U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1997
-----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from____________to_____________
Commission file number 0-15927
COMPUTER POWER INC.
(Name of small business issuer in its charter)
New Jersey 22-1981869
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation organization) Identification No.)
124 West Main Street, High Bridge, NJ 08829
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 908-638-8000
Securities registered pursuant to Section 12 (b) of the Exchange act:
Title of each class Name of exchange on which
registered
None None
---- ----
Name of each exchange on which registered
None
----
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.01 Per Share
(Title of Class)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 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[ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $9,537,967
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The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock as of March 25, 1998: $296,275
The number of shares outstanding of each of the issuer's classes of common
equity, as of March 25, 1998: 2,578,300 shares of Common Stock.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
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PART I
ITEM 1. BUSINESS
GENERAL
Computer Power Inc. (the "Company", or "Registrant") designs, manufactures,
markets and services products in three distinct market categories: Energy
efficient lighting, Power protection systems, and Emergency lighting. In order
to serve these markets, the Company is organized into two business units. The
Astralite business unit is focused on the energy efficient lighting market,
while the Power Protection business unit is concentrated on the power protection
market and emergency lighting market.
ENERGY EFFICIENT LIGHTING
The lighting retrofit market is driven by demands for energy conservation and
related pollution reductions and cost savings from numerous sources including
the Federal Government, utility power companies and consumers. Numerous
enterprises, including both Fortune 500 and small start-up companies, continue
to enter the marketplace with various product offerings, ranging from energy
efficient lamp replacements to lighting dimmers and controls. Furthermore,
utility-sponsored energy management firms and contractors (DSMs and ESCOs) have
entered the marketplace offering complete turnkey services to reduce energy
consumption in commercial , industrial and public facilities. Most recently the
Environmental Protection Agency has launched several major campaigns to promote
energy efficient lighting products. Utility power companies also continue to
promote lighting retrofit and conservation with various rebates and cash
incentives.
Capitalizing on the growing demand for energy efficient lighting products and
the development of more powerful solid-state Light Emitting Diodes (LED's) in
1993 the Registrant, under the brand name AstraLite, developed a 1.8-watt LED
illuminating light source to retrofit the high energy consuming standard
incandescent lamps used in Exit Signs. Since 1993, Astralite has expanded its
product line to include both LED retrofit kits and complete LED-based Exit
Signs. In December of 1997, in compliance with the revised UL code, the Company
introduced a new LED based retrofit kit and became the first universally listed
supplier of this product. This kit represents an advance in product design
taking advantage of new superbright LED's from Hewlett-Packard.
LED's, first developed in the 1960's, produce light by the excitation of
electrons in a P-N junction and use the same manufacturing process as
semiconductors. Since that time LED technology has increased in brightness and
useful life making them a viable alternative to incandescent applications in
color specific applications such as Exit Signs and Traffic Signals.
The key benefits of LED's when used in Exit Signs is their 93% energy savings
and extremely long life as compared to the incandescent lamp. Required by code
in public buildings, the EPA
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estimates that over 100 million exit signs in use today, and this could
translate to $1 billion per year in energy savings if the nation converts to
this new solid-state lighting technology.
POWER PROTECTION SYSTEMS
Power protection systems condition and supply electrical power to computers,
electronic equipment and lighting systems when utility power fails or is
contaminated. These systems serve as a temporary bridge between the termination
of utility power and the commencement of power from generators, the restoration
of utility power, or provide time for an orderly computer system shutdown
without damage or loss of data. Products are automatically activated and provide
electrical power to the protected equipment for periods of time ranging from 10
minutes to 8 hours.
The Company concentrates on three niches of the power protection market: 1)
Emergency Lighting, 2) Custom Products, and 3) Standard Products. The Company
maintains a broad product line from 280VA single-phase up to 100 KVA three-phase
systems, and maintains a patent, which expires in the year 2000 for an energy
efficient unit.
All power protection systems contain a battery, battery charger, DC (direct
current) to AC (alternating current) inverter, and an output transformer. These
components are housed in metal cabinets with meter panels, environmental filters
and air louvers. The complete unit can be mounted on the floor, wall, table or
desk.
The Company's main focus is the emergency lighting market, where it offers a
line of power protection devices (Lighting Inverters) which backup lighting
fixtures. Required by Fire Code, all public buildings must provide for a minimum
of 90 minutes of emergency lighting. This can be a accomplished via generator,
battery powered unit lights, or Inverters.
The Company's power protection equipment can be divided into four
sub-categories: 1) Double conversion, on-line uninterruptible power systems
(UPS), 2) Ferroresonant, on-line uninterruptible systems (UPS), 3) Fast transfer
backup power systems, and 4) Standard transfer backup power systems.
The most significant difference among the four categories of power protection
systems is the market they serve and the speed at which auxiliary power is
supplied when utility power fails. The responsiveness of the system in terms of
supplying power determines the specific use or application of the system.
Double conversion, on-line systems continuously supply perfect sine wave power
to the protected load. No interruption in power occurs during the transfer from
utility power to emergency power, completely protecting the load from power
disturbances or outages. Ferroresonant on-line
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systems also supply uninterrupted power, but unlike double conversion systems,
there is a slight voltage and frequency modulation during the transfer. On-line
systems are used primarily for emergency lighting applications involving HID
lights. HID lights require this type of system to continue uninterrupted
illumination upon loss of utility power. In the case of standard transfer
systems there is a delay of 50 to 100 milliseconds which is compatible with
powering incandescent and fluorescent emergency lighting.
As a result of the differences in transfer speed and modulation, fast transfer,
double-conversion and Ferroresonant on-line UPS systems are generally used to
supply auxiliary power and line conditioning to computers and sensitive
electronics in which any loss of power might damage the equipment or cause
errors and data losses. Backup power systems, having the slowest transfer speed,
are used primarily for emergency lighting systems in which the momentary loss of
power does not effect the equipment or its performance in any meaningful way.
Both double conversion and Ferroresonant on-line systems provide line
conditioning to filter and regulate utility power to clean sine wave. Backup
power systems generally offer little or no line conditioning.
PRODUCT PRICES AND REVENUES
The retail product price ranges are as follows: (a) energy efficient lighting
from $25 to $175; (b) power protection systems from $150 to more than $90,000;
(c) line conditioning equipment from $1,750 to $22,000; (d) battery chargers
from $1,730 to $4,600; and (e) emergency lighting equipment from $2,800 to
$90,000.
MANUFACTURING AND SUPPLY
The Company's manufacturing operations, are conducted at its High Bridge, New
Jersey facility. Manufacturing includes an order specific customized order
processing system for power protection products, and large quantity orders for
Astralite products. Production is scheduled on a historical sales basis as well
as for specific customer orders. To a limited extent, the Registrant purchases
fully assembled UPS systems from two sources for resale in its world-wide
distribution network. Subassemblies for the solid-state light emitting diode
retrofit kits are manufactured outside the United States with final assembly at
High Bridge.
The Company is a highly integrated manufacturer of power protection products and
accordingly, except for batteries, produces nearly all major components of its
products from raw materials. The Company also custom designs and fabricates
components such as chassis, transformers, cable connections, printed circuit
boards, cabinets and other devices. It assembles, inspects and tests its
products at various stages of assembly and each finished product undergoes a
complete test prior to shipment.
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The Company generally purchases materials and supplies according to written
purchase orders. Blanket purchase orders are limited usually to larger usage
items at fixed prices for delivery and payment on specific dates ranging from
two months to one year.
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MAINTENANCE AND SERVICE
The Registrant offers warranties on all its products, including parts and labor,
that range from one year to twenty-five years prorated, depending upon product
type. Products sold by the Company but manufactured by others are covered by
Company and original manufacturer's standard warranty and service agreements.
For 1996 and 1997 the Registrant had field service expenses of approximately
$589,000, and $614,000, respectively.
