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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Fee Required)
For the Fiscal Year Ended Commission File Number
December 31, 1998 0-27994
BATTERIES BATTERIES, INC.
(Exact name of Registrant as specified in its charter)
13-383-5420
(I.R.S. Employer
Identification No.)
1840 County Line Road 19006
Huntington Valley, Pennsylvania (Zip Code)
(Address of principal executive offices)
(215) 322-4600
Registrant's telephone number, including Area Code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Common Stock Purchase Warrants
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
The aggregate market value of the voting stock held by
nonaffiliates of the registrant (holders other than officers or
directors and other affiliates) as of March 29, 1999 was
$4,976,640. As of March 29, 1999, 4,743,000 shares of the
Registrant's Common Stock, $.001 par value per share, were
outstanding.
PART I
Item 1. BUSINESS
Batteries Batteries, Inc. (the "Company" or "Batteries
Batteries") was founded in May 1995. The Company is engaged in
the nationwide sale and distribution of a wide range of batteries
and battery related products and cellular products, accessories
and components. The business of Batteries Batteries was created
through the acquisition of five companies:
- In June 1995, Batteries Batteries acquired Specific
Energy, Inc. ("Specific Energy"), a retail distributor
of specialty batteries based in Phoenix, Arizona. (The
Company sold the assets of Specific Energy in
September 1998.)
- In April 1996, Batteries Batteries acquired both
Advanced Fox Antenna, Inc. ("Advanced Fox") based in
Huntington Valley, Pennsylvania, and Tauber
Electronics, Inc. ("Tauber") based in San Diego,
California. Those acquisitions were part of a "roll-
up" transaction also involving an initial public
offering of the Company's shares.
- In January 1997, the Company acquired Battery Network,
Inc. and affiliate companies ("Battery Network") based
in Chicago, Illinois, North Branch, New Jersey and
Escondido, California.
- In May 1997, the Company acquired Cliffco of Tampa Bay,
Inc. ("Cliffco") based in Tampa, Florida.
The Company's operations are presently organized into two
business groups: battery assembly and distribution and cellular
and wireless accessory distribution.
The Battery Group is headquartered in Escondido, California
and is comprised of:
- Tauber, which engineers, manufactures, and distributes
battery packs and battery systems to original equipment
manufacturers throughout the United States.
- Battery Network, which is a national distributor of
specialty batteries to the commercial, industrial, and
government/institutional markets.
The Wireless Products Group is headquartered in Huntington
Valley, Pennsylvania and is comprised of:
- Advanced Fox, which distributes over 1,600 cellular
telephone accessory products, including batteries,
chargers, and antennas ("Cellular Accessories") to
customers throughout North and South America.
- Cliffco, which distributes Cellular Accessories to a
variety of customers including the large communication
carriers.
Financial information about these industry segments is found
in Item 14 of this Report at Note 13 of the Company's financial
statements.
OPERATING STRATEGY
The battery distribution business remains fragmented. The
Company's strategy is to effectively market a broad line of
original and replacement specialty batteries and Cellular
Accessories. The Company strives to leverage its distribution
channels and relationships to and provide high quality technical
expertise to its customers.
The Company's business strategy involves the following:
- Diversity of Products and Customers. The Company
distributes a vast array of batteries for such products
as computers, scientific and medical equipment,
photographic and industrial equipment, calculators,
cellular phones, camcorders and military equipment and
battery packs for special applications. The
proliferation of portable products has also created a
growing replacement market which is served by the
Company. The Company's extensive product line results
in a large, diverse customer base. For example, the
Company sells and distributes products to original
equipment manufacturers (OEM's), maintenance repair
organizations (MRO's), dealers, commercial and
industrial businesses, carriers and end users. The
Company is, therefore, not dependent upon any one
customer or customer base.
- Advantageous Purchasing. Each of our business units
has its own purchasing manager who makes inventory and
purchasing decisions for that unit. However, a
corporate purchasing manager assures that vendors
chosen and pricing are the most advantageous for the
Company.
- Enhance Profits In Battery Group. The Battery Group
(Battery Network and Tauber) operated at a deficit of
approximately $2,906,693 in 1998. Management has
developed a strategy to eliminate the loss. The
Battery Group operations were consolidated in November,
1997 in facilities in Escondido, California. Prior
management intended to fully integrate the operations
of Tauber and Battery Network into one operating
entity. This strategy proved to be ineffective because
the nature of the businesses, the respective vendors,
customers, methods of operation, markets and
competition of each of the two companies is different.
Beginning in June, 1998 current management has
developed a plan to operate both Battery Network and
Tauber from the same facility, to combine and cooperate
with certain tasks but to maintain separate management
and separate employees for each of the companies. The
Company is investigating lower cost sources of product
both in the Far East and domestically and has begun to
use telemarketing for sales and marketing (i.e.,
"sales", below) are expected to reduce costs, assure
appropriate inventory levels and increase sales.
- Continue and Expand Wireless Group. The two business
units within the Wireless Group (Advanced Fox and
Cliffco) operate from completely separate facilities.
While management is separate, the companies' management
team confer daily, consolidate purchasing and are
operated under similar marketing and operating plans.
Further, the Company plans to enhance the Wireless
Division through strategic acquisitions in regional
markets other than the current eastern seaboard
locations.
OPERATIONS
Products. The Company markets in excess of 7,500 different
battery products and value-added battery packs and over 2,000
cellular phone accessories and components. The products address
a multitude of applications for commercial, industrial and
consumer use. The Company offers branded items, private label
items and custom-designed products for special situations which
are produced or assembled at the Company's facilities. The
Company is an authorized dealer for numerous major battery
manufactures including Panasonic, Gates Energy Products,
Duracell, Sanyo, Varta and Saft, pursuant to agreements or
arrangements that are terminable by the Company or the
manufacturer on short notice.
Purchasing. Purchases are made from a wide variety of
vendors. The Wireless Group purchases a substantial portion of
its products from manufacturers located overseas, principally in
the Far East. No single supplier accounts for purchases
representing more than 10% of the Company's total purchases for
the year. The Company has recently opened a buying office in
Taiwan with the goal of reducing costs and improving the quality
of items currently imported or purchased from domestic sources.
Sales. The Company markets and sells the majority of its
products to dealers, other distributors, telephone carriers and
mass merchandisers. Additionally, the Company sells value added
battery packs and battery supplies directly to OEM customers and
through fulfillment programs to individual consumers. Through
August, 1998, the Company operated a retail division in Phoenix,
Arizona under the tradename Batteries Batteries for Everything.
The assets of the division were sold and the Company no longer
has a retail outlet.
Each business group has different customers. Previously,
Batteries Batteries utilized an outside sales force for the
Battery Group and telemarketing and follow up sales calls for the
Wireless Products Group. Management has revised the prior
strategy and has begun using a similar telemarketing strategy for
the Battery Group. Management believes that this change in
strategy will both reduce the cost of marketing to the Battery
Group as well as increase sales volume.
Additionally, the Company produces eight product line
catalogues that are circulated nationally and internationally.
The Company intends to integrate the catalogs on a Company-wide
basis, and to enhance, as appropriate, private label and
proprietary item sales that generally provide higher margins.
Concentration. During the twelve months ended December 31,
1998, the Company effected sales to more than 17,000 commercial
and industrial customers. No one customer accounted for more
than 5% of the revenues of the Company for the twelve months
ended December 31, 1998. Export sales accounted for less than 3%
of total revenues for the period.
COMPETITION
The battery distribution business is fragmented, multi-
tiered and loosely structured with manufacturers often competing
with their own regional distributors in sales to both large OEM
and commercial accounts. There are many distributors, most
operating regionally or locally, selling to smaller commercial
and industrial accounts, regional retail accounts and, to a small
extent, directly to retail customers. In many instances, small
distributors focus on a particular market segment. Cellular
accessories are sold by many large retailers, numerous small
importers and by one large distributor of many cellular products.
The Company believes that its size and diversity provides
certain competitive advantages such as those arising from
centralized volume purchasing and the ability to simultaneously
service several markets. Competition in the industry is also
based on maintenance of product quality, delivery efficiency,
customer service and satisfaction levels, maintenance of
satisfactory dealer relationships and training programs, and the
ability to anticipate technological changes and changes in
customer preferences. Although management considers it unlikely,
no assurance can be given that any of several major battery
manufacturers whose products the Company distributes will not
acquire, startup or expand their own distribution systems to sell
directly to industrial, commercial and retail customers.
EMPLOYEES
As of March 31, 1999, the Company employed approximately 254
personnel in its operations. Included were 4 in technical
operations, 60 in telemarketing and commercial sales, 52 in
assembly and value-added operations, 82 in warehousing, inventory
control, shipping and receiving, 12 in purchasing and 44 in
management and administration. None of the employees is
represented by a labor union. The Company considers its
relations with its employees to be satisfactory.
ENVIRONMENTAL MATTERS
The Company purchases and distribute batteries which contain
chemicals such as alkaline, nickel-cadmium and lithium. The
Company does not manufacture the batteries but rather purchases
the items in their finished state. Company operations do not
involve the alteration or penetration of the batteries. Returns
of its nickel-cadmium batteries are made to the manufacturer and
returns of its lead acid and mercury batteries are handled
through a bonded agency. The Company believes that it has
operated its respective facilities in compliance with applicable
environmental laws and regulations. Accordingly, the Company
does not believe that it has any material risk of environmental
liability.
The Company currently is not aware of any environmental
conditions relating to present or past waste generation at or
from any of its facilities or operations, that would likely have
a material adverse effect on the financial condition or results
of operations of the Company and does not anticipate any material
expenditures to comply with environmental laws, regulations or
ordinances. However, there can be no assurance that
environmental liabilities in the future will not be incurred and
that they will not have a material adverse effect on the
financial condition or results of operations of the Company.
INTELLECTUAL PROPERTY
The Company believes that it has all rights to trademarks
and trade names necessary for the conduct of its business.
SALE OF SUBSIDIARY
In September 1998, the Company sold all of the assets of
Specific Energy, Inc. for $715,000 in cash to a retail franchise
in Phoenix, Arizona. Specific Energy, Inc. was the Company's
retail subsidiary. It operated four retail stores in Phoenix,
Arizona under the trade name Batteries Batteries for Everything.
Upon closing on the transaction, the Company ceased all retail
operations.
CHANGES IN MANAGEMENT
On April 30, 1998, a group of shareholders headed by Stephen
Rade, a director and 10% shareholder, filed a consent
solicitation seeking to remove Warren Haber as the Chairman of
the Board, Allan Baldwin as a director and CEO, John Teeger as a
Director and the Company's Secretary, and directors John Simon,
Fred Corrado and Bruce Barnett. The shareholder group sought to
replace the six directors with two independent directors:
Robert C. Meehan and Allan Kalish. Following negotiations
between the parties, all six directors resigned from the board
and Messrs. Haber, Baldwin and Teeger resigned as officers of the
Company. On June 5, 1998, Mr. Meehan was elected Chairman of the
Board and Mr. Rade was elected President and CEO.
In November, 1998 and December, 1998 the Board elected
Kenneth Rickel and Christopher F. McConnell, respectively, to the
Board of Directors to fill two of the vacancies. On December 17,
1998, Mr. Meehan resigned as Chairman of the Board of Directors
and Mr. McConnell was elected as the new Chairman.
SUBSEQUENT EVENTS
On March 24, 1999, Messrs. Meehan and Sapp resigned from the
Company's Board of Directors and Barbara M. Henagan and
Bradley T. MacDonald were elected by the Board to fill the
vacancies created by the resignations.
Item 2. PROPERTIES
All of the Company's real properties are held under leases.
