<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 March 31, 1999
[ ] 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
Addison, Texas 75001
(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 17,812,464
---------------------------
Outstanding at May 18, 1999
<PAGE>
POLYPHASE CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION Page No.
- ----------------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
March 31, 1999 and September 30, 1998 2
Consolidated Condensed Statements of
Operations for the Three Months Ended
March 31, 1999 and 1998 4
Consolidated Condensed Statements of
Operations for the Six Months Ended
March 31, 1999 and 1998 5
Consolidated Condensed Statements of
Cash Flows for the Six Months Ended
March 31, 1999 and 1998 7
Notes to Consolidated Condensed Financial Statements 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
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<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
Assets
<TABLE>
<CAPTION>
March 31, September 30,
----------- -------------
1999 1998
----------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 2,053,056 $ 423,957
Receivables, net of allowance for doubtful accounts
of $485,031 and $562,800
Trade accounts 16,589,638 13,839,250
Current portion of sales contracts 5,161,701 3,879,420
Notes receivable 1,926,052 1,813,232
Inventories 34,787,355 34,568,628
Prepaid expenses and other 882,487 527,999
----------- -------------
Total current assets 61,400,289 55,052,486
----------- -------------
Property and equipment:
Land 432,000 432,000
Buildings and improvements 4,627,425 4,054,854
Machinery, equipment and other 9,616,002 9,490,827
----------- -------------
14,675,427 13,977,681
Less-Accumulated depreciation (8,311,501) (7,526,281)
----------- -------------
6,363,926 6,451,400
----------- -------------
Other assets:
Noncurrent receivables
Sales contracts 1,813,570 1,363,039
Related parties 751,331 670,655
Excess of cost over fair value of net assets of businesses
acquired, net of accumulated amortization of $3,590,388
and $3,183,743 13,008,351 13,414,996
Other intangible assets 1,887,133 2,494,754
Restricted cash 610,787 672,898
Other 1,449,341 1,425,147
----------- -------------
19,520,513 20,041,489
----------- -------------
$87,284,728 $ 81,545,375
=========== =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-2-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
(Unaudited)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
March 31, September 30,
------------ -------------
1999 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable $ 14,983,453 $ 14,409,681
Note payable and accrued interest to related party 17,115,733 16,307,405
Accounts payable 11,081,882 6,085,703
Accrued expenses and other 3,540,471 3,514,685
Current maturities of long-term debt 5,033,333 3,533,333
------------ ------------
Total current liabilities 51,754,872 43,850,807
Long term debt, less current maturities 27,423,037 29,220,972
Reserve for credit guarantees 610,787 672,898
------------ ------------
Total liabilities 79,788,696 73,744,677
------------ ------------
Warrants to purchase common stock
in subsidiary 1,200,000 1,200,000
Stockholders' equity:
Preferred stock, $.01 par value, authorized
50,000,000 shares, issued and outstanding
65,543 and 115,000 shares, respectively 655 1,150
Common stock, $.01 par value, authorized
100,000,000 shares, issued and outstanding
17,482,321 and 15,080,050 shares, respectively 174,823 150,800
Paid-in capital 28,886,895 28,623,811
Accumulated deficit (21,791,022) (21,199,744)
Notes receivable (975,319) (975,319)
------------ ------------
Total stockholders' equity 6,296,032 6,600,698
------------ ------------
$ 87,284,728 $ 81,545,375
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-3-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net revenues $41,178,567 $33,328,696
Cost of sales 34,229,808 26,818,115
----------- -----------
Gross profit 6,948,759 6,510,581
Selling, general and administrative expenses 5,102,516 4,600,107
----------- -----------
Operating income 1,846,243 1,910,474
----------- -----------
Other income (expenses):
Interest expense (2,195,586) (2,262,859)
Interest income and other 155,784 134,279
----------- -----------
Total other income (expenses) (2,039,802) (2,128,580)
----------- -----------
Loss before income taxes (193,559) (218,106)
Income taxes - -
----------- -----------
Net loss (193,559) (218,106)
Dividends on preferred stock (24,236) (39,375)
----------- -----------
Net loss attributable to common stockholders $ (217,795) $ (257,481)
=========== ===========
Basic loss per share $ (.01) $ (.02)
=========== ===========
Diluted loss per share $ (.01) $ (.02)
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net revenues $77,234,535 $70,721,013
Cost of sales 64,130,324 57,243,275