The Registrant performs service on products through its factory service center
at its New Jersey factory or at customer locations. These services may be
performed pursuant to a written service contract or upon specific order at
various rates. Service on its products sold abroad are usually handled by its
foreign distributors.
SALES AND MARKETING
The Company markets its Astralite products directly through a select group of
500 lighting and electrical distributors who focus on energy conservation and
long-life lighting. Marketing efforts are directed to plant and facility
managers, and energy managers responsible for industrial, commercial, and public
buildings such as schools, hospitals, and shopping malls. Astralite maintains
sales offices in York, PA, and High Bridge, NJ. In addition, certain Astralite
products are sold to original equipment manufacturers.
Astralite products are usually discounted to distributors from 20% to 50%,
depending on the product and quantity sold. No one distributor accounted for
more than 7% of the Company's net sales for 1997.
The Company markets and sells its power protection and emergency lighting
products in the United States and abroad through a network of sales
representatives, distributors, and exporters to end-users and original equipment
manufacturers. For domestic power protection and emergency lighting product
sales, the Company utilizes electrical wholesale distributors and approximately
40 sales representative companies. In the overseas market, the Company relies on
approximately 15 distributor/representative companies and approximately 10
exporters to sell its products. In addition, the Registrant makes sales directly
to individual end-users and original equipment manufacturers on certain
products. No one distributor, representative or original equipment manufacturer
accounted for more than 10% of the Company's net sales for 1997.
The Registrant's relationship with its sales representatives is usually governed
by a written contract, terminable on 90 days notice. The contract provides for
exclusive territorial and product representation and commissions payable to
representatives on their sales from 3% up to 20% depending on terms and
conditions. The sales representatives do not purchase for their own account and
generally will represent other manufacturers but not on competing products. The
top 10 representatives accounted for an estimated 9 % of the Company's net sales
for 1997.
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CUSTOMERS
The Registrant sells its products to numerous customers, ranging in size from
small companies to large Fortune 500 corporations. Its customers are end-users,
original equipment manufacturers, system integrators, and distributors. Many of
the Company's customers are repeat purchasers. None of the Company's customers
represent more than 8% of revenues in 1996 and 10% of revenues in 1997. The
Company's Astralite and UPS businesses are generally not seasonal, however, the
emergency lighting business (approximately 38% of net sales) parallels
construction industry cycles.
INTERNATIONAL OPERATIONS
The Registrant's international activities account for approximately 8%, 6%, and
3% of its net sales for 1995,1996, and 1997 respectively.
BACKLOG
As of December 31, 1997 the Registrant's backlog was approximately $533,000 as
compared with a backlog of approximately $1,715,000 as of December 31, 1996. No
single customer represents more than 14 % and 16 % of such total backlog for
December 31, 1997 and December 31, 1996, respectively. Backlog figures generally
include written purchase orders and are for products only and not for services.
Most orders are generally subject to cancellation. However, in certain cases,
particularly in regard to orders for custom products, there are penalty
provisions for cancellations.
ENGINEERING
The Registrant maintains an engineering staff whose functions include the
improvement of existing products, modification of products to meet customer
needs and the engineering, research and development of new products and
applications. There are presently seven individuals employed at the Registrant's
High Bridge, New Jersey location. Engineering and research and development
expenses were approximately $290,000 in 1996, and $506,000 in 1997.
The Registrant intends to continue its research and development activities and
considers these efforts vital to its future business and prospects. It
anticipates significant expansion of such efforts primarily directed toward the
development of new energy saving and power protection products and applications,
the improvement of existing products, and cost reductions.
In December of 1997, an improved energy saving LED light source was listed by UL
for universal application in replacing conventional lighting in exit signs. The
Company was the first UL listed manufacturer to meet very stringent code
standards that went in effect in August 1997.
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COMPETITION
In all its product lines, the Company faces intense competition from numerous
domestic and foreign manufacturers of varying sizes, including large Japanese
and European companies. In the Registrant's opinion, companies with which it
competes are American Power Conversion, Sola, Exide, Deltec, Best Energy
Systems, Dualite, Lithonia, ProLight and many other companies.
The degree of competition and the particular competitor may vary depending on
the product line/model and application involved. Accordingly, the Company will
compete with certain companies in the sales of its products for computers and
personal computers and with others in the emergency lighting or energy efficient
retrofit fields. For all its products, the Registrant generally competes on the
basis of price, product performance, features and delivery schedules. Service is
ordinarily not a factor. The Company generally endeavors to position and sell
its products at equal prices to its competitors. Many of its competitors,
however, are owned by larger companies and have greater financial, technical and
marketing resources than the Registrant.
GOVERNMENT REGULATION
The Registrant has not experienced and does not anticipate any material effect
of existing or probable government regulations on its business.
ITEM 2. PROPERTY AND FACILITIES
The Registrant leases from Roger Love (a Company director) and Doris Love a
building of approximately 60,000 square feet in High Bridge, New Jersey for its
manufacturing facilities and executive offices expiring December 31, 1999.
Annual rent over the remaining term of the lease is $237,000 per year. The
Registrant is also responsible for local property taxes, insurance premiums, and
other related expenses. At the end of the lease term, at its option, the Company
must either purchase the building or renew the lease for an additional ten (10)
years at no increase in rent.
ITEM 3. LEGAL PROCEEDINGS
To the best of its knowledge, there are no material legal proceeding to which
the Registrant is a party or to which its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
On January 6, 1997, the Registrant submitted four proposals to its shareholders.
These proposals, each of which was approved by the shareholders, were the
election of directors, the approval of the 1996 Stock Option Plan, the amendment
to the certificate of incorporation to increase the authorized shares to
12,000,000 from 5,000,000, and the appointment of Arthur Andersen, LLP as
independent auditors.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The principal market for the Registrant's shares of Common Stock, par value $.01
per share, is the over-the-counter market. The Registrant's Common Stock is
quoted on the NASD NON-NASDAQ OTC Bulletin Board with the symbol CUWR.
The high and low closing bid and asking prices concerning such securities, on a
quarterly basis, as furnished by the National Quotation Bureau for the period
beginning January 1, 1996 are as follows:
COMMON STOCK (CUWR)
CALENDAR PERIOD HIGH AND LOW BID HIGH AND LOW ASK
1/01/96 to 03/31/96 9/16 11/16 1 1/4 11/16
04/01/96 to 06/30/96 1 1/8 9/16 1 3/16 11/16
07/01/96 to 09/30/96 11/16 9/16 1 1/16 7/8
10/01/96 to 12/31/96 9/16 1/4 1 1/16 7/16
1/01/97 to 03/31/97 5/16 1/4 1/2 1/4
04/01/97 to 06/30/97 1/8 1/8 1/4 1/4
07/01/97 to 09/30/97 1/8 1/8 1/4 1/4
10/01/97 to 12/31/97 3/8 1/8 1/2 7/32
Quotations represent prices between dealers, do not include retail mark-ups,
markdowns or commissions and do not necessarily represent actual transactions.
The number of shareholders of record on March 25, 1997 was 125 per American
Stock Transfer and Trust Company shareholder's listing.
The Registrant has not paid any cash dividends on its Common Stock and does not
intend to do so in the near future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
REVENUES
Revenues for 1997 were $9,538,000 or 12% below 1996. Sales were down across all
product lines. Power protection sales were down by 14% primarily due to lack of
custom UPS business compared to prior years. Astralite product sales were down
12% mainly due to lower retrofit kit sales which were negatively affected by a
UL code change that went into effect during the third quarter of 1997. In
December 1997, the Company became the first manufacturer to obtain a UL listing
that meets the new code requirements. Sales of the new product are expected to
commence during the first quarter of 1998. The program of investment in new
product research and development begun in 1996 continues.
