<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File Number 1-15735
-----------------------------------------------------
Elgin Technologies, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-4581906
------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Columbia Drive
Amherst, NH 03031
------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(603) 598-4700
------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
-------------------------------------------------------------------------------
(Former name, former address and former year, if changed since last report)
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 periods 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 ___
<PAGE>
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes ___ No ___
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practical date: As of September 30, 2000,
17,591,601 shares Common Stock, $.000833 par value per share, were outstanding.
2
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
September 30, 2000
I N D E X
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (Unaudited):
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets as at September 30, 2000 (Unaudited)
and March 31, 2000 ............................................................ 4
Condensed Consolidated Statements of Operations
For the Three Months Ended September 30, 2000 and 1999
and for the Six months ended September 30, 2000 and 1999 (Unaudited).......... 5
Condensed Consolidated Statements of Changes in Capital Deficiency
For the Six Three Months Ended September 30, 2000 (Unaudited)
and for the Years Ended March 31, 2000 and 1999 ............................... 6
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended September 30, 2000 and 1999 (Unaudited)............... 7
Notes to Condensed Consolidated Financial Statements ........................... 9-12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................................... 16
Item 2. Changes in Securities....................................................... 16
Item 3. Defaults upon Senior Securities............................................. 16
Item 4. Submission of Matters to a Vote of Security Holders......................... 16
Item 5. Other Information........................................................... 16
Item 6. Exhibits and Reports on Form 8-K............................................ 16
Signatures.......................................................................... 17
</TABLE>
3
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
------
September 30, March 31,
2000 2000
------------- ---------
<S> <C> <C>
Current assets:
Cash $ 148,781 $ 144,839
Accounts receivable, less allowances for
doubtful accounts and customer deductions 1,014,054 1,194,315
Inventories, at cost, less allowances for
obsolescence, excess quantities and valuation 1,213,005 1,603,391
Prepaid expenses and other current assets 68,397 77,747
------------ -----------
Total current assets 2,444,237 3,020,292
------------ -----------
Property assets-at cost, net of accumulated depreciation 206,979 53,818
------------ -----------
Other assets:
Deferred financing costs, net of accumulated amortization 14,851 59,395
Deposits and other assets 4,088 88,708
------------ -----------
Total other assets 18,939 148,103
------------ -----------
$ 2,670,156 $ 3,222,213
============ ===========
LIABILITIES AND CAPITAL DEFICIENCY
----------------------------------
Current liabilities:
Revolving credit agreement $ 8,225,000 $ 6,725,000
Current maturities of long-term debt 2,206,663 2,206,663
Due to affiliates 1,668,404 1,141,273
Accounts payable 1,111,907 1,549,619
Pre-petition liabilities 1,012,000 1,012,000
Accrued expenses and other current liabilities 1,667,048 1,657,807
------------ -----------
Total current liabilities 15,891,022 14,292,362
------------ -----------
Long-term debt 2,206,663 2,206,663
Less: Current maturities 2,206,663 2,206,663
------------ -----------
Total long-term debt - -
------------ -----------
Stockholders' Capital deficiency:
Common stock, $.000833 par value
Authorized - 60,000,000 shares
Issued and Outstanding - 17,591,601 shares
at September 30, 2000 and March 31, 2000 14,653 14,653
Additional paid-in capital 28,690,432 28,690,432
Accumulated deficit (41,925,951) (39,775,234)
------------- -----------
Total Stockholders' Capital deficiency (13,220,866) (11,070,149)
------------- -----------
$ 2,670,156 $ 3,222,213
============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
September 30, September 30,
-------------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 1,469,681 $ 1,518,915 $ 3,626,270 $ 3,137,116
Cost of sales 1,145,037 1,731,129 3,318,159 3,434,276
------------ ------------ ------------ ------------
Gross margin (Loss) 324,644 ( 212,214) 308,111 ( 287,160)
------------ ------------ ------------ ------------
Operating expenses:
Selling 167,427 153,165 326,150 353,495
Research and development 153,760 198,880 341,486 463,744
General and administrative 509,403 515,216 1,083,859 1,137,381
------------ ------------ ------------ ------------
