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 June 30, 1998
-------------------------------
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-15967
EFI ELECTRONICS CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 75-2072203
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(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 July 31, 1998: 5,574,479
<PAGE>
INDEX TO FORM 10-QSB
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PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Balance Sheets as of June 30, 1998 (Unaudited) and
March 31, 1998 ............................................... 3
Statements of Earnings for the three months
ended June 30, 1998 and 1997 (Unaudited)...................... 4
Statements of Cash Flows for the three months
ended June 30, 1998 and 1997 (Unaudited)...................... 5
Notes to Financial Statements (Unaudited).................. 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................... 8 - 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 11
Signatures......................................................... 11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C>
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CONSOLIDATE BALANCE SHEETS
JUNE 30, 1998 MARCH 31, 1998
(Unaudited) (as Restated)
ASSETS
Current assets:
Cash and cash equivalents $ 1,283 $ 9,566
Receivables, net 3,382,438 3,981,682
Inventories, net 3,546,895 3,359,178
Prepaid expenses 120,939 90,817
- --------------------------------------------------------------------------------------------------------
Total current assets 7,051,555 7,441,243
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Property - net 2,490,439 2,539,290
Other assets:
Goodwill 725,339 752,203
Other assets 64,477 62,130
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Total other assets 789,816 814,333
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Total assets $ 10,331,810 $ 10,794,866
========================================================================================================
LIABILITIES
Current liabilities:
Revolving line of credit $ 3,207,335 $ 3,472,935
Current maturities of capital lease obligations 164,609 159,242
Current maturities of notes payable 691,326 681,690
Accounts payable 1,458,353 1,595,440
Reserve for customer warranty 289,742 258,405
Accrued liabilities 264,728 294,297
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Total current liabilities 6,076,093 6,462,009
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Long-term liabilities:
Capital lease obligations, less current maturities 306,890 353,498
Notes payable, less current maturities 803,908 895,082
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Total long-term liabilities 1,110,798 1,248,580
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Total Liabilities 7,186,891 7,710,589
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STOCKHOLDERS' EQUITY
Common stock 553 551
Additional paid-in capital 2,952,795 2,930,739
Cumulative foreign currency translation adjustment 1,518 (5,870)
Retained earnings 400,053 368,857
- --------------------------------------------------------------------------------------------------------
3,354,919 3,294,277
Less:
Stock subscriptions and notes receivable
from management (210,000) (210,000)
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Total stockholders' equity 3,144,919 3,084,277
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 10,331,810 $ 10,794,866
========================================================================================================
</TABLE>
See notes to financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
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For the three months ended June 30, 1998 1997
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Net sales $ 3,582,053 $ 3,639,459
Cost of sales 2,306,313 2,284,857
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Gross profit 1,275,740 1,354,602
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Operating expenses:
Selling, general and
administrative expenses 876,597 1,037,601
Research and development 206,132 173,685
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Total operating expenses 1,082,729 1,211,286
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Earnings from operations 193,011 143,316
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Other income/(expense):
Equity in earnings of EFI Electronics Europe -0- 52,875
Interest expense (137,053) (130,139)
Other, net (24,762) (23,050)
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Total other expense, net (161,815) (100,314)
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Earnings before income taxes 31,196 43,002
Income taxes -0- -0-
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Net earnings $ 31,196 $ 43,002
========================================================================================================
Earnings per share:
Basic $ 0.01 $ 0.01
Diluted $ 0.01 $ 0.01
========================================================================================================
Weighted average shares outstanding
Basic 5,537,297 4,216,174
Diluted 5,675,022 4,359,914
========================================================================================================
</TABLE>
See notes to financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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For the three months ended June 30, 1998 1997
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Cash flows from operating activities:
Net earnings $ 31,196 $ 43,002
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 182,469 137,686
Amortization 31,796 9,878
Equity in earnings of joint venture -0- (52,875)
Increase/(decrease) in cash due to change in:
Receivables 599,244 193,001
Inventories (187,717) (242,133)
Prepaid expenses (30,122) (26,460)
Other assets (7,279) (3,001)
Accounts payable (137,087) (48,869)
Warranty reserve 31,337 12,551
Accrued income taxes payable -0- (43,500)
Accrued liabilities (29,569) 165,044
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Net cash provided by operating activities 484,268 144,324
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Cash flows from investing activities:
Capital expenditures (133,618) (302,934)
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Net cash used in investing activities (133,618) (302,934)
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Cash flows from financing activities:
Net change under revolving line of credit (265,600) 1,487
Principal payments on notes payable (81,538) (56,820)
Principal payments under capital lease obligations (41,241) -0-
Proceeds from borrowings under notes payable -0- 205,000
Proceeds from exercise of stock options 22,058 -0-
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Net cash (used in)/provided by financing activities (366,321) 149,667
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Effect of exchange rate changes on cash 7,388 -0-
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Net decrease in cash and cash equivalents (8,283) (8,943)
Cash and cash equivalents at beginning of period 9,566 10,123
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Cash and cash equivalents at end of period $ 1,283 $ 1,180
========================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ -0- $ -0-
Interest $ 153,000 $ 95,000
========================================================================================================
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In the opinion of Management, the accompanying consolidated financial statements
contain adjustments, consisting of normal recurring accruals, necessary for a
fair presentation of the financial position of EFI Electronics Corporation (the
"Company") and subsidiary at June 30, 1998 and March 31, 1998, and the results
of their operations and their cash flows for the three months ended June 30,
1998 and 1997. The results of operations for the three months ended June 30,
1998 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
included in the Annual Report to Shareholders.