COST OF SALES
Cost of sales for 1997 of $7,518,000 was about 79% of net sales compared to 77%
in 1996 after removing the effects of 1996 inventory adjustments. The Company
managed its variable cost, primarily direct labor and materials, at slightly
improved levels to sales. With an increase in research and development
activities, cost as a percent of sales increased.
OPERATING AND OTHER EXPENSES
Selling expenses for 1997 were about $1,137,000 or about $452,000 lower than
1996. This represented about 12% of net sales in 1997 compared to 14.7% in 1996.
With a new UL code taking effect in August 1997, the Company reduced its
Astralite product sales and marketing expenses pending approval of a new
product. This approval was obtained in December 1997, and expenses will be
increased in the first quarter of 1998.
General and administrative expenses were approximately $1,187,000 in 1997
compared to $1,137,000 in 1996. Administrative expenses for 1997 included an
increase in the cost of insurance, higher UL fees associated with obtaining
approval for the Company's new Astralite product retrofit kit, and a one time
cost of a three year sales tax audit completed during the year.
Interest expense for 1997 of approximately $391,000 was about 3% below the
expense for 1996. The average level of borrowing outstanding was essentially
equivalent to 1996, however proceeds from additional related party loans
obtained during the year were used to pay down higher interest loans from the
asset based lender.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's investment in Total Assets was about
$2,706,000 or $595,000 less than the $3,301,000 reported at December 31, 1996.
The significant components
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of the change are (1) a reduction in inventory of $520,000 due to a focus on
reducing the number of days of materials on hand, (2) a decrease in accounts
receivable of $115,000 (before reserves) due to lower fourth quarter sales
($265,000), partially offset by an increase in the number of days of sales
outstanding ($150,000), and, (3) a decrease in its provision for uncollectible
accounts of $74,000 as a result of tighter credit controls and monitoring of
customer balances. At December 31, 1997, the Company's Liabilities and
Stockholders' Equity declined by $595,000 and was essentially comprised of: (1)
the loss for the year of $694,000, (2) a reduction in accounts payable, accrued
liabilities and deferred revenue of $230,000 due to the elimination of
consignment sales which was partially offset by an increase in interest payable
resulting from the negotiated deferral of debt service, and which was (3) by an
increase in debt outstanding of $331,000.
The Company has two raw material suppliers, one of which is a related party,
that provide extended terms. As of December 31, 1997 these vendors were owed a
total of about $370,000 of which about $320,000 was outstanding as a result of
those terms.
The Company anticipates that borrowings available to it through its revolving
credit and inventory term loan facilities along with the agreed continuation of
the deferral of debt service for the year negotiated with unsecured debt holders
should be sufficient to cover operating cash requirements during 1998. In
addition, the Company has obtained a commitment from a major stockholder to
supplement working capital should the need arise during 1998.
In order to obtain the 1998 deferral of debt service, the Company agreed to
issue 166,079 five year warrants at market price as compensation to debt
holders. The warrants are issuable on a prorata basis. In addition, the Company
agreed to add a board member to be designated by Readymix (West Indies),
Limited.
During the fourth quarter of 1997, the Company had its inventory assessed by an
outside appraiser and on the basis of this appraisal was able to obtain a
$150,000 increase in the amount of credit available to it under its term loan
with the secured asset based lender. The Company received $75,000 during
February of 1998, with the remainder available after assessing the first quarter
performance.
During 1997, management focused on the programs that were established in its
plan for the year. These plans included investing in additional sales resources,
establishing a cell manufacturing plan, focusing on new product introductions,
and establishing teams to implement practices to lower manufacturing costs.
These plans were all implemented with varying degrees of success. The addition
of sales resources was accomplished early in the year. However, as it became
clear that the new Astralite product introduction planned for the year was going
to be delayed, and that the additional sales resources were not capable of
paying for themselves, sales and marketing expenses were reduced to meet the
expected level of near term sales. Practices were established to lower the cost
of manufacturing. The power protection products manufacturing process was
redesigned and teams assisted management in determining ways to reduce cost.
These initiatives
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have materially lowered the sales level required to break-even. For example, the
total number of Company employees was 80 at year end 1997 compared to 103 at
year end 1996.
The Company has determined that it can upgrade its existing computer systems at
reasonable conversion and training costs, and can meet a year 2000
implementation date. The Company is investigating other system alternatives in
order to ensure that customer as well as management information requirements are
met. The cost of compliance and its effect on future results of operations is
not anticipated to be material in any given year.
The following recently issued accounting standards will increase financial
reporting disclosures, but are not expected to have any impact on the Company's
financial position or results of operations. In February 1998, SFAS No. 132 - "
Employees' Disclosures about Pensions and Other Postretirement Benefits" was
issued and is effective for periods beginning after December 15, 1997. In June
1997, SFAS No. 130 - "Reporting Comprehensive Income" and SAFS No. 131 -
"Disclosures about Segments of an Enterprise and Related Information" were
issued and are effective for periods beginning after December 15, 1997. SFAS No.
132 revises employers' disclosures about pension and other postretirement
benefit plans. SAFS No. 130 establishes standards for reporting comprehensive
income and its components. SFAS No. 131 establishes standards for reporting
financial and descriptive information regarding an enterprise's operating
segments.
ITEM 7.
FINANCIAL STATEMENTS
The information called for by this item appears at the end of this Form 10-KSB.
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
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ITEM 9.
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
Certain information about directors, officers and other key personnel of the
Registrant is contained in the following table:
NAME TITLE AGE
- ---- ----- ---
Lindsay Gillette Chairman of the Board 39
Hiro Hiranandani(1) President & CEO 60
Peter Gillette(2) Director 37
Richard Hobday Director 67
Roger Love Director 65
Kenneth Rind2 Director 62
Clarence Wilcox2 Director 67
Thomas Marren Vice President and CFO, Secretary 52
Leslie Listwa Vice President and GM Astralite 40
Paul Kohmescher Controller 46
(1) Mr. Hiranandani's employment as President, Chief Executive Officer is
subject to an employment agreement. The term of this agreement is June 28,
1996 through December 31, 1998.
(2) Member of the Audit Committee
All directors hold office until the next annual meeting of shareholders or until
their successors are elected and qualify. Executive officers hold office until
their successors are chosen and qualify, subject to earlier removal by the Board
of Directors.
Lindsay Gillette has been a Director since 1994. He was elected Chairman,
President and Chief Executive Officer in 1994 and became Chairman in June, 1996.
Mr. Gillette has also been a Managing Director of Computers and Controls Ltd., a
Trinidad & Tobago corporation since 1982. Mr. Gillette is also a Director of
Cableview Limited, Body Works Fitness & Aerobics Limited, Favorite Foods, Ltd.,
National Maintenance Training & Security Company Ltd., and
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NIHERST. Mr. Gillette is a graduate of McMaster University with a bachelor's
degree in Civil Engineering.
Hiro Hiranandani became President, Chief Executive Officer and a Director of the
Company in June of 1996. From 1977 to 1994, Mr. Hiranandani held various
management positions with Pitney Bowes, Inc. He most recently was President of
Worldwide Mailing Systems operations of Pitney Bowes. Mr. Hiranandani holds a
bachelor's degree in electrical engineering from the University of Missouri, a
master's degree in electrical engineering from Purdue University, and a master's
degree in business administration from the University of Bridgeport.
Peter Gillette has been a Director of the Company since 1994. He also has been
Technical Director of Computers and Controls Ltd., since 1983. He is also a
Director of Cableview Limited, Body Works Fitness & Aerobics Limited, Pelinja
Holdings Limited, Chaguaramas Development Authority, Tourism and Industrial
Company and Trinidad & Tobago Free Trade Zones. Mr. Gillette holds a bachelor's
degree in civil engineering from Cornell University.
