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, 1998
|_| 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)
1751 South 4800 West, Salt Lake City, Utah 84104
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 977-9009
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. YES [x] NO []
Number of shares of the registrant's $0.0001 par value common stock
outstanding at November 12, 1998: 5,574,479
<PAGE>
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Balance Sheets as of September 30, 1998 (Unaudited) and
March 31, 1998 .............................................3
Statements of Earnings for the three months
ended September 30, 1998 and 1997 (Unaudited)...............4
Statements of Earnings for the six months
ended September 30, 1998 and 1997 (Unaudited)...............5
Statements of Cash Flows for the six months
ended September 30, 1998 and 1997 (Unaudited)...............6
Notes to Financial Statements (Unaudited).............7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.........................................10 - 12
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K...........................13
Signatures..........................................................13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C>
CONSOLIDATED BALANCE SHEETS
ASSETS SEPTEMBER 30, 1998 MARCH 31, 1998
Current assets: (Unaudited)
Cash and cash equivalents $ 118,535 9,566
Receivables, net 3,618,861 3,981,682
Inventories, net 3,661,744 3,359,178
Prepaid expenses 161,965 90,817
Total current assets 7,561,105 7,441,243
Property - net 2,599,850 2,539,290
Other assets:
Goodwill, net 698,474 752,203
Other assets 48,348 62,130
Total other assets 746,822 814,333
Total assets $10,907,777 $10,794,866
LIABILITIES
Current liabilities:
Revolving line of credit $ 3,242,052 $ 3,472,935
Current maturities of capital lease obligations 171,327 159,242
Current maturities of notes payable 699,322 681,690
Accounts payable 1,737,541 1,595,440
Reserve for customer warranty 348,616 258,405
Accrued liabilities 399,370 294,297
Total current liabilities 6,598,228 6,462,009
Long-term liabilities:
Capital lease obligations, less current maturities 263,936 353,498
Notes payable, less current maturities 715,827 895,082
Total long-term liabilities 979,763 1,248,580
Total Liabilities 7,577,991 7,710,589
STOCKHOLDERS' EQUITY
Preferred Stock - -
Common Stock 553 551
Additional paid-in capital 2,952,795 2,930,739
Cumulative foreign currency translation adjustment 55,930 (5,870)
Retained earnings 530,508 368,857
3,539,786 3,294,277
Less:
Stock subscriptions and notes receivable
from management (210,000) (210,000)
Total stockholders' equity 3,329,786 3,084,277
Total liabilities and stockholders' equity $10,907,777 $10,794,866
</TABLE>
See notes to financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
For the three months ended September 30, 1998 1997
Net sales $ 4,269,608 $ 4,190,824
Cost of sales 2,842,664 2,812,797
Gross profit 1,426,944 1,378,027
Operating expenses:
Selling, general and
administrative expenses 984,493 983,365
Research and development 147,395 196,017
Total operating expenses 1,131,888 1,179,382
Earnings from operations 295,056 198,645
Other income/(expense):
Equity in earnings of affiliate -0- 49,875
Interest expense (133,309) (133,230)
Other, net (31,292) (24,986)
Total other expense, net (164,601) (108,341)
Earnings before income taxes 130,455 90,304
Income taxes -0- -0-
Net earnings $ 130,455 $ 90,304
Earnings per share:
Basic $ 0.02 $ 0.02
Diluted $ 0.02 $ 0.02
Weighted average shares outstanding
Basic 5,574,460 4,617,677
Diluted 5,574,460 4,834,262
</TABLE>
See notes to financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
For the six months ended September 30, 1998 1997
Net sales $ 7,851,661 $ 7,830,283
Cost of sales 5,148,977 5,097,654
Gross profit 2,702,684 2,732,629
Operating expenses:
Selling, general and
administrative expenses 1,861,090 2,020,966
Research and development 353,527 369,703
Total operating expenses 2,214,617 2,390,669
Earnings from operations 488,067 341,960
Other income/(expense):
Equity in earnings of affiliate -0- 102,750
Interest expense (270,362) (263,370)
Other, net (56,054) (48,034)
Total other expense, net (326,416) (208,654)
