EXHIBIT A
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
For the fiscal year ended December 31, 1999
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
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(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
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Securities registered pursuant to Section 12 (b) of the Exchange act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
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(Title of Class)
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 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: $5,960,595
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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 3, 2000: $385,800.
The number of shares outstanding of each of the issuer's classes of common
equity, as of March 15, 2000, was 3,695,114.
Transitional Small Business Disclosure Format (check one)
Yes No X
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Part I
Item 1. Busines
FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED
This Item 1 contains certain forward-looking statements regarding the Company
and business prospects. These statements are not intended to be assurances, but
merely reflect the present expectations of management. Fulfillment of these
expectations are subject to certain risks and uncertainties posed by many
factors and events that could cause the Company's actual business, prospects and
results of operations to differ materially from those that may be anticipated by
such forward looking statements. Factors that may affect such forward-looking
results include the Company's lack of capital resources, its dependence on
Public Access Lighting for financing, and Public Access Lighting's control of
the Company.
Accordingly no assurances can be given that events or results mentioned
in any such forward-looking statements will in fact occur. When used in this
discussion, words such as "believes" and phrases such as "are expected" and
similar expressions are intended to identify forward looking statements, but are
not the exclusive means of identifying forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report. The Company undertakes no obligation
to revise any forward-looking statements in order to reflect events or
circumstances that may subsequently arise. Readers are urged to carefully review
and consider the various disclosures made by the Company in this report and in
the Company's reports filed with the Securities and Exchange Commission.
The analysis of the Company's financial condition, capital resources
and operating results should be viewed in conjunction with the accompanying
consolidated financial statements, including the notes thereto.
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. The
Astralite brand is focused on the energy efficient lighting market, while the
power protection business is concentrated on the power protection market and
emergency lighting market.
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. As required by fire code, all public buildings must provide for a
minimum of 90 minutes of emergency lighting. This can be accomplished via
generator, battery powered unit lights, or Inverters.
The Company's power protection equipment can be divided into four
sub-categories: double conversion, on-line uninterruptible power systems (UPS),
ferroresonant on-line uninterruptible systems (UPS), fast transfer backup power
systems, and Standard transfer backup power systems.
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The most significant difference among the four categories of power protection
systems is the markets 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 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 High Intensity Discharge (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.
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 (EPA) has launched several major campaigns to
promote energy efficient lighting products
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 technology.
LEDs, first developed in the 1960's, produce light by the excitation of
electrons in a semi-conductor wafer. 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 are their 93% energy savings
and extremely long life as compared to the incandescent lamp. Required by code
in public buildings, the EPA estimates that over 100 million exit signs are in
use today, and this could translate to significant energy savings for customers
who decide to convert to this new solid-state lighting technology.
PRODUCT PRICES AND REVENUES
The retail product price ranges are as follows: (a) energy efficient lighting
$25-$175; (b) power protection systems $150-90,000; (c) line conditioning
equipment $1,500-$22,000; (d) battery chargers $1,700-$4,600; and (e) emergency
lighting equipment $4,400-$92,000.
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MANUFACTURING AND SUPPLY
Power Protection products are manufactured to customer's specifications in the
Company's High Bridge, New Jersey facility. To a limited extent, the Registrant
purchases fully assembled UPS systems from two sources for resale in its
distribution network. Sub-assemblies for the solid-state light emitting diode
retrofit kits for Astralite standard products are manufactured outside the
United States with final assembly at High Bridge into standard products 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. For this reason, the Company is not
dependent on any single source of supplies. It assembles, inspects and tests its
products at various stages of assembly and each finished product undergoes a
complete test prior to shipment.
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.
MAINTENANCE AND SERVICE
The Registrant offers warranties on all its products, including parts and labor,
which 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.
The Registrant performs warranty and repair service on products through its
factory service center at its New Jersey factory, when required or at customer
site. These services are performed pursuant to a written service contract or
upon specific order. Services on its products sold abroad are handled by various
third party agents. For 1999 and 1998 the Registrant had Field Service revenues
of $974,000 and $968,000 against expenses of approximately $617,000, and
$600,000, respectively.
SALES AND MARKETING
The Company distributes 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. The Company also sells to original
equipment manufacturers. For domestic power protection and emergency lighting
product sales, the Company utilizes electrical wholesale distributors and sales
representative companies. In addition, the Registrant makes sales directly to
individual end-users and original equipment manufacturers on certain products.