Richard O. Hobday has been a Director of the Company since December 1996. He is
an independent consultant. In 1988, he retired as a partner with Arthur Young &
Co. (Ernest & Young) accountants. Mr. Hobday is a Director of Ready Mix (West
Indies) Ltd., Trinidad Contractors Ltd., and Los Cuevos Resorts Ltd.
Roger Love was a founder of the Company in 1967. He has served as a Director
from 1972 to the present. From 1972 to 1994 Mr. Love was President of the
Company. He currently is a consultant.
Kenneth Rind has been a Director since 1995. Dr. Rind is Chairman of Oxford
Venture Corporation, an independent venture capital management company which he
co-founded in 1981. From 1976 to 1981, Dr. Rind was a principal at Xerox
Development Corporation responsible for acquisitions and venture capital
investments. From 1970 to 1976, he was Vice-President of Corporate Finance at
Oppenheimer & Co., and managed its venture capital and high technology corporate
finance activities. He is a Director of Medical Sterilization, Inc., Alpha
Technologies Group, Inc., Vasomedical, Inc., and ESC Medical Systems, Ltd., and
several private companies. Dr. Rind received a bachelor's degree in chemistry
from Cornell University and a doctorate in nuclear chemistry from Columbia
University.
Clarence Wilcox has been a Director of the Company since 1994. He also has been
Chairman and Managing Director of Wilcox Enterprises Limited since 1978. Since
1993 he has been Chairman and Managing Director of Guymar Caribbean Limited. Mr.
Wilcox is also Deputy Chairman and Director of MEGA Insurance Company Limited,
and a Director of General Packaging Limited.
Thomas Marren joined the Company in September 1996. Prior to joining the Company
Mr. Marren held various financial positions at Engelhard Corporation,
Allied-Signal and Deloitte Haskins and Sells (Deloitte & Touche). He holds a
bachelor's degree in accounting from Upsala
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College, a master's degree in business administration from Monmouth University,
and is a member of the New Jersey Society of Certified Public Accountants.
Leslie Listwa joined the Company in 1991 as Director of Sales and Marketing. He
was instrumental in the start-up of the Astralite operations and assumed his
present position in July of 1996. Prior to joining the Company Mr. Listwa held
various key engineering and marketing positions at RCA Americom, Dranetz
Technologies, and Ariel Corporation. Mr. Listwa holds a bachelor's degree in
electrical engineering from Pratt Institute, and a master's degree in business
administration from Pace University.
Paul Kohmescher joined the Company in October 1997. Prior to joining the Company
Mr. Kohmescher held various financial positions with Area Lighting Research,
Inc. He holds a bachelor's degree from Indiana University.
Lindsay Gillette and Peter Gillette are brothers.
No director, officer, of beneficial owner of more than ten percent of any class
of equity securities of the Registrant failed to file on a timely basis, reports
required by Section 16 (a) during the fiscal year ended December 31, 1997.
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ITEM 10. EXECUTIVE COMPENSATION
The annual and long-term compensation for services performed in all Company
related capacities for the fiscal years ended December 31, 1995, 1996, and 1997
of those persons who were, at December 31, 1997, the President and Chief
Executive Officer, and other Officers of the Company with annual compensation of
$100,000 or greater follows:
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Name and Salary(7) Bonus Deferred
Position Year ($'S) ($'S) Compensation $'S
- ----------------------------------------------------------------------------
Hiro Hiranandani(1) 1997 $ 75,000 $25,000
President & CEO 1996 $ 49,418
Leslie Listwa(2) 1997 $ 80,000
VP & GM Astralite 1996 $ 80,066 $ 5,655
1995 $ 80,000 $ 27,000
Louis Massad(3) 1997 $ 0
VP Finance 1996 $ 104,500
1995 $ 75,500
Lindsay Gillette(4)
President & CEO 1997 $ 0
1996 $ 46,646
1995 $ 93,670 $ 49,150
- ----------------------------------------------------------------------------
(1) Appointed President & CEO June 28, 1996.
(2) Beginning January 1, 1995.
(3) Resigned effective December 31, 1996
(4) Resigned as President & CEO June 28, 1996. Remained Chairman of the Board
of Directors.
[Paul-What about Footnote 7?]
BALANCE OF PAGE LEFT INTENTIONALLY BLANK
17
<PAGE>
<TABLE>
<CAPTION>
Options and Grants in the Last Fiscal Year
------------------------------------------
Number of Securities % of Total Options/
Underlying Options/ SAR's Granted to Exercise of Expiration
Name Sar's Granted Employees in Fiscal Year Base Price Date
- ---- ------------- ------------------------ ---------- ----
<S> <C> <C> <C> <C>
Les Listwa 20,000 9.0% $0.25 01/06/07
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option Fiscal Year End Values
----------------------------------------
(There were no exercises in 1997)
Number of unexercised Options/ Value of unexercised In-the-Money
Warrants at Year-end (#) Options/Warrants at Year-end ($'s)
Name Exercisable/unexercisable Exercisable/unexercisable
- ---- ------------------------- -------------------------
<S> <C> <C>
Hiro Hiranandani 251,998/126,001 63,000/31,500
Les Listwa 56,000/44,000 5,600/5000
</TABLE>
<TABLE>
<CAPTION>
Repricing of Warrants
---------------------
Number of
Securities Length of
Underlying Market Price Exercise Price Original Option
Options/SAR's at Time of at Time of New Exercise Term
Name Date Repriced Repricing Repricing Price Remaining
- ---- ---- -------- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Hiro 02/13/97 125,999 $0.25 $0.33 $.025 9.25 Years
Hiranandani 02/13/97 125,999 $.025 $.040 $.025 9.25 Years
02/13/97 126,001 $.025 $.040 $.025 9.25 Years
</TABLE>
STOCK OPTION PLAN
Under the Registrant's 1996 incentive stock option plan (the "Plan"), which was
approved by Shareholders on January 6, 1997, options to purchase a maximum of
500,000 shares of the Registrant's Common Stock can be granted to officers and
other key employees. The Company also had options from a pre-1996 plan
outstanding. The terms and condition of both plans are essentially the same.
Options are intended to qualify as incentive stock options as defined in Section
422A of the Internal Revenue Code of 1954, as amended by the Tax Reform Act of
1986.
As of December 31, 1997, 160,000 shares of the Plan were outstanding and no
shares have vested. Of the pre-1996 stock option plan, 206,000 shares remain
outstanding with 156,000 shares vested.
18
<PAGE>
The Plan is administered by the Board of Directors which approves the persons
that are to receive options, the number of shares that may be purchased under
each option, and the exercise price. In the event an option holder voluntarily
terminates employment, any unexercised options terminate immediately except in
cases where the termination was not for cause, the option holder dies, or the
option holder is disabled. The maximum terms of any option is ten years and the
option price per share may not be less than the fair market value of the
Registrant's shares on the date the option is granted. However, options granted
to persons owning more than 10% of the voting shares may not have a term in
excess of five years and the option price may not be less than 110% of fair
market value.
The aggregate fair market value of the shares of the Registrant's Common Stock
(determined at the time the option is granted) with respect to which incentive
stock options are exercisable for the first time by such option holder during
any calendar year (under all such Plans) may not exceed $100,000. Options may be
granted within ten years from the effective date of the Plan.
Options granted under the Plan are not transferable other than by will or by the
laws of descent and distribution. Options granted under the Plan are protected
by antidilution provisions increasing the number of shares issuable thereunder
and reducing the exercise price of such options, under certain conditions. The
Plan will terminate on January 5, 2007, or on such earlier date as the Board of
Directors may determine. Any options outstanding at the termination date will
remain outstanding until it expires or is exercised in full, whichever occurs
first.
OPTION GRANTS IN THE LAST FISCAL YEAR
There were 225,000 stock options granted and 65,000 stock options canceled for
individuals that left the Company pursuant to the Registrant's Plan during the
fiscal year ended December 31, 1997. Stock appreciation rights are not granted
under the Plan.