The following table provides certain information concerning the
Company's leased properties:
LEASE
APPROX- EXPIR-
IMATE ATION
OPERATION NATURE LOCATION AREA DATE
Tauber Office, San Diego, CA 19,800 07/31/99
warehouse
and
assembly*
Advanced Fox Office** Huntingdon, PA 7,000 12/31/99
Advanced Fox Warehouse Huntingdon, PA 30,000 08/31/03
and
assembly
Advanced Fox Office Huntingdon, PA 2,000 05/30/02
Accounting
Dept
Advanced Fox Office and Miami, FL 5,555 04/15/02
warehouse
Battery Network Office McHenry, IL 625 05/31/99
warehouse
Battery Network Office, North Branch, 11,750 12/31/01
warehouse NJ
and
Battery Network Office, Escondido, CA 34,820 01/30/04
warehouse
and
assembly
Cliffco Office and Tampa, FL 18,800 08/01/04
warehouse
Specific Energy Office and Phoenix, AZ 6,100 01/31/99
warehouse*** (LaSalle St.)
* Leased but not occupied as a result of the consolidation of
Tauber and Battery Network. The Company is in process of
attempting to negotiate an early termination of the lease.
** Leased from an affiliate of a Director of the Company.
*** Lease terminated on January 31, 1999.
Item 3. LEGAL PROCEEDINGS
David Peterson, a former employee of Battery Network, has
filed suit against the Company seeking damages in an aggregate
amount equal to approximately $300,000 claiming a breach of his
employment contract by the Company. The Company terminated
Mr. Peterson for cause and believes it has a valid defense to
Mr. Peterson's claims. The action has been filed in state court
in California. Trial will likely occur within 12 months.
The Company is, from time to time, a party to other
litigation arising in the normal course of its business, most of
which involves claims for personal injury and property damage
incurred in connection with its operations. Management believes
that none of these actions will have a material adverse effect on
the financial condition or results of operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders
during the three months ended December 31, 1998.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock and Redeemable Common Stock
Purchase Warrants have traded on the Nasdaq National Market (the
"NMS") since April 8, 1996. The Common Stock trades under the
symbol "BATS" and the Warrants trade under "BATSW." The
following tables set forth the range of high and low sale prices
for the quarters indicated for the Common Stock and Warrants on
the NMS as reported by for the period from April 8, 1996 through
December 31, 1998.
HIGH AND LOW PRICES OF BATTERIES BATTERIES, INC.
COMMON STOCK AND PUBLIC WARRANTS ON NASDAQ
COMMON STOCK WARRANTS
HIGH LOW HIGH LOW
1996
SECOND QUARTER 7 1/8 5 1/2 2 5/8 1
(April 8-June 30)
THIRD QUARTER 5 7/8 4 1/2 1 7/8 1 1/4
FOURTH QUARTER 4 7/8 3 1/2 1 5/8 5/8
1997
FIRST QUARTER 4 1/4 3 1/2 1 1/16 9/16
SECOND QUARTER 3 5/8 2 1/8 7/8 7/16
THIRD QUARTER 3 3/4 2 1/2 9/16 7/16
FOURTH QUARTER 3 1 3/4 9/16 7/32
1998
FIRST QUARTER 2 11/16 1 3/4 5/8 5/16
SECOND QUARTER 2 1/4 1 1/2 1/2 1/4
THIRD QUARTER 2 1 5/16 1/8
FOURTH QUARTER 2 1 1/16 1/4 1/16
The number of record holders of the Company's Common Stock
and of the Warrants as of March 30, 1999 were 50 and 43,
respectively. A substantially larger number of beneficial owners
hold such shares of Common Stock in depository or nominee form.
No dividends have been paid on the outstanding shares of
Common Stock. The Company's Revolving Credit, Term Loan and
Security Agreement prohibits the payment of dividends on the
Common Stock without the consent of the lenders.
Item 6. SELECTED FINANCIAL DATA
INTRODUCTION
In June 1995, Batteries Batteries acquired 95% of the
outstanding common stock of Specific Energy in a business
combination accounted for as a purchase. In June 1996, the
Company acquired the remaining minority 5% interest for cash.
Advanced Fox, Tauber and Specific Energy were combined by merger
or stock acquisition in April 1996 (collectively the "Mergers").
Prior to the Mergers, each of those companies had been operating
as a separate independent entity. As a result, historical
combined results may not be comparable to or indicative of future
performance. For all periods presented, the Consolidated
Financial Statements include the accounts of those companies as
if they had always been members of the same operating group
without giving effect to the Mergers. The assets and liabilities
of these founding companies are reflected at their historical
amounts.
Certain of the founding companies had operated as
Subchapter S corporations under the Internal Revenue Code of
1986, as amended. Upon consummation of the Mergers, the Company
now files as a consolidated group for Federal income tax
purposes. For purposes of the Unaudited Pro Forma Statements of
Operations data included in this Report, pro forma Federal and
state income taxes have been provided as if the Combined
Companies had filed C corporation tax returns. The unaudited pro
forma results reflect an income tax provision at an effective
percentage rate calculated in accordance with SFAS No. 109.
While this effective rate represents the founding companies' pro
forma tax rate based on the historic earnings trends in the
respective tax jurisdictions, this rate may change in the future
in accordance with such trends. See Note 1 of Notes to
Consolidated Financial Statements.
On January 7, 1997, effective January 1, 1997 the Company
acquired (the "BN Acquisition") the business and related assets
of Battery Network, an assembler and wholesale distributor of
batteries servicing specialty battery consumers nationally, in a
business combination accounted as a purchase. The results of
operations of Battery Network are included in the consolidated
results of the Company from January 1, 1997, the effective date
of its acquisition.
On May 12, 1997, effective May 9, 1997, the Company acquired
the business and related assets of Cliffco in a business
combination accounted for as a purchase. The results of
operations of Cliffco are included in the consolidated results of
the Company from May 9, 1997, the effective date of its
acquisition.
In September, 1998 the Company sold the Retail assets of
Specific Energy in a cash purchase of $715,000, which was the
approximate carrying value of the net assets sold and appropriate
transaction costs.
For the year ended December 31, 1998, the results of
operations include the results of Batteries Batteries, Battery
Network, Advanced Fox and Tauber for the year ended December 31,
1998. For the year ended December 31, 1997, the results of
operations include the results of Batteries Batteries, Battery
Network, Advanced Fox and Tauber for the year ended December 31,
1997 and those of Cliffco from the date of acquisition, May 9,
1997, through December 31, 1997. For the fiscal year ended
December 31, 1996, the results of operations include the results
of Batteries Batteries for the eleven months ended December 31,
1996 and those of Advanced Fox and Tauber for the year ended
December 31, 1996. For the year ended December 31, 1995, the
results of operations include the results of Batteries Batteries
for the year ended January 31, 1996 and those of Advanced Fox and
Tauber for the year ended December 31, 1995.
The Selected Financial Data for the years ended December 31,
1995, 1996, 1997 and 1998 have been derived from the Company's
consolidated financial statements that have been audited by
Deloitte & Touche LLP and that appear elsewhere in the Report.
SELECTED FINANCIAL DATA
FISCAL YEAR ENDED December 31,
1994 1995 1996 1997 1998
($ THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
INCOME STATEMENT DATA
NET SALES $18,213 $21,029 $25,650 $53,974 $51,454
COST OF SALES 14,304 15,238 17,805 37,677 35,420
GROSS PROFIT 3,909 5,791 7,845 16,297 16,034
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 2,346 4,577 7,004 14,438 17,127
LOSS ON IMPAIRMENT OF
EXCESS OF COST OVER NET
ASSETS ACQUIRED 0 0 0 0 558
OPERATING INCOME 1,563 1,214 841 1,859 (1,650)
INTEREST (INCOME) EXPENSE 90 23 (12) 726 790
INCOME BEFORE PROVISION 1,473 1,191 853 1,133 (2,441)
FOR INCOME TAXES
PROVISION (BENEFIT) FOR
INCOME TAXES (8) (98) 337 565 (379)
NET INCOME 1,481 1,289 516 568 (2,062)
PREFERRED STOCK DIVIDEND
REQUIREMENTS 53 60 15
NET INCOME ATTRIBUTABLE
TO COMMON SHAREHOLDERS 1,236 456 553 (2,062)
NET INCOME PER SHARE OF
COMMON STOCK (BASIC AND
DILUTED) $ 0.12 $(0.44)
FISCAL YEAR ENDED December 31,
1994 1995 1996
($ THOUSANDS)
UNAUDITED PRO FORMA DATA
INCOME BEFORE TAXES 1,473 1,191 853
PROVISION FOR INCOME TAXES 604 488 350
PRO FORMA NET INCOME 869 703 503
PRO FORMA NET INCOME PER COMMON
STOCK (BASIC & DILUTED) $ .16 $.11
FISCAL YEAR ENDED December 31,
1994 1995 1996 1997 1998
BALANCE SHEET DATA
WORKING CAPITAL 3,597 5,295 6,782 14,844 11,548
TOTAL ASSETS 6,889 9,105 11,735 28,538 24,485
LONG TERM DEBT,
LESS CURRENT
PORTION 1 183 -- 10,742 8,865
MANDATORY REDEEMABLE -- -- 750 -- --
PREFERRED STOCK
STOCKHOLDERS' EQUITY 3,809 6,533 8,460 11,730 9,668
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended December 31, 1998 ("1998") Compared to Year Ended
December 31, 1997 ("1997")
Net sales decreased 4.7% or $2.5 million, from $54.0 million
in 1997 to $51.5 million in 1998. The decrease in sales was due
primarily to a drop of $6.8 million in Battery Network sales, and
the sale of the Specific Energy retail division on September 14,
1998. (Specific Energy had approximately $750,000 in sales in
the September 15, 1997 to December 31, 1997 period.) Further,
Specific Energy's sales decreased approximately $300,000 for the
comparative January 1 to September 14 period. Partially
offsetting these sales decreases were the continued growth of
Advanced Fox Cellular business (up approximately 10.0% or
$1.6 million over 1997); an additional $2.2 million in sales from
Cliffco during the period up to May 12, 1998 (since Cliffco had
been acquired May 12, 1997), and increased Cliffco sales of
approximately $850,000 from May 12, 1998 to the end of the year;
and an increase of $690,000 in Tauber Sales.
Gross profit decreased approximately $500,000 from
$16.3 million in 1997 to $16.0 million in 1998, and as a percent
of sales increased from 29.7% in 1997 to 31.3% in 1998. The
decrease in dollars was primarily the result of a decline in
gross profit of $3.6 million in Battery Network and approximately
$300,000 in Specific Energy, which were offset by increases in
Advanced Fox of $2.0 million, the acquisition of Cliffco on
May 5, 1997 that contributed approximately $600,000 in gross
profit for the January 1, to May 12, 1998 period with an
additional comparative increase of approximately $882,000 for the
balance of the year. Both Advanced Fox and Cliffco substantially
improved their gross margin percentage due to continued
advantageous Far East purchasing bolstered by a consolidation of
the two cellular companies' purchasing efforts, which began in
June, 1998, which more than offset reduction in gross profit
percentage at Battery Network which was negatively effected by
its substantial sales drops requiring heavier than normal
markdowns and price reductions in reaction to competitive
pressures and to maintain inventory levels and a management
decision to discontinue certain products and product lines.
Selling, general and administrative ("SG&A") expenses
increased 15.6%, from $14.4 million in 1997 to $17.1 million in
1998, and as a percentage of sales increased from 26.4% in 1997
to 33.0% in 1998. The increase in SG&A was attributable to:
- the acquisition of Cliffco in May 1997 (approximately
$750,000.00 attributable to comparative period in
1998),
- an approximate increase of $1.2 million principally in
marketing, selling, and distribution costs at Advanced
Fox to support the current and anticipated sales
growth, including continued expansion of its main and
Miami distribution facilities, increased sales and
telemarketing costs, and purchasing, packaging and
warehousing services provided to Cliffco, and
- increases in marketing, selling and administrative
costs at Tauber and Cliffco which were mostly offset by
reductions in general and administrative expense at
Specific Energy and Battery Network.
