,840,918
Machinery and equipment 4,762,269 4,732,401
Accumulated depreciation (3,599,867) (3,455,867)
1,162,402 1,276,534
Other assets, net 38,935 32,513
Total Assets $ 4,411,727 $5,149,965
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations 3,889,138 4,236,926
Accounts payable 524,454 467,444
Accrued expenses 765,481 295,274
Total current liabilities 5,179,073 4,999,644
Long-term obligations 83,469 97,262
Total liabilities 5,262,542 5,096,906
Stockholders' equity:
8% Cumulative Series A Preferred Stock,
$7.00 liquidation preference, 4,000,000
shares authorized and 494,500 outstanding 2,605,282 2,605,282
Common Stock, $.01 par value - 4,000,000
shares authorized; 1,966,064 shares
outstanding in 1998 and 1,966,064 in 1998 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 Purchase Warrants, 112,725 112,725
Treasury Stock, at cost, 1,898 shares (16,386) (16,386)
Current Year Earnings/(Loss) (903,874) --
Total Stockholders' Equity (850,815) 53,059
Total Liabilities & Stockholders Equity $ 4,411,727 $5,149,965
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MICROENERGY, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
3 Months 3 Months 6 Months 6 Months
Ended Ended Ended Ended
12/31/98 12/31/97 12/31/98 12/31/97
Sales $ 1,838,001 $ 3,150,187 $ 3,914,255 $ 6,845,000
Expenses:
Facility, pre-
production and
production 1,535,383 2,678,715 3,437,144 5,555,075
Research and
Development 226,998 345,873 579,134 704,173
Selling, Gen and
Administrative 230,475 332,755 618,664 780,990
Operating Loss (154,855) (207,156) (720,687) (195,238)
Interest Expense 89,592 108,307 183,187 217,848
Net Loss (244,447) (315,463) (903,874) (413,086)
For Earnings Per Share Calculation:
Net Loss $(244,447) $(315,463) $(903,874) $(413,086)
Preferred Stock
Dividend (69,230) (69,230) (138,460) (138,460)
Net Loss
available to common
shareholders $(313,677) $(384,693) $(1,042,334) $(551,546)
Net Loss per
Common share $( .160) $( .191) $( .530) $( .273)
Weighted avg number
of shares of
common stock 1,966,064 2,018,531 1,966,064 2,018,531
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MICROENERGY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Six Months
Ended Ended
12/31/98 12/31/97
Cash flows from operating
activities:
Net Losses $ (903,874) $ (413,086)
Adjustments to reconcile net
Losses to net cash provided
By operations:
Depreciation 144,000 380,730
Changes in assets and
liabilities:
Accounts receivable 423,330 (95,970)
Inventories 95,702 179,599
Other current assets (27,070) 422,059
Accounts payable 57,010 (483,565)
Accrued expenses 470,207 (62,490)
Net cash provided (used) by
operating activities 259,305 (72,723)
Cash flows (used in) provided by
investing activities:
Additions to equipment (29,868) (112,197)
Cash flows provided by (used in)
financing activities:
Long-term debt, net of payments (361,581) 78,587
Net increase (decrease) in cash (132,144) (106,333)
Cash at beginning of period 134,303 110,086
Cash at end of period $ 2,159 $ 3,753
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MICROENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED FINANCIAL STATEMENTS
The condensed Balance Sheet as of December 31, 1998, the Consolidated
Statements of Income for the three and six month periods ended December 31,
1998 and December 31, 1997 and the Condensed Statements of Cash Flows for
the six month periods ended December 31, 1998 and December 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 December 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, 1998 Form 10K report.
The results of operations for the period ended December 31, 1998 is not
necessarily indicative of the operating results for the full year.
2. Cumulative Dividend Non-payment
On January 1, 1999 the dividend of $138,430 was due on the 8% Cumulative
Series A preferred Stock. 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. At January 1, 1999, $415,380 of cumulative
preferred stock dividends are in arrears.
The Earnings Per Share Calculation does include the impact of the Preferred
Dividend.
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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 and six months ended December 31, 1998 were
$1,838,001 and $3,914,255 respectively, as compared to $3,150,187 and
$6,845,000, respectively, for the comparable periods in the prior year,
representing decreases of 42% ($1,312,186) and 43% ($2,930,745) for the
quarter and six months, respectively. Approximately $2.0 million of the six
month net sales decline was the result of a decline in business from one of
the Company s major customers. The sales to this customer for the remainder
of this fiscal year will be negligible. Approximately $0.9 million of the
decline is related to the divestiture of the previously wholly owned
subsidiary, Tru-Way. The subsidiary was divested in the third fiscal
quarter of the prior year. The Company is diligently working to obtain new
customers in an effort to rebuild its sales base and operating performance.
A net loss of $244,447 was incurred for the current quarter as compared to
a loss of $315,463 in the prior year quarter and a loss of $659,427 in the
quarter ending September 30, 1998. In reaction to the lower sales, the
Company has instituted a company wide cost reduction program. The net loss
for the second fiscal quarter was $414,980 less then the net loss in the
first fiscal quarter ended September 30, 1998. The loss for the six month
period is $903,874 as compared to a net loss of $413,086 for the prior year
six months period ended December 31, 1997. The current year loss is a
direct result of the lower revenues.
Manufacturing costs for the quarter and six month period declined
$1,143,332 and $2,117,931, respectively. Research & Development costs
declined $118,875 and $125,039 for the three and six month periods.
Selling, General, & Administrative costs were reduced by $102,280 and
$162,326 for the two periods. The declines in the cost levels were a
direct result of the cost reduction plan and productivity improvements
instituted at the end of the first fiscal quarter.
Interest cost for the quarter and six month periods were $89,592 and
$183,187 as compared to $108,307 and $217,848 for the prior year periods.
Liquidity and Capital Resources
The Company had a working capital deficit of approximately $2.0 million at
December 31, 1998, as compared to approximately $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, of approximately
$3.8 million, from its major lender which were reclassed to current
liabilities at June 30, 1998 due to debt covenant violations. During the
current quarter the Company finalized a formal arrangement with its major
lender requiring it to make monthly payments toward principal of $500,000
by November 1, 1999. The Company expects to renegotiate a continuation of
its relationship with its major lender prior to November 1, 1999. At this
time there are no additional funds available on the Company s revolving
line of credit.
The Company is current with all of its debt obligations. In the six month
period, total debt was reduced by $361,581 Management expects with its
agreement with its major lender that its current cash 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.
Year 2000 Preparedness
As reported in the Company s 10K filing for June 30, 1998, the Company has
reviewed its exposure to the Year 2000 software readiness problem and does
not anticipate it will incur any significant costs in that regard, and that
the year 2000 issues will not materially effect the Company s business, its
results of operations, or its financial condition.
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.
Part 1
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no market rate sensitive instruments.
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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 15, 1999 By(s) Robert G. Gatza
Robert G. Gatza
President and CEO
Date February 15, 1999 By(s) Robert J. Fanella
Robert J. Fanella
Chief Financial Officer
and Treasurer
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