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, 1997
|_| 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 12,1997: 5,272,711
<PAGE>
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets as of September 30, 1997 (Unaudited) and
March 31, 1997 ............................................ 3
Statements of Operations for the three months
ended September 30, 1997 and 1996 (Unaudited).............. 4
Statements of Operations for the six months
ended September 30, 1997 and 1996 (Unaudited)............. 5
Statements of Cash Flows for the six months
ended September 30, 1997 and 1996 (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
Signatures....................................................... 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
BALANCE SHEETS
SEPTEMBER 30, 1997 MARCH 31, 1997
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 15,688 $ 10,123
Receivables 3,260,452 3,010,255
Inventories 3,342,225 2,674,607
Prepaid expenses 111,374 42,791
- ------------------------------------------------------------------------------------------------------------
Total current assets 6,729,739 5,737,776
Property - net 1,951,852 1,658,901
Investment in joint venture 219,050 209,219
Other assets 62,411 88,872
- ------------------------------------------------------------------------------------------------------------
Total assets $ 8,963,052 $ 7,694,768
============================================================================================================
LIABILITIES
Current liabilities:
Revolving line of credit $ 2,588,523 $ 3,198,381
Current maturities of notes payable 750,644 531,690
Accounts payable 864,134 1,142,637
Reserve for customer warranty 247,835 293,992
Accrued income taxes payable 30,309 113,309
Accrued liabilities 748,855 354,958
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 5,230,300 5,634,967
Notes payable, less current maturities 889,786 1,048,000
- ------------------------------------------------------------------------------------------------------------
Total liabilities 6,120,086 6,682,967
- ------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock 528 422
Additional paid-in capital 2,624,678 926,925
Retained earnings 427,760 294,454
- ------------------------------------------------------------------------------------------------------------
Total 3,052,966 1,221,801
Less:Stock subscriptions and notes receivable
from management (210,000) (210,000)
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,842,966 1,011,801
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 8,963,052 $ 7,694,768
============================================================================================================
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended September 30, 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 4,190,824 $ 3,559,318
Cost of sales 2,812,797 2,372,337
- ------------------------------------------------------------------------------------------------------------
Gross profit 1,378,027 1,186,981
- ------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and
administrative 983,365 1,013,023
Research and development 196,017 122,001
- ------------------------------------------------------------------------------------------------------------
Total operating expenses 1,179,382 1,135,024
- ------------------------------------------------------------------------------------------------------------
Earnings from operations 198,645 51,957
Other income/(expense):
Equity in earnings of joint venture 49,875 34,875
Interest expense (133,230) (100,091)
Other, net (24,986) 471
- ------------------------------------------------------------------------------------------------------------
Total other expense (108,341) (64,745)
- ------------------------------------------------------------------------------------------------------------
Earnings/(loss) before income taxes 90,304 (12,788)
Income taxes -0- -0-
Net earnings/(loss) $ 90,304 $ (12,788)
============================================================================================================
Earnings/(loss) per common and common
equivalent share $ 0.02 $ (0.00)
============================================================================================================
Weighted average common and common
equivalent shares outstanding 4,617,677 3,654,664
============================================================================================================
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS (Unaudited)
For the six months ended September 30, 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 7,830,283 $ 6,668,362
Cost of sales 5,097,654 4,325,037
- ------------------------------------------------------------------------------------------------------------
Gross profit 2,732,629 2,343,325
- ------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and
administrative 2,020,966 2,123,835
Research and development 369,703 255,517
- ------------------------------------------------------------------------------------------------------------
Total operating expenses 2,390,669 2,379,352
- ------------------------------------------------------------------------------------------------------------
Earnings/(loss) from operations 341,960 (36,027)
Other income/(expense):
Equity in earnings of joint venture 102,750 51,750
Interest expense (263,370) (217,823)
Other, net (48,034) 1,551
- ------------------------------------------------------------------------------------------------------------
Total other expense (208,654) (164,522)
- ------------------------------------------------------------------------------------------------------------
Earnings/(loss) before income taxes 133,306 (200,549)
Income taxes -0- -0-
Net earnings/(loss) $ 133,306 $ (200,549)
============================================================================================================
Earnings/(loss) per common and common
equivalent share $ 0.03 $ (0.06)
============================================================================================================
Weighted average common and common
equivalent shares outstanding 4,418,023 3,418,045
============================================================================================================