The Registrant's relationship with its sales representatives is specified by a
written contract, terminable on 30 days notice. The contract provides for
exclusive territorial and product representation and commissions payable to
representatives on their sales from 5% up to approximately 15% depending on
terms and conditions. The sales representatives do not purchase for their own
account and generally will represent other non-competitive products.
The Company markets its Astralite products directly through a select group of
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 High Bridge, NJ. In addition, certain Astralite products are
sold to original equipment manufacturers.
Astralite products are generally discounted to distributors from list, depending
on the product and quantity sold. No individual distributor accounted for more
than 2% of the Company's net sales for 1999.
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 16.5% of revenues in 1999 and 13.0% of revenues in 1998,
respectively. The Company's Astralite and UPS businesses are generally not
seasonal, however, the emergency lighting business parallels construction
industry cycles.
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BACKLOG
As of December 31, 1999 the Registrant's backlog was comprised of approximately
$950,000 in hold-for-release orders and approximately $654,000, represented by
firm customer orders for delivery in the year 2000. This compares with a
December 31, 1998 backlog of $-0- in hold-for-release orders and approximately
$432,000 firm customer orders for delivery in the year 1999. 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. At December 31, 1999, there were no significant orders subject to
cancellation charges.
RESEARCH AND DEVELOPMENT: 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 67 individuals employed at the Registrant's
High Bridge, New Jersey location. Engineering and research and development
expenses were approximately $265,000 in 1999, and $314,000 in 1998.
If the Registrant achieves sufficient capital resources, the Registrant intends
to continue its research and development activities and considers these efforts
vital to its future business development. It anticipates significant expansion
of such efforts primarily directed toward the development of new power
protection products and applications, the improvement of existing products, and
cost reductions.
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 Power, Dual
Lite, Chloride Power Systems, Critical Power and others. Many of its competitors
are owned by larger companies and have greater financial, technical and
marketing resources than the Registrant.
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 Company generally competes on the
basis of price, product performance, features and delivery schedules. The
Company endeavors to position and sell its products at competitive prices in the
market place.
RESEARCH AND DEVELOPMENT
In 1999, the Company designed a new, UL-listed, emergency power system,
consisting of a microprocessor controlled Pulse Width Modulated based DC to AC
power inverter utilizing the latest technology: Insulated Gate Bi-polar
Transistors, a fully automatic battery charger, a transfer relay and control
circuitry, a digital meter display, standard fault alarms and maintenance-free
sealed lead calcium type batteries. This new system will enhance the
manufacturing process by allowing the Company to build the units in components.
This unit will be manufactured in modules using a cell manufacturing process
that should provide manufacturing economies. Moreover, the modular design of
system component assemblies allows ease of servicing and minimizes repair time.
Item 2. Property and Facilities
Since 1985, the Registrant has leased a building of approximately 60,000 square
feet in High Bridge, New Jersey from Roger Love, a director of the Company, and
Doris Love. Annual rent for the year ended December 31, 1999 was $237,000 per
year. The Registrant was also responsible for local property taxes, insurance
premiums, and other related expenses.
During January 2000 the Registrant reduced its space requirement and occupied
the rear 1/2 of the building containing approximately 28,000 square feet,
effective January 31, 2000. During March 2000, the Company received a new lease
offer from its landlords relating to the reduced space utilization. The new
lease, which is still in negotiation, is over a 23-month period ending December
31, 2001 and, if executed, will result in a reduced annual lease cost of
approximately $138,000, inclusive of taxes and insurance. The Company is unable
to provide any assurance that the lease modification will ultimately be accepted
by both parties. At December 31, 1999, the Company was in arrears to the
landlord for approximately $40,000.
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Item 3. Legal Proceedings
A company controlled by a former President, Director, shareholder and supplier
to the Company filed a lawsuit in December 1999. The claim, which is
approximately $106,000, is for material purchases made by the Company from this
company between 1997 through 1999 and arises from a contractual dispute. The
Company disputes the amount of the claim but believes that the claim will be
settled during the year 2000.
Item 4. Submission of Matters to a Vote of Shareholders
No matters were submitted in 1999.
