FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1995
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: 0-15967
EFI ELECTRONICS CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 75-2072203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2415 South 2300 West, Salt Lake City, Utah 84119
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 977-9009
x Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Number of shares of the registrant's common stock outstanding at June 30,1995:
3,173,749
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets as of June 30, 1995 (Unaudited) and
March 31, 1995 (Restated). . . . . . . . . . . . . . 3
Statements of Operations for the periods ended
June 30, 1995 and June 30, 1994 (Unaudited). . . . . . 4
Statements of Cash Flows for the periods ended
June 30, 1995 and June 30, 1994 (Unaudited). . . . . . 5
Notes to Financial Statements (Unaudited). . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 10
BALANCE SHEETS
June 30, and March 31, 1995 JUNE 30 MARCH 31
(Unaudited) (as Restated)
ASSETS
Current assets:
Cash and cash equivalents $ 9,600 $ 96,259
Receivables 3,582,870 3,125,562
Inventories 2,025,304 2,597,400
Prepaid expenses 97,616 65,806
Total current assets 5,715,390 5,885,027
Property - net 2,016,077 2,423,402
Other assets:
Investment in joint venture 66,979 49,880
Other assets 227,960 249,994
Total other assets 294,939 299,874
Total assets $ 8,026,406 $ 8,608,303
LIABILITIES
Current liabilities:
Current installments of notes payable $ 614,948 $ 614,948
Accounts payable 1,717,428 1,841,741
Accrued liabilities 606,112 647,163
Total current liabilities 2,938,488 3,103,852
Notes Payable, less current installments 2,837,142 3,068,711
Total liabilities 5,775,630 6,172,563
STOCKHOLDERS' EQUITY
Common stock 369 357
Common stock to be issued for
settlement of litigation 0 75,000
Additional paid-in capital 1,299,282 1,120,021
Retained earnings 2,567,686 2,856,923
Total 3,867,337 4,052,301
Less:
Treasury stock, at
cost - 511,070 shares (1,460,012) (1,460,012)
Stock subscriptions and
interest receivable
from management and employees (156,549) (156,549)
Total stockholders' equity 2,250,776 2,435,740
Total liabilities and
stockholders' equity $ 8,026,406 $ 8,608,303
See notes to financial statements.
STATEMENTS OF OPERATIONS
For the three months ended June 30, 1995 1994
(Unaudited) (Unaudited)
Sales $ 3,150,854 $ 2,858,083
Cost of sales 2,141,399 1,627,991
Gross profit 1,009,455 1,230,092
Operating expenses:
Selling, general and
administrative expenses 1,117,036 1,036,614
Research and development 141,218 172,002
Total operating expenses 1,258,254 1,208,616
Operating income (loss) (248,799) 21,476
Other income (expense):
Equity in earnings of joint venture 17,099 19,993
Interest expense, net of interest income (57,537) (30,583)
Total other expense (40,438) (10,590)
Income (loss) before income taxes (289,237) 10,886
Benefit from (provision for) income taxes 0 (3,810)
Net income (loss) $ (289,237) $ 7,076
Net income (loss) per common
and common equivalent share. $ (0.09) Nil
Weighted average shares and
common equivalent shares outstanding 3,080,638 2,675,202
See notes to financial statements.
STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1995 1994
(Unaudited) (Unaudited)
Cash flows provided from operating activities:
Net income (loss) $ (289,237) $ 7,076
Adjustments to reconcile net income (loss)
to net cash provided by(used in) operating
activities:
Depreciation 188,201 164,893
Amortization 10,121 350
Equity in earnings of joint venture (17,099) (19,993)
Stock subscriptions interest
receivable 0 (23,033)
Increase (decrease) in cash,
net of the sale of the UPS line,
due to change in:
Receivables 36,190 47,606
Inventories 88,350 (34,395)
Prepaid expenses (31,810) (48,943)
Other assets 11,913 0
Accounts payable (124,313) (80,084)
Accrued liabilities (150,094) 43,840
Net cash provided by (used in)
operating activities (277,778) 57,317
Cash flows from investing activities:
Capital expenditures (71,833) (290,571)
Decrease in other assets 0 500
Sale of fixed assets related to UPS line 290,957 0
Proceeds from sale of UPS line 99,291 0
Net cash provided by (used in) investing
activities 318,415 (290,071)
Cash flows from financing activities:
Net borrowing (repayments) under
revolving credit agreement (80,489) 231,682
Principal payments on notes payable (151,080) 0
Proceeds from sale of common stock 104,273 0
Net cash provided by (used in)
financing activities (127,296) 231,682
Net decrease in cash and cash equivalents (86,659) (1,072)
Cash and cash equivalents at beginning of period 96,259 25,640
Cash and cash equivalents at end of period $ 9,600 $ 24,568
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 0 $ 0
Interest $ 57,537 $ 55,289
Supplemental disclosures of non-cash investing
and financing activities:
Common stock issued for legal settlement $ 75,000 $ 0
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
In the opinion of Management, the accompanying financial statements contain
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position of EFI Electronics Corporation (the
"Company") at June 30, 1995, and the results of its operations and its cash
flows for the periods ended June 30, 1995 and June 30, 1994. The results of
operations for the period ended June 30, 1995 are not necessarily indicative
of results for the full year period.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the Company's 1995 Annual
Report to Shareholders.
Certain 1994 balances have been reclassified to conform to the current year's
presentation. These reclassifications had no impact on total assets,
liabilities, or net income.
1. RECEIVABLES
Receivables consisted of the following at June 30, and March 31, 1995:
June 30 March 31
(Unaudited)
Trade receivables $ 2,646,709 $ 2,744,890
Receivable from UPS sale 493,498 0
Warranty premium receivable 17,643 27,745
Income tax refund 536,670 536,670
3,694,520 3,309,305
Allowance for doubtful accounts (111,650) (183,743)
Total Receivables $ 3,582,870 $ 3,125,562
2. INVENTORIES
Inventories consisted of the following at June 30 and March 31, 1995:
June 30 March 31
(Unaudited) (as Restated)
Raw materials $ 1,351,463 $ 1,620,232
Work-in-process 374,298 342,406
Finished goods 299,543 634,762
Total $ 2,025,304 $2,597,400
3. NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net income (loss) per common and common equivalent share is computed
based on the number of common and dilutive common stock equivalent shares
outstanding and is adjusted for the assumed conversion of shares issuable upon
exercise of options or warrants, after the assumed repurchase of common
shares with the related proceeds. The stock subscriptions receivable are
treated as warrants for purposes of this computation.
4. BENEFIT FROM (PROVISION FOR) INCOME TAX
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Deferred income taxes are provided primarily for the temporary difference
between financial reporting and income tax recognition of depreciation.
Research and development tax credits are used to reduce income
NOTES TO FINANCIAL STATEMENTS - Continued (Unaudited)
taxes payable in the year such credits are realized. The Company recognized no
benefit from income tax for the losses generated during the three months ended
June 30, 1995 because of the uncertainty associated with the realization of the
benefit.
5. NOTES PAYABLE
At June 30 and March 31, 1995 notes payable consisted of the following:
June 30, 1995 March 31, 1995
Collateralized promissory note $ 2,000,639 $ 2,137,019
Revolving line of credit 1,378,301 1,458,790
Uncollateralized promissory
note to former president
(see note 8, FY 1995 10-KSB) 73,150 87,850
3,452,090 3,683,659
Less current installments of
long-term debt (614,948) (614,948)
Total notes payable, less
current installments $ 2,837,142 $ 3,068,711
The collateralized notes and revolving line of credit contain financial
covenants, the most restrictive of which require the Company to maintain not
less than $2,700,000 of tangible net worth and a debt to net worth ratio not
to exceed 2.27 to 1. At March 31, 1995, the Company was in violation of
these two covenants. Appropriate waivers have been obtained from Key Bank
as of March 31, 1995, and through June 30, 1996, at which time the Company
intends to be in compliance with the covenants.
6. POSSIBLE TAX LIABILITY
It has come to the attention of management that there is a possible tax
liability related to prior years' income and payroll taxes. The Company
has not received its 1994 Federal Income Tax refund of $111,440 and it is
possible that this refund has been offset against a tax liability being
asserted by the IRS, and not offset against payroll taxes owed in 1994, as
management believed, creating a potential additional tax liability of
approximately $111,000. Management is currently working with the Internal
Revenue Service to determine the disposition of the 1994 Federal Tax refund
and if, in fact, there is a tax liability the Company is not aware of related
to prior years. It is expected that this issue will be resolved during the 2nd
Quarter of FY 1996. Since management believes that any additional tax liability
is not probable they have elected not to recognize any additional liability at
June 30, 1995.
