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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 September 30, 1997
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Commission file number 0-15148
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SCIENTIFIC NRG, INCORPORATED
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(Exact name of registrant as specified in its charter)
Minnesota
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(State or Other Jurisdiction of Incorporation or Organization)
2246 Lindsay Way
Glendora, California 91740
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(Address of Principal Executive Offices)
41-1457271
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(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
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. At November 13, 1997 the
registrant had 4,203,423 shares of common stock, no par value, issued and
outstanding.
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TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. FINANCIAL STATEMENTS........................................ 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION... 2
PART II
ITEM 1. LEGAL PROCEEDINGS........................................... 4
ITEM 2. CHANGES IN SECURITIES....................................... 4
ITEM 3. DEFAULT UPON SENIOR SECURITIES.............................. 4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS......... 4
ITEM 5. OTHER INFORMATION........................................... 4
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 4
2
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PART I
ITEM 1. FINANCIAL STATEMENTS.
The Company's unaudited condensed balance sheet as of the end of the
Company's most recent quarter, September 30, 1997 and unaudited condensed
statements of operations and statements of cash flow for the three 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-6 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 October 15, 1997.
RESULTS OF OPERATIONS
The three month period ended September 30, 1997 compared to the three
month period ended September 30, 1996.
The Company's operations for the three month period ended September 30,
1997 resulted in a net loss of $41,265 compared to a net loss of $90,768 for the
three month period ended September 30, 1996, a decreased loss of $49,503. The
Company's efforts during the quarter were focused on the development of a new
fixture line. This line provides the Company with a product ( PAR-38 ) that is
useful for some customer applications at a cost of approximately thirty percent
less than the current CR-7 line. Previously the Company was not able to sell
into this niche.
Net sales of the Company during the three months ended September 30,
1997 increased $6,480 or 7.5% from the corresponding period of the prior fiscal
year. The Company is continuing its efforts to increase sales. Through the
development of new products, such as the PAR-38 line mentioned above, as well as
the continued efforts to add qualified sales reps throughout the United States.
Gross profit from operations during the three months ended September
30, 1997 decreased $11,999 or 30.1% from the gross profit from the corresponding
period of the prior fiscal year. The gross profit margin for the three months
ended September 30, 1997 was 29.9%, compared to 45.9% for the three months ended
September 30, 1996. The budgeted target margin for the fiscal year ending June
30, 1998 is 32%. This is based upon a projected product mix that now includes
the PAR-38 line mentioned above. Management attributes the lower margin in the
first quarter to the efforts to complete the development of the new PAR-38
product line. . Selling, general and administrative expenses for the three
months ended September 30, 1997 decreased by $45,309, or 39.8% from the
corresponding period of the prior fiscal year. The Company has reduced staff and
executive compensation compared with the corresponding period of the prior
fiscal year.
Interest expense has been eliminated. As noted in the Form 10-KSB for
the year ended June 30, 1997, all long-term debt was either repaid or converted
to equity.
3
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LIQUIDITY AND CAPITAL RESOURCES
The three month period ended September 30, 1997 compared to the three
month period ended September 30, 1996.
The Company had a negative cash flow from operating activities for the
three month period ended September 30, 1997 of $26,346 compared to a negative
cash flow of $48,767 for the three month period ended September 30, 1996. The
1997 negative cash flow as compared to the previous period can be attributed to
the decrease in the net loss.
At September 30, 1997, the Company had net working capital of $75,094,
compared to net working capital of $96,934 at June 30, 1997, a decrease of
$21,840 which is primarily the result of an increase in the Company's accounts
payable.
Management believes its plans will be sufficient to support operations
during the year ending June 30, 1998 (FLS). Part of management's operational
strategy include plans to secure additional financing to support operations.
Such sources of funds could include funds from new strategic alliance partners
of the Company, or the establishing of a new line-of-credit with a commercial
bank. However, there are no assurances that such efforts to 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.
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.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
27 -- Financial Data Schedule
(a) NOT APPLICABLE
(b) Reports on Form 8-K
No reports were filed during the quarter ended September 30,
1997 on Form 8-K.
4
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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: November 13, 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.
