<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 Commission file number
ended September 30, 1996 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) 305-3322
----------------------------
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 November 30, 1996 the
registrant had 2,926,050 shares of common stock, no par value, issued and
outstanding.
<PAGE> 2
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. FINANCIAL STATEMENTS ......................................... I-1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION .... I-2
PART II
ITEM 1. LEGAL PROCEEDINGS ............................................ II-1
ITEM 2. CHANGES IN SECURITIES ........................................ II-1
ITEM 3. DEFAULT UPON SENIOR SECURITIES ............................... II-1
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS .......... II-1
ITEM 5. OTHER INFORMATION ............................................ II-1
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................. II-2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS.
The Company's unaudited balance sheet as of the end of the Company's
most recent quarter, September 30, 1996 and unaudited income statements and
statements of cash for the interim 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.
I-1
<PAGE> 4
SCIENTIFIC NRG, INCORPORATED
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1996 June 30,
ASSETS (Unaudited) 1996
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 21,357 $ 0
Trade receivables, less allowance for
doubtful accounts of $9,812 15,642 57,982
Inventories 88,635 88,635
Prepaid expenses 20,000 2,364
-------------- --------------
Total current assets 145,634 148,981
-------------- --------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
at depreciated cost 29,200 26,441
-------------- --------------
OTHER ASSETS, deposits 0 4,809
-------------- --------------
$ 174,834 $ 180,231
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Line of credit (Note 3) $ 11,340 $ 44,220
Notes payable to related parties (Note 3) 60,000 0
Current obligations under capital leases 13,152 6,059
Accounts payable 204,781 241,711
Accrued compensation 47,229 58,161
Accrued interest to related parties 375 0
Other accrued expenses 52,102 55,080
-------------- --------------
Total current liabilities 388,979 405,231
-------------- --------------
Obligations under capital leases 0 9,089
Notes Payable to related parties (Note 3) 558,500 358,159
Accrued interest to related parties (Note 3) 93,679 100,308
Accrued service contract to related party 0 175,500
Other accrued expenses 2,500 0
-------------- --------------
Total liabilities 1,043,658 1,048,287
-------------- --------------
STOCKHOLDERS' DEFICIT
Common stock, no par value;
authorized 40,000,000 shares;
issued and outstanding:
September 30,1996 2,926,050 shares;
June 30, 1996 2,166,050 shares 2,961,020 2,871,020
Accumulated deficit (3,829,844) (3,739,076)
-------------- --------------
Total stockholders' deficit (868,824) (868,056)
-------------- --------------
$ 174,834 $ 180,231
============== ==============
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F-1
<PAGE> 5
SCIENTIFIC NRG, INCORPORATED
d/b/a SCIENTIFIC COMPONENT SYSTEMS
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, September 30,
1996 1995
------------------ ------------------
<S> <C> <C>
Net sales $ 86,668 $ 194,924
Cost of sales 46,835 105,726
--------- ---------
Gross profit 39,833 89,198
Operating expenses:
General, administrative,
and selling costs 113,761 120,474
Research and development 1,407 1,450
--------- ---------
Operating loss (75,335) (32,726)
Interest expense (15,233) (20,178)
--------- ---------
Loss before income taxes (90,568) (52,904)
Income tax provision (200) (200)
--------- ---------
Net (loss) $ (90,768) $ (53,104)
========= =========
Weighted average number
of shares outstanding 2,326,494 2,104,050
========= =========
Net loss per common share $ (0.04) $ (0.03)
========= =========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F-2
<PAGE> 6
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
Three Months Ended September 30, 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
under workout agreement (Note 4) 600,000 60,000 - 60,000
Common stock issued in connection
with legal services rendered (Note 4) 140,000 28,000 - 28,000
Common stock issued in connection
with services rendered under
the service contract (Note 4) 20,000 2,000 - 2,000
Net loss - - (90,768) (90,768)
--------- ---------- ----------- ---------
Balance, September 30, 1996 2,926,050 $2,961,020 $(3,829,844) $(868,824)
========= ========== =========== =========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F-3
<PAGE> 7
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF CASH FLOW
Three Months Ended September 30, 1996 and 1995
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $ 129,008 $ 198,753
Cash paid to suppliers and employees (176,621) (232,587)
Interest paid 2,746 8,307
Income taxes paid - -
------------- -------------
Net cash used in
operating activities (44,867) (25,527)
------------- -------------
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 (32,880) (23,393)
Proceeds from advances and notes from
Company's officer and/or director 70,000 20,000
Principal payments under
capital lease obligations (1,996) (1,578)
Proceeds from issuance of common stock 36,100 -
------------- -------------
Net cash provided by (used in)
financing activities 71,224 (4,971)
------------- -------------
Net increase (decrease) in cash 21,357 (30,498)
CASH
Beginning of period - 19,599
------------- -------------
Ending of period $ 21,357 $ (10,899)
============= =============
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F-4
<PAGE> 8
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF CASH FLOW (Continued)
Three Months Ended September 30, 1996 and 1995
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
Net (loss) $ (90,768) $ (53,104)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 2,241 1,883
Provision for doubtful accounts - 3,000
Compensation expense arising from
professional services and service contracts 20,000 -
Change in assets and liabilities:
Trade receivables 42,340 3,829
Inventories 0 (44,504)
Prepaid expenses and deposits 7,173 (5,016)
Accounts payable, accrued compensation
and other accrued expenses (36,228) 68,385
Accrued interest payable 375 -
------------- -------------
Net cash used in operating activities $ (54,867) $ (25,527)
============= =============
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F-5
<PAGE> 9
SCIENTIFIC NRG, INCORPORATED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
For The Three Months Ended September 30, 1996
(UNAUDITED)
Note 1. Basis of Presentation
In the opinion of the Company's management, the accompanying unaudited condensed
financial statements include all adjustments (which consist only of normal
recurring adjustments) necessary for a fair presentation of its financial
position at September 30, 1996 and results of operations and cash flows for the
three months ended September 30, 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 month period ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the Company's
fiscal 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 September 30, 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", and Exhibit 10.56.
