<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 June 30, 2000
Commission File Number 1-15735
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Elgin Technologies, Inc.
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(Exact name of registrant as specified in its charter)
DELAWARE 95-4581906
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Columbia Drive
Amherst, NH 03031
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(Address of principal executive office) (Zip Code)
(603) 598-4700
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(Registrant's telephone number, including area code)
Not applicable
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(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
Voting Common Stock, $.000833 par value per share - 20,051,601 shares
as of June 31, 2000.
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
June 30, 2000
I N D E X
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
<S> <C>
ITEM I FINANCIAL STATEMENTS (Unaudited):
Consolidated Balance Sheets as at June 30, 2000 (Unaudited)
and March 31, 2000
Consolidated Statements of Operations
For the Three Months Ended June 30, 2000 and 1999 (Unaudited)
Consolidated Statements of Changes in Capital Deficiency
For the Three Months Ended June 30, 2000 (Unaudited)
and for the Years Ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows
For the Three Months Ended June 30, 2000 and 1999 (Unaudited)
Notes to Consolidated Financial Statements
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
</TABLE>
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
------------ -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 94,082 $ 144,839
Accounts receivable, less allowances for
doubtful accounts and customer deductions 1,677,178 1,194,315
Inventories, at cost, less allowances for
obsolescence, excess quantities and valuation 1,357,450 1,603,391
Prepaid expenses and other current assets 39,199 77,747
------------ ------------
Total current assets 3,167,909 3,020,292
------------ ------------
Property assets, net of accumulated depreciation 206,399 53,818
------------ ------------
Other assets:
Deferred financing costs, net 37,123 59,395
Deposits and other assets 4,088 88,708
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Total other assets 41,211 148,103
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$ 3,415,520 $ 3,222,213
============= ============
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Revolving credit agreement $ 7,725,000 $ 6,725,000
Current maturities of long-term debt 2,206,663 2,206,663
Due to affiliates 1,424,448 1,141,273
Accounts payable 1,834,961 1,549,619
Pre-petition liabilities 1,012,000 1,012,000
Accrued expenses and other current liabilities 1,561,765 1,657,807
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Total current liabilities 15,764,837 14,292,362
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Long-term debt 2,206,663 2,206,663
Less: Current maturities 2,206,663 2,206,663
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Total long-term debt - -
------------ ------------
Capital deficiency:
Common stock, $.000833 par value
Authorized - 60,000,000 shares
Issued - 20,051,601 shares at June 30, 2000
Issued - 20,051,601 shares at March 31, 2000 16,703 16,703
Additional paid-in capital 28,830,006 28,830,006
Accumulated deficit (41,054,402) (39,775,234)
Treasury stock - at cost (141,624) (141,624)
------------ ------------
Total capital deficiency (12,349,317) (11,070,149)
------------ ------------
$ 3,415,520 $ 3,222,213
============= ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
--------------------------
2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $2,156,589 $1,618,201
Cost of sales 2,168,087 1,693,147
------------ -----------
Gross margin (loss) (11,498) (74,946)
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Operating expenses:
Selling 158,723 200,330
Research and development 187,725 264,864
General and administrative 574,456 622,166
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Total operating expenses 920,904 1,087,360
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Loss from operations (932,402) (1,162,306)
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Other expenses:
Interest 325,314 203,874
Other expenses 21,452 14,110
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Total other expenses 346,766 217,984
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Net loss ($1,279,168) ($1,380,290)
============ ============
Net loss per common share ($0.06) ($0.07)
======= =======
Weighted average number of
shares outstanding 20,051,601 18,933,051
============= ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN CAPITAL DEFICIENCY
FOR THE THREE MONTHS ENDED JUNE 30, 2000
AND FOR THE YEAR ENDED MARCH 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
-------------------------- -------------------------
Number Additional Number
of Paid-In of
Shares Amount Capital Shares Amount
----------- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1999 18,933,051 15,772 28,824,737 2,460,000 (141,624)
Conversion of warrants into
stock 1,117,000 930 (930) -- --
Conversion of debt into common -- -- --
stock 1,550 1 6,199 -- --
Net loss for the year -- -- -- -- --
----------- ------- ----------- ---------- ---------
Balance at March 31, 2000 20,051,601 16,703 28,830,006 2,460,000 (141,624)
Net loss for the three months ended
June 30,2000(unaudited) -- -- -- -- --
----------- ------- ----------- ---------- ---------
Balance at June 30, 2000 20,051,601 $16,703 $28,830,006 2,460,000 ($141,624)
==========================================================================
<CAPTION>
Total
Accumulated Capital
Deficit Deficiency
----------- ----------
<S> <C> <C>
Balance at March 31, 1999 (35,498,640) (6,799,755)
Conversion of warrants into
stock -- --
Conversion of debt into common
stock -- 6,200
Net loss for the year (4,276,594) (4,276,594)
----------- ----------
Balance at March 31, 2000 (39,775,234) ($11,070,149)
Net loss for the three months ended
June 30,2000(unaudited) (1,279,168) (1,279,168)
----------- ----------
Balance at June 30, 2000 ($41,054,402) ($12,349,317)
============================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
---------------------
2000 1999
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,279,168) ($ 1,380,290)
----------- ------------
Adjustments to reconcile net loss to
cash used in operating activities:
Accrued interest on affiliated debt 283,175 146,974
Depreciation and amortization 38,366 53,858
Provision for inventory obsolescence (209,863) (2,051,218)
Provision for doubtful accounts (30,902) -
Changes in assets and liabilities:
Accounts receivable (451,960) 106,192
Inventories 455,804 1,865,617
Prepaid expenses and
other current assets 38,548 20,225
Deposits and other assets 84,620 3,250
Accounts payable 285,342 195,822
Accrued expenses and other
current liabilities (96,044) (200,938)
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Total adjustments 397,086 139,782
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Net cash used in
operating activities (882,082) (1,240,508)
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Cash flows used in investing activities:
Property assets (168,675) -
Cash flows from financing activities:
Proceeds from (repayment of)
affiliates debt 1,000,000 (20,000)
Proceeds from (repayment of)
debt (6,214)
----------- ------------
Net cash provided by
financing activities 1,000,000 (26,214)
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Net increase (decrease) in cash (50,757) (1,266,722)
Cash at beginning of period 144,839 1,584,480
----------- ------------
Cash at end of period $ 94,082 $ 317,758
=========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ELGIN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
As at June 30, 2000 and For the Three Months Ended
June 30, 2000 and 1999
(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 the three months ended
June 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
a working capital deficiency of $11,272,000 and $12,597,000 at
March 31, 2000 and June 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 June 30, 2000 will decrease by
the forgiveness of the net indebtedness of the Petitioner of
$1,012,000. For the three months ended June 30, 2000, the Company
incurred losses from operations of $932,000. The Company's primary
source of cash has been the sale of its securities and loans from
a related party.
