Dear Shareholders:
Since joining EFI, my focus has been on placing EFI in a sound
financial position that can be leveraged for growth. This approach
is reflected in everything we do, including this year s approach to
our annual report.
While this has been a difficult year for EFI, significant progress
has been made in positioning the company for profitable growth. My
comments will address the business results for the past year,
strengthening the core business foundation to insure growth,
increasing shareholder value, objectives for the 1996 fiscal year,
and our vision for the future.
The past year is fortunately behind us. The revenue slide that began
in the fourth quarter of the 1994 fiscal year carried into the 1995
fiscal year as revenue dropped due to reduced shipments to three
major original equipment manufacturer ( OEM ) accounts, ultimately
resulting in a 50% decline in the OEM business segment. On the other
hand, several of our markets grew in revenue. Industrial distribution
was up 18%, office products up 20%, government up 38% and
international up 113%. Only the LAN/PC segment, down 16%, joined the
poor results of OEM. Our quarter-to-quarter revenue did increase
during the year except for our traditionally weaker fourth quarter
which was still 9.6% over the past year.
Action to align costs with reduced revenue levels were not
implemented quickly enough. It was not until the second half of the
year that we began to hit our stride in this area. However, I am
confident that we have entered the 1996 fiscal year much more
favorably positioned for a return to profitability.
While poor earnings performance in the 1995 fiscal year depleted cash
and resulted in slower payments to our vendors, the divestiture of
nonprofitable business assets and our income tax refund for the 1995
fiscal year should put us in a positive cash flow position by July
or August.
Strengthening the core business foundation began in the third quarter
with major business restructuring implemented in the fourth quarter.
This involved a reassessment of our core business strengths and
abilities in the areas of delivery and customer service. This
evaluation resulted in two focused business groups industrial
products and business products and the development of a new business
opportunity being formed as a third business group titled Network
Response System.
The reassessment verified that EFI is very cost effective in
designing and manufacturing transient voltage surge suppression
(TVSS) products for industrial applications with specialized products
for branch and service entrance electrical panels. This capability
also included plugstrips and wallmounts for the
consumer/LAN-PC/office products applications.
To leverage this capability for the Industrial Products Group, new
Titan and Linemaster product lines were developed and released for
shipment in April for industrial applications. These new product
lines are now marketed by a dedicated sales organization that is
focused on serving electrical distributors, contractors, and
engineers that require surge suppression for applications ranging
from industrial process control to unique or specialized electrical
protection requirements for buildings.
For the Business Products Group, a new line of surge suppressor
plugstrip and wallmount products is currently under development for
release this fall. This new product line, as well as our existing
plug-in products, is now sold through a dedicated sales organization
that services the distribution channel for LAN/PC users and office
products suppliers of copy and fax machines. Early market indications
show these products are excellent technically and will be cost
competitive with offshore manufacturers.
Our reassessment also determined that the uninterruptible power
supply (UPS) products have not delivered the market penetration and
profit margins required. Our Sysgarde and LanGarde systems are among
the most technically enhanced products in the market. Unfortunately,
the markets we serve are not inclined to pay extra for these
enhancements. Our recently announced agreement to sell EFI s UPS
product line to Valence, L.L.C., whereby EFI will continue to
manufacture the product for Valence for a two-year period, allows us
to continue to leverage our automated manufacturing capacity for our
core TVSS products.
The product and market channel knowledge we gained with our vendor
independent, open software systems for UPS applications is a unique
asset. An outside consultant has been retained to help us evaluate
the opportunities for expanding this asset in a manner that could
ultimately be leveraged back into our industrial market strategy. As
the nineties continues its insatiable appetite for embedding
microelectronic chips in almost every product we use, it was
imperative that we understand how to incorporate software with our
products for electrical protection of microelectronics-driven
devices. Consequently, we have acquired the rights for additional
software products to build a new service concept that is the core of
a new business group established in April 1995 as Network Response
System.
EFI s Network Response System, which is discussed more thoroughly in
the Company s 10-KSB, provides a service for a monthly fee. By
providing 24-hour network monitoring, Network Response System is
resulting in a much-needed solution for users and creating the
opportunity for recurring revenues for EFI.
Increasing shareholder value is anticipated as a direct result of our
more focused strategy. The industrial group and the business products
group each has an excellent opportunity to be a top-tier supplier in
their respective markets for surge suppression. The new products
developed for these markets and our restructured operations are
designed to allow for a return to profitability in the 1996 fiscal
year.
Additionally, EFI s Network Response System is expected to give EFI
exposure to the growing high- technology market segment, which in
recent history has been valued at a premium relative to traditional
manufacturing segments. We plan to capitalize on this exposure.
Our objectives going into the 1996 fiscal year are: First, regain
profitability during the year. Our focus and restructuring momentum
give us confidence we can accomplish this return to profitability.
Second, stabilize our financial strength. The sale of the UPS assets
and our tax refund should put us back to a positive cash position by
July or August. Third, establish the Network Response System as a
viable business opportunity.
Our vision for the future is very exciting as we are optimistic that
the combination of our core business and the growth of the Network
Response System can deliver excellent opportunities for growth. Our
goal is to be a market leader in each of our three market segments.
To help accomplish this, we are actively seeking expansion capital
as well as strategic alliances, potential joint ventures, or
acquisitions. Each of our markets is very fractured with no clear
market leader. This provides an excellent opportunity for EFI, with
the right partners, to break out of the pack.
While my first six months with EFI have certainly been challenging,
I am confident we have seen the bottom of our poor business cycle.
As we climb back on track, we all stand to benefit. I appreciate your
trust and your support, and I look forward to reporting our progress
to you in future months.
Sincerely,
Richard D. Clasen
President & Chief Executive Officer
FORM 10-KSB/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH
31, 1995
For the Fiscal Year Ended March 31, 1995.
OR 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None n/a
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE
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.
Check if there is no disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant s knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB.
Issuer s revenues for its most recent fiscal year: $12,900,000
Aggregate market value of the voting stock (which consists solely of
shares of $.0001 par value common stock) held by non-affiliates of
the registrant as of June 9, 1995, computed by reference to the
closing sale price of the registrant s common stock as reported by
the NASDAQ National Market System on such date: $ 4,659,198.
.
Number of shares of the registrant s common stock outstanding at
June 9, 1995: 3,106,132.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant s Proxy Statement relating to the Annual
Meeting of Shareholders scheduled for July 28, 1995 are incorporated
by reference in Part III of this report.