Earnings before income taxes 161,651 133,306
Income taxes -0- -0-
Net earnings $ 161,651 $ 133,306
Earnings per share:
Basic $ 0.03 $ 0.03
Diluted $ 0.03 $ 0.03
Weighted average shares outstanding
Basic 5,556,448 4,418,023
Diluted 5,556,448 4,618,860
</TABLE>
See notes to financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
For the six months ended September 30, 1998 1997
Cash flows from operating activities:
Net earnings $ 161,651 $ 133,306
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation 364,843 302,862
Amortization 62,342 32,915
Equity in earnings of joint venture -0- ( 102,750)
Provision for obsolete inventory 100,475 42,500
Provision for bad debts 21,244 10,000
Provision for warranty expenses 132,463 798
Increase/(decrease) in cash due to change in:
Receivables 341,577 (260,197)
Inventories (403,041) (710,118)
Prepaid expenses (71,148) (68,583)
Other assets 5,169 (6,454)
Accounts payable 142,101 (278,503)
Warranty payments (42,252) (46,955)
Accrued income taxes payable -0- (83,000)
Accrued liabilities 105,073 393,897
Net cash provided by (used in) operating activities 920,497 (640,282)
Cash flows from investing activities:
Distribution from joint venture -0- 92,919
Capital expenditures (425,403) (595,813)
Net cash used in investing activities (425,403) (502,894)
Cash flows from financing activities:
Net change under revolving line of credit (230,883) (609,858)
Principal payments on notes payable (161,623) (144,260)
Principal payments under capital lease obligations (77,477) -0-
Proceeds from borrowings under notes payable -0- 205,000
Proceeds form sales of common stock -0- 1,695,356
Proceeds from exercise of stock options 22,058 2,503
Net cash (used in)/provided by financing activities (447,925) 1,148,741
Effect of exchange rate changes on cash 61,800 -0-
Net increase in cash and cash equivalents 108,969 5,565
Cash and cash equivalents at beginning of period 9,566 10,123
Cash and cash equivalents at end of period $ 118,535 $ 15,688
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Income taxes $ -0- $ 83,000
Interest $ 278,000 $ 282,000
Supplemental schedule of non-cash investing activities:
1999 The Company retired $307,624 of fully depreciated property
None
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In the opinion of Management, the accompanying consolidated financial statements
contain all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the financial position of EFI Electronics Corporation
(the "Company") and subsidiary at September 30, 1998 and March 31, 1998, and the
results of their operations and their cash flows for the three and six months
ended September 30, 1998 and 1997. The results of operations for the three
months and six months ended Septembe are not necessarily indicative of the
results that may be expected for the year ending March 31, 1999.
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 1998 Form 10-KSB
for the year ended March 31, 1998 included in the Annual Report to Shareholders.
1. RECEIVABLES
Receivables consisted of the following:
September 30,1998 March 31, 1998
(Unaudited)
Trade and other receivables 3,684,470 $ 4,026,047
Allowance for doubtful accounts (65,609) (44,365)
Total Receivables $ 3,618,861 $ 3,981,682
2. INVENTORIES
Inventories consisted of the following:
September 30, 1998 March 31, 1998
(Unaudited)
Raw materials $ 2,014,635 $ 1,842,504
Work-in-process 499,525 552,250
Finished goods 1,323,059 1,039,424
3,837,219 3,434,178
Less allowance for obsolete inventory (175,475) (75,000)
Total Inventories $ 3,661,744 $ 3,359,178
3. NET EARNINGS PER COMMON SHARE
Net earnings 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. Options and warrants to purchase 17,459 and
114,072 shares of common stock at $1.69 to $2.19 a share were outstanding for
the three and six months ended September 30, 1998 respectively.They were
not included in the computation of earnings per share because the exercise
prices were greater than the average market share of the options.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited)
NET EARNINGS PER COMMON SHARE, continued
The following data show the amounts used in computing earnings per common share,
including the weighted average number of shares and dilutive potential common
stock.
