SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of the
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 1997
Commission File No. 33-5347
COMPUTER POWER, INC.
(Exact name of small business issuer as specified in its Charter)
New Jersey 22-1981869
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
124 West Main Street, High Bridge, New Jersey 08829
- --------------------------------------------------------------------------------
(Address of principal or executive office) (Zip Code)
(908) 638-8000
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the prior 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 ninety (90) days. YES
(X); NO ( )
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date prior to filing: May 12, 1997; $0.01
par value per share; 2,602,700 shares of Common Stock.
Index on Page 2
Total number of pages - 13
<PAGE>
COMPUTER POWER, INC. & SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Part I Basis of Presentation of Financial Statements .......................... 3
BALANCE SHEETS
As of March 31, 1997 and December 31, 1996 .......................... 4
STATEMENTS OF OPERATIONS for the three months ended
March 31, 1997 and 1996 ............................................. 5
STATEMENTS OF CASH FLOWS for the three months ended
March 31, 1997 and 1996 ............................................. 6
Notes to Financial Statements .......................................... 7
Management's Discussion and Analysis of the results of operations
and financial condition ............................................. 10
Part II Other Information ...................................................... 12
Signatures ............................................................. 13
</TABLE>
Page 2
<PAGE>
COMPUTER POWER, INC. & SUBSIDIARY
PART I - FINANCIAL INFORMATION
BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
The financial statements set forth herein are unaudited but, in the
opinion of the Company, all adjustments necessary to present fairly the
financial position and the results of operations for these periods have been
made.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB for quarterly reports under
Section 13 or 15(d) of the Securities Act of 1934, and therefore do not include
all information and footnotes necessary for fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
The financial information included in this report has been prepared in
conformity with the accounting principles and methods of those principles
reflected in the financial statements included in the Form 10-KSB as filed with
the Securities and Exchange Commission. Reference should be made to the notes to
the financial statements included in the Company's Form 10-KSB for a description
of significant accounting policies, commitments and other pertinent financial
information.
Page 3
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COMPUTER POWER, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
ASSETS (Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 77,577 $ 68,519
Accounts Receivable, less allowances of $211,840
at March 31, 1997 and $253.956 at Decemher3l, 1996 1,592,062 1,354,890
Inventories 1,248,820 1,538,358
Prepald Expenses and Other Current Assets 65,584 75,385
--------------------------
Total Current Assets 2,984,043 3,037,152
PROPERTY PLANT AND EQUIPMENT, at cost
Machinery, equipment and furniture 1,088,452 1,070,377
Leasehold Improvements 333,274 333,274
--------------------------
1,421,727 1,403,651
Less: Accumulated Depreciation and Amortization (1,153,783) (1,140,168)
--------------------------
Net Property, Plant and Equipment 267,944 263,483
TOTAL ASSETS $ 3,251,987 $ 3,300,635
==========================
LIABILITIES AND SHAREHOLDERS' DEFICIT
- ---------------------------------------------------------------------------------------------
CURRENT LIABILITIIES
Notes and Other Debt Payable $ 1,103,026 $ 874,240
Current maturities of long Term Debt 345,174 257,146
Accounts Payable 1,111,303 1,110,224
Accrued Liabilities 970,137 888,048
Deferred Revenue 196,999 372,683
--------------------------
Total Current Liabilities & Deferred Revenue 3,726,638 3,502,341
LONG TERM DEBT 1,614,826 1,732,854
--------------------------
Total Liabilities 5,341,464 5,235,195
SHAREHOLDER DEFICIT
Preferred Stock, par value $0.01 per share; 2,000,000 shares
authorized, none issued -- --
Common Stock, par value $0.01 per share; 12,000,000 shares
authorized; 2,602,700 shares outstanding at March 31,
1997 and at December 31, 1996 26,027 26,027
Capital in excess of par 3,757,119 3,757,119
Accumulated Deficit (5,797,935) (5,643,018)
Treasurey Stock, 24,400 shares, at cost at March 31, 1997
and December 31, 1996 (74,688) (74,688)
--------------------------
Total Equity (2,089,477) (1,934,560)
--------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 3,251,987 $ 3,300,635
==========================
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these financial statements. The December 31, 1996
results are derived from audited financial statements.
