<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 June 30, 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 August 10, 1999
<PAGE>
POLYPHASE CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION Page No.
- ----------------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
June 30, 1999 and September 30, 1998 2
Consolidated Condensed Statements of
Operations for the Three Months Ended
June 30, 1999 and 1998 4
Consolidated Condensed Statements of
Operations for the Nine Months Ended
June 30, 1999 and 1998 5
Consolidated Condensed Statements of
Cash Flows for the Nine Months Ended
June 30, 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 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature Page 19
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<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets
June 30, September 30,
------------ ------------
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,486,158 $ 423,957
Receivables, net of allowance for doubtful accounts
of $514,628 and $562,800
Trade accounts 16,444,721 13,839,250
Current portion of sales contracts 5,419,886 3,879,420
Notes receivable 2,432,655 1,813,232
Inventories 35,952,305 34,568,628
Prepaid expenses and other 1,805,195 527,999
------------ ------------
Total current assets 63,540,920 55,052,486
------------ ------------
Property and equipment:
Land 432,000 432,000
Buildings and improvements 4,502,035 4,054,854
Machinery, equipment and other 9,919,351 9,490,827
------------ ------------
14,853,386 13,977,681
Less-Accumulated depreciation (8,793,054) (7,526,281)
------------ ------------
6,060,332 6,451,400
------------ ------------
Other assets:
Noncurrent receivables
Sales contracts 1,904,285 1,363,039
Related parties 795,100 670,655
Excess of cost over fair value of net assets of businesses
acquired, net of accumulated amortization of $3,793,710
and $3,183,743 12,805,029 13,414,996
Other intangible assets 1,573,746 2,494,754
Restricted cash 628,650 672,898
Other 1,456,598 1,425,147
------------ ------------
19,163,408 20,041,489
------------ ------------
$ 88,764,660 $ 81,545,375
============ ============
</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>
<CAPTION>
Liabilities and Stockholders' Equity
June 30, September 30,
------------ ------------
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable $ 18,182,919 $ 14,409,681
Note payable and accrued interest to related party 17,513,104 16,307,405
Accounts payable 9,135,852 6,085,703
Accrued expenses and other 3,259,158 3,514,685
Current maturities of long-term debt 5,533,333 3,533,333
------------ ------------
Total current liabilities 53,624,366 43,850,807
Long term debt, less current maturities 26,834,277 29,220,972
Reserve for credit guarantees 628,650 672,898
------------ ------------
Total liabilities 81,087,293 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
56,440 and 115,000 shares, respectively 564 1,150
Common stock, $.01 par value, authorized
100,000,000 shares, issued and outstanding
17,812,464 and 15,080,050 shares, respectively 178,125 150,800
Paid-in capital 28,916,456 28,623,811
Accumulated deficit (21,642,459) (21,199,744)
Notes receivable (975,319) (975,319)
------------ ------------
Total stockholders' equity 6,477,367 6,600,698
------------ ------------
$ 88,764,660 $ 81,545,375
============ ============
</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)
For the Three Months Ended
June 30,
----------------------------
1999 1998
------------ ------------
Net revenues $ 39,554,615 $ 37,272,305
Cost of sales 32,005,725 30,806,581
------------ ------------
Gross profit 7,548,890 6,465,724
Selling, general and administrative expenses 5,334,343 4,793,848
------------ ------------
Operating income 2,214,547 1,671,876
------------ ------------
Other income (expenses):
Interest expense (2,096,476) (2,338,925)
Interest income and other 47,424 (7,985)
------------ ------------
Total other income (expenses) (2,049,052) (2,346,910)
------------ ------------
Income (loss) before income taxes 165,495 (675,034)
Income taxes - -
------------ ------------
Net income (loss) 165,495 (675,034)
Dividends on preferred stock (16,932) (37,500)
------------ ------------
Net income (loss) attributable to
common stockholders $ 148,563 $ (712,534)
============ ============
Basic income (loss) per share $ .01 $ (.05)
============ ============
Diluted income (loss) per share $ .01 $ (.05)
============ ============
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,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net revenues $116,789,150 $107,993,318
Cost of sales 96,136,049 88,049,856
------------ ------------
Gross profit 20,653,101 19,943,462
Selling, general and administrative expenses 14,949,210 13,990,441
------------ ------------
Operating income 5,703,891 5,953,021
------------ ------------
Other income (expenses):
Interest expense (6,458,211) (6,451,552)
Interest income and other 385,871 115,344
Gain on sale of assets - 987,857
------------ ------------
Total other income (expenses) (6,072,340) (5,348,351)
------------ ------------
Income (loss) before income taxes and
extraordinary item (368,449) 604,670
Income taxes - -
------------ ------------
Net income (loss) before extraordinary item (368,449) 604,670
Extraordinary item:
Early extinguishment of debt - (616,239)
------------ ------------
Net income (loss) (368,449) (11,569)