LONG-TERM INCENTIVE PLAN AWARDS
The Registrant does not have a long-term incentive plan, other than the
Incentive Stock Option Plan.
19
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 25, 1998, those persons including any
"group" who is known to the Registrant to be beneficial owners of more than five
percent (5%) of the Company's common stock as well as the stock ownership of
directors and executive officers. The Company's common stock is the only equity
or voting security outstanding.
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership(1) Class
- ---------------- --------------------- -----
Roger Love(2) 461,199(2) 17.7%
124 W. Main St.
High Bridge, NJ 08829
Mantilla Ltd. 490,000(3) 18.8%
P.O. Box 173, Road Town
Tortola, B.V.I.
RMC Ltd. 510,000 19.6%
Tumpuna Road
Guanapo, Trinidad, WI
Leslie Listwa 40,000 1.5%
124 W. Main Street
High Bridge, NJ 08829
All directors and officers
as a group 501,199 21.9%
(1) Except as otherwise set forth herein, all shares are beneficially owned,
and the sole voting and investment power is held by the persons named.
Does not give effect to common stock reserved under the Registrant's
Incentive Stock Option Plan.
(2) Roger Love has deposited his shares in a voting trust, the trustee of
which is Mr. Lindsay Gillette, Chairman of the Board.
(3) Lindsay Gillette, Chairman of the Board and Peter Gillette, a director,
are primary owners of Mantilla, Ltd.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company owns a 20% interest in Retrofit, Ltd. ("Retrofit"), of Trinidad,
West Indies. Retrofit was established to manufacture components for the Company.
In 1996, it began manufacturing LED sub-assemblies for the Company's Astralite
business unit. The Company's entire
20
<PAGE>
investment in Retrofit 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 certain related parties including Messrs Lindsay Gillette
and Peter Gillette, directors of the Company. During 1997, the Company purchased
approximately $336,000 of material from Retrofit.
The Company leases its principal office and manufacturing facilities from Roger
Love and Doris Love under a written lease agreement expiring December 31, 1999.
The Company has the option to purchase the building on December 31, 1999 at the
then fair market value by payment of 15% cash and the balance payable on a 30
year mortgage bearing interest at the 30 year treasury bond rate. If the option
is not exercised, the Company is obligated to renew the lease for an additional
10 year term without rent escalation. The annual rental is $237,000 per year
with the Company being responsible for property taxes, insurance, and other
related expenses. During 1996 and 1997, the Company recorded $237,000 as rental
expense per year.
On June 28, 1996, Mr Hiro Hiranandani, a director and officer of the Company,
and a company controlled by Messrs Lindsay Gillette and Peter Gillette,
directors of the Company, loaned the Company $300,000 in exchange for term
notes, due July 1, 1999, bearing interest at 9-1/2% per annum, payable
quarterly. In addition, these investors received a total of 300,000 stock
subscription warrants, with an exercise price of $1.00 per share, exercisable
from July 1, 1998 through July 1, 2000. Further, as part of the compensation
package for Mr Hiranandani, the new President and Chief Executive Officer,
377,999 stock subscription warrants were issued at prices ranging from $.33 to
$.40 per share, with exercise periods ranging from June 1, 1996 through June 1,
2006. The Board of Directors repriced these stock subscription warrants to $.25
per share on February 13, 1997.
On June 28, 1996, a director, through an affiliated entity, restructured several
notes payable into a $415,000 note payable in three years bearing interest at
9-1/2% per annum. The entity also received 100,000 stock subscription warrants
with an exercise price of $1.00 per share exercisable beginning July 1, 1998
through July 1, 2001. The Board of Directors repriced these stock subscription
warrants to $.25 per share on February 13, 1997.
During February 1997, the Company arranged additional bridge financing totaling
$280,000 from Hiro Hiranandani, a director and officer of the Company, and a
company controlled by Messrs. Lindsay Gillette and Peter Gillette, directors of
the Company. The instruments bear interest at 10% per annum and matured on
February 1, 1998. At that time the Company elected to exercise its option to
extend the notes for l year and issued 800,000 warrants at a price of $0.35 per
share in consideration for this extension. To the extent the principal of the
notes is not repaid on February 1, 1999, interest will accrue at 14% per annum,
thereafter. The warrants expire on February 1, 2006.
As of December 31, 1997, the Company had outstanding principal and interest
payable under its various note agreements with related parties and entities
totaling $2,468,000. In addition, the total stock subscription warrants
outstanding as discussed above totaled 778,000 as of December
21
<PAGE>
31, 1997. In addition, the Company owed Retrofit $176,000 for materials
purchased in the ordinary course of business.
PART IV.
ITEM 13. EXHIBIT AND REPORTS ON FORM 8-K:
a) None.
b) The following documents are filed as a part of this report:
1. and 2. Financial Statements:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
* Report of Independent Public Accountant.
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Operations for the years ended December 31, 1996,
1995, and 1994.
Consolidated Statements of Shareholders Equity for the years ended December
31, 1996, 1995, and 1994.
Consolidated Statements of Cash flows for the years ended December 31, 1996,
1995, and 1994.
* Notes to Consolidated Financial Statements.
3. Exhibits:
The following list of exhibits are incorporated by reference from the
Registrant's Registration Statements on Form S-1 and S-8 filed under the
Securities Act of 1933, as amended, it Registration Statement filed under
the Securities Exchange Act of 1934, as amended, on Form 8-A and its Annual
Report on Form 10-K dated December 31, 1986.
1.1-Form of Underwriting Agreement
1.2-Form of Underwriter's Selling Agreement
3.1-Articles of Incorporation, as amended
3.2-By-Laws of Registrant, as amended
4.1-Specimen Common Stock Certificate of Registrant
4.2-Specimen Common Purchase Warrant
4.3-Form of Underwriter's Unit Purchase Option between Registrant and
Underwriter
4.4-Form of Warrant Agreement between Registrant and Warrant Agent, as amended
5.0-Opinion of Rapaport and Cascone
10.1-Form of Authorized Sales Representative Agreement between Registrant and
its representatives
10.2-Form of Distributor Sales Agreement between Registrant and its distributors
10.3-Joint Venture Agreement between Registrant and Data Power Dear, C.A.
10.4-Joint Venture Agreement between Registrant and Brig. T.S. Grewal, dated
October 16, 1985
10.5-Joint Venture Agreement between Registrant and Crotan Electronics, Ltd.,
dated November 5, 1986
10.6-Exchange of Stock between Registrant and Roger Love and Doris Love, dated
April 28, 1983
22
<PAGE>
10.7-Real Estate Lease between and among the Registrant and Roger Love and Doris
Love, dated September 1, 1983
10.8-Real Estate Lease between and among the Registrant and Roger Love and Doris
Love, dated January 1, 1985, and amendment
10.9-Real Estate Lease between Registrant and Jacques J. Hibbert, dated December
10, 1982
10.10-Promissory Note of Registrant issued to Roger Love, dated April 1, 1986
10.11-Promissory Note of Registrant issued to Doris Love, dated April 1, 1986
10.12-Loan Agreement between Registrant and Horizon Bank, N.A., dated March 28,
1986 and amendment dated May 1, 1986
10.13-Mortgage between and among New Jersey Economic Development Authority and
the Hunterdon County National Bank, dated July 1, 1978
10.14-Promissory Note of Roger Love and Doris Love to Horizon Bank, N.A., dated
March 28, 1986
10.15-Installment Sales Contract between and among Roger Love and Doris Love and
the New Jersey Economic Development Authority, dated July 1, 1978
10.16-Assignment of Sales Contract to Horizon Bank, N.A., dated March 28, 1986
10.17-Employment Agreement between Registrant and Roger Love, dated March 1,
1976
10.18-Employment Agreement between Registrant and J. Robert Hoeffler, dated May
1, 1986
10.19-Incentive Stock Option Plan of the Registrant, as amended, and Form of
Option Agreement
10.20-Supply Agreement between the Registrant and Superior Electric Company,
dated August 1, 1986
THE FOLLOWING LIST OF EXHIBITS ARE INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1990:
2-Contract of Acquisition of Siltron Illumination, Inc.
