<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
------------ -----------
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 12,619,116
---------------------------
Outstanding at July 20, 1995
Transitional Small Business Disclosure Format Yes [ ] No [X]
<PAGE>
POLYPHASE CORPORATION
FORM 10-QSB/A
(Amendment No. 1)
QUARTER ENDED June 30, 1995
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
Page No.
--------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
June 30, 1995 and September 30, 1994 2
Consolidated Condensed Statements of
Operations for the Three Months Ended
June 30, 1995 and 1994 4
Consolidated Condensed Statements of
Operations for the Nine Months Ended
June 30, 1995 and 1994 5
Consolidated Condensed Statements of
Cash Flows for the Nine Months Ended
June 30, 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 11
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<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
Assets
<TABLE>
<CAPTION>
June 30, September 30,
----------- -------------
1995 1994
----------- -------------
<S> <C> <C>
Current assets:
Cash $ 324,240 $ 1,036,839
Receivables, net of allowance for
doubtful accounts
of $521,302 and $1,243,562
Trade accounts 11,815,779 3,023,052
Current portion of sales contracts 5,995,954 3,827,052
Notes receivable 1,690,071 1,234,188
Related parties 728,048 860,048
Inventories 22,886,580 8,953,780
Prepaid expenses and other 906,973 362,462
----------- -----------
Total current assets 44,347,645 19,297,421
----------- -----------
Property and equipment:
Land 505,000 505,000
Buildings and improvements 3,710,866 2,310,261
Machinery, equipment and other 7,701,597 2,406,535
----------- -----------
11,917,463 5,221,796
Less-Accumulated depreciation 2,378,154 1,901,945
----------- -----------
9,539,309 3,319,851
----------- -----------
Other assets:
Noncurrent receivables
Sales contracts 3,372,725 2,669,151
Notes receivable 412,772 379,344
Excess of cost over fair value of net
assets of businesses
acquired, net of accumulated
amortization of $697,325
and $349,982 19,245,240 9,383,289
Other intangible assets 2,190,092 1,314,800
Restricted cash 697,784 639,589
Other 1,021,144 971,504
----------- -----------
26,939,757 15,357,677
----------- -----------
$80,826,711 $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)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
June 30, September 30,
------------ --------------
1995 1994
------------ --------------
<S> <C> <C>
Current liabilities:
Notes payable $ 23,871,698 $ 12,026,043
Accounts payable 6,425,243 3,311,885
Accrued expenses and other 4,285,462 1,330,524
Due to related party 1,153,000 -
Current maturities of long-term debt 480,082 687,954
------------ ------------
Total current liabilities 36,215,485 17,356,406
Long-term debt, less current maturities 10,918,196 5,258,772
Subordinated debentures, less discount of
$480,394 12,519,606
Reserve for credit guarantees 697,784 639,589
Deferred income taxes 200,000 200,000
Deferred credits 101,149 163,357
------------ ------------
Total liabilities 60,652,220 23,618,124
------------ ------------
Redeemable common stock purchase warrants
of subsidiary 602,880 -
Stockholders' equity:
Preferred stock, $.01 par value, authorized
50,000,000 shares, issued and outstanding
none and 477,000 shares - 4,770
Common stock, $.01 par value, authorized
100,000,000 shares, issued and outstanding
12,499,116 and 5,880,616 shares 124,991 58,806
Paid-in capital 21,730,914 20,924,331
Accumulated deficit (2,284,294) (4,381,082)
Notes (receivable) - (2,250,000)
------------ ------------
Total stockholders' equity 19,571,611 14,356,825
------------ ------------
$ 80,826,711 $ 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 STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net revenues $ 33,633,241 $ 4,992,493
Cost of sales 27,348,219 3,822,133
------------ ------------
Gross profit 6,285,022 1,170,360
Selling, general and administrative expenses 4,133,492 920,348
------------ ------------
Operating income 2,151,530 250,012
------------ ------------
Other income (expenses):
Non-recurring charge related to grant
of stock options - (1,400,000)
Interest expense (1,140,282) (34,550)
Interest income and other 92,832 14,050
------------ ------------
Total other income (expenses) (1,047,450) (1,420,500)
------------ ------------
Income (loss) before income taxes and
warrant accretion 1,104,080 (1,170,488)