Six Months Ended September 30,
1998 1997
Shares outstanding during the entire period 5,504,644 4,216,174
Weighted average shares issued during the 51,804 201,849
period.
Weighted average number of shares used in 5,556,448 4,418,023
basic EPS.
Dilutive effect of stock options and warrants -0- 200,837
Weighted average number of shares and dilutive
potential stock used in dilutive EPS 5,556,448 4,618,860
Three Months Ended September 30,
1998 1997
Shares outstanding during the entire period 5,574,414 4,216,174
Weighted average shares issued during the 46 401,503
period
Weighted average number of shares used in 5,574,460 4,617,677
basic EPS
Dilutive effect of stock options and warrants -0- 216,585
Weighted average number of shares and dilutive
potential stock used in dilutive EPS 5,574,460 4,834,262
4. REVOLVING LINE OF CREDIT, CAPITAL LEASE OBLIGATIONS AND NOTES PAYABLE
At September 30 and March 31, 1998, revolving line of credit, capital lease
obligations and notes payable, the carrying value of which approximates fair
value, consisted of the following:
September 30, 1998 March 31, 1998
(Unaudited)
Revolving line of credit $ 3,242,052 $ 3,472,935
Capitalized lease obligations 435,263 512,740
Less current maturities (171,327) (159,242)
Capitalized lease obligations $ 263,936 $ 353,498
( less current maturities )
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited)
REVOLVING LINE OF CREDIT, CAPITAL LEASE OBLIGATIONS AND NOTES PAYABLE, continued
September 30, 1998 March 31, 1998
(Unaudited)
Notes payable:
Collateralized promissory note $ 761,296 $ 848,695
Uncollateralized subordinated 300,000 300,000
note - director
Collateralized promissory note 153,747 174,247
machinery
Uncollateralized note - acquisition 200,106 253,830
1,415,149 1,576,772
Less current maturities (699,322) (681,690)
Total notes payable, $ 715,827 $ 895,082
less current installments
The revolving line of credit in place at September 30, 1998, provides for
borrowings up to $3,700,000 collateralized by accounts receivable and
inventories. Interest is payable monthly at a rate of prime (8.00% as of
September 30, 1998) plus 1.5%. Principal payments are made as cash is received
from customers for accounts receivable. Borrowings are based on formulas
involving balances of eligible accounts receivable and inventories. The line
of credit agreement expires in March 2001.
5. Stockholders' Equity:
On July 29, 1998 the shareholders approved an amendment to the Company's
certificate of incorporation to increase the number of authorized shares of
capital stock from twenty million (20,000,000) to twenty five million
(25,000,000), of which twenty million (20,000,000) shares shall be designated as
Common Stock and five million (5,000,000) shares shall be designated as
Preferred Stock. No Preferred Stock has been issued.
6. Reclassifications:
Certain reclassificaions have been made to the Financial Statements for the
three and six months ended September 30, 1997 to conform to the 1998
presentation.
<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 contained in this report.
Results of Operations:
Net Sales for the six months ended September 30, 1998, increased by $22 thousand
compared to the six months ended September 30, 1997. For the three-month period
ended September 30,1998, net sales increased $79 thousand (2%) over the previous
year. these results reflect a number of changes in market and product mix as the
Company's focus on international business and its strategic partnerships with
Hubbell, Incorporated and Thomson Consumer Electronics (TCE) develop.
Revenue from international sources increased 105% year-to-date compared to the
prior year as a result of growth in Mexican and Latin American business and
consolidating net revenue from EFI Europe. Revenue from Asian customers was
down as expected. Although revenue from this area is expected to remain lower
than last year, revenue growth in Europe, Latin America and other areas is
expected to continue to grow.