99.1-Commitment letter of Chemical Bank, dated March 28, 1990
THE FOLLOWING LIST OF EXHIBITS ARE INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1992:
10.21-Employment Agreement of Roger Love, dated January 1, 1992
10.22-Employment Agreement of Louis Massad. dated January 1, 1992
10.23-Consulting Agreement of Albert Lange, dated February 24, 1992
22.0-Subsidiaries of the Registrant.
THE FOLLOWING LIST OF EXHIBITS ARE INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993:
99.2-Commitment letter of Chemical Bank, dated March 29, 1993.
17.1-Letter of Resignation of Albert Lange from the Board of Directors, dated
September 18, 1993.
99.3-Notice of Default, dated December 16, 1993.
THE FOLLOWING LIST OF EXHIBITS ARE INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995:
10.24-$300,000 Convertible Debenture.
23
<PAGE>
10.25-$700,000 Subordinated Note.
10.26-Consolidation and Modification of Lease Agreement.
10.27-Consulting and Non-Competitive Agreement with Roger Love.
10.28-Capitalization Agreement with Ready Mix (West Indies), Ltd.
THE FOLLOWING LIST OF EXHIBITS ARE FILED AS PART OF THIS REPORT:
10.29-Resignation of Lindsay Gillette;
10.30-Employment Agreement of Hiro R. Hiranandani dated June 28, 1996;
10.31-Resignation Letter of Louis Massad;
10.32-Warrants issued by Registrant to Kenneth Rind;
10.33-Debt Restructuring Agreement between Registrant and Roger Love;
10.34-Debt Restructuring Agreement between Registrant and Doris Love;
10.35-Debt Restructuring Agreement between Registrant and Ready Mix (West
Indies), Ltd. - Convertible Debenture;
10.36-Debt Restructuring Agreement between Registrant and Ready Mix (West
Indies), Ltd. - Subordinated Note;
10.37-Debt Restructuring Agreement between Registrant and SouthernTech, Ltd.;
10.38-Debt Restructuring Agreement between Registrant and SouthernTech, Ltd.;
10.39-Warrants issued by Registrant to SouthernTech, Ltd.;
10.40-Promissory Note between Registrant and Darby & Darby;
10.41-Promissory Note between Registrant and Hiro R. Hiranandani;
10.42-Promissory Note between Registrant and SouthernTech, Ltd.;
10.43-Extension of Warrants previously issued by Registrant to Rosenthal &
Rosenthal;
10.44-Warrants issued by Registrant to Hiro R. Hiranandani;
10.45-Warrants issued by Registrant to Albert Roth;
10.46-Lease Modification Agreement between Registrant and Roger Love and Doris
Love;
10.47-NOT USED;
10.48-Debt Restructuring Agreement between Registrant and Hiro Hiranandani;
10.49-Promissory Note between Registrant and SouthernTech,
Ltd.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:/s/ Hiro R. Hiranandani
-------------------------------
Hiro R. Hiranandani, President
Dated: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
March 27, 1998
/s/ Hiro R. Hiranandani
- ---------------------------------
Hiro R. Hiranandani, President (CEO) and Director
/s/ Thomas E. Marren, Jr.
- ---------------------------------
Thomas E. Marren, Jr., Vice President and Chief Financial Officer, Secretary
/s/ Lindsay Gillette
- ---------------------------------
Lindsay Gillette, Chairman of the Board of Directors
/s/ Peter Gillette /s/ Clarence Wilcox
- --------------------------------- ----------------------------------
Peter Gillette, Director Clarence Wilcox, Director
/s/ Roger Love /s/ Kenneth Rind
- --------------------------------- ----------------------------------
Roger Love, Director Kenneth Rind, Director
/s/ Richard Hobday
- ---------------------------------
Richard Hobday, Director
25
<PAGE>
COMPUTER POWER INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997
TOGETHER WITH
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Computer Power Inc.:
We have audited the accompanying consolidated balance sheet of Computer Power
Inc. (a New Jersey corporation) and subsidiary as of December 31, 1997, and the
related consolidated statements of operations, changes in shareholders' deficit
and cash flows for each of the two years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Computer Power Inc. and
subsidiary as of December 31, 1997, and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 1997
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 9, 1998 (except with respect
to the matter discussed in Note 7,
as to which the date is April 13, 1998)
27
<PAGE>
<TABLE>
<CAPTION>
COMPUTER POWER INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET -- DECEMBER 31, 1997
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 67,300
Accounts receivable, less allowance of $179,778 for
doubtful accounts 1,312,819
Inventories (Note 1) 1,018,098
Prepaid expenses and other current assets 45,204
----------
Total current assets 2,443,421
----------
PROPERTY AND EQUIPMENT, at cost (Note 1):
Machinery, equipment, vehicles and furniture 1,128,797
Leasehold improvements 333,274
----------
1,462,071
Less-Accumulated depreciation and amortization 1,199,725
----------
262,346
----------
$2,705,767
==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes and other debt payable (Note 2) $ 899,753
Current maturities of long-term debt (Note 2) 60,000
Accounts payable 1,158,435
Accrued liabilities 981,427
----------
Total current liabilities 3,099,615
----------
LONG-TERM DEBT (Note 2) 2,235,000
----------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' DEFICIT (Notes 2 and 4):
Preferred stock, par value $.01 per share; 2,000,000 shares authorized; none
issued Common stock, par value $.01 per share; 12,000,000 shares authorized;
2,602,700 shares issued 26,027
Capital in excess of par value 3,757,119
Accumulated deficit (6,337,306)
Treasury stock, 24,400 shares, at cost (74,688)
----------
(2,628,848)
----------
$2,705,767
==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this balance sheet.
28
<PAGE>
COMPUTER POWER INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---------- -----------
NET SALES $9,537,967 $10,838,816
COST OF SALES 7,518,306 9,600,397
---------- -----------
Gross profit 2,019,661 1,238,419
---------- -----------
OPERATING AND OTHER EXPENSES (Notes 2, 5 and 6):
Selling expenses 1,136,647 1,589,243
General and administrative expenses 1,186,542 1,137,294
Interest expense, net 390,759 403,533
---------- -----------
2,713,948 3,130,070
---------- -----------
Net loss $ (694,287) $(1,891,651)
========== ===========
EARNINGS PER SHARE AVAILABLE TO COMMON
STOCKHOLDERS (a):
Basic EPS-
Net loss $ (.27) $ (.73)
Weighted average common shares outstanding 2,578,300 2,578,300
(a) Diluted EPS is not presented for either period as the effect of the
inclusion of the potential shares would be antidilutive.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
29
<PAGE>
<TABLE>
<CAPTION>
COMPUTER POWER INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Capital in Total
Common Excess of Accumulated Treasury Shareholders'
Stock Par Value Deficit Stock Deficit
------ ---------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,
1995 $26,027 $3,757,119 $(3,751,368) $ (74,688) $ (42,910)
Net loss -- 1996 0 0 (1,891,651) 0 (1,891,651)
------- ---------- ----------- --------- ------------
BALANCE, December 31,
1996 26,027 3,757,119 (5,643,019) (74,688) (1,934,561)
Net loss -- 1997 0 0 (694,287) 0 (694,287)
------- ---------- ----------- --------- ------------
BALANCE, December 31,
1997 $26,027 $3,757,119 $(6,337,306) $ (74,688) $ (2,628,848)
======= ========== =========== ========= ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
30
<PAGE>
<TABLE>
<CAPTION>
COMPUTER POWER INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---------- -------------
<S> <C> <C>
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (694,287) $ (1,891,651)
Adjustments to reconcile net loss to cash (used for) provided by
operating activities-
Depreciation and amortization 59,556 67,874
Writedown of assets 0 136,000
Changes in assets and liabilities-
Accounts receivable, net 42,071 1,058,902
Inventories 520,260 1,050,723
Prepaid expenses and other current assets 30,181 174,956
Accounts payable 48,211 (795,795)
Accrued liabilities 93,379 239,341
Deferred revenue (372,683) 372,683
---------- ------------
Cash (used for) provided by operating activities (273,312) 413,033
---------- ------------
CASH USED FOR INVESTING ACTIVITIES --
Capital expenditures (58,420) (79,077)
---------- ------------
Cash used for investing activities (58,420) (79,077)
---------- ------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of new debt 507,527 485,558
Repayments of debt (177,014) (750,995)
---------- ------------
Cash provided by (used for) financing activities 330,513 (265,437)
---------- ------------
Increase (decrease) in cash (1,219) 68,519
CASH, beginning of year 68,519 0
---------- ------------
CASH, end of year $67,300 $ 68,519
========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 188,444 $ 268,968
========== ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</TABLE>
31
<PAGE>
COMPUTER POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS-
Computer Power Inc. designs, manufactures, markets, and services
products in three distinct market categories: energy efficient
lighting, power protection systems and emergency lighting.