During 1998, the Company reviewed the unamortized portion of the
excess of cost over net asset acquired related to the original
purchase of Specific Energy and determined that the asset was
impaired. Accordingly, the Company recorded a charge of
$558,112. Subsequent to recording the impairment, the Company
sold the retail assets of Specific Energy. The sale resulted in
cash proceeds of approximately $715,000 which approximated the
carrying value of the assets sold, net of related transaction
costs. The increase as a percentage of sales is primarily
attributable to the large sales decline at Battery Network which
did not have corresponding reductions in SG&A expenses.
Interest expense increased to $790,412 in 1998 from $727,350
in 1997 due primarily to increased borrowings under the Company's
loan facility in connection with the acquisition of Cliffco in
May, 1997, the redemption in April, 1997 of outstanding 750,000
shares of Series A Preferred Stock and general operating needs
offset partially by the sale of Specific Energy retail assets for
$715,000 on September 14, 1998.
As of December 31, 1998, the principal amounts outstanding
of Term Loans and the Revolver Loans were $1.489 million and
$7.976 million, respectively.
Year Ended December 31, 1997 ("1997") Compared to Year Ended
December 31, 1996 ("1996")
Net sales increased 110% from $25.7 million in 1996 to
$54 million in 1997. The increase was due was due primarily to
the acquisition in January 1997 of Battery Network, which added
$22.1 million in sales, and in May 1997 the acquisition of
Cliffco, which added $3.8 million in sales. Additionally,
Advanced Fox's cellular accessory business continued to grow (up
22% compared to 1996) and Tauber reversed a decline in sales by
increasing sales in 1997 to $9.6 million (up 6% compared to
1996).
Gross profit increased 109% from $7.8 million in 1996 to
$16.3 million in 1997, again due primarily to the acquisitions of
Battery Network and Cliffco. In addition, Advanced Fox's gross
profit increased $1.3 million (or 25%) to $6.5 million compared
to $5.2 million in 1996. Overall gross profit as a percentage of
sales decreased to 30.2% from 30.6% principally due to lower
gross margins in the Battery Network product line.
Selling, general and administrative expenses increased 110%
from $7.0 million in 1996 to $14.5 million in 1997, and as a
percentage of sales decreased from 28% in 1996 to 27% in 1997.
The increases were substantially due to the added SG&A expenses
(approximately $7 million) resulting from the Battery Network and
CTB acquisitions. Additionally, Advanced Fox's SG&A increased
18% from $3.7 million in 1996 to $4.4 million during 1997, due
primarily to increased warehouse space in Huntingdon, PA,
increased utilization of office space in Huntingdon, PA, addition
of new sales office and associated warehouse space in Miami,
Florida at mid year 1997, and increased selling and telemarketing
support.
Interest expense in 1997 increased to $727,000 from $15,000
in 1996 due entirely to increased borrowings related to a
Revolving Credit, Term Loan and Security Agreement, dated
January 6, 1997, as amended May 13, 1997 (the "Loan Facility"),
between IBJ Schroder Bank & Trust Company and the Company.
Borrowing against the Loan Facility in 1997 consisted primarily
of $8.3 million as the cash portion of the purchase price of the
Battery Network acquisition, $75,000 as the cash portion of the
purchase price of the CTB acquisition, $560,000 of indebtedness
paid by the Company at the closing of the Cliffco acquisition,
and the balance as working capital. As of December 31, 1998, the
principal amounts outstanding of Term Loans and the Revolver
Loans were $8.892 million and $1.85 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's requirement for capital is to fund (i) sales
growth, (ii) capital equipment expenditures related to Year 2000
system compliance and manufacturing tooling, and (iii) financing
for acquisitions. The Company's primary sources of financing
during 1998 and 1997 were cash flow from operations, equity
issuances and bank borrowings.
The Company's working capital as of December 31, 1998 was
$11,532,422. Net cash provided by operating activities for the
year ended December 31, 1998 was approximately $1.6 million. Net
cash used in operating activities during 1997 was $1,703,927 and
net cash provided by operations for 1996 was $193,080. The
increase in cash provided by operating activities during 1998 was
attributable to net decreases in accounts receivable and
inventory of $500,000 and $2.0 million, respectively, less a net
loss of $2.1 million (offset by depreciation and amortization of
$769,000 and impairment of goodwill of $558,112), a net decrease
in accounts payable and accrued expenses of $105,948 and an
increase in prepaid expenses and other assets of $95,227.
Net cash provided by investing activities in 1998 was
approximately $300,000, consisting of proceeds from the sale of
Specific Energy's retail assets of approximately $715,000, less
$419,945 for the purchase of property and equipment. Net cash
used in investing activities for the year ended December 31, 1997
was approximately $12.2 million, consisting of approximately
$10.7 million (net of cash acquired) utilized in the acquisition
of Battery Network during January 1997, and approximately
$850,000 (net of cash acquired) utilized in the acquisition of
Cliffco during May 1997. Net cash used in investing activities
during 1996 was approximately $458,000 was utilized by the
Company to fund the remaining interest of a minority stockholder
Specific Energy ($50,882) and to fund the purchase of property
and equipment ($407,015).
Cash used by financing activities for the twelve months
ended December 31, 1998 was $2.6 million comprised of $1.6 net
payments under the Revolving Credit Facility and $1.0 million
under the Term Loan Facility. Net cash provided by financing
activities was approximately $11.9 million during 1997, comprised
of approximately $3.0 million borrowings under the term loan
facility, approximately $8.9 million borrowings under the
revolving credit facility, and approximately $2.7 million from
the issuance of the Company's Common Stock. Net cash utilized by
financing activities during 1997 consisted primarily of $550,000
payments under the term loan facility, $750,000 payment for
redemption of preferred stock, approximately $1.2 million
repayment on subsidiary borrowings, approximately $180,000
prepaid financing and acquisition costs related to the Battery
Network acquisition, and $50,000 million payment of preferred
stock dividends. Cash provided by financing activities during
1996 consisted primarily of $9.1 million net proceeds of the
Initial Public offering, of which $6.7 million was paid to the
former stockholders of Advanced Fox and Tauber.
The Company is party to a Revolving Credit, Term Loan and
Security Agreement, dated January 6, 1997, as amended May 13,
1997 (the "Loan Facility"), between IBJ Schroder Bank & Trust
Company, as Agent ("IBJ") and the Company and all its
subsidiaries. The Loan Facility consists of a $3,000,000 Term
Loan (the "Term Loan') payable in 35 monthly installments of
$50,000 each with the balance to be paid at maturity and a
Revolving Credit Facility (the "Revolver Loan") of up to
$10,000,000 to be advanced at the rate of 80% of eligible
accounts receivable and 50% of inventories. The Revolver Loan
bears interest at the rate of 1/4 of 1% plus the higher of
(i) the base commercial lending rate of IBJ or (ii) the weighted
average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds
brokers plus 1/4 of 1%, or, at the option of the Company at the
Eurodollar rate plus 2%. The Eurodollar rate is defined as Libor
for a designated period divided by one less the aggregate reserve
requirements. The interest on the Term Loan is 1/2% higher than
the interest rate on the Revolver Loans. The Loans Facility is
secured by a pledge of the assets of the borrowers and a pledge
of the outstanding capital stock of the subsidiaries of the
Company. As of December 31, 1998, the principal amounts
outstanding of Term Loan was $1.49 million and the Revolver Loan
was $7.98 million.
The Loan Facility contains certain covenants that include
maintenance of certain financial ratios, maintenance of certain
amounts of working capital and net worth as well as other
affirmative and negative covenants. At December 31, 1997, the
Company was not in compliance with certain of these covenants.
On March 31, 1999, the Company entered into an amended credit
agreement whereby the non-compliance at December 31, 1998 was
waived, the loan facility was extended for an additional one year
period and new financial covenants were negotiated through
December 31, 2000 which reflect the Company's current
projections.
Pursuant to the Management Agreement with Founders
Management Services, Inc. ("Founders"), the Company paid
Founders, for its origination and negotiating services in
connection with the acquisitions of Battery Network and the loan
facility, $240,000 and issued to the designees Founders warrants
to purchase 100,000 shares of Common Stock at a price of $4.125
per share. Since June, 1998 when Messrs Haber and Teeger
resigned as officers and directors of the Company, Founders has
provided no services to the Company and the Company has not paid
any fees to Founders. Although neither the Company nor Founders
has formally terminated the Management Agreement, both parties
have acted as if the Management Agreement has been terminated.
Based upon its present plans, management believes that
operating cash flow, available cash and available credit
resources will be adequate to make the repayments of indebtedness
described herein, to meet the working capital cash needs of the
Company and to meet anticipated capital expenditure needs during
the 12 months ending December 31, 1998. Although the Company
would like to issue shares of Common Stock as its primary method
of financing acquisitions, it anticipates that additional funds
will be required to successfully implement its acquisition
program, and will use various methods to finance acquisitions,
including raising new equity capital, for this purpose.
SEASONALITY AND INFLATION
The Company's net sales typically show little or no
significant seasonal variations, although net sales may be
affected in the future by timing of retail store openings or
acquisitions.
The impact of inflation on the Company's operations has not
been significant to date. However, there can be no assurance
that a high rate of inflation in the future would not have an
adverse effect on the Company's operating results.
FACTORS AFFECTING FUTURE OPERATING RESULTS
This Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Business sections
contain certain forward-looking statements and information
relating to the Company that are based on the beliefs of
management as well as assumptions made by and information
currently available to management. Such forward-looking
statements also include, without limitation, the Company's
expectations and beliefs as to the projected costs and
anticipated timetable to address Year 2000 compliance issues, the
adequacy of its plans to address such issues and the impact on
the Company's operations in the event that certain or all of its
plans or the plans of its lenders and other third parties in
respect of such compliance issues prove to be inadequate. In
addition, included herein the words "anticipates," "believes,"
"estimates," "expects," "plans," "intends" and similar
expressions, as they relate to the Company or its management, are
intended to identify forward-looking statements. Such statements
reflect the current views of the Company's management with
respect to future events and are subject to certain risks,
uncertainties and assumptions. Such risks and uncertainties
include:
1. Possible competition from the primary battery cell
manufacturers, Panasonic, Sanyo and others, which could
materially affect the Company's after-market sale of
batteries, battery packs and accessories.
2. Possible expanded competition from OEM manufacturers of
cellular telephones and two-way radios to include
increased emphasis on after-market sales of batteries,
battery packs and accessories.
3. Increased competition on the part of telephone carriers
to replace traditional dealers and distributors with
their own direct sales locations. Such a move on the
part of the carriers could materially affect the
Company's sales to the traditional dealers and
distributors.
4. The uncertainty and lack of financial stability in Asia
could potentially effect one or more of the Company's
suppliers of cellular products in the Far East. This
could have the effect of delaying or interrupting
shipments of products and could materially affect the
Company's projected sales during 1998.
YEAR 2000 ISSUES
The ability of computers, software and other equipment
utilizing microprocessors to recognize and properly process data
fields containing a 2-digit year is commonly referred to as the
Year 2000 (Y2K) compliance issue. As the year 2000 approaches,
such systems may be unable to accurately process
certain data-based information.
State of Readiness. The Company has identified the
following applications and hardware that had required, or do
require, modification or replacement to be Y2K compliant.
