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, 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. Yes |X| No |_|_
Number of shares of the registrant's $0.0001 par value common stock
outstanding at August 13,1999:5,574,479
<PAGE>
Table of Contents
PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
and March 31, 1999 .........................................3
Consolidated Statements of Earnings and Comprehensive Income
for the three months ended June 30, 1999 and 1998
(Unaudited).................................................4
Consolidated Statements of Cash Flows for the three months
ended June 30, 1999 and 1998 (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>
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CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 MARCH 31, 1999
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 47,218 $ 263,135
Receivables, net 2,513,304 2,241,200
Inventories, net 1,922,444 2,119,336
Prepaid expenses 161,131 221,986
Total current assets 4,644,097 4,845,657
Property - net 2,363,967 2,448,376
Other assets:
Goodwill, net 711,804 742,803
Other assets 49,295 43,991
Total other assets 761,099 786,794
Total assets $ 7,769,163 $ 8,080,827
LIABILITIES
Current liabilities:
Revolving line of credit $ 2,186,694 $ 2,583,210
Current maturities of capital
lease obligations 156,280 177,763
Current maturities of notes payable 961,344 990,533
Accounts payable 1,062,915 825,291
Reserve for customer warranty
claims - current 215,000 215,000
Accrued liabilities 277,009 303,982
Total current liabilities 4,859,242 5,095,779
Long-term liabilities:
Reserve for customer
warranty claims - long-term 177,191 122,738
Capital lease obligations, less
current maturities 141,728 163,350
Notes payable, less current maturities 745,353 817,726
Total long-term liabilities 1,064,272 1,103,814
Total Liabilities 5,923,514 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 (94,588) (27,506)
Accumulated deficit (967,511) (999,008)
2,055,649 2,091,234
Less:Stock subscriptions and
notes receivable
from management (210,000) (210,000)
Total stockholders' equity 1,845,649 1,881,234
Total liabilities and
stockholders' equity $ 7,769,163 $ 8,080,827
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
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CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (Unaudited)
For the three months ended June 30, 1999 1998
Net sales $ 3,229,606 $ 3,582,053
Cost of sales 1,929,890 2,306,313
Gross profit 1,299,716 1,275,740
Operating expenses:
Selling, General and
Administrative expenses 918,096 876,597
Research and development 183,843 206,132
Total operating expenses 1,101,939 1,082,729
Earnings from operations 197,777 193,011
Other income/(expense):
Interest expense (130,133) (137,053)
Other, net (36,147) (28,848)
Total other expense, net (166,280) (165,901)
Earnings before income taxes 31,497 27,110
Income taxes -0- -0-
Net earnings 31,497 27,110
Other comprehensive income - foreign
currency translation adjustment (31,646) 7,388
Comprehensive income / (loss) $ ( 149) $ 34,498
Earnings per share:
Basic $ 0.01 $ 0.00
Diluted $ 0.01 $ 0.00
Weighted average shares outstanding
Basic 5,574,479 5,537,297
Diluted 5,576,550 5,675,022
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the three months ended June 30, 1999 1998
Cash flows from operating activities:
Net earnings $ 31,497 $ 27,110
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 180,619 182,469
Amortization 30,998 35,882
Provision for excess and obsolete inventory 25,000 57,975
Provision for bad debts 2,500 9,408
Provision for warranty expenses 83,270 32,061
Increase/(decrease) in cash due to changes in:
Receivables (304,680) 589,836
Inventories 161,397 (245,692)
Prepaid expenses 59,658 (30,122)
Other assets 3,708 (7,279)
Accounts payable 246,141 (137,087)
Warranty payments (28,815) (724)
Accrued liabilities (35,782) (29,569)
Net cash provided by operating activities 455,511 484,268
Cash flows from investing activities:
Capital expenditures (99,637) (133,618)
Net cash used in investing activities (99,637) (133,618)
Cash flows from financing activities:
Net change under revolving line of credit (396,516) (265,600)
Principal payments on notes payable (101,563) (81,538)
Principal payments under capital
lease obligations (42,066) (41,241)
Proceeds from exercise of stock options -0- 22,058
Net cash used in financing activities (540,145) (366,321)
Effect of exchange rate changes on cash (31,646) 7,388
Net decrease in cash and cash equivalents (215,917) (8,283)
Cash and cash equivalents at beginning of period 263,135 9,566
Cash and cash equivalents at end of period $ 47,218 $ 1,283
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ -0- $ -0-
Interest $ 110,060 $ 153,000
</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, 1999 and March 31, 1999, and the
results of their operations and their cash flows for the three months ended
June 30, 1999 and 1998. The results of operations for the three months ended
June 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:
June 30,1999 March 31, 1999
(Unaudited)
Trade and other receivables $ 2,528,686 $ 2,256,864
Allowance for doubtful accounts (15,382) (15,664)
Receivables, net $ 2,513,304 $ 2,241,200
2. INVENTORIES
Inventories consisted of the following:
June 30, 1999 March 31, 1999
(Unaudited)
Raw materials $ 1,173,264 $ 1,238,439
Work-in-process 155,309 121,775
Finished goods 749,093 889,344
2,077,666 2,249,558
Less allowance for excess
and obsolete inventory (155,222) (130,222)
Inventories, net $1,922,444 $ 2,119,336
3. NET EARNINGS PER COMMON SHARE
Net earnings per common share and common equivalent share are computed based on
the number of common and dilutive common stock equivalent shares outstanding and
are 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - Continued
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.