Dividends on preferred stock (74,266) (117,750)
------------ ------------
Net income (loss) attributable to
common stockholders $ (442,715) $ (129,319)
============ ============
</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 Nine Months Ended
June 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Basic income (loss) per share:
Income (loss) before
extraordinary item $ (.03) $ .03
Extraordinary item - (.04)
------------ ------------
Net income (loss) per share: $ (.03) $ (.01)
============ ============
Diluted income (loss) per share:
Income (loss) before
extraordinary item $ (.03) $ .03
Extraordinary item - (.04)
------------ ------------
Net income (loss) per share $ (.03) $ (.01)
============ ============
</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 Nine Months Ended
June 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flow provided by (used in)
operating activities:
Net (loss) $ (368,449) $ (11,569)
Adjustments to reconcile net (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,120,548 3,210,649
Provision for doubtful accounts 121,000 183,848
Gain on sale of assets - (987,857)
(Increase) decrease in:
Accounts and sales contracts receivable (4,808,183) 47,274
Inventories (1,383,677) (10,140,120)
Prepaid expenses and other (1,308,647) 828,094
Accounts payable 3,050,149 (1,205,987)
Accrued expenses and other 39,757 715,766
------------ ------------
Net cash used in
operating activities (1,537,502) (7,359,902)
------------ ------------
Cash flows provided by (used in) investing
activities:
Notes and other receivables (619,423) (1,021,743)
Receivables from related parties (124,445) 8,963
Capital expenditures, net (875,705) (1,010,543)
------------ ------------
Net cash used in
investing activities $ (1,619,573) $ (2,023,323)
------------ ------------
</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 Nine Months Ended
June 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows provided by (used in)
financing activities:
Borrowings (principal payments) under
line of credit arrangements, net $ 3,773,238 $ 2,174,882
Borrowings (principal payments) on other
notes payable and long term debt, net 519,004 31,041,039
Exercise of common stock options and warrants 1,300 2,100
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 (74,266) (117,750)
Deferred financing costs - (2,753,552)
Common stock issuance costs - (17,500)
------------ ------------
Net cash provided by
financing activities 4,219,276 9,046,939
------------ ------------
Net increase (decrease) in cash 1,062,201 (336,286)
Cash - beginning of period 423,957 1,064,259
------------ ------------
Cash - end of period $ 1,486,158 $ 727,973
============ ============
</TABLE>
-8-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Supplemental schedule of cash flow information:
Cash paid during the period for :
Interest $ 4,171,805 $ 2,594,632
Income taxes $ 752,100 $ -
</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 nine months ended June 30, 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 nine months ended June 30, 1999, the Company settled certain disputed
obligations by granting options on 145,000 shares of common stock, exercisable
130,000 shares at $.01 per share and 15,000 shares at $.50 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
June 30, 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" or "Timberjack") 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 current year
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.
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<PAGE>
3. INVENTORIES
Inventories are summarized as follows: June 30, September 30
1999 1998
------------ ------------
Finished goods $ 26,220,263 $ 24,162,010
Work-in-process 470,117 430,507
Raw materials 9,593,925 10,228,111
Inventory reserve (332,000) (252,000)
------------ ------------
Total $ 35,952,305 $ 34,568,628
============ ============
As of June 30, 1999, finished goods inventories are comprised of
approximately $7,223,000 in inventories at the Food Group, $17,077,000 in
timber and logging related equipment, $1,378,000 in finished wood products
and $542,000 in transformers. As of June 30, 1999, raw materials
inventories are comprised of approximately $5,660,000 in inventories at the
Food Group, $2,861,000 in harvested but unprocessed timber and $1,073,000
in transformer parts.
4. TAXES
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 of these tax periods were prior to the acquisition of
TTI by Polyphase. During the current period, the Internal Revenue Service
assessed TTI with additional taxes of approximately $752,000 for the year
ended March 31, 1994. The Company and TTI are appealing the IRS decision,
and, in anticipation of further contesting the matter in District Court,
TTI made a cash payment to the IRS for $1,185,000 (which is included in
other current assets), representing the above tax assessment plus interest
of $433,000. In the event the IRS reverses its earlier position, TTI would
be entitled to a full refund of the amount paid. If the appeal is denied,
TTI would seek recovery through District Court proceedings, and in that
event, would consider the necessity of establishing appropriate valuation
accounts for any amounts not considered recoverable. Management believes,
based upon the advice of counsel, that this issue will ultimately be
resolved without a material financial effect on TTI or the Company.