Page 4
<PAGE>
COMPUTER POWER, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
THREE MONTHS ENDED
March 31
1997 1996
==========================
NET SALES $ 2,569,861 $ 2,941,763
COST OF SALES $ 2,033,526 $ 2,090,383
--------------------------
Gross Profit 536,335 851,380
--------------------------
OPERATING AND OTHER EXPENSES
Selling Expenses 345,598 409,236
General and Administrative Expenses 258,966 280,744s
Interest Expense, net 86,688 92,866
--------------------------
691,252 782,846
--------------------------
Net (loss) income $ (154,917) $ 68,534
==========================
PRIMARY EARNINGS PER SHARE (Note 6) $ (0.06) $ (0.02)
==========================
PRIMARY WEIGHTED AVERAGE SHARES
OUTSTANDING 2,578,300 2,831,837
==========================
FULLY DILUTED EARNINGS PER SHARE (Note 6) N/A $ 0.02
FULLY DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING N/A 2,831,837
The accompanying notes to consolidated financial statements are
an integral part of these financial statements
Page 5
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
March 31
-----------------------
1997 1996
=======================
CASH PROVIDED BY (USED) FOR OPERATING ACTIVITIES:
<S> <C> <C>
Net (Loss) Income $ (154,917) $ 68,534
Adjustments to reconcile net (loss) income to cash provided by
(used for) operating activities
Depreciation & Amortization 13,615 10,981
Changes in Current Assets & Liabilities
Accounts Receivable (237,172) 97,853
Inventories 289,538 235,276
Prepaid Expenses & Other Current Assets 9,801 67,844
Accounts Payable 1,079 (394,246)
Accrued Liabilities & Deferred Revenue (93,595) 198,455
-----------------------
Cash provided by (used for) Operating Activities (171,651) 284,697
CASH USED FOR INVESTING ACTIVITIES:
Capital Expenditures (18,075) (2,928)
-----------------------
Cash used for Investing Activities (18,075) (2,928)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of debt 270,385 25,000
Repayment of debt (71,601) (234,199)
-----------------------
Cashed provided by (used for) Financing Activities 198,784 (209,199)
-----------------------
INCREASE IN CASH & CASH EQUIVALENTS: 9,058 72,570
CASH & CASH EQUIVALENTS, beginning of period 68,519 --
-----------------------
CASH & CASH EQUIVALENTS, end of period 77,577 72,570
=======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income Taxes Paid -- --
Interest Paid $ 33,413 $ 49,250
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these financial statements
Page 6
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COMPUTER POWER, INC. & SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
Note 1: The financial information as of March 31, 1997 and the three months
ended March 31, 1997 are unaudited but, in the opinion of the Company,
all adjustments necessary to present fairly the financial position and
the results of operations for these periods have been made. Reference
should be made to the notes to the financial statements included in the
Company's Form 10-KSB for a description of significant accounting
policies, commitments and other pertinent financial information.
Note 2: Inventories, which include material, labor and manufacturing overhead
costs, are stated at the lower of cost (on a first in, first out basis)
or market.
