U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-9083
POLYPHASE CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada
23-2708876
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
16885 Dallas Parkway, Suite 400
Dallas, Texas 75248
(Address of principal executive offices)
(214) 732-0010
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act during the past
12 months ( or for such shorter period 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>
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Common Stock, $.01 par value
12,619,616
Outstanding at May 10, 1995
Transitional Small Business Disclosure Format Yes [ ] No
[X]
<PAGE>
POLYPHASE CORPORATION
FORM 10-QSB
QUARTER ENDED March 31, 1995
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
March 31, 1995 and September 30, 1994 2
Consolidated Condensed Statements of
Operations for the three months ended
March 31, 1995 and 1994 4
Consolidated Condensed Statements of
Operations for the six months ended
March 31, 1995 and 1994 5
Consolidated Condensed Statements of
Cash Flows for the six months ended
March 31, 1995 and 1994 6
Notes to Consolidated Condensed
Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature Page
13
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<PAGE>
<TABLE>
<CAPTION>
Assets
March 31, September 30,
1995 1994
Current assets:
<S> <C> <C>
Cash $275,929 $1,036,839
Receivables, net of allowance
for doubtful accounts
of $841,326 and $1,243,562
Trade accounts 3,592,177 3,023,052
Current portion of sales
contracts 4,574,628 3,827,052
Notes receivable 2,464,997 1,234,188
Related parties 784,548 860,048
Inventories 12,777,470 8,953,780
Prepaid expenses and other 491,272 362,462
Total current assets 24,961,021 19,297,421
Property and equipment:
Land 505,000 505,000
Buildings and improvements 2,596,152 2,310,261
Machinery, equipment and other 2,693,063 2,406,535
5,794,215 5,221,796
Less-Accumulated depreciation 2,072,905 1,901,945
3,721,310 3,319,851
Other assets:
Noncurrent receivables
Sales contracts 2,573,228 2,669,151 Notes receivable654,904379,344
Excess of cost over fair
value of net assets
of businesses
acquired, net of accumulated
amortization of $581,548
and $349,982 9,151,723 9,383,289
Other intangible assets 1,284,458 1,314,800
Restricted cash 589,989 639,589
Other 1,082,331 971,504
15,336,633 15,357,677
$44,018,964 $37,974,949
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
<TABLE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
(Unaudited)
<CAPTION>
Liabilities and Stockholders' Equity
March 31, September 30,
1994 1994
<S> <C> <C>
Current liabilities:
Notes payable $16,038,085 $12,026,043
Accounts payable 3,306,897 3,311,885
Accrued expenses and other 2,294,544 1,330,524
Current maturities of
long-term debt 737,491 687,954
Total current liabilities 22,377,017 17,356,406
Long-term debt, less current maturities5,059,421 5,258,772
Reserve for credit guarantees 589,989 639,589
Deferred income taxes 200,000 200,000
Deferred credits 121,885 163,357
Total liabilities 28,348,312 23,618,124
Stockholders' equity:
Preferred stock, $.01 par value,
authorized 50,000,000
shares, issued and outstanding
100,000 and 477,000 shares 1,000 4,770
Common stock, $.01 par value,
authorized 100,000,000 shares,
issued and outstanding 11,999,116 and 5,880,616
shares 119,991 58,806
Paid-in capital 21,743,415 20,924,331
Accumulated deficit (3,201,754) (4,381,082)
Notes (receivable) (2,992,000) (2,250,000)
Total stockholders' equity 15,670,652 14,356,825
$44,018,964 $37,974,949
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
(Unaudited)
<TABLE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Net revenues 13,831,411 3,482,599
Cost of sales 10,796,839 2,511,227
Gross profit 3,034,572 971,372
Selling, general and
administrative expenses 2,028,935 787,122
Operating income 1,005,637 184,250
Other income (expenses):
Interest expense (606,967) (19,418)
Interest income and other 231,304 -
Total other income (expenses) (375,663) (19,418)
Earnings before income taxes 629,974 164,832
Income taxes 25,000 6,000
Net income $604,974 $158,832
Weighted average common and common
equivalent shares: 12,341,517 6,082,058
Net income per common share $.05 $.03
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
<TABLE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Six Months Ended
March 31,
1995 1994
<S> <C> <C>
Net revenues 26,442,576 7,204,692
Cost of sales 20,343,395 5,163,123
Gross profit 6,099,181 2,041,569
Selling, general and
administrative expenses 4,216,055 1,547,273
Operating income 1,883,126 494,296
Other income (expenses):
