EFI Electronics
FORM 10-QSB
U.S. 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 September 30, 1996
o 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
November 8,1996: 4,213,674
<PAGE>
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets as of September 30, 1996 (Unaudited)
and March 31, 1996 3
Statements of Operations for the three months ended
September 30, 1996(Unaudited) and September 30, 1995
(Unaudited) 4
Statements of Operations for the six months ended
September 30, 1996 (Unaudited) and September 30, 1995
(Unaudited) 5
Statements of Cash Flows for the six months ended
September 30, 1996 (Unaudited) and September 30, 1995
(Unaudited) 6
Notes to Financial Statements (Unaudited) 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9 - 11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
<PAGE>
BALANCE SHEETS
September 30, and March 31, 1996 SEPTEMBER 30 MARCH 31
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,769 $ 8,518
Receivables 2,581,613 2,653,371
Inventories 2,411,277 2,307,704
Prepaid expenses 109,525 35,452
Total current assets 5,111,184 5,005,045
Property - net 1,716,222 1,896,458
Investment in joint venture 169,455 117,705
Other assets 239,906 285,113
Total assets $ 7,236,767 $ 7,304,321
LIABILITIES
Current liabilities:
Current installments of notes payable $ 236,100 $ 194,300
Accounts payable 1,320,036 1,503,860
Reserve for customer warranty 323,675 392,829
Revolving line of credit 2,541,068 2,797,590
Accrued liabilities 505,969 389,608
Total current liabilities 4,926,848 5,278,187
Notes Payable, less current installments 944,000 1,540,000
Total liabilities 5,870,848 6,818,187
STOCKHOLDERS' EQUITY
Common stock 421 354
Additional paid-in capital 924,275 816,546
Retained earnings 591,223 791,772
Total 1,515,919 1,608,672
Less:
Stock subscriptions and note
receivable from officer (150,000) (150,000)
Treasury stock, at cost - 362,156
shares at March 31 -0- (972,538)
Total stockholders' equity 1,365,919 486,134
Total liabilities and stockholders' equity $ 7,236,767 $ 7,304,321
See notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended September 30, 1996 1995
Net sales $ 3,559,318 $ 2,931,358
Cost of sales 2,372,337 1,940,326
Gross profit 1,186,981 991,032
Operating expenses:
Selling, general and
administrative expenses 1,013,023 1,113,328
Research and development 122,001 133,464
Total operating expenses 1,135,024 1,246,792
Operating profit (loss) 51,957 (255,760)
Other income (expense):
Equity in earnings of joint venture 34,875 12,000
Interest expense (100,091) (61,386)
Other income 471 -0-
Total other income (expense), net (64,745) (49,386)
Loss before income taxes (12,788) (305,146)
Benefit from (provision for) income taxes -0- -0-
Net loss $ (12,788) $ (305,146)
Net loss per common
and common equivalent share $ (0.00) $ (0.10)
Weighted average shares and
common equivalent shares outstanding 3,654,664 3,165,052
See notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (Unaudited)
For the six months ended September 30, 1996 1995
Net sales $ 6,668,362 $ 6,082,212
Cost of sales 4,325,037 4,073,375
Gross profit 2,343,325 2,008,837
Operating expenses:
Selling, general and
administrative expenses 2,123,835 2,234,553
Research and development 255,517 278,841
Total operating expenses 2,379,352 2,513,394
Operating loss (36,027) (504,557)
Other income (expense):
Equity in earnings of joint venture 51,750 29,099
Interest expense (217,823) (118,924)
Other income 1,551 -0-
Total other income (expense), net (164,522) (89,825)
Loss before income taxes (200,549) (594,382)
Benefit from (provision for) income taxes -0- -0-
Net loss $ (200,549) $ (594,382)
Net loss per common
and common equivalent share $ (0.06) $ (0.19)
Weighted average shares and
common equivalent shares outstanding 3,418,045 3,123,045
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (Unaudited)
