<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
[_] 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 registrant as specified in its charter)
NEVADA 23-2708876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4800 BROADWAY, SUITE A
DALLAS, TEXAS 75248
(Address of principal executive offices)
(972) 386-0101
(Registrants's telephone number, including area code)
Indicate by check mark whether the registrant (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
------------- -------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 14,376,171
--------------------------------
Outstanding at February 16, 1998
<PAGE>
POLYPHASE CORPORATION
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION Page No.
- ----------------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
December 31, 1997 and September 30, 1997 2
Consolidated Condensed Statements of
Operations for the Three Months Ended
December 31, 1997 and 1996 4
Consolidated Condensed Statements of
Cash Flows for the Three Months Ended
December 31, 1997 and 1996 6
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures 13
about Market Risk
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
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<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unadited)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
------------ -------------
1997 1997
------------ -------------
<S> <C> <C>
Current assets:
Cash $ 568,396 $ 1,064,259
Receivables, net of allowance for doubtful accounts
of $626,192 and $576,192
Trade accounts 13,575,620 11,576,650
Current portion of sales contracts 6,122,544 5,770,626
Notes receivable 1,853,929 939,621
Inventories 24,768,058 23,002,020
Prepaid expenses and other 824,374 1,607,644
------------ -------------
Total current assets 47,712,921 43,960,820
------------ -------------
Property and equipment:
Land 415,000 765,000
Buildings and improvements 3,426,312 4,660,582
Machinery, equipment and other 9,134,400 8,953,076
------------ -------------
12,975,712 14,378,658
Accumulated depreciation (6,193,445) (5,954,554)
------------ -------------
6,782,267 8,424,104
------------ -------------
Other assets:
Noncurrent receivables
Sales contracts 2,151,165 2,027,518
Related parties 513,634 522,597
Excess of cost over fair value of net assets of businesses
acquired, net of accumulated amortization of $2,573,777
and $2,370,455 14,024,962 14,228,284
Other intangible assets 3,391,434 1,197,139
Restricted cash 702,489 717,358
Other 1,246,535 1,071,629
------------ -------------
22,030,219 19,764,525
------------ -------------
$76,525,407 $72,149,449
============ =============
</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)
(Unadited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
------------ -------------
1997 1997
------------ -------------
<S> <C> <C>
Current liabilities:
Notes payable $ 9,723,070 $ 9,013,099
Note payable and accrued interest to related party 14,529,856 13,998,916
Accounts payable 8,662,354 7,775,022
Accrued expenses and other 2,592,703 2,251,035
Current maturities of long-term debt 6,500,000 5,720,000
------------ -------------
Total current liabilities 42,007,983 38,758,072
Long term debt, less current maturities 24,215,000 23,272,280
Reserve for credit guarantees 702,489 717,358
------------ -------------
Total liabilities 66,925,472 62,747,710
------------ -------------
Warrants to purchase common stock
in subsidiary 1,200,000 2,000,000
Stockholders' equity:
Preferred stock, $.01 par value, authorized
50,000,000 shares, issued and outstanding
126,250 and 132,500 shares, respectively 1,263 1,325
Common stock, $.01 par value, authorized
100,000,000 shares, issued and outstanding
14,376,171 and 13,664,109 shares, respectively 143,762 136,641
Paid-in capital 29,106,136 28,955,695
Accumulated deficit (19,875,907) (20,716,603)
Notes receivable (975,319) (975,319)
------------ -------------
Total stockholders' equity 8,399,935 7,401,739
------------ -------------
$ 76,525,407 $ 72,149,449
============ =============
</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
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net revenues $37,392,317 $36,165,789
Cost of sales 30,425,160 30,056,915
----------- -----------
Gross profit 6,967,157 6,108,874
Selling, general and administrative expenses 4,596,486 4,623,670
----------- -----------
Operating income 2,370,671 1,485,204
----------- -----------
Other income (expenses):
Interest expense (1,849,768) (1,574,418)
Interest income and other (10,950) 210,960
Gain on sale of assets 987,857 -
----------- -----------
Total other income (expenses) (872,861) (1,363,458)
----------- -----------
Income before income taxes, warrant accretion