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<PAGE>
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
June 30
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Numerator:
Net income (loss) $ 165,495 $ (675,034)
Preferred dividends (16,932) (37,500)
------------ ------------
Net income (loss) attributable to
common stockholders $ 148,563 $ (712,534)
============ ============
Denominator:
Denominator for basic earnings
per share - weighted average shares 17,758,045 14,785,541
------------ ------------
Effect of dilutive securities:
Convertible preferred stock 1,962,567 -
------------ ------------
Dilutive potential common shares (a) 1,962,567 -
------------ ------------
19,720,612 14,785,541
============ ============
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30,
------------ ------------
1999 1998
------------ ------------
<S> <C> <C>
Numerator:
Net income (loss) before extraordinary item $ (368,449) $ 604,670
Preferred dividends (74,266) (117,750)
------------ ------------
(442,715) 486,920
Extraordinary item - (616,239)
------------ ------------
Income (loss) available to common stockholders $ (442,715) $ (129,319)
============ ============
Denominator:
Denominator for basic earnings per share-
weighted average shares (a) 16,665,603 14,419,541
============ ============
</TABLE>
(a) Dilutive potential common shares were excluded from the computation in
loss periods since their effect would have been antidilutive.
-12-
<PAGE>
6. STOCKHOLDERS' EQUITY
During the nine months ended June 30, 1999, Infinity Investors Limited
("Infinity"), the holder of the Company's Series A-3 Preferred Stock,
converted a total of 58,560 shares of such stock, together with accrued
dividends of $205,648, into a total of 2,302,414 shares of the Company's
common stock. Based upon the market price of the Company's common stock as
of June 30, 1999, the holder would have been entitled to approximately 1.8
million common shares upon conversion of its remaining preferred stock and
accrued dividends. Any additional conversions of the Series A-3 Preferred
Stock require that the Company file an application with the American Stock
Exchange ("AMEX") for the listing of such additional common shares prior to
issuance. The AMEX Company Guide requires stockholder approval as a
prerequisite to the filing of such additional listing application. At the
Company's Annual Meeting held May 27, 1999, a majority of the stockholders
voted against a proposal to file an additional listing application with
respect to the conversion of additional preferred shares by Infinity. The
Company, as well as its directors, are currently in litigation with
Infinity regarding issues related to this matter.
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 nine
months ended June 30, 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.
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<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 nine months ended June 30, 1999 increased $8,796,000 (8.1%) to
$116,789,000 from $107,993,000 during the nine months ended June 30, 1998. The
increase in revenues is primarily attributable to sales gains by Overhill. The
volume increase resulted in a gross profit increase of $710,000 to $20,653,000
in 1999 from $19,943,000 in 1998, more than compensating for a slight decrease
(from 18.5% in 1998 to 17.7% in 1999) in gross margins rates. An increase in
selling, general and administrative expenses of $959,000 resulted in an
operating income decrease of $249,000 (4.2%) to $5,704,000 for the nine months
ended June 30, 1999, as compared to $5,953,000 in 1998.
Consolidated net income before extraordinary item for the nine months ended June
30, 1999 decreased $973,000 to a net loss of $368,000 from net income of
$605,000 during the nine months ended June 30, 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.
The Food Group's revenues increased $11,549,000 (16.8%) to $80,099,000 for the
nine months ended June 30, 1999, as compared to $68,550,000 for the nine months
ended June 30, 1998. Gross profits increased $2,617,000 (23.7%) to $13,649,000,
compared to $11,032,000 in the prior year, primarily due to increased business
from both new and existing national accounts, together with the effect of
negotiated decreases in materials costs. Operating income increased $1,367,000
to $5,014,000 in 1999, compared to $3,647,000 in fiscal 1998.
Revenues for the Forestry Group for the nine months ended June 30, 1999
decreased $4,089,000 (11.3%) to $32,153,000 from $36,242,000 for the nine months
ended June 30, 1998. Operating income for the same period decreased $2,473,000
to $990,000 for the nine months ended June 30, 1999 from $3,463,000 for the nine
months ended June 30, 1998. This decrease was primarily attributable to a
softness in the East Texas timber market, resulting in a $1,949,000 decrease in
gross margins for the current period, coupled with an increase of $524,000 in
selling, general and administrative expenses.
Revenues for the Transformer Group for the nine months ended June 30, 1999
increased $1,336,000 to $4,537,000 from $3,201,000 for the comparable period in
fiscal 1998. Operating income decreased to $31,000 for the nine months ended
June 30, 1999 from $36,000 for the comparable period in fiscal 1998.
-14-
<PAGE>
Liquidity and Capital Resources
During the nine months ended June 30, 1999, the Company's operating activities
resulted in a use of cash of approximately $1,538,000, compared to cash used of
$7,360,000 during the comparable period in fiscal 1998. The use of cash during
the current year is generally due to increases in trade receivables, offset
somewhat by increases in accounts payable, both resulting primarily from volume
increases by Overhill.
