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, 1999
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. X Yes No
Number of shares of the registrant's $0.0001 par value common stock outstanding
at November 12,1999: 5,574,460
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EFI Electronics Corporation
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Balance Sheets as of September 30, 1999 (Unaudited) and
March 31,.... ................................................ 3
Statements of Earnings and Comprehensive Income (Loss) (Unaudited)
for the three months ended September 30, 1999 and 1998 .........4
Statements of Earnings and Comprehensive Income (Loss) (Unaudited)
for the six months ended September 30, 1999 and 1998 ...........5
Statements of Cash Flows ( Unaudited) for the six months
ended September 30, 1999 and 1998 (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........13
Item 6. Exhibits and Reports on Form 8-K...........................13
Signatures..........................................................13
<PAGE>
EFI Electronics Corporation
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 MARCH 31, 1999
ASSETS
Current assets:
Cash and cash equivalents $ 65,848 $ 263,135
Receivables, net 2,437,909 2,241,200
Inventories, net 1,950,110 2,119,336
Prepaid expenses 142,861 221,986
Total current assets 4,596,728 4,845,657
Property - net 2,369,137 2,448,376
Other assets:
Goodwill, net 680,805 742,803
Other assets 72,787 43,991
Total other assets 753,592 786,794
Total assets $ 7,719,457 $ 8,080,827
LIABILITIES
Current liabilities:
Revolving line of credit $ 1,918,937 $ 2,583,210
Current maturities of
capital lease obligations 161,676 177,763
Current maturities of notes payable 933,004 990,533
Accounts payable 1,405,767 825,291
Reserve for customer warranty claims
current 201,014 215,000
Accrued liabilities 129,324 303,982
Total current liabilities 4,749,722 5,095,779
Long-term liabilities:
Reserve for customer warranty
claims long-term 205,371 122,738
Capital lease obligations, less
current maturities 94,518 163,350
Notes payable, less current maturities 813,365 817,726
Total long-term liabilities 1,113,254 1,103,814
Total Liabilities 5,862,976 6,199,593
STOCKHOLDERS' EQUITY
Common stock 558 558
Additional paid-in capital 3,117,190 3,117,190
Accumulated other comprehensive loss -
foreign currency
translation adjustment (124,722) (27,506)
Accumulated deficit (926,545) (999,008)
2,066,481 2,091,234
Less:
Notes receivable from officer (210,000) (210,000)
Total stockholders' equity 1,856,481 1,881,234
Total liabilities
and stockholders' equity $7,719,457 $8,080,827
See notes to financial statements.
<PAGE>
EFI Electronics Corporation
CONSOLIDATED STATEMENT OF EARNINGS
AND COMPREHENSIVE INCOME ( LOSS ) (Unaudited)
For the three months ended September 1999 1998
Net sales $ 3,294,232 $ 4,269,608
Cost of sales 2,092,087 2,842,664
Gross profit 1,202,145 1,426,944
Operating expenses:
Selling, general and
administrative expenses 868,512 984,493
Research and development 150,051 147,395
Total operating expenses 1,018,563 1,131,888
Earnings from operations 183,582 295,056
Other income/(expense):
Interest expense (109,201) (133,309)
Other, net (33,415) (35,378)
Total other expense, net (142,616) (168,687)
Earnings before income taxes 40,966 126,369
Income taxes -0- -0-
Net earnings 40,966 126,369
Other comprehensive income - foreign currency
translation adjustment (65,570) 54,412
Comprehensive income / (loss) $ (24,604) $ 180,781
Earnings per share:
Basic $ 0.01 $ 0.02
Diluted $ 0.01 $ 0.02
Weighted average shares outstanding
Basic 5,574,460 5,574,460
Diluted 5,581,023 5,574,460
See notes to financial statements.