and extraordinary item 1,497,810 121,746
Income taxes - 79,110
----------- -----------
1,497,810 42,636
Accretion of common stock purchase warrants
of subsidiary - 109,873
----------- -----------
Net income (loss) before extraordinary item 1,497,810 (67,237)
Extraordinary item:
Early extinguishment of debt (616,239) -
----------- -----------
Net income (loss) 881,571 (67,237)
Dividends on preferred stock (40,875) (37,500)
----------- -----------
Net income (loss) attributable to common stockholders $ 840,696 $ (104,737)
=========== ===========
</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 (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Basic income (loss) per share:
Income (loss) before
extraordinary item $ .10 $ (.01)
Extraordinary item (.04) -
----------- -----------
Net income (loss) per share $ .06 $ (.01)
----------- -----------
Diluted income (loss) per share:
Income (loss) before
extraordinary item $ .09 $ (.01)
Extraordinary item (.04) -
----------- -----------
Net income (loss) per share $ .05 $ (.01)
=========== ===========
</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 Three Months Ended
December 31,
----------------------------
1997 1996
----------- ----------
<S> <C> <C>
Cash flow provided by operating activities:
Net income (loss) $ 881,571 $ (67,237)
Adjustments to reconcile net income
to net cash provided by (used in ) operating
activities:
Depreciation and amortization 1,203,606 728,679
Provision for doubtful accounts 50,000 (8,296)
Gain on sale of subsidiary (987,857) -
Accretion of warrants to purchase common stock
of subsidiary - 109,873
(Increase) decrease in, net of effects of
acquisitions:
Accounts and sales contracts receivable (2,524,535) 1,644,016
Inventories (1,766,038) (1,450,510)
Prepaid expenses and other 562,320 580,353
Accounts payable 887,332 132,730
Accrued expenses and other 393,668 (1,933,952)
----------- ----------
Net cash provided by (used in )
operating activities (1,299,933) (264,344)
----------- ----------
Cash flows provided by (used in)
investing activities:
Notes and other receivables (914,308) 173,927
Receivables from related parties 8,963 80,360
Capital expenditures, net (252,289) (301,304)
----------- ----------
Net cash used in
investing activities (1,157,634) (47,017)
----------- ----------
</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 Three Months Ended
December 31
---------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash flows provided by (used in) financing activities:
Borrowings (principal payments) under line of
credit arrangements, net $ 1,282,242 $ 369,380
Borrowings (principal payments) on other notes payable
and long-term debt, net 24,773,669 -
Principal payments on term notes (1,982,280) -
Principal payments on convertible bonds (4,300,000) -
Principal payments subordinated debentures (13,000,000) -
Redemption of Overhill warrants (2,000,000)
Deferred financing costs (2,753,552) -
Principal collection of Pyrenees
notes receivable - 99,223
Dividends on preferred stock (40,875) (37,500)
Conversion of stock options - 256,599
Stock issuance costs (17,500) (17,500)
------------ -----------
Net cash provided by (used in)
financing activities 1,961,704 670,202
------------ -----------
Net increase (decrease) in cash (495,863) 358,841
Cash - beginning of period 1,064,259 280,969
------------ -----------
Cash - end of period $ 568,396 $ 639,810
------------ -----------
Supplemental schedule of cash flow information:
Cash paid during the period for :
Interest $ 1,815,288 $1,210,053
Income taxes $ - $1,311,055
</TABLE>
Supplemental schedule of noncash investing and financing activities:
In October 1996, an unrelated third party exercised an option to purchase
357,143 shares of common stock. As consideration, the Company was tendered
125,000 shares of Series A-3 Preferred Stock having a redemption value of
$1,250,000.
In December 1997, in connection with the new Overhill Farms credit agreement,
warrants were issued were assigned a value of $1,200,000.
In connection with the repayment of certain indebtedness to Merrill Lynch, the
Company issued warrants covering 200,000 shares exercisable at $.01 per share
and 200,000 shares exercisable at $1.125 per share. Such warrants were
assigned a value of $175,000
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF BUSINESS
The Company is a diversified holding company that, through its subsidiaries,
operates in three industry segments: the food segment, which produces high
quality entrees, plated meals, soups, sauces and poultry, meat and fish
specialties; the forestry segment, which distributes, leases and provides
financing for commercial and industrial timber and logging equipment; 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-K.