Three Months Ended June 30,
1999 1998
Shares outstanding during the entire period 5,574,479 5,504,644
Weighted average shares issued during the period -0- 32,653
Weighted average number of shares used in
basic EPS 5,574,479 5,537,297
Dilutive effect of stock options and warrants 2,071 137,725
Weighted average number of shares and dilutive
potential stock used in dilutive EPS 5,576,550 5,675,022
4. REVOLVING LINE OF CREDIT, CAPITAL LEASE OBLIGATIONS AND NOTES PAYABLE
At June 30 and March 31, 1999, the revolving line of credit, capital lease
obligations and notes payable, the carrying values of which approximate fair
value, consisted of the following:
June 30, 1999 March 31, 1999
(Unaudited)
Revolving line of credit $ 2,186,694 $ 2,583,210
Capital lease obligations $ 298,008 $ 341,113
Less current maturities (156,280) (177,763)
Capital lease obligations less
current maturities $ 141,728 $ 163,350
Notes payable:
Collateralized promissory note $ 598,173 $ 654,877
Uncollateralized subordinated
note - director 900,000 900,000
Collateralized promissory
note - machinery 122,992 133,243
Uncollateralized note - acquisition 85,532 120,139
1,706,697 1,808,259
Current maturities (961,344) (990,533)
Total notes payable, less
current maturities $ 745,353 $ 817,726
The revolving line of credit in place at June 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 (7.75% as of June 30, 1999) 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.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto contained elsewhere herein.
Results of Operations:
Net sales decreased $352 thousand (10%) for the three months ended June 30, 1999
compared to the three months ended June 30, 1998. In the prior year, the Company
was beginning the transition from selling its products directly to electrical
distribution customers to selling its products to Hubbell Incorporated
("Hubbell") for resale into electrical distribution. During this period,
Hubbell placed significant stocking orders. The Company also had some residual
direct sales to electrical distributors. In the current quarter 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
$479 thousand in the current quarter.
Sales to the US government increased $233 thousand in the current period as
compared to the prior year. During the past year, the Company has begun
developing new government opportunities and expects this area of its business to
expand.
Fee income from Thomson Consumer Electronics ("TCE") increased $98 thousand for
the current period. During the three months ended June 30, 1998, the Company
changed its method of doing business with TCE from product sales to fee income.
This increase in fee income was offset by reduction of product sales to TCE of
more than $200 thousand. However, the margin on the fee income exceeded the
margin on product sales lost.
Gross Profit increased $24 thousand in the current period as compared to the
prior year. As a percentage of sales, gross profit increased from 36% for the
three months ended June 30, 1998 to 40% in the current three month period. This
increase is 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 $100 thousand in the current period as compared
to the prior year. This is the result of staff headcount reductions made in
March 1999 and substantial improvements in productivity.
Operating Expenses increased $19 thousand during the three months ended
June 30, 1999 compared to the same period of the prior year. Research and
development expenses decreased $22 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 increased $41 thousand primarily
as a result of an increase in bonus expense accrual for the current period.
Net Earnings increased $4 thousand for the three months ended June 30, 1999,
compared to the same period in the prior year. This increase was primarily the
result of significant improvements in gross margin performance offset by a
small increase in expenses, as described above.
Liquidity and Capital Resources:
Cash flows from operating activities were $456 thousand for the three months
ended June 30, 1999, compared to $484 thousand for the three months ended
June 30, 1998. This small change was the result of several factors, none of
which are individually significant.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - continued
Accounts receivable increased by $305 thousand in the current period,
principally as a result of slow payments by two customers, which the Company is
working to correct. In the prior year, accounts receivable decreased as a
result of elimination of two customers that were chronically late with their
payments.
Inventories decreased in the current period by $161 thousand due to much
better inventory planning and control resulting from implementation of a new
enterprise resource planning "ERP" system in January 1999. Since implementation,
the direct cost of inventory has decreased more than $500 thousand. In the prior
year, inventories increased as a result of the ramp up for Hubbell stocking
orders discussed above.