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (Unaudited)
For the six months ended September 30, 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows provided from operating activities:
Net earnings (loss) $ 133,306 $ (200,549)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation 302,862 346,995
Amortization 32,915 31,523
Equity in earnings of joint venture (102,750) (51,750)
Changes in operating assets and liabilities:
Receivables (250,197) 71,758
Inventories (667,618) (103,573)
Prepaid expenses (68,583) (74,073)
Other assets (6,454) 13,684
Accounts payable (278,503) (183,824)
Reserve for customer warranty (46,157) (69,154)
Accrued income taxes payable (83,000) -0-
Accrued liabilities 393,897 138,195
- ------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (640,282) (80,768)
Cash flows from investing activities:
Capital expenditures (595,813) (166,759)
Distribution from joint venture 92,919 -0-
Net cash used in investing activities (502,894) (166,759)
Cash flows from financing activities:
Net repayments under revolving line of credit (609,858) (256,522)
Principal payments under notes payable (144,260) (54,200)
Proceeds from borrowings under notes payable 205,000 -0-
Proceeds from exercise of stock options 2,503 -0-
Proceeds from sale of common stock 1,695,356 558,500
Net cash provided by financing activities 1,148,741 247,778
Net increase in cash and cash equivalents 5,565 251
Cash and cash equivalents at beginning of period 10,123 8,518
Cash and cash equivalents at end of period $ 15,688 $ 8,769
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Income taxes $ 83,000 $ -0-
Interest $ 281,703 $ 223,680
============================================================================================================
Supplemental disclosures of non-cash investing and financing
activities:
Subordinated debt plus accrued interest exchanged for
455,423 shares of common stock $ -0- $ 521,834
</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") as of September 30, 1997, and the results of its operations and its
cash flows for the six months ended September 30, 1997 and 1996. The results of
operations for the three and six months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 1998.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted as specified by the instructions to Form 10-QSB
and Item 310 of Regulation S-B. It is suggested that these financial statements
and related notes be read in conjunction with the Company's 1997 Form 10-KSB
included in the Annual Report to Shareholders.
1. RECEIVABLES
<TABLE>
<CAPTION>
Receivables consist of the following:
September 30,1997 March 31, 1997
(Unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trade and other receivables $ 3,027,087 $ 3,124,292
Receivable from joint venture 276,526 234,340
- ------------------------------------------------------------------------------------------------------------
3,303,613 3,358,632
Allowance for doubtful accounts (43,161) (348,377)
- ------------------------------------------------------------------------------------------------------------
Total Receivables $ 3,260,452 $ 3,010,255
============================================================================================================
2. INVENTORIES
Inventories consist of the following:
September 30, 1997 March 31, 1997
(Unaudited)
- ------------------------------------------------------------------------------------------------------------
Raw materials $ 1,961,436 $ 1,367,125
Work-in-process 508,792 498,178
Finished goods 871,997 809,304
Total $ 3,342,225 $ 2,674,607
============================================================================================================
</TABLE>
3. NET EARNINGS (LOSS) PER COMMON SHARE
Net earnings (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. Stock subscriptions receivable are treated as outstanding
shares for purposes of this computation.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) 128, "Earnings per Share." SFAS 128 is
effective for financial statements for periods ending after December 16, 1997,
and requires companies to report both basic and diluted earnings per share.
Basic earnings per share does not include the addition of common stock
equivalents to the shares outstanding. Diluted earnings per share requires the
addition of common stock equivalents to the shares outstanding. Average shares
outstanding is the denominator used in basic earnings per share calculations.
Accordingly, basic earnings per share will be higher than diluted earnings per
share. This statement replace Accounting Principles Board (APB) 15. The effect
of adopting SFAS 128 is not materially different from APB 15.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued (Unaudited)
4. NOTES PAYABLE AND REVOLVING LINE OF CREDIT
At September 30 and March 31, 1997, notes payable and revolving line of credit,
the carrying value of which approximates fair value, consisted of the following:
<TABLE>
<CAPTION>
September 30, 1997 March 31, 1997
(Unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving line of credit $ 2,588,523 $ 3,198,381
============================================================================================================
Notes payable:
Collateralized promissory note $ 928,041 $ 1,040,000
Uncollateralized subordinated note - director 500,000 500,000
Uncollateralized note to former officer 17,640 39,690
Collateralized promissory note - machinery 194,749 -0-
- ------------------------------------------------------------------------------------------------------------
1,640,430 1,579,690
Less current maturities (750,644) (531,690)
- ------------------------------------------------------------------------------------------------------------
Total notes payable, less current maturities $ 889,786 $ 1,048,000
============================================================================================================
</TABLE>
The revolving line of credit provides for borrowings up to $3,700,000 based on
certain asset ratios and contains financial covenants, the most restrictive of
which require that the Company maintain not less than $2,150,000 of net worth
plus subordinated debt. At September 30, 1997, the Company was in compliance
with these covenants.