The Company has continued to incur losses and at December 31, 1997 has
a working capital deficiency and a shareholders' deficit. Management
has implemented several programs to reduce costs and to reduce the
break-even point necessary for profitable operations. Management
believes that its 1998 budget, which reflects the anticipated results
of these programs, is reasonable and attainable and will provide
sufficient cash to sustain operations during 1998. In addition, a
principal shareholder of the Company has committed to provide
additional working capital, if necessary.
PRINCIPLES OF CONSOLIDATION-
The consolidated financial statements include the accounts of Computer
Power Inc. (the Company) and its wholly-owned subsidiary,
Uninterruptible Power Systems, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
In addition, the Company owns a 20% interest in Retrofit, Ltd. a
company under the jurisdiction of Trinidad and Tobago, West Indies,
which is carried at no value.
USE OF ESTIMATES-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS-
Statement of Financial Accounting Standards No.121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of." (SFAS No. 121) requires that if certain events or changes in
circumstances indicate that the carrying value of long-lived assets,
identifiable intangibles and goodwill may not by recoverable, an entity
must estimate the undiscounted future cash flows expected to result
from the use or sale of the asset and record an impairment for the
amount by which the carrying value exceeds the discounted fair value.
As a result of this the Company wrote-off $136,000 in patents in 1996.
The Company does not believe that any such change has occurred in 1997.
32
<PAGE>
INVENTORIES-
Inventories, which include material, labor and manufacturing overhead
costs, are stated at the lower of cost (first-in, first-out basis) or
market and consist of-
Raw material $ 631,220
Work in process 295,248
Finished goods 91,630
----------
$1,018,098
==========
PROPERTY AND EQUIPMENT-
Property and equipment are recorded at cost. Depreciation is recorded
primarily on a straight-line basis over estimated useful lives as
follows-
Vehicles 3 years
Computer equipment under capital leases 5 years
Furniture and fixtures 5-7 years
Machinery and equipment 5-10 years
Leasehold improvements are amortized over the life of the lease or
their estimated useful lives, whichever is shorter.
NET LOSS PER SHARE-
Effective for the year ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128 - "Earnings
per Share." The adoption of SFAS No. 128 requires the presentation of
Basic Earnings per Share and Diluted Earnings per Share. Basic Earnings
per Share is based on the average number of common shares outstanding
during the year. Diluted Earnings per Share is based on the average
number of common shares outstanding during the year plus the common
share equivalents related to outstanding stock options. The weighted
average number of shares used in computing basic loss per share was
$2,578,300 in both 1997 and 1996. Diluted EPS is not presented for
either period as the effect of the inclusion of the potential shares
would be antidilutive.
RECLASSIFICATIONS-
Certain reclassifications have been made to the prior year's
consolidated financial statements to conform to the current year
presentation.
33
<PAGE>
<TABLE>
<CAPTION>
(2) DEBT:
<S> <C> <C>
At December 31, 1997, notes and other debt payable include amounts due to
related parties and other lenders as follows-
Revolving credit agreement maturing January 31, 1999, bearing
interest at prime (8.5% at December 31, 1997) plus 3.5% $ 752,184(a)(c)
Subordinated, unsecured note payable due October 31, 1997
bearing interest at 10% 32,000(b)
Subordinated, unsecured notes payable to a director
due October 31, 1997 bearing interest at 10% 19,000(b)
Subordinated, unsecured demand note, bearing interest at 8% 96,569(b)
----------
Total notes and other debt payable $ 899,753
==========
Long-term debt consists of the following at December 31, 1997-
Term loan, bearing interest at prime (8.5% at December 31, 1997) plus
3.5%, with monthly installments of $5,000 due
December 31, 2002 $ 300,000
Subordinated, unsecured notes to a related entity due July 1, 1999
bearing interest at 9.5%, with quarterly interest payments 565,000(b)
Subordinated, unsecured note payable to a director due July 1, 1999,
bearing interest at 9.5%, with quarterly interest payments 150,000(b)
Subordinated note, bearing interest at prime (8.5% at December 31, 1997)
plus 4%, payable in monthly installments of $19,444 plus interest
from September 1, 1997, due August 1, 2000 700,000(b)
Convertible debenture, bearing interest at 9.5%, payable in monthly
installments plus interest from July 1, 1997
until November 2000 300,000(b)(d)
Subordinated, unsecured note to a related entity due February 1, 1998,
bearing interest at 10%, with quarterly interest payments 250,000(b)(d)
Subordinated, unsecured note payable to a director due February 1, 1998,
bearing interest at 10%, with quarterly interest payments 30,000(b)
----------
2,295,000
Less- Current maturities 60,000
----------
Long-term debt $2,235,000
==========
(a) The revolving credit agreement provides for maximum borrowings of
85% of eligible accounts receivable, as defined. The maximum
amount, including any amounts outstanding under the term loan, is
$2,000,000. As of December 31, 1997, approximately $240,000 of
additional borrowings were available under this agreement.
(b) The individual or company holding this note has agreed to the
deferral of all principal and interest until January 1, 1999.
</TABLE>
34
<PAGE>
(c) The revolving credit agreement, which was due to mature on
December 31, 1997, was extended to January 31, 1999. Warrants to
purchase 100,000 shares of common stock at an exercise price of
$.40 per share which were attached to the agreement and scheduled
to expire on December 31, 1997 were extended to January 31, 1999.
The estimated value of these warrants will be recorded as interest
expense from January 1, 1998 through January 31, 1999. The
warrants expire on January 31, 1999.
(d) In the event that the Company does not pay the principal and
interest on February 1, 1998, the maturity date will be extended
to February 1, 1999. In such case, the company would issue the
note holders warrants to purchase 800,000 shares of common stock
at an exercise price of $.35 per share. The estimated value of
these warrants will be recorded as interest expense from February
1, 1998 through January 31, 1999. The warrants expire on February
1, 2001. To the extent the principal of the notes are not repaid
on February 1, 1999, interest will accrue at 14% per annum
thereafter.
The aggregate maturities of long-term debt giving effect to the deferred
principal obligations discussed above, are as follows-
1998 $ 60,000
1999 1,830,694
2000 284,306
2001 60,000
2002 60,000
----------
$2,295,000
==========
Substantially all of the Company's assets have been pledged as security
under the related debt.