Division System Compliance Date
Battery Group
Battery Network Accounting server 11/1/98
Accounting software 11/1/98
Workstations 7/31/99
Phone systems 6/30/99
Other software EDI-9/31/99
Tauber Electronics Accounting server 7/31/99
Workstations 7/31/99
Phone system 6/30/99
Wireless Products Group
Advanced Fox Accounting server 2/1/99
Accounting software 2/1/99
Workstations 2/1/99
Cliffco Accounting software 7/1/99
Workstations 12/31/98
The Company is in the process of contacting its vendors and
significant customers regarding their Y2K compliance plans.
Disclosure of Costs. The Company believes that its
approximate total cost to become Y2K compliant by not later than
September 31, 1999 is as follows:
Cost Spent
Division Total Estimated Cost as of 12/31/98
Battery Group
Battery Network $200,000 $195,000
Tauber Electronics $ 24,000 $ 15,000
Wireless Products Group
Advanced Fox $184,000 $184,000
Cliffco $ 98,000 $ 72,000
The Company does not separately track the internal costs for the
Y2K project. This cost is principally the payroll costs for the
information systems department. The Company believes it has
adequate financial resources to pay for the balance of the Y2K
compliance costs.
Disclosure of Risk. The most significant remaining risk to
the Company regarding Y2K would be interruption of business due
to vendor and customer non-compliance. As no vendor or customer
is more than 10% of total our business the impact of this is
minimized. Certain operational aspects of Batteries Batteries
could be affected by not being Y2K compliant, including telephone
service and other essential utility services. Any of the above
discussed items, if not Y2K compliant, could have a material
adverse effect on the Company.
The Company expects to be fully compliant by September 31,
1999.
Contingency Plans. As the Company believes it will be fully
compliant by September 31, 1999, it does not yet have a
contingency plan. However, in the event that the Company is not
fully compliant by the end of 1999, the failure to have a
contingency plan could have a material adverse effect on the
Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company's only financial instruments with market risk
exposure are revolving credit borrowings and variable rate term
loans, which total $9,465,156 at December 31, 1998. Based on
this balance, a change of one percent in the interest rate would
cause a change in interest expense of approximately $95,000, or
$0.02 per share (or $0.01 per share net of an income tax benefit
calculated using the Company's historical statutory rates), on an
annual basis.
These instruments are non-trading in nature (not entered
into for trading purposes) and carry interest at a pre-agreed
upon percentage point spread from either the prime interest rate
of the 90-day London Interbank Offering Rate (LIBOR). The
Company's objective in maintaining these variable rate borrowings
is the flexibility obtained regarding early repayment without
penalties and lower overall cost as compared with fixed-rate
borrowings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements as of
December 31, 1998 and for each of the three years in the period
ended December 31, 1998 are included in this report as listed in
the Index to Financial Statements in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth as of March 24, 1998, the
name of each Director and executive officer of the Company, his
or her principal occupation and the nature of all positions and
offices with the Company held by him or her. The Directors of
the Company will hold office until the next Annual Meeting of
Stockholders.
First
Became
Name Age Office Director
Christopher F. McConnell 45 Chairman of the Board 1998
Stephen Rade 59 President, Chief Executive 1996
Officer and Director
Ronald E. Badke 53 Chief Financial Officer
and Secretary
Robert W. Tauber 74 Director 1996
Allan Kalish 72 Director 1998
Kenneth Rickel 48 Director 1998
Barbara M. Henagan 40 Director 1999
Bradley T. MacDonald 51 Director 1999
Each executive officer serves at the discretion of the Board
of Directors.
Mr. McConnell has been Chairman of the Board of the Company
since December, 1998. He is also currently Chairman of the Board
of CFM Technologies, Inc. For the past five years, he has been
either Chairman or President and CEO of CFM Technologies, Inc.
Mr. McConnell also serves as a director of V-Span, Inc., a
privately held company located in Pennsylvania.
Mr. Rade has been President and Chief Executive Officer of
the Company since June, 1998. Prior to that time was Executive
Vice President since August 1996. He has been a Director since
April 1996. He has been the President, Chief Executive Officer
and a Director of Advanced Fox Antenna, Inc. since he founded
that company in 1990.
Mr. Badke has been Chief Financial Officer since
November 1995 and Secretary since March, 1999. He had been
Senior Vice President and Chief Financial Officer of Shoe Town
Inc., from 1984 through September 1994, positions he later held
(September to November 1995) with Natures Elements. Mr. Badke, a
certified public accountant, had been a consultant from
October 1994 through August 1995.
Mr. Tauber, Vice President and a Director since April 1996,
has been the President and a Director of Tauber Electronics, Inc.
since it was founded by him in 1975.
Ms. Henagan was elected to the Company's Board of Directors
in March 1999. For the past five years, she has been a Senior
Managing Director of Bradford Ventures, Ltd. She also serves on
the Board of Directors of Central Sprinkler Corp. and Hampton
Industries.
Mr. Rickel was elected to the Board of Directors in
November 1998. For the past five years, he has been associated
with Ladenburg Thalman, New York City.
Mr. McDonald was elected a director of the Company in March,
1999. He is the Chairman of the Board and Chief Executive
Officer of HealthRite, a position he has held since January,
1998. Prior thereto, he was appointed as Program Director of the
U.S. Olympic Coin Program of the Atlanta Centennial Olympic
Games. Mr. MacDonald previously was employed by HealthRite as
its Chief Executive Officer from September, 1996 to August, 1997.
From 1991 through 1994, Mr. McDonald was Deputy Director and
Chief Financial Officer of the Retail, Food and Hospitality and
Recreation Business for the United States Marine Corps.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth for the years ended
December 31, 1998, 1997, and 1996, the compensation for services
rendered in all capacities to the Company and subsidiaries by the
Chief Executive Officer and the four highest paid executive
officers who received compensation in excess of $100,000 for the
year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
NAME PERIOD SALARY ($)
Stephen Rade, Year ended 12/31/98 350,000 (1)
President Year ended 12/31/97 350,000 (2)
and Director Year ended 12/31/96 347,825 (3)
Ronald E. Badke Year ended 12/31/98 135,000
Chief Financial Officer Year ended 12/31/97 135,000 (4)
Year ended 12/31/96 129,515 (5)
Warren H. Haber, Year ended 12/31/98 -0- (6)
Chairman of the Board and Year ended 12/31/97 -0- (6)
Former Chief Executive Year ended 12/31/96 -0- (6)
Officer
Robert W. Tauber, Year ended 12/31/98 36,923
Vice President and Director Year ended 12/31/97 128,269
Year ended 12/31/96 177,865
- ---------------------
(1) Includes a bonus of $200,000 earned in 1998 and payable in
1999 pursuant to an agreement relating to the acquisition of
Advanced Fox. See Item 12.
(2) Includes a bonus of $200,000 earned in 1997 and payable in
1998 pursuant to an agreement relating to the acquisition of
Advanced Fox. See Item 12.
(3) Includes a bonus of $157,768 earned in 1996 and paid in 1997
pursuant to an agreement relating to the acquisition of
Advanced Fox. See Item 12.
(4) Does not include a bonus of $15,000 earned in 1996 and paid
in 1997.
(5) Includes a bonus of $15,000 earned in 1996 and paid in 1997.
(6) Appointed acting Chief Executive Officer in September 1996.
Resigned in 1998. See Item 13 for compensation paid to his
affiliate.
Employment Agreements
The Company entered into employment agreements in April 1996
with each of Messrs. Rade and Tauber. The agreements provide for
Mr. Rade to receive a salary of $150,000 per annum during the
three-year term and for Mr. Tauber to receive a salary of
$150,000 during the first year and $120,000 during the second
year. Mr. Tauber's agreement terminated on April 11, 1998.
Mr. Rade's agreement obligates the Company to continue his
compensation for the term of the agreement in the event of a
termination of the officer's employment by the Company without
cause. Messrs. Tauber and Rade have agreed not to compete with
the Company or solicit any employees of the Company for a period
of five years, subject to a shorter period should the Company
breach the agreement. Applicable law may reduce the time period
of the covenant not to compete. Mr. Rade, following his election
as President and Chief Executive Officer, has continued to work
under his existing contract.
Mr. Ronald E. Badke is employed pursuant to an employment
agreement as amended in January 1998 expiring March 31, 1999 at
an annual salary of $120,000 through December 31, 1997 and
$135,000 thereafter with provision for an annual bonus of up to
25% of the base salary subject to the achievement of certain
goals.
Directors
The Company does not pay a fee to its directors. It
reimburses those directors who are not employees of the Company
for their expenses incurred in attending meetings.
Stock Options
The Company's Stock Option Plan (the "Plan") relates to
250,000 shares of its Common Stock and authorizes the Board of
Directors or a Stock Option Committee appointed by the Board to
grant incentive stock options and non-incentive stock options to
officers and key employees, directors, and independent
consultants, with directors who are not employees and consultants
eligible only to receive non-incentive stock options. The Board
has authorized, subject to stockholders approval, an increase to
450,000 in the number of shares subject to the plan.
The following table sets forth the details about the options
granted during 1998 to the executive officers named in the
Summary Compensation Table. Only Steven Rade received an option
grant during the year.
Option Grants in Last Fiscal Year
Potential realizable value
Percent of Total at assumed annual rates
Number of Shares Options Exercise of stock price appreciation
Underlying Options Granted in Price per Expiration for option term
Name Granted Fiscal Year Share Date 5% 10%
Steven Rade 25,000 14% $1 3/8 08/01/03 $43,872 $55,361
The following table sets forth the number of shares which
underlie unexercised options held at December 31, 1998, by the
executive officers named in the Summary Compensation Table. None
of those persons exercised options during 1998.
Fiscal Year End Option Values
Number of Shares Underlying
Unexercised Options at Fiscal
Year End (1)
Name Exercisable Unexercisable
Steven Rade 12,500 12,500
Ronald E. Badke 56,668 8,332
- ------------------------
(1) None of the outstanding options held by the named
individuals were in-the-money on December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information with respect to
the beneficial ownership as of March 24, 1999 of shares of Common
Stock of (a) each executive officer, (b) each director, and
(c) each stockholder of the Company known to own beneficially
more than 5% of the outstanding shares of Common Stock, as well
as all executive officers and directors as a group.
NUMBER OF SHARES
BENEFICIALLY OWNED PERCENTAGE
Christopher F. McConnell 0 0
1336 Enterprise Drive
West Chester, PA 19380
Robert W. Tauber 246,667 (1) 5.1%
2192 Harbour Heights Road
San Diego, CA 92109
Stephen Rade 672,500 (2) 13.9%
3915 Sommers Drive
Huntingdon, PA 19606
Ronald E. Badke 56,668 (3) 1.2%
50 Tannery Road
North Branch, NJ 08876
Kenneth Rickel 0 0
590 Madison Avenue
New York, NY 10022
Allan Kalish 12,500 (4) **
828 Youngsford Road
Gladwyn, PA 19035
Barbara M. Henagan 0 0
35 Valley Road
Atlanta, GA 30305
Bradley T. MacDonald 0 0
11445 Cronhill Drive
Owings Mills, MD 21117
Kennedy Capital Management 238,700 5.0
10829 Olive Boulevard
St. Louis, MO 63141
Directors & officers as a group 988,335 (5) 20.5%
(8 in total)
- ----------------------
(1) Includes 51,667 shares issuable upon exercise of options
which are exercisable within 60 days.
(2) Includes 12,500 shares issuable upon exercise of options
which are exercisable within 60 days.
(3) Represents shares issuable upon exercise of options which
are exercisable within 60 days.
(4) Includes 10,000 shares issuable upon exercise of options
which are exercisable within 60 days.
(5) Includes 130,835 shares issuable upon exercise of options
which are exercisable within 60 days.