The Company and/or its continuing 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 June 30, 2000 and the Company's limited
ability to obtain financing other than from a 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.
<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 a 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 its successful bid.
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 - FINANCING.
Revolving Lines 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. Through June 30, 2000, the
stockholder advanced an additional $1,000,000 under the facility,
which had a total outstanding principal balance of $7,725,000 as at
June 30, 2000. Since the Company has not made the required monthly
stated interest payments of 10%, 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 $1,253,000 and $973,000 is
outstanding at June 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 $277,000 for
the three months ended June 30,2000 and $179,000 for the comparable
period in fiscal 2000 at an average interest rate of 15%. The
outstanding principal and accrued interest thereon is 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
<PAGE>
$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.
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
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.
<PAGE>
RESULTS OF OPERATIONS
SALES
The Company had sales of $2,157,000 and $1,618,000 for the three months
ended June 30,2000 and 1999 respectively. The increase in sales of $539,000
(33%) was mainly the result of a large order from a new customer. Management
believes that sales trends for the Company's telecommunications products in
the future will remain positive as market conditions continue to be strong.
In addition, the Company hopes to begin marketing its Master light product
sometime during this fiscal year, which should have a positive effect on
sales.
COST OF SALES
The cost of sales for the three months ended June 30,2000 and 1999 were
$2,168,000 and $1,693,000 (representing 100% and 105% of sales respectively).
The low volume levels that the company has experienced in both fiscal years has
limited the margin contribution to fixed manufacturing costs resulting in
nominal gross margins. Cost of sales consists of the costs for purchasing
components and direct materials, costs for internally manufactured
components, compensation and employee benefits for manufacturing
personnel, and overhead costs for purchasing and manufacturing.
OPERATING EXPENSES
Operating expenses were down $166,000 (15%) from $1,087,000 (67% of sales)
in the first quarter 1999 to $921,000 (43% of sales) in 2000. Cost reductions
and lower research and development were the major contributors to this
reduction.
<PAGE>
OTHER EXPENSES
Other expenses increased $129,000 (60%) from $218,000 (13% of sales) to
$347,000 (16% of sales) in fiscal 1999 and 2000, respectively. Of which
interest expense increased by $122,000. Increased borrowings from an
affiliate represented $98,000 of the interest increase.
SUBSEQUENT EVENTS
A major stockholder advanced the Company an additional $500,000 in July
2000 for working capital. As per the facility agreement, the principal
outstanding indebtedness is convertible by the holder into the Company's stock
at $0.10 per share.
<PAGE>
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 1999 Form 10-K. In addition, Plaintiffs Lewis W.
Kuniegel and Judith A. Kuniegel (collectively, the "Kuniegels") filed a
Complaint dated March 6, 2000 against the Company in the Cumberland Court
Superior Court (Portland, Maine) (LEWIS W. KUNIEGEL, et al. v. ELGIN
TECHNOLOGIES, INC., Civil Action Docket No. CV-00-162). On April 6, 2000, the
Company removed the Superior Court Action to the United States District Court
for the District of Maine (LEWIS W. KUNIEGEL, et al. v. ELGIN TECHNOLOGIES,
INC., Civil No. CV-98-P-C). On or about April 21, 2000, the Kuniegels filed a
first amended complaint in the District Court action. Pursuant to the first
amended complaint, Warren Power Systems, Inc. was added as a defendant to the
District Court action. The Kuniegels allege that (i) the Company made
intentional and/or negligent misrepresentations to the Kuniegels in connection
with the merger of their company, Communication Service Company ("CSC"), into
[the Company] and (ii) wrongfully terminated Lewis Kuniegel's employment
agreement with the Company. The Kuniegels allege damages "in an amount not yet
determined but believed to be a t least $1,000,000." The Company denied the
allegations and asserted a counterclaim against the Kuniegels for breach of the
merger agreement, breach of an employment agreement, fraud, negligent
misrepresentation, and punitive damages in connection with the merger.
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
In July 2000 the Company's subsidiary, Logic Laboratories Inc.,
terminated for cause the employment agreement of Robert Smallwood. Mr.
Smallwood served as Vice President of Logic Laboratories, Inc. under the
above employment agreement since December 1, 1997.
On April 7, 2000 for value received, the Company executed a Third
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 April 7, 2000.
On May 22, 2000 the Company executed a Fourth Amendment to 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 May 22, 2000.
<PAGE>
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 June 30, 2000.
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.
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(Registrant)
Date: August 21, 2000 /s/ Michael J. Smith
--------------- ------------------------------------
Name: MICHAEL J. SMITH
Title: EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