The combination of new Hubbell business and the prior business that Hubbell
displaced year to date was 7% less than similar business last year. Although
this result negatively affected revenue, it is better than expectations and it
is offset by a reduction of sales and marketing expenses of $228 thousand (17%).
Management expected the transition from its own electrical distribution business
to Hubbell to have a longer short term negative impact on revenue than has been
the case. Hubbell's entry into the electrical market has been more successful
than originally projected.
The revenue from TCE is shifting from product-based revenue to fee income as a
result of a multi-year contract with TCE to provide design, material and
production sourcing and post sales support services for products made by third
parties in Asia. Although this arrangement will be profitable and enhance the
Company's gross margin, the fee income is less than equivalent product revenue.
Gross Profit on sales for the six months ended September 30, 1998, decreased by
$30 thousand (1%) compared to the six months ended September 30, 1997. Gross
profit as a percentage of sales was 34.4% in the current year compared to 34.9%
in the prior year. This decrease is a result of TCE fee income offset by very
low margins on product sales to two customers that are phasing out certain
products. These margins represent "clearance " pricing to liquidate inventory.
For the three months ended September 30, 1998, gross profit increased by $49
thousand (4%). Gross profit as a percentage of sales was 33.4% in the current
year compared to 32.9% in the prior year.
Operating Expenses for the six months ended September 30, 1998 decreased by $176
thousand (7%), compared to the six months ended September 30, 1997. Operating
expenses changed as described below:
Sales and marketing expenses decreased by $228 thousand for the six months ended
September 30, 1998 as compared to the same period ended September 30, 1997.
Reductions occurred in outside commissions, promotion expenses and headcount
expenses related to the Company's shift from electrical distribution to a
long-term agreement with Hubbell.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
General and administrative expenses increased $68 thousand for the six
months ended September 30, 1998 compared to the prior year due to increases in
occupancy and incentive compensation expenses.
Research and development expenses decreased $16 thousand for the six
months ended September 30, 1998 compared to the same period in 1997.
Net Earnings for the six months ended September 30, 1998, improved by $28
thousand as compared to the six months ended September 30, 1997, as a result of
the above described factors.
Liquidity and Capital Resources:
Cash Flows From Operating Activities for the six months ended September 30, 1998
increased by $1.6 million compared to the six months ended September 30, 1997.
In addition to net earnings and non-cash items for the quarter, the items that
influenced this increase are described below:
Receivables decreased by $363 thousand net of bad debt allowance during
the first half of Fiscal Year 1999.This decrease is due primarily to stronger
collection efforts and the elimination of receivables from EFI Electronics
Europe, S.L. as a result of acquiring that Company as of January 1, 1998.
Inventories increased by $303 thousand. This increase is due primarily
to the purchase of the remaining 50% of EFI Electronics Europe, S.L. and the
inclusion of all the subsidiary's inventory at quarter end.
Accounts payable increased by $142 thousand during the first six months
of fiscal 1999. This increase is due primarily to the purchase of EFI
Electronics Europe, S.L. and the inclusion of the subsidiary's inventory at
quarter end. The Company has maintained adequate relationships with its
suppliers and remains on "open account" with all significant vendors.
Accrued liabilities increased $105 thousand for the period ended
September 30, 1998. This increase is due to increases in incentive
compensation, commissions, and interest and offset by normal fluctuations in
payroll and fringe benefit accruals, which are affected by timing of actual
payments made.
Reserve for customer warranty increased $90 thousand as a result of new
reserve requirements related to TCE fee income.
Cash Flows used in Investing Activities decreased for the six months ended
September 30, 1998 by $77 thousand compared to the six months ended September
30, 1997, as a result of reductions in capital expenditures and elimination of
payments from a joint venture that was acquired in January 1998.
Cash Flows provided by Financing Activities decreased by $1.6 million for the
six months ended September 30, 1998 compared to the six months ended
September 30, 1997. In August 1997, the Company received $1.7 million as
proceeds from a one-time private sale of its common stock.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
Based on expected future revenues, management believes that existing cash
balances, borrowings available under the line of credit, and cash generated from
operations will be adequate to meet the Company's anticipated cash requirements
through March 31, 1999. 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 limited liquidity and financial condition.