** Denotes less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In consideration for the acquisition of Tauber and Advanced
Fox, the Company in April 1996 issued to Mr. Robert W. Tauber
300,000 shares of Common Stock and a five year option to purchase
an additional 50,000 shares at $5.00 per share and issued to
Mr. Stephen Rade 660,000 shares of Common Stock; and paid cash of
$3,289,000 to an affiliate of Mr. Tauber, and $2,175,000 to
Mr. Rade. Mr. Rade also has a contingent right to receive
additional cash consideration of up to $600,000, but not more
than $200,000 per year, depending on the achievement of
designated levels of pre-tax earnings by the Advanced Fox
subsidiary over the three year period ending December 31, 1998.
Mr. Rade earned $200,000, $176,353 and $157,758 based on the
earnings of Advanced Fox for the years ended December 31, 1998,
December 31, 1997 and December 31, 1996, respectively.
The principal offices of Advanced Fox, which comprise
approximately 6,400 square feet in Huntingdon Valley,
Pennsylvania, are occupied under a five-year lease terminating
December 31, 1999 with Rare Limited Partnership, of which
Mr. Rade and his wife are the partners. The lease, as amended
with respect to additions to the facility, provides for an annual
rent of $70,000 with the tenant obligated to pay the applicable
real estate taxes, and maintenance and insurance costs. Rental
payments for the twelve months ended December 31, 1998,
December 31, 1997 and December 31, 1996 were $76,000, $76,000 and
$70,800, respectively.
PRIOR MANAGEMENT
Messrs. Warren H. Haber, the then Chairman of the Board and
John L. Teeger, the former Vice President, Secretary and Director
of the Company were the sole stockholders, officers and directors
of Founders Management Services Inc. ("Founders"). Pursuant to
an agreement dated as of June 6, 1995, as subsequently amended,
Founders was to provide advice and consultative services
regarding management, overall strategic planning, acquisition
policy, relations with commercial and investment banking
institutions, and stockholders matters to or on behalf of the
Company. The agreement is for a term expiring in April 1999,
subject to five one-year renewal options and provides for
Founders to receive a base fee of $150,000 per annum. Founders
is also to receive an additional fee of 5% of the Company's
annual pre-tax income in excess of $1,250,000. Under the
agreement, Founders is entitled to receive originating fees with
respect to acquisitions or financings for which it performed
originating services - the fee to be that customarily charged by
non-affiliated investment bankers or professional originators for
transactions of similar size and nature. To determine the fees
customarily charged, the Company is to review then current proxy
statements and investment publications and consult with
nonaffiliated investment bankers for the computation of
originating fees in similar transactions as those in which the
Founders' originating services have been employed. The amount of
the fee is to be subject to the approval of a majority of the
Directors not affiliated with Founders. Founders received for
its origination and consultation services in connection with the
combination with Advanced Fox and Tauber a fee of $150,000; and
in connection with the Battery Network acquisition and related
financing of $13,000,000, a fee of $240,000 and five year
warrants to purchase 100,000 shares of Common Stock at a price of
$4.125 per share issued to the extent of 50,000 shares each to
Messrs. Haber and Teeger as designees of Founders.
In February 1998 the Management Agreement was revised by
mutual consent to eliminate the origination and incentive fee
provisions of the original agreement, and to establish April 30,
1999 as the expiration date for the Agreement. The revised
agreement thereby limits fees paid to Founders to an annual fee
of $150,000, payable monthly.
Since June, 1998, when Messrs. Haber and Teeger resigned as
officers and directors of the Company, Founders has provided no
services to the Company and the Company has not paid any fees to
Founders. Although neither the Company nor Founders has formally
terminated the Management Agreement, both parties have acted as
if the Management Agreement has been terminated.
PART IV
Item 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this
Report.
1. Financial Statements - The following consolidated
financial statements of the Company and
Independent Auditors Report are filed as part of
the Report:
Page
INDEPENDENT AUDITORS' REPORT ............................. F-1
CONSOLIDATED BALANCE SHEETS AS OF December 31, 1998 AND
December 31, 1997 ................................... F-2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
December 31, 1998, December 31, 1997 AND December 31,
1996 ................................................ F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE
YEARS ENDED December 31, 1998, December 31, 1997 AND
December 31, 1996 ................................... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
December 31, 1998, December 31, 1997 AND December 31,
1996 ................................................ F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ............... F-8 -
F-22
2. Financial Statement Schedules - Financial
statement schedules have been omitted because they
are not applicable, not required or the required
information has been given in the Consolidated
Financial Statements of the Company and Notes
thereto.
3. Exhibits.
EXHIBITS
2(a) Copy of Agreement and Plan of Merger with respect to
Advanced Fox Antenna, Inc.*
2(a)-1 Copy of Amendment to Merger Agreement*
2(b) Copy of Stock Purchase Agreement with respect to
Tauber Industries Inc.*
2(b)-1 Copy of Amendment to Stock Purchase Agreement*
2(c) Copy of Stock Purchase Agreement with respect to
Specific Energy Corp.*
2(d) Copy of Stock Purchase Agreement relating to Battery
Network, Inc. **
2(e) Copy of Stock Purchase Agreement relating to W.S.
Battery Sales & Company, Inc.**
2(f) Copy of Asset Purchase Agreement relating to WSJ
Enterprises, Inc.**
3(a) Certificate of Incorporation of Company and amendments
thereto*
3(b) By-Laws of Company*
4(a) Copy of Common Stock Certificate*
4(b) Copy of Warrant*
10(a) Copy of Warrant Agreement related to Redeemable Stock
Purchase Warrants*
10(b) Form of Purchase Option issued to underwriter of
initial public offering*
10(c) Copy of Preferred Stock, Series A Certificate*
10(d) Stock Option Plan of Company*
10(d)-1 Forms of Option Agreement under the Plan*
10(e) Copy of option issued to Mr. Robert W. Tauber*
10(f) Copy of Management Services Agreement between Company
and Founders Management Services, Inc., as amended*
10(g) Copy of Employment Agreement with Robert W. Tauber*
10(h) Copy of employment agreement with Stephen Rade, as
amended*
10(i) Copy of Employment agreement with William Steven Sapp**
10(j) Copy of Employment agreement with James Sapp**
10(j)-1 Copy of Agreement dated January 8, 1998 between the
Company and James Sapp related to the employment
agreement
10(k) Copy of Employment agreement with Susan Grandt**
10(l) Copy of employment Agreement with Mr. Ronald E. Badke*
10(m) Copy of agreement relating to termination of the
Employment Agreement of Donald L. Luke***
10(n) Copy of lease between Advanced Fox Antenna, Inc. and
Rade Limited Partners*
10(o) Copy of lease with J.W.S. Partnership related to the
McHenry, Illinois property**
10(p) Copy of the lease with J.W.S. Partnership related to
the North Branch, New Jersey property**
10(q) Copy of Registration Rights Agreement between Company
and Messrs. Tauber and Rade*
10(r) Form of Warrant issued to each of Warren H. Haber and
John L. Teeger **
10(s) Copy of Revolving Credit, Term Loan and Security
Agreement, dated January 6, 1997 among IBJ Schroder
Bank & Trust Company as Agent and the Company, Advanced
Fox Antenna, Inc., Tauber Electronics Inc., Battery
Acquisition Corp., Specific Energy Corporation, Battery
Network, Inc. and W.S. Battery & Sales Company, Inc.
(the "Loan Agreement)**
10(s)-1 Copy of Amendment No. 1 to the Loan Agreement and
Joinder Agreement with IBJ Schroder Bank & Trust
Company as Agent dated May 13, 1997****
10(s)-2 Copy of Amendment No. 2 and Waiver*****
27 Financial Data Schedule
- -------------
* Filed as an exhibit to the Company's Registration Statement
on Form S-1 (File #33-80939) and incorporated by reference
thereto.
** Filed as an exhibit to the Company's Current Report on
Form 8-K for January 7, 1997 and incorporated by reference
thereto.
*** Filed as an exhibit to the Company's Current Report on
Form 8-K for September 6, 1996 and incorporated by reference
thereto.
**** Filed as an exhibit to the Company's Report on Form 10-Q for
the three months ended June 30, 1997 and incorporated by
reference thereto.
***** Filed as an exhibit to the Company's Report on Form 10-K
for 1997 and incorporated by reference hereto.
(b) Reports On Form 8-K. No reports on Form 8-K were filed
during the fourth quarter of 1998.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Batteries Batteries, Inc.
We have audited the accompanying consolidated balance sheets
of Batteries Batteries, Inc. and subsidiaries (the Company) as of
December 31, 1998 and 1997 and the related consolidated
statements of operations, stockholders' equity and of cash flows
for each of the three years in the period ended December 31,
1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the consolidated
financial position of Batteries Batteries, Inc. and subsidiaries
at December 31, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years
in the period ended December 31,1998 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
San Diego, CA
March 30, 1999
BATTERIES BATTERIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 330,647 $ 540,429
Accounts receivable (net of allowance for
doubtful accounts of $563,117 and $589,882,
respectively) 7,150,665 7,637,717
Inventories 9,451,734 11,931,938
Prepaid expenses and other current assets 339,985 580,453
Current deferred income taxes 210,734 219,139
Total current assets 17,483,765 20,909,676
PROPERTY AND EQUIPMENT- Net 1,335,680 1,327,737
EXCESS OF COST OVER NET ASSETS ACQUIRED (net of
accumulated amortization of $237,525 and
$269,580, respectively) 5,109,742 5,905,379
OTHER ASSETS 555,509 394,814
TOTAL $24,484,696 $28,537,606
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 600,000 $ 600,000
Accounts payable 3,887,841 3,107,665
Accrued expenses 1,463,502 2,349,626
Current portion of obligations under capital
leases - 8,385
Total current liabilities 5,951,343 6,065,676
LONG-TERM DEBT 8,865,156 10,742,028
COMMITMENTS AND CONTINGENCIES (Notes 8 and 11) - -
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.001, 1,000,000
shares authorized, no shares issued or
outstanding
Common Stock, par value $.001, 10,000,000
shares authorized, 4,743,000 shares - -
and 4,000,000 shares issued and outstanding,
respectively 4,743 4,743
Additional paid-in capital 10,715,830 10,715,830
Retained earnings (deficit) (1,052,376) 1,009,329
Total stockholders' equity 9,668,197 11,729,902
TOTAL $24,484,696 $28,537,606
See notes to consolidated financial statements.
BATTERIES BATTERIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
1998 1997 1996
Net Sales $51,453,841 $53,974,212 $25,650,075
Cost of sales 35,419,511 37,676,966 17,804,883
Gross profit 16,034,330 16,297,246 7,845,192
Selling, general and
administrative expenses 17,126,583 14,437,595 7,004,489
Impairment of excess cost over
net assets acquired 558,112 - -
Income (loss) from operations (1,650,365) 1,859,651 840,703
Interest income (expense), net (790,412) (726,273) 12,543
Income (loss) before income taxes (2,440,777) 1,133,378 853,246
Income taxes expense (benefit) (379,072) 565,375 336,920
Net income (loss) (2,061,705) 568,003 516,326
Preferred stock dividend
requirements - 15,000 60,000
Net income (loss) attributable
to common stockholders $(2,061,705) $ 553,003 $ 456,326
=========== ========== ==========
Basic earnings (loss)
per common share $ (0.44) $ 0.12
=========== ==========
Diluted earnings (loss)
per common share $ (0.44) $ 0.12
=========== ==========
Basic common shares outstanding 4,743,000 4,688,803
Weighted average common and common
equivalent shares outstanding 4,743,000 4,688,803
Pro Forma Income Data (Unaudited)
Income before provision for
income taxes as reported $ 853,246
Pro forma income tax provision 349,831
Pro forma net income $ 503,415
==========
Pro forma net income per share -
basic and diluted $ 0.11
==========
For the fiscal year ended December 31, 1996, operating
results of closely held nontaxable predecessor companies have
been combined with taxable predecessor companies. Pro forma net
income results have been presented, reflecting an estimated
effective income tax rate of 41%. Pro forma net income per share
was based on the weighted average number of shares of common
stock outstanding prior to and after the Company's initial public
offering.