PART I
Item 1. Business
General Development of Business
EFI Electronics Corporation ( EFI or the Company ) was incorporated
under the laws of the State of Delaware on November 13, 1985, under
the name Halyx Development Company, Inc. EFI Corporation was
incorporated under the laws of the State of Utah on April 4, 1979,
under the name Electrical Filters Inc. and from 1979 to 1981 was
principally engaged in the sale of a power line filter which was an
energy savings device. In December, 1982, the name of this company
was changed to EFI Corporation and it began manufacturing and selling
transient voltage surge suppression ( TVSS ) devices.
In June, 1987, EFI Corporation merged with and into Halyx Development
Company, Inc., a Delaware corporation, which was the surviving
corporation ( Surviving Corporation ) in the merger. The name of the
Surviving Corporation was changed to EFI Electronics Corporation.
Because the shares issued in the merger to the shareholders of EFI
Corporation represented approximately 90% of the outstanding shares
of the Surviving Corporation after the merger and the officers and
directors of EFI Corporation became the officers and directors of the
Surviving Corporation after the merger, EFI Corporation was deemed,
for financial reporting purposes, to have acquired Halyx Development
Company, Inc.
The Company's common stock is traded in the over-the-counter market
and quoted on the NASDAQ National Market System under the symbol
EFIC.
Recent Developments
EFI has made two strategic changes since January, 1995, which
management believes will affect its future. In February, management
concluded that the uninterruptible power supply ( UPS ) product line
was not yielding the desired return on investment. Consequently, cost
cutting measures were implemented with a goal of reducing expenses
by $250,000 per quarter, beginning in the first quarter of fiscal
1996, and a search was begun to find a strategic partner in the UPS
market. In June, 1995, Valence, L.L.C., an unrelated party, purchased
the UPS inventory and assets for $984 thousand and contracted with
EFI to manufacture the UPS product line for a two-year period.
In January, 1995, EFI established a new business group, Network
Response System and acquired the necessary software to provide the
service described below. The Network Response System monitors a users
various servers on its network for the vital signs and conditions of
the electronic power source; environmental conditions such as
temperature, humidity, and external security monitoring; and the
servers vital signs such as server availability and communication
systems status. If any of these conditions exceed pre-set parameters,
the Company s twenty-four hour, seven-days-a-week response center is
automatically paged to initiate an analysis of the potential problem
and dispatch the appropriate support services. Early market analysis
has validated acceptance of this service approach since it solves a
complex problem in computer network availability with a simple,
straight-forward, proactive solution.
Narrative Description of Business
Company Overview The Company is engaged in the manufacture and
marketing of TVSS and UPS products. The TVSS products protect
electronic equipment from electrical disturbances such as lightning,
grid switching, switching of air conditioners, power tools,
elevators, welding units, electrical accidents, etc., which can
produce high speed, high energy transient voltage spikes and surges.
These spikes and surges can cause hardware failure,
data/communication disruptions and transient-induced software bugs
resulting in equipment damage and/or down time. EFI s first product
for industrial users was introduced in November, 1981, followed by
introduction of similar products for computer and telecommunications
equipment which were introduced in early 1983 and 1984, respectively.
The Company's UPS products provide a battery backup system to sustain
power to electronic equipment, such as a computer, when the
electrical power shuts down, allowing a user to close down the
computer in an orderly manner and to save sensitive data. EFI's UPS
product line was introduced in February, 1991. During the fourth
quarter of fiscal 1995, EFI began to refocus the Company back to its
TVSS technology strengths. As discussed in Recent Developments, the
decision was made to divest the UPS product line, which was completed
in June, 1995. EFI will continue to manufacture the product for up
to two years for the buyer.
Products The Company is presently engaged in the design, development,
assembly, and marketing of TVSS and UPS devices for computer systems
and microprocessor-based equipment. The growing prevalence of
microprocessor-based equipment is opening new markets for surge
suppression products. Such equipment includes office products of all
types (computers, fax machines, copiers, cash registers, etc.), as
well as equipment used in most medical facilities, telecommunications
installations, security systems, factories, automated environments,
and even modern homes.
All EFI products are designed and manufactured to meet Underwriters
Laboratories ( U.L. ) and Canadian Standards Association ( C.S.A. )
standards of quality and safety. EFI s basic suppression circuit was
patented in 1986, with additional patents granted in 1991 and 1992.
All products are tested and listed for safety by U.L. and, where
applicable, C.S.A. EFI s products also provide additional safety
features such as thermal fusing, circuit breaker protection, and
complete diagnostics.
TVSS Products Currently, EFI offers a broad range of TVSS products
under two categories: (1) direct plug-in products and (2) hard-wire
products.
Direct Plug-in TVSS Products are offered in four product lines,
including models to protect computers, copiers, fax machines,
printers, disc drives, stereo equipment, telecommunications equipment
and data lines:
PowerTrax Plugstrips offer six outlets, an on/off switch,
diagnostic lights, and a circuit breaker. Three different suppression
networks are available to provide the level of protection desired.
Diagnostics, which indicate reverse voltage, voltage dips, and damage
to the suppression circuit, are also available.
PowerTrax Wallmounts plug into a standard three-wire
grounded outlet and have two power outlets for connected equipment.
They have the same suppression circuitry and diagnostic features as
the plugstrips. Two special wallmount models have been designed
specifically for fax and copy machines.
PowerTrax Modules are designed to protect telecommunications
systems and network data lines from power surges. The modules plug
into a wall outlet and have connections for several types of
networking medium.
PowerTrax Power Control Center is a platform upon which a
personal computer monitor may rest. It has five
outlets for peripherals such as a printer, fax, monitor, etc., as
well as telephone line outlets. Separate power switches are provided
for each peripheral. Additionally, these products include the
diagnostic features offered on the plugstrip and
wallmount products.
Hard-wire Products provide protection to an entire
facility at distribution panels or to a room or specific electronic
equipment in a dedicated branch panel. In addition, original
equipment manufacturers ( OEM ) wire these products directly into
specific microprocessor-based equipment.
UPS Products As LANs have replaced mainframes and large
mini-computers, demand for UPS products has increased. The UPS
provides temporary battery backup power to computerized equipment.
In the event of an electrical power shut down, the user is given
added time to close down the computer in an orderly manner and to
save sensitive data. EFI s first back-up UPS products were
introduced in February, 1991. The first of its smart UPS products,
which provide additional diagnostic capabilities, were introduced in
1992. All of EFI s UPS systems include EFI s patented, built-in,
state-of-the-art surge protection circuit. This product line has been
sold as described in Recent Developments.
Competition
EFI experiences active competition in each of the markets in which
its products are sold. Competitors generally constitute a large
number of small companies or divisions of larger companies engaged
in the sale of a wide range of products and accessories which
includes TVSS and UPS products. A description of the competitive
factors in each of the markets for EFI s products is set forth below.
