<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
<TABLE>
<CAPTION>
<S> <C>
(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, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
----------------- ---------------
</TABLE>
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 3, 2000
<PAGE>
POLYPHASE CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 2000
-------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION Page No.
----------------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
June 30, 2000 and September 30, 1999 2
Consolidated Condensed Statements of
Operations for the Three Months Ended
June 30, 2000 and 1999 4
Consolidated Condensed Statements of
Operations for the Nine Months Ended
June 30, 2000 and 1999 5
Consolidated Condensed Statements of
Cash Flows for the Nine Months Ended
June 30, 2000 and 1999 7
Notes to Consolidated Condensed Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature Page 19
-1-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
Assets
<TABLE>
<CAPTION>
June 30, September 30,
----------- -------------
2000 1999
----------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 667,500 $ 375,408
Receivables, net of allowance for doubtful accounts
of $526,187 and $502,667
Trade accounts 20,853,741 17,373,364
Current portion of sales contracts 3,919,939 4,765,072
Notes receivable 3,881,923 3,359,777
Inventories 33,599,828 30,924,744
Prepaid expenses and other 2,840,497 1,663,269
----------- -------------
Total current assets 65,763,428 58,461,634
----------- -------------
Property and equipment:
Land 432,000 432,000
Buildings and improvements 3,780,443 3,481,009
Machinery, equipment and other 9,399,583 8,929,988
----------- -------------
13,612,026 12,842,997
Less-Accumulated depreciation (8,146,687) (7,114,989)
----------- -------------
5,465,339 5,728,008
----------- -------------
Other assets:
Noncurrent receivables, net of allowance for
doubtful accounts of $1,264,563 and $1,305,220
Sales contracts 1,936,478 2,114,591
Notes receivable - -
Related parties 1,741,168 1,523,096
Excess of cost over fair value of net assets of businesses
acquired, net of accumulated amortization of $4,437,699
and $3,754,614 13,769,746 12,178,209
Other intangible assets 1,771,406 1,216,393
Restricted cash 715,556 625,623
Other 1,533,166 1,674,388
----------- -------------
21,467,520 19,332,300
----------- -------------
$92,696,287 $ 83,521,942
=========== =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-2-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
June 30, September 30,
------------ -------------
2000 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable $ 7,726,421 $ 4,403,264
Accounts payable 11,017,737 9,937,347
Accrued expenses and other 3,224,587 3,374,493
Current maturities of long-term debt 5,200,118 6,798,467
------------ -------------
Total current liabilities 27,168,863 24,513,571
Long term debt, less current maturities 36,360,005 33,592,522
Note payable and accrued interest to related party 19,019,285 17,914,842
Reserve for credit guarantees 715,556 625,623
------------ -------------
Total liabilities 83,263,709 76,646,558
------------ -------------
Warrants to purchase common stock
in subsidiary 2,370,000 1,425,378
Stockholders' equity:
Preferred stock, $.01 par value, authorized
50,000,000 shares, issued and outstanding
none and 56,440 shares, respectively - 564
Common stock, $.01 par value, authorized
100,000,000 shares, issued and outstanding
17,812,464 shares 178,125 178,125
Paid-in capital 27,596,046 28,159,887
Accumulated deficit (20,711,593) (22,888,570)
------------ -------------
Total stockholders' equity 7,062,578 5,450,006
------------ -------------
$ 92,696,287 $ 83,521,942
============ =============
</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
June 30,
------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net revenues $46,647,829 $37,702,120
Cost of sales 37,509,993 30,315,010
----------- -----------
Gross profit 9,137,836 7,387,110
Selling, general and administrative expenses 6,390,444 5,179,478
----------- -----------
Operating income 2,747,392 2,207,632
----------- -----------
Other income (expenses):
Interest expense (2,040,163) (2,093,380)
Interest income and other 318,144 47,424
----------- -----------
Total other income (expenses) (1,722,019) (2,045,956)
----------- -----------
Income before income taxes and
discontinued operations 1,025,373 161,676
Income taxes - -
----------- -----------
Income before discontinued operations 1,025,373 161,676
Discontinued operations - 3,819
----------- -----------
Net income 1,025,373 165,495
Dividends on preferred stock - (16,932)
----------- -----------
Net income attributable to common stockholders $ 1,025,373 $ 148,563
=========== ===========
Net income per share - basic and diluted:
Before discontinued operations $ .06 $ .01
Discontinued operations - -
----------- -----------
Net income per share $ .06 $ .01
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (continued)
(Unaudited)
<TABLE>
For the Nine Months Ended