Interest expense (1,075,525) (35,821)
Interest income and other 416,727 -
Total other income (expenses) (658,798) (35,821)
Earnings before income taxes
and cumulative effect of
accounting change 1,224,328 458,475
Income taxes 45,000 17,000
Earnings before cumulative
effect of accounting change 1,179,328 441,475
Cumulative effect of change
in method of
accounting for income taxes - 305,000
Net income $1,179,328 $746,475
Weighted average
common and common
equivalent shares: 12,361,287 5,822,938
Income per common share:
Before extraordinary items
and cumulative
effect of accounting change $.10 $.08
Cumulative effect of accounting change - .05
Net income per common share $.10 $.13
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
<TABLE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months Ended
March 31,
1995 1994
Cash flow provided by
operating activities:
<S> <C> <C>
Net income $1,179,328 $746,475
Adjustments to reconcile
net income
to net cash provided by
(used in ) operating
activities:
Depreciation and amortization 539,600 162,599
Bad debt expense (70,582) 24,000
Issuance of preferred stock
for services - 5,000
Cumulative effect of
change in method
of accounting for income taxes - (305,000)Imputed interest on TTI
acquisition note 66,225 -
Recognition of deferred
rent reductions (41,472) (41,472)
(Increase) decrease in,
net of effects of
acquisitions:
Accounts and sales contracts
receivable (1,188,318) (796,368)
Inventories (3,823,690) (350,793)
Prepaid expenses and other (239,137) (126,679)
Increase (decrease) in,
net of effects of
acquisitions:
Accounts payable (4,988) 370,988
Accrued expenses and other 964,020 (49,778)
Net cash (used in)
operating activities (2,619,514) (361,028)
Cash flows provided by
(used in) investing
activities:
Capital expenditures (572,419) (132,732)
Notes and other receivables (1,392,747) -
Other intangibles (106,732) -
Deposit on TTI acquisition - (500,000)
Net cash provided by (used in)
investing activities (2,071,898) (632,732)
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
<TABLE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
<CAPTION>
(Unaudited)
For the Six Months Ended
March 31,
1995 1994
Cash flows provided by
(used in) financing
activities:
Borrowings under line
<S> <C> <C>
of credit arrangements $4,100,000 $-
Principal payments on
notes payable
and long-term debt (303,997) (734,772)
Borrowings on notes payable
and long-term debt - 362,000
Proceeds from private
placements of
preferred stock - 100,000
Principal collections on
Pyrenees notes receivable 258,000 -
Dividends paid on Series
A-5 preferred stock - (62,500)
Common stock issuance costs (123,501) (43,360)
Net cash provided by (used in)
financing activities 3,930,502 (3,632)
Net increase (decrease)
in cash (760,910) (997,362)
Cash - beginning of period 1,036,839 1,234,835
Cash - end of period $275,929 $237,443
Supplemental schedule of
cash flow information:
Cash paid during the period for :
Interest $438,935 $24,207
Income taxes $- $2,000
Supplemental schedules of
noncash investing
and financing activities:
Issuances of preferred stock
in connection with
the acquisition
of Dallas Parkway
Properties Incorporated $- $1,000,000
Issuance of Series A
preferred stock in
connection with consulting
contract with former officer and director - 75,000
</TABLE>
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<PAGE>
.
The accompanying notes are an integral part
of these consolidated financial statements.
-8-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
March 31, 1995
1. NATURE OF BUSINESS
The Company is a diversified holding company that, through its
subsidiaries, currently operates in three industry segments:
the forestry segment, which distributes, leases and provides
financing for commercial and industrial timber and logging
equipment; the computer segment, which markets, services and
provides the networking of computers and related equipment and
electronic parts; and the transformer segment, which
manufactures and markets electronic transformers, inductors
and filters.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions are eliminated.
The financial statements included herein have been prepared by
the Company, without an audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes
that the disclosures are adequate to make the information
presented not misleading. The information presented reflects
all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim
periods when read in conjunction with the financial statements
and the notes thereto included in the Company's latest
financial statements filed as part of Form 10-KSB.