Business Products Market This market is intensely price competitive,
and characterized by a large number of small companies, many of which
import low-priced products from foreign manufacturers for resale. EFI
believes its competitive advantages in these markets are in the areas
of product performance and features; however, the market is
challenged by commodity-type pricing. EFI is continuing its cost
reduction activities to remain cost competitive.
Industrial Market The industrial market includes manufacturers of
process control equipment, medical equipment, modular office systems,
and communication equipment, along with electrical contractors and
public utilities. Many manufacturers require custom designed products
which are required as part of the installation of their equipment.
Public utilities are now selling protection devices to both home and
business power users. There are a number of companies that
manufacture TVSS products for industrial markets; however, this
market is characterized by fewer competitors who compete on the basis
of product performance and technical support rather than price. EFI
believes its products in this market compete favorably with respect
to price, technical support and performance.
Marketing
EFI delivers its products through a variety of marketing channels.
Many of EFI's products are marketed primarily through independent
distributors who service the retail computer reseller, office
products, and industrial users. EFI also markets directly to OEM
customers. EFI's marketing strategy is to provide a quality product
with superior performance and diagnostics and to stand behind its
products with a unique Triple Crown Warranty. This Triple Crown
Warranty provides reimbursement to the end user for damage to
properly connected equipment from catastrophic loss due to fire,
lightning, accidental breakage, liquid spills and any electrical
disturbance. Following is a description of marketing programs for
each market:
Products for the business products area are aimed at the retail
computer and office products markets. These markets are sold under
both the EFI label and, pursuant to private label agreements, through
retail computer stores and catalogs. These products are sold directly
to large, national suppliers of computers and related office product
equipment.
EFI typically sells its products in the mass retail market place
under a private label arrangement to national merchandising
distributors who resell to computer and office products superstores,
buying clubs, and large retail outlets. These national distributors
provide their own advertising, merchandising, and promotions.
Products for government needs are sold primarily on a bid basis
through direct sales contact and through manufacturers
representatives.
OEM sales are made through direct sales contacts by EFI sales
personnel.
Products for the industrial market are sold via national and
regional electrical distributors who primarily serve electrical
contractors and engineers.
Dependence on Customers
No customer accounted for more than 10% of total sales in fiscal
1995; however, sales to EFI s top four customers did represent 18%
of total sales, reflecting EFI's emphasis on marketing its products
through national distributors. Loss of any one or more of these
customers could have a material adverse effect on the Company's
results of operations. Sales of UPS products represented 14% of total
sales in fiscal 1995. The Company anticipates the contract
manufacturing of UPS products for Valence, L.L.C. will approximate
4% of fiscal 1996 sales.
Patents and Trademarks
In December, 1986, EFI was issued a patent, which has a life of 17
years commencing December 16, 1986, related to the suppression
network utilized in its direct plug-in and hard-wire product lines.
In June, 1991, EFI was issued a patent on its meter base surge
suppression product that EFI has developed and sells in the public
utilities market, which has a life of 17 years commencing June 11,
1991. In June, 1992, EFI was issued a patent on the CATV circuitry
that EFI has developed and uses in many of its products, which has
a life of 17 years commencing June 23, 1992. In June, 1994, EFI
applied for a patent on its apparatus, system and method for
monitoring and managing power to computers and along computer
networks. EFI considers these patents to be significant and material
competitive advantages. The Company has also registered its EFI
logo, Triple Crown Warranty, EFI name as a trademark, and Sine Wave
Tracker, Omni-Phase, Home Guard, Mastershield, Nodetrax,
Powertracker, Titan Linemaster, and Titan Surge Defender brand names
as trademarks which appear on the Company's products. The trademarks
are also deemed significant to EFI because of name recognition in the
markets in which EFI products are sold.
Research and Development
EFI is continually engaged in the research and development of new
products and refinements of existing TVSS products. The Company
employs five research and development professionals. Major advances
have been made to shorten the design cycle by establishing product
teams made up of representatives from marketing, manufacturing, and
engineering. These teams focus on the product step by step and make
changes throughout the cycle, rather than making the changes at the
end of the process. Research and development expenses for fiscal
years ended March 31, 1995, 1994, and 1993 were $784,116, $716,666,
and $880,947, respectively.
Manufacturing Process
EFI's products are assembled at the Company's production facility in
Salt Lake City, Utah, primarily using standard electronic components
which are available from alternate sources. EFI continues to focus
on automating the assembly process as much as possible. The addition
of a radial inserter early in the year increased throughput
approximately 500 percent, improved the line yield to in excess of
99.5 percent, and gave the Company added flexibility in responding
to production needs. EFI's team approach to development is focusing
on creating products that are easier and cheaper to produce. EFI has
not experienced serious delays or shortages in obtaining necessary
components, although some components are custom designed and
currently purchased from single suppliers and some components are
purchased from foreign suppliers. EFI considers its relationships
with suppliers to be satisfactory.
EFI maintains substantial inventories of product components in order
to meet rapid delivery requirements of customers. Return of
merchandise from the customer is permitted and is subject to a 25%
restocking charge. EFI's normal credit terms closely match the
industry which extends Net 45- to Net 60-day terms. Backlog at the
beginning of any given month is generally about 25% of the revenues
for that month.
Employees
As of March 31, 1995, EFI employed approximately 103 full-time
people, including 19 sales and marketing personnel, 9 engineers, 59
production employees, and 16 executive and administrative personnel.
In addition, EFI employs contract temporary employees to support peak
activity in its manufacturing operations. EFI is not a party to any
collective bargaining agreements, has not experienced any work
stoppages, and has had no difficulties employing qualified people.
EFI considers its employee relations to be satisfactory.
Item 2. Properties
The company's principal offices are located at 2415 South 2300 West,
Salt Lake City, Utah 84119, telephone number (801) 977-9009. This
facility is located in a light industrial park and consists of 28,000
square feet, of which approximately 14,000 square feet are used for
executive and administrative offices and the balance for
manufacturing, assembly and shipping. The Company has leased this
facility through June, 1996. Monthly lease payments are $7,100 plus
taxes, insurance, and maintenance. Additionally, the Company leases
a warehouse facility at 2337 South 2300 West, Salt Lake City, Utah
84119. This facility is located in the same industrial park as the
Company's principal offices and consists of 16,800 square feet, of
which approximately 1,500 square feet are used for administrative
offices and the balance for the warehouse of materials and shipping.
Monthly lease payments are $3,696 plus taxes, insurance, and
maintenance. The warehouse is leased through August, 1996. The
facilities have been renovated to specifications provided by the
Company. The Company believes its facilities will be adequate and
suitable for its operations during the remaining term of its leases.