<PAGE>
EFI Electronics Corporation
CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME ( LOSS )(Unaudited)
For the six months ended September 30 1999 1998
Net sales $ 6,523,838 $ 7,851,661
Cost of sales 4,021,977 5,148,977
Gross profit 2,501,861 2,702,684
Operating expenses:
Selling, general and
administrative expenses 1,786,608 1,861,090
Research and development 333,894 353,527
Total operating expenses 2,120,502 2,214,617
Earnings from operations 381,359 488,067
Other income/(expense):
Interest expense (239,334) (270,362)
Other, net (69,562) (64,226)
Total other expense, net (308,896) (334,588)
Earnings before income taxes 72,463 153,479
Income taxes -0- -0-
Net earnings $ 72,463 $ 153,479
Other comprehensive income foreign currency
translation adjustment (97,216) 61,800
Comprehensive income / (loss) $ (24,753) $ 215,279
Earnings per share:
Basic $ 0.01 $ 0.03
Diluted $ 0.01 $ 0.03
Weighted average shares outstanding
Basic 5,574,460 5,556,448
Diluted 5,579,184 5,556,448
See notes to financial statements.
<PAGE>
EFI ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the six months ended September 30, 1999 1998
Cash flows from operating activities:
Net earnings $ 72,463 $ 153,479
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 351,505 364,843
Amortization 61,999 70,514
Provision for obsolete inventory 50,000 100,475
Provision for bad debts 49,522 21,244
Provision for warranty expenses 201,542 132,463
Increase/(decrease) in cash due to change in:
Receivables (255,314) 341,577
Inventories 119,719 (403,041)
Prepaid expenses 78,288 (71,148)
Other assets 10,215 5,169
Accounts payable 582,953 142,101
Warranty payments (132,895) (42,252)
Accrued liabilities (174,465) 105,073
Net cash provided by
operating activities 1,015,532 920,497
Cash flows from investing activities:
Investment in subsidiary (39,011) -0-
Capital expenditures (273,363) (425,403)
Net cash used in investing
activities (312,374) (425,403)
Cash flows from financing activities:
Net change under revolving line of credit (664,273) (230,883)
Principal payments on notes payable (204,129) (161,623)
Principal payments under capital
lease obligations (84,537) (77,477)
Proceeds from borrowings under
capital lease obligations 142,238 -0-
Proceeds from exercise of stock options -0- 22,058
Net cash (used in)
financing activities (810,701) (447,925)
Effect of exchange rate changes on cash (89,744) 61,800
Net increase in cash and cash equivalents (197,288) 108,969
Cash and cash equivalents at beginning of period 263,135 9,566
Cash and cash equivalents at end of period $ 65,848 $ 118,535
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ -0- $ -0-
Interest $ 220,821 $ 278,000
Supplemental schedule of non-cash investing activities:
1999 The Company retired fully depreciated property having
an initial cost of $307,624.
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 adjustments, necessary for a
fair presentation of the financial position of EFI Electronics Corporation
(the "Company") and subsidiary at September 30, 1999 and March 31, 1999, and the
results of their operations and their cash flows for the three and six months
ended September 30, 1999 and 1998. The results of operations for the three
months and six months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the year ending March 31, 2000.
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 1999 Form 10-KSB for
the year ended March 31, 1999 included in the Annual Report to Shareholders.
1. RECEIVABLES
Receivables consisted of the following:
September 30,1999 March 31, 1999
Trade and other receivables $2,489,112 $ 2,256,864
Allowance for doubtful accounts (51,203) (15,664)
Total Receivables $2,437,909 $ 2,241,200
2. INVENTORIES
Inventories consisted of the following:
September 30, 1999 March 31, 1999
Raw materials $1,398,065 $ 1,238,439
Work-in-process 101,562 121,775
Finished goods 490.552 889,344
1,990,179 2,249,558
Less allowance for obsolete inventory (40,069) (130,222)
Inventories, net $1,950,110 $ 2,119,336
3. NET EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net earnings by the weighted
average number of shares outstanding during each period. Diluted earnings per
share are similarly calculated, except that the weighted average number of
shares outstanding includes shares that may be issued subject to existing rights
with dilutive potential.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited)
EARNINGS PER SHARE, continued
The following data show the amounts used in computing earnings per share,
including the weighted average number of shares and dilutive potential
common stock.