Total operating expenses 830,590 867,261 1,751,495 1,954,620
------------ ------------ ------------ ------------
Loss from operations ( 505,946) ( 1,079,475) ( 1,443,384) ( 2,241,780)
------------ ------------ ------------ ------------
Other expenses:
Interest 358,131 278,509 678,409 491,382
Other expenses 7,472 17,272 28,924 22,383
------------ ------------ ------------ ------------
Total other expenses 365,603 295,781 707,333 513,765
------------ ------------ ------------ ------------
Net Loss ($ 871,549) ($ 1,375,256) ($ 2,150,717) ($ 2,755,545)
============ ============ ============ ============
Net loss per common share ($0.05) ($0.08) ($0.12) ($0.16)
===== ===== ===== =====
Weighted average number of
shares outstanding 17,591,601 17,557,079 17,591,601 17,130,983
=========== ============ ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' CAPITAL
DEFICIENCY FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 (Unaudited)
AND FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stock
--------------------------
Number Additional Total
of Paid-In Accumulated Capital
Shares Amount Capital Deficit Deficiency
------ ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1998 7,130,333 $ 5,940 $21,188,374 ($30,495,744) ($ 9,301,430)
Purchase of redeemable common
stock for cash and issuance
of cashless warrants for debt - - 268,376 - 268,376
Net proceeds from sale of
securities 2,163,334 1,802 5,966,381 - 5,968,183
Common stock issued in partial
payment of acquisition
of subsidiary 100,000 83 299,917 - 300,000
Common stock issued in
settlement of litigation 16,800 14 50,386 - 50,400
Common stock issued as
employee compensation 97,200 81 291,519 - 291,600
Debt converted into common
stock and warrants 105,950 88 625,924 - 626,012
Conversion of warrants into
common stock 6,859,434 5,714 (5,714) - -
Net loss for the year - - - (5,002,896) (5,002,896)
--------- ------- -------- ------------ ------------
Balance at March 31, 1999 16,473,051 13,722 28,685,163 (35,498,640) (6,799,755)
Conversion of warrants into
stock 1,117,000 930 (930) - -
Conversion of debt into common - -
stock 1,550 1 6,199 - 6,200
Net loss for the year - - - (4,276,594) (4,276,594)
--------- ------- -------- ------------ ------------
Balance at March 31, 2000 17,591,601 14,653 28,690,432 (39,775,234) ($11,070,149)
Net loss for the six months ended
September 30,2000(unaudited) - - - (2,150,717) (2,150,717)
---------- ------- -------- ------------ ------------
Balance at September 30, 2000 17,591,601 $14,653 $28,690,432 ($41,925,951) ($13,220,866)
========== ======= =========== ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
September 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,150,717) ($ 2,755,545)
------------ -------------
Adjustments to reconcile net loss to
cash used in operating activities:
Accrued interest on affiliated debt 527,131 337,171
Depreciation and amortization 72,083 121,236
Provision for inventory obsolescence ( 302,663) ( 2,021,218)
Provision for doubtful accounts ( 3,987) -
Changes in assets and liabilities:
Accounts receivable 184,248 425,246
Inventories 693,049 1,863,972
Prepaid expenses and
other current assets 9,350 ( 58,241)
Deposits and other assets 84,620 3,360
Accounts payable ( 437,712) ( 26,192)
Accrued expenses and other
current liabilities 9,240 ( 90,991)
------------ -------------
Total adjustments 835,359 554,343
------------ -------------
Net cash used in
operating activities ( 1,315,358) ( 2,201,202)
------------ -------------
Cash flows used in investing activities:
Property assets ( 180,700) -
Cash flows from financing activities:
Proceeds from (repayment of)
affiliates debt 1,500,000 1,010,000
Repayment of Debt - ( 256,213)
------------ -------------
Net cash provided by
financing activities 1,500,000 753,787
------------ -------------
Net increase (decrease) in cash 3,942 ( 1,447,415)
Cash at beginning of period 144,839 1,584,480
------------ -------------
Cash at end of period $ 148,781 $ 137,065
============ =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
September 30, September 30,
--------------------------- -------------------------
2000 1999 2000 1999
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Supplemental Disclosures of
Cash Flow Information:
Cash payments made for:
Interest $ - $ 36,165 $ - $ 36,165
======== ======== ========= =========
Income taxes $ - $ - $ - $ -
======== ======== ========= =========
Supplemental Schedule of
Non-Cash Financing and
Investing Activities:
Conversion of debt to equity $ - $100,000 $ - $ 100,000
======== ======== ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
8
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
NOTE 1 - REALIZATION OF ASSETS - GOING CONCERN
The accompanying consolidated financial statements
have been prepared in conformity with generally accepted
accounting principles, which contemplate continuation of the
Company as a going concern. The Company has incurred substantial
operating losses in each of its segments for the year ended
March 31, 2000 and for the six months ended September 30, 2000.