For the six months ended September 30, 1996 1995
Cash flows provided from operating activities:
<S> <C> <C>
Net loss $ (200,549) $ (594,382)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 346,995 321,993
Amortization 31,523 20,242
Equity in earnings of joint venture (51,750) (29,099)
Increase (decrease) in cash, net of the sale
of the UPS line in 1995, due to change in:
Receivables 71,758 460,881
Inventories (103,573) 94,743
Prepaid expenses (74,073) (44,734)
Other assets 13,684 11,414
Accounts payable (183,824) (13,782)
Warranty reserve (69,154) -0-
Accrued liabilities 138,195 (174,246)
Net cash provided by (used in) operating activities (80,768) 53,030
Cash flows from investing activities:
Capital expenditures (166,759) (236,349)
Sale of fixed assets related to UPS line -0- 290,959
Proceeds from sale of UPS line -0- 109,043
Net cash provided by (used in) investing activities (166,759) 163,653
Cash flows from financing activities:
Net borrowing (repayments) under revolving credit agreement (256,522) (117,281)
Net borrowing (repayments) on notes payable (54,200) (294,214)
Proceeds from exercise of stock options -0- 2,666
Proceeds from sale of common stock 558,500 104,273
Net cash provided by (used in) financing activities 247,778 (304,556)
Net increase (decrease) in cash and cash equivalents 251 (87,873)
Cash and cash equivalents at beginning of period 8,518 96,259
Cash and cash equivalents at end of period $ 8,769 $ 8,386
Supplemental disclosures of cash flow information:
Cash paid during the six months for:
Income taxes $ -0- $ -0-
Interest $ 175,065 $ 119,081
Supplemental disclosures of non-cash investing and financing activities:
Subordinated debt plus accrued interest exchanged for
455,432 shares of common stock (See Note 6) $ 521,834 $ -0-
Note issued for sale of UPS line $ -0- $ 493,498
Common stock issued for legal settlement, accrued at 3/31/95 $ -0- $ 75,000
</TABLE>
See notes to financial statements.
<PAGE>
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 September 30, 1996, and the results of its operations and its cash
flows for the periods ended September 30, 1996 and September 30, 1995. The
results of operations for the period ended September 30, 1996 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 1996 Form 10-KSB included in the
Annual Report to Shareholders.
1. RECEIVABLES
Receivables consist of the following:
September 30,1996 March 31,1996
(Unaudited)
Trade receivables $ 2,603,064 $ 2,612,467
Receivable from joint venture 65,255 51,156
Warranty premium receivable -0- 23,553
Income tax refund receivable -0- 59,309
2,668,319 2,746,485
Allowance for doubtful accounts (86,706) (93,114)
Total Receivables $ 2,581,613 $ 2,653,371
2. INVENTORIES
Inventories consist of the following:
September 30, 1996 March 31, 1996
(Unaudited)
Raw materials $ 1,421,537 $ 1,457,424
Work-in-process 447,644 217,262
Finished goods 542,096 633,018
Total $ 2,411,277 $ 2,307,704
3. NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Net 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 utilizes the liability method of accounting for income taxes. Under
the liability method, deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to reverse. An allowance against
deferred tax assets is recorded when it is more likely than not that such tax
benefits will not be realized.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued (Unaudited)
5. NOTES PAYABLE AND REVOLVING LINE OF CREDIT:
Notes payable and revolving line of credit consist of the following:
September 30, 1996 March 31, 1996
(Unaudited)
Revolving line of credit $ 2,541,068 $ 2,797,590
The revolving line of credit contains financial covenants, the most restrictive
of which require that the Company maintain not less than $800,000 of net worth
plus subordinated debt. At September 30, 1996, the Company was in compliance
with these covenants or had obtained appropriate waivers.