Item 3. Legal Proceedings
During the fourth quarter of fiscal 1995, EFI settled a trademark
dispute with Panamax Corporation, the cost of which was borne by
insurance coverage. As part of a contract agreement with Leviton, an
OEM customer of the Company, EFI indemnified Leviton against all
legal action in relation to its products. In 1994, a lawsuit was
brought against Leviton, which Leviton has recently settled. In
connection with the Company s indemnification agreement, in May,
1995, the Company agreed to issue 46,875 shares of restricted common
stock to Leviton in lieu of a $75, 000 payment.
Currently, there are no legal proceedings, pending or threatened, to
which the Company is a party.
Item 4. Submission of Matters to a vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's common Stock and related
Stockholder Matters
This item is found on the inside back cover to this report.
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net Sales for the year ended March 31, 1995, decreased by $1,997,834
or 13.4% as compared to the year ended March 31, 1994. This
represented a unit volume decrease of 16.3% offset by an increase of
10.6% in the average selling price. EFI had several major OEM
customers that built significant distribution inventory in 1994 but
purchased product at a much lower level in 1995, resulting in OEM
unit volumes in 1995 being less than 50% of 1994 s volume.
Significant volume increases in the industrial distribution channel
(+18%), the office products channel (+20%), the government channel
(+38%), and the international channel (+113%) partially offset the
impact of the OEM volume drop. Sales volumes in the LAN/PC channel
were 16% lower than 1994, as the mix of pluggable products shifted
from high-end products to lower cost products. The decrease in sales
from a product standpoint occurred primarily in the pluggables
product lines and occurred mainly in the OEM and LAN P/C channels as
consumers shifted to lower cost products with less technical
capability. The increase in average selling price is attributed to
hardwire panels and UPS products, which have a higher unit price,
being a larger portion of total sales than the previous year.
Gross Profit on sales for the year ended March 31, 1995, decreased
by $1,338,996 or 26.8% as compared to the previous year. Gross profit
as a percentage of sales was 28.3%, down from 33.5% the previous
year. Commodity pricing characteristics in the pluggable and UPS
product lines continued to drive the margins down in 1995. Product
cost reductions occurred in fiscal 1995 to meet this cost pressure,
and a concerted effort in finding new material sources as well as
designing out components that the market does not need enabled EFI
to partially slow the gross profit erosion. In addition, in fiscal
1995, depreciation expense in manufacturing increased by $113,446 as
new capital equipment such as the radial inserter, MDA tester, and
fork lifts and facility improvements were put into service. This
increase was offset by head count reductions and general spending
reductions, keeping total overhead constant.
Operating Expenses increased by $870,565 for the year ending March
31, 1995, compared to the previous year, primarily due to $360,515
of bad debt expense recognized in fiscal 1995, an inventory
adjustment of $205,017 and an increase in revenue generating
expenses. The increased bad debt expense resulted from reserving
$75,000 of Mexican receivables due to the declining value of the peso
resulting in the customers inability to make full payment, reserving
$108,000 due to the slow paying practices of certain distributors;
and writing off $100,000 due from insurance companies under the
Triple Crown Warranty program as a result of a profit sharing
settlement. Administrative expenses were cut 9.2% and reinvested in
sales, marketing and R&D. Management decided in September to continue
to invest in advertising and other revenue generating activities
focused on developing its channels of distribution for both TVSS and
UPS products. Promotions, rebates, and other incentive programs were
introduced to increase the sales in those channels. In February,
1995, management concluded that it was uneconomical to continue
developing and marketing the UPS product line, as market penetration
and profit margins were unacceptable. As a result, cost cutting
measures were taken with a goal of reducing expenses by $250,000 per
quarter beginning in the first quarter of fiscal 1996, and a search
was begun to find a strategic partner in the UPS market. In June,
1995, EFI sold the UPS inventory and assets to Valence, L.L.C. for
$984 thousand - $484,000 at the time of the agreement, $200,000 60
days after the agreement, $100,000 in another 60 days, and the
remaining $200,000 due by March 31, 1996, dependent on meeting
certain incentive criteria relating to customer retention and cost
reduction goals. The Company expects to recognize a gain of
approximately $50,000 upon receipt of the final payment. The UPS
product line was 14% of fiscal 1995 net sales. Under its two-year
manufacturing contract with Valence, EFI expects the UPS line to
generate approximately 4% of gross sales in 1996. The Company expects
an improvement in gross profit from the elimination of the UPS line.
Other Expenses/Income increased by $378,076. This was caused by
increased interest expense resulting from increased borrowing against
the working capital line of credit of $122,360 and the write-off of
subscription interest receivable of $111,792 related to the
termination of the HCA stock agreement caused the majority of this
change (See Note 8 to the Financial Statements.), and the settlement
with Leviton of $75,000 discussed in Item 3.
Benefit from Income Taxes of $536,111 in 1995 reflects the benefit
from carrying back a portion of the 1995 tax loss. The remainder of
the tax benefit is available to be carried forward against future
income. In 1994, the Company recognized the full benefit of its tax
loss. (See Note 7 to the Financial Statements.)
Net Loss of $2,709,577 compares to a net loss of $330,225 for the
previous year, which resulted primarily from a $2 million reduction
in revenue which reduced gross profit by $1.3 million, reserve for
bad debts, increased interest expense, write off of subscription
interest receivable, adjustments to inventory and a reduced tax
benefit.
Accounting Pronouncements. The Company does not provide
post-retirement or post-employment benefits and will not be impacted
by Statement of Financial Accounting Standards ( SFAS ) No. 106
(Employers Accounting for Post Retirement Benefits Other Than
Pensions) and SFAS No. 112 (Employers Accounting for Post Employment
Benefits).
Liquidity and Capital Resources
Cash Flow From Operating Activities declined from $569,498 in the
fiscal year ended March 31, 1994, to $58,727 in the fiscal year ended
March 31, 1995, primarily as a result of the increased net loss in
fiscal 1995, partially offset by a net increase in non-cash charges
and cash provided from changes in working capital items as discussed
below.
Trade Receivables increased from $2,335,229 at March 31, 1994,
to $2,520,940 at March 31, 1995. Days sales outstanding increased
from 61 days at March 31, 1994, to 70 days at March 31, 1995. This
increase in days sales outstanding was the result of offering
extended terms to new distributors on initial stocking orders and
slow paying practices of a large distributor.
Other Receivables decreased from $960,498 at March 31, 1994, to
$604,622 at March 31, 1995, a decrease of $232,746. This was due to
a refund of unearned premium relating to the Triple Crown Warranty
program and establishing a $47,984 reserve for a doubtful receivable.