3. LONG-TERM DEBT
In December 1997, the subsidiary, Overhill Farms, Inc., refinanced a certain
portion of existing debt. The new financing amounted to a total facility of
$24.1 million which is structured as a three-year term loan maturing in
December 2000. The note requires interest-only payments at prime plus 4% (
12.5% as of December 31, 1997) through April 1999 and thereafter provides for
principal amortization of $250,000 per month, plus interest, until a final
payment of approximately $19,850,000 is due on December 5, 2000. The
agreement also requires Overhill to pay on a quarterly basis, service fees
totalling $140,000, $300,000 and $440,000 for the first, second and third
years of the loan, respectively. Under the terms of the new financing
agreement, the lender was granted warrants to purchase 30% of Overhill's
common stock, exercisable immediately at a nominal value, 25% of which can be
repurchased by the Company over the next two years for $2,000,000. Such
warrants were assigned a value of $1,200,000, which has been recorded as debt
discount and is being amortized over the term of the loan. Additionally, the
lender received
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<PAGE>
fees totalling approximately $1.7 million in connection with this financing,
which are partially refundable upon early repayment of the loan through a
refinancing, sale or initial public offering of Overhill. As a result of this
transaction Overhill repaid in full the $13.0 million subordinated debentures
and repurchased for approximately $2.0 million the warrants previously held by
Rice to purchase up to 22.5% of Overhill's common stock. These payments to
Rice resulted in the Company and Rice reaching a settlement of their
litigation. The Company also used a portion of the proceeds to repay Term
Loans A and B due Finova, the $1,500,000 senior convertible debenture and
$2,800,000 of principal of the $4,000,000 senior convertible debentures due
Merrill Lynch. The refinancing also enabled the Company and Overhill to cure
all previous defaults under various loan agreements and provided the Company
with approximately $900,000 in working capital. The early extinguishment of
this indebtedness resulted in an extraordinary charge to operations of
approximately $616,000 (before income taxes) during the quarter ended December
31, 1997. Overhill's credit facilities generally restrict loans, advances,
dividends or transfers from Overhill to the Company to $250,000 per year.
4. SALE OF SUBSIDIARY
In December 1997, the Company sold Dallas Parkway Properties, Incorporated, a
subsidiary whose principal asset was the corporate office building, in
exchange for nominal consideration plus the assumption of a note payable for
$2.8 million.. The Company realized a gain of approximately $988,000 on this
transaction during the quarter ended December 31, 1997.
5. TAXES
For the quarter ended December 31, 1997, the actual Federal income tax expense
attributable to income from continuing operations differed from the net
amounts recorded by the Company. The Company recorded a provision for Federal
income taxes of $510,000 using the statutory tax rate of 34% and then applied
a like amount of the existing valuation allowance, resulting in a net
provision for the quarter to zero. As of December 31, 1997, the Company had a
remaining valuation allowance of approximately $4.7 million and net operating
loss carryforwards of approximately $7.3 million.
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<PAGE>
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- -----------
<S> <C> <C>
Numerator:
Net income (loss) before extraordinary item $ 1,497,810 $ (67,237)
Preferred dividends (40,875) (37,500)
----------- -----------
1,456,935 (104,737)
Extraordinary item (616,239) -
----------- -----------
Income (loss) available to common shareholders $ 840,696 $ (104,737)
=========== ===========
Denominator:
Denominator for basic earnings per share-
weighted average shares 13,987,226 13,538,138
----------- -----------
Effect of dilutive securities:
Convertible preferred stock 1,071,185 -
Stock options 317,008 -
Warrants 62,129 -
----------- -----------
Dilutive potential common shares 1,450,322 - (a)
----------- -----------
15,437,548 13,538,138
=========== ===========
</TABLE>
(a) Dilutive potential common shares were excluded from the computation in
1996 since their effect would have been antidilutive.
7. STOCKHOLDERS' EQUITY
During the quarter ended December 31, 1997, the holders of the Company's
Series F 6% Preferred Stock converted 6,250 shares into 712,062 shares of
common stock.
Also during the quarter ended December 31, 1997, the conversion price of the
Company's Series A-3 Preferred Stock was adjusted, pursuant to the Certificate
of Designation for such preferred stock, to market value as of the date of
conversion. Accordingly, at December 31, 1997, the Series A-3 Preferred Stock
is convertible into a total of approximately 1.77 million shares.
In connection with the repayment of certain indebtedness to Merrill Lynch as
described in Note 3, the Company issued warrants covering 200,000 shares
exercisable at $.01 per share and 200,000 shares exercisable at $1.125 per
share. Such warrants were assigned a value of $175,000.
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<PAGE>
8. LIQUIDITY
As described in Note 1, the Company operates primarily in three industry
segments. The majority of the Company's net sales, operating profit and
identifiable assets are in the Food and Forestry Groups. The Company's
corporate entity has no significant operations and has historically been
partially dependent upon cash flows from its Food and Forestry Groups to meet
its ongoing liquidity requirements. As a result of various restrictions in
debt agreements that exist at the Food and Forestry Group levels, the Company
is generally restricted from receiving management fees, dividends, loans or
certain other advances in excess of $830,000 per year from those subsidiaries.