Note 3: At March 31, 1997, and December 31, 1996, notes payable and other
current debt included amounts due to related parties and other lenders
as follows:
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
======================
<S> <C> <C> <C>
1. Subordinated, unsecured notes payable to a director and a
related party, due October 31, 1997, bearing inter$st at 10% $ 52,000 52,000
2. Subordinated, unsecured demand note payable to a related
party, bearing interest at 8% 144,943 144,943
3. Subordinated, unsecured note payable, bearing interest at
12%, amortized in monthly installments of $3,998 plus
interest, due April 30, 1997 3,959 15,640
4. Subordinated, unsecured note payable to a related entity,
bearing interest at 10%, due February 1, 1998 250,000 --
5. Subordinated, unsecured note payable to an officer, bearing
interest at 10%, due February 1, 1998 20,885 --
6. Subordinated, unsecured note payable to a director and a
related party, bearing interest at 10%, due in installments
beginning July, 1997 9,000 --
7. Revolving credit agreement maturing December 31, 1997,
bearing interest at prime plus 3.5%, secured by all assets of
the Company 622,239 661,657
----------------------
Total Notes and Other Debt Payable 1,103,026 874,240
======================
</TABLE>
Long-term debt consisted of the amounts on the following page at March 31,
1997 and December 31, 1996:
Page 7
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COMPUTER POWER, INC. & SUBSIDIARY
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
---------------------------
<S> <C> <C> <C>
1. Term loan, maturing in 1997, bearing interest at prime plus
3.5%, payable in monthly installments of $10,000 plus
interest, secured by receivables, inventory, machinery
and equipment 245,000 275,000
2. Subordinated, unsecured note, payable to an officer,
due July 1, 1999, bearing interest at 9.5%, payable
quarterly 150,000 150,000
3. Subordinated, unsecured notes, payable to a related entity,
due July 1, 1999, bearing interest at 9.5%, payable
quarterly 565,000 565,000
4. Subordinated note, bearing interest at prime plus 4%,
payable in monthly installments of $19,444 plus
interest from September 1997 through August 2000 700,000 700,000
5. Subordinated note, bearing interest at 9.5%, payable
in monthly installments of $6,250 plus interest from
July 1997 through November 2000 300,000 300,000
---------------------------
Total Long Term Debt 1,960,000 1,990,000
Less: Current Portion 345,174 257,146
---------------------------
Net Long Term Debt $1,614,826 1,732,854
===========================
</TABLE>
The revolving credit agreement provides for maximum borrowings of eighty
percent (80%) of eligible defined accounts receivable. The maximum
amount, including any amounts outstanding under the term loan, is
$2,000,000. See Item 5, Part II of this document for discussion of
changes in the lending agreement with the Company's asset based lender.
Note 4. At March 31, 1997, the Company had 1,276,938 stock subscription warrants
and 410,000 stock options outstanding. The stock subscription warrants
are exercisable at various prices ranging from $0.25 to $1.00 per share.
The exercise period for the warrants ranges from June 1, 1996, through
June 1, 2006. The stock options were issued under an approved stock
option plan at market prices at the time of issue. At March 31, 1997, no
warrants and no options were determined to be common stock equivalents
because the average market price for the first quarter of 1997 was lower
than the exercise price of the warrants and options.
Note 5. The Company owns a 20% interest in Retrofit, Ltd. ("Retrofit"), of
Trinidad, West Indies. Retrofit began manufacturing LED sub-assemblies
for the Company's Astralite business unit in 1996. The Company's entire
investment consisted of a license of its patented LED retrofit
technology. This investment is carried at no value. The majority
interest in Retrofit is owned by a related party.
Page 8
<PAGE>
Note 6. Earnings per Share - Fully diluted earnings per share for the first
quarter of 1997 were not calculated since the results would have been
anti-dilutive.
The Company plans to adopt SFAS No. 128, "Earnings per Share," which
becomes effective December 15, 1997. On that basis, the Company's
reported earnings per share for the periods reported upon would be as
follows:
<TABLE>
<CAPTION>
March 31
--------------------------------------
<S> <C> <C>
Per Share Amounts 1997 1996
--------------------------------------
Primary Earnings Per Share, as Reported $ (0.06) $ 0.02
SFAS 128 Adjustment -- 0.01
--------------------------------------
Basic Earning Per Share $ (0.06) $ 0.03
======================================
Fully Diluted Earnings Per Share, as Reported N/A $ 0.02
SFAS 128 Adjustment --
--------------------------------------
Diluted Earnings Per Share N/A $ 0.02
======================================
</TABLE>
For 1997, there is no calculation for Fully Diluted or Diluted EPS because
it would be anti-dilutive. In addition, the average market price for the
Company's securities in thefirst quarter of 1997 was lower than the
exercise price of the Company's Stock Options and Warrants.