7. RESTATEMENT OF FY 1995 FORM 10-KSB
During August 1995 the Company determined that payroll tax expense, cost of
goods, cash, inventories and accrued liabilities for the year ended March 31,
1995 were incorrect. Additionally, a legal dispute was settled subsequent to
March 31, 1995 that was not properly reflected in the March 31, 1995 financial
statements. As a result, the financial statements for the year ended March 31,
1995 will be restated to reflect the appropriate account balances. The
Company will amend form 10-KSB filed with the Securities and Exchange
Commission to reflect this restatement. The effect of the restatement is as
follows:
As Previously As
Reported Restated
Balance Sheet:
Cash and cash equivalents $ 354,186 $ 96,259
Inventories 2,897,409 2,597,400
Accrued liabilities 551,929 647,163
Common stock to be issued
for legal settlement 0 75,000
Retained earnings 3,585,093 2,856,923
NOTES TO FINANCIAL STATEMENTS - Continued (Unaudited)
Statement of Operations:
Cost of sales 8,938,354 9,143,371
Selling, general and
administrative expenses 4,864,797 5,312,950
Legal settlement 0 75,000
Net loss 1,981,407 2,709,577
Net loss per common and
common equivalent share (.74) (1.01)
Statement of Cash Flows:
Cash flow from operating activities 316,654 (16,273)
The restatements have been made to the March 31, 1995 balances appearing in
this form 10-QSB.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations:
Net Sales for the three months ended June 30, 1995 increased $293 thousand
(10%) compared to the three months ended June 30, 1994.
Sales revenue of plugin products increased more than $400 thousand (25%)
from period to period representing a unit sales increase of 36%. In July 1994
the Company reduced its retail pricing of plugin products by up to 25% in order
to increase total unit and sales volume. This occurred coincident with
significant cost decreases in manufacturing. Total plugin revenue and unit sales
increases since that time have occurred in a market where some competitors
are experiencing overall declining or flat sales.
Panel sales decreased by $153 thousand or 20% year to year. In the three
months ended June 30, 1994, panel sales included $170 thousand of revenue
from one time end user sales of custom products. The core panel business is
growing steadily and is expected to increase at a more rapid rate during the
rest of the fiscal year due to certain distribution agreements that are in the
process of negotiation.
UPS and other product revenue increased by $46 thousand.
Gross Profit on sales for the three months ended June 30, 1995, decreased
$221 thousand from the first three months of last year. Gross profit as a
percentage of sales for the three months ended June 30, 1995 decreased to
32% compared to 43% for the three months ended June 30, 1994. This
decline was the result of several factors.
Margins on plugin products declined by nearly 10 percentage points due
to a significant change in product mix. The Company's high end, high
margin plugin products decreased from 35% to 26% of total plugin
sales while its low end plugstrips and specialty military plugstrip
models increased by 8% of plugin sales, both of which have much
lower margins. This change in plugin mix caused a $208 thousand
decline in margin compared to last year.
The above described panel sales decrease reduced total margins since
these products are highly profitable. The effect of this decrease
lowered margins by $92 thousand.
While UPS and other sales increased, gross profit as a percentage of
revenue for this segment are approximately half of plugin and panel
products, causing a decrease in gross margin percentage.
These negative trends were partially offset by reductions in
manufacturing costs of $96 thousand.
Management's Discussion and Analysis of
Financial Condition and Results of Operations (cont'd)
Operating Expenses for the three months ended June 30, 1995 increased $50
thousand or 4%, compared to the three months ended June 30, 1994.
As previously reported, the Company is starting up a new Network Response
Systems (NRS) division based on proprietary software owned by EFI. Costs
associated with this startup were $86 thousand in the first quarter. In
addition, the Company incurred $30 thousand of legal and professional costs
associated with the settlement of certain litigation in which the Company
has been involved and a potential acquisition that the Company was pursuing.