Management on June 1, 1998 placed its contract engineering
division of its telecommunications segment into voluntary
liquidation when management caused a filing under Chapter 7 of
Title 11 of the United States Bankruptcy Code for its
wholly-owned subsidiary, e2 Electronics, Inc. ("Petitioner").
The Court appointed a trustee who is liquidating the assets of
Petitioner for the benefit of its creditors.
The accompanying consolidated financial statements
reflect working capital deficiencies of $11,272,070 and
$13,446,785 at March 31, 2000 and September 30, 2000,
respectively, of which $1,012,000 is attributable to the net
obligations of the Petitioner. Upon the conclusion of the
liquidation of the Petitioner, the capital deficiency at
September 30, 2000 will decrease by the forgiveness of the net
indebtedness of the Petitioner of $1,012,000. For the six months
ended September 30, 2000, the Company incurred losses of
$2,150,717 or $.12 per share. The Company's primary source of
cash has been the sale of its securities and loans from a
related party/stockholder.
The Company and/or its operating subsidiaries are
defendants in a number of legal actions, some of which, should
the plaintiffs prevail, would have a serious adverse effect on
the Company's financial condition.
The substantial operating losses of the Company
incurred through and subsequent to September 30, 2000 and the
Company's limited ability to obtain additional financing other
than from a related party/stockholder raises substantial doubt
concerning the ability of the Company to realize its assets and
pay its obligations as they mature in the ordinary course of
business. These conditions, among others, raise substantial
doubt about the Company's ability to continue as a going
concern. The accompanying consolidated financial statements do
not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and
classification of liabilities that might result should the
Company be unable to continue as a going concern.
9
<PAGE>
NOTE 2 - BANKRUPTCY PROCEEDINGS - CHAPTER 7
On June 1, 1998, management filed a petition for its
wholly owned subsidiary, e2 Electronics, Inc., under Chapter 7
of Title 11 of the United States Bankruptcy Code in the Western
District of Pennsylvania of the United States Bankruptcy Court
(the "Court"). e2 Electronics, Inc. sought to have the court
liquidate its assets and disburse the proceeds therefrom to its
creditors for which the Court appointed Trustee.
Certain assets aggregating $915,000 at historical
cost and certain liabilities aggregating $1,032,000 of the
Petitioner which were part of the Company's telecom power system
manufacturing segment were sold by management to another of the
Company's subsidiaries in that segment at the time of the filing
of the petition. This sale was reviewed by the Trustee who
required an auction for the net assets. The winning bid for the
net assets of $177,000 was from an entity controlled by the
Company's investment bankers. This entity in 1999 sold these net
assets to another of the Company's subsidiaries for the same
amount as the successful bidder.
NOTE 3 - ACCOUNTING POLICIES
In the opinion of management, all adjustments and
accruals (consisting only of normal recurring adjustments),
which are necessary for a fair presentation of operating
results, are reflected in the accompanying financial statements.
Reference should be made to Elgin Technologies, Inc.'s Annual
Report on Form 10-KSB for the fiscal year ended March 31, 2000
for a summary of significant accounting policies. Interim period
amounts are not necessarily indicative of the results of
operations for the full fiscal year.
NOTE 4 - INVENTORIES.
The components of the inventories in determining the cost of
sales are as follows:
<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000
------------------ --------------
<S> <C> <C>
Raw materials $ 2,210,000 $ 2,290,000
Work-in-process 190,000 740,000
Finished goods 510,000 553,000
------------- ------------
2,910,000 3,583,000
Allowance for obsolescence
and disposal 1,697,000 1,980,000
------------- ------------
$ 1,213,000 $ 1,603,000
------------- ------------
</TABLE>
Management estimates that the remaining $1,697,000
allowance for obsolescence at September 30, 2000 is sufficient
for the continuing operating segments to
10
<PAGE>
dispose of its obsolete and excess inventory including a
profit margin sufficient to cover the future costs to dispose
of these excess assets.