Six Months Ended September 30,
1999 1998
Shares outstanding during
the entire period 5,574,460 5,504,644
Weighted average shares
issued during the period -0- 51,804
Weighted average number of _________ _________
shares used in basic EPS 5,574,460 5,556,448
Dilutive effect of stock
options and warrants 4,724 -0-
Weighted average number of
shares and dilutive __________ __________
potential stock used in dilutive EPS 5,579,184 5,556,448
Three Months Ended September 30,
1999 1998
Shares outstanding during
the entire period 5,574,460 5,574,414
Weighted average shares
issued during the period -0- 46
Weighted average number of _________ _________
shares used in basic EPS 5,574,460 5,574,460
Dilutive effect of stock
options and warrants 6,563 -0-
Weighted average number of
shares and dilutive __________ _________
potential stock used in dilutive EPS 5,581,023 5,574,460
4. REVOLVING LINE OF CREDIT, CAPITAL LEASE OBLIGATIONS AND NOTES PAYABLE
At September 30 and March 31, 1999, revolving line of credit, capital lease
obligations and notes payable, the carrying value of which approximates
fair value, consisted of the following:
September 30, 1999 March 31, 1999
Revolving line of credit $ 1,918,937 $ 2,583,210
Capitalized lease obligations $ 256,194 $ 341,113
Less current maturities (161,676) (177,763)
Capitalized lease obligations ________ ________
(less current maturities) $ 94,518 $ 163,350
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited)
REVOLVING LINE OF CREDIT, CAPITAL LEASE OBLIGATIONS AND NOTES PAYABLE, continued
September 30, 1999 March 31, 1999
Notes payable:
Collateralized promissory note $540,517 $ 654,877
Uncollateralized subordinated
note - director 900,000 900,000
Collateralized promissory
note - machinery 112,740 133,243
Uncollateralized note - acquisition 50,874 120,139
_________ _________
1,604,131 1,808,259
Less current maturities (933,004) (990,533)
Total notes payable, less _________ _________
current installments $ 671,127 $ 817,726
The revolving line of credit in place at September 30, 1999, provides for
borrowings up to $3,700,000 collateralized by accounts receivable and
inventories. Interest is payable monthly at a rate of prime
(8.25% as of September 30, 1999) 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 2001.
<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 unaudited
financial statements and notes contained in this report and in conjunction with
" Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements included in the
Company's report on Form 10-KSB for the year ended March 31, 1999.
Results of Operations:
Net Sales for the three-month period ended September 30, 1999, decreased by
$975 thousand (23%) compared to the three month period ended September 30, 1998.
For the six months ended September 30, 1999, net sales decreased $1.3 million
(17%) over the previous year.
In the prior year, the Company was beginning the transition from selling certain
of its products directly to electrical distribution customers to selling its
products to Hubbell Incorporated ( "Hubbell" ) for resale into electrical
distribution markets. During this period, Hubbell placed significant stocking
orders. The Company also had some residual direct sales to electrical
distributors. In the three-month period and six month period ended
September 30, 1999 there were no direct sales to electrical distributors and
sales to Hubbell were at a maintenance level. The combination of these factors
reduced sales by $331 thousand in the three-month period and $810 thousand
year to date in 1999.
In June 1998, the Company changed its method of doing business with
Thompson Consumer Electronics ( "TCE" ). The Company no longer sells products to
TCE, instead the Company is paid a fee income based on the number of units sold
by TCE. This change resulted in a reduction of revenue from this source of
$457 thousand in the three-month period and $576 thousand year to date in 1999.
This revenue decrease was partially offset by improved gross profit from the
fee income.
In the three-month period ending September 30, 1998, the Company sold
$277 thousand of custom obsolete inventory to a previous private label customer
at much lower than average margins in order to avoid writing this inventory off.
This one-time event did not recur in the current year.
Sales to the US government and other customers for both the current three-month
period and year to date in 1999 were slightly ahead of the same periods in the
prior year.
Gross Profit for the three-month period ended September 30, 1999, declined
$225 thousand (16%) compared to the three months ended September 30, 1998.
For the six months ended September 30, 1999, gross profit decreased by
$201 thousand (7%). The Company's gross margin improved to 36% of net sales
in the three-month period ended September 30, 1999 as compared to 33% in the
prior year. For the six months ended September 30, 1999 gross margin was 38%
as compared to 34% in the prior year. The decrease in the amount of gross profit
was attributable to the sales decline offset by significant improvements in
indirect costs and direct material. The improvement of gross margin percentage
was due to several factors as follows:
Fee income from TCE yields a substantially greater margin than the product
sales that it displaces. During the last half of fiscal 1999, the Company
focused on decreasing its direct product costs for several product lines.