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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 OTC Bulletin Board under 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, 1998 are as follows:
Common Stock (CUWR)
CALENDAR PERIOD HIGH AND LOW BID HIGH AND LOW ASK
--------------- ---------------- ----------------
01/01/98 to 03/31/98 $.37500 $.18750 $.50000 $.31250
04/01/98 to 06/30/98 .18750 .18750 .37500 .25000
07/01/98 to 09/30/98 .18750 .12500 .25000 .18759
10/01/98 to 12/31/98 .25000 .09375 .93750 .31250
01/01/99 to 03/31/99 .34375 .23000 .46875 .32000
04/01/99 to 06/30/99 .34375 .21875 .43750 .32000
07/01/99 to 09/30/99 .24000 .21875 .32000 .25000
10/01/99 to 12/31/99 .28125 .22000 .75000 .25000
Quotations represent prices between dealers, do not include retail mark-ups,
markdowns or commissions and do not necessarily represent actual transactions.
As of December 31, 1999 there were 113 shareholders of record. Based on prior
information from nominee holders, the Company believes the number of beneficial
owners of its common stock exceed 600.
The Registrant has not paid any cash dividends on its Common Stock and does not
intend to do so in the near future.
Item 6. Management's Discussion and Analysis
REVENUES
Power Protection gross revenues decreased from $4,915,000 in the prior year
ended December 31, 1998 to $4,300,000, representing a decrease of approximately
$615,000 or 12.5%. Astralite product gross revenues for the year ended December
31, 1999 were $869,000 compared to $2,259,000, down approximately $1,390,000, or
61.5%. Astralite revenues have been decreasing as the Company has changed its
strategic focus and allocation of financial resources to emphasize power
protection products and related markets. Field Service gross revenues rose
slightly to $974,000 from $968,000 for the prior year, representing an increase
of approximately 1%. Return and allowances and other sales credits in fiscal
1999 approximated $183,000, or approximately 3.0% of net sales, as compared to
$186,000 for the prior year.
As a result of the foregoing, net revenues for 1999 were approximately
$5,960,000 versus approximately $8,443,000 in 1998, representing a decrease of
approximately $2,483,000 or 29.4% below 1998.
COST OF SALES
Cost of sales for 1999 of $4,277,000 was approximately 71.7 % of net sales
compared to approximately $6,421,000 or 76.1% of net sales in 1998. The
improvement in Gross margin to 28.3% from 23.9% is attributable to more
favorable product mix during 1999.
OPERATING AND OTHER EXPENSES
Selling expenses for 1999 were approximately $533,000, representing 8.9% of net
sales compared to $855,000, representing approximately 10.1% of net sales for
1998.
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General and administrative expenses declined approximately $70,000, or 6.6%, to
approximately $975,000 in 1999 from $1,044,000 in 1998. The Company reduced its
average headcount of administrative personnel in 1999 over 1998 in response to a
reduced demand for its products. In order to help mitigate the impact of lower
net sales, the Company has made several cost reduction initiatives, including a
reduction in personnel, realizing expected future savings of approximately
$150,000 per year.
Interest expense for 1999 totaled approximately $128,000 versus approximately
$284,000 in 1998. Interest expense was favorable impacted as a result of
forgiveness on interest resulting from loans extended by certain Note holder's
who are Affiliates of the Company. This interest reduction amounted to
approximately $296,000, which was partially offset by higher costs of borrowed
funds from the Company's primary lender.
As a result of the foregoing, the Company realized operating income before
extraordinary item of approximately $47,000 compared to an operating loss of
approximately $160,000 for the year ended December 31, 1998 . The Company
realized an extraordinary gain on debt compromise of approximately $1,950,000
for fiscal 1999. Certain Affiliates and a former CEO of the Company agreed to
forgive interest and principal amounting to $277,000 and $1,674,000,
respectively. See Extraordinary Item (Note 12) to the Consolidated Financial
Statements for specific details. It is the Company's opinion that it met various
tests of the tax code that make the forgiveness of its debt excludible from Net
Income. Accordingly, the Company has not reserved for any income taxes in
connection with the gain. However, the gain realized from the debt forgiveness
was applied to other tax attributes, specifically the Net Operating Loss
Carryforward. As a result, the Company's Net Operating Loss Carryforward was
reduced to $4,332,279.