Factors Affecting Future Results:
This Form 10-QSB contains certain 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). These can be identified by the use of forward-looking terminology such
as "may," "will," "should," "expect," "anticipate," "estimate," or "continue,"
or the negative thereof or other variations thereon or comparable terminology.
Additional written or oral forwa
looking statements may be made by the Company from time to time, in filings with
the Securities and Exchange Commission or otherwise.
These forward-looking statements are subject to risks and uncertainties that
include, but are not limited to the Company's tight liquidity and reliance on
certain customers that represent significant portions of the Company's total
revenue, as well as those identified in this report, described from time to time
in the Company's other Securities and Exchange Commission filings, or discussed
in the Company's press releases. Actual results may vary materially from
expectations. 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.
The Company has addressed Year 2000 (Y2K) compliance issues. The Company's
current software information systems are not Y2K compliant. However, the Company
is installing an information system that will comply with Y2K requirements.
Compliance with Y2K requirements is estimated to cost the Company $300,000 in
fiscal year 1999 capital expenditures amortized over 3-7 years. In addition,
significant internal resources are being diverted to this project for a period
of 7-8 months. These costs are not expected to have a material effect on the
Company in any given period. Implementation of this system is expected to be
complete by January 1999.
During fiscal year 1998, the Company evaluated its computer and
telecommunications hardware for Y2K compliance and has upgraded all of its
systems to be compliant. In addition, the Company has taken steps to ensure
that its banking and lending relationships are with Y2K compliant financial
institutions. During fiscal 1999, the Company will work with its major
customers and suppliers to ensure that Y2K compliance issues will not interrupt
the normal activities supported by these relationships.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The registrant held its Annual Meeting of Shareholders on July 29, 1998. The
shareholders elected the following Board of Directors to serve for one year:
Name Shares Voted For
Gaylord K. Swim 4,073,085
Richard D. Clasen 4,073,085
Hans Imhof 4,073,085
James H. Biggart 4,073,085
Reino Kerttula 4,073,085
The shareholders approved the 1998 Incentive Plan by a vote of 3,338,004 for and
369,041 against.
The shareholders approved an amendment to the Company's certificate of
incorporation to increase the number of authorized shares of capital stock from
twenty million (20,000,000) to twenty-five million (25,000,000), of which twenty
million (20,000,000) shares shall be designated as Common Stock and five million
(5,000,000) shares shall be designated as Preferred Stock, by a vote of
3,264,699 for and 398,284 against.
The shareholders ratified the appointment of Grant Thornton LLP as independent
auditors for the fiscal year 1999 by a vote of 4,259,300 for and 1,517 against.
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits.
Exhibit 27 - Financial Data Schedule
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)
November 12, 1998
Richard D. Clasen
Chief Executive Officer, President and
Director (Principal Executive Officer)
November 12, 1998
David G. Bevan
Chief Financial Officer, Executive Vice
President & Secretary (Principal
Financial Officer)
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 118,535
<SECURITIES> 0
<RECEIVABLES> 3,684,470
<ALLOWANCES> 65,609
<INVENTORY> 3,661,744
<CURRENT-ASSETS> 7,561,105
<PP&E> 2,599,850
<DEPRECIATION> 364,843
<TOTAL-ASSETS> 10,907,777
<CURRENT-LIABILITIES> 6,598,228
<BONDS> 979,763
0
0
<COMMON> 553
<OTHER-SE> 2,952,795
<TOTAL-LIABILITY-AND-EQUITY> 10,907,777
<SALES> 7,851,661
<TOTAL-REVENUES> 7,851,661
<CGS> 5,148,977
<TOTAL-COSTS> 2,214,617
<OTHER-EXPENSES> 56,054
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 270,362
<INCOME-PRETAX> 161,651
<INCOME-TAX> 0
<INCOME-CONTINUING> 161,651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,651
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
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