Subsequent to June 30, 1996, all notes payable to related parties were
restructured as part of the Workout Agreement (see Note 4). Due to the terms of
repayment upon the achievement of certain conditions which are not expected to
be attained in fiscal 1997, management of the Company has reflected these notes
as noncurrent liabilities in the accompanying balance sheet. (see Item 5,
"Other Information".)
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
Exhibit 10.56).
F-6
<PAGE> 10
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.
RESULTS OF OPERATIONS
The three month period ended September 30, 1996 compared to the three month
period ended September 30, 1995.
Net sales of the Company during the three months ended September 30, 1996
decreased $108,256 or 55.5% 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.
Gross profit from operations during the three months ended September 30, 1996
decreased $49,365 or 55.3% from the gross profit from the corresponding period
of the prior fiscal year. Management attributes this decrease to the Company's
decrease in sales. The gross profit margin for the three months ended September
30, 1996 was 46.0%, compared to 45.8% for the three months ended September 30,
1995.
General, administrative and selling costs for the three months ended
September 30, 1996 decreased by $6,713, and increased as a percentage of sales
from 61.8% of sales to 131.3% 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 Company realized a net loss of $90,768, or $.04 per share for the three
month period ended September 30, 1996, compared to a net loss of $53,104, or
$.03 per share for the corresponding period of the prior fiscal year.
Management attributes this decrease to the Company's decrease in sales.
LIQUIDITY AND CAPITAL RESOURCES
The three month period ended September 30, 1996 compared to the three month
period ended September 30, 1995.
The Company's operations for the three month period ended September 30, 1996
resulted in a net loss of $90,768 compared to a net loss of $53,104 for the
three month period ended September 30, 1995, an increase in loss of $37,664.
The Company had a negative cash flow from operating activities for the three
month period ended September 30, 1996 of $54,867 compared to a negative cash
flow of $25,527 for the three month period ended September 30, 1995. The 1996
negative cash flow was compared to the previous period can be attributed to the
increase in net loss.
Trade receivables decreased from $57,982 at June 30, 1996 to $15,642 at
September 30, 1996, a decrease of $42,340. Management attributes this decrease
to the Company's decrease in sales.
The Company's current liabilities decreased from $405,231 at June 30, 1996 to
$388,979 at September 30, 1996, a decrease of $16,252. This decrease was the
result of vendors tightening their credit terms.
At September 30, 1996, the Company had a net working capital deficit of
$263,345, compared to a net working capital deficit of $256,250 at June 30,
1996, an increase of $7,095, which is primarily the result of a decrease in the
Company's trade receivables.
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 financing 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 $500,000 from a private placement of its securities during fiscal 1997
(FLS). There can be no assurance that such plan will be successful. (See Item 5
"Other Information".)
I-2
<PAGE> 11
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.
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
resigned, 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 300,000 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
II-1
<PAGE> 12
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., an
affiliated company controlled by new management.
Effective September 11, 1996, certain outstanding debt obligations to
related parties were reduced 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 restructured notes payable, to related parties totaling $558, 500
(the "Notes") accrue interest at 8% per annum and are payable, both in
principal and interest, provided that the Company reports $250,000 in
cumulative net income subsequent to September 11, 1996. Once such net income
is obtained, 25% of the subsequent net income is to be used for repayment of
the Notes. It is the belief of the Company's management that such cumulative
net income will not be achieved in fiscal 1997. The Notes are subordinated to
any debt with a bona fide financial institution designated as senior secured
debt by the company or any new loans from any of the parties thereto and are
secured, subject to any new senior secured debt or any new loans from any of
the parties thereto, by all of the assets of the Company. In addition, the
Notes will become due and payable immediately from the proceeds, if any, from a
secondary offering of securities, that nets the Company more than $1,500,000 or
if the Company issues more than 3,000,001 shares of its common stock in a
single transaction.
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 will be 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 6, 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 $10,000 was expensed is fiscal 1996 and $18,000 will
be 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 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.
II-2
<PAGE> 13
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.
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).
** 3.3 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.
II-3
<PAGE> 14
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.
* 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 Autocar Leasing
Company, September 9, 1993.
***** 10.46 Stock Warrant Agreement Between the Company and Eddie R.
Fischer, September 9, 1993.
II-4
<PAGE> 15
******* 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.
******** 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
On September 26, 1996 the Company filed a report on Form 8-K
announcing the change in directors and officers of the Company.
II-5
<PAGE> 16
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: January 31, 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
---------- ----
By: /s/ Daniel W. Parke January 31, 1997
-------------------
Name: Daniel W. Parke
Title: Chairman and CEO
By: /s/ Oliver K. Washburn January 31, 1997
----------------------
Name: Oliver K. Washburn
Title: Treasurer and Principal
Financial Officer
II-6
<PAGE> 17
Index to Exhibits
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.
II-7
<PAGE> 1
[10.55] Promissory Note payable to Oliver Washburn, July 18, 1996
[Letterhead of Scientific NRG, Incorporated]
PROMISSORY NOTE
$10,000 July 18, 1996
On demand, for value received, Scientific NRG, Incorporated ("Maker") promises
to pay to the order of Oliver Washburn, ten thousand dollars ($10,000.00), in
lawful money of the United States of America, at 171 Wildwood Ave., White Bear
Lake, MN 55110, with interest at the rate of 8% per cent per annum.
This note is unsecured.
Should suit be commenced to enforce payment of this note, Maker promises to pay
such additional sum as the court may adjudge reasonable as attorney's fees in
said suit.
Dated at Tustin, CA this 18th day of July, 1996
Scientific NRG Incorporated
By: /s/ Malcolm L. Fickel
--------------------------------------
Name: Malcolm L. Fickel
Title: President & Chief Executive Officer
<PAGE> 1
[10.56] WORKOUT AGREEMENT
This Workout Agreement is by and between: Scientific NRG,
Incorporated, a Minnesota corporation, (the "Company"), certain creditors of
the Company, namely Malcolm L. Fickel, Oliver K. Washburn, Thomas C. Moceri,
and William T. Moceri (the "Scientific Creditors"); certain investors, namely
Daniel Parke, Jonathan Forgy, Parke Industries, Inc. and others (the
"Investors"); and those persons, named in Exhibit A attached hereto, that
provide bridge financing to the Company (the "Bridge Financiers").
RECITALS
WHEREAS, the Company and the Scientific Creditors desire to
restructure the existing debt and contractual obligations;
WHEREAS, the Investors desire to purchase additional shares of common
stock of the Company;
WHEREAS, the parties hereto desire to make the promises, covenants,
representations, and agreements specified herein; and
WHEREAS, the parties hereto desire to be bound by the terms of this
agreement.
AGREEMENT
NOW THEREFORE, for and in consideration of the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows-
1. The Company and the Scientific Creditors irrevocably agree to
restructure the debt owed to the Scientific Creditors.
2. The Company and the Scientific Creditors agree the outstanding
debt obligations will be reduced, effective as of September 10, 1996 to the
aggregate principal amount of Five Hundred Fifty Eight Thousand Five Hundred
Dollars ($558,500) (the "Restructured Debt").
3. The Company and the Scientific Creditors agree that the
Restructured Debt will be outstanding to the following individuals in the
amounts and priorities indicated below.
3.1. Oliver K. Washburn $245,000, who will be repaid in
full, principal and interest, before the other Scientific Creditors.
3.2. William T. Moceri $110,000, who will be repaid
subsequent to Mr. Washburn and pari passu with all other Scientific Creditors.
3.3. Malcolm L. Fickel $175,500, who will be repaid
subsequent to Mr. Washburn and pari passu with all other Scientific Creditors.
3.4. Thomas C. Moceri $28,000, who will be repaid
subsequent to Mr. Washburn and pari passu with all other Scientific Creditors.
4. The Scientific Creditors agree to release the Company from any
and all liability, lien or obligation to pay any amount in excess of the
Restructured Debt.
<PAGE> 2
5. The Scientific Creditors and the Company agree that the
Restructured Debt will be issued, in the principal amount stated above, to each
individual in the form of a Subordinated Cash Flow Promissory Note (the
"Notes"). The Notes shall accrue interest at 8% simple interest per year. The
Company's obligation to make principal and interest payments will be triggered
if and when the Company reports $250,000 in cumulative net income subsequent to
September 10, 1996, calculated in a manner consistent with generally accepted
accounting principles, applied on a consistent basis. Once repayment under the
Notes is triggered by the foregoing condition, 25% of all subsequent net income
of the Company shall be used for repayment of the Notes in the amount and
priority set forth in paragraph 3 herein. Any payments received by the
Scientific Creditors will be credited first to interest and then to principal.
The Notes will be subordinate to any debt with a bona fide financial
institution designated as senior secured debt by the Company or any new loans
from any of the parties hereto. Subject to any new senior secured debt or any
new loans from any of the parties hereto, the Notes will be secured by all of
the assets of the Company. Certain actions by the Company will cause all of
the Notes to be due and payable immediately. These events are: (1) a secondary
offering of securities by the Company that nets the Company more than
$1,500,000 or (2) any issuance by the Company of more than 3,000,001 shares of
common stock in a single transaction, not adjusted proportionately in the event
of a split of the common shares of the Company.
6. The Investors, jointly and severally, irrevocably agree to
subscribe for and to purchase 3,000,000 shares of common stock of the Company
at a price of $0.02 per share (the "Stock Purchase").
7. The Investors and the Company agree to execute all reasonable
and necessary documents, in form and substance acceptable to the Company's
counsel, in order to close the Stock Purchase on or before September 10, 1996.
8. Upon receipt of proper board resolutions from the Company, the
Investors agree to open an account at Sanwa Bank, Covina Branch in the name of
the Company and deposit $40,000 in said account on or before September 5, 1996.
Any previous cash advances to the Company by the Investors (i.e., the $3,900
advanced by Parke Industries in June 1996) will be credited against the
purchase price in the Stock Purchase. Additionally, Parke Industries, Inc.
will be credited $20,000 for providing administrative support at the rate of
$5,000 per month for four months. The Company agrees to pay any fee imposed by
the Company's transfer agent in connection with the issuance of the shares.
9. The Company agrees to issue Malcolm L. Fickel 100,000 shares
of the Company's common stock in fulfillment of the Company's obligations to
Mr. Fickel under his current employment contract (the "Fickel Employment
Contract"). The Company agrees to pay any fee imposed by the Company's
transfer agent in connection with the issuance of the shares.
10. Malcolm L. Fickel and the Company agree to terminate by mutual
consent all other terms and conditions of the Fickel Employment Contract.
11. Malcolm L. Fickel and the Company agree to enter a one year
consulting contract, effective as of September 10, 1996, that provides for
services to be rendered to the Company, at its request, by Mr. Fickel who will
be compensated at the rate of $75 per hour.
12. Malcolm L. Fickel and Thomas C. Moceri agree to resign as
officers and directors of the Company effective as of September 10, 1996.
13. Oliver K. Washburn agrees to continue serving as a director of
the Company and to serve as the Company's Treasurer/Principal Financial
Officer.
14. Daniel Parke agrees to serve as a director of the Company and
to serve as the Company's Chief Executive Officer. The Company agrees to
compensate Mr. Parke as CEO with a salary of $12 per
<PAGE> 3
year and an award of 1,500,000 stock options at an exercise price of $0. 1 0
per share, adjusted proportionately in the event of a split of the common
shares of the Company.
15. Jonathan Forgy agrees to serve as a director of the Company
and to serve as the Company's President. The Company agrees to compensate Mr.
Forgy as President with a salary of $24,000 per year and an award of 500,000
stock options at an exercise price of $0. 1 0 per share, adjusted
proportionately in the event of a split of the common shares of the Company.
16. The Company agrees to grant Parke Industries, Inc. 1,000,000
stock options at an exercise price of $0. 10 per share, adjusted
proportionately in the event of a split of the common shares of the Company.
17. The Company agrees to issue Oliver K. Washburn the 300,000
shares of common stock due him under the April 26, 1996 promissory note. The
Company agrees to pay any fee imposed by the Company's transfer agent in
connection with the issuance of the shares.
18. The parties hereto are in favor of a 1 for 5 reverse split of
the common shares of the Company, to be voted on by the shareholders at the
next annual or special meeting of the stockholders.
CONDITION PRECEDENT TO THE OBLIGATIONS OF DANIEL PARKE
19. The parties agree that the rights, benefits, duties or
obligations of Daniel Parke made herein are not effective or binding until such
time as the Company (1) receives a firm commitment for additional operating
funds, in the form of a bridge loan, in an amount not less than $60,000 and (2)
has a one year written employment agreement with Mr. Juan Flores at an annual
salary of not more than $43,500.
FIRM LENDING COMMITMENT OF BRIDGE FINANCIERS
20. In consideration for the mutual promises, covenants, and
representations made by the parties herein, the Bridge Financiers agree to make
a bridge loan to the Company. The Company and the Bridge Financiers agree to a
bridge loan in the amount of $60,000, due 120 days after September 10, 1996,
secured by all of the assets of the Company, and accruing interest at the rate
of 15% simple interest. Repayment of the bridge loan is not subject to the
limitations of paragraph 5 herein,
21. The Company represents, warrants, and covenants that it is
current, as of the date hereof, with the periodic reporting requirements of the
United States Securities and Exchange Commission. Further, the Company is not
aware of any matter or condition that would preclude receipt of an unqualified
audit opinion from a certified public accounting firm based upon the company's
operations for the fiscal year ended June 30, 1996.
22. The parties agree to use their best efforts to secure
additional equity financing for the Company during the next 90 days. The
Company and all other parties hereto agree that the Company will offer, in a
private placement, 2,000,000 shares of common stock at a price of $0.05 per
share, adjusted proportionately in the event of a split of the common shares of
the Company.
MISCELLANEOUS TERMS
23. This agreement contains the entire agreement between the
parties hereto and supersedes any and all prior agreements, arrangements, or
understandings between the parties relating to the subject matter hereof
24. If any part of this agreement is deemed to be unenforceable
the balance of the agreement shall remain in full force and effect.
<PAGE> 4
25. A facsimile, telecopy or other reproduction of this agreement
may be executed by one or more parties hereto and such executed copy may be
delivered by facsimile or similar instantaneous electronic transmission device
pursuant to which the signature of or on behalf of such party can be seen, and
such execution and delivery shall be considered valid, binding and effective
for all purposes. At the request of any party hereto, all parties agree to
execute an original of this agreement as well as any facsimile, telecopy or
other reproduction hereof.
26. Time is of the essence in performance of this agreement and of
each and every provision hereof.
IN WITNESS WHEREOF, the undersigned have cause this Workout Agreement
to be executed, effective as of the 30th day of August 1996.
Scientific NRG, Incorporated
By /s/ Malcolm L. Fickel
---------------------
Name: Malcolm L. Fickel
Its: President
/s/ Malcolm L. Fickel
- ---------------------
an individual
/s/ Oliver K. Washburn
- ----------------------
an individual
/s/ Thomas C. Moceri
- --------------------
an individual
/s/ William T. Moceri
- ---------------------
an individual
/s/ Daniel Parke
- ----------------
an individual
Parke Industries, Inc.,
By: /s/ Daniel Parke
----------------
Name: Daniel W. Parke
Its: President
/s/ Jonathan Forgy
- ------------------
an individual
The Bridge Financiers (see Exhibit A)
<PAGE> 5
EXHIBIT A
to the Workout Agreement dated August 30, 1996
BRIDGE FINANCIERS
The undersigned persons, as a group, have agreed among themselves to
provide the bridge financing upon the terms and conditions set forth in
paragraph 20 of the Workout Agreement.
/s/ Malcolm L. Fickel
/s/ Oliver K. Washburn
/s/ Margaret Hyland
/s/ Thomas C. Moceri
/s/ Richard O. Weed
<PAGE> 1
[10.57] Secured Promissory Note to Malcolm L. Fickel, September 11, 1996.
SECURED PROMISSORY NOTE
September 11, 1996
Five Thousand Dollars ($5,000.00)
FOR VALUE RECEIVED, Scientific NRG, Incorporated, a corporation
organized under the laws of the United States, state of Minnesota, with its
principal place of business in California ("Maker"), hereby promises to pay to
the order of Mr. Malcolm L. Fickel, 1 Tidewind, Irvine, California 92715
("Payee" or "Holder") the sum of Five Thousand Dollars ($5,000.00) together
with interest thereon at the rate of 15% per year. This Secured Promissory
Note (the "Note") is due and payable on or before January 10, 1997.
Acceleration
At its option, the Payee or Holder of this Note may determine that the
Maker is in default, as defined herein, and may, consequently, accelerate the
maturity of the unpaid balance of the Note without presentment for payment or
any notice.
Security for the Note
To secure the payment of this Note, Maker hereby grants to the Payee
pursuant to a Security Agreement dated of even date between Maker and Payee a
security interest in all of the assets of Maker (the "Collateral"). Upon
default, the Payee may resort to any remedy against the Collateral available to
a secured party under the Uniform Commercial Code.
All documents and instruments now or hereafter evidencing and/or
securing the indebtedness evidenced hereby or any part thereof, including but
not limited to this Note and the Security Agreement of even date, are sometimes
collectively referred to herein as the "Security Documents."
Usury Saving Clause
All agreements in this Note and all other Security Documents are
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount agreed to be paid hereunder for the use,
forbearance or detention of money exceed the highest lawful rate permitted
under applicable usury laws. If, for any circumstance whatsoever, fulfillment
of any provision of this Note or any other Security Document at the time
performance of such provision s shall involve exceeding any usury limit
prescribed by law which a court of competent jurisdiction may deem applicable
hereto, then, ipso facto, the obligations to be fulfilled shall be reduced to a
compliance with such limit, and if, from any circumstance whatsoever, Payee
shall ever receive as interest an amount which would exceed the highest lawful
rate, the receipt of such excess shall be deemed a mistake and shall be
canceled automatically or, if theretofore paid, such excess shall be credited
against the principal amount of the indebtedness evidenced hereby to which the
same may lawfully be credited, and any portion of such excess not capable of
being so credited shall be refunded immediately to Maker.
Costs of Collection
Maker shall pay to Payee all reasonable costs, expenses, charges,
disbursements and attorneys' fees incurred by Payee or Holder following an
Event of Default in collecting, enforcing or protecting this
<PAGE> 2
Note or any other Security Document, whether incurred in or out of court,
including appeals and bankruptcy proceedings
Default
Each of the following events or occurrences shall constitute an "Event
of Default" hereunder: (a) if default is made in the payment of any
monetary amount payable hereunder, under the terms of any Security Document, or
under the terms of any other obligation of Maker to Payee hereunder, within ten
(10) days following the date the same is due; (b) if default is made in the
performance of any other promise or obligation described herein in any Security
Document, or in any other document evidencing or securing any indebtedness of
Maker to Payee following ten (10) days prior notice to Maker of such default
and the failure of Maker to cure such default within said ten (10) day period;
(c) if Maker shall execute an assignment of any of its property for the benefit
of creditors, fail to meet any obligations herein described, be unable to meet
its debts as they mature, suspend its active business or be declared insolvent
by any court, suffer any judgment or decree to be rendered against it in an
amount greater than US$ 10,000, suffer a receiver to be appointed for any of
its property, voluntarily seek relief or have involuntary proceedings brought
against it under any provision now in force or hereinafter enacted of any law
relating to bankruptcy, or forfeit its charter, dissolve, or terminate its
existence; (d) if any writ of attachment, garnishment or execution shall be
issued against Maker; or (e) if any tax lien be assessed or filed against
Maker.
Upon the occurrence of any Event of Default, which is not cured within
ten (10) days after notice of such default is given by Payee or Holder or at
any time thereafter when any Event of Default may continue, Payee or Holder
may, at its option and in its sole discretion, declare the entire balance of
this Note to be immediately due and payable, and upon such declaration all sums
outstanding and unpaid under this Note shall become and be in default, matured
and immediately due and payable, without presentment, demand, protest or notice
of any kind to Maker or any other person, all of which are hereby expressly
waived, anything in this Note or any other Security Document to the contrary
notwithstanding.
Waiver of Jury Trial, Jurisdiction & Venue
Payee and Maker hereby agree to trial by court and irrevocably agree
to waive jury trial in any action or proceeding (including but not limited to
any counterclaim) arising out of or in any way related to or connected with
this Note or any other Security Document, the relationship created thereby, or
the origination, administration or enforcement of the indebtedness evidenced
and/or secured by this Note or any other Security Document.
This Note has been delivered to Payee and accepted by Payee in the
State of California, and shall be governed and construed generally according to
the laws of said State except to the extent that creation, validity, perfection
or enforcement of any liens or security interests securing this Note are
governed by the laws of another jurisdiction. Venue of any action brought
pursuant to this Note or any other Security Document, or relating to the
indebtedness evidenced hereby or the relationships created by or under the
Security Documents shall, at the election of the party bringing the action, be
brought in a State or United States federal court of appropriate 'jurisdiction
located in or having jurisdiction over the State of California. Maker and
Payee each waives any objection to the jurisdiction of or venue in any such
court and to the service of process issued by such court and agrees that each
may be served by any method of process described in the State of California or
United States Federal Rules of Civil Procedure. Maker and Payee each waives
the fight to claim that any such court is an inconvenient forum or any similar
defense.
If, in any jurisdiction, any provision of this Note shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
holding shall not affect any other provisions of this Note, and this Note shall
be construed, to the extent of such invalidity, illegality or unenforceability
(and only to such extent) as if any such provision had never been contained
herein. Any such holding of invalidity,
<PAGE> 3
illegality or unenforceability in one jurisdiction shall not prevent valid
enforcement of any affected provision if allowed under the laws of another
relevant jurisdiction.
No waiver by the holder of any payment or other right under this Note
shall operate as a waiver of any other payment or right.
Executed by the undersigned the year and day first above written.
SCIENTIFIC NRG, INCORPORATED
By: /s/ Thomas C. Moceri
--------------------
Name: Thomas C. Moceri
Its: Chief Financial Officer
<PAGE> 1
[10.58] Secured Promissory Note to Oliver K. Washburn, September 11, 1996.
SECURED PROMISSORY NOTE
September 11, 1996
Thirty Thousand Dollars ($30,000.00)
FOR VALUE RECEIVED, Scientific NRG, Incorporated, a corporation
organized under the laws of the United States, state of Minnesota, with its
principal place of business in California ("Maker"), hereby promises to pay to
the order of Mr. Oliver K. Washburn, 171 Wildwood Avenue, White Bear Lake,
Minnesota 55110 ("Payee" or "Holder") the sum of Thirty Thousand Dollars
($30,000.00) together with interest thereon at the rate of 15% per year. This
Secured Promissory Note (the "Note") is due and payable on or before January
10, 1997.
Acceleration
At its option, the Payee or Holder of this Note may determine that the
Maker is in default, as defined herein, and may, consequently, accelerate the
maturity of the unpaid balance of the Note without presentment for payment or
any notice.
Security for the Note
To secure the payment of this Note, Maker hereby grants to the Payee
pursuant to a Security Agreement dated of even date between Maker and Payee a
security interest in all of the assets of Maker (the "Collateral"). Upon
default, the Payee may resort to any remedy against the Collateral available to
a secured party under the Uniform Commercial Code.
All documents and instruments now or hereafter evidencing and/or
securing the indebtedness evidenced hereby or any part thereof, including but
not limited to this Note and the Security Agreement of even date, are sometimes
collectively referred to herein as the "Security Documents."
Usury Saving Clause
All agreements in this Note and all other Security Documents are
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount agreed to be paid hereunder for the use,
forbearance or detention of money exceed the highest lawful rate permitted
under applicable usury laws. If, for any circumstance whatsoever, fulfillment
of any provision of this Note or any other Security Document at the time
performance of such provisions shall involve exceeding any usury limit
prescribed by law which a court of competent jurisdiction may deem applicable
hereto, then, ipso facto, the obligations to be fulfilled shall be reduced to a
compliance with such limit, and if, from any circumstance whatsoever, Payee
shall ever receive as interest an amount which would exceed the highest lawful
rate, the receipt of such excess shall be deemed a mistake and shall be
canceled automatically or, if theretofore paid, such excess shall be credited
against the principal amount of the indebtedness evidenced hereby to which the
same may lawfully be credited, and any portion of such excess not capable of
being so credited shall be refunded immediately to Maker.
Costs of Collection
Maker shall pay to Payee all reasonable costs, expenses, charges,
disbursements and attorneys' fees incurred by Payee or Holder following an
Event of Default in collecting, enforcing or protecting this
<PAGE> 2
Note or any other Security Document, whether incurred in or out of court,
including appeals and bankruptcy proceedings
Default
Each of the following events or occurrences shall constitute an "Event
of Default" hereunder: (a) if default is made in the payment of any monetary
amount payable hereunder, under the terms of any Security Document, or under
the terms of any other obligation of Maker to Payee hereunder, within ten (10)
days following the date the same is due; (b) if default is made in the
performance of any other promise or obligation described herein in any Security
Document, or in any other document evidencing or securing any indebtedness of
Maker to Payee following ten (10) days prior notice to Maker of such default
and the failure of Maker to cure such default within said ten (10) day period;
(c) if Maker shall execute an assignment of any of its property for the benefit
of creditors, fail to meet any obligations herein described, be unable to meet
its debts as they mature, suspend its active business or be declared insolvent
by any court, suffer any judgment or decree to be rendered against it in an
amount greater than US$ 10,000, suffer a receiver to be appointed for any of
its property, voluntarily seek relief or have involuntary proceedings brought
against it under any provision now in force or hereinafter enacted of any law
relating to bankruptcy, or forfeit its charter, dissolve, or terminate its
existence; (d) if any writ of attachment, garnishment or execution shall be
issued against Maker; or (e) if any tax lien be assessed or filed against
Maker.
Upon the occurrence of any Event of Default, which is not cured within
ten (10) days after notice of such default is given by Payee or Holder or at
any time thereafter when any Event of Default may continue, Payee or Holder
may, at its option and in its sole discretion, declare the entire balance of
this Note to be immediately due and payable, and upon such declaration all sums
outstanding and unpaid under this Note shall become and be in default, matured
and immediately due and payable, without presentment, demand, protest or notice
of any kind to Maker or any other person, all of which are hereby expressly
waived, anything in this Note or any other Security Document to the contrary
notwithstanding.
Waiver of Jury Trial, Jurisdiction & Venue
Payee and Maker hereby agree to trial by court and irrevocably agree
to waive jury trial in any action or proceeding (including but not limited to
any counterclaim) arising out of or in any way related to or connected with
this Note or any other Security Document, the relationship created thereby, or
the origination, administration or enforcement of the indebtedness evidenced
and/or secured by this Note or any other Security Document.
This Note has been delivered to Payee and accepted by Payee in the
State of California, and shall be governed and construed generally according to
the laws of said State except to the extent that creation, validity, perfection
or enforcement of any liens or security interests securing this Note are
governed by the laws of another jurisdiction. Venue of any action brought
pursuant to this Note or any other Security Document, or relating to the
indebtedness evidenced hereby or the relationships created by or under the
Security Documents shall, at the election of the party bringing the action, be
brought in a State or United States federal court of appropriate 'jurisdiction
located in or having jurisdiction over the State of California. Maker and
Payee each waives any objection to the jurisdiction of or venue in any such
court and to the service of process issued by such court and agrees that each
may be served by any method of process described in the State of California or
United States Federal Rules of Civil Procedure. Maker and Payee each waives
the fight to claim that any such court is an inconvenient forum or any similar
defense.
If, in any jurisdiction, any provision of this Note shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
holding shall not affect any other provisions of this Note, and this Note shall
be construed, to the extent of such invalidity, illegality or unenforceability
(and only to such extent) as if any such provision had never been contained
herein. Any such holding of invalidity,
<PAGE> 3
illegality or unenforceability in one jurisdiction shall not prevent valid
enforcement of any affected provision if allowed under the laws of another
relevant jurisdiction.
No waiver by the holder of any payment or other right under this Note
shall operate as a waiver of any other payment or right.
Executed by the undersigned the year and day first above written.
SCIENTIFIC NRG, INCORPORATED
By: /s/ Malcolm L. Fickel
---------------------
Name: Malcolm L. Fickel
Its: President
<PAGE> 1
[10.59] Subordinated Cash Flow Promissory Note to
Oliver K. Washburn, September 30, 1996
SUBORDINATED CASH FLOW PROMISSORY NOTE
September 30, 1996
Two Hundred Forty Five Thousand Dollars ($245,000.00)
FOR VALUE RECEIVED, Scientific NRG, Incorporated, a corporation
organized under the laws of the United States, state of Minnesota, with its
principal place of business in California ("Maker" or "Company'), hereby
promises to pay to the order of Mr. Oliver K. Washburn 171 Wildwood Avenue,
White Bear Lake, Minnesota 55110 ("Payee" or "Holder") the sum of Two Hundred
Forty Five Thousand Dollars($245,000.00) together with interest thereon at the
rate of 8% per year. Interest shall be calculated on the amount hereof
beginning September 11, 1996 and continuing thereafter until the Note is paid
in full. This Subordinated Cash Flow Promissory Note (the "Note") is due and
payable based upon net income of the Maker as defined herein.
Makers obligation to make principal and interest payments will be
triggered if and when the Company reports $250,000 in cumulative net income
subsequent to September 10, 1996, calculated in a manner consistent with
generally accepted accounting principles, applied on a consistent basis. Once
repayment of this Note is triggered by the foregoing condition, 25% of all
subsequent net income of the Company shall be used for repayment of the Note.
Any payments received by the Holder will be credited first to interest and then
to principal.
Notwithstanding the foregoing paragraph, certain actions by the
Company will cause this Note to be due and payable immediately. These events
are: (1) a secondary offering of securities by the Company that nets the
Company more than $1,500,000 or (2) any issuance by the Company of more than
3,,000,001 shares of common stock in a single transaction not adjusted
proportionately in the event of a split of the common shares of the Company.
Acceleration
At its option the Payee or Holder of this Note may declare that the
Maker is in default, as defined herein and may, consequently, accelerate the
maturity of the unpaid balance of the Note without presentment for payment or
any notice.
Security for the Note
To secure the payment of this Note, Maker hereby grants to the Payee
pursuant to a Security Agreement dated of even date between Maker and Payee a
security interest in all of the assets of Maker (the "Collateral'). Upon
default, the Payee may resort to any remedy against the Collateral available to
a secured party under the Uniform Commercial Code. Payee, by separate written
agreement, has agreed to subordinate the Security Agreement contemplated herein
to any debt with a bona fide financial institution designated as senior debt by
the Maker.
All documents and instruments now or hereafter evidence and/or
securing the indebtedness evidenced hereby or any part thereof including but
not limited to this Note and the Security Agreement of even date, are sometimes
collectively referred to herein as the "Security Documents,"
Usury Saving Clause
All agreements in this Note and all other Security Documents are
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount agreed to be paid hereunder for the use,
forbearance or
<PAGE> 2
detention of money exceed the highest lawful rate permitted under applicable
usury laws. If, for any circumstance whatsoever, fulfillment of any provision
of this Note or any other Security Document at the time performance of such
provision s shall involve exceeding any usury limit prescribed by law which a
court of competent jurisdiction may deem applicable hereto, then, ipso facto,
the obligations to be fulfilled shall be reduced to a compliance with such
limit, and if, from any circumstance whatsoever, Payee shall ever receive as
interest an amount which would exceed the highest lawful rate, the receipt of
such excess shall be deemed a mistake and shall be canceled automatically or,
if theretofore paid, such excess shall be credited against the principal amount
of the indebtedness evidenced hereby to which the same may lawfully be
credited, and any portion of such excess not capable of being so credited shall
be refunded immediately to Maker.
Costs of Collection
Maker shall pay to Payee all reasonable costs, expenses, charges,
disbursements and attorneys' fees incurred by Payee or Holder following an
Event of Default in collecting, enforcing or protecting this Note or any other
Security Document, whether incurred in or out of court, including appeals and
bankruptcy proceedings
Default
Each of the following events or occurrences shall constitute an "Event
of Default" hereunder (a) if default is made in the payment of any monetary
amount payable hereunder, under the terms of this Security Document or under
the terms of any other obligation of Maker to Payee hereunder, within ten (10)
days following the date the same is due; (b) if default is made in the
performance of any other promise or obligation described herein, in any
Security Document, or in any other document evidencing or securing any
indebtedness of Make to Payee following ten (10) days prior notice to Maker of
such default and the failure of Maker to cure such default within said ten (10)
day period; (c) if Maker shall execute an assignment of any of its property for
the benefit of creditors, fail to meet any obligations herein described,
suspend its active business or be declared insolvent by any court, suffer any
judgment or decree to be rendered against it in an amount greater than US$
100,000, suffer a receiver to be appointed for any of its property, voluntarily
seek relief or have involuntary proceedings brought against it under any
provision now in force or hereinafter enacted of any law relating to
bankruptcy, or forfeit its charter, dissolve, or terminate its existence; or
(d) if any writ of attachment garnishment or execution shall be issued against
Maker in excess of US$ 100,000.
Upon the occurrence of any Event of Default, which is not cured within
ten (10) days after notice of such default is given by Payee or Holder or at
any time thereafter when any Event of Default may continue, Payee or Holder
may, at its option and in its sole discretion, declare the entire balance of
this Note to be immediately due and payable, and upon such declaration all sums
outstanding and unpaid under this Note shall become and be in default, matured
and immediately due and payable, without presentment, demand, protest or notice
of any kind to Maker or any other person, all of which are hereby expressly
waived, anything in this Note or any other Security Document to the contrary
notwithstanding.
Waiver of Jury Trial, Jurisdiction & Venue
Payee and Maker hereby agree to trial by court and irrevocably agree
to waive jury trial in any action or proceeding (including but not limited to
any counterclaim) arising out of or in any way related to or connected with
this Note or any other Security Document, the relationship created thereby, or
the origination, administration or enforcement of the indebtedness evidenced
and/or secured by this Note or any other Security Document.
This Note has been delivered to Payee and accepted by Payee in the
State of California, and shall be governed and construed generally according to
the laws of said State except to the extent that creation, validity, perfection
or enforcement of any liens or security interests securing this Note are
<PAGE> 3
governed by the laws of another jurisdiction. Venue of any action brought
pursuant to this Note or any other Security Document, or relating to the
indebtedness evidenced hereby or the relationships created by or under the
Security Documents shall, at the election of the party bringing the action, be
brought in a State or United States federal court of appropriate 'jurisdiction
located in or having jurisdiction over the State of California. Maker and
Payee each waives any objection to the jurisdiction of or venue in any such
court and to the service of process issued by such court and agrees that each
may be served by any method of process described in the State of California or
United States Federal Rules of Civil Procedure. Maker and Payee each waives
the fight to claim that any such court is an inconvenient forum or any similar
defense.
If, in any jurisdiction, any provision of this Note shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
holding shall not affect any other provisions of this Note, and this Note shall
be construed, to the extent of such invalidity, illegality or unenforceability
(and only to such extent) as if any such provision had never been contained
herein. Any such holding of invalidity, illegality or unenforceability in one
jurisdiction shall not prevent valid enforcement of any affected provision if
allowed under the laws of another relevant jurisdiction.
No waiver by the holder of any payment or other right under this Note
shall operate as a waiver of any other payment or right.
Executed by the undersigned the year and day first above written.
SCIENTIFIC NRG, INCORPORATED
By: /s/ Jonathan D. Forgy
---------------------
Name: Jonathan D. Forgy
Its: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 21,357
<SECURITIES> 0
<RECEIVABLES> 25,454
<ALLOWANCES> 9,812
<INVENTORY> 88,635
<CURRENT-ASSETS> 125,634
<PP&E> 29,200
<DEPRECIATION> 2,241
<TOTAL-ASSETS> 154,834
<CURRENT-LIABILITIES> 338,979
<BONDS> 0
0
0
<COMMON> 2,726,050
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 154,834
<SALES> 86,668
<TOTAL-REVENUES> 86,668
<CGS> 46,835
<TOTAL-COSTS> 162,003
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,223
<INCOME-PRETAX> (90,568)
<INCOME-TAX> 200
<INCOME-CONTINUING> (90,768)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (90,768)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