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Class A
Preferred Stock Common Stock Common Stock
Retained
Paid-in Earnings
Shares Amount Shares Amount Shares Amount Capital (Deficit) Total
Balance, January 1, 1996 1,000,000 $1,000 517,990 $ 518 222,010 $ 222 $ 1,506,760 $ 5,024,730 $ 6,533,230
Conversion of Class A (517,990) (518) 517,990 518 - - -
Common Stock to Common
Stock
Elimination of retained
earnings of Founding
Companies to reflect
the Merger 5,024,730 (5,024,730) -
Proceeds of Offering,
net of underwriting
discounts and offering
costs 2,300,000 2,300 9,132,700 9,135,000
Issuance of 960,000 shares
of Common Stock to
stockholders of Founding
Companies 960,000 960 960
Use of portion of proceeds
of Offering to pay the
cash portion of the
Merger consideration (6,665,352) (6,665,352)
Reclassification of
Preferred Stock to
Redeemable Preferred
Stock upon consummation
of the offering (1,000,000) (1,000) (999,000) (1,000,000)
Preferred stock
dividends paid (60,000) (60,000)
Net income __________ ______ _______ _____ _________ _______ ___________ 516,326 516,326
Balance, December 31, 1996 - - - - 4,000,000 4,000 7,999,838 456,326 8,460,164
Issuance of 550,000 shares
of Common Stock to
stockholders of Battery
Network 550,000 550 2,269,200 2,269,750
Issuance of 193,000 shares
of Common Stock to
stockholders of Cliffco
of Tampa Bay 193,000 193 446,792 446,985
Preferred stock
dividends paid (15,000) (15,000)
Net income __________ ______ _______ _____ _________ _______ ___________ 568,003 568,003
Balance, December 31, 1997 - - - - 4,743,000 4,743 10,715,830 1,009,329 11,729,902
Net loss __________ ______ _______ _____ _________ _______ ___________ (2,061,705) (2,061,705)
Balance, December 31, 1998 $ $ 4,743,000 $ 4,743 $10,715,830 $ (1,052,376) $ 9,668,197
========== ====== ======= ===== ========= ======= =========== ============ ============
/TABLE
BATTERIES, BATTERIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1998 1997 1996
OPERATING ACTIVITIES:
Net income (loss) $ (2,061,705) $ 568,003 $ 516,326
Adjustments to reconcile net
income (loss) to net cash
(used in) provided by
operating activities:
Depreciation and amortization
expenses 749,402 647,190 188,075
Deferred income taxes 8,405 173,933 83,700
Impairment of excess cost over
net assets acquired 558,112 - -
Changes in assets and liabilities,
net of effects from acquisitions:
Accounts receivable 487,052 (1,738,187) (213,243)
Inventories 2,040,204 (2,460,565) (465,654)
Prepaid expenses and other assets (95,227) (128,760) (293,987)
Accounts payable and accrued
expenses (105,948) 1,174,459 377,863
Net cash provided by (used in)
operating activities 1,580,295 (1,763,927) 193,080
INVESTING ACTIVITIES:
Purchase of property and
equipment, net (619,028) (633,265) (407,015)
Acquisition of Specific
Energy Corporation, net of
cash acquired - - (50,882)
Disposal of Specific Energy
Corporation 715,000 - -
Acquisition of Battery Network,
net of cash acquired - (10,713,788) -
Acquisition of Cliffco if
Tampa Bay, net of cash acquired - (846,203) -
Net cash provided by (used in)
operating activities 95,180 (12,193,256) (457,897)
FINANCING ACTIVITIES:
Proceeds from the issuance
of common stock to stockholders
of Battery Network and Cliffco
Tampa Bay - 2,715,985 -
Borrowing under Term Loan Facility - 3,000,000 -
Borrowing under Revolving Credit
Facility - 8,892,028 -
Proceeds from Offering, net of
expenses - - 9,135,000
Payments to stockholders of Merger
companies in connection with
Mergers - - (6,665,352)
Redemption of preferred stock - (750,000) (250,000)
Net payments on borrowings (1,885,257) (1,742,012) (213,104)
Dividends paid - (50,000) (78,333)
Prepaid financing and acquisition
costs relating to the Battery
Network acquisition - (178,000) (90,000)
Repayment of note to minority
shareholder - - (180,000)
Prepaid Offering costs - - 270,604
Net cash (used in) provided
by financing activities (1,885,257) (11,888,001) 1,928,815
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (209,782) (2,069,182) 1,663,998
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 540,429 2,609,611 945,613
CASH AND CASH EQUIVALENTS, END OF
YEAR $ 330,647 $ 540,429 $ 2,609,611
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during period for:
Interest $ 863,337 $ 617,520 $ 81,386
Income Taxes $ 412,341 $ 508,071 $ 115,000
See notes to consolidated financial statements.
BATTERIES, BATTERIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations and Basis of Presentation - In
April 1996, Batteries Batteries, Inc. (the "Company") acquired,
by merger or stock acquisition (the "Mergers"), simultaneously
with the closing of its initial public offering of common stock
and redeemable warrants (the "Offering"), Advanced Fox Antenna,
Inc. ("Advanced Fox") and Tauber Electronics, Inc. ("Tauber"),
(collectively, the "Merger Companies") for common stock and cash.
These three businesses are referred to herein as the "Founding
Companies". As result of the substantial continuing interests in
the Company of the former stockholders of the Founding Companies,
the historical financial information of each of the Founding
Companies has been combined on a historical cost basis in
accordance with generally accepted accounting principles as if
the Founding Companies has always been member of the same
operating group. In June 1995, the Company acquired 95% of the
outstanding common stock of Specific Energy Corporation
("Specific Energy") in a business combination accounted for as a
purchase. (In June 1996, the Company acquired the remaining
minority 5% interest for cash.) In January, 1997, the Company
acquired the business and related assets of Battery Network, Inc.
("Battery Network") in a business combination accounted for as a
purchase. In May, 1997, the Company acquired the business and
related assets of Cliffco of Tampa Bay, Inc. ("CTB") in a
business combination accounted for as a purchase. The
accompanying consolidated financial statements and related notes
to the consolidated financial statements include the results of
the companies acquired since the effective dates of their
acquisitions.
The results of operations of the Founding Companies for
fiscal 1996 reflect the combined historical operating results of
closely held Subchapter S and C corporations through the
effective date of the Mergers and do not include pro forma
adjustments for income taxes. (See unaudited pro forma
information presented on the consolidated statements of income.)
Batteries Batteries, Inc. had previously reported on a
fiscal year ending January 31; Advanced Fox and Tauber have
previously reported on a fiscal year ending December 31. During
the second quarter of fiscal 1996, Batteries Batteries, Inc.
changed its fiscal year-end to December 31, 1996 to conform with
that of Advanced Fox and Tauber. For the year ended December 31,
1997, the results of operations include the results of Batteries
Batteries, Inc., Advanced fox and Tauber for a full fiscal year
and those of Battery Network and CTB from the effective dates of
their respective acquisitions. The results of operations are now
presented on a calendar year basis. For the year ended
December 31, 1996, the results of operations include the results
of Batteries Batteries, Inc. for eleven months ended December 31,
1996 and those of Advanced Fox and Tauber for the year ended
December 31, 1996.
Batteries Batteries, Inc. and its subsidiaries
(collectively, the "Company") are engaged in the distribution of
batteries, battery accessories and cellular products, accessories
and components in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents - The Company considers all highly liquid
investments with a maturity date of three months or less from the
date of purchase to be cash equivalents.
Concentration of Credit Risk - The Company invests its
excess cash in money market accounts and short-term investments.
The Company has not experienced any losses on its cash accounts
or short-term investments. The Company sells its products to
original equipment, maintenance and repair organizations,
commercial businesses, institutional users and retail consumers
primarily in the United States. Through its continuing
relationships with these customers, the Company performs credit
evaluations and generally does not require collateral. The
Company maintains a reserve for potential credit losses, and such
losses have been minimal.
Inventories - Inventories consist of batteries, battery
packs and related components and are carried at the lower of cost
(first-in, first-out) or market value.
Property and Equipment - Property and equipment are stated
at cost. Additions and improvements are capitalized.
Maintenance and repairs are expensed as incurred. Depreciation
and amortization of property and equipment is calculated under
straight-line and accelerated methods over the estimated useful
lives of the respective assets. Estimated useful lives are 30 to
40 years for buildings, and three to ten years for machinery and
equipment. Leasehold improvements are amortized over the shorter
of their estimated useful lives or the terms of their leases.
Property financed by capital leases (principally equipment) is
amortized on a straight-line basis over the shorter of the
estimated useful lives or remaining lease term. Amortization of
property financed by capital leases is included in depreciation
expense and accumulated depreciation.
Excess of Cost Over Net Assets Acquired - The excess of cost
over net assets acquired is being amortized on a straight-line
basis over twenty-five years. The carrying value of the excess
cost over net assets acquired is periodically reviewed to
determine whether impairment exists. The review is based on
comparing the carrying amounts to the undiscounted estimated cash
flows before interest charges from operations over the remaining
amortization period. No impairment is indicated as of
December 31, 1998.
Revenue Recognition - Revenue from product sales is
recognized at the time of shipment.
Income Taxes - The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes". Under the
liability method specified by SFAS No. 109, a deferred tax asset
or liability is determined based on the difference between the
financial statements and tax basis of assets and liabilities,
measured using enacted tax rates.
Earnings Per Share - In December 1997, the Company adopted
SFAS No. 128, "Earnings Per Share." Net income per common share-
basic was calculated based upon the weighted average number of
common shares outstanding during the period. Net income per
common share-diluted was calculated based upon the weighted
average number of common shares outstanding and includes the
equivalent shares for dilutive options outstanding.
Disclosures About Fair Value of Financial Instruments - The
carrying value at December 31, 1998 of the Company's financial
instruments approximated their fair value primarily due to the
short maturities of these instruments.
Recent Accounting Pronouncements - In June 1997, the
Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components
in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a
business enterprise during a period, resulting from transactions
and other events and circumstances from nonowner resources. The
company has no comprehensive income.
In June 1997, the FASB issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information". SFAS
No. 131 requires publicly held companies to report financial and
other information about key revenue-producing segments of the
entity for which such information is available and is utilized by
the chief operating decision maker. Specific information to be
reported for individual segments includes profit or loss, certain
revenue and expense items and total assets. A reconciliation of
segment financial information to amounts reported in the
financial statements would be provided. SFAS No. 131 is
effective for the Company in 1998. The Company operates as two
segments (see Note 15).
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133
("SFAS 133"), Accounting for Derivative Instruments and Hedging
Costs, and is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Although the Company is not
currently required to report under SFAS 133, the Company has
analyzed the potential impacts of implementing SFAS 133 and has
determined that implementation, when required, will not have a
material impact on the Company's financial statements.
Use of Estimates in the Preparation of Financial Statements
- - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications - Certain amounts in prior years have been
reclassified to conform to the current year presentation.
3. INITIAL PUBLIC OFFERING
On April 8, 1996, the Company completed its initial public
offering (the "Offering") of 2,300,000 shares of Common Stock at
an initial public offering price of $5.00 per share and 2,300,000
redeemable common stock purchase warrants (the "Warrants") at
$.10 per Warrant. The net proceeds to the Company, net of
underwriting discounts and Offering costs, were approximately
$9.1 million. Simultaneously with the Closing of the Offering,
the Company issued 960,000 shares of Common Stock and options to
purchase 50,000 shares of Common Stock and paid approximately
$5.9 million in cash to the former stockholders of the Merger
companies. In addition, the Company paid in 1996 an additional
$800,000 in cash to the former stockholders of the Merger
Companies in connection with price adjustments stipulated in the
respective merger agreements. The cash consideration paid to the
former stockholders of the Merger companies has been reflected as
a reduction of stockholders' equity in the consolidated financial
statements. The remaining cash proceeds from the Offering were
used for general corporate purposes.
