<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1996 Commission file number 0-15148
----------------------------
SCIENTIFIC NRG, INCORPORATED
(Exact name of registrant as specified in its charter)
Minnesota
(State or Other Jurisdiction of Incorporation or Organization)
2246 Lindsay Way
Glendora, California 91740
(Address of Principal Executive Offices)
41-1457271
(I.R.S. Employer Identification No.)
Registrant's telephone number, including area code: (909) 305-0322
----------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. At January 31, 1997 the
registrant had 3,098,050 shares of common stock, no par value, issued and
outstanding.
<PAGE> 2
TABLE OF CONTENTS
PART I
PAGE
----
ITEM 1. FINANCIAL STATEMENTS......................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.... 3
PART II
ITEM 1. LEGAL PROCEEDINGS............................................ 5
ITEM 2. CHANGES IN SECURITIES........................................ 5
ITEM 3. DEFAULT UPON SENIOR SECURITIES............................... 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.......... 5
ITEM 5. OTHER INFORMATION............................................ 6
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 7
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS.
The Company's unaudited condensed balance sheet as of the end of the
Company's most recent quarter, December 31, 1996 and unaudited condensed
statements of operations for the three and six month period and statements of
cash flow for the six month period up to the date of the balance sheet and the
comparable period of the preceding fiscal year are attached hereto as pages F-1
through F-7 and are incorporated herein by this reference.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the Company's audited financial statements and management's Discussion and
Analysis of Financial Condition and results of Operations included in the
Company's Annual Report on Form 10-KSB, filed with the Securities and Exchange
Commission on December 23, 1996.
The following discussion includes "forward looking statements"
("FLS") that represent management's assessment of future performance and its
goals. There are no assurances that the forward looking statements will be
achieved.
RESULTS OF OPERATIONS
The three and six month period ended December 31, 1996 compared to the
three and six month period ended December 31, 1995.
The Company realized a net loss of $21,206, or $.01 per share for the
three month period ended December 31, 1996, compared to a net loss of $77,521,
or $.04 per share for the corresponding period of the prior fiscal year. The
Company realized a net loss of $111,974, or $.04 per share for the six month
period ended December 31, 1996, compared to a net loss of $130,625, or $.06 per
share for the corresponding period of the prior fiscal year. Management
attributes these decreased losses to the Company's reduced overhead and
reduced interest expense.
Net sales of the Company during the three months ended December 31,
1996 decreased $18,897 or 11.3% from the corresponding period of the prior
fiscal year. Net sales of the Company during the six months ended December 31,
1996 decreased $127,153 or 35.1% from the corresponding period of the prior
fiscal year. Since the Company did not change its sales prices in the last
year, the sales decrease is attributable to a decrease in volume caused by reps
not selling products due to the Company's inability to pay their commissions in
a timely manner. Management believes it has made substantial progress with
mending relationships with sales reps. By making payments on past due amounts
management plans for sales from reps to increase in 1997 (FLS).
Gross profit from operations during the three months ended December
31, 1996 decreased $31,654 or 54.7% from the gross profit from the
corresponding period of the prior fiscal year. Gross profit from operations
during the six months ended December 31, 1996 decreased $81,019 or 55.1% from
the gross profit from the corresponding period of the prior fiscal year.
Management attributes this decrease to the Company's decrease in sales.
3
<PAGE> 4
General, administrative and selling costs for the three months ended
December 31, 1996 decreased by $26,089, and decreased as a percentage of sales
from 66.2% of sales to 57.0% of sales in comparison to the corresponding period
of the prior fiscal year. General, administrative and selling costs for the six
months ended December 31, 1996 decreased by $32,801, and increased as a
percentage of sales from 63.8% of sales to 84.4% of sales in comparison to the
corresponding period of the prior fiscal year. Management attributes this
percentage increase to the Company's decrease in sales. The reduction in
overhead for the three months ended December 31, 1996 indicates management's
efforts to reduce costs.
Other income for the three and six months ended December 31, 1996
increased by $41,390 in comparison to the corresponding period of the prior
fiscal year. This increase is the net of the $63,642 discounts negotiated with
vendors, (see Note 5, "Common Stock"), less the $22,252 loss from the disposal
of the Company's outdated computer equipment.
LIQUIDITY AND CAPITAL RESOURCES
The six month period ended December 31, 1996 compared to the six month
period ended December 31, 1995.