Accounts payable increased $246 thousand for the three months ended
June 30, 1999 compared to a decrease of $137 thousand in the same period of the
prior year. These changes are the result of timing of supplier invoicing and
payments, neither of which are indicative of underlying changes in payment
patterns.
Factors Affecting Future Results:
The statements contained in this Report that are not purely historical are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. All forward-looking statements involve
various risks and uncertainties. Forward-looking statements contained in this
Report include statements regarding the Company's plans and opportunities,
existing or anticipated products, market opportunities, expectations, goals,
revenues, financial performance, strategies, intentions for the future and any
other statements to the effect that the Company or its management "believes",
"expects", "anticipates", "plans", or other similar expressions. Such
forward-looking statements may be included under Items 1 and 2 of Part I of this
Report. All forward-looking statements included in this Report are made as of
the date hereof, based on information available to the Company as of such date,
and the Company assumes no obligation to update a forward-looking statements. It
is important to note that such statements may not prove to be accurate, and that
the Company's actual results and future events could differ materially from
those anticipated in such statements. Many factors could cause actual results to
differ materially from the Company's expectations, including, without
limitation, the factors identified below.
The Company's future results will be impacted by the Company's ability to
implement and finance a growth strategy, which, in turn, is dependent upon the
ability and willingness of key customers to penetrate markets that the Company
has ceded to them. The Company's growth strategy also includes expectations of
significant growth in international markets. These involve acquisition and
development of certain customers and markets that may or may not occur.
In addition, future results may also be affected by other factors including the
Company's response to existing or emerging competition, demand for Company
products, the Company's efforts to develop and maintain customer and employee
relationships, economic fluctuations and employee-related risks and expenses.
All written and oral forward-looking statements attributable to the Company or
person acting on its behalf are expressly qualified in their entirety by this
section and other factors included elsewhere in this report.
Liquidity and capital resources. Although the Company's liquidity was negative
at June 30, 1999, management believes the Company can fund its operations during
fiscal 2000 from financing arrangements in place and internally generated cash
flows. As disclosed in Note 4 to the Company's consolidated financial
statements, the Company has $961 thousand of current maturities of long term
debt due in fiscal 2000. Of this amount, $600,000 is due to a shareholder and
board member of the Company. Management expects to either refinance or
restructure this obligation or extend its term beyond one year.
Year 2000. Management implemented a plan for compliance with Year 2000
requirements in fiscal 1998. This plan included the upgrade of all hardware
systems in fiscal 1998 at a capital cost of approximately $125 thousand;
implementation of a new enterprise management system in fiscal 1999, described
below; and evaluation of other hardware, suppliers, customers, financial
institutions, and other third parties with whatever corrective action is
required, in fiscal 2000.
The Company contracted with a global supplier of enterprise management software
to install an information system that is
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - continued
Y2K compliant. This system was installed in January 1999. The previous system
was significantly out of date and had many deficiencies as a management tool.
Implementation of the new system has been part of ongoing improvements to
Company operations with Y2K compliance being an important but incidental
benefit. This system and resulting Y2K compliance cost the Company approximately
$300,000 in fiscal 1999 for capital expenditures to be amortized over 3-7 years.
In addition, significant internal resources were diverted to this project.
Internal resources used for this project are comprised of existing human
resources that caused no incremental financial costs to the Company as a result
of 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 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 6. Exhibits and Reports on Form 8-k
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)
August 13, 1999
Richard D. Clasen
Chief Executive Officer, President and
Director (Principal Executive Officer)
August 13, 1999
David G. Bevan
Chief Financial Officer, Executive Vice
President & Secretary (Principal
Financial Officer)
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<FISCAL-YEAR-END> Mar-31-2000
<PERIOD-START> Apr-01-1999
<PERIOD-END> Jun-30-1999
<EXCHANGE-RATE> 1
<CASH> 47,218
<SECURITIES> 0
<RECEIVABLES> 2,528,686
<ALLOWANCES> 15,382
<INVENTORY> 1,922,444
<CURRENT-ASSETS> 4,644,097
<PP&E> 6,043,725
<DEPRECIATION> 3,679,758
<TOTAL-ASSETS> 7,769,163
<CURRENT-LIABILITIES> 4,859,242
<BONDS> 887,081
0
0
<COMMON> 558
<OTHER-SE> 1,845,091
<TOTAL-LIABILITY-AND-EQUITY> 7,769,163
<SALES> 3,229,606
<TOTAL-REVENUES> 3,229,606
<CGS> 1,929,890
<TOTAL-COSTS> 1,099,439
<OTHER-EXPENSES> 36,147
<LOSS-PROVISION> 2,500
<INTEREST-EXPENSE> 130,133
<INCOME-PRETAX> 31,497
<INCOME-TAX> 0
<INCOME-CONTINUING> 31,497
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