4. ACQUISITION
On June 6, 1995, effective June 1, 1995, the Company
acquired 95% of the outstanding common stock of Specific Energy
Corporation ("Specific Energy") for approximately $1,013,000,
including $770,000 in cash, a note payable in the amount of
$180,000, and acquisition related expenses of approximately
$63,000 (the "Acquisition"). In September 1996, the Company
acquired the remaining 5% interest for approximately $51,000 in
cash and repaid the note payable of $180,000. The Acquisition
was accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16. The purchase price was
allocated to the underlying assets and liabilities based upon
their respective fair values. The allocation of the purchase
price included the assignment of approximately $604,000 to excess
of cost over net assets acquired. The results of Specific Energy
are included in the consolidated financial statements from the
effective date of its acquisition.
On January 7, 1997 effective January 1, 1997, the Company
acquired (the "BN Acquisition") the business and related assets
of Battery Network, Inc. and affiliated companies ("Battery
Network"), which operates principally in California, New Jersey
and Illinois, and had combined revenues of approximately
$23 million for the year ended December 31, 1996. The purchase
price of approximately $11.2 million consisted of
(i) approximately $8.3 million in cash; (ii) 550,000 shares of
Common Stock valued at a price of $4.125 per share and five year
options to purchase an additional 225,000 shares at an exercise
price of $4.50 per share, and (iii) approximately $590,000 in
transaction costs.
The Battery Network agreement also provides the sellers the
contingent right to receive additional consideration of up to
$1 million in cash 350,000 shares of Common Stock and five year
options to acquire $250,000 shares of Common Stock, of which half
are exercisable at $4.50 per share and half are exercisable at
$6.00 per share. Payment of the additional consideration is to
be based on the excess amount by which the combined "per-tax
income" as defined of Battery Network and Tauber, exceeds
(i) $2,100,000 for the year ending December 31, 1997 (the "One-
Year Period), (ii) $4,200,000 for the two-years ended
December 31, 1998 (the "Two-Year Period:) or (iii) $6,300,000 for
the three year ending December 31, 1999 (the "Three Year
Period"), with the maximum amount of additional consideration to
be paid if the excess is $400,000 for the One-Year Period,
$800,000 for the Two-Year Period or $1,200,000 for the Three-
Year-Period. The sellers also entered into employment agreements
and were granted options under the Company's Stock Option Plan to
purchase an aggregate of 50,000 shares of Common Stock. During
1997, there was no additional consideration earned or paid by the
Company to the sellers of Battery Network.
In May, 1997, the Company acquired the business and related
assets of Cliffco of Tampa Bay, Inc. ("CTB"). The purchase price
of approximately $615,000 consisted of (i) cash of approximately
$75,000 (ii) 193,000 shares of common stock valued at $2.35 per
share or $446,985 and (iii) approximately $93,000 in transaction
costs. In addition, the Company assumed liabilities of
$1,162,000. As part of its assumption of liabilities, the
Company paid at the closing indebtedness of CTB of approximately
$560,000. The CTB agreement provides the president and sole
stockholder of the seller with a three-year employment agreement.
The cash portion of the purchase price of each transaction,
as well as the repayment of CTB debt of $560,000 to its
collateralized lender was funded with a portion of the proceeds
of a borrowing pursuant to a Revolving Credit, Term Loan and
Security Agreement, dated January 6, 1997, as amended May 13,
1997 (the "Loan Facility"), between IBJ Schroder Bank & Trust
Company, as Agent ("IBJ") and the Company and all its
subsidiaries. See Note 6.
The BN Acquisition and CTB Acquisition were accounted for as
purchases in accordance with Accounting Principles Board Opinion
No. 16. The total purchase price, net of cash acquired, was
allocated to the assets acquired and liabilities assumed based on
their estimated fair values, as follows:
(in Thousands)
Battery Network CTB
Accounts Receivable $ 2,522 $ 648
Inventories 4,679 347
Property and equipment 185 79
Other assets 177 32
Accounts payable, accrued expenses and
debt (1,307) (1,321)
Excess of cost over net assets acquired 4,458 1,061
Total $10,714 $ 846
The excess of the cost over the net assets acquired will be
amortized over a period of 25 years. The results of operations
of Battery Network and CTB are included with those of the Company
for the periods subsequent to the dates of acquisition.
The following unaudited pro forma summary data in the
consolidated statements of operations presents the consolidated
results of operations of the Company for the year ended
December 31, 1997 and December 31, 1996, as if the BN and CTB
acquisitions had been completed at the beginning of 1996 and does
not purport to be indicative of what would have occurred had the
acquisitions actually been made as of such date or dates or
results which may occur in the future.
December 31,
1997 1996
Net sales $55,767,000 $53,386,000
Net income attributable to common
stockholders $ 505,000 $ 469,000
Income per share attributable to
common stockholders $ 0.11 $ 0.10
Sale of Specific Energy, Inc. - During the second quarter of
1998, the Company made the decision to exit the retail battery
business and explore the sale of Specific Energy Corporation
("Specific Energy") in Phoenix, Arizona (which is the Company's
sole retail facility). Consistent with Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and Assets to be Disposed Of,"
management determined that a portion of the carrying value of the
Company's excess of cost over net assets acquired was impaired.
Accordingly, the Company recorded a charge of $558,112, which
principally represented the remaining unamortized excess of cost
over net assets acquired that resulted from the Company's
acquisition of Specific Energy in 1995. On September 14, 1998,
the Company sold the retail assets of Specific Energy for cash
proceeds of approximately $715,000, which represented the
approximate carrying value of the net assets sold and applicable
transaction costs.
5. PROPERTY AND EQUIPMENT - consists of the following:
December 31,
1998 1997
Machinery and equipment $ 2,082,595 $ 1,991,180
Furniture and fixtures 191,550 144,389
Vehicles 49,265 60,237
Lease improvements 264,052 287,006
2,587,462 2,482,812
Less accumulated depreciation (1,251,782) (1,155,075)
Property and equipment, net $ 1,335,680 $ 1,327,737
6. DEBT - consists of the following:
December 31,
1998 1997
Revolving Term Loan Agreement $ 9,465,156 $11,342,028
Less current portion (600,000) (600,000)
Long-term debt, net $ 8,865,156 $10,742,028
The weighted average interest rates in effect on debt for the
years ended December 31, 1998 and 1997 was 8.25%, respectively.
Revolving Term Loan Agreement - The Company entered into a
Revolving Credit, Term Loan and Security Agreement, dated
January 6, 1997, as amended August 14, 1998 (the "Loan
Facility"), with IBJ Schroder Bank and Trust Company, as Agent
("IBJ"). The Loan Facility consists of a $3,000,000 Term Loan
(the "Term Loan") payable in 35 monthly installments of $50,000
each with the balance to be paid at maturity and a Revolving
Credit Facility (the "Revolver Loan") of up to $10,000,000 to be
advanced at the rate of 80% of eligible accounts receivable and
40% of inventories. The Revolver Loans bears interest at the
rate of 1/4 of 1% plus the higher of i) the base commercial
lending rate of IBJ or ii) the weighted average of the rates on
overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers plus 1/4 of 1%,
or, at the option of the Company at the Eurodollar rate plus 2%.
The Eurodollar rate is defined as Libor for a designated period
divided by one less the aggregate reserve requirements. The
interest on the Term Loan is 1/2% higher than the interest rate
on the Revolver Loans. The Loan Facility is secured by a pledge
of the assets of the borrowers and pledge of the outstanding
capital stock of the subsidiaries of the Company. As of
December 31, 1998, the principle amounts outstanding of Term
Loans was $1,489,218 and the Revolver Loans was $7,975,938.
The Loan Facility contains certain covenants which include
maintenance of certain financial ratios, maintenance of certain
amounts of working capital and net worth as well as other
affirmative and negative covenants. It also prohibits the
payment of dividends of common stock without consent. At
December 31, 1998, the Company was not in compliance with certain
of these covenants. On March 30, 1999, the Company entered into
an amendment to the Revolving Term Loan Agreement, whereby the
non-compliance at December 31, 1998 was waived, and the financial
covenants through December 31, 1999 were amended to reflect the
Company's current projections. In addition, the Company received
a one-year extension on its Loan Facility through January 7,
2001.
7. STOCKHOLDERS' EQUITY
The following depicts the capitalization of Batteries
Batteries, Inc. (the "Company"), which is presented as the
capital stock of the Company. Capital stock of the Merger
Companies is included in additional paid-in capital.
Capitalization - In June 1995, the outstanding 200 shares of
Common Stock, par value $.001 per share, were converted, pursuant
to an amendment to the Certificate of Incorporation, into an
aggregate of 214,300 shares (222,010 shares as adjusted for
December 1995 and March 1996 stock splits as described below) of
Common Stock, par value $.001 per share.
In June 1995, the Company effected a private placement of
its equity securities. The Company sold, at a price of $3.00 per
unit, 500,000 units, each consisting of two shares of the
Preferred Stock, Series A and one share of Class A Common Stock,
or an aggregate of 1,000,000 shares of Preferred Stock, Series A
and 500,000 shares (517,990 shares as adjusted for December 1995
and March 1996 stock splits as described below) of Class A Common
Stock. The proceeds of the unit sale were applied to consummate
the Specific Energy Acquisition and for working capital.On
December 26, 1995, the Company effected a 1.47 for 1 stock split
of the outstanding shares of Common Stock and Class A Common
Stock. On March 5, 1996, the Company effected a .70475 for 1
stock split of the outstanding shares of Common Stock and Class A
Common Stock. All share and per share information presented
herein has been adjusted to reflect the stock splits.
The terms of the classes of capital stock are as follows:
Preferred Stock - The Board of Directors of the Company,
without action by the stockholders, is authorized to issue shares
of Preferred Stock in one or more series and, within certain
limitations, to determine the voting rights (including the right
to vote as a series on particular matters), preferences as to
dividends and in liquidation, conversion, redemption and other
rights of each such series. The Board of Directors could issue a
series with rights more favorable with respect to dividends,
liquidation and voting than those held by the holders of any
class of common stock. The Preferred Stock, Series A shares were
nonvoting and were redeemed in accordance with their terms one
year following consummation of the initial public offering at the
redemption price of $1.00 per share plus accrued dividends from
the date of issuance at the rate of 8% per annum of the
redemption price. In May 1996, the Company redeemed 250,000
shares of Preferred Stock. In April 1997, the Company redeemed
the remaining 750,000 shares of the preferred stock at the
redemption price of $1.00 per share plus accrued dividends of 8%
per annum.
Class A Common Stock - The shares of Class A Common Stock
were automatically converted into like shares of the Common Stock
upon the consummation of the Offering in accordance with their
terms. The authority to issue Class A Common Stock terminated as
a result of the Offering and concurrent conversion.
Common Stock - The shares of Common Stock have one vote per
share. None of the shares have preemptive or cumulative voting
rights, redemption rights, are or will be liable for assessment
or further calls. The holders of the Common Stock are entitled
to dividends when declared from funds legally available
therefore.