The Company had a negative cash flow from operating activities for the
six month period ended December 31, 1996 of $92,953 compared to a negative cash
flow of $137,519 for the six month period ended December 31, 1995. The 1996
improvement of negative cash flow compared to the previous period can be
attributed to a reduction in inventories and overhead.
At December 31, 1996, the Company had a net working capital deficit of
$853,281, compared to a net working capital deficit of $256,250 at June 30,
1996, an increased deficit of $597,031, which is the result of the
reclassification to current liabilities of the related party debt of $558,500
and accrued interest of $93,679 that were converted to common stock in 1997,
(see Note 7, "Subsequent Events").
In November 1996, the Company received subscriptions for 172,000
shares of Common Stock for $.25 per share. The Company used these proceeds to
negotiate certain accounts payable. As of December 31, 1996 the Company's
management was able to negotiate discounts of $63,642 on existing accounts
payable, (see Note 5, "Common Stock").
Management believes its plans will be sufficient to support operations
during the year ending June 30, 1997 (FLS). Part of management's operational
strategy include plans to secure additional equity to support anticipated
operations. However, there are no assurances that such efforts to improve
operating results and secure financing will be successful. The Company may be
unable to continue operations and there can be no assurances regarding the
recoverability of assets or their values upon liquidation. Management intends
to raise $300,000 to $400,000 from a private placement of its securities during
fiscal 1997 (FLS). There can be no assurance that such plan will be successful,
(See Note 6, "Private Placement").
4
<PAGE> 5
PART II
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
At the Special Meeting of Shareholders of the Company held on October
24, 1996, the following persons were nominated and elected as directors of the
Company; Daniel Parke, Jonathan Forgy, and Oliver Washburn.
The board reviewed the results from the Special Meeting of
Shareholders and announced that the following resolutions were approved by a
majority of the voting power of the shares present and entitled to vote.
Amend the Articles of Incorporation to increase the number of
authorized shares of common stock to 40,000,000 shares of no par value common
stock, up from the current 15,000,000 authorized shares of no par value common
stock.
Amend the Articles of Incorporation to decrease the number of
outstanding shares of common stock through the implementation of a 5:1 reverse
split of all issued and outstanding shares of common stock.
The directors appointed the following persons to serve as officers of
the Company at the pleasure of the board: Daniel Parke, Chief Executive
Officer; Jonathan Forgy, President; Tami Miller, Secretary; and Oliver
Washburn, Treasurer.
5
<PAGE> 6
ITEM 5. OTHER INFORMATION.
Below is a description of the "Workout Agreement" dated September 11,
1996. On February 4, 1997 the long-term debt and accrued interest of $652,179
was coverted to equity, see Subsequent Events (Note 7).
On September 11, 1996, the board of directors of the Company approved a
formal Workout Agreement (the "Workout Agreement") which provided a method to
[1] restructure outside of bankruptcy existing debt payable to certain related
parties, [2] provide for a change in the Company's officers and directors, and
[3] issue additional notes payable and additional shares of common stock of the
Company in order to finance operations.
On September 11, 1996, two of the Company's Board of Directors,
Malcolm L. Fickel who was the Company's chief executive officer and Thomas C.
Moceri who was the Company's chief financial officer, resigned from their
positions as directors and officers of the Company. The Board of Directors then
entered into a one year consulting contract with the former chief executive
officer beginning September 12, 1996, that provides for services to be rendered
to the Company, at management's request, at the rate of $75 per hour. Two new
directors were appointed, Daniel W. Parke who was named as the Company's chief
executive officer and Jonathan D. Forgy who was named as the Company's
president. The two new officers and directors are affiliates of Parke
Industries, Inc., an affiliated company controlled by Dan Parke.
As part of the Workout Agreement, Parke Industries, Inc. and its
affiliates acquired 600,000 shares of the Company's common stock at $0.10 per
share on September 11, 1996. The purchase price consisted of $20,000 for future
administrative services at the rate of $5,000 per month for four months from
Parke Industries, Inc. and $40,000 in cash from Parke Industries, Inc. and its
affiliates. The Company's new chief executive officer was given a salary of $12
per year and options to purchase 300,000 shares of common stock exercisable at
$0.50 per share. The Company's new president was given a salary of $24,000 per
year, later raised to $48,000, and options to purchase 100,000 shares of common
stock exercisable at $0.50 per share. In addition, the Company granted options
to purchase 200,000 shares of common stock exercisable at $.50 per share to
Parke Industries, Inc.