5. LEASES
The Company has entered into an operating lease for a new building and will
consolidate its operations into this facility in November 1997. The address of
this location will be 1751 South 4800 West, Salt Lake City, Utah 84104. This
facility is located in an industrial park and consists of over 56,000 square
feet. The Company has signed a 12 year lease through October 31, 2009, with
monthly lease payments of $22,586 plus taxes, insurance and maintenance.
In connection with the movement into the new building, the Company has entered
into commitments for leasehold improvements, furnishings and manufacturing
equipment totaling approximately $600,000. Certain of these assets will be
funded by capital leases, the balance with cash.
6. STOCKHOLDERS' EQUITY
On August 26, 1997, the Company entered into an agreement with Hubbell
Incorporated (the Investor), a Connecticut corporation, which provided for the
purchase of shares of common stock. The Company sold to the Investor 1,054,044
shares (20% after investment) shares of its common stock at a price of $1 11/16
per common share, for a net purchase price of $1,695,356. Proceeds from this
transaction were used to reduce the Company's revolving line of credit and
accounts payable, purchase fixed assets and increase working capital.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General:
The following discussion should be read in conjunction with the financial
statements and notes thereto contained elsewhere herein.
Results of Operations:
Net Sales for the three months ended September 30, 1997, increased by $632
thousand (18%) compared to the three months ended September 30, 1996. Net sales
for the six months ended September 30, 1997 increased by almost $1.2 million
(17%) over the same period in 1996. Revenue consists primarily of plug-in and
hardwire product sales, as follows:
Plug-in product revenue increased for the three months ended September 30,
1997, by $187 thousand over the same period of 1996. This increase is due
to (1) a rebound in Government sales to the Federal Government over the
prior year and (2) continued increase of the Private Label/OEM revenue
attributable to three new OEM customers.
Hardwire product revenue increased by $445 thousand for the period ended
September 30, 1997 compared to the same period ended September 30, 1996.
This increase is due to (1) increasing growth in the Company's bid-spec
and utility businesses, and continued growth in international sales,
primarily in Latin America and Asian countries, as well as through the
Company's European joint venture headquartered in Barcelona, Spain.
Gross Profit on sales for the three months ended September 30, 1997, increased
by $191 thousand (16%) compared to the three months ended September 30, 1996.
Gross profit for the six months ended September 30, 1997 was $389 thousand (17%)
higher compared to gross profit for the six months ended September 30, 1996.
These increases are due to the significant increases in revenue compared to the
same periods in 1996. Gross margin as a percentage of sales was virtually
unchanged.
Operating Expenses for the three months ended September 30, 1997 increased by
$44 thousand (4%), compared to the three months ended September 30, 1996. This
is the first comparative quarter to quarter operating expense increase since
June 1995, due to a continual effort over the last two years to reduce expenses
while increasing sales. Operating expenses for the six months ended September
30, 1997 increased by $11 thousand as compared to the same period in 1996. The
changes in operating expenses are described below:
Sales and marketing expenses decreased $23 thousand for the three months
ended September 30, 1997 as compared to the same period ended September
30, 1996 due to a decrease in promotional expenses.
As reported in the March 31, 1997 annual report, the Company discontinued
the Network Response Systems (NRS) business group. The Company incurred no
expenses related to the NRS business group as compared to $23 thousand
incurred during the three months ended September 30, 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
Research and development expenses increased $74 thousand for the three
months ended September 30, 1997, as compared to the same period ended
September 30, 1996. The Company has incurred significant expense related
to the development of a new hardwire product line. This increase in costs
is expected to continue through the third quarter and decrease in the
fourth quarter. The Company is also incurring expenses for
re-certification of all existing products to new UL standards.
General and administrative expenses increased slightly for the three
months ended September 30, 1997 as compared to September 30, 1996 as a
result of fluctuations in several areas.
Net Earnings for the three months ended September 30, 1997, increased to $90
thousand, an increase of $103 thousand compared to a net loss of $13 thousand
for the three months ended September 30, 1996. These changes resulted from
improvements in revenue and gross profit offset by a slight increase in
operating expenses. Net earnings for the six months ended September 30, 1997
increased to $133 thousand, an improvement of $334 thousand compared to a net
loss of $201 for the same period ended in 1996.
Liquidity and Capital Resources:
Cash Flows Used In Operating Activities for the six months ended September 30,
1997 resulted in a net use of cash of $640 thousand compared to $81 thousand
used in the three months ended September 30, 1996. The items that influenced
this increase are described below:
Receivables increased by $250 thousand (8%) net of bad debt allowance as a
result of significant increases in sales.