NOTE 5 - PROPERTY ASSETS.
Property assets, recorded at cost, consist of the following:
<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000
------------------ --------------
<S> <C> <C>
Machinery and equipment $ 62,400 $ 59,000
Furniture and fixtures 122,600 101,300
Leasehold improvements 106,500 157,000
------------ ----------
291,500 317,300
Less: Accumulated depreciation 84,500 263,500
------------ ----------
$207,000 $ 53,800
============ ==========
</TABLE>
Depreciation charged to operations in the three and
six months ended September 30, 2000 was $11,400 and $27,500,
respectively.
NOTE 6 - LOAN PAYABLE TO RELATED PARTY
Revolving Line of Credit:
In November 1998, the Company entered into a
revolving line of credit with a major stockholder. At March 31,
2000, $6,725,000 was outstanding under this facility. During the
six months ended September 30, 2000, the stockholder advanced an
additional $1,500,000 under the facility, which had a total
outstanding principal balance of $8,225,000 as at September 30,
2000. Since the Company has not made the required monthly stated
interest payments, accruing at 10% per annum, pursuant to the
terms of the agreement, the holder of the note is entitled to
raise the interest rate to 15% per annum. Accrued interest of
$1,563,000 and $977,000 is outstanding at September 30, 2000 and
March 31, 2000, respectively, which is included in amounts due
to affiliates in the accompanying financial statements. Interest
charged to operations was $586,000 for the six months ended
September 30, 2000 and $343,000 for the comparable period in
1999 a weighted average interest rate of 15%. The outstanding
principal and accrued interest thereon are collateralized by all
of the Company's assets. Additionally, at the holder's option,
the principal outstanding indebtedness is convertible into the
Company's common stock at $0.55 per share for the first
$4,225,000 of the obligation, $0.20 per share for the next
$1,050,000 of the obligation, and $0.10 per share for the
amounts in excess of $5,275,000. The convertibility of that
portion of the convertible debt, which could result in the
issuance of shares of common stock that would exceed the number
of shares then authorized pursuant to the
11
<PAGE>
Company's Certificate of Incorporation, is subject to and
conditioned upon the amendment of the Certificate of
Incorporation to authorize the issuance of such shares of
common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and related notes included herein.
FORWARD LOOKING STATEMENTS AND CERTAIN RISK FACTORS
The Company cautions readers that certain important factors may affect
the Company's actual results and could cause such results to differ materially
from any forward-looking statements that may be deemed to have been made in this
Form 10-QSB or that are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in the Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. Factors that may affect the Company's results
include, but are not limited to, the Company's lack of profitability, its
dependence on a limited number of customers and key personnel, its ongoing need
for additional financing and its dependence on certain industries. The Company
is also subject to other risks detailed herein or which will be detailed from
time to time in the Company's future filings with the Securities and Exchange
Commission.
RISK FACTORS
OPERATING LOSSES, CASH FLOW SHORTAGES AND GOING CONCERN
-------------------------------------------------------
The Company has limited access to available working capital, which
impacts the Company's ability to operate efficiently. As a consequence, results
from operations have been negatively affected and it is expected that they will
continue to be adversely affected. There exists a substantial risk that the
Company will be required to curtail its current business operations.
Since e(to the power of)2 Electronics, Inc. ("EEI") (the Company's
wholly-owned subsidiary) commenced operations in 1994, the Company and its
subsidiaries, have produced losses in each year and had an accumulated
deficit of $41,925,951 through and as at September 30, 2000. For the three
months ended September 30, 2000 the Company posted a loss of $871,549 on
revenues of $1,469,681. The major contributors to the accumulated losses
were: lack of significant increase in sales revenues, continued expenditures
on research and development efforts for the Master Lite(TM) system to market,
and capital constraints which affect the Company's efforts to rebuild its
telecom power and conversion business.
The Company and its subsidiaries have experienced cash flow
constraints throughout their operating history, which has negatively impacted
its abilities to increase its marketing
12
<PAGE>
efforts, which affected sales, and to purchase raw materials efficiently which
has impacted profit margins. In addition, the Company embarked on numerous
mergers and acquisitions that had negative consequences, such as unsuccessful
consolidations and restructurings which further strained the Company's cash
flows. Current Management is making every effort to reverse these trends by
reducing overhead, streamlining product line offerings by focusing on products
and designs with higher margins and rebuilding the Company's presence within the
market. These efforts will require working capital infusions and, accordingly,
Management cautions that there can be no assurances that these efforts will be
successful.