6
<PAGE> 7
Effective September 11, 1996, certain outstanding debt obligations to
related parties were renegotiated to an aggregate principal amount of $558,500.
These related party obligations totaled $630,067, including accrued interest of
$100,308, at June 30, 1996. Moreover, the outstanding debt obligations to the
related parties had increased to $652,179 by September 10, 1996 due to
additional borrowings and accrued interest. The accrued interest of $93,679
($652,179 less $558,500) will not be recognized as a gain on the restructuring
of the debt in accordance with Statement of Financial Accounting Standards No.
15 ,"Accounting by Debtors and Creditors for Troubled Debt Restructuring."
Instead, the effective interest rate of the restructured notes payable will be
reduced for financial statement reporting purposes. (The above debt of
$652,179 was converted to equity in 1997, see Susequent Events, (Note 7).
The Workout Agreement provided for the issuance of 20,000 shares of
common stock to the Company's former chief executive officer to fulfill the
Company's obligation under his service contract. Such shares were valued at
$0.10 per share and were charged to operations in fiscal 1997. The Workout
Agreement also provided for the issuance of notes payable to certain related
parties totaling $60,000 due on or about January 10, 1997, together with
interest at 15% per annum, and secured by all of the assets of the Company. On
September 19, 1996, the Company issued 140,000 shares of no par value common
stock of the Company at $.20 per share for the payment of legal services
rendered in connection with the Workout Agreement. The value of such shares
totals $28,000, of which $l0,000 was expensed is fiscal 1996 and $18,000 was
expensed in fiscal 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits filed concurrently with this report (and referenced in the
Exhibit Index) have twelve asterisks in the left margin, and are hereby
incorporated herein by this reference.
Exhibits previously filed with the Company's quarterly report on Form
10-QSB for the quarterly period ended September 30, 1996 have eleven asterisks
in the left margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's quarterly report on Form
10-Q for the quarterly period ended March 31, 1996 have ten asterisks in the
left margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's quarterly report on Form
10-Q for the quarterly period ended September 30, 1995 have nine asterisks in
the left margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's quarterly report on Form
10-K for the fiscal year ended June 30, 1995 have eight asterisks in the left
margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's quarterly report on Form
10-Q for the quarterly period ended December 31, 1994 have seven asterisks in
the left margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's annual report on Form
10-K for the fiscal year ended June 30, 1994 have six asterisks in the left
margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's annual report on Form
10-K for the fiscal year ended June 30, 1993 have five asterisks in the left
margin, and are hereby incorporated herein by this reference.
7
<PAGE> 8
Exhibits previously filed with the Company's quarterly report on Form
10-Q for the quarterly period ended March 31, 1993 have four asterisks in the
left margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's annual report on Form
10-K for the fiscal year ended June 30, 1992 have three asterisks in the left
margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's annual report on Form
10-K for the fiscal year ended June 30, 1991 have two asterisks in the left
margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's annual report on Form
10-K for the fiscal year ended June 30, 1989 have one asterisk in the left
margin, and are hereby incorporated herein by this reference.
Finally, all Exhibits previously filed with the Securities and
Exchange Commission as part of the Company's initial Form 10 filing on or about
November 12, 1986 or in other reports filed pursuant to the Securities Exchange
Act of 1934 have no asterisk in the left margin, and are hereby incorporated
herein by this reference.
** 3.1 Articles of Incorporation as in effect on the date hereof
(including Amendment thereto effective December 28, 1988).
************ 3.2 Articles of Incorporation (Amendment effective November 20,
1996).
** 3.3 Bylaws.
4.1 Specimen of Issued and Outstanding Restricted Share
Certificate and reverse side thereof (see also Exhibits 3.1 and
3.3).
4.6 Incentive Stock Option Plan.
10.7 Agreement (assigning patent rights).
10.8 Agreement Between Scientific Component Systems, Inc. and NRG,
Inc., June 29, 1983.
10.9 Agreement, July, 1983 (assigning patent rights, with Exhibit
10.7 as exhibit).
10.10 Assignment of Patent Rights from Scientific Component Systems,
Inc. to NRG, Inc., April 20, 1984.
10.11 Assignment of Patent Rights from Rhett McNair and James
Helling to NRG, Inc., April 20, 1984.