As a result of the foregoing, the Company reported net income of $2,000,000 or
$0.59 per share compared to net income of approximately $6,000, or approximately
$0.00 per share.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's investment in Total Assets was about
$2,335,000 compared to the $2,667,000 reported at December 31, 1998. The
significant component of the change is a reduction in accounts receivable of
$464,000 due to lower sales volume. At December 31, 1999, the Company's
Liabilities declined by approximately $2,600,000. The reason for the reduction
in Liabilities was essentially comprised of an extraordinary item- debt
compromise totaling $1,674,000 and approximately $1,000,000 in reduced
borrowings and lower accrued liabilities resulting from lower sales volume.
As a result of the foregoing, a working capital deficit of approximately
$633,000 was reported at December 31, 1999 as compared to a working capital
deficit of $2,662,000 at December 31, 1998.
On January 29, 1999, the Company entered into a FINANCING AND SECURITY AGREEMENT
and AMENDMENT to the FINANCING and SECURITY AGREEMENT with Prin Vest Financial
Corp ("the Lender"), providing for a credit facility of $2,000,000. Borrowings
under the line are based on the Lender's Mobilization Financing program
parameters that are based upon account receivable and inventory advances against
future collections.
At December 31, 1999, the Company was in default of certain of its covenants and
agreements, causing the Lender to issue a Forbearance Agreement limiting and
adjusting certain fees and rights under the original and Amended Security
Agreement. The Company remains in default and is currently negotiating with the
Lender to cure its defaults. The Company is unable to predict if such continuing
negotiations will be successful and if in the event that such negotiations are
not successful the financial outcome from a withdrawal of the current credit
facility.
The Company has experienced periodic cash shortages during the year but has
managed to maintain operations. There is no provision in the line of credit or
with any other lending source for any material commitments; research and
development, or marketing and promotion.
During 1999, management has continued to focus on productivity improvement
programs. These plans included continuing to reduce cost of sales and other
expenses.
During the fourth quarter, the Company began to move its operation into smaller
quarters by moving to the back 1/2 of the building it currently occupies. The
move was accomplished during the first quarter at a cost of about $ 80,000.
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In the fourth quarter of 1998, the Company purchased a year 2000 compliant
enterprise resource planning system. As of December 31st, management implemented
several of the manufacturing and all of the financial reporting modules. During
the first half of 2000, the Company will continue to be actively engaged in
completing the remainder of the modules required to support operations and
financial accounting requirements.
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
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
Susan M. Larson (1) Chairman of the Board 45
James J. Hooley (2) President, Chief Executive and Chief 53
Financial Officer
Roger Love (3) Director 67
(1) Susan M. Larson is the President and CEO of Public Access Lighting, LLC, the
majority shareholder of the Registrant. Public Access Lighting is a
Chicago-based manufacturer and marketer of lighting products serving the
government and commercial markets. Ms. Larson held the position of President of
the House O'Lite Corporation (HOLCOR) from 1986 until the formation of Public
Access Lighting, LLC in October 1998. She is the Managing Member of Public
Access Lighting, LLC.
(2) Mr. Hooley's employment as President is subject to an employment agreement.
The term of this agreement is June 1, 1999 through May 31, 2001. From 1993 to
1996, Mr. Hooley was Vice President, Life Safety Systems at BEST Power Inc. From
1996 until he joined the Company, Mr. Hooley was Group Manager of Prescolite
Life Safety Systems.
(3) 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. Mr. Love has for the past five years been employed as President and
Chief Executive Officer of Drumsurn, a telecommunications service company.
All directors hold office until the next annual meeting of shareholders or until
their successors are duly elected and qualified. Executive officers hold office
until their successors are chosen and qualified.
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, 1999.
The Company has an employment agreement with James J. Hooley, its President. The
agreement provides that the Company will pay Mr. Hooley $120,000 per year and
that he will serve through May 31, 2001. Mr. Hooley was granted an option to
purchase 250,000 shares at $.25 per share under the agreement.
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Item 10. Executive Compensation
The annual and long-term compensation for services performed in all Company
related capacities for the three fiscal years ended December 31, 1999, 1998, and
1997 of those persons who were, at December 31, 1999, the President and Chief
Executive Officer, and other Officers of the Company with annual compensation of
$100,000 or greater follows:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual
Name and Position Year Compensation Long Term Compensation
----------------- ---- ------------ ----------------------
Deferred
Salary Bonus Compensation
<S> <C> <C> <C> <C> <C>
James J Hooley (1) President, CEO & CFO 1999 $54,538 -0- -0-
<FN>
(1) Appointed President on June 1, 1999
</FN>
</TABLE>
<TABLE>
<CAPTION>
Options and Grants in the Last Fiscal Year
Number of Securities
Underlying Options % of Total Options/SAR's Granted to Exercise of Expiration
Name /SAR's Granted Employees in Fiscal Year Base Price Date
---- -------------- ------------------------ ---------- ----
<S> <C> <C> <C> <C> <C>
James J. Hooley 250,000 100% $0.25 12/31/01
</TABLE>
Stock Option Awards
The following tables set forth certain information regarding the stock options
or warrants acquired by the Company's President during the year ended December
31, 1999. There were no options exercised in 1999.