Notes payable:
Collateralized promissory notes $ 1,136,000 $ 1,200,000
Uncollateralized subordinated note - director -0- 500,000
Uncollateralized note to former officer 44,100 34,300
1,180,100 1,734,300
Less current installments of notes payable (236,100) (194,300)
Total notes payable, less current
installments $ 944,000 $ 1,540,000
6. STOCKHOLDERS' EQUITY
In January 1996, a major shareholder and director of the Company loaned the
Company $500,000 in the form of a subordinated note. As of June 30, 1996, this
note plus accrued interest of $21,834 was exchanged for 455,432 shares of
restricted common stock of the Company. Of these shares, 362,156 were issued
from treasury stock; the balance represents shares issued from the Company's
authorized but unissued stock.
In September 1996, certain directors and executive officers of the Company
purchased 579,020 shares of common stock of the Company for $550,000. Proceeds
from these investments were used to reduce short term borrowings and accounts
payable.
7. FINANCIAL STATEMENT CLASSIFICATIONS
Certain balances in the March 31, 1996 financial statements have been
reclassified to conform with the current period presentation. These changes have
no effect on the previously reported net loss, total assets, total liabilities
or stockholders' equity.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations:
Net Sales for the three months ended September 30, 1996, increased by $628
thousand (21%) compared to the three months ended September 30, 1995. Net sales
for the six months ended September 30,1996, increased by $586 thousand (10%)
over the six months ended September 30, 1995. The major components of net sales
were:
<TABLE>
<CAPTION>
Revenue by Product
(in thousands)
Three Months Six Months
9/30/96 9/30/95 9/30/96 9/30/95
<S> <C> <C> <C> <C>
TVSS revenue $ 3,533 $ 2,869 $6,614 $ 5,625
UPS revenue -0- -0- -0- 398
Other revenue 26 62 54 59
Total $ 3,559 $ 2,931 $ 6,668 $ 6,082
Contribution margin percentage 48% 55% 51% 53%
Gross margin percentage 33% 34% 35% 33%
</TABLE>
Note: Contribution margin reflects only direct, unburdened
material and labor costs.
TVSS (Transient Voltage Surge Suppression) revenue increased by $664 thousand
(23%) for the three months ended September 30, 1996 as compared to the three
months ended September 30, 1995. TVSS revenue increased by $989 thousand (18%)
for the six months ended September 30, 1996 over the prior year. TVSS revenue
consists of plug-in and hardwire product sales, as follows:
Plug-in revenue increased for the three months ended September 30, 1996, by
$476 thousand (23%) over the same period of 1995. Plug-in revenue increased
by $496 thousand (12%) for the six months ended September 30, 1996 compared
to the six months ended September 30, 1995. These increases are the result
of the Company's focus on increasing Private Label/OEM business. These
increases were partially offset by decreases in government purchases.
Hardwire revenue increased by $188 thousand (24%) for the period ended
September 30, 1996 compared to the period ended September 30, 1995.
Hardwire revenue increased by $493 thousand (34%) for the six months ended
September 30, 1996 over the same period in 1995. These increases are the
result of two factors; 1) the Company has successfully entered the new
construction and bid specification market, and 2) the Company has increased
its penetration of the utility market with its HomeGuardr and related
products. The Company is expending significant effort to continue growth in
both markets.
UPS revenue for the current period is zero as a result of the sale of the
Company's UPS product line in September 1995. Ongoing UPS revenue ceased at that
time. Subcontract income on UPS products since the sale is included in other
revenue.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Other revenue includes income primarily from subcontract manufacture and
assembly of UPS products sold to the buyer of the Company's UPS product line.
The contract to perform this service lasts until June 14, 1997.
Gross Profit for the three months ended September 30, 1996 improved over the
same period of the prior year by $196 thousand (20%). This improvement was the
result of 1) an increase in sales of 21%, 2) a reduction in warranty claims and
related expense, and indirect manufacturing costs of $118 thousand (19%), and 3)
an offsetting decline in contribution margin of seven percentage points. The
contribution margin decline was the result of a large revenue increase in
Private Label/OEM sales which are at much lower margins than other
distribution-related sales. Gross profit for the six months ended September 30,
1996 was $334 thousand (17%) more than the six months ended September 30, 1995.