10.12 Assignment of Patent Rights from Rhett McNair, James Helling,
William R. Ingles and Gerald L. Fullerton to NRG, Inc., April
20, 1984.
10.13 Agreement Assigning Patent Rights from Scientific Component
Systems, Inc., to NRG, Inc., April 20, 1984.
** 10.14 Assignment with Possibility of Reverter of Patent Rights from
Rhett McNair to NRG, Inc., January 21, 1986.
10.20 Form of Warrant Certificate.
*** 10.27 New Lease for Company Headquarters in Tustin, California.
8
<PAGE> 9
* 10.28 Royalty Agreement with Rhett McNair.
* 10.29 Consulting Agreement with MLF & Associates, Inc., April 1,
1990.
*** 10.30 Promissory Note Payable to Oliver Washburn and Extension
Thereto.
*** 10.31 Promissory Note Payable to Malcolm Fickel and Extension
Thereto.
*** 10.32 Promissory Note Payable to Malcolm Fickel and Extension
Thereto.
*** 10.33 Promissory Note Payable to Malcolm Fickel and Extension
Thereto.
*** 10.34 Promissory Note Payable to Malcolm Fickel and Extension
Thereto.
*** 10.35 Deferred Compensation Agreement Between the Company and
Malcolm Fickel.
*** 10.36 Line of Credit Agreement with Bank.
*** 10.37 Promissory Note Payable to Peter C. Kreft.
**** 10.38 Stock Purchase Agreement Between the Company and MLF &
Associates, Inc. Retirement Trust, April 30, 1993.
**** 10.39 Stock Purchase Agreement Between the Company and Malcolm L.
Fickel, April 30, 1993.
**** 10.40 Stock Purchase Agreement Between the Company and Oliver K.
Washburn, April 30, 1993.
**** 10.41 Stock Purchase Agreement Between the Company and Peter C.
Kreft, April 30, 1993.
**** 10.42 Stock Purchase Agreement Between the Company and Thomas C.
Moceri, April 30, 1993.
***** 10.43 Financing Agreement Between the Company and Pre-Banc Business
Credit, Inc., May 21, 1993.
***** 10.44 Addendum to Consulting Agreement between the Company and
Malcolm L. Fickel, June 30, 1993.
***** 10.45 Leasing Agreement Between the Company and Auto Car Leasing
Company, September 9, 1993.
***** 10.46 Stock Warrant Agreement Between the Company and Eddie R.
Fischer, September 9, 1993.
******* 10.47 Note and Revolving Loan Agreement Between the Company and
William T. Moceri, IRA, November 15, 1994.
******** 10.48 Promissory Note Payable to Thomas C. Moceri, Trustee, Thomas
C. Moceri Profit Sharing Plan, September 28, 1994.
******** 10.49 Promissory Note Payable to Oliver Washburn, March 7, 1995.
******** 10.50 Promissory Note Payable to Oliver Washburn, March 7, 1995.
9
<PAGE> 10
******** 10.51 General Release Agreement Between the Company and Peter Kreft,
June 9, 1995.
********* 10.52 Promissory Note Payable to Oliver Washburn, September 14,
1995.
********** 10.53 Promissory Note Payable to Oliver Washburn, November
13, 1995.
********** 10.54 Promissory Note Payable to Oliver Washburn, April 26,
1996.
***********10.55 Promissory Note Payable to Oliver Washburn, July 18,
1996.
***********10.56 Workout Agreement dated August 30, 1996
***********10.57 Secured Promissory Note to Malcolm L. Fickel,
September 11, 1996
***********10.58 Secured Promissory Note to Oliver K. Washburn,
September 11, 1996
***********10.59 Subordinated Cash Flow Promissory Note to Oliver K.
Washburn, September 30, 1996
************27 Financial Data Schedule
28.2 Patent No. 4,520,436 (X-18 Series Downlight).
** 28.4 Patent No. 4,595,969 (Lamp Mounting Apparatus and Method).
** 28.5 Patent No. 4,641,228 (Lamp Mounting Apparatus and Method).
** 28.6 Patent No. 4,700,110 (Lamp Switching).
** 28.7 Patent No. 4,704,664 (Lamp Apparatus).
** 28.8 Trademarks Registered (Lightning Bolt Logo, Scientific NRG
Component Systems, SCS, X-18) and Notice of Publication of
Trademark, "Switchit".