June 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net revenues $134,578,013 $112,252,220
Cost of sales 107,201,464 92,035,429
------------ ------------
Gross profit 27,376,549 20,216,791
Selling, general and administrative expenses 18,683,658 14,543,509
------------ ------------
Operating income 8,692,891 5,673,282
------------ ------------
Other income (expenses):
Interest expense (6,114,518) (6,442,165)
Interest income and other 650,020 385,871
------------ ------------
Total other income (expenses) (5,464,498) (6,056,294)
------------ ------------
Income (loss) before income taxes, discontinued
operations and extraordinary item 3,228,393 (383,012)
Income taxes 112,442 -
------------ ------------
Income (loss) before discontinued operations
and extraordinary item 3,115,951 (383,012)
Discontinued operations - 14,563
Extraordinary item--early extinguishment of debt (1,290,431) -
------------ ------------
Net income (loss) 1,825,520 (368,449)
Gain (dividends) on reacquired preferred stock 351,457 (74,266)
------------ ------------
Net income (loss) attributable to common stockholders $ 2,176,977 $ (442,715)
============ ============
</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 Nine Months Ended
June 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net income (loss) per share - basic and diluted:
Before discontinued operations and
extraordinary item $ .19 $ (.03)
Discontinued operations - -
Extraordinary item (.07) -
---------- ----------
Net income (loss) per share: $ .12 $ (.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>
For the Nine Months Ended
June 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flow provided by (used in) operating activities:
Net income (loss) $ 1,825,520 $ (368,449)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 2,485,264 3,052,148
Provision for doubtful accounts 74,820 121,000
Discontinued operations - (14,563)
Extraordinary item 1,290,431 -
Changes in:
Accounts and sales contracts receivable (2,531,951) (4,775,888)
Inventories (2,675,084) (1,708,677)
Prepaid expenses and other (1,036,006) (1,298,975)
Accounts payable 1,080,390 2,837,106
Accrued expenses and other 611,597 193,005
------------ ------------
Net cash provided by (used in)
operating activities 1,124,981 (1,963,293)
------------ ------------
Cash flows provided by (used in) investing
activities:
Notes and other receivables (522,146) (619,423)
Receivables from related parties (218,072) (124,445)
Capital expenditures, net (769,029) (803,175)
------------ ------------
Net cash used in
investing activities $ (1,509,247) $ (1,547,043)
============ ============
</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,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows provided by (used in) financing activities:
Refinancing of Overhill indebtedness:
Borrowings $ 38,502,176 $ -
Repayments (32,322,005) -
Redemption of warrants (3,700,000) -
Deferred financing costs (1,832,907) -
Borrowings (principal payments) on other
notes payable and long term debt, net 479,094 4,437,242
Exercise of common stock options - 1,300
Repurchase of preferred stock (450,000) -
------------ ------------
Net cash provided by
financing activities 676,358 4,438,542
------------ ------------
Net increase in cash 292,092 928,206
Cash - beginning of period 375,408 401,393
------------ ------------
Cash - end of period $ 667,500 $ 1,329,599
============ ============
Supplemental schedule of cash flow information:
Cash paid during the period for :
Interest $ 4,465,218 $ 4,155,759
Income taxes $ 19,858 $ -
</TABLE>
Supplemental schedule of noncash investing and financing activities:
In connection with the Overhill Farms refinancing in November 1999, warrants
were issued having an estimated fair market value of $2,370,000.
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 a total of 145,000 shares of common stock,
exercisable 130,000 shares at $.01 per share and 15,000 shares at $.50 per
share. Such options were assigned a value of $28,000.
The accompanying notes are an integral part
of these consolidated financial statements.
-8-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
June 30, 2000
1. NATURE OF BUSINESS
Polyphase Corporation (the "Company" or "Polyphase") is a diversified holding
company that, through its subsidiaries, operates in two industry segments: the
food segment and the forestry 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 Company's 100% ownership of Overhill
is subject to warrants outstanding to purchase a minority position in
Overhill. The forestry segment (the "Forestry Group"), which consists of the
Company's wholly-owned subsidiary Texas Timberjack, Inc. ("Timberjack" or
"TTI") and its 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 Company's transformer
segment, which manufactures and markets electronic transformers, inductors and
filters (the "Transformer Group"), was discontinued in fiscal 1999, as a
result of the sale of the Company's wholly-owned subsidiary, Polyphase
Instrument Co. ("PIC").
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 have been 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, 1999.