Stock Options - The Company, on June 6, 1995, adopted the
Company's Stock Option Plan (the "Plan"), which as amended in
December 1995 relates to 250,000 shares of its Common Stock,
authorizing the Board of Directors or a Stock Option Committee
appointed by the Board to grant incentive stock options and non-
incentive stock options to officers and key employees, directors
and independent consultants, with directors who are not employees
and consultants eligible only to receive non-incentive stock
options. The Board of Directors in 1995 granted under the Plan
options to purchase 20,720 shares of Common Stock to two
directors at a price of $2.89 per share. In 1996, the Company
granted under the Plan five-year options to purchase an aggregate
of 195,000 shares of Common Stock to employees. The options are
exercisable at the initial Offering price per share of $5.00. In
1997, the Company granted, under the plan, five-year options to
purchase an aggregate of 75,000 shares of common stock to
employees of the Company. In 1998, the Company granted, under
the plan, five-year options to purchase an aggregate of 150,000
shares of common stock to employees of the Company. The options
are exercised at prices ranging from $1.38 to $5.00 per share.
At December 31, 1998, there were a total of 229,475 shares
available for grant.
The following information pertains to the stock options
outstanding for the three years ending December 31, 1998:
Option Price
Number of per Share
Shares (Outstanding)
Shares outstanding at January 1, 1996 20,720 $ 2.89
Granted 195,000 5.00
Shares outstanding at December 31, 1996 215,720 2.89 - 5.00
Granted 75,000 2.80 - 4.50
Forfeited (105,000) 5.00
Shares outstanding at December 31, 1997 185,720 $2.80 - 5.00
Granted 455,000 1.38 - 1.88
Forfeited (386,855) 2.75 - 5.00
Shares outstanding at December 31, 1998 303,865 $2.89 - 5.00
Shares exercisable at December 31, 1998 177,201
The Company accounts for the Plans in accordance with
Accounting Principles Board Opinion No. 25, under which no
compensation costs have been recognized for stock option awards.
Had compensation costs of the plans been determined under a fair
value alternative method as stated in SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company would have been
required to prepare a fair value model for such options and
record such amount in the financial statements as compensation
expense. Pro forma net income (loss), as adjusted, would have
been ($2,097,143) or $(.44) per share (basic and diluted),
$332,486 or $.07 per share (basic and diluted) and $426,926 or
$.10 per share for fiscal 1998, 1997 and 1996 respectively. The
Company arrived at the fair value of each stock grant at the date
of grant by using the Black Scholes pricing option model with the
following weighted average assumptions used for grants: risk-
free interest rate of 5.5%, 6.0% and 6.0% for 1998, 1997 and 1996
respectively; expected dividend yield of 0%; expected life of 5
years; and expected volatility of 117%, 83% and 35% for fiscal
1998, 1997 and 1996 respectively.
Additionally, in connection with the Battery Network
acquisition in 1997, the Company issued options to purchase
225,000 shares of common stock at an exercise price of $4.50 per
share and, in connection with the Tauber acquisition in 1996,
issued options to purchase 50,000 at an exercise price of $5.00
per share.
Warrants - In connection with the Offering, the Company sold
2,300,000 redeemable warrants to purchase the Company's common
stock.
Each Warrant is exercisable at a price of $5.00 per share
after April 8, 1997 and is redeemable by the Company thereafter
at a price of $.01 per Warrant upon not less than 30 days' prior
written notice if the last sale price of the Common Stock has
been at least $7.50 per share on the 20 consecutive trading days
ending on the third day prior to the date on which the notice of
redemption is given.
Also, in connection with the BN acquisition, on January 7,
1997 the Company issued five-year warrants to purchase 100,000
shares of common stock at a price of $4.125 per share.
8. LEASE COMMITMENTS
The Company leases various types of warehouse and other
space and equipment, furniture and fixtures under noncancelable
operating lease agreements which expire at various dates.
Certain leases for warehouse and other space contain rental
escalation clauses based on the Consumer Price Index. Future
minimum lease payments under noncancelable operating leases for
the years ending December 31, are as follows:
Operating Leases -
Amount
1999 $ 642,291
2000 593,039
2001 595,081
2002 483,698
2003 388,017
Thereafter 19,250
Total $2,721,376
Rent expense for all operating leases for the years ended
December 31, 1998, 1997 and 1996 was $724,414, $821,093, $245,455
respectively.
9. PROFIT SHARING PLAN
Tauber has a profit share plan covering substantially all of
its employees. Tauber makes contributions to the plan at its
discretion. The plan allows participating employees to make
voluntary deposits into the plan, subject to annual limits.
Contributions to the plan were $35,275, $141,123 and $41,364 for
the years ended December 31, 1998, 1997, and 1996, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes consists of:
Fiscal
1998 1997 1996
Current:
Federal $(445,477) $426,459 $132,561
State 158,000 147,226 120,659
(387,477) 573,685 253,220
Deferred:
Federal 4,328 (6,902) 66,170
State 4,077 (1,408) 17,530
8,405 (8,310) 83,700
Total provision (benefit)
for income taxes $(379,072) $565,375 $336,920
The approximate tax effects of temporary differences that
gave rise to deferred tax assets (liabilities) were as follows:
December 31,
1998 1997
Deferred income tax assets:
Reserves not currently deductible $110,829 $291,567
Accrued Expenditures not currently
deductible 188,044
Net Operating Loss 82,005
$380,878 $291,567
Deferred income tax liabilities:
Deductible Acquisition Costs $(78,914) $(75,174)
Excess of tax depreciation over
book (5,637) 2,656
State Taxes (71,787)
Prepaid Liabilities (13,806)
Net deferred tax asset $210,734 $219,139
The effective income tax rate varied from the U.S. Federal
statutory tax rate as follows:
Fiscal
1998 1997 1996
Statutory income tax rate 34.0% 34.0% 34.0%
State income taxes, net of Federal tax
benefit 1.7 6.9 9.9
Subchapter S corporation income not
subject to corporate level taxation (6.9)
Goodwill 11.0 8.6
Other 5.8 2.5
Effective tax rate 15.5% 49.5% 39.5%
Prior to the Offering, Advanced Fox was organized as a
S corporation. Also, on January 1, 1995, Tauber converted from
an S Corporation to a C Corporation. Subsequent to the Offering,
all subsidiaries are taxable entities and for Federal purposes
are included in a consolidated income tax return.
11. COMMITMENTS AND CONTINGENCIES
Litigation - The Company is, from time to time, party to
litigation arising in the normal course of its business.
Management believes that none of this litigation will have a
material adverse effect on the financial position or results of
operations of the Company.
12. RELATED PARTY TRANSACTIONS
Management Agreement - Messrs. Warren H. Haber, Chairman of
the Board and Chief Executive Officer and John L. Teeger, Vice
President, Secretary and Director of the Company are the sole
stockholders, officers and directors of Founders Management
Services, Inc. ("Founders"). Founders has agreed, pursuant to an
agreement (the "Management Agreement") dated as of June 6, 1995,
as subsequently amended, to provide advice and consultative
services regarding management, overall strategic planning,
acquisition policy, relations with commercial and investment
banking institutions, and stockholder matters to or on behalf of
the Company. The agreement, which is for a term expiring on a
date three years from the closing of the Offering, subject to
five one-year renewal options, provides for Flounder to receive a
base fee of $150,000 per annum. Founders is also to receive an
additional fee of 5% of the Company's annual pre-tax income in
excess of $750,000. Under the agreement, Founders will also be
entitled to originating fees with respect to acquisitions or
financing for which is performed originating services - the fee
to be that customarily charged by nonaffiliated investment
bankers or professional originators for transactions or similar
size and nature. Founders received a fee of $150,000 for its
origination and consulting services in connection with the
Mergers. Founders also received a fee of $240,000 for
originating and negotiating services in connection with the BN
Acquisition and Loan Facility, and was issued five year warrants
to purchase 100,000 shares of the company's Common Stock at a
price of $4.125 per share. In connection with the Management
Agreement, the Company paid Founders $56,115, $437,265, and
$245,024 during the years ended December 31, 1998, 1997 and 1996
respectively. In February 1998, the Management Agreement was
revised to eliminate the origination and incentive fee provisions
of the original agreement, and to establish April 30, 1999 as the
expiration date. The revised agreement thereby limits fees paid
to Founders to an annual fee of $150,000. On May 5, 1998, both
active principals of Founders resigned as officers and directors
of the Company, effectively terminating the relationship between
the Company and Founders.
The following is a summary of transactions with related
parties.
1998 1997 1996
Salary and bonus paid to stockholders $187,000 $804,188 $539,750
Interest expense paid to stockholders
and affiliates of stockholders - - 8,378
Rent expense paid to stockholders 214,734 252,551 70,000
13. SEGMENT DISCLOSURE (Unaudited)
Summary information by segment as of December 31, 1998 and
1997 and for the years ended December 31, 1988, 1997, and 1996 is
as follows:
Battery Wireless Corporate and Total
Segment Segment Unallocated Consolidated
Net sales 1998 24,590,109 26,863,732 - 51,453,841
1997 33,802,978 20,171,234 - 53,974,212
1996 11,805,107 13,844,968 - 25,650,075
Operating income (loss) 1998 (3,493,404) 3,591,738 (1,748,699) (1,650,365)
1997 701,221 2,169,089 (1,010,659) 1,859,651
1996 87,786 1,350,769 (597,852) 840,703
Assets 1998 11,893,730 8,926,314 3,664,652 24,484,696
1997 15,701,962 5,073,124 7,762,520 28,537,606
1996 5,641,315 3,927,747 2,162,705 11,731,767
Depreciation and amortization 1998 265,578 307,726 176,098 749,402
1997 322,854 204,499 119,837 647,190
1996 10,548 92,088 84,439 187,075
Provisions for bad debts and obsolete inventories 1998 1,001,057 490,007 - 1,491,064
1997 309,759 206,752 - 516,511
1996 73,770 149,416 - 223,186
Interest (income) expense and financing costs 1998 - - 790,412 790,412
1997 - 6,632 720,718 727,350
1996 - 66,212 (51,657) 14,555
Additional information regarding revenue by products and
service groups for the years ended December 31, 1998, 1997, and
1996 is as follows:
1998 1997 1996
OEM Value Added Sales 7,265,964 7,149,632 4,658,274
Cellular Products and Accessories 25,212,732 20,767,934 13,884,907
Other Battery Products 18,975,145 26,056,646 7,146,833
Total Sales 51,453,841 53,974,212 25,650,014
All revenue and essentially all long-lived assets were
related to operators in the United States as of and for the years
ended December 31, 1998, 1997 and 1996. In 1998 and 1997 no one
customer accounted for more than 10% of net sales.
Export sales accounted for the percentages of net sales for
the years ended December 31, 1998, 1997 and 1996 as follows:
1998 1997 1996
Europe, Middle East & Africa 351,448 608,765 93,761
Asia & Pacific 8,479 9,539 22,756
Americas Excluding U.S.A. 1,151,274 1,380,927 755,901
Total 1,511,201 1,999,231 872,418
Receivables from export sales for Advanced Fox Cellular and
Battery Network, Inc. at December 31, 1998 and December 31, 1997
were approximately $139,048 and $249,740 respectively.
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.
Batteries Batteries, Inc.
/s/ Steven Rade
Steven Rade
Chief Executive Officer
/s/ Ronald E. Badke
Ronald E. Badke,
Principal Financial Officer
Dated: March 30, 1999
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.
Name Title Date
/s/Christopher F. McConnell Chairman of the Board March 30, 1999
Christopher F. McConnell
/s/ Stephen Rade President, Chief March 30, 1999
Stephen Rade Executive Officer
and Director
/s/ Ronald E. Badke Chief Financial March 30, 1999
Ronald E. Badke Officer and
Secretary
(Principal Financial
Officer)
/s/ Kenneth Rickel Director March 30, 1999
Kenneth Rickel
/s/ Barbara M. Henagan Director March 30, 1999
Barbara M. Henagan
/s/ Robert W. Tauber Director March 30, 1999
Robert W. Tauber