****** 28.9 Patent No. 4,922,393 (Lamp Apparatus).
(b) Reports on Form 8-K
No reports were filed during the quarter ended December 31, 1996 on Form 8-K.
10
<PAGE> 11
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: February 14 , 1997
SCIENTIFIC NRG, INCORPORATED,
a Minnesota Corporation
By: /s/ Daniel W. Parke
------------------------
Name: Daniel W. Parke
Title: Chairman and CEO
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.
<TABLE>
<CAPTION>
Signatures Date
---------- ----
<S> <C>
By: /s/ Daniel W. Parke February 14 , 1997
-------------------
Name: Daniel W. Parke
Title: Chairman and CEO
By: /s/ Oliver K. Washburn February 14 , 1997
----------------------
Name: Oliver K. Washburn
Title: Treasurer and Principal
Financial Officer
</TABLE>
11
<PAGE> 12
SCIENTIFIC NRG, INCORPORATED
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 7,601 $ -
Trade receivables, less allowance for
doubtful accounts at December 31 of
$5,702 and June 30, 1996 of $9,812 82,238 57,982
Inventories 51,197 88,635
Prepaid expenses - 2,364
----------- -----------
Total current assets 141,036 148,981
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
at depreciated cost 6,251 26,441
OTHER ASSETS, deposits - 4,809
----------- -----------
$ 147,287 $ 180,231
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Line of credit (Note 3) $ - $ 44,220
Notes Payable to related parties (Note 3) 558,500 -
Accrued interest to related parties (Note 3) 93,679 -
Notes payable to related parties (Note 3) 60,000 -
Current obligations under capital leases 11,922 6,059
Accounts payable 101,349 241,711
Accrued compensation 75,436 58,161
Accrued interest to related parties 2,625 -
Other accrued expenses 90,806 55,080
----------- -----------
Total current liabilities 994,317 405,231
Obligations under capital leases - 9,089
Notes Payable to related parties (Note 3) - 358,159
Accrued interest to related parties (Note 3) - 100,308
Accrued service contract to related party - 175,500
----------- -----------
Total liabilities 994,317 1,048,287
----------- -----------
STOCKHOLDERS' DEFICIT
Common stock, no par value;
authorized 40,000,000 shares;
issued and outstanding:
December 31,1996 3,098,050 shares;
June 30, 1996 2,166,050 shares 3,004,020 2,871,020
Accumulated deficit (3,851,050) (3,739,076)
----------- -----------
Total stockholders' deficit (847,030) (868,056)
----------- -----------
$ 147,287 $ 180,231
=========== ===========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F-1
<PAGE> 13
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
------------------------------------ ----------------------------------
1996 1995 1996 1995
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 148,594 $ 167,491 $ 235,262 $ 362,415
Cost of sales 122,359 109,602 169,194 215,328
---------- ---------- ---------- ----------
Gross profit 26,235 57,889 66,068 147,087
Operating expenses:
General, administrative,
and selling costs 84,742 110,831 198,504 231,305
Research and development 1,427 2,272 2,833 3,722
---------- ---------- ---------- ----------
Operating loss (59,934) (55,214) (135,269) (87,940)
Other income 41,390 - 41,390 -
Interest expense (2,462) (22,107) (17,695) (42,285)
---------- ---------- ---------- ----------
Loss before income taxes (21,006) (77,321) (111,574) (130,225)
Income tax provision (200) (200) (400) (400)
---------- ---------- ---------- ----------
Net loss $ (21,206) $ (77,521) $ (111,974) $ (130,625)
========== ========== ========== ==========
Weighted average number
of shares outstanding 2,995,224 2,104,050 2,659,115 2,104,050
========== ========== ========== ==========
Net loss per common share $ (0.01) $ (0.04) $ (0.04) $ (0.06)
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F-2
<PAGE> 14
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT
Six Months Ended December 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------- Accumulated Stockholders'
Shares Amount Deficit Deficit
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, June 30, 1996 2,166,050 $2,871,020 $(3,739,076) $(868,056)
Common stock issued for cash and
services to be rendered under the
workout agreement 600,000 60,000 - 60,000
Common stock issued in connection
with legal services rendered 140,000 28,000 - 28,000
Common stock issued in connection
with services rendered under
the service contract 20,000 2,000 - 2,000
Net loss - First Quarter - - (90,768) (90,768)
---------- ---------- ----------- ---------
Balance, September 30, 1996 2,926,050 2,961,020 (3,829,844) (868,824)
Common stock issued for cash 172,000 43,000 - 43,000
Net loss - Second Quarter - - (21,206) (21,206)
--------- ----------- ----------- ---------
Balance, December 31, 1996 3,098,050 $ 3,004,020 $(3,851,050) $(847,030)
========= =========== =========== =========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F-3
<PAGE> 15
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF CASH FLOW