Operating Expenses for the three months ended September 30, 1996 decreased by
$112 thousand (9%), compared to the three months ended September 30, 1995.
Operating expenses decreased by $134 thousand (5%) for the six months ended
September 30, 1996 as compared to the same period in 1995. This decrease was
primarily the result of expense savings in several areas, including telephone,
legal, audit and headcount related expenses.
Net Loss for the three months ended September 30, 1996, was reduced by $292
thousand compared to the three months ended September 30, 1995. Net loss was
also reduced by $394 thousand for the six months ended September 30, 1996 These
improvements resulted from revenue increases coupled with reductions in warranty
claims, indirect manufacturing costs and operating expenses.
Liquidity and Capital Resources:
The Company used $81 thousand cash in operations during 1996 as compared to
providing cash of $53 thousand in 1995. The major causes of this decline were a
significant reduction of accounts payable in the current period compared to a
large reduction in accounts receivable in the prior period. The items that
influenced this decrease are described below:
Receivables decreased by $72 thousand net of bad debt allowance. This
reduction is due to the aggressive collection efforts of past due accounts
and more restrictive credit policies. In addition, extended credit terms to
certain customers have been curtailed in order to improve liquidity.
Inventories increased by $104 thousand (4%) net of the reserve for obsolete
inventory. This increase compares to and is related to an increase in the
total dollar amount of cost of sales of 6%.
Accounts payable decreased by $184 thousand during the first six months of
fiscal 1997. The Company has attempted to improve its position with
suppliers. The Company has maintained adequate relationships with its
suppliers and remains on "open account" with all significant vendors.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Reserve for customer warranty decreased by $69 thousand as payments for the
Company's discontinued Triple Crown Warranty program were applied against
reserves previously established. In addition, the Company's product
warranty claims for the first six months of fiscal 1997 have decreased by
30%, relating to product improvements implemented in prior periods.
Accrued liabilities increased $138 thousand for the six months ended
September 30, 1996. This increase is due to increases in marketing, and
payroll and fringe benefit accruals, which are affected by timing of actual
payments made.
The Company used $167 thousand in investing activities during the six months
ended September 30, 1996 as compared to providing $164 thousand in 1995. The
items that influenced this change are described below:
Property - Investments in new equipment of $167 thousand were made in the
six months ended September 30, 1996. These were primarily for molds and
tooling related to new plug-in products, and the purchase of updated
computer hardware. This was a decrease from the prior year which reflected
larger investments in molds and tooling.
Proceeds from the sale of UPS line and sale of fixed assets is the largest
portion of the decrease in cash flows from investing activities during
fiscal year 1996 when compared to fiscal year 1995. Proceeds received in
1995 were not recurring.
The Company provided $248 thousand from financing activities for the six months
as compared to using $305 thousand in 1995. The items that influenced this
increase are explained below:
Net repayments under revolving credit agreement were $257 thousand,
resulting primarily from equity infusions at the end of September 1996 (see
Note 6 to the Financial Statements).
Net repayments on notes payable were $54 thousand for the six months ended
September 30, 1996, based on scheduled repayments of loans in place.
Proceeds from sale of common stock were $559 thousand for the six months
ended September 30, 1996. This increase is due to the contribution of cash
by a group of officers and directors in exchange for common stock (see Note
6 to the Financial Statements).
Factors Affecting Future Results:
The Company has improved it's revenue and gross profit, lowered overhead costs,
achieved profit on core TVSS business and benefited by sales of its common stock
to officers and directors. All of these have improved the Company's financial
condition and liquidity in both the three and six months ended September
30,1996. Based on expected revenue, management believes it can fund its
operations from internally generated cash flow and borrowings against its line
of credit. Management's expectations are subject to risks and uncertainties that
include, but are not limited to, the Company's dependence on several key
customers and its marginal liquidity and financial condition.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits.
Exhibit 11 - Computation of EPS
Exhibit 27 - Financial Data Schedule
B) Effective June 26, 1996 Coopers & Lybrand, LLP, the Company's
independent accountant, resigned. The Company filed a report on Form
8-K on July 3, 1996 to disclose this resignation. Subsequently, the
Company appointed Grant Thornton, LLP as it's independent accountant,
as disclosed in Form 8-K filed on July 31, 1996.
On July 24, 1996, NASDAQ notified the Company that the Company was not
in compliance with NASDAQ's requirement that Small Cap Market
companies maintain capital and surplus of at least $1,000,000. The
Company filed a report on Form 8-K on September 20, 1996 to disclose
its compliance with NASDAQ's requirement. The Company's common stock
remains listed on the NASDAQ Small Cap Market.
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: November 8, 1996
/s/ Richard D. Clasen
Richard D. Clasen
Chief Executive Officer, President and
Director (Principal Executive Officer)
/s/ David G. Bevan
David G. Bevan
Chief Financial Officer, Executive Vice
Vice President & Secretary (Principal
Financial Officer)
Weighted Average Common and Common Equivalent Shares Outstanding
Six months ending September 30, 1996
Shares Weighted Average
Outstanding Shares Outstanding
Common shares outstanding, March 31, 1996: 3,173,822 3,173,822
Additional shares outstanding due to:
Stock issued 1,039,852 244,223
Stock split 0 0
Stock acquired (Treasury) 0 0
Stock retired 0 0
Common shares outstanding September 30, 1996 4,213,674 3,418,045
Weighted Average Common and Common Equivalent Shares Outstanding
Three months ending September 30, 1996
Shares Weighted Average
Outstanding Shares Outstanding
Common shares outstanding, June 30, 1996: 3,629,254 3,629,254
Additional shares outstanding due to:
Stock issued 584,420 25,410
Stock split 0 0
Stock acquired (Treasury) 0 0
Stock retired 0 0
Common shares outstanding September 30, 1996 4,213,674 3,654,664
Weighted Average Common and Common Equivalent Shares Outstanding
Six months ending September 30, 1995
Shares Weighted Average
Outstanding Shares Outstanding
Common shares outstanding, March 31, 1995: 3,106,132 3,106,132
Additional shares outstanding due to:
Stock issued 59,568 16,913
Stock split 0 0
Stock acquired (Treasury) 0 0
Stock retired 0 0
Common shares outstanding September 30, 1995 3,165,700 3,123,045
Weighted Average Common and Common Equivalent Shares Outstanding
Three months ending September 30, 1995
Shares Weighted Average
Outstanding Shares Outstanding
Common shares outstanding, June30, 1995: 3,173,749 3,173,749
Additional shares outstanding due to:
Stock issued 0 0
Stock split 0 0
Stock acquired (Treasury) (8,049) (8,697)
Stock retired 0 0
Common shares outstanding September 30, 1995 3,165,700 3,165,052
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997
<PERIOD-END> JUN-30-1996 SEP-30-1996
<CASH> 672 8769
<SECURITIES> 0 0
<RECEIVABLES> 2483103 2603064
<ALLOWANCES> 85417 86706
<INVENTORY> 2485822 2411277
<CURRENT-ASSETS> 5087522 5111184
<PP&E> 4309348 4402894
<DEPRECIATION> 2509231 2686672
<TOTAL-ASSETS> 7293677 7236767
<CURRENT-LIABILITIES> 5448337 4926848
<BONDS> 1024000 944000
0 0
0 0
<COMMON> 363 421
<OTHER-SE> 820977 1365498
<TOTAL-LIABILITY-AND-EQUITY> 7293677 7236767
<SALES> 3109044 6668362
<TOTAL-REVENUES> 3126999 6721663
<CGS> 1953090 4325037
<TOTAL-COSTS> 1242809 2379352
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 117733 217823
<INCOME-PRETAX> (186633) (200549)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (186633) (200549)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (186633) (200549)
<EPS-PRIMARY> (0.06) (0.06)
<EPS-DILUTED> (0.06) (0.06)
</TABLE>