OPTION GRANTS IN CURRENT FISCAL YEAR
<TABLE>
<CAPTION>
Percent
of total
options
Number of granted
securities to Potential realizable value at
underlying employees Exercise assumed annual rates of
Option in fiscal price Expiration appreciation
Name granted Year ($/share) Date for option term
5% 10%
---------------------- ----------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
James J. Hooley 250,000 100% $.25 12/31/01 $6,406 $13,125
</TABLE>
AGGREGATED FISCAL YEAR OPTION VALUES
Number of securities underlying Value of unexercised
unexercised options at fiscal in-the-money
year-end (#) options at fiscal year-end
Name
--------------- ------------------------------- --------------------------
James J. Hooley 250,000 -0-
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, 1999, 282,000 shares were outstanding under the 1996 Plan and
preexisting plans (collectively "the Plans") of which 26,000 shares have vested.
10
<PAGE>
The Plans are 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 granted under the Plans are not transferable other than by will or by
the laws of descent and distribution. Options granted under the Plans are
protected by anti-dilution provisions increasing the number of shares issuable
thereunder and reducing the exercise price of such options, under certain
conditions. The 1996 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 250,000 stock options granted and 365,000 stock options canceled for
individuals that left the Company pursuant to the Registrant's Plan during the
fiscal year ended December 31, 1999. 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.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of March 3, 2000, 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
James J. Hooley-President, CEO & CFO 250,000 6.34%
124 Main Street
High Bridge, NJ 08829
Roger Love - Director 464,739 12.57%
124 W. Main St.
High Bridge, NJ 08829
Susan M. Larson - Director 2,102,114(2) 56.89%
c/o Public Access Lighting, LLC
13603 South Halsted Street
Riverdale, Illinois 60627
All directors and officers 2,816,853 71.34%
as a group
(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.
11
<PAGE>
(2) Public Access Lighting, LLC, purchased 1,000,000 Common Shares as part of a
financing transaction, which included the acquisition of certain Company notes
and warrants. On May 25, 1999, Public Access Lighting exercised these warrants
and purchased an additional 1,102,114 common shares.
Item 12. Certain Relationships and Related Transactions
During 1999 the Company leased its office and plant facilities from its former
principal shareholders under an operating lease that expired in 1999. The
Company is negotiating another lease for approximately 28,000 square feet. The
proposed annual rental is approximately $138,000 per year. During 1999 and 1998,
the Company recorded $237,000 as rental expense per year.
On January 29, 1999 John Perry, who was President of the Company at the time,
purchased 250,000 shares for $10,000. The Company repurchased and cancelled the
250,000 shares for $30,000 on April 12, 1999, the day of his resignation. The
options granted in 1998 under his employment contract were canceled.
In January 1999, Public Access Lighting, LLC, purchased certain Company notes,
warrants and shares of common stock. Immediately after that transaction, Susan
Larson, President of Public Access Lighting was elected to the Company's Board
of Directors. On May 25, 1999, Public Access Lighting exercised the warrants and
purchased 1,102,114 common shares at $.25 per share. It paid for those shares by
surrendering approximately $275,000 in principal amount of debt. In conjunction
with the purchase, Public Access Lighting, LLC agreed to forgive the remaining
principal notes and accrued interest, totaling $1,770,000.
12
<PAGE>
PART IV.
Item 13. Exhibit List and Reports on Form 8-K:
The following documents are filed as part of this Report: 1. Financial
Statements, 2. (a) Exhibits as indicated and 3. (b) Reports filed on Form 8-K as
indicated.
1. Consolidated Financial Statements:
Index to Consolidated Financial Statements
Report of Independent Auditor
Consolidate Balance Sheet as of December 31, 1999
Consolidated Statement of Operations for each of the years in
the two-year period ended December 31, 1999.
Consolidated Statements of Stockholders' Equity for each of
the years in the two-year period ended December
31, 1999.
Consolidated Statements of Cash Flows for each of the years in
the two-year period ended December 31, 1999.
Notes to Consolidated Financial Statements for each of
the years in the two-year period ended December
31, 1999 and 1998.
2.(a) 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, its Registration Statement filed on Form 8-A
and its Annual Report on Form 10-K for the fiscal year ended December 31, 1986
pursuant to the Securities Exchange Act of 1934, as amended:
Exhibit Number
3.1 Articles of Incorporation, as amended
3.2 By-Laws of Registrant, as amended
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
Filed as an exhibit to the Registrant's Form 10-KSB for the fiscal year ended
December 31, 1994 and incorporated herein by reference:
10.26 Consolidation and Modification of Lease Agreement
Filed as an exhibit to the Registrant's Form 10-KSB for the fiscal year ended
December 31, 1996 and incorporated herein by reference:
10.46 Lease Modification Agreement between Registrant and Roger Love and Doris
Love
Filed as an exhibit to the Registrant's Form 10-KSB for the fiscal year December
31, 1999:
10.56 Employment Agreement dated as of June 1, 1999, by and between the Company
and James Hooley, appointing Mr. Hooley the President of the Company.
10.57 Financing and Security Agreement between PrinVest Financial Corp and the
Company, dated January 29, 1999
10.58 First Amendment to the Financing and Security Agreement between PrinVest
Financial Corp and the Company, dated March 1, 1999
10.69 Forbearance Agreement between PrinVest Financial Corp and the Company,
dated December 23, 1999
3.(b) Reports Filed on Form 8-K During Applicable Period: None
13
<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 ___________________________________________
James J. Hooley, President, Chief Executive
Officer & Chief Financial
Officer
Dated: March 31, 2000
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 31, 2000
___________________________________
James J. Hooley, President, Chief Executive Officer & Chief Financial Officer
___________________________________
Susan M. Larson, Director
___________________________________
Roger Love, Director
14
<PAGE>
Computer Power Inc. And Subsidiary
Consolidated Financial Statements As Of December 31, 1999
Together With
Report Of Independent Public Accountants
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Computer Power, Inc.
We have audited the accompanying consolidated balance sheet of Computer Power,
Inc. (a New Jersey Corporation) as of December 31, 1999, and the related
consolidated statements of operations, shareholders' deficit and cash flows for
the years ended December 31, 1999 and 1998. 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 assurances 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, 1999, and the results of their operations and
their cash flows for the years ended December 31, 1999 and 1998 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in the Notes to the
Consolidated Financial Statements, the Company is in default on certain
covenants and debt agreements and has a working capital deficiency and a
stockholders' deficit These conditions raise substantial doubt about its ability
to continue as a going concern. Management's plans regarding those matters also
are described in the Notes to the Consolidated Financial Statements. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Rosenberg Rich Baker Berman & Company
A Professional Association of Certified Public Accountants
Bridgewater, New Jersey
March 15, 2000
16
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DECEMBER 31, 1999
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 58,168
Accounts receivable, (Less allowance of $ 53,395 for Doubtful Accounts) 1,014,506
Inventories (Note 1) 812,336
Prepaid expenses and other current assets 51,266
-----------
Total current assets 1,936,277
PROPERTY AND EQUIPMENT, at cost (Note 1):
Machinery, equipment, vehicles and furniture 1,400,125
Leasehold improvements 353,518
-----------
Subtotal 1,753,644
Less-Accumulated depreciation and amortization (1,354,540)
-----------
Net Property and Equipment 399,103
TOTAL ASSETS $ 2,335,380
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes and other debt payable (Note 4) $ 1,282,134
Current maturities of long-term debt (Note 4) 7,482
Accounts payable 872,550
Capital leases-current maturities 50,547
Accrued liabilities 355,249
-----------
Total current liabilities 2,568,962
LONG-TERM LIABILITIES (Note 4)
Capital Leases excluding current maturities 37,068
Long term debt excluding current maturities 77,643
-----------
Total long-term liabilities 114,711
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' DEFICIT (Notes 4 and 6):
Preferred stock, par value $.01 per share; 2,000,000 shares
authorized; none outstanding
Issued Common stock, par value $.01 per share; 12,000,000 shares
authorized; 3,695,114 shares 36,951
issued; 3,670,714 outstanding
Capital in excess of par value 4,021,723
Accumulated deficit (4,332,279)
Treasury stock , 24,400 shares, at cost (74,688)
-----------
Total Shareholders' Deficit (348,293)
TOTAL LAIBILITIES AND SHAREHOLDERS' DEFICIT $ 2,335,380
===========
</TABLE>
See notes to the Consolidated Financial Statements
17
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
<S> <C> <C>
NET SALES $ 5,960,595 $ 8,443,473
COST OF SALES 4,277,549 6,420,742
----------- -----------
Gross profit 1,683,046 2,022,731
OPERATING AND OTHER EXPENSES (Notes 4, 7 and 8):
Selling expenses 533,040 854,852
General, Engineering and Administrative expenses 975,218 1,043,689
----------- -----------
Total Selling, General, Engineering & Administrative expenses 1,508,258 1,898,541
Earnings Before Interest and Extraordinary Item 174,788 124,190
Interest expense, net 128,034 283,479
----------- -----------
Income (Loss) From Continuing Operations Before Extraordinary Item $ 46,754 $ (159,289)
Extraordinary Item (Net of Income Taxes of $0) $ 1,952,195 $ 165,367
Net Income (Loss) $ 1,998,949 $ 6,078
=========== ===========
EARNINGS (LOSS) PER SHARE AVAILABLE TO COMMON STOCKHOLDERS (a):
Basic EPS-
Income (Loss) From Continuing Operations $ 0.01 $ (0.06)
Extraordinary Item 0.58 0.06
Net Income (Loss) $ 0.59 $ 0.00
Weighted average common shares outstanding 3,358,503 2,578,300
<FN>
(a) Diluted EPS is not presented for either period, as the effect of the
inclusion of the potential shares would be antidilutive.
</FN>
</TABLE>
See notes to the Consolidated Financial Statements
18
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Capital in Total
Common Excess of Accumulated Treasury Shareholders'
Stock Par Value Deficit Stock Deficit
----------- -------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE - December 31, 1997 25,930 3,757,216 (6,337,306) (74,688) (2,628,848)
Net Income - 1998 0 0 6,078 0 6,078
----------- -------------- --------------- ----------- ---------------
BALANCE - December 31, 1998 25,930 3,757,216 (6,331,228) (74,688) (2,622,770)
Warrant Exercise - 1999 11,021 264,507 0 0 275,528
Net Income - 1999 0 0 1,998,949 0 1,998,949
----------- -------------- --------------- ----------- ---------------
BALANCE - December 31, 1999 36,951 4,021,723 (4,332,279) (74,688) (348,293)
=========== ============== =============== =========== ===============
</TABLE>
Common Stock Treasury Common Stock
Issued Shares Outstanding
------------- ---------- ------------
BALANCE - December 31, 1997 2,593,000 (24,400) 2,568,600
BALANCE - December 31, 1998 2,593,000 (24,400) 2,568,600
Common Shares Issued 1,352,114
Common Shares Retired (250,000)
BALANCE - December 31, 1999 3,695,114 (24,400) 3,670,714
============= ========== =============
See notes to the Consolidated Financial Statements
19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $ 1,998,949 $ 6,078
Items not affecting Cash
Depreciation and amortization 89,138 65,677
Debt Forgiveness (1,952,195) -0-
----------- ---------
Subtotal 135,892 71,755
Adjustments to reconcile net income to
cash provided by Operating activities
Changes in assets and liabilities-
Accounts receivable, net 464,431 (166,118)
Inventories (69,345) 275,107
Prepaid expenses and other current assets (18,552) 12,490
Accounts payable 74,684 (359,569)
Accrued liabilities (381,249) 171,311
----------- ---------
Cash provided by operating activities 69,970 4,976
CASH USED FOR INVESTING ACTIVITIES:
Capital expenditures (139,587) (151,986)
----------- ---------
Cash used for investing activities (139,587) (151,986)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of new debt 294,124 232,914
Repayments of debt (365,435) (90,000)
Warrant exercise: Retirement of Debt (275,528) -0-
Warrant exercise: Issuance of Common Stock 275,528 -0-
----------- ---------
Cash provided by (used for)
financing activities (71,311) 142,914
Increase (decrease) in cash $ (5,036) $ (4,096)
=========== =========
CASH, beginning of year $ 63,204 $ 67,300
CASