<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 September 30, 1998
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 November 4, 1998 the
registrant had 5,586,163 shares of common stock, no par value, issued and
outstanding.
<PAGE> 2
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. FINANCIAL STATEMENTS. 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. 3
PART II
ITEM 1. LEGAL PROCEEDINGS. 11
ITEM 2. CHANGES IN SECURITIES. 11
ITEM 3. DEFAULT UPON SENIOR SECURITIES. 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. 11
ITEM 5. OTHER INFORMATION. 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 11
<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, September 30, 1998 and unaudited condensed
statements of operations for the three month period 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 5
through 10 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 August 15, 1998.
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 month period ended September 30, 1998 compared to the three
month period ended September 30, 1997.
The Company realized a net loss of $ 26,096, or $.(01) per share for the
three month period ended September 30, 1998, compared to a net loss of $ 41,065
or $.(01) per share for the corresponding period of the prior fiscal year.
Management attributes these decreased losses to the Company's reduced overhead
and the increase in the gross profit discussed below.
Net sales of the Company during the three months ended September 30,
1998 decreased $ 22,496 or 24.2% from the corresponding period of the prior
fiscal year. The sales decrease for the three months was attributable to delays
in projects which were sold in October but were originally scheduled to close in
September.
Gross profit from operations during the three months ended September 30,
1998 increased $ 9,350 or 25.1% from the gross profit from the corresponding
period of the prior fiscal year. Sales for the current quarter included product
lines that carry a higher than normal gross profit.
General, administrative and selling costs for the three months ended
September 30, 1998 decreased by $ 5,457, and increased as a percentage of sales
from 73.5% of sales to 89.2% of sales in comparison to the corresponding period
of the prior fiscal year. The reduction in overhead for the three months ended
September 30, 1998 indicates management's continued efforts to reduce costs.
3
<PAGE> 4
LIQUIDITY AND CAPITAL RESOURCES
The three month period ended September 30, 1998 compared to the three
month period ended September 30, 1997.
The Company had positive cash flow from operating activities for the
three month period ended September 30, 1998 of $ 20,190 compared to a negative
cash flow of $ 26,346 for the three month period ended September 30, 1997. The
positive cash flow compared to the previous period can be attributed to the
issuance of common stock to pay for past legal and administrative services, as
discussed below.
At September 30, 1998, the Company had net working capital of $ 13,992,
compared to a net negative working capital of $ 37,392 at June 30, 1998. An
increase in working capital of $ 51,784, is primarily the result of the issuance
of common stock as discussed below.
During the quarter ended September 30, 1998, the Company issued
1,382,740 shares of its common stock, no par value, in exchange for legal
services and administrative service rendered and for future services during the
fiscal year ended June 30, 1999. The shares were valued at nine cents per share.
The Company registered these shares by filing form S-8 with the Securities
Exchange Commission on August 14, 1998.
4
<PAGE> 5
SCIENTIFIC NRG, INCORPORATED
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 34,557 $ 14,367
Trade receivables, less allowance for
doubtful accounts at September 30, 1998
and June 30, 1998 of $ 9,658 42,987 52,755
Inventories ( Note 2 ) 96,264 80,623
Prepaid expenses 3,827 1,708
----------- -----------
Total current assets 177,635 149,453
Property and Equipment, net 1,664 2,129
----------- -----------
Total assets $ 179,299 $ 151,582
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 14,292 $ 40,245
Accrued compensation 86,412 45,000
Other accrued expenses 62,940 102,000
----------- -----------
Total current liabilities 163,644 187,245
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
authorized 40,000,000 shares;
issued and outstanding:
September 30, 1998 5,586,163 shares
June 30, 1998 4,203,423 shares 3,624,321 3,546,707
Additional paid-in capital 11,970 11,970
Accumulated deficit (3,620,636) (3,594,340)
----------- -----------
Total stockholders' equity (deficit) 15,655 (35,663)
$ 179,299 $ 151,582
=========== ===========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
5
<PAGE> 6
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
<S> <C> <C>
Net sales $ 70,652 $ 93,148
Cost of sales 33,468 65,314
--------- ---------
Gross profit 37,184 27,834
Operating expenses:
General, administrative,
and selling costs 62,995 68,452
Research and development 285 447
--------- ---------
Loss from operations (26,096) (41,065)
Other income -- --
Interest expense -- --
--------- ---------
Loss before provision for taxes (26,096) (41,065)
Provision for taxes (200) (200)
--------- ---------
Net Loss $ (26,296) $ (41,265)
========= =========
Weighted average number
of shares outstanding 5,586,163 4,203,423
========= =========
Net Loss per common share $ (0.01) $ (0.01)
========= =========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
6
<PAGE> 7
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Three Months Ended September 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
Paid-In Accumulated Stockholders'
Shares Amount Capital Equity Equity
(Deficit) (Deficit)
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1998 4,203,423 $ 3,546,707 $ 11,970 $ (3,594,340) $ (35,663)
Common stock issued in
connection with legal
services rendered
( Note 3 ) 502,740 45,246 -- -- 45,246
Common stock issued in
connection with services
rendered under the
service contract (Note 3) 880,000 79,200 -- -- 79,200
Common stock issued in
connection with services
not yet rendered by related
parties (Note 3) -- (46,832) -- -- (46,832)
Net loss - First Quarter -- -- -- (26,296) (26,296)
Balance, September 30, 1998 5,586,163 $ 3,624,321 $ 11,970 $ (3,620,636) $ 15,655
========= =========== ========== ============ ==========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
7
<PAGE> 8
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF CASH FLOW
Three Months Ended September 30, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $ 88,070 $ 52,716
Cash paid to suppliers and employees (67,880) (79,062)
Interest paid -- --
Income Taxes Paid -- --
------------ ------------
Net cash provided by (used in) operating
activities 20,190 (26,346)
------------ ------------
CASH FLOW USED IN INVESTING ACTIVITIES
Purchase of equipment and
leasehold improvements $ -- $ --
CASH FLOW FROM FINANCING ACTIVITIES
Net decrease in line of credit -- --
Proceeds from advances and notes from
Company's officer and/or director -- --
Principal payments under
capital lease obligations -- --
Principal payments on advances -- --
Proceeds from issuance of common stock -- --
------------ ------------
Net cash provided by financing activities $ -- $ --
------------ ------------
Net increase (decrease) in cash $ 20,190 $ (26,346)
CASH
Beginning of period 14,367 35,300
------------ ------------
Ending of period $ 34,557 $ 8,954
============ ============
</TABLE>
See accompanying notes to unaudited
condensed financial statements
8
<PAGE> 9
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF CASH FLOW (Continued)
Three Months Ended September 30, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
<S> <C> <C>
RECONCILIATION OF NET (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net (loss) $ (26,296) $ (41,265)
Adjustments to reconcile net (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 465 687
Compensation expense arising from
professional services and service
contracts 77,613 18,738
Change in assets and liabilities:
Trade receivables 9,768 (42,857)
Inventories (15,639) 5,760
Prepaid expenses and deposits (2,119) (600)
Accounts payable, accrued compensation
and other accrued expenses (23,602) 33,191
----------- -----------
Net cash provided by (used in) operating
activities $ 20,190 $ (26,346)
=========== ===========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
9
<PAGE> 10
SCIENTIFIC NRG, INCORPORATED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
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 September 30,
1998, results of operations for the three months ended September 30, 1998 and
1997 and cashflows for the three months ended September 30, 1998 and 1997.
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
Form10-KSB filed with the Securities and Exchange Commission on August 15, 1998.
Operating results for the three month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the Company's
entire year ending June 30, 1999. The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards 128, "Earnings per Share" (
SFAS 128 ), which was effective for financial statements issued for periods
ending after December 15, 1997. The effect of adopting SFAS 128 has not yet been
determined.
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost or net realizable value. Cost is
determined under the standard cost 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, 1998, management believes that inventories are
carried at their net realizable value.
NOTE 3. ISSUANCE OF COMMON STOCK FOR SERVICES
The Company filed form S-8 on August 14, 1998 to register 1,382,740 shares of
common stock to related parties as compensation for legal and administrative
services rendered, and future services to be rendered during the fiscal year
ending June 30, 1999. The shares were valued at nine cents per share.
10
<PAGE> 11
PART II
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
During the quarter ended September 30, 1998, the Company issued
1,382,740 shares of its common stock, no par value, in exchange for legal
services and administrative service rendered and for future services during the
fiscal year ended June 30, 1999. The Company registered these shares by filing
form S-8 with the Securities Exchange Commission on August 14, 1998.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
A Special Meeting of the Shareholders was held on August 15, 1998 which
resulted in the passing of two resolutions. First, the shareholders approved the
sale of the Company's downlight business which constitutes substantially all of
the Company's assets and operations. Secondly, the shareholders approved a
reverse split of up to one for every ten shares of outstanding common stock. The
second resolution was approved in conjunction with the Company's management
negotiations with non-affiliated companies regarding a potential reverse merger
acquisition (see Note 13 of the Company's Audited financial statements for the
fiscal year ended June 30, 1998 ). Therefore, management anticipates the sale of
substantially all assets of the Company during the fiscal year ending June 30,
1999. Further, in conjunction with this sale, management anticipates a
significant reduction in the number of its employees. The Company will most
likely consist of the Board of Directors and a part-time administrative staff.
This management group will carry out the duty of facilitating the reverse merger
mentioned above (FLS).
ITEM 5. OTHER INFORMATION.
Subsequent to June 30, 1998, Daniel W. Parke who was the Company's chief
executive officer, resigned from his position as a director and officer of the
Company. This action was a condition subsequent to the acquisition of the
affiliated company, Parke Industries, by Strategic Resource Solutions. Wherein
Mr. Parke agreed to disengage from the Company to avoid any potential conflicts
of interest.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Form 10-QSB
11
<PAGE> 12
(1) Financial Statements.
Included in Part I of this report:
Condensed Balance Sheets as of September 30, 1998 and June 30, 1998.
Condensed Statements of Operations for the Three Months Ended September 30, 1998
and 1997.
Condensed Statements of Stockholders' Equity (Deficit) for the Three Months
Years Ended September 30, 1998 and 1997.
Condensed Statements of Cash Flows for the Three Months Ended September 30,1998
and 1997.
Notes to Financial Statements.
(2) Financial Data Schedule.
(3) Exhibits.
The following exhibits are incorporated herein by reference from 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, as amended.
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 Share Certificate 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.
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.
12
<PAGE> 13
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.
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. Fikel, 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.
10.60 Debt For Equity Swap Agreement.
10.61 Administrative Services Agreement.
10.62 Non-Qualified Stock Option Agreement.
10.63 Employment Agreement with Jonathan D. Forgy.
10.64 Employment Agreement with Daniel W. Parke.
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
There were no reports of Form 8-K filed during the fourth quarter of the year
ended June 30, 1998.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: November 11, 1998
SCIENTIFIC NRG, INCORPORATED,
a Minnesota Corporation
By: /s/ Jonathan D. Forgy
Name: Jonathan D. Forgy
Title: President
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 Title Date
/s/ Jonathan D. Forgy (1) (2) November 11, 1998
- ----------------------------
Jonathan D. Forgy
/s/ Oliver K. Washburn (1) (3) November 11, 1998
- ----------------------------
Oliver K. Washburn
/s/ Richard O. Weed (1) November 11, 1998
- ----------------------------
Richard O. Weed
(1) Director of the registrant.
(2) President of the registrant.
(3) Treasurer of the registrant.
14
<PAGE> 15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDLUE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 34,557
<SECURITIES> 0
<RECEIVABLES> 52,645
<ALLOWANCES> 9,658
<INVENTORY> 96,264
<CURRENT-ASSETS> 177,635
<PP&E> 18,274
<DEPRECIATION> 16,610
<TOTAL-ASSETS> 179,299
<CURRENT-LIABILITIES> 163,644
<BONDS> 0
0
0
<COMMON> 3,624,321
<OTHER-SE> (3,608,666)
<TOTAL-LIABILITY-AND-EQUITY> 179,299
<SALES> 70,652
<TOTAL-REVENUES> 70,652
<CGS> 33,468
<TOTAL-COSTS> 96,748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (26,096)
<INCOME-TAX> 200
<INCOME-CONTINUING> (26,296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,296)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