1. RECEIVABLES
Receivables consisted of the following:
June 30,1998 March 31, 1998
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(Unaudited)
Trade and other receivables $ 3,436,211 $ 4,026,047
Allowance for doubtful accounts (53,773) (44,365)
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Total Receivables $ 3,382,438 $ 3,981,682
===============================================================================
2. INVENTORIES
Inventories consisted of the following:
June 30, 1998 March 31, 1998
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(Unaudited)
Raw materials $ 1,783,796 $ 1,842,504
Work-in-process 805,088 552,250
Finished goods 1,090,986 1,039,424
3,679,870 3,434,178
Less allowance for obsolete inventory (132,975) (75,000)
- -------------------------------------------------------------------------------
Total $ 3,546,895 $ 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.
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 15, 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 replaces Accounting Principles Board (APB) 15. The effect
of adopting SFAS 128 did not materially effect the Company's earnings per share.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited)
3. NET EARNINGS PER COMMON SHARE, continued
The following data show the amounts used in computing earnings/(loss) per common
share, including the weighted average number of shares and dilutive potential
common stock.
Three Months Ended June 30,
1998 1997
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Shares outstanding during the entire period 5,504,644 4,216,174
Weighted average shares issued during the period 32,653 -0-
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Weighted average number of shares used in basic EPS 5,537,297 4,216,174
Dilutive effect of stock options and warrants 137,725 143,740
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Weighted average number of shares and dilutive
potential stock used in dilutive EPS 5,675,022 4,359,914
=========== =============
4. REVOLVING LINE OF CREDIT, CAPITAL LEASE OBLIGATIONS AND NOTES
PAYABLE
At June 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:
June 30, 1998 March 31, 1998
(Unaudited)
Revolving line of credit $ 3,207,335 $ 3,472,935
===============================================================================
Capitalized lease obligations 471,499 512,740
Less current maturities (164,609) (159,242)
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Capitalized lease obligations (less
current maturities) $ 306,890 $ 353,498
===============================================================================
Notes payable:
Collateralized promissory note $ 798,676 $ 848,695
Uncollateralized subordinated note -
director 300,000 300,000
Collateralized promissory note - machinery 163,996 174,247
Uncollateralized note - acquisition 232,562 253,830
- -------------------------------------------------------------------------------
1,495,234 1,576,772
Less current maturities (691,326) (681,690)
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Total notes payable, less current
installments $ 803,908 $ 895,082
===============================================================================
The revolving line of credit in place at June 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 (8.50% as of June 30, 1998) plus 2.5%.
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 2000.
<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 elsewhere herein.
Results of Operations:
Net Sales for the three months ended June 30, 1998, decreased by $57 thousand
(2%) compared to the three months ended June 30, 1997. This reflects a number of
changes in market mix as the Company's focus on international business and its
strategic partnerships with Hubbell, Incorporated and Thomson Consumer
Electronics (TCE) develops. Revenue from international sources increased 67% as
a result of growth in Mexican and Latin American business and consolidating
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 Hubbell and Company reseller revenue was 8% less than similar
business in the same quarter last year. Although this result negatively affected
revenue, it is better than expectations. 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 anticipated.