----------- -----------
Gross profit 13,104,211 13,477,738
Selling, general and administrative expenses 9,614,867 9,196,593
----------- -----------
Operating income 3,489,344 4,281,145
----------- -----------
Other income (expenses):
Interest expense (4,361,735) (4,112,627)
Interest income and other 338,447 123,329
Gain on sale of assets - 987,857
----------- -----------
Total other income (expenses) (4,023,288) (3,001,441)
----------- -----------
Income (loss) before income taxes and
extraordinary item (533,944) 1,279,704
Income taxes - -
----------- -----------
Net income (loss) before extraordinary item (533,944) 1,279,704
Extraordinary item:
Early extinguishment of debt - (616,239)
----------- -----------
Net income (loss) (533,944) 663,465
Dividends on preferred stock (57,334) (80,250)
----------- -----------
Net income (loss) attributable to common
stockholders $ (591,278) $ 583,215
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-5-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Basic income (loss) per share:
Income (loss) before
extraordinary item $ (.04) $ .08
Extraordinary item - (.04)
----------- -----------
Net income (loss) per share: $ (.04) $ .04
=========== ===========
Diluted income (loss) per share:
Income (loss) before
extraordinary item $ (.04) $ .07
Extraordinary item - (.04)
----------- -----------
Net income (loss) per share $ (.04) $ .03
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-6-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flow provided by (used in) operating
activities:
Net income (loss) $ (533,944) $ 663,465
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 2,022,286 2,104,938
Provision for doubtful accounts 79,000 188,701
Gain on sale of assets - (987,857)
(Increase) decrease in:
Accounts and sales contracts receivable (4,562,200) 278,349
Inventories (218,727) (6,947,947)
Prepaid expenses and other (378,682) 396,166
Accounts payable 4,996,179 1,631,940
Accrued expenses and other 288,298 148,838
----------- -----------
Net cash provided by (used in)
operating activities 1,692,210 (2,523,407)
----------- -----------
Cash flows provided by (used in) investing
activities:
Notes and other receivables (112,820) (1,214,554)
Receivables from related parties (80,676) 7,963
Capital expenditures, net (697,746) (399,328)
----------- -----------
Net cash used in
investing activities $ (891,242) $(1,605,919)
----------- -----------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-7-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
March 31,
---------------------------
1999 1998
----------- ------------
<S> <C> <C>
Cash flows provided by (used in) financing
activities:
Borrowings (principal payments) under line of
credit arrangements, net $ 1,382,100 $ 2,308,445
Borrowings (principal payments) on other
notes payable and long term debt, net (497,935) 25,877,710
Exercise of common stock options 1,300 -
Principal payments on term notes - (1,982,280)
Principal payments on convertible bonds - (4,300,000)
Principal payments on subordinated debentures - (13,000,000)
Redemption of Overhill warrants - (2,000,000)
Dividends on preferred stock (57,334) (80,250)
Deferred financing costs - (2,753,552)
Common stock issuance costs - (17,500)
----------- ------------
Net cash provided by
financing activities 828,131 4,052,573
----------- ------------
Net increase (decrease) in cash 1,629,099 (76,753)
Cash - beginning of period 423,957 1,064,259
----------- ------------
Cash - end of period $ 2,053,056 $ 987,506
=========== ============
</TABLE>
-8-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
March 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Supplemental schedule of cash flow information:
Cash paid during the period for :
Interest $2,947,163 $2,594,632
Income taxes $ - $ -
</TABLE>
Supplemental schedule of noncash investing and financing activities:
In December 1997, in connection with the Overhill Farms credit agreement,
warrants were issued having an estimated fair market value of $1,200,000.
In connection with the repayment of certain indebtedness to Merrill Lynch in
December 1997, the Company issued warrants covering 210,000 shares exercisable
at $.01 per share and 210,000 shares exercisable at $1.125 per share. Such
warrants were assigned a value of $175,000.
During the period ended March 31, 1999, the Company made partial payments on a
lawsuit obligation, together with certain associated expenses, by issuing
300,000 shares of common stock valued at $85,000.
During the period ended March 31, 1999, the Company settled certain disputed
obligations by granting an option on 130,000 shares of common stock, exercisable
at $.01 per share. The options were assigned a value of $28,000.
The accompanying notes are an integral part
of these consolidated financial statements.