3. NOTES PAYABLE
In connection with the acquisition of TTI on June 24, 1994,
the Company issued a noninterest bearing note to the seller in
the amount of $10,000,000 due October 31,1994 on which
interest was imputed at 8%. As of the maturity date, the
Company and the seller entered into an agreement providing for
the modification, extension and renewal of the note, whereby
the note bears interest at 12% and matures on October 31,
1995.
4. STOCKHOLDERS' EQUITY
In connection with the registration of certain shareholders'
common stock with the Securities and Exchange Commission on
Form SB-2, all previous holders of preferred stock requested
conversions of their preferred shares into shares of common
stock. All such conversions were completed during the six
months ended March 31,1995.
During March 1995, the Pyrenees Group exercised its option to
purchase 100,000 shares of the Company's Series C Preferred
Stock through the issuance of a 7% demand note in the amount
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<PAGE>
of $1,000,000, collateralized by the shares issued. This
note, together with the notes issued for the previous option
exercises by Pyrenees, less $258,000 in principal payments,
are reflected as a reduction in stockholders' equity in the
accompanying consolidated balance sheet. All such notes were
repaid by Pyrenees subsequent to March 31, 1995. Also
subsequent to March 31, 1995, Pyrenees converted its Series C
Preferred Stock into 500,000 shares of common stock.
5. SALE OF SUBSIDIARY
The Company, during February 1995, entered into a transaction
whereby it exchanged 100% of the common stock of Taylor-Built
Industries, Inc., a wholly owned subsidiary, for 200,000
shares of restricted common stock of Optimax, Inc., a public
company traded on the NASDAQ Exchange. No gain or loss was
recognized on this transaction.
6. LITIGATION
On February 28, 1995 a class action lawsuit was filed in the
United States District Court for the Eastern District of New
York against the Company and certain officers seeking at least
$15 million in damages plus an unspecified amount for
plaintiffs' costs. The suit claims, among other things, that
the Company and the officers were responsible for artificially
inflating the market price of the Company's common stock
during the period of October 26, 1993 through
January 15,1995.
The Company intends to defend these allegations
vigorously.
7. ACQUISITION
Effective May 5, 1995, the Company acquired the assets and
operations of IBM Foods, Inc., a food processing company
located in Culver City , California, which operated using the
name Overhill Farms. The purchase, which was accomplished
through Overhill Farms, Inc. a newly-formed subsidiary of the
Company ("Overhill"), provided for cash payment to the seller
of $29.7 million, subject to certain adjustments, plus the
assumption of certain liabilities of the acquired business.
The transaction was financed by Overhill in part using (1) a
$12 million revolving line of credit, of which $9.7 million
was initially drawn, (2) term loans totalling $6 million ,
payable monthly over a 4 to 5-year period and (3) the sale of
$13 million of senior subordinated notes and warrants, of
which $10 million was initially utilized , due in 2002 and
2003; the warrants provide, among other things, that the
purchasers of the subordinated notes may acquire up to 22.5%
of Overhill.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
General
The Company is continuing its program of acquisition and
expansion, most recently through the completion of the
acquisition of the Overhill Farms operations from IBM Foods, Inc.
This transaction represents the Company's largest acquisition to
date, with Overhill having reported revenues of approximately
$100 million and pretax profits of $6.9 million for its latest
fiscal year. Overhill which produces high quality frozen
poultry, beef and fish entrees, plated meals, soups, sauces and
specialty dishes, serves a strong corporate customer base in a
wide variety of markets.
As the Company continues to investigate additional growth and
expansion opportunities, its activities are expected to be more
industry specific, with efforts focused towards complementing the
business segments where the Company, through its subsidiaries,
currently operates.
Results of Operations
Revenues for the three months ended March 31, 1995 increased from
$3,483,000 to $13,831,000 (297%) compared to the three months
ended March 31, 1994. Similar increases were experienced in
operating income (446%) and in net income (281%), which were
substantially attributable to the inclusion of the operations of
Texas Timberjack, Inc. (TTI), Micro Configurations, Inc. (Micro)
and PC Repair of Florida, Inc. (PCR), all of which were acquired
during the latter part of fiscal 1994.
Revenues for the six months ended March 31, 1995 increased from
$7,205,000 to $26,443,000 (267%) compared to the six months ended
March 31, 1994. Operating income increased from $494,000 to
$1,883,000 (281%) and earnings before cumulative effect of an
accounting change increased from $441,000 to $1,179,000 (167%).