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 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 three months ended June 30, 1998, decreased by $79
thousand (6%) compared to the three months ended June 30, 1997. This decrease is
due in part to an increase in salaries and benefits, and warranty replacements
over the same quarter in the previous year. Gross margin as a percentage of
sales only dropped one percentage point.
Operating Expenses for the three months ended June 30, 1998 decreased by $129
thousand (11%), compared to the three months ended June 30, 1997. Operating
expenses changed as described below:
Sales and marketing expenses decreased by $164 thousand for the three
months ended June 30, 1998 as compared to the same period ended June 30,
1997. Reductions occurred in several areas related to the Company's shift
from electrical distribution to a long-term agreement with Hubbell.
Research and development expenses increased $32 thousand for the three
months ended June 30, 1998, as compared to the same period ended June 30,
1997 due to increases in UL expenses resulting from re-certification of
several products.
Net Earnings for the three months ended June 30, 1998, decreased by $12 thousand
as compared to the three months ended June 30, 1997, as a result of the above
described factors.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
Liquidity and Capital Resources:
Cash Flows From Operating Activities for the three months ended June 30, 1998
increased by $340 thousand compared to the three months ended June 30, 1997
continuing to improve the Company's positive cash flow from operating
activities. In addition to net earnings and non-cash items for the quarter, the
items that influenced this increase are described below:
Receivables decreased by $599 thousand net of bad debt allowance during
the first quarter. 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 $188 thousand. 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.
Accounts payable decreased by $137 thousand during the first three months
of fiscal 1998. The Company has continued to improve its position with
suppliers. The Company has maintained adequate relationships with its
suppliers and remains on "open account" with all significant vendors.
Accrued liabilities decreased $30 thousand for the period ended June 30,
1998. This decrease is due to decreases 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.
Cash Flows used in Investing Activities decreased for the three months ended
June 30, 1998 by $169 thousand compared to the three months ended June 30, 1997.
In the previous year, the Company made an investment in a state of the art axial
component insertion machine to replace an existing machine that has improved
capacity and productivity, which produced the large capital expenditure in the
prior year.
Cash Flows provided by Financing Activities decreased by $516 thousand for the
three months ended June 30, 1998 compared to the three months ended June 30,
1997. This was the result of the Company's attempt to continue to pay down its
line of credit, notes payable and capital lease obligations with current cash
flows.
Although the Company generated net earnings for the current quarter, it's
financial condition remains guarded. 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 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
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
Factors Affecting Future Results, continued:
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.
Information contained in this Report contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which 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. These
forward-looking statements are subject to risks and uncertainties that include,
but are not limited to, 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.
The Company has addressed issues regarding Year 2000 (Y2K) compliance. The
Company's current software information systems are not Y2K compliant. However,
the Company has contracted with a global supplier of enterprise management
software to install 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 will be diverted to this project for a
period of 9-12 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 December 1998. During fiscal year 1998, the Company also 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 it s
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 6. Exhibits and Reports on Form 8-K
A) Exhibits.
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)
August 14, 1998 /s/ Richard D. Clasen
--------------------------------------
Richard D. Clasen
Chief Executive Officer, President and
Director (Principal Executive Officer)
August 14, 1998 /s/ David G. Bevan
--------------------------------------
David G. Bevan
Chief Financial Officer, Executive Vice
President & Secretary (Principal
Financial Officer)
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,283
<SECURITIES> 0
<RECEIVABLES> 3,436,211
<ALLOWANCES> 53,773
<INVENTORY> 3,546,895
<CURRENT-ASSETS> 7,051,555
<PP&E> 5,746,190
<DEPRECIATION> 3,255,751
<TOTAL-ASSETS> 10,331,810
<CURRENT-LIABILITIES> 6,076,093
<BONDS> 1,110,798
0
0
<COMMON> 553
<OTHER-SE> 2,952,795
<TOTAL-LIABILITY-AND-EQUITY> 10,331,810
<SALES> 3,582,053
<TOTAL-REVENUES> 3,582,053
<CGS> 2,306,313
<TOTAL-COSTS> 1,082,729
<OTHER-EXPENSES> 24,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,053
<INCOME-PRETAX> 31,196
<INCOME-TAX> 0
<INCOME-CONTINUING> 31,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,196
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
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