Income tax refund receivable represented $536,670 of the total
receivable at March 31, 1995.
Inventories decreased from $2,912,053 at March 31, 1994, to
$2,597,400 at March 31, 1995, resulting from an 18 month program of
inventory reduction.
Prepaid Expenses decreased from $229,594 at March 31, 1994, to
$65,806 at March 31, 1995. This decrease resulted from the
amortization of a significant catalogue inventory and the writing off
of prepaid insurance premiums associated with the restructuring of
the Triple Crown Warranty program.
Accounts Payable increased from $836,040 at March 31, 1994, to
$1,841,741 at March 31, 1995, an increase of $1,005,701. Trade
payables increased by $948,589 as the Company extended its payment
schedules due to reduced revenues. In June, 1995, the Company sold
the UPS inventory and assets. Proceeds of this sale were used to pay
down accounts payable.
Accrued Liabilities increased from $631,147 at March 31, 1994,
to $647,163 at March 31, 1995. New channel marketing programs were
established during the year, and related expenses were accrued to
cover market development activities, promotional expenses, etc.
Cash Used in Investing Activities increased from $540,848 in the
fiscal year ended March 31, 1994, to $913,752 in the fiscal year
ended March 31, 1995, primarily as a result of an increase in
property and other assets as discussed below.
Property - Investments of $878,659 were made in manufacturing
equipment and communication software for the UPS product line. An
automatic board inserter ($350,000), a manufacturing defects analyzer
($35,000), and two fork lifts ($50,000) comprised the most
significant manufacturing equipment purchased. Additionally, EFI
purchased the rights for software enabling a single host to monitor
several different manufacturers UPS products for $75,000.
Additionally, the Company paid $232,229 for the balance owed on a
radial inserter.
Other Assets increased from $131,498 at March 31, 1994, to
$299,874 at March 31, 1995, due primarily to the purchase of
worldwide exclusive marketing rights to a service-oriented
software package that monitors LAN network environment conditions for
a total price of $125,000, and the Company entering into a noncompete
agreement with a former officer for $117,250.
Cash Flows from Financing Activities increased from ($24,583) in the
fiscal year ended March 31, 1994, to $925,644 in the fiscal year
ended March 31, 1995, primarily due to the proceeds from notes
payable which were used to pay off an existing uncollateralized
promissory note and a portion of the revolving line of credit and to
fund certain capital and software expenditures. (See Note 5 to the
Financial Statements.)
Outlook - The Company believes that the combination of cash proceeds
from the sale of UPS assets of $984,000, receipt of the income tax
refund of approximately $400,000, the full benefit of cost reduction
actions taken during fiscal 1995 which are expected to reduce
operating expenses by approximately $250,000 per quarter, and the
restructuring of the Company's debt as discussed in Note 5 to the
Financial Statements will enable the Company to maintain its planned
operations for fiscal 1996.
Selected Financial Data
The following Selected Financial Data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and
Results of Operations, the financial statements, and accompanying
notes appearing in this report.
For the years ended March 31,
1995 1994 1993 1992 1991
Income Statement Data:
Net sales $12,926,766 $14,924,600 $14,819,664 $11,935,357 $11,881,469
Cost of sales 9,143,371 9,671,659 8,574,369 6,243,231 5,891,964
Inventory write-down 128,000 258,550 0 0 0
Gross profit 3,655,395 4,994,391 6,245,295 5,692,126 5,989,505
Operating expense 6,457,581 5,587,156 5,203,156 5,277,947 4,181,718
Operating (loss)
income (2,802,186) (592,625) 1,042,139 414,179 1,807,787
Other income
(expense) (443,502) (65,426) (52,807) 101,624 118,044
(Loss) income
before income
taxes (3,245,688) (658,051) 989,332 515,803 1,925,831
Benefit from
(provision for)
income taxes 536,111 327,826 (325,013) (119,495) (703,465)
Net (loss) income $(2,709,577) $(330,225) $664,308 $396,308 $1,222,366
Net (loss) income
per common and
common equivalent
share $(1.01) $(.12) $.23 $.14 $.43
Dividends per common
and common equivalent
share $0 $0 $0 $0 $0
Balance Sheet Data:
Working capital $2,781,175 $4,930,967 $5,704,452 $3,553,412 $4,222,920
Total assets 8,608,303 9,170,972 8,893,477 7,135,470 6,386,879
Long-term debt 3,068,711 2,639,905 2,864,067 1,494,145 1,700,000
Total liabilities 6,172,563 4,514,952 3,718,337 2,796,671 2,520,997
Stockholders' equity 2,435,740 4,656,020 5,175,640 4,338,799 3,865,882
Current ratio 1.9 to 1 4.0 to 1 9.7 to 1 4.1 to 1 6.9 to1
Total liabilities
to net worth 2.53 to 1 .97 .72 .64 .65
Results of Operations:
The following table sets forth certain operational data as a percentage of sales
for the past two fiscal years:
1995 1994
Net sales 100.00% 100.00%
Cost of sales 70.73 64.80
Inventory write-down .99 1.73
Gross profit 28.28 33.47
Operating expenses 49.96 37.43
Operating loss (21.68) (3.96)
Other expense (3.43) (.44)
Loss before income taxes (25.11) (4.40)
Benefit from income taxes 4.15 2.20
Net loss (20.96)% (2.20)%
Item 7. Financial Data
Index to Financial Statements
Item Page Item Page
Report of Independent Accountants 10 Statement of Cash Flows 13
Statement of Operations 11 Statement of Stockholders' Equity 15
Balance Sheet 12 Notes to Financial Statements 16-22
Report of Independent Accountant
To the Stockholders and Board of Directors of EFI Electronics Corporation:
We have audited the accompanying balance sheet of EFI Electronics Corporation
as of March 31, 1995 and
1994, and the related statements of operations, stockholders' equity, and
cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards.
Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial
position of EFI Electronics Corporation as of March 31, 1995 and 1994, and the
results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
As discussed in note 15, the Company s financial statements for the year ended
restated.
Salt Lake City, Utah
August 21, 1995
Notes To Financial Statements
STATEMENT OF OPERATIONS
For the years ended March 31, 1995 1994 Notes
Net sales $12,926,766 $14,924,600 10
Cost of sales 9,143,371 9,671,659
Inventory write-down 128,000 258,550
Gross profit 3,655,395 4,994,391
Operating expenses:
Selling, general, and
administrative expenses 5,312,950 0
Research and development 784,116 716,666
Bad debt loss 360,515 0
Total operating expenses 6,457,581 5,587,016
Operating loss (2,802,186) (592,625)
Other income (expense):
Interest income (expense):
Related parties (111,792) 78,113 8
Other 65,674 64,270
Gain on sale of property 0 2,215
Bad debt loss-related parties 0 (10,000)
Legal settlement (75,000) 0
Interest expense (322,384) (200,024) 5
Net other income (expense)(443,502) (65,426)
Loss before income taxes (3,245,688) (658,051)
Benefit from income taxes 536,111 327,826 1,7
Net loss $(2,709,577) $(330,225)
Net loss per common and
common equivalent share $(1.01) $(.12) 1
Weighted average shares
and common equvalent
shares outstanding 2,688,579 2,684,942 1
The accompanying notes are an integral part of the financial statements.