-9-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
March 31, 1999
1. NATURE OF BUSINESS
Polyphase Corporation (the "Company" or "Polyphase") is a diversified
holding company that, through its subsidiaries, operates in three industry
segments: the food segment, the forestry segment and the transformer
segment. The food segment (the "Food Group"), which consists of the
Company's wholly-owned subsidiary Overhill Farms, Inc. ("Overhill"),
produces high quality entrees, plated meals, soups, sauces and poultry, meat
and fish specialities. The forestry segment ("Forestry Group"), which
consists of the Company's wholly-owned subsidiary Texas Timberjack, Inc.
("TTI") and TTI's majority-owned subsidiaries Southern Forest Products LLC
("SFP") and Wood Forest Products LLC ("WFP"), distributes, leases and
provides financing for industrial and commercial timber equipment and is
also engaged in certain related timber and sawmill operations. The
transformer segment (the "Transformer Group"), which consists of the
Company's wholly-owned subsidiary Polyphase Instrument Co. ("PIC"),
manufactures and markets electric transformers, inductors and filters.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and its majority-owned subsidiaries. All
material intercompany accounts and transactions are eliminated. Certain
prior year amounts have been reclassified to conform to the 1998
presentation.
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 for
the year ended September 30, 1998.
3. INVENTORIES
Inventories are summarized as follows: March 31, September 30
1999 1998
----------- -----------
Finished goods $24,344,422 $24,162,010
Work-in-process 495,117 430,507
Raw materials 10,204,816 10,228,111
Inventory reserve (257,000) (252,000)
----------- -----------
Total $34,787,355 $34,568,628
=========== ===========
-10-
<PAGE>
As of March 31, 1999, finished goods inventories are comprised of
approximately $6,846,000 in inventories at the Food Group, $15,585,000 in
timber and logging related equipment, $1,371,000 in finished wood products
and $542,000 in transformers. As of March 31, 1999, raw materials
inventories are comprised of approximately $5,521,000 in inventories at the
Food Group, $3,511,000 in harvested but unprocessed timber and $1,173,000 in
transformer parts.
4. TAXES
For the six months ended March 31, 1999, the actual Federal income tax
expense attributable to income from operations differed from the net amounts
recorded by the Company. The Company recorded a provision for Federal income
taxes of $74,000 using the statutory tax rate of 34% and then applied a like
amount of its existing valuation allowance, resulting in a net provision for
the period of zero. As of March 31, 1999, the Company had a remaining
valuation allowance of approximately $5.4 million and net operating loss
carry forwards of approximately $12.0 million.
Additionally, the Federal income tax returns of TTI for the year ended March
31, 1994 and for the stub period ended June 24, 1994, were audited by the
Internal Revenue Service. Both these tax periods were prior to the
acquisition of TTI by Polyphase. During the current quarter, the Internal
Revenue Service assessed TTI additional taxes of approximately $752,000 for
the year ended March 31,1994. The Company and TTI are appealing the IRS
decision and, if necessary, intend to further contest the matter in District
Court, and believe, based upon the advice of counsel, that this issue will
be resolved without a material effect on the financial position, results of
operations or cash flows of the Company.
5. EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Numerator:
Net loss $ (193,559) (218,106)
Preferred dividends (24,236) (39,375)
----------- -----------
Net loss attributable to common stockholders $ (217,795) $ (257,481)
=========== ===========
Denominator:
Denominator for basic earnings
per share - weighted average shares (a) 6,828,432 14,491,396
=========== ===========
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Numerator:
Net income (loss) before extraordinary item $ (533,944) $ 1,279,704
Preferred dividends (57,334) (80,250)
----------- -----------
(591,278) 1,199,454
Extraordinary item - (616,239)
----------- -----------
Income (loss) available to common stockholders $ (591,278) $ 583,215
=========== ===========
Denominator:
Denominator for basic earnings per share-
weighted average shares 16,104,381 14,236,542
----------- -----------
Effect of dilutive securities:
Convertible preferred stock - 1,607,430
Stock options - 291,478
Warrants - 132,618
----------- -----------
Dilutive potential common shares (a) - 2,031,526
----------- -----------
16,104,381 16,268,068
=========== ===========
</TABLE>
(a) Dilutive potential common shares were excluded from the computation in
loss periods since their effect would have been antidilutive.
6. STOCKHOLDERS' EQUITY
During the period ended March 31, 1999, Infinity Investors Limited, the
holder of the Company's Series A-3 Preferred Stock, converted a total of
49,457 shares of such stock, together with accrued dividends of $172,876,
into a total of 1,972,271 shares of common stock. Based upon the market price
of the Company's common stock as of March 31, 1999, the holder would have
been entitled to approximately 2.4 million common shares upon conversion of
its remaining preferred stock and accrued dividends. Pursuant to a further
conversion in April 1999, the holder was issued an additional 330,143 shares
of common stock. Any additional conversions of the Series A-3 Preferred
Stock will require that the Company file an application with the American
Stock Exchange ("AMEX") for the listing of additional shares prior to
issuance. The AMEX Company Guide requires shareholder approval as a
prerequisite to the filing of such additional listing application.