Six Months Ended December 31, 1996 and 1995
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $ 257,456 $ 389,809
Cash paid to suppliers and employees (347,663) (510,095)
Interest paid (2,746) (17,233)
--------- ---------
Net cash used in operating activities (92,953) (137,519)
--------- ---------
CASH FLOW USED IN INVESTING ACTIVITIES
Purchase of equipment and
leasehold improvements (5,000) -
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Net decrease in line of credit (44,220) (48,853)
Proceeds from advances and notes from
Company's officer and/or director 70,000 170,000
Principal payments under
capital lease obligations (3,226) (3,227)
Proceeds from issuance of common stock 83,000 -
--------- ---------
Net cash provided by financing activities 105,554 117,920
--------- ---------
Net increase (decrease) in cash 7,601 (19,599)
CASH
Beginning of period - 19,599
--------- ---------
Ending of period $ 7,601 $ -
========= =========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F-4
<PAGE> 16
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF CASH FLOW (Continued)
Six Months Ended December 31, 1996 and 1995
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
Net loss $(111,974) $(130,625)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 2,938 3,674
Provision for doubtful accounts (4,110) 6,000
Loss on disposal of fixed assets 22,252 -
Compensation expense arising from
professional services and service contracts 20,000 -
Change in assets and liabilities:
Trade receivables (20,146) 27,394
Inventories 37,438 (29,138)
Prepaid expenses and deposits 7,173 (2,880)
Accounts payable, accrued compensation
and other accrued expenses (49,149) (36,996)
Accrued interest payable 2,625 25,052
--------- ---------
Net cash used in operating activities $ (92,953) $(137,519)
========= =========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F-5
<PAGE> 17
SCIENTIFIC NRG, INCORPORATED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
In the opinion of the Company's management, the accompanying unaudited condensed
financial statements include all adjustments (consisting of normal accruals)
necessary for the fair presentation of its financial position at December 31,
1996, results of operations for the three and six months ended December 31, 1996
and 1995 and cashflows for the six months ended December 31, 1996 and 1995.
Although the Company believes that the disclosures in these financial statements
are adequate to make the information presented not misleading, certain
information and disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These financial statements should be read in conjunction
with the Company's audited financial statements included in the Company's Annual
Report on Form 10-KSB filed with the Securities and Exchange Commission on
December 23, 1996. Operating results for the three and six month periods ended
December 31, 1996 are not necessarily indicative of the results that may be
expected for the Company's entire year ending June 30, 1997.
Note 2. Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is
determined under the first-in, first-out method. Costs include materials, direct
labor, and an allocable portion of manufacturing overhead. The Company operates
in an industry in which its products are subject to design changes and
manufactured based upon customer specifications. Accordingly, should design
requirements change significantly or customer orders be canceled, the ultimate
net realizable value of such products could be less than the carrying value of
such amounts. At December 31, 1996, management believes that inventories are
carried at their net realizable value.
Note 3. Line of Credit, Bridge Notes and Related Party Notes Payable
The Line of Credit was paid in full in October 1996. The Company borrowed
$60,000 in Bridge Notes as more fully explained under Item 5 "Other
Information". Subsequent to June 30, 1996, all notes payable to related parties
were restructured as part of the Workout Agreement (see Note 4). Such amounts
were converted to common stock on February 4, 1997 and thus have been classified
in the accompanying unaudited condensed balance sheets as current liabilities at
December 31, 1996. (see Item 5, "Other Information" and Note 7, "Subsequent
Events").
F-6
<PAGE> 18
SCIENTIFIC NRG, INCORPORATED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Note 4. Workout Agreement
On September 11, 1996 , the board of directors of the Company approved a formal
Workout Agreement (the "Workout Agreement") which provided a method to [1]
restructure outside of bankruptcy existing debt payable to certain related
parties, [2] provide for a change in the Company's officers and directors, and
[3] issue additional notes payable and additional shares of common stock of the
Company in order to finance operations (see Item 5, "Other Information" and Note
7, "Subsequent Events").