Page 9
<PAGE>
COMPUTER POWER, INC. & SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
1. REVENUES
For the three months ended March 31, 1997, net sales were about
$2,570,000 compared to about $2,942,000 for the first quarter of 1996, or a
12.6% reduction. First quarter 1996 sales for the Power Protection business unit
included a significant one time sale for a major construction project. Excluding
this one time event, 1997 sales declined by about 4% as compared to 1996. The
Power Protection business unit is facing about the same level of competition it
faced in 1996, but the Astralite business unit is facing significantly more
competitive pressure, even though it did show a sales increase as compared to
the first quarter of 1996. The Company has initiated several programs to
increase sales. In February, 1997, the Power Protection business unit hired a
senior development engineer and restructured the engineering department to
improve new product development. In addition, in early 1997, the Field Service
business unit invested in a service management software program in order to
improve service revenue. This system is expected to go on line in the near
future. The Astralite business unit has added new salesmen to improve sales.
Sales of some Astralite products may be impacted by the new Underwriters
Laboratory requirements that become effective in August, 1997, however,
Astralite is developing a new product line to meet the new requirements.
2. COST OF SALES
Cost of sales for the first quarter was $2,027,051, or 78.9% of sales
in 1997 as compared to $2,090,383 or 71.1% of sales in 1996. The increase in
cost of sales was, to a large extent, due to a change in product mix which
increased the cost of materials and to an increase in the cost of quality
including the hiring of a Director of Total Quality during the fourth quarter of
1996. The Company is committed to using Total Quality Management (TQM) in all of
its processes in order to improve product quality and, in the longer term, to
reduce its total cost. As an example, the Power Protection unit initiated a cell
manufacturing concept in order to increase employee involvement and
accountability for product quality and cost. In addition, the Company's
Astralite product manufacturing processes were streamlined.
3. OPERATING AND OTHER EXPENSES
Selling expenses for the first quarter of 1997 were $63,500, or 15.5%,
lower than the first quarter of 1996. During the first quarter of 1996, the
Company incurred sales commission expenses of around $70,000 more than in the
same period of 1997. The Company continues to closely monitor its sales and
marketing investment.
General and administrative expenses were approximately $265,000 in the
first quarter of 1997, compared to about $281,000 in the first quarter of 1996.
Administrative headcount has been reduced in 1997, and the Company has taken
other steps to reduce administrative expenses.
Interest expense in the first quarter of 1997 was $86,688 or about
$6,200 lower than the first quarter of 1996. The reduction of interest expense
primarily resulted from replacing debt to the Company's asset based lender, with
effective interest rates in excess of 14%, with debt from related parties, at
rates of 10% or less.
Page 10
<PAGE>
COMPUTER POWER, INC. & SUBSIDIARY
4. LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's investment in assets was about
$3,251,000 or about $49,000 less than at December 31, 1996. The change in assets
was due to a $237,000 increase in accounts receivable on a sales increase over
the fourth quarter of 1996 (up 7%) and an increase in Days Sales Outstanding
(DSO) from an average of 58 days to an average of 62 days. This increase was
more than offset by a $289,000 decrease in inventory, as the Company continued
with its inventory management programs begun in the fourth quarter of 1996. The
change in liabilities and stockholder's equity reflects a $270,500 increase in
bridge financing provided by a related entity and an officer of the Company,
that was essentially used to finance the first quarter's net loss and to pay
down financing from the asset based lender.
The Company has two raw material suppliers, one of which is a related
party, that provide extended payments terms. As of March 31, 1997, these vendors
were owed a total of about $408,000, of which about $268,000 was outstanding as
a result of those terms.