In December 1997, in connection with the Long Horizons refinancing, Overhill
was allowed per the terms of the new note agreement to effect a one-time cash
advance to Polyphase of $5.5 million. These proceeds were subsequently used by
Polyphase to reduce corporate borrowings plus accrued interest by $4.6 million
and provide cash flow for working capital and other needs of $900,000. The
remaining proceeds of the $24.1 million Long Horizons note were used by
Overhill to refinance existing principal plus accrued interest, repurchase
existing warrants to purchase 22.5% of Overhill's common stock for $2 million
and pay certain costs related to the financing. In addition, the refinancing
enabled the Company and Overhill to cure all previous defaults under all of
their loan agreements. The Company is not currently in default under any of
its existing loan agreements.
As of December 31, 1997, the Company has a note payable outstanding to Mr.
Harold Estes, former owner of Texas Timberjack, Inc. (TTI), in the amount of
$14.5 million due April 6, 1998. Mr. Estes has no recourse to any of the
assets or capital stock of the Company or any of its other subsidiaries other
than its ownership interest in TTI, except that Mr. Estes holds as secondary
collateral 2,000,000 shares of the Company's common stock owned by the
Pyrenees Group, a private investment firm owned in part by Paul A. Tanner,
Chairman and Chief Executive Officer of Polyphase.
In the event of default on the above note, the Company may be required to
transfer some or all of its ownership interest in TTI to Mr. Estes and the
Company would likely incur a noncash loss represented by the difference
between its net asset position in TTI and the note balance due Mr. Estes.
Further, as of December 31, 1997, Polyphase is indebted to TTI for
approximately $6.4 million on a non-interest bearing intercompany advance from
TTI offset by an intercompany receivable due to Polyphase from TTI of
approximately $4.4 million. These amounts may be required to be settled in the
event of default on the Estes note. Also, in the event of default on this
note, if the primary collateral, the Company's ownership interest in TTI, is
not sufficient to satisfy the balance owed to Mr. Estes, it is possible that
some or all of the Polyphase shares owned and pledged by Pyrenees would be
retained by Mr. Estes.
The Company anticipates it will be required to refinance the aforementioned
note payable to Mr. Estes upon maturity and is presently in negotiations to
accomplish this objective. However, there is no certainty that the Company
will be able to refinance this note on acceptable terms, or at all, before
April 6, 1998.
Furthermore, Polyphase may be required to retain legal representation on
various matters affecting the Company. The fees to be incurred could be
substantial in relation to the
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<PAGE>
Company's cash position.
9. CONTINGENCIES
The Company has guaranteed the repayment of a loan on behalf of PLY Stadium
Partners, Inc. ("Stadium Partners"), a private investment firm headed by Mr.
Paul A. Tanner, Chairman and Chief Executive Officer of the Company. The
loan was made by a financial institution in connection with the purchase of
land by a partnership affiliated with Stadium Partners to build a multi
purpose stadium in Las Vegas. The guarantee is effective, in certain
circumstances or upon the occurrence of certain events, including without
limitation if the Nevada Partnership files for bankruptcy or insolvency, if
representations by the partnership prove to be fraudulent regarding the
financial condition of the partnership, the land securing the loan is further
encumbered or ownership is transferred without the consent of the lender.
The aforementioned partnership is currently in default on its loan from
Lehman and foreclosure proceedings by Lehman have been initiated. The
Company, based on the advice of legal counsel, does not believe that it will
incur any significant liability as a result of this guarantee. As a result,
the Company believes the existence of such guarantee will not have a material
adverse effect on the Company's financial condition or results of operations.
During 1997, five substantially identical complaints were filed in the United
States District Court for the District of Nevada against the Company and
certain of its officers and directors. The suits seek class action status and
assert liability based on alleged misrepresentations that resulted in the
market price of the stock being artificially inflated. The Company intends
to vigorously defend these actions. During the three month period ended
December 31, 1997, one of these lawsuits was dismissed.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Revenues for the three months ended December 31, 1997 increased $1,227,000 (3%)
to $37,392,000 from $36,166,000 during the three months ended December 31, 1996.
Operating income also increased $885,000 (60%) over the comparable period. The
increases in the first quarter were primarily attributable to continued strong
revenue growth at Texas Timberjack.
Net income before extraordinary item for the three months ended December 31,
1997 increased $1,565,000 to $1,498,000 from a net loss $67,000 during the three
months ended December 31, 1996. The increase in net income is attributable to
higher gross margins at TTI and lower general and administrative expenses at
Overhill Farms. As a result of these factors, operating income as a percentage
of sales increased to 6% for the three months ended December 31, 1997 as
compared to 4% for the comparable period in fiscal 1996. Net income for the
period also included a one time gain of $988,000 from the sale of the Company's
corporate headquarters in December 1997. Net income was adversely effected by
an extraordinary expense, the early extinguishment of debt, associated with the
refinancing of certain indebtedness by Overhill Farms.