Income taxes 79,144 -
------------ ------------
1,024,936 (1,170,488)
Accretion of common stock purchase warrants
of subsidiary (107,475) -
------------ ------------
Net income (loss) $ 917,461 $ (1,170,488)
============ ============
Weighted average common and common
equivalent shares 12,838,294 6,201,046
============ ============
Net income (loss) per common share $ .07 $ (.19)
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30,
---------------------------
1995 1994
------------- ------------
<S> <C> <C>
Net revenues $ 60,075,817 $ 12,197,185
Cost of sales 47,691,615 8,985,256
------------- ------------
Gross profit 12,384,202 3,211,929
Selling, general and administrative expenses 8,349,546 2,467,621
------------- ------------
Operating income 4,034,656 744,308
------------- ------------
Other income (expenses):
Non-recurring charge related to grant
of stock option - (1,400,000)
Interest expense (2,215,806) (70,371)
Interest income and other 509,557 14,050
------------- ------------
Total other income (expenses) (1,706,249) (1,456,321)
------------- ------------
Income (loss) before income taxes, warrant
accretion and cumulative effect of accounting
change 2,328,407 (712,013)
Income taxes 124,144 17,000
------------- ------------
Income (loss) before accretion of common
stock purchase warrants of subsidiary and
cumulative effect of accounting change 2,204,263 (729,013)
Accretion of common stock purchase warrants
of subsidiary 107,475 -
------------- ------------
Income (loss) before
cumulative effect of accounting change 2,096,788 (729,013)
Cumulative effect of change in method of
accounting for income taxes - 305,000
------------- ------------
Net income (loss) $ 2,096,788 $ (424,013)
============= ============
Weighted average common and common
equivalent shares 12,674,441 5,751,338
============= ============
Income (loss) per common share:
Before cumulative effect of accounting change $ .17 $ (.12)
Cumulative effect of accounting change - .05
------------- ------------
Net income (loss) per common share $ .17 $ (.07)
============= ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flow provided by operating activities:
Net income (loss) $ 2,096,788 $ (424,013)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,049,896 181,341
Bad debt expense (58,949) 38,454
Non-recurring charge related to
grant of stock options - 1,400,000
Issuance of Series B Preferred stock
for services - 5,000
Cumulative effect of change in method
of accounting for income taxes - (305,000)
Accretion of common stock purchase warrants
of subsidiary 107,475 -
Recognition of deferred rent reductions (62,208) -
(Increase) decrease in, net of effects of
acquisitions:
Accounts and sales contracts receivable (4,187,611) (1,783,329)
Inventories (3,311,211) 608,234
Prepaid expenses and other 836,455 (390,684)
Increase (decrease) in, net of effects of
acquisitions:
Accounts payable 652,632 (90,372)
Accrued expenses and other 1,021,626 (237,532)
----------- -----------
Net cash (used in)
operating activities (1,855,107) (997,901)
----------- -----------
Cash flows provided by (used in) investing
activities:
Acquisition of Texas Timberjack, Inc. - (620,423)
Acquisition of the net assets of Overhill Farms,
Inc. (32,225,782) -
Notes and other receivables (319,189) -
Capital expenditures (773,994) (145,669)
Other intangibles (106,732) -
Cash of acquired businesses - 35,104
----------- -----------
Net cash used in
investing activities (33,425,697) (730,988)
----------- -----------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) financing
activities:
Borrowings under line of credit arrangements $11,468,461 $ -
Principal payments on notes payable
and long-term debt (615,144) (1,433,176)
Borrowings on notes payable and
long-term debt 18,948,485 1,562,000
Borrowings from related party 1,153,000 -
Proceeds from private placements of
preferred stock - 340,000
Issuance of redeemable common stock
purchase warrants of subsidiary 495,405 -
Exercise of stock options 1,000,000 375,000
Principal payments on Pyrenees notes receivable 2,250,000 -
Dividends paid on Series A-5 preferred stock - (62,500)
Common stock issuance costs (132,002) (43,360)
----------- -----------
Net cash provided by
financing activities 34,568,205 737,964
----------- -----------
Net (decrease) in cash (712,599) (990,925)
Cash - beginning of period 1,036,839 1,234,835
----------- -----------
Cash - end of period $ 324,240 $ 243,910