The Company, during November 1998, entered into an agreement, whereby the
Company agreed to pay a $500,000 judgment relating to certain litigation in
fiscal 1998, in monthly payments of $8,000 (including interest at 10% per
annum) over an eighteen month period, with a balloon payment due at the end
of that period. In connection therewith, the Company, during the six months
ended March 31, 1999, issued a total of 300,000 shares of its common stock
valued at $ 85,000, as partial payment against the judgment, together with
certain costs associated therewith.
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Statements contained in this Form 10-Q that are not historical facts, including,
but not limited to, any projections contained herein, are forward-looking
statements and involve a number of risks and uncertainties. The actual results
of the future events described in such forward-looking statements in this Form
10-Q could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: adverse economic conditions, industry competition and other
competitive factors, government regulation and possible future litigation.
Results of Operations
Revenues for the six months ended March 31, 1999 increased $6,514,000 (9.2%) to
$77,235,000 from $70,721,000 during the six months ended March 31, 1998. The
increase in revenues is primarily attributable to sales gains by Overhill. On a
consolidated basis, gross margins decreased from the comparable period in 1998
from 19.1% to 17.0%, resulting in decreased gross profit and operating income.
For the six months ended March 31, 1999, operating income decreased $792,000
(18.5%) to $3,489,000 from $4,281,000 during the comparable period in 1998.
Interest expense for the six months ended March 31, 1999 increased $249,000 over
the comparable period in 1998 primarily due to additional borrowings outstanding
during the period.
Consolidated net income before extraordinary item for the six months ended March
31, 1999 decreased $1,814,000 to a net loss of $534,000 from net income of
$1,280,000 during the six months ended March 31, 1998. Net income for the prior
period included a one time gain of $988,000 from the sale of the Company's
corporate headquarters in December 1997. Consolidated net income was adversely
affected by a decrease in gross margins, higher selling, general and
administrative expenses and higher interest expense.
The Food Group's revenues increased $6,161,000 (13.6%) to $51,506,000 for the
six months ended March 31, 1999 as compared to $45,345,000 for the six months
ended March 31, 1998. Gross profits increased 11.7% ($883,000) to $8,433,000,
compared to $7,550,000 in the prior year, primarily due to increased business
from new national accounts and decreased raw materials costs. Operating income
increased $437,000 to $3,008,000, compared to $2,571,000 in fiscal 1998.
Revenues for the Forestry Group for the six months ended March 31, 1999
decreased $238,000 (1.0%) to $23,044,000 from $23,282,000 for the six months
ended March 31, 1998. Operating income for the same period decreased $1,958,000
to $548,000 for the six months ended March 31, 1999 from $2,506,000 for the six
months ended March 31, 1998. The decreases were primarily attributable a
softness in the East Texas timber market, resulting in a decrease in gross
margins for the current period, and higher selling, general and administrative
expenses associated with the sawmill subsidiary which were not material in
fiscal 1998.
Revenues for the Transformer Group for the six months ended March 31, 1999
increased $591,000 to $2,684,000 from $2,093,000 for the comparable period in
fiscal 1998. Operating income decreased to $24,000 for the six months ended
March 31, 1999 from $29,000 for the comparable period in fiscal 1998.
-13-
<PAGE>
Liquidity and Capital Resources
During the six months ended March 31, 1999, the Company's operating activities
provided cash of approximately $1,692,000, compared to cash used of $2,523,000
during the comparable period in fiscal 1998. This increase over the comparable
period resulted primarily from increases in payables related to volume
increases at Overhill.
During the six months ended March 31, 1999, the Company's investing activities
resulted in a use of cash of approximately $891,000, compared to a use of cash
in the amount of $1,606,000 in fiscal 1998. The Company's use of cash consisted
primarily of capital expenditures at Texas Timberjack and its subsidiaries.
During the six months ended March 31, 1999, the Company's financing activities
provided cash of approximately $828,000 as compared to cash provided of
$4,053,000 in the comparable period in fiscal 1998. The source of cash during
the prior period consisted primarily of the loan facility of approximately $24
million at Overhill.