The Company is continuing its efforts to bring to market its Master
Lite(TM) product line, though there can be no assurance that the Company will
successfully complete the development of the product, or its introduction and
penetration of the product into the market. Until the Company is successful in
bringing the Master Lite(TM) to market and generating significant revenues, the
project will continue to negatively affect the Company's operating results.
The substantial operating losses of the Company's operating segments
incurred through and subsequent to September 30, 2000, and the Company's limited
ability to obtain financing other than from one major investor raises
substantial doubt concerning the ability of the Company to realize its assets
and pay its obligations as they mature in the ordinary course of business. These
conditions, among others, raise substantial doubt among the Company's
independent auditors about the Company's ability to continue as a going concern.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern. At present, the Company's
sole source of financing is from one major investor. Management cautions that
there can be no assurances that the investor will continue to provide financing
or that alternative sources of funds will be available for management to
implement its plan.
SUBSIDIARY BANKRUPTCY
---------------------
On June 1, 1998, EEI filed a Chapter 7 bankruptcy petition in the
United States Bankruptcy Court for the Western District of Pennsylvania. In
connection with the bankruptcy, DC&A Partners, EEI's largest secured creditor,
purchased EEI's assets from the Bankruptcy Court for $177,000. DC&A is a company
formed by principals of Mason Cabot, the Company's former investment banking
firm. Until the bankruptcy has been concluded, there is a possibility that the
Bankruptcy Court could invalidate certain pre-petition transactions or make
other findings, determinations or rulings that could have material adverse
effects on the Company and/or its properties. The Bankruptcy Trustee has named
the Company and its other subsidiaries as defendants in an adversary proceeding
within the bankruptcy seeking avoidance of alleged fraudulent transfers,
turnover of alleged property of the estate, equitable subordination, injunctive
relief and money damages. In a complaint filed on May 30, 2000 in the United
States Bankruptcy Court for the Western District of Pennsylvania, the Trustee
alleged improprieties by the defendants in connection with transfers of certain
assets and liabilities of EEI prior to the filing of the bankruptcy. An adverse
ruling in this proceeding could have a material adverse affect on the Company
and/or its other subsidiaries. The defendants believe that the Trustee's claims
are without merit and are vigorously defending same.
BUSINESS DEVELOPMENT RISKS
--------------------------
The Company is following a business plan intended to expand its sales
efforts and market penetration along with the continued development and
marketing of its Master Lite(TM)
13
<PAGE>
technology. Implementation of this plan will require substantial additional
capital for product development, marketing and promotion. No assurance can be
given that the Company will be successful in expanding its current sales or
distribution capabilities or developing new products that result in increased
sales and earnings or that its marketing and promotion activities will have the
intended effect of expanding sales and increasing earnings.
COMPLETION OF TECHNOLOGY DEVELOPMENT; RELIANCE ON NEW PRODUCT INTRODUCTIONS
---------------------------------------------------------------------------
The ability of the Company to execute its business plan is
substantially reliant upon the completion of the development of its proprietary
technologies including, but not limited to, Master Lite(TM) and the successful
marketing of products based upon those technologies. There can be no assurance
that the Company will complete this development or that such development will
result in viable and/or marketable products. The Company's failure to complete
the development of its technologies and/or market products based thereon could
have a material adverse effect on the Company's financial condition and results
of operations.
Furthermore, as a result of technological changes and developments,
many technologies are successfully marketed for only a short period of time.
There can be no assurance that (i) any of the Company's current or future
products will continue to be accepted for any significant period of time or (ii)
the market will accept the Company's new products, or if such acceptance is
achieved, that it will be maintained for any significant period of time. The
Company's success will be dependent upon the Company's ability to bring existing
products to market and to develop new products and product lines. The failure of
the Company's products and product lines to achieve and sustain market
acceptance and to produce acceptable margins could have a material adverse
effect on the Company's financial condition and results of operations.