=========== ===========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ 1,036,793 $ 56,799
Income taxes $ - $ 2,979
Supplemental schedules of noncash investing
and financing activities:
Issuances of preferred stock in connection with
the acquisitions:
Dallas Parkway Properties Incorporated $ - $ 1,000,000
PC Repair of Florida, Inc. (PCR) 160,000
Texas Timberjack, Inc. (TTI) 3,500,000
Issuance of Series A preferred stock in connection
with consulting contract with former officer and
director - 75,000
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-7-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
June 30, 1995
1. NATURE OF BUSINESS
The Company is a diversified holding company that, through its subsidiaries,
currently operates in four 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; the transformer segment, which manufactures and markets electronic
transformers, inductors and filters; and the food processing segment, which
produces high quality entrees, plated meals, soups, sauces and poultry, meat
and fish specialties.
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 , all previous holders of
preferred stock requested conversions of their preferred shares into shares
of common stock. All such conversions were completed during the nine months
ended June 30, 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 of $1,000,000, collateralized by
the shares issued. This note, together with the notes issued for the
previous option exercises by Pyrenees, were repaid by Pyrenees during the
quarter ended June 30, 1995. Additionally, Pyrenees converted its Series C
Preferred Stock into 500,000 shares of common stock during the quarter ended
June 30, 1995.
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<PAGE>
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 publicly held company. 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, due in 2002 and 2003. The
acquisition has been accounted for by the purchase method of accounting. The
operating results of Overhill are included in the Company's results of
operation from the date of acquisition. Goodwill attributable to the
acquisition totalled $10,284,623 and is being amortized on a straight-line
basis over a 20-year period.
The following unaudited proforma summary represents the results of operations
as if the acquisition had occurred at October 1, 1993. This summary does not
purport to be indicative of what would have occurred had the acquisition been
made as of this date or of results that may occur in the future. This method
of combining the companies is for the presentation of unaudited proforma
summary results of operations.
-9-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
(Dollars in thousands, June 30, June 30, June 30, June 30,
except per share data) 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues..................... $45,387,000 $30,452,000 $122,179,000 $85,334,00
=========== =========== ============ ==========
Income loss before the
cumulative effect of
accounting change.............. $1,940,000 $124,000 $2,599,000 $971,000
========== ======== ========== ========
Net income (loss)................ $1,940,000 $124,000 $2,599,000 $1,276,000
========== ======== ========== ==========
Income (loss) per common share:
Before cumulative effect of
accounting change.............. $.15 $.02 $.21 $.17
Cumulative effect of
accounting change............. - - - $.05
Net income (loss) per
common share................... $.15 $.02 $.21 $.22
=== ==== ==== ====
</TABLE>
The warrants issued in connection with the subordinated debt provide that the
warrant holders may purchase shares of the Company's Overhill subsidiary
(representing 22.5% of its common stock) at any time for a period of ten
years for a nominal exercise price of $100. The warrant holders also have the
option to "put" the warrants to the Company any time after the warrant's
fifth anniversary at a "put" price based upon various fair market value
estimates. The initial undiscounted "put" value of the warrants was
determined to be 22.5% of the book value of Overhill at the date of
acquisition which was $900,000. This value was discounted at a rate of 12.0%
resulting in a discounted value of $495,045 which was recorded as a debt
discount. The initial value recorded for the warrants is subject to periodic
charges for accretion based upon changes in the estimated fair value of the
Company's Overhill subsidiary.