The impact of these reductions began during the fourth quarter of the last
fiscal year. This reduction effort will be completed by the third quarter of the
current fiscal year, which management anticipates will reduce direct product
costs by approximately $750 thousand per year.
Indirect costs decreased by $166 thousand in the current three-month period and
$240 thousand year to date. This is the result of staff headcount reductions
made in March 1999, reductions in scrap and rework and substantial improvements
in productivity.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
Operating Expenses for the three months ended September 30, 1999 decreased by
$113 thousand (10%), compared to the three months ended September 30, 1998.
For the six month period ended September 30, 1999, operating expenses were
$94 thousand ( 4% ) lower than in the previous year.
Research and development expenses increased only $3 thousand for the
three-month period, but decreased year to date by $20 thousand as the result of
reductions in payments to Underwriters Laboratories (UL). These reductions were
the result of non-recurring expenses in the prior period that related to
re-certification of all Company products.
Selling, general and administrative expenses decreased $116 thousand during the
three month period of 1999 and $74 thousand year to date as a result of lower
selling expenses related to the change from selling direct to electrical
distribution to Hubbell as described above and lower bonus expenses.
Net Earnings for the three months ended September 30, 1999, declined by
$85 thousand as compared to the three months ended September 30, 1998,
as a result of the above described factors. These same factors accounted for the
$81 thousand decline in net earnings for the six-month period ended
September 30, 1999 as compared to the same period in 1998.
Liquidity and Capital Resources:
Cash Flows from Operating Activities for the six months ended September 30, 1999
increased by $95 thousand compared to the six months ended September 30, 1998.
In addition to net earnings and non-cash items for the six months, the items
that influenced this increase are described below:
Receivables increased by $197 thousand net of bad debt allowance during
the first half. This increase is due primarily to significantly higher
sales in September as compared to the other months in the quarter.
Inventories decreased by $169 thousand. This decrease is due primarily
to the strong sales effort at quarter end.
Accounts payable increased by $583 thousand during the first six months
of fiscal 2000. The Company has maintained adequate relationships with
its suppliers and remains on "open account" with all significant
vendors.
Accrued liabilities decreased $174 thousand for the period ended
September 30, 1999. This decrease is due to normal fluctuations in
payroll and fringe benefit accruals, which are affected by timing of
actual payments made.
Reserve for customer warranty increased $68 thousand as a result of
increased product shipments.
Cash Flows used in Investing Activities decreased for the six months ended
September 30, 1999 by $113 thousand compared to the six months ended
September 30, 1998, primarily as a result of reductions in capital expenditures.
Cash Flows used in Financing Activities increased by $363 thousand for the
six months ended September 30, 1999 compared to the six months ended
September 30, 1998 as the Company significantly reduced its reliance on outside
sources of financing.
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, 2000. 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.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
Factors Affecting Future Results:
This Form 10-QSB may contain 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
forward-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 limited 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.
Year 2000
The Company has addressed Year 2000 (Y2K) compliance issues. The Company's
current software information systems are Y2K compliant. The Company installed
an information system that complies with Y2K requirements. Compliance with Y2K
requirements cost the Company an estimated $300,000 in fiscal year 1999 capital
expenditures amortized over 3-7 years. In addition, significant internal
resources were diverted to this project.
In addition, the Company has taken steps to ensure that its banking and lending
relationships are with Y2K compliant financial institutions. During fiscal 2000,
the Company will continue to work with its major customers and suppliers to
ensure that Y2K compliance issues will not interrupt the normal activities
supported by these relationships. None of these items is expected to involve
material investment or expense to the Company in fiscal 2000
<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, 1999.
The shareholders elected the following Board of Directors to serve for one year:
Name Shares Voted For
Gaylord K. Swim 4,233,122
Richard D. Clasen 4,233,122
Hans Imhof 4,233,122
James H. Biggart 4,232,913
Reino Kerttula 4,232,913
The shareholders ratified the appointment of Grant Thornton LLP as independent
auditors for the fiscal year 2000 by a vote of 4,241,774 for and 3,767 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, 1999
Richard D. Clasen
Chief Executive Officer, President and
Director (Principal Executive Officer)
November 12, 1999
David G. Bevan
Chief Financial Officer, Executive Vice
President & Secretary (Principal
Financial Officer)
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