Inventories increased by $668 thousand (25%). A portion of this increase
is related to increasing sales. In addition, the Company has purchased
inventory to support expected increases in sales activity in the third
quarter for two large customers. The Company has also continued to place
raw material orders for larger quantities to obtain better pricing.
Accounts payable decreased by $279 thousand during the first six months of
fiscal 1998. The Company has continued to improve its position with
suppliers due, in part, to the proceeds from the sale of common stock
received during the second quarter of fiscal 1998 and is beginning to take
discounts on various accounts. The Company has maintained adequate
relationships with its suppliers and remains on "open account" with all
significant vendors.
Accrued liabilities increased $394 thousand for the period ended September
30, 1997. This increase is due to increases in incentive compensation
related to profitability, payroll and fringe benefits, building property
taxes, personal property taxes and accrued payables of inventory which are
affected by timing of actual payments made.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
Cash Flows used in Investing Activities increased for the six months ended
September 30, 1997 by $336 thousand compared to the six months ended September
30, 1996, primarily as a result of an investment in a state of the art axial
component insertion machine in the first quarter and tooling purchases for new
products. The axial machine replaced an existing machine and will improve
capacity and productivity of the Company's circuit board assembly operation.
Cash Flows provided by Financing Activities increased by $901 thousand for the
six months ended September 30, 1997 compared to the six months ended September
30, 1996. The largest portion of this increase is due to the sale of common
stock to an outside Investor (See Note 6 to the Financial Statements). A smaller
portion of the increase is due to a note in the amount of $205,000 incurred to
finance the insertion machine described above. These were offset by repayments
of notes payable of $144 thousand and the revolving line of credit of $610
thousand.
Factors Affecting Future Results:
The Company has generated net earnings for the current quarter and year to date
and has received a significant equity capital infusion (See Note 6 to the
financial statements). Based on expected future revenues, management believes it
can fund its operations from internally generated cash flows. Management's
expectations are subject to risks and uncertainties that include, but are not
limited to, the Company's dependence on several key customers.
The Company has entered into an operating lease for a new building and will
consolidate its operations into this facility in November 1997 (see Footnote 5).
The Company has been preparing for this move for quite some time and has been
accruing expected moving costs over a period of several months. The Company
expects to minimize the impact of these moving expenditures on third quarter
earnings.
This Form 10-QSB contains forward-looking statements within the meaning of that
term in the Private Securities Litigation Reform Act of 1995 (Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
Additional written or oral forward-looking statements may be made by the Company
from time to time, in filings with the Securities and Exchange Commission or
otherwise. Readers are cautioned not to place undue reliance on any
forward-looking statements contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unexpected events.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits.
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
B) Reports on Form 8-K.
None.
SIGNATURES
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 12, 1997
/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
President & Secretary (Principal
Financial Officer)
EFI Electronics Corporation
Exhibit 11 - Computation of Earnings (Loss) per Share
September 30, 1997 and 1996
Weighted Average Common and Common Equivalent Shares Outstanding
Six months ended September 30, 1997
Shares Weighted Average
Outstanding Shares Outstanding
----------- ------------------
Common shares outstanding, March 31, 1997: 4,216,174 4,216,174
Additional shares outstanding due to:
Stock issued 1,056,537 201,849
Stock split 0 0
Stock acquired (Treasury) 0 0
Stock retired 0 0
---------- ----------
Common shares outstanding September 30, 1997: 5,272,711 4,418,023
========== ==========
Weighted Average Common and Common Equivalent Shares Outstanding
Six months ended 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
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 15,688
<SECURITIES> 0
<RECEIVABLES> 3,027,087
<ALLOWANCES> 43,161
<INVENTORY> 3,342,225
<CURRENT-ASSETS> 6,729,739
<PP&E> 5,010,946
<DEPRECIATION> 3,059,094
<TOTAL-ASSETS> 8,963,052
<CURRENT-LIABILITIES> 5,230,300
<BONDS> 889,786
0
0
<COMMON> 528
<OTHER-SE> 2,842,438
<TOTAL-LIABILITY-AND-EQUITY> 8,963,052
<SALES> 7,828,743
<TOTAL-REVENUES> 7,830,283
<CGS> 5,097,654
<TOTAL-COSTS> 2,390,669
<OTHER-EXPENSES> 54,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 263,370
<INCOME-PRETAX> 133,306
<INCOME-TAX> 0
<INCOME-CONTINUING> 133,306
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,306
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