Revenues for the Food Group for the three months ended December 31, 1997
decreased $667,000 (3%) to $23,223,000 from $23,890,000 for the three months
ended December 31, 1996. Operating income for the three months ended December
31, 1997 increased $68,000 (5%) to $1,348,000 from $1,280,000 for the three
months ended December 31, 1996. Overhill's increased operating income was
primarily due to slight increases in gross margins and a reduction in general
and administrative expenses as management has reduced selling expenses related
to the retail business.
Revenues for the Forestry Group for the three months ended December 31, 1997
increased $1,914,000 (17%) to $13,259,000 from $11,342,000 for the three months
ended December 31, 1996, while operating income for the comparable period
increased $759,000 (123%). The increase in revenue was primarily due to
continued strong demand for logging equipment during the first quarter.
Operating income increased due to higher gross margins on new equipment as
logging companies retained older units in service rather than trading for new
models and added to their fleet of logging equipment. The Company also
experienced higher general and administrative costs for the period as compared
to the prior fiscal year due to the relocation and growth of the Lufkin office.
Revenues for the Transformer Group for the three months ended December 31, 1997
decreased $23,000 (2%) to $910,000 from $933,000 for the three months ended
December 31, 1996, while operating income for the comparable period decreased
$21,000 (76%). The decrease in operating income is primarily attributable to
increased competition and lower gross profit margins.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not own, not does it have an interest in any market risk
sensitive investments.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 1997, the Company used cash of
approximately $1,300,000 in its operating activities compared to a use of cash
of $264,000 during the comparable period in fiscal 1997. The increased use of
cash over the comparable period resulted primarily from increases in accounts
receivable.
During the three months ended December 31, 1997, the Company's investing
activities used cash of approximately $1,158,000 compared to a use of cash in
the amount of $47,000 in fiscal 1997. The Company's use of cash consisted
primarily of new notes receivable.
During the three months ended December 31, 1997, the Company's financing
activities provided cash of approximately $1,962,000 as compared to cash
provided of $670,000 in the comparable period in fiscal 1997. The source of
cash during the period consisted primarily from the approximately $24 million
loan facility at Overhill Farms.
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 primarily from a combination of internally
generated funds, 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.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1997, a suit was filed in District Court of Dallas County against the
Company by Rice Partners II, L.P., subordinated debt holders of the Overhill
Farms subsidiary. The suit claimed, among other things, that the Company
breached covenants of the subordinated debt agreement and refused to cure the
defaults within a reasonable period of time. In connection with the refinancing
of corporate debt in December 1997, the Company and Rice settled all litigation
related to the suit.
During 1997, five substantially identical complaints were filed in the United
States District Court for the District of Nevada against the Company and certain
of its officers and directors. The suits seek class action status and assert
liability based on alleged misrepresentations that resulted in the market price
of the stock being artificially inflated. The Company intends to vigorously
defend these actions. During the three month period ended December 31, 1997, one
of these lawsuits was dismissed.
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. Management believes (based
on advice of legal counsel) that such litigation and claims will be resolved
without material effect on the Company's financial position or results of
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K - The following reports were filed on Form 8-K
during the quarter ended December 31, 1997.
NONE
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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: February 16, 1998 By: /s/ James Rudis
-------------------
James Rudis
President
By: /s/ Bill Shadley
-------------------
Bill Shadley
Chief Financial Officer
-16-
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
----------------- ------------------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 568,396
<SECURITIES> 0
<RECEIVABLES> 21,552,093
<ALLOWANCES> 576,192
<INVENTORY> 24,768,058
<CURRENT-ASSETS> 47,712,921
<PP&E> 12,975,712
<DEPRECIATION> 6,193,445
<TOTAL-ASSETS> 76,525,407
<CURRENT-LIABILITIES> 42,007,983
<BONDS> 24,215,000
0
1,263
<COMMON> 143,762
<OTHER-SE> 8,360,378
<TOTAL-LIABILITY-AND-EQUITY> 76,525,407
<SALES> 37,392,317
<TOTAL-REVENUES> 37,392,317
<CGS> 30,425,160
<TOTAL-COSTS> 30,425,160
<OTHER-EXPENSES> 4,596,486
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,849,768
<INCOME-PRETAX> 1,497,810
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,497,810
<DISCONTINUED> 0
<EXTRAORDINARY> (616,239)
<CHANGES> 0
<NET-INCOME> 840,696
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