These increases are primarily the result of the added operations
of the Company's acquisitions in fiscal 1994. Earnings per
share, also before the effect of the accounting change, increased
to $.10 per share from $.08, even though the weighted average
number of common and common equivalent shares more than doubled
between comparable periods.
Liquidity and Capital Resources
During the three months ended March 31, 1995, the Company used
cash of approximately $2,620,000 in its operating activities.
This use of cash is primarily attributable to increases in
inventories and trade receivables in the Forestry Group as sales
are seasonal with increases occurring in the winter months in
preparation of logging activities in the spring and summer. The
Company used cash of $2,072,000 in its investing activities
primarily for increases in notes receivable and capital
expenditures.
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<PAGE>
The Company's financing activities provided cash of $3,931,,000
during the period, primarily through borrowings against the TTI
credit line. These borrowings were used in funding the increases
in inventories and receivables referred to above. The Company's
note payable to the seller of TTI is due October 31, 1995; the
Company anticipates repaying the note prior to maturity using
additional borrowings currently being arranged.
The Company plans to continue its program of expansion and
diversification through the acquisition of additional operating
companies. Funding for these acquisitions is anticipated to come
from a combination of internally generated funds, proceeds from
the exercise of options, the issuance of additional shares of
preferred stock and from additional borrowings. The Company's
management believes that cash generated from operations, together
with available lines of credit and contemplated debt and/or
equity placements, will be sufficient to meet the Company's
liquidity requirements for the next 12 months.
-12-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reportson Form 8-K.
(a) Exhibits
10.1* Loan and Security Agreement, dated May 5, 1995, among
FINOVA Capital Corporation and Overhill Farms, Inc.
10.2* Secured Promissory Note in principal amount of
$2,000,000, dated May 5, 1995.
10.3* Secured Promissory Note in principal amount of
$4,000,000, dated May 5, 1995.
10.4* Intercreditor and Subordination Agreement, dated May 5,
1995, among FINOVA Capital Corporation, Rice Partners II,
L.P., and Overhill Farms, Inc.
10.5* Note Purchase Agreement, dated May 5, 1995, among Rice
Partners II, L.P. and Overhill Farms, Inc.
10.6* Warrant Purchase Agreement, dated May 5, 1995, among Rice
Partners II, L.P., Polyphase Corporation and Overhill
Farms, Inc.
10.7* Warrant, dated May 5, 1995.
10.8* Shareholder Agreement, dated May 5, 1995, among Rice
Partners II, L.P., Polyphase Corporation and Overhill
Farms, Inc.
10.9* Senior Subordinated Note in principal amount of
$13,000,000, dated May 5, 1995.
10.10* Asset Purchase
Agreement, dated
May 5, 1995, among
IBM Foods, Inc. and
Overhill Farms, Inc.,
and acknowledged by
Polyphase Corporation
and Maurice H.
Gettleman.
10.11* N o n r e c o u r s e
Continuing Corporate
Guaranty, dated
May 5, 1995, by
P o l y p h a s e
Corporation.
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<PAGE>
27. Financial Data Schedule
(b) Reports on Form 8-K
None
* Incorporated by reference from the Company's Current Report on
Form 8-K, filed with the Securities and Exchange Commission on
May 22, 1995.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act,
the registrant caused this report to be signed on its behalf
by the
undersigned, thereunto duly authorized.
POLYPHASE CORPORATION
(Registrant)
Date: May 22, 1995
By: /s/Paul A. Tanner
Paul A. Tanner
President and Chief
Executive Officer
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<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
27 Financial Data Schedule
-16-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 275929
<SECURITIES> 10631802
<RECEIVABLES> 841326
<ALLOWANCES> 12777470
<INVENTORY> 0
<CURRENT-ASSETS> 24961021
<PP&E> 5794215
<DEPRECIATION> 20729054
<TOTAL-ASSETS> 44018964
<CURRENT-LIABILITIES> 22377017
<BONDS> 5059421
<COMMON> 119991
0
1000
<OTHER-SE> 15549661
<TOTAL-LIABILITY-AND-EQUITY> 44018964
<SALES> 26442576
<TOTAL-REVENUES> 26442576
<CGS> 20343395
<TOTAL-COSTS> 20343395
<OTHER-EXPENSES> 4216055
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1075525
<INCOME-PRETAX> 1224328
<INCOME-TAX> 45000
<INCOME-CONTINUING> 1179328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1179328
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