Upon closing of the purchase, the Pyrenees Group, a related party to the
Company, paid $4,000,000 to IBM on the Company's behalf. Of this amount
$2,992,000 represented repayment of obligations of Pyrenees to the Company,
with the excess representing a temporary advance by Pyrenees to the Company.
(See note 4.)
8. INCOME TAXES
The effective income rate for the three- and nine-month periods ended June
30, 1995 differs from the federal statutory rate primarily due to the
utilization of net operating loss carryforwards.
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<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 $6.8 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 June 30, 1995 increased to $33,633,000
from $4,992,000 (574%) compared to the three months ended June 30, 1994.
Similar increases were experienced in operating income (760%) and in net income
(178%), 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 and Overhill Farms, which was acquired in the most recent
quarter.
Revenues for the nine months ended June 30, 1995 increased to $60,076,000 from
$12,197,000 (392%) compared to the nine months ended June 30, 1994. Operating
income increased to $4,035,000 from $744,000 (442%) and net income increased to
$2,097,000 from a loss of $424,000 (594%). These increases are primarily the
result of the added operations of the Company's acquisitions in fiscal 1994 and
1995. Earnings per share increased to $.17 per share from a loss of $.07 even
though the weighted average number of common and common equivalent shares more
than doubled between comparable periods.
The Computer Group's revenues for the nine months ended June 30, 1995 increased
15.8% to $8,494,885 from $7,337,173 compared to the nine months ended June 30,
1994. Increased revenues were attributable to the inclusion of Micro Computer
Configurations, Inc. (MCC) and PC Repair of Florida, Inc. (PCR), which were
acquired during the latter part of fiscal 1994. Operating income for the nine
months decreased 42% to 546,346 from $954,614 compared to the nine months ended
June 30, 1994. The decrease in operating income was attributable to increased
general and administrative expense associated with moving three offices to
larger facilities and increased staffing at all locations.
The Transformer Group's revenues for the nine months ended June 30, 1995
decreased 1.1% to $2,729,332 from $2,759,866 compared to the nine months ended
June 30, 1994. Sales of replacement components under previous existing military
contracts remain strong while new contracts won have decreased in correlation
with the downturn in defense spending. Operating income for the nine months
decreased 74% to $107,676 from $418,855 compared to the nine months ended June
30, 1994. Decreases in operating income were attributable to low gross margins
and unchanged fixed manufacturing overhead.
The Forestry Group's revenues for the nine months ended June 30, 1995 increased
1,531% to $28,659,371 from $1,756,234 compared to the nine months ended June 30,
1994. Operating income for the nine months increased 1,349% to $3,197,947 from
$220,617 compared to the nine months ended June 30, 1994. The increases were
primarily attributable to the inclusion of Texas Timberjack, Inc. (TTI)
operations for the full period.
The Food Group, consisting of Overhill Farms, Inc., contributed $16,574,239 in
revenues and $1,418,074 in
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<PAGE>
operating income for the nine months ending June 30, 1995. Since the food
segment was acquired during the most recent quarter, there are no comparable
figure for previous periods.
Liquidity and Capital Resources
During the nine months ended June 30, 1995, the Company used cash of
approximately $1,855,000 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 and
spring months in preparation of logging activities throughout the summer. The
Company used cash of $33,426,000 in its investing activities primarily for the
purchase of the operating assets of Overhill Farms.
The Company's financing activities provided cash of $34,568,000 during the
period, primarily through borrowings to finance the acquisition of the assets
of Overhill Farms and to fund increased accounts receivables and inventories.
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 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>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this Form 10-QSB/A (Amendment No.1) to be signed on its behalf by the
undersigned, thereunto duly authorized.
POLYPHASE CORPORATION
(Registrant)
Date: November 6, 1995 By: /s/Paul A. Tanner
---------------------------------
Paul A. Tanner
President and Chief Executive Officer
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