During the nine months ended June 30, 1999, the Company's investing activities
resulted in a use of cash of approximately $1,620,000, compared to a use of cash
of $2,023,000 in fiscal 1998. The Company's use of cash resulted primarily from
increases in notes receivable and capital expenditures by Texas Timberjack and
its subsidiaries.
During the nine months ended June 30, 1999, the Company's financing activities
provided cash of approximately $4,219,000 as compared to cash provided of
$9,047,000 in the comparable period in fiscal 1998. The source of cash during
the current year consisted primarily of advances under revolving lines of credit
by Timberjack and Overhill.
The Company has principal payment obligations to Long Horizons and to 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. Each group will retire or
replace its existing hardware as deemed necessary and should be completely
tested and on line by September 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.
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
-15-
<PAGE>
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.
-16-
<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 asserting that the plaintiffs' allegations failed to state a claim.
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
there is a heightened pleading standard for federal securities law claims. 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, claiming that they
were entitled to additional time to file an amended pleading by reason of a
scheduling order issued by the Court. Defendants moved to dismiss the
consolidated cases in light of the plaintiffs' failure to file an amended
complaint. Thereafter, plaintiffs filed an amended complaint. Defendants
responded with an amended motion to dismiss, arguing that the plaintiffs' filing
came too late and that it was insufficient to state a claim. There has been no
ruling on defendants' amended motion to dismiss, and plaintiffs have now sought
a stay of the proceedings in light of a recent appellate court decision.
Consequently, it cannot be determined at this time whether the plaintiffs'
amended complaint will be dismissed. 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 4. Submission of Matters to a Vote of Security Holders
On May 27, 1999, the Company held its 1999 Annual Meeting of Stockholders (the
"Annual Meeting"). At the Annual Meeting, the following matters were considered
and voted upon:
(a) the election of four (4) directors of the Company;
(b) an amendment to the 1994 Employee Stock Option Plan for Polyphase
Corporation (the "1994 Employee Plan") to increase the number of shares of
common stock authorized and reserved for issuance upon the exercise of
stock options granted pursuant to the 1994 Employee Plan by 750,000 shares,
from 1,000,000 to 1,750,000 shares; and
(c) the filing of a listing application with the American Stock Exchange,
Inc. ("AMEX"), enabling the Company to issue additional shares of common
stock in excess of restrictive limits set forth by the AMEX, upon
conversion of shares of a series of the Company's preferred stock.
-17-
<PAGE>
The following table sets forth certain information relating to the voting by
stockholders on the matters referred to above:
<TABLE>
<CAPTION>
Votes Cast Votes Against Broker
For Or Withheld Abstentions Non-Votes
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Director Nominees
James Rudis 15,243,110 435,071 - -
Michael F. Buck 15,242,610 435,571 - -
George R. Schrader 15,243,110 435,071 - -
William E. Shatley 15,243,110 435,071 - -
Amendment to 1994
Employee Plan 10,182,854 5,279,117 216,210 -
Filing of AMEX
Listing Application 1,251,173 8,204,186 131,110 6,091,712
</TABLE>
Reference is made to the Company's definitive proxy statement, mailed on May 7,
1999 to stockholders of record on April 19, 1999, for more complete information
relating to the 1999 Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K - One report on Form 8-K was filed during the
quarter ended June 30, 1999. The report, dated April 30, 1999, reported
under Item 5 thereof that on April 26, 1999, the Board of Directors
had, by unanimous written consent, amended Article III, Section 1 of
the Company's bylaws relating to the election of directors.
-18-
<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: August 12, 1999 By: /s/ James Rudis
---------------
James Rudis
Chairman, President and
Chief Executive Officer
Date: August 12, 1999 By: /s/ William E. Shatley
----------------------
William E. Shatley
Senior Vice President, Treasurer
and Chief Financial Officer
-19-
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
----------- -----------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,486
<SECURITIES> 0
<RECEIVABLES> 24,812
<ALLOWANCES> 515
<INVENTORY> 35,952
<CURRENT-ASSETS> 63,540
<PP&E> 14,853
<DEPRECIATION> 8,793
<TOTAL-ASSETS> 88,765
<CURRENT-LIABILITIES> 53,624
<BONDS> 26,834
0
1
<COMMON> 178
<OTHER-SE> 6,298
<TOTAL-LIABILITY-AND-EQUITY> 88,765
<SALES> 116,789
<TOTAL-REVENUES> 116,789
<CGS> 96,136
<TOTAL-COSTS> 96,136
<OTHER-EXPENSES> 14,949
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,458
<INCOME-PRETAX> (368)
<INCOME-TAX> 0
<INCOME-CONTINUING> (368)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (368)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