During February 1997, the Company arranged additional bridge financing
from a related entity and an officer of the Company totaling $280,000. By early
May, 1997 the full amount of the financing had been provided to the Company. The
new financing provides for a one year term loan maturing February 1, 1998.
Should the Company be unable to pay down the obligation when due, warrants to
purchase Company stock will be issued in exchange for a one year payment
extension.
The Company anticipates that the funding sources available to it, which
to a significant extent depends on the revolving credit and inventory term loan
arrangement (See Part II, Section 5), should be sufficient to cover operating
cash requirements for the foreseeable future.
As a result of the foregoing, the Company lost $154,917 in the first
three months of 1997, or ($0.06) per share, as compared to a profit of $68,534
or $0.02 per share in the similar period last year. There were 2,578,300 and
2,831,837 fully diluted weighted average common shares outstanding in each
period, respectively, after considering the dilutive effects of outstanding
options and warrants. For the three months ended March 31, 1997, the effects of
options and warrants were not considered when calculating fully diluted earnings
per share, since the results would have been anti-dilutive.
BALANCE OF PAGE INTENTIONALLY LEFT BLANK
Page 11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
------------------
None.
ITEM 2. CHANGE IN SECURITIES:
---------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
--------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
----------------------------------------------------
The Company held it's annual meeting on January 6, 1997 at its
offices in High Bridge, New Jersey. At that meeting, the security holders:
1. Elected the Board of Directors: For Against Abstain
--------- --------- -------
H. Hiranandani 1,938,498 0 0
L. Gillette 1,938,498 0 0
P. Gillette 1,938,498 0 0
C. Wilcox 1,938,498 0 0
R. Love 1,882,258 56,200 0
K. Rind 1,938,498 0 0
R. Hobday 1,938,498 0 0
2. Increased the authorized common stock from
5,000,000 to 12,000,000:
1,131,050 767,598 39,850
3. Approved a new Employee Stock Option Plan:
1,426,349 490,299 21,850
4. Re-appointed Arthur Andersen & Co. as the
Company's outside auditors
1,938,498 0 0
ITEM 5. OTHER INFORMATION:
------------------
On May 6, 1997, the Company's asset based lender agreed to modify
certain terms and conditions of a loan agreement expiring on December 31, 1997.
The agreement has been extended until January 31, 1999 with certain terms and
conditions that are more favorable to the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
---------------------------------
a) Exhibits: None
b) Reports on Form 8-K: None.
Page 12
<PAGE>
COMPUTER POWER, INC. & SUBSIDIARY
SIGNATURE
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.
COMPUTER POWER, INC. & SUBSIDIARY
Date: May 14, 1997 /s/ Hiro Hiranandani
-----------------------------------
Hiro Hiranandani
President & Chief Executive Officer
Date: May 14, 1997 /s/ Thomas E. Marren
-----------------------------------
Thomas E. Marren, Jr.
V.P & Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000792986
<NAME> COMPUTER POWER, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 77,577
<SECURITIES> 0
<RECEIVABLES> 1,592,062
<ALLOWANCES> 0
<INVENTORY> 1,248,820
<CURRENT-ASSETS> 2,984,043
<PP&E> 1,421,727
<DEPRECIATION> 1,153,783
<TOTAL-ASSETS> 3,251,987
<CURRENT-LIABILITIES> 3,726,638
<BONDS> 1,614,826
0
0
<COMMON> 26,027
<OTHER-SE> (2,115,504)
<TOTAL-LIABILITY-AND-EQUITY> 3,251,987
<SALES> 2,569,861
<TOTAL-REVENUES> 2,569,861
<CGS> 2,033,526
<TOTAL-COSTS> 2,638,090
<OTHER-EXPENSES> 604,564
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,688
<INCOME-PRETAX> (154,917)
<INCOME-TAX> 0
<INCOME-CONTINUING> (154,917)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (154,917)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
