<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, 2000
[ ] 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 3, 2000
<PAGE>
POLYPHASE CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION Page No.
- ----------------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
March 31, 2000 and September 30, 1999 2
Consolidated Condensed Statements of
Operations for the Three Months Ended
March 31, 2000 and 1999 4
Consolidated Condensed Statements of
Operations for the Six Months Ended
March 31, 2000 and 1999 5
Consolidated Condensed Statements of
Cash Flows for the Six Months Ended
March 31, 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 17
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 18
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>
March 31, September 30,
----------- -------------
2000 1999
----------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,679,962 $ 375,408
Receivables, net of allowance for doubtful accounts
of $530,268 and $502,667
Trade accounts 17,617,493 17,373,364
Current portion of sales contracts 4,197,018 4,765,072
Notes receivable 3,445,539 3,359,777
Inventories 33,066,624 30,924,744
Prepaid expenses and other 2,684,402 1,663,269
----------- -----------
Total current assets 62,691,038 58,461,634
----------- -----------
Property and equipment:
Land 432,000 432,000
Buildings and improvements 3,755,213 3,481,009
Machinery, equipment and other 9,115,549 8,929,988
----------- -----------
13,302,762 12,842,997
Less-Accumulated depreciation (7,864,683) (7,114,989)
----------- -----------
5,438,079 5,728,008
----------- -----------
Other assets:
Noncurrent receivables, net of allowance for
doubtful accounts of $1,264,563 and $1,305,220
Sales contracts 1,795,090 2,114,591
Notes receivable - -
Related parties 1,230,034 1,523,096
Excess of cost over fair value of net assets of businesses
acquired, net of accumulated amortization of $4,201,851
and $3,754,614 14,005,594 12,178,209
Other intangible assets 1,904,250 1,216,393
Restricted cash 748,632 625,623
Other 1,564,177 1,674,388
----------- -----------
21,247,777 19,332,300
----------- -----------
$89,376,894 $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>
March 31, September 30,
----------- -------------
2000 1999
----------- -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable $ 7,205,669 $ 4,403,264
Accounts payable 8,321,969 9,937,347
Accrued expenses and other 3,041,593 3,374,493
Current maturities of long-term debt 6,050,118 6,798,467
------------ ------------
Total current liabilities 24,619,349 24,513,571
Long term debt, less current maturities 36,949,227 33,592,522
Note payable and accrued interest to related party 18,652,481 17,914,842
Reserve for credit guarantees 748,632 625,623
------------ ------------
Total liabilities 80,969,689 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 (21,736,966) (22,888,570)
------------ ------------
Total stockholders' equity 6,037,205 5,450,006
------------ ------------
$ 89,376,894 $ 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
March 31,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net revenues $43,487,234 $39,695,102
Cost of sales 34,691,213 32,889,609
----------- -----------
Gross profit 8,796,021 6,805,493
Selling, general and administrative expenses 5,976,604 4,971,144
----------- -----------
Operating income 2,819,417 1,834,349
----------- -----------
Other income (expenses):
Interest expense (2,081,631) (2,191,110)
Interest income and other 167,150 155,784
----------- -----------
Total other income (expenses) (1,914,481) (2,035,326)
----------- -----------
Income (loss) before income taxes and
discontinued operations 904,936 (200,977)
Income taxes 93,701 -
----------- -----------
Income (loss) before discontinued operations 811,235 (200,977)
Discontinued operations - 7,418
----------- -----------
Net income (loss) 811,235 (193,559)
Dividends on preferred stock - (24,236)
----------- -----------
Net income (loss) attributable to common stockholders $ 811,235 $ (217,795)
=========== ===========
Net income (loss) per share - basic and diluted:
Before discontinued operations $ .05 $ (.01)
Discontinued operations - -
----------- -----------
Net income (loss) per share $ .05 $ (.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>
<CAPTION>
For the Six Months Ended
March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net revenues $87,930,184 $74,550,100
Cost of sales 69,691,471 61,720,419
----------- -----------
Gross profit 18,238,713 12,829,681
Selling, general and administrative expenses 12,293,214 9,364,031
----------- -----------
Operating income 5,945,499 3,465,650
----------- -----------
Other income (expenses):
Interest expense (4,074,355) (4,348,785)
Interest income and other 331,876 338,447
----------- -----------
Total other income (expenses) (3,742,479) (4,010,338)
----------- -----------
Income (loss) before income taxes, discontinued
operations and extraordinary item 2,203,020 (544,688)
Income taxes 112,442 -
----------- -----------
Income (loss) before discontinued operations
and extraordinary item 2,090,578 (544,688)
Discontinued operations - 10,744
Extraordinary item--early extinguishment of debt (1,290,431) -
----------- -----------
Net income (loss) 800,147 (533,944)
Gain (dividends) on reacquired preferred stock 351,457 (57,334)
----------- -----------
Net income (loss) attributable to common stockholders $ 1,151,604 $ (591,278)
=========== ===========
</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,
------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net income (loss) per share - basic and diluted:
Before discontinued operations and
extraordinary item $ .13 $ (.04)
Discontinued operations - -
Extraordinary item (.07) -
----------- -----------
Net income (loss) per share: $ .06 $ (.04)
=========== ===========
</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,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flow provided by (used in) operating activities:
Net income (loss) $ 800,147 $ (533,944)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,691,068 1,976,686
Provision for doubtful accounts 69,820 79,000
Discontinued operations - (10,744)
Extraordinary item 1,290,431 -
Changes in:
Accounts and sales contracts receivable 573,606 (4,611,381)
Inventories (2,141,880) (418,727)
Prepaid expenses and other (910,922) (381,654)
Accounts payable (1,615,378) 4,988,205
Accrued expenses and other 61,799 306,386
----------- -----------
Net cash provided by (used in)
operating activities (181,309) 1,393,827
----------- -----------
Cash flows provided by (used in) investing
activities:
Notes and other receivables (85,762) (112,820)
Receivables from related parties 293,062 (80,676)
Capital expenditures, net (459,765) (669,261)
----------- -----------
Net cash used in
investing activities $ (252,465) $ (862,757)
----------- -----------
</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,
---------------------------
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 1,541,064 981,165
Exercise of common stock options - 1,300
Repurchase of preferred stock (450,000) -
------------ ------------
Net cash provided by
financing activities 1,738,328 982,465
------------ ------------
Net increase (decrease) in cash 1,304,554 1,513,535
Cash - beginning of period 375,408 401,393
------------ ------------
Cash - end of period $ 1,679,962 $ 1,914,928
============ ============
Supplemental schedule of cash flow information:
Cash paid during the period for :
Interest $ 3,169,457 $ 2,934,213
Income taxes $ 5,000 $ -
</TABLE>
Supplemental schedule of noncash investing and financing activities:
In November 1999, in connection with the Overhill Farms refinancing, warrants
were issued having an estimated fair market value of $2,370,000.
During the six months 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 six months 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.
-8-
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
March 31, 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
<TABLE>
<CAPTION>
Inventories are summarized as follows: March 31, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Finished goods $ 24,450,177 $ 22,409,448
Raw materials 8,676,953 8,565,296
Inventory reserve (60,506) (50,000)
------------- -------------
Total $ 33,066,624 $ 30,924,744
============= =============
</TABLE>
As of March 31, 2000 and September 30, 1999, finished goods inventories
consisted of approximately $8,309,000 and $7,804,000 in inventories at the
Food Group, $15,494,000 and $13,603,000 in timber and logging related
equipment, and $647,000 and $1,003,000 in finished wood products,
respectively. As of March 31, 2000 and September 30, 1999, raw materials
inventories consisted of approximately $6,392,000 and $5,872,000 in
inventories at the Food Group and $2,285,000 and $2,693,000 in harvested
but unprocessed timber, respectively.
4. TAXES
For the six months ended March 31, 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 $597,000 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 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 six
months ended March 31, 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
March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Numerator:
Income (loss) before discontinued operations $ 811,235 $ (200,977)
Dividends on preferred stock - (24,236)
----------- -----------
811,235 (225,213)
Discontinued operations - 7,418
----------- -----------
Net income (loss) attributable to common stockholders $ 811,235 $ (217,795)
=========== ===========
Denominator:
Denominator for basic earnings per share-
weighted average shares 17,812,464 16,104,381
----------- -----------
Effect of dilutive securities (a):
Convertible preferred stock - -
Stock options 32,273 -
Warrants - -
----------- -----------
Dilutive potential common shares (a) 32,273 -
----------- -----------
Denominator for diluted earnings per share 17,844,737 16,104,381
=========== ===========
Net income (loss) per share - basic and diluted:
Before discontinued operations $ .05 $ (.01)
Discontinued operations - -
----------- -----------
Net income (loss) per share $ .05 $ (.01)
=========== ===========
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended
March 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Numerator:
Income (loss) before discontinued operations
and extraordinary item $ 2,090,578 $ (544,688)
Gain (dividends) on reacquired preferred stock 351,457 (57,334)
----------- -----------
2,442,035 (602,022)
Discontinued operations - 10,744
Extraordinary item (1,290,431) -
----------- -----------
Net income (loss) attributable to common stockholders $1,151,604 $ (591,278)
=========== ===========
Denominator:
Denominator for basic earnings per share-
weighted average shares 17,812,464 16,104,381
----------- -----------
Effect of dilutive securities (a):
Convertible preferred stock 537,926 -
Stock options 3,739 -
Warrants - -
----------- -----------
Dilutive potential common shares (a) 541,665 -
----------- -----------
Denominator for diluted earnings per share 18,354,129 16,104,381
=========== ===========
Net income (loss) per share - basic and diluted:
Before discontinued operations and extraordinary item $ .13 $ (.04)
Discontinued operations - -
Extraordinary item (.07) -
----------- -----------
Net income (loss) per share $ .06 $ (.04)
=========== ===========
</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 six months ended March 31, 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 six months ended March 31, 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 six months ended March 31, 2000 increased $13,380,000 (17.9%)
to $87,930,000 from $74,550,000 during the six months ended March 31, 1999. The
increase in revenues is primarily attributable to sales gains by Overhill.
Gross profits increased $5,409,000 to $18,239,000 in the current year from
$12,830,000 in the comparable period in 1999, as a result of both the volume
increase, as well as an increase in gross margin rates to 20.7% in the current
year as compared to 17.2% in the comparable period in fiscal 1999. During the
current six month period, operating income increased 71.5% to $5,945,000 from
$3,466,000 for the comparable period in the prior year.
Consolidated income before discontinued operations and extraordinary item for
the six months ended March 31, 2000 increased $2,636,000 to $2,091,000 from a
loss of $545,000 during the six months ended March 31, 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 $1,152,000 ($.06 per share) in the current year
compared to a loss of $591,000 ($.04 per share) in fiscal 1999.
The Food Group's revenues increased $15,237,000 (29.6%) to $66,743,000 for the
six months ended March 31, 1999 as compared to $51,506,000 for the six months
ended March 31, 1999. Gross profits increased $4,875,000 to $13,308,000,
compared to $8,433,000 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 $2,278,000 to $5,286,000 in the current
period, compared to $3,008,000 for the same period in fiscal 1999.
Revenues for the Forestry Group for the six months ended March 31, 2000
decreased $1,856,000 (8.0%) to $21,188,000 from $23,044,000 for the six months
ended March 31, 1999. Operating income for the same period increased $256,000 to
$804,000 for the six months ended March 31, 2000 from $548,000 for the six
months ended March 31, 1999. This increase is due to improved results from
increased sales and margins on timber product operations, and, while sales of
logging equipment decreased due to a continued softness in the East Texas timber
market, gross profits improved somewhat from the comparable period in the prior
year.
-15-
<PAGE>
Liquidity and Capital Resources
During the six months ended March 31, 2000, the Company's operating activities
resulted in a use of cash of approximately $181,000, compared to cash provided
of $1,394,000 during the comparable period in fiscal 1999. The use of cash in
the current year is generally due to improved operating results which were
offset by an increase in inventories by Overhill and reductions in trade
accounts payable by both Timberjack and Overhill.
During the six months ended March 31, 2000, the Company's investing activities
resulted in a use of cash of approximately $252,000, compared to a use of cash
of $863,000 during the comparable period in fiscal 1999. The Company's use of
cash in the current year consisted primarily of capital expenditures.
During the six months ended March 31, 2000, the Company's financing activities
provided cash of approximately $1,738,000 as compared to cash provided of
$982,000 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.
Year 2000
The Company 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 was to avoid interruption
of the operations of the Company as a result of the century change that occurred
on January 1, 2000. The Company's program included a review of its software
systems, a review of its operating systems, upgrading or retirement of non-
compliant hardware and contacting key suppliers to assess their Year 2000
readiness.
The Food Group completed 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 was implemented as a
parallel system. The Forestry Group has reviewed its existing software and
completed an upgrade modification. The Company's subsidiaries also contacted
key vendors to assess their Year 2000 readiness and evaluate the effect of non-
compliance on the Company's future business.
Subsequent to December 31, 1999, the Company has not experienced any disruptions
or additional costs as a result of the century change. However, because all Year
2000 issues may not reveal themselves until later in 2000, no assurances can be
given that the Company will not experience any interruptions due to Year 2000
issues. The Company will continue to monitor these matters throughout the year.
To date, the Company has had no material expenditures for direct Year 2000
compliance procedures.
-16-
<PAGE>
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
would increase by approximately $200,000 based on the outstanding line of credit
balances at March 31, 2000.
The Company does not own, nor does it have an interest in any other market risk
sensitive instruments.
-17-
<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 Law 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 any 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. In addition, the ninety (90) day period for the limited
pretrial discovery has not expired, and no motions for summary judgment have
been filed. However, there have been disputes over the scope of discovery
permitted by the Court which have been resolved favorably to the defendants.
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.
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 March 31, 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: May 5, 2000 By: /s/ James Rudis
-----------------------------------
James Rudis
Chairman, President and
Chief Executive Officer
Date: May 5, 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
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-2000
<CASH> 1,680
<SECURITIES> 0
<RECEIVABLES> 25,260
<ALLOWANCES> 530
<INVENTORY> 33,067
<CURRENT-ASSETS> 62,691
<PP&E> 13,303
<DEPRECIATION> 7,865
<TOTAL-ASSETS> 89,377
<CURRENT-LIABILITIES> 24,619
<BONDS> 36,949
0
0
<COMMON> 178
<OTHER-SE> 5,859
<TOTAL-LIABILITY-AND-EQUITY> 89,377
<SALES> 87,930
<TOTAL-REVENUES> 87,930
<CGS> 69,691
<TOTAL-COSTS> 69,691
<OTHER-EXPENSES> 12,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,074
<INCOME-PRETAX> 2,203
<INCOME-TAX> 112
<INCOME-CONTINUING> 2,090
<DISCONTINUED> 0
<EXTRAORDINARY> (1,290)
<CHANGES> 0
<NET-INCOME> 800
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