Note 5. Common Stock
In November 1996 the Company received subscriptions from officers and existing
shareholders to purchase 172,000 shares at $.25 per share. The proceeds were
needed to settle certain accounts payable at discounts of 70% off of face value.
For the three months ended December 31, 1996 the Company had paid settlements to
vendors resulting in discounts to the Company of $63,642.
Note 6. Private Placement
The Company is offering during the period from January 31, 1997 to February 28,
1997, up to 800,000 shares at $.50 per share. At this time the Company has
received subscriptions for 300,000 shares. The Comany will use these funds to
payoff the bridge notes, (see Note 3), and for woking capital.
Note 7. Subsequent Events
On February 4, 1997 the related party debt and accrued interest of $652,179,
(see Item 5, "Other Information"), was converted to equity for 382,373 shares of
common stock at $1.50 per share. At the time of conversion the Company was
offering shares at $ .50 per share through a private placement (see Note 6,
"Private Placement"). Therefore in the quater ending March 31, 1997 the Company
has recorded an increase in equity of $191,187 and an extraordinary gain on
relief of indebtedness of $460,992.
F-7
<PAGE> 1
[EXHIBIT 3.2]
Articles of Amendment to the
Articles of Incorporation of
Scientific NRG, Incorporated, a Minnesota corporation
By unanimous resolution of the board of directors and by the
affirmative vote of the holders of a majority of the voting power of the shares
entitled to vote, Scientific NRG, Incorporated hereby amends its Articles of
Incorporation as follows:
RESOLVED, that the Articles of Incorporation are amended by striking
Article III of such Articles of Incorporation and by inserting and substituting
the following Article III:
ARTICLE III
This corporation shall be authorized to issue forty million
(40,000,000) shares of common stock with no par value. No shareholder of the
corporation shall have any preemptive right to subscribe to or purchase any new
or additional shares of any class of stock of this corporation. Each
shareholder shall be entitled to one vote per share and there shall be no
accumulative voting rights.
RESOLVED, that the Articles of Incorporation are amended to provide
for a reverse split of all of the issued and outstanding common stock of the
corporation. The manner for effecting the division of the outstanding shares
will be as follows
Every five (5) shares of common stock which are issued and outstanding
are automatically converted into one (1) share of common stock; provided
however that the corporation shall issue one (1) full share of common stock to
its shareholders for any fractional interest remaining after conversion of all
outstanding shares pursuant hereto.
This amendment has been adopted in accordance with the Minnesota
Business Corporation Act.
CERTIFICATE OF AMENDMENT
The undersigned, being the secretary of Scientific NRG, Incorporated,
hereby certifies that the foregoing resolutions are valid resolutions duly
adopted by the Board of Directors and by the affirmative vote of the holders of
a majority of the voting power of the shares present and entitled to vote at
the special meeting of shareholders held October 24, 1996. This certification
is made this 12th day of November 1996.
/s/ Tami Miller
------------------------------
Tami Miller, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED BALANCE SHEET AS OF THE COMPANY'S MOST RECENT
QUARTER DECEMBER 31, 1996 AND UNAUDITED CONDENSED STATEMENTS OF OPERATIONS FOR
THE THREE AND SIX MONTH PERIOD AND STATEMENTS OF CASH FLOWS FOR THE SIX MONTH
PERIOD UP TO THE DATE OF THE BALANCE SHEET AND THE COMPARABLE PERIOD OF THE
PRECEDING FISCAL YEAR AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
UNAUDITED STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,601
<SECURITIES> 0
<RECEIVABLES> 82,238
<ALLOWANCES> 5,702
<INVENTORY> 51,197
<CURRENT-ASSETS> 141,036
<PP&E> 6,251
<DEPRECIATION> 0
<TOTAL-ASSETS> 147,287
<CURRENT-LIABILITIES> 994,317
<BONDS> 0
0
0
<COMMON> 3,098,050
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 147,287
<SALES> 148,594
<TOTAL-REVENUES> 148,594
<CGS> 122,359
<TOTAL-COSTS> 208,528
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,462)
<INCOME-PRETAX> (21,006)
<INCOME-TAX> (200)
<INCOME-CONTINUING> (21,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,206)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