Offsetting these increases was a $65 thousand decrease in salary and benefit
costs resulting from significant operating cost reductions implemented in
the fourth quarter of last fiscal year.
Net Income (Loss) for the three months ended June 30, 1995 represented a
decrease in profitability of $296 thousand compared to the three months ended
June 30, 1994. This decrease was primarily the result of lower margins and NRS
startup costs explained above.
Correction of errors and restatement of previously issued financial
statements. In August, 1995, in connection with the close of the three months
ended June 30, 1995, it was discovered that the Company's financial statements
for the year ended March 31, 1995 contained certain errors. These errors
resulted principally from the Company improperly recording payroll tax payments
and the overstatement of certain inventory balances, including nonitemized parts
used in the manufacturing process and inventory owned by others. Though
management is unable to determine which fiscal quarter all the inventory
adjustments are applicable to, management feels the majority of all adjustments
relate to the fourth quarter of the fiscal year ended March 31, 1995.
Additionally,in May 1995 the Company agreed to settle a legal dispute with a
client of one ofthe Company's OEM customers. The Company agreed to issue common
stock valued at $75,000 to settle the dispute. This settlement was previously
not reflected in the Company's March 31, 1995 financial statements. As a result
of these errors, the Company has restated the March 31, 1995 financial
statements.
(See note 7 to the June 30, 1995 Form 10QSB).
Liquidity and Capital Resources:
Sale of UPS Product Line. During the three months ended June 30, 1995 the
Company sold to Valence, L.L.C. (Valence) its line of UPS products along with
the inventory and fixed assets associated with these products for $983,746. In
addition to the sale of UPS product line, Valence purchased 66,667 shares of
common stock in the Company for $100,000. The Company received total cash
of $490,248 and a note receivable of $493,498 with installments due in August,
October and December. The Company also signed a two year contract to supply
UPS products on a cost plus basis. The purpose of this sale was to allow the
Company to focus on its core TVSS business lines and to expand into related
products and services.
The impact of this transaction is reflected in the June 30, 1995 statement of
cash flow as a sale of fixed assets and proceeds from sales of UPS line.
Operating cash flows have been presented net of the effects of the sale of UPS
line, as follows:
Accounts receivable $493,498
Inventory (483,746)
Deferred income (109,043)
Cash flows from operating activities for the three months ended June 30, 1995
were ($277,778) as compared to $57,317 for the three months ended June 30,
1994, due to the following:
Management's Discussion and Analysis of
Financial Condition and Results of Operations (cont'd)
Receivables decreased by $36 thousand from March 31, 1995 to June
30, 1995. This change is consistentwith the normal flow of sales and
payments during the period.
Inventories decreased by $88 thousand from March 31, 1995 to June 30,
1995. This reflects the Company's continuing inventory reduction efforts
which it has been pursuing for over one year.
Prepaid Expenses increased $32 thousand. This is the result of timing
differences between payments and amortization of expenses.
Other Assets decreased $12 thousand during the period reflecting normal
amortization of non compete and other
agreements.
Accounts Payable decreased by $124 thousand based on pay down of
supplier accounts from proceeds of the
sale of UPS products.
Accrued Liabilities decreased by $150 thousand from March 31, 1995
associated with the normal increase in accruals in advance of payments
for payroll and other taxes.
Cash flows provided by (used in) investing activities for the three months
ended June 30, 1995 were $318,415 as compared to ($290,071) for the three
months ended June 30, 1994. During the period $72 thousand of fixed assets and
deposits on fixed assets were expended for a new line of plugin products to be
introduced later in the fiscal year. As discussed above, the Company sold its
UPS products which included both fixed assets and inventory.
Cash flows provided by (used in) financing activities for the three months
ended June 30, 1995 were ($127,296) as compared to $231,682 for the three
months ended June 30, 1994. During the period the Company paid down a net
of $151 thousand in scheduled long term debt and $80 thousand of its revolving
line of credit. In addition, the Company sold Common Stock for net proceeds of
$104 thousand. Most of this was related to the sale of UPS products described
above.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits -- None.
B) There were no forms 8-k filed during the quarter ended June 30,
1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EFI ELECTRONICS CORPORATION
(Registrant)
Date: August 21, 1995
Richard D. Clasen
President and Chief Executive Officer
David G. Bevan
Vice President