(3) INCOME TAXES:
A reconciliation of the consolidated provision for income taxes in the
accompanying statements of operations to that which would be computed at
the U. S. statutory rate is as follows-
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Tax (benefit) provision at statutory rate $ (306,000) $ (640,000)
Provision for valuation allowance 306,000 640,000
---------- ----------
Income tax provision recorded in the financial statements $ 0 $ 0
========== ==========
</TABLE>
35
<PAGE>
Deferred income taxes are provided for temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. The components of the deferred tax asset at December 31,
1997 are as follows-
Accrued interest $ 169,000
Depreciation 96,000
Reserve for slow moving inventory 77,000
Allowance for doubtful accounts 72,000
Accrued warranty costs 49,000
Accrued vacation 25,000
Operating loss carryforwards 2,573,000
----------
3,061,000
Less- Valuation allowance (3,061,000)
----------
Net deferred tax asset $ 0
==========
In accordance with SFAS 109, the Company has evaluated its ability to
realize tax benefits associated with its temporary differences and
operating loss carryforwards. Based on its operating history, the Company
has provided a valuation allowance of 100% against the estimated tax
benefits associated with the operating loss carryforwards and other
temporary differences.
At December 31, 1997, the Company has operating loss carryforwards of
approximately $6,434,000 for income tax return purposes that are
available to offset future taxable income through 2009.
(4) SHAREHOLDERS' EQUITY:
STOCK OPTIONS-
Under the Company's pre-1996 stock option plan, options for the
purchase of up to 500,000 common shares could be granted to officers
and other key employees at prices no less than the fair market value of
the shares on the date of grant. The plan gave the Company the right to
repurchase the options at a price equal to the difference between the
exercise price and market price of the shares at the date the employee
elects to exercise the options. All options have a term of ten years
and are exercisable in equal installments over the five-year period
beginning from the date of grant.
On January 6, 1997, the Company's stockholders approved a 1996 stock
option plan with the same terms and conditions as the pre-1996 plan. On
that date 195,000 options were granted at a price of $.25 per share. On
November 18, 1997 30,000 additional options were granted at a price of
$.125 per share. As of December 31, 1997, 340,000 shares of the
Company's authorized but unissued common stock were reserved for the
potential issuance of stock options.
36
<PAGE>
A summary of the activity in options under the stock option plans are as
follows-
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Number of shares under stock option plans-
Outstanding at beginning of year 233,000 295,000
Granted 225,000 0
Exercised 0 0
Canceled (92,000) (62,000)
------- -------
Outstanding at end of year 366,000 233,000
======= =======
Available for grant at end of year 340,000 267,000
Exercisable at end of year 156,000 148,000
Weighted average exercise price-
Granted .23 --
Exercised - --
Canceled .29 .40
Outstanding at end of year .32 .40
Exercisable at end of year .40 .40
Weighted average fair value of options granted
during the period .21 .65
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------------------------------------------
Weighted Average Weighted Average
Number Outstanding Remaining Exercise Price
Range Of Exercise Prices At December 31, 1997 Contractual Life
------------------------ -------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
$.125-.250 160,000 9.2 years $.23
$.251-.40 206,000 5.3 years $.40
Options Exercisable
--------------------------------------------------
Number Outstanding Weighted Average
Range Of Exercise Prices At December 31, 1997 Exercise Price
------------------------ -------------------- ----------------
$.40 156,000 $.40
</TABLE>
WARRANTS-
On June 21, 1996, 778,000 warrants to purchase shares of the Company's
common stock were granted to two members of the Board of Directors at
varying prices ranging from $.33 to $1.00. In addition, 25,000 warrants
to purchase shares of the Company's common stock were granted to an
outside shareholder for consulting services at an exercise price of
$1.00. On February 13, 1997, all warrants issued subsequent to and
including June 1, 1996 were repriced to $.25 per share. As of December
31, 1997 and 1996 total warrants outstanding were 932,999 and
1,082,999, respectively.
37
<PAGE>
PRO FORMA INFORMATION-
The Company maintains an Incentive Stock Option Plan (the "Plan") which
reserves shares of the Company's common stock for issuance to Company
officers, key employees and other eligible persons as determined by the
Board of Directors, In 1996, the Company adopted the disclosure only
provisions of Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock Based Compensation." Accordingly, no
compensation cost has been recognized for the plan. Had compensation
expense for the warrants and the options which vested in 1997 and 1996
under the Company's plan been determined based on the fair value at the
grant date commensurate with the provisions of SFAS No. 123, the
Company's net loss per share for 1997 and 1996, respectively, would
have been increased to the pro forma amounts indicated below-
1997 1996
---------- -------------
Net income-
As reported $ (694,000) $ (1,891,000)
Pro forma $ (969,000) $ (2,143,000)
Basic earnings per share-
As reported $ (.27) $ (.73)
Pro forma $ (.38) (0.83)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions for grants in 1997 and 1996, respectively:
dividend yield of 0% and 0%; expected volatility of 149%, and 88%;
risk-free interest rate of 6% and 7.84% and expected lives of 5 and 10
years.
The prices of the options granted pursuant to the Plan will not be less
than 100% of the fair market value of the shares on the date of grant.
No award will be exercisable after 10 years from the date of grant.
Grants will vest at the rate of 20% per year starting the year after
the original grant date.
(5) COMMITMENTS AND CONTINGENCIES:
The Company rents its office and plant facilities from its former
principal shareholders under a noncancellable operating lease expiring in
1999. Property taxes, insurance and other related expenses are paid by
the Company. Upon the expiration of the lease in 1999, the Company has
the option to purchase the facilities. If the Company does not exercise
its option, it will be obligated to renew the lease for an additional ten
years.
The minimum annual rentals under the terms of the lease were as follows
as of December 31, 1997-
1998 $237,000
1999 237,000
Rental expense amounted to $237,000 in both 1997 and 1996.
38
<PAGE>
During 1997, the Company purchased approximately $336,000 of material
from Retrofit, a company in which two directors of the Company own a
majority interest. At December 31, 1997, approximately $178,000 was
payable of Retrofit.
(6) BENEFIT PLAN:
The Company maintains a 401(k) plan which covers all eligible employees.
Participants may elect to contribute up to 20% of their annual
compensation, as defined, not to exceed the applicable limitations under
the Internal Revenue Code. The Company provides a matching contribution
of 25% of participant contributions, up to a maximum of 8% of the
participant's compensation. Total 401(k) expense was $19,000 and $21,000
for the years ended December 31, 1997 and 1996, respectively.
(7) SUBSEQUENT EVENT:
On April 13, 1998 the Company's Board of Directors approved the issuance
of 166,079 warrants to the various companies and individuals who agreed
to the deferral of principal and interest related to certain debt as
discussed in Note 2. The exercise price of the warrants will be the
market value of the Company's stock on April 13, 1998. All warrants vest
immediately and expire on April 13, 2003. The estimated value of these
warrants will be recorded as interest expense during 1998.
39
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000792986
<NAME> Computer Power, Inc.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 67,300
<SECURITIES> 0
<RECEIVABLES> 1,492,597
<ALLOWANCES> (179,778)
<INVENTORY> 1,018,098
<CURRENT-ASSETS> 45,204
<PP&E> 1,462,071
<DEPRECIATION> (1,199,725)
<TOTAL-ASSETS> 2,705,767
<CURRENT-LIABILITIES> 3,099,615
<BONDS> 2,235,000
0
0
<COMMON> 26,027
<OTHER-SE> (2,654,875)
<TOTAL-LIABILITY-AND-EQUITY> 2,705,767
<SALES> 9,537,967
<TOTAL-REVENUES> 9,537,967
<CGS> 7,518,306
<TOTAL-COSTS> 7,518,306
<OTHER-EXPENSES> 2,323,189
<LOSS-PROVISION> (303,528)
<INTEREST-EXPENSE> 390,759
<INCOME-PRETAX> (694,287)
<INCOME-TAX> 0
<INCOME-CONTINUING> (694,287)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (694,287)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