Signatures Date
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By: /s/ DANIEL W. PARKE November 13, 1997
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Name: Daniel W. Parke
Title: Chairman and CEO
By: /s/ OLIVER K. WASHBURN November 13, 1997
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Name: Oliver K. Washburn
Title: Treasurer and Principal
Financial Officer
By: /s/ JONATHAN D. FORGY November 13, 1997
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Name: Jonathan D Forgy
Title: President
5
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SCIENTIFIC NRG, INCORPORATED
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
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(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 8,954 $ 35,300
Trade receivables, less allowance for doubtful accounts
at September 30, 1997 and June 30, 1997 of $9,658 111,180 68,323
Inventories 90,960 96,720
Prepaid expenses 600 --
----------- -----------
Total current assets 211,694 200,343
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EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of accumulated
depreciation of $14,084 at September 30, 1997 and $13,397
at June 30, 1997 4,190 4,877
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$ 215,884 $ 205,220
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current obligations under capital leases 14,978 14,978
Accounts payable 47,229 27,018
Accrued compensation 34,314 21,700
Other accrued expenses 40,079 39,713
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Total current liabilities 136,600 103,409
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STOCKHOLDERS' DEFICIT
Common stock, no par value; authorized 40,000,000 shares;
issued and outstanding: September 30, 1997,
4,203,423 shares; June 30, 1997, 4,203,423 shares 3,535,345 3,516,607
Additional paid-in capital 11,970 11,970
Accumulated deficit (3,468,031) (3,426,766)
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Total stockholders' deficit 79,284 101,811
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$ 215,884 $ 205,220
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</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-1
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SCIENTIFIC NRG, INCORPORATED
D/B/A/ SCIENTIFIC COMPONENT SYSTEMS
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1997 1996
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<S> <C> <C>
Net sales $ 93,148 $ 86,668
Cost of sales 65,314 46,835
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Gross profit 27,834 39,833
Operating expenses:
Selling, general and administrative expenses 68,452 113,761
Research and development 447 1,407
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Operating loss (41,065) (76,335)
Interest expense -- (15,233)
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Loss before income taxes (41,065) (90,568)
Income tax provision (200) (200)
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Net loss $ (41,265) $ (90,768)
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Weighted average number of shares outstanding 4,203,423 2,326,494
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Net loss per common share $ (0.01) $ (0.04)
========== ==========
</TABLE>
See accompanying notes to unaudited condensed financial statements
F-2
<PAGE> 8
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended September 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
--------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1997 4,203,423 $3,516,607 $11,970 $(3,426,766) $ 101,811
Common stock earned in connection with legal services
rendered -- 3,738 -- -- 3,738
Common stock earned by Parke Industries, an affiliated
company, for services rendered under the administrative
services agreement -- 15,000 -- -- 15,000
Net loss -- -- -- (41,265) (41,265)
--------- ---------- ------- ----------- --------
Balance, September 30, 1997 4,203,423 $3,535,345 $11,970 $(3,468,031) $ 79,284)
========= ========== ======= =========== ========
</TABLE>
See accompanying notes to unaudited condensed financial statements
F-3
<PAGE> 9
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF CASH FLOW
Three Months Ended September 30, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $ 52,716 $ 129,008
Cash paid to suppliers and employees (79,062) (180,521)
Interest paid -- 2,746
Income taxes paid -- --
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Net cash used in operating activities (26,346) (48,767)
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CASH FLOW USED IN INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements -- (5,000)
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CASH FLOW FROM FINANCING ACTIVITIES
Net decrease in line of credit -- (32,880)
Proceeds from advances and notes from Company's
officer and/or director -- 70,000
Principal payments under capital lease obligations -- (1,996)
Proceeds from issuance of common stock -- 40,000
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Net cash provided by (used in) financing
activities -- 75,124
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Net increase (decrease) in cash (26,346) 21,357
CASH
Beginning of period 35,300 --
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Ending of period $ 8,954 $ 21,357
========= =========
</TABLE>
See accompanying notes to unaudited condensed financial statements
F-4
<PAGE> 10
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF CASH FLOW (Continued)
Three Months Ended September 30, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
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<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES
Net loss $ (41,265) $ (90,768)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 687 2,241
Compensation for services rendered, previously
prepaid with issuance of common stock 18,738 20,000
Change in assets and liabilities:
Trade receivables (42,857) 42,340
Inventories 5,760 --
Prepaid expenses and deposits (600) 7,173
Accounts payable, accrued compensation and
other accrued expenses 33,191 (30,128)
Accrued interest payable -- 375
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Net cash used in operating activities $ (26,346) $ (48,767)
========= =========
</TABLE>
See accompanying notes to unaudited condensed financial statements
F-5
<PAGE> 11
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,954
<SECURITIES> 0
<RECEIVABLES> 128,838
<ALLOWANCES> (9,658)
<INVENTORY> 90,960
<CURRENT-ASSETS> 211,694
<PP&E> 18,274
<DEPRECIATION> (14,084)
<TOTAL-ASSETS> 215,884
<CURRENT-LIABILITIES> 136,600
<BONDS> 0
0
0
<COMMON> 3,535,345
<OTHER-SE> (3,456,061)
<TOTAL-LIABILITY-AND-EQUITY> 215,884
<SALES> 93,148
<TOTAL-REVENUES> 93,148
<CGS> 65,314
<TOTAL-COSTS> 134,213
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (41,065)
<INCOME-TAX> 200
<INCOME-CONTINUING> (41,265)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,265)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