BALANCE SHEET
As of March 31, 1995 1994 Notes
Assets
Current assets:
Cash and cash equivalents $96,259 $25,640 1
Receivables 3,125,562 3,295,727 2,5
Inventories 2,597,400 2,912,053 1,3,5
Prepaid expenses 65,806 229,594
Deferred income taxes 0 86,000 1,7
Total current assets 5,885,027 6,549,014
Property - net 2,423,402 2,490,460 1,4,5
Other assets 299,874 131,498
Total assets $8,608,303 $9,170,972
Liabilities
Current liabilities:
Current installments
of notes payable $ 614,948 $ 150,860 5
Accounts payable 1,841,741 836,040
Accrued liabilities 647,163 631,147
Total current
liabilities 3,103,852 1,618,047
Notes payable, less
current installments 3,068,711 2,639,905 5
Deferred income taxes 0 257,000 1,7
Total liabilities 6,172,563 4,514,952
Commitments 6
Stockholders' Equity
Common stock, $.0001 par
authorized; 3,567,093
shares issued and
3,161,931 outstanding in
1994 374 320 8,9
Common stock to be issued
for settlement of
litigation 75,000 0
Additional paid-in captial 1,120,021 668,664
Retained earnings 2,856,923 5,566,500
4,052,301 6,235,484
Less:
Stock subscriptions,
note, and interest
receivable from
management and
employees (156,549) (1,419,464) 8
Treasury stock, at
cost - 511,070 shares
in 1995 and 37,778
shares in 1994 (1,460,012) (160,000)
Total stockholders'equity 2,435,740 4,656,020
Total liabilities and
stockholders' equity $ 8,608,303 $9,170,972
The accompanying notes are an integral part of the financial statements.
STATEMENT OF CASH FLOWS
For years ended March 31, 1995 1994
Cash flows from operating
activities:
Net loss $(2,709,577) $ (330,225)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation 713,488 600,042
Amortization 23,113 1,400
Provision for inventory
write down 128,000 258,550
Bad debt loss 360,515 0
Interest receivable on stock
subscriptions 111,792 (78,113)
Bad debt los - related parties 0 10,000
Gain on sale of property 0 (2,215)
Compensation on stock issued 23,394 0
Common stock issued for
settlement of litigation 75,000 0
Deferred income taxes (171,000) 37,000
Increase (decrease) in cash
due to change in:
Receivables (103,385) (1,155,321)
Inventories 186,653 384,264
Prepaid expenses 163,788 266,428
Accounts payable 1,237,930 280,774
Accrued liabilities 16,016 296,914
Net cash provided by
operating activities 58,727 569,498
Cash flows from investing
activities:
Capital expenditures (878,659) (543,742)
Increase in other assets (35,093) (21,408)
Proceeds from sale of property 0 2,733
Principal collected on notes
receivable 0 21,569
Net cash used in investing
activities (913,752) (540,848)
Cash flows from financing
activities:
Net repayments under line
of credit (1,330,324) (60,582)
Proceeds from borrowings
under notes payable (2,460,375) 0
Principal payments under
notes payable (354,407) (12,719)
Proceeds from payments
on stock subscriptions 0 12,719
Proceeds from issuance of
common stock 150,000 0
Proceeds from exercise
of stock options 0 35,999
Net cash provided by
(used in) financing
activities 925,644 (24,583)
Net increase (decrease) in
cash and cash equivalents 70,619 4,067
Cash and cash equivalents
at beginning of year 25,640 21,573
Cash and cash equivalents at
end of year $ 96,259 $ 25,640
Supplemental disclosures of
cash flow information:
Cash paid (refunded) during
the year for:
Income taxes $ (228,013) $ 25,000
Interest $ 285,721 $ 200,024
The accompanying notes are an integral part of the financial statements.
Supplemental schedule of noncash investing and financing activities:
1995: The Company issued a note payable in the amount of $117,250 to a
former officer in exchange for
an agreement not to compete.
The Company issued:
(a) 17,384 shares of common stock to an officer for reimbursement of
expenses in the amount of
$26,394.
(b) 100,000 shares of common stock in exchange for software rights
in the amount of $125,000.
(c) 100,000 shares of common stock to an officer as part of an
employment agreement in exchange
for a note receivable in the amount of $150,000. (see Note 8.)
473,292 shares of treasure stock were returned to the Company upon
cancellation of subscriptions
receivable in the amount of $1,262,915. (See Note 8.)
1994: 37,778 shares of treasury stock were acquired in exchange for the
forgiveness of notes receivable
in the amount of $160,000.
Accounts payable at March 31, 1994, included $232,229 related to
equipment purchases.
Note 1 The Company and Summary of Significant Accounting Policies:
EFI Electronics Corporation ( EFI or the Company ) manufactures electrical
surge protection and
uninterruptible power supply products. The accounting policies of the Company
conform to generally accepted
accounting principles. The following is a summary of the more significant of
such policies:
Inventories Raw materials are stated at the lower of cost (using standard costs
which approximate a first-in,
first-out basis) or market. Work-in-process and finished goods are stated at
the lower of average cost or market.
Property Property is stated at cost and depreciated on the straight-line method
over the 3- to 10-year lives of
the assets. Gains and losses on disposal of property are accounted for and
disclosed separately on the statement
of operations.
Income Taxes The Company accounts for income taxes in accordance with
SFAS No. 109 (Accounting for
Income Taxes). Deferred income taxes are provided for the difference between
the financial statement and tax
bases of assets and liabilities (primarily depreciation) using applicable
future tax rates.
Cash and Cash Equivalents The Company considers all interest-bearing deposits
with an original maturity date of three months or less to be cash equivalents.
Revenue Recognition Revenue is recognized generally when product is shipped
and/or services are performed.
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.
Note 2 Receivables:
At March 31, 1995, and March 31, 1994, receivables consisted of the following:
Trade and other receivables $ 2,744,890 $ 2,474,399
Warranty premium receivable 27,745 444,444
$ 3,309,305 $ 3,328,611
The allowance for doubtful accounts has increased in 1995 in
consideration of Mexican accounts receivable
proving difficult to collect because of the Mexican government s
destabilizing the peso and because of the slow
paying practices of two large national distributors.