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 also has principal
payment obligations to Merrill Lynch, Long Horizons and Mr. Harold Estes. The
Company's management believes that cash generated from operations, together with
available lines of credit, possible refinancings and contemplated debt and/or
equity placements, will be sufficient to meet the Company's liquidity
requirements for the next twelve months.
Year 2000
The Company has initiated a Year 2000 program to identify and address issues
associated with the ability of its business systems and equipment to properly
recognize the Year 2000. The purpose of this effort is to avoid interruption of
the operations of the Company as a result of the century change that will occur
on January 1, 2000. The Company's program includes review of its software
systems, review of its operating systems, upgrade or retirement of non-compliant
hardware and contacting key suppliers to assess their Year 2000 readiness.
The Food Group is completing the installation of a new integrated accounting,
inventory, sales and purchasing system to replace the existing manual and
computer systems supporting operations. The system software and hardware has
been certified by the vendor to be Year 2000 compliant and has been implemented
as a parallel system. The Forestry Group has reviewed its existing software and
is the process of completing an upgrade modification. The corporate office's
hardware and software systems are in the process of upgrading for obsolescence,
which complements the Year 2000 Project. Each group will retire or replace its
existing hardware as deemed necessary and should be completely tested and on
line by June 1999.
The Company began the second phase of its Year 2000 compliance project in late
January. The Company's subsidiaries are contacting key vendors to assess their
Year 2000 readiness and evaluate the effect of non-compliance on the Company's
future business.
-14-
<PAGE>
Despite efforts to address the Year 2000 problem, there can be no guarantee that
critical suppliers or entities on which the Company relies will be converted on
a timely basis. The Company believes, based upon preliminary findings, that
most vendors are performing internal Year 2000 projects similar to the Company's
and that non-compliant vendors will offer alternative measures for time
sensitive products. Contingency plans for obtaining goods and services from
non-compliant vendors will be addressed on a case by case basis.
To date, the Company has had no material expenditures for direct Year 2000
compliance procedures. The Company believes that neither the cost of its planned
upgrade and modification program nor a failure to timely complete such program,
will have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not own, nor does it have an interest in any market risk
sensitive investments.
-15-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During fiscal 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 complaints each sought certification
as a class action and asserted liability based on alleged misrepresentations
that the plaintiffs claimed resulted in the market price of the Company's stock
being artificially inflated. The defendants filed motions to dismiss in each of
the lawsuits. Without certifying the cases as class actions, the District Court
consolidated the cases into a single action. In June 1998, the District Court
ordered the plaintiffs to file an amended complaint within thirty (30) days,
finding that their original allegations failed to state a claim under the
federal securities laws. The plaintiffs then filed a motion for reconsideration
of the Court's ruling. The defendants opposed that motion, and the Court, in
March 1999, denied the plaintiffs' motion for reconsideration. The plaintiffs
did not file an amended complaint within the specified thirty (30) day time
period. However, the plaintiffs are claiming that they are entitled to
additional time to file an amended pleading by reason of a scheduling order
issued by the Court. Consequently, it cannot be determined at this time whether
the plaintiffs' failure to file an amended complaint will lead to a dismissal of
the consolidated actions. However, management believes that this litigation will
be resolved without material effect on the Company's financial condition,
results of operations, or cash flows.
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. Management believes 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 March 31, 1999.
None
-16-
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POLYPHASE CORPORATION
(Registrant)
Date: May 19, 1999 By: /s/ James Rudis
------------------------------
James Rudis
Chairman, President and
Chief Executive Officer
Date: May 19, 1999 By: /s/ William E. Shatley
------------------------------
William E. Shatley
Senior Vice President, Treasurer
and Chief Financial Officer
-17-
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
------------- ----------------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1999
<CASH> 2,053
<SECURITIES> 0
<RECEIVABLES> 23,677
<ALLOWANCES> 485
<INVENTORY> 34,787
<CURRENT-ASSETS> 61,400
<PP&E> 14,675
<DEPRECIATION> 8,312
<TOTAL-ASSETS> 87,285
<CURRENT-LIABILITIES> 51,755
<BONDS> 27,423
0
1
<COMMON> 175
<OTHER-SE> 6,120
<TOTAL-LIABILITY-AND-EQUITY> 87,285
<SALES> 77,235
<TOTAL-REVENUES> 77,235
<CGS> 64,130
<TOTAL-COSTS> 64,130
<OTHER-EXPENSES> 9,615
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,362
<INCOME-PRETAX> (534)
<INCOME-TAX> 0
<INCOME-CONTINUING> (534)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (591)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