-9-
<PAGE>
3. INVENTORIES
Inventories are summarized as follows: June 30, September 30,
2000 1999
------------ -------------
Finished goods $ 25,722,464 $ 22,409,448
Raw materials 8,127,870 8,565,296
Inventory reserve (250,506) (50,000)
------------ -------------
Total $ 33,599,828 $ 30,924,744
============ =============
As of June 30, 2000 and September 30, 1999, finished goods inventories
consisted of approximately $8,197,000 and $7,804,000 in inventories at the
Food Group, $16,860,000 and $13,603,000 in timber and logging related
equipment, and $665,000 and $1,003,000 in finished wood products,
respectively. As of June 30, 2000 and September 30, 1999, raw materials
inventories consisted of approximately $6,875,000 and $5,872,000 in
inventories at the Food Group and $1,253,000 and $2,693,000 in harvested but
unprocessed timber, respectively.
4. TAXES
For the nine months ended June 30, 2000, the actual federal income tax expense
attributable to income from continuing operations differed from the net
amounts recorded by the Company. The Company's subsidiaries recorded a
provision for federal income taxes of approximately $1,133,000 using the
statutory rate of 34% and the Company then applied a like amount of its
existing valuation allowance as a reduction of this amount, resulting in a net
federal provision for the period of zero. The provision for the period
represents estimated state income taxes only.
5. LONG-TERM DEBT
In November 1999, Overhill refinanced substantially all its existing debt. The
new facility amounted to $44 million, consisting of a $16 million line of
credit provided by Union Bank of California, N.A. ("Union Bank"), together
with $28 million in the form of a five-year term loan provided by Levine
Leichtman Capital Partners II, L.P. ("LLCP").
The line of credit with Union Bank expires in November 2002 and provides for
borrowings limited to the lesser of $16 million or an amount determined by a
defined borrowing base consisting of eligible receivables and inventories.
Borrowings under the line bear interest at a rate, as selected by Overhill at
the time of borrowing, of prime plus .25% or LIBOR plus 2.75%. The agreement
contains various covenants including restrictions on capital expenditures,
requirements to maintain specified net worth levels and debt service ratios,
and generally prohibits loans, advances or dividends from Overhill to the
Company and limits payments of taxes and other expenses to Polyphase to
specified levels. The line of credit is guaranteed by the Company and
collateralized by certain assets of Overhill and the Overhill common stock
owned by Polyphase.
-10-
<PAGE>
The term loan with LLCP is a secured senior subordinated note bearing interest
at 12% per annum, with interest payable monthly until maturity in October
2004. Principal payments in an amount equal to 50% of the excess cash flow,
as defined, for Overhill's previous fiscal year are also payable annually
commencing in January 2001. Voluntary principal payments are permitted after
October 31, 2001, subject to certain prepayment penalties. The agreement
contains various covenants including restrictions on capital expenditures,
minimum EBITDA and net worth levels, and specified debt service and debt to
equity ratios. In addition, the terms of the agreement restrict changes in
control, generally prohibit loans, dividends or advances by Overhill to the
Company and limit payments of taxes and other expenses to Polyphase to
specified levels. The term loan with LLCP is guaranteed by the Company and
collateralized by certain assets of Overhill. The agreement also requires
Overhill to pay to LLCP, during each January, annual consulting fees of
$180,000.
In connection with the agreement, LLCP was issued warrants to purchase 17.5%
of the common stock of Overhill, exercisable immediately at a nominal exercise
price. During the first two years following the date of the agreement,
Overhill has the right to repurchase 5% of Overhill's shares from LLCP for $3
million and/or to repurchase all 17.5% of the Overhill shares subject to the
LLCP warrant within five days of the term loan being repaid at their then
determined fair market value. If such shares are not purchased, LLCP will be
entitled under the agreement to receive a cash payment of $500,000 from
Overhill. At the date of issuance, the warrants granted to LLCP were
estimated to have a fair value of $2.37 million.
As a result of the transactions, Overhill repaid in full the $22.7 million
senior subordinated notes and the $9.7 million balance of its revolving line
of credit with previous lenders. Additionally, Overhill repurchased, for $3.7
million, the warrants held by a previous lender to purchase 30% of Overhill's
common stock; the excess of such repurchase amount over the carrying value of
the warrant amounted to approximately $2.3 million and was recorded as
goodwill. In connection with the refinancing, Overhill was permitted to make a
one-time advance of $1.25 million to Polyphase for working capital and other
specified purposes. Overhill incurred costs and expenses in connection with
the refinancing totaling approximately $1.9 million, substantially all of
which has been, or will be, paid to the lenders. The early extinguishment of
the previous indebtedness resulted in an extraordinary loss of approximately
$1.3 million (net of a $500,000 refund for early payment of the senior
subordinated notes) during the nine months ended June 30, 2000.
-11-
<PAGE>
6. 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,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Numerator:
Income before discontinued operations $ 1,025,373 $ 161,676
Dividends on preferred stock - (16,932)
------------ ------------
1,025,373 144,744
Discontinued operations - 3,819
------------ ------------
Net income attributable to common stockholders $ 1,025,373 $ 148,563
============ ============
Denominator:
Denominator for basic earnings per share-
weighted average shares 17,812,464 17,758,045
------------ ------------
Effect of dilutive securities (a):
Convertible preferred stock - 1,962,567
Stock options 75,329 -
Warrants - -
------------ ------------
Dilutive potential common shares (a) 75,329 1,962,567
------------ ------------
Denominator for diluted earnings per share 17,887,793 19,720,612
============ ============
Net income per share - basic and diluted:
Before discontinued operations $ .06 $ .01
Discontinued operations - -
------------ ------------
Net income per share $ .06 $ .01
============ ============
</TABLE>
-12-
<PAGE>
<TABLE>
For the Nine Months Ended
June 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Numerator:
Income (loss) before discontinued operations
and extraordinary item $ 3,115,951 $ (383,012)
Gain (dividends) on reacquired preferred stock 351,457 (74,266)
------------ ------------
3,467,408 (457,278)
Discontinued operations - 14,563
Extraordinary item (1,290,431) -
------------ ------------
Net income (loss) attributable to common stockholders $ 2,176,977 $ (442,715)
============ ============
Denominator:
Denominator for basic earnings per share-
weighted average shares 17,812,464 16,665,603
------------ ------------
Effect of dilutive securities (a):
Convertible preferred stock 358,618 -
Stock options 6,019 -
Warrants - -
------------ ------------
Dilutive potential common shares (a) 364,637 -
------------ ------------
Denominator for diluted earnings per share 18,177,101 16,665,603
============ ============
Net income (loss) per share - basic and diluted:
Before discontinued operations and extraordinary item $ .19 $ (.03)
Discontinued operations - -
Extraordinary item (.07) -
------------ ------------
Net income (loss) per share $ .12 $ (.03)
============ ============
</TABLE>
(a) Dilutive potential common shares were excluded from the computation in
loss periods since their effect would have been antidilutive.
-13-
<PAGE>
7. STOCKHOLDERS' EQUITY
During November 1999, the Company and Infinity Investors Limited
("Infinity"), the holder of the Company's Series A-3 preferred stock, entered
into a settlement agreement whereby, among other things, the Company agreed
to repurchase all Series A-3 preferred stock owned by Infinity, including all
accrued but unpaid dividends, for $450,000 cash, and Infinity agreed to the
dismissal of all litigation against the Company with respect to various
matters related to its ownership of the preferred stock. As a result of the
settlement, the Company recorded a gain of approximately $351,000, related to
the difference in the carrying value of the preferred stock plus the accrued
dividends and the settlement amount. Such amount was accounted for by
recording a reduction of the Company's accumulated deficit during the nine
months ended June 30, 2000.
The Company, during November 1998, entered into an agreement, whereby it
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 year ended
September 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. The remaining balance related to the
judgment obligation was repaid during the nine months ended June 30, 2000.
-14-
<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, 2000 increased $22,326,000 (19.9%)
to $134,578,000 from $112,252,000 during the nine months ended June 30, 1999.
The increase in revenues is primarily attributable to sales gains by Overhill.
Gross profits increased $7,160,000 to $27,377,000 in the current year from
$20,217,000 in the comparable period in 1999, as a result of both the volume
increase, as well as an increase in gross margin rates to 20.3% in the current
year as compared to 18.0% in the comparable period in fiscal 1999. During the
current nine month period, operating income increased 53.2% to $8,693,000 from
$5,673,000 for the comparable period in the prior year.
Consolidated income before discontinued operations and extraordinary item for
the nine months ended June 30, 2000 increased $3,499,000 to $3,116,000 from a
loss of $383,000 during the nine months ended June 30, 1999. After the effect
of an extraordinary expense of $1,290,000 related to the early extinguishment of
debt in connection with major refinancing by Overhill and a gain of $351,000 on
the reacquisition of preferred stock, net income attributable to common
stockholders amounted to $2,177,000 ($.12 per share) in the current year
compared to a loss of $443,000 ($.03 per share) in fiscal 1999.
The Food Group's revenues increased $23,847,000 (29.8%) to $103,946,000 for the
nine months ended June 30, 2000 as compared to $80,099,000 for the nine months
ended June 30, 1999. Gross profits increased $6,886,000 to $20,535,000,
compared to $13,649,000 in the prior year, primarily due to continued volume
increases from both new and existing national accounts, together with the effect
of improved purchasing practices, including the outsourcing of certain
production. Operating income increased $3,190,000 to $8,204,000 in the current
period, compared to $5,014,000 for the same period in fiscal 1999.
Revenues for the Forestry Group for the nine months ended June 30, 2000
decreased $1,521,000 (4.7%) to $30,632,000 from $32,153,000 for the nine months
ended June 30, 1999. Operating income for the same period decreased $217,000 to
$773,000 for the nine months ended June 30, 2000 from $990,000 for the nine
months ended June 30, 1999. These decreases in revenues and operating results
are due to a continued softness in the East Texas timber market, affecting both
the Texas Timberjack core equipment business as well as its sawmill operations,
which is expected to continue at least into the next fiscal year.
-15-
<PAGE>
Liquidity and Capital Resources
During the nine months ended June 30, 2000, the Company's operating activities
provided cash of approximately $1,125,000, compared to cash used of $1,963,000
during the comparable period in fiscal 1999. The cash provided in the current
year is generally due to improved operating results which were offset somewhat
by increases in receivables and inventories..
During the nine months ended June 30, 2000, the Company's investing activities
resulted in a use of cash of approximately $1,509,000, compared to a use of cash
of $1,547,000 during the comparable period in fiscal 1999. The Company's use of
cash in the current year consisted of capital expenditures and increases in
Timberjack's nontrade receivables.
During the nine months ended June 30, 2000, the Company's financing activities
provided cash of approximately $676,000 as compared to cash provided of
$4,438,000 during the comparable period in fiscal 1999. The cash provided in
the current year resulted generally from the refinancing of substantially all
indebtedness of Overhill which was offset somewhat by the repurchase of the
Company's Series A-3 preferred stock.
The Company believes that funds available to it from operations and existing
capital resources will be adequate for its capital requirements for the next
twelve months.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's interest expense is affected by changes in prime and LIBOR rates
as a result of its various line of credit arrangements. If these market rates
increase by an average of 1% in fiscal 2000, the Company's interest expense, on
an annualized basis, would increase by approximately $200,000, based on the
outstanding line of credit balances at June 30, 2000.
The Company does not own, nor does it have an interest in any other market risk
sensitive instruments.
-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 named in those original complaints
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 which satisfied the Court's interpretation of the pleading
standards set by the Private Securities Litigation Reform Act (the "PSLRA").
The plaintiffs then filed a motion for reconsideration of the Court's ruling.
The defendants opposed that motion, and the Court subsequently denied the
plaintiffs' motion for reconsideration. The plaintiffs then filed an amended
complaint which named two additional companies as defendants. The original
defendants moved to dismiss the amended complaint, among other things, on the
grounds that it failed to state a claim for securities fraud under the PSLRA.
The plaintiffs sought a stay of the Court's consideration of the original
defendants' second motion to dismiss, asserting that there was uncertainty as to
the legal standards to be applied in securities fraud cases. At a hearing held
on March 3, 2000, the Court denied the plaintiffs' motion to stay and ruled on
the second motion to dismiss, granting it in part and denying it in part. The
Court gave the plaintiffs ninety (90) days to conduct discovery on a limited
issue and directed that motions for summary judgment should be submitted shortly
after the conclusion of the discovery period. Following the March 3, 2000
hearing, the two companies named as additional defendants in the amended
complaint filed a motion to dismiss, claiming that the plaintiffs had failed to
state a claim against them under the PSLRA. The Court has not ruled on that
motion to dismiss. The ninety (90) day period for the limited pretrial discovery
has expired, and all of the defendants have filed motions for summary judgment.
However, the plaintiffs have requested an extension of the discovery period, and
a magistrate judge has granted that request. The defendants have filed a motion
for reconsideration with respect to that ruling; however, no decision has been
made with respect to that motion. Furthermore, the plaintiffs have requested an
extension of time to respond to the defendants' motions for summary judgment,
and no decision has been made with respect to that request. Management believes
(based upon advice of legal counsel) 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.
-17-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter ended June 30, 2000.
-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 9, 2000 By: /s/ JAMES RUDIS
-----------------------------
James Rudis
Chairman, President and
Chief Executive Officer
Date: August 9, 2000 By: /s/ WILLIAM E. SHATLEY
-----------------------------
William E. Shatley
Senior Vice President and
Chief Financial Officer
-19-
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
----------------- ---------------------------
27.1 Financial Data Schedule