Note 3 Inventories:
At March 31, 1995, and March 31, 1994, inventories consisted of the following:
Raw materials $ 1,909,155 $ 2,042,144
Work-in-process 342,406 235,147
Note 4 Property:
At March 31, 1995, and March 31, 1994, property consisted of the following:
Machinery and equipment $ 4,819,046 $ 4,295,055
Furniture and fixtures 245,788 205,212
Demonstration equipment 25,931 25,931
$ 5,386,603 $ 4,740,173
Included in the above total are assets with a cost of $ 1,249,259 which are
fully depreciated and still in service.
Note 5 Notes Payable:
At March 31, 1995, and March 31, 1994, notes payable consisted of the following:
Collateralized promissory notes $ 2,137,019 $ -0-
Revolving line of credit 1,458,790 1,483,093
Uncollateralized promissory note -0- 1,307,672
3,683,659 2,790,765
Less current installments of long-term debt (614,948) (150,860)
During the third quarter of fiscal 1995, the Company entered into a series of
collateralized promissory notes
which replaced its existing uncollateralized promissory note and a portion of
its revolving line of credit and provided for certain capital and software
expenditures. At March 31, 1995, the collateralized promissory notes
consisted of the following:
Collateralized promissory notes:
1. Term note for forklift acquisition $ 35,085
2. Term note for radial inserter acquisition 342,526
3. Term note for portion of $1,900,000 1994 line of credit 402,777
4. Term note to replace unsecured promissory note 1,308,297
-continued-
Note 5 Notes Payable (continued):
1. Installment note, due in monthly installments of $662 until
August 1, 1999; interest is at prime (9% at March 31, 1995) plus .75%;
collateralized by the forklift.
2. Installment note, due in monthly installments of $6,463 until
August 1, 1999; interest is at prime plus .75%;
collateralized by the radial inserter.
3. Installment note, due in monthly installments of $13,889 until
August 1, 1997; interest is at prime plus
.75%; collateralized by general intangibles and property.
4. Installment note to replace unsecured promissory note, due in monthly
payments of $24,715 until August
1, 1999; interest is at prime plus .5%; collateralized by accounts
receivable, inventories, and property.
5. Installment note, due in monthly installments of $833 until January 1, 2000;
interest is at prime plus .75%;
collateralized by accounts receivable, inventories, and property.
The revolving line of credit provides for borrowings up to $1,400,000
collateralized by accounts receivable, inventories, and property.
Interest only is payable monthly with the outstanding principal due June, 1996.
Principal payments are as follows:
1996 $ . . 614,948
1997 . . . 2,046,584
1998 . . . 461,517
1999 . . . 392,076
The collateralized notes and revolving line of credit contain financial
covenants, the most restrictive of which
require the Company to maintain not less than $4,000,000 of tangible
net worth and a debt to net worth ratio not to exceed 1.5 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.
Note 6 Lease Obligations:
During the year ended March 31, 1995, the Company extended its lease agreements
for its principal facility through June, 1996, and its warehouse facility
through August, 1996. These were the final options to extend under
the current agreements. The Company intends to negotiate new agreements for both
facilities. Minimum annual rentals through the term of both leases are as
follows: 1996 $ . . 144,384
Total rent expense was approximately $138,544 in 1995 and $117,990 in 1994.
Note 7 Income Taxes:
The benefit from income taxes for the years ended March 31, 1995, and
March 31, 1994, consisted of the
following:
Current $ 365,111 $ 364,826
The reported benefit from income taxes is different than the amount computed by
applying the statutory federal
income tax rate of 34% to the loss before income taxes as follows:
Benefit (provision) at statutory rates $ 1,104,000 $ 224,000
Increase in valuation allowance (691,000) -0-
State income taxes 111,000 22,000
In accordance with SFAS No. 109, the deferred tax asset and liability as of
March 31, 1995, and March 31, 1994, are comprised of the estimated future tax
provision (benefit) due to different financial reporting and income tax basis
related to:
Deferred tax assets:
Net operating loss carryforward $ 703,000 $ -0-
Research and development credits 56,000 -0-
Total deferred tax assets 920,000 86,000
Deferred tax liabilities:
Depreciation (229,000) (257,000)
The Company has concluded that a full valuation allowance should be provided,
except to the extent that the benefit of operating loss and research and
development credit carryforwards can be used to offset future
reversals of existing tax liabilities.
Note 8 Related Party Transactions:
During 1991, the Company sold a total of 580,000 shares of treasury stock to the
Company s management and key employees in exchange for cash of $16,093 and
stock subscriptions receivable totaling $1,540,209. The
shares were acquired from HCA Capital Corporation for cash provided through a
promissory note payable. The stock subscriptions receivable were
collateralized by the common stock sold and accrued interest at the prime
rate (6.0% at March 31, 1994) plus .5%. Under the original agreement, interest
was paid monthly and the notes were due on December 31, 1993.
In October, 1992, the agreements were modified to suspend monthly interest
payments and not require payments on the notes unless the average closing sale
price of the Company s
common stock exceeded 200% of the original purchase price plus interest paid
and/or accrued. The stock
subscriptions and interest receivable were recorded by the Company as a
reduction of stockholders equity.
In September, 1994, the Company issued a note payable in the amount of $117,250
to a former officer in
exchange for an agreement not to compete. The $117,250 is included in other
assets and is being amortized on
a straight-line basis over the three year term of the agreement.
In January, 1995, the Company completed a series of individual agreements with
the employees holding the stock subscriptions receivable that effectively
reversed the original agreements. The shares of stock were returned to the
Company and recorded as treasury stock at the original subscription price.
The unpaid accrued interest was charged to expense. Because the original
agreements were in essence a stock option plan, no compensation expense was
recognized on the cancellation of the subscriptions receivable.
As of March 31, 1995, the Company held a $150,000 note receivable from an
officer of the Company, the proceeds from which were used to purchase 100,000
shares of the Company s stock as part of the officer's
employment contract. The note receivable bears interest at the prime rate
plus 1%, is due in full by the earlier of 60 days after termination of
employment, or September 12, 2000, and is collateralized by the shares of stock.
The note receivable is reflected as a reduction of stockholders equity. Because
of the nature of the agreement, the transaction will be accounted for as a
stock option plan and interest will be recognized as an adjustment to
the option price, when paid.
Note 9 Stockholders Equity:
Options - In July, 1988, the Company adopted an incentive and non-qualified
stock option plan and terminated a prior incentive stock option plan.