NEED FOR ADDITIONAL FINANCING
-----------------------------
The Company currently has only one major investor as its sole financing
source. There can be no assurance that this investor will continue to fund the
Company's operations. Without working capital from this investor or an
alternative financing source, the Company could be required to curtail or
discontinue its current business operations. The Company's business plan is
based upon current assumptions about the costs of its implementation. If these
assumptions prove incorrect or if there are unanticipated expenses, the Company
may be required to seek additional equity and/or debt financing. No assurance
can be given that the Company will be able to obtain such financing upon
favorable terms and conditions. Moreover, no assurance can be given that the
Company will be able to successfully implement any or all of its business plan,
or if implemented, that it will accomplish the desired objectives of product
expansion and increased revenues and earnings.
RESULTS OF OPERATIONS
---------------------
SALES
-----
The Company had sales of $1,469,681 for the quarter ending September
30, 2000 versus $1,518,915 for the quarter ending September 30, 1999, a decline
of 3%. Management believes the slight decline to be temporary and attributes it
to a restructuring of the sales force to adjust to market conditions. For the
six month period ending September 30, 2000, sales increased to $3,626,270 from
$3,137,116 for the same period a year ago, an improvement of 16%.
14
<PAGE>
COST OF SALES
-------------
Based on a percentage of sales for the quarter ending September 30,
2000 versus the same period a year ago, cost of sales was reduced to 78% from
114%, an improvement of 36%. For the six month period ending September 30, 2000
versus the same period a year ago, cost of sales was reduced to 92% from 109%,
an improvement of 17%. This improvement is a result of Management's efforts to
change the Company's product line and sales mix to focus on higher margin
products. In addition, by narrowing the product mix, the Company has been able
to improve raw materials pricing and terms, thereby increasing margins.
OPERATING EXPENSES
------------------
For the quarter ending September 30, 2000 versus the same period a year
ago, operating expenses decreased $36,671 or 4%. Improvements in research and
development as well as general and administrative were somewhat offset by higher
sales costs. Operating expenses for the six month period ending September 30,
2000 versus the same period a year ago, improved by $203,1234 or 10%.
Improvements were in all three operating expense categories.
OTHER EXPENSES
--------------
Other expenses increased for the quarter ending September 30, 2000
versus the same period a year ago by $69,822 or 24%. For the six months ending
September 30, 2000 versus the same period a year ago, other expenses increased
$193,568 or 38%. The increase is due to increased borrowings from an affiliate.
(See Note 6)
SUBSEQUENT EVENTS
-----------------
A major stockholder advanced the Company additional working capital
funds of $750,000 during October and November 2000. As per the facility
agreement, the principal outstanding indebtedness is convertible by the holder
into the Company's stock at $0.10 per share. (See Note 6)
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that are
discussed in the Company's March 31, 2000 Form 10-KSB and June 30, 2000 10-QSB.
In addition, in October 2000 the Company settled a complaint filed on March 6,
2000 in the Cumberland Court Superior Court (Portland, Maine) by Lewis W.
Kuniegel and Judith A. Kuniegel against the Company (LEWIS W. KUNIEGEL, ET AL.
V. ELGIN TECHNOLOGIES, INC., Civil Action Docket No. CV-00-162). The settlement
was for an amount not material to the Company's financial position or results of
operations.
The results of legal proceedings cannot be predicted with certainty;
however, in the opinion of management, the Company does not have a potential
liability related to any legal proceedings and claims that would have a material
adverse effect on its financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES (Not applicable)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES (Not applicable)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Not applicable)
ITEM 5. OTHER INFORMATION
On July 31, 2000 for value received, the Company executed a Fifth
Amendment to Convertible Revolving Promissory Note (the "Note") in favor of
Horace T. Ardinger, Jr. The amendment increased the principal due on the Note by
$500,000. The additional principal is convertible into common stock of the
Company at conversion rates set to reflect the market price of the stock as of
the close of business on July 31, 2000.
On November 10, 2000 for value received, the Company executed a Sixth
Amendment to Convertible Revolving Promissory Note (the "Note") in favor of
Horace T. Ardinger, Jr. The amendment increased the principal due on the Note by
$750,000. The additional principal is convertible into common stock of the
Company at conversion rates set to reflect the market price of the stock as of
the close of business on November 10, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 2000.
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SIGNATURES
Pursuant to the requirements 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.
ELGIN TECHNOLOGIES, INC.
(Registrant)
Date: NOVEMBER 20, 2000 /s/ MICHAEL J.SMITH
----------------- ----------------------------------------
Name: MICHAEL J. SMITH
Title: EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
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