Under the plan, as amended in May, 1991, incentive stock options or
non-qualified stock options, up to a maximum of 700,000 shares, may be granted
to key employees and other persons to purchase the Company's common stock.
The stock options are exercisable at various times determined by the
board of directors but not less than six months from the date of grant and
terminate not more than ten years from the date of grant.
Incentive stock options can be granted to employees to purchase the Company's
common stock at its fair market value, as defined, at the date of grant.
No individual may be granted stock options exceeding $100,000 in fair
market value in any one year. Non-qualified stock options can be granted to
outside directors and other individuals as well as employees to purchase the
Company's common stock at its fair market value, as defined,
at the date of grant.
In January, 1995, the Company modified the stock option plan. All of the
existing grants were canceled and new grants were issued in place of the old.
The price of the new grants was set at the fair market value of $1.06
and the number of options issued to each employee was based on the number of
each employee s original
options adjusted by the options original grant price compared to the new
option price.
Changes in stock options under the Company s incentive and non-qualified stock
option plan and prior stock options granted were as follows:
1995: Granted 322,019 $ 1.06
Canceled (96,900) 2.63 - 4.13
Expired (152,812) 2.63 - 4.13
Outstanding at March 31, 322,019 1.06
Exercisable 59,330 1.06
1994: Granted 33,000 $ 2.75
Expired (41,667) 3.50 - 4.13
Exercised (13,333) 2.70
Outstanding at March 31, 249,712 2.63 - 4.13
Exercisable 144,800 2.63 - 4.13
Note 10 Major Customers:
During the year ended March 31, 1995, no single customer accounted for more
than 10% of the Company's sales.
Note 11 Employee Benefit Plan:
The Company has a contributory 401(k) savings and profit sharing plan covering
all full-time employees. The employer contribution amount is determined at
the discretion of the Board of Directors. There were no contributions made
by the Company to the plan for the years ended March 31, 1995, and
March 31, 1994.
Note 12 Quarterly Financial Data (Unaudited):
Unaudited summarized financial data by quarter for 1995 and 1994 is as follows:
Net Income (Loss)
Per Common
Net and Common
1995:
June 30 $ 2,858,083 $ 1,230,392 $ 7,076 $ Nil
September 30 (1)(3) 3,218,973 1,054,958 (500,218) (.19)
December 31(2)(3) 3,586,825 1,074,228 (279,716) (.10)
1994:
June 30 $ 3,260,676 $ 1,232,363 $ 17,649 $ .01
September 30 4,390,770 1,476,292 174,448 .06
December 31 4,174,917 1,600,607 230,534 .08
EFI restated earnings for the quarters ended September 30, 1994, and
December 31, 1994, to reflect facts and circumstances
that should have been recognized in those time periods. The specific
events giving rise to the following pretax
adjustments were as follows:
1. Adjustments relating primarily to interest receivable and other expenses of
the Triple Crown Warranty program which increased expense by $100,515.
2. Expenses relating to deductions for marketing programs by two major
distributors which increased expense by $65,000.
3. Other adjustments resulting in a net increase of expense of $93,484 for
the quarter ended September 30, 1994, and a net decrease of expense of
$9,754 for the quarter ended December 31, 1994.
Note 13 Concentrations of Credit Risk:
The Company s financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents and trade receivables.
The Company's cash equivalents are high quality securities placed
with federally insured financial institutions located in Salt Lake City, Utah.
The Company's investment policy limits the exposure to concentrations of
credit risk. The Company s trade receivables result from its operations
and reflect a broad customer base, including independent distributors and
original equipment manufacturers located primarily throughout the
United States. Also, the Company routinely assesses the financial strength of
its customers. As a consequence, concentrations of credit risk are limited,
and except as noted in Note 2, losses
from trade receivables have been minimal.
Note 14 Subsequent Event:
In June 1995, EFI sold the UPS inventory and assets to Valence, L.L.C.
for $984 thousand payable $484,000 at the time of the agreement,
$100,000 60 days after the agreement, $100,000 in another 60 days, and the
remaining $200,000 due by March 31, 1996, dependent on EFI meeting certain
incentive criteria relating to customer retention and cost reduction goals.
The Company expects to recognize a gain of approximately $50,000 upon
receipt of the final payment. EFI will continue to manufacture the product
for up to two years for Valence.
Note 15 Restatement and Amendment of FY 1995 Form 10 - KSB
During August 1995 the Company determined that payroll tax expense, cost of
sales, 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 have been restated to reflect the appropriate account balances.
The Company has amended its Form 10 KSB which was filed with the
Securities and Exchange Commission to reflect this restatement.
The effect of the restatement is as follows:
As Previously As
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
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
Statement of Cash Flows:
Cash flow from operating activities $ 316,654 $ 58,727
The Form 10-QSB filed for the quarter ended June 30, 1995 reflects the
restatement of the Company's financial statements for the fiscal year
ended March 31, 1995.
None.
PART III
These items are incorporated by reference to the Company's Proxy Statement
related to the Annual Meeting
of Shareholders held on July 28, 1995, as filed with the Securities and Exchange
Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934 .
(a) Exhibits:
S- B Incorporate d Filed
3.1 Certificate of Incorporation as Restated and Amended (1)
3.2 Amended and Restated Bylaws (2)
10.1 NonQualified Stock Option Plan and Incentive
Stock Option Plan As Amended (May 1991)(3)
10.2 Executive Bonus Plan Description (4)
10.3 Lease Agreement for Company Headquarters
in Salt Lake City, Utah (5)
10.4 Lease Agreement for Company Warehouse
in Salt Lake City, Utah (6)
24.1 Independent Accountant s Consent X
(1) Incorporated by reference to Exhibit Nos. 1 and 2 to Annual Report on
Form 10-K (File No. 0- 15967) for
fiscal year ended April 1, 1988, and as Exhibit Nos. 4.3 and 4.4 to Registration
Statement on Form S-8 (Reg.
No. 33-40279) filed on May 1, 1991.
(2) Incorporated by reference to Exhibit No. 1 to Annual Report on Form 10-K for
fiscal year ended March
31, 1989.
(3) Incorporated by reference to Exhibit No. 1 to Annual Report on Form 10-K for
fiscal year ended March 29, 1991.
(4) Incorporated by reference to page 7 of the Company s Proxy Statement
for fiscal year ended March 31, 1993 related to the
Annual Meeting of Shareholders scheduled for July 30, 1993 as filed with
the Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934.
(5) Incorporated by reference to Exhibit No. 2 to Annual Report on Form 10-K
for fiscal year ended March 29, 1991.
(6) Incorporated by reference to Exhibit No. 10.4 to Annual Report on
Form 10-K for fiscal year ended March 31, 1992.
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the quarter ending March 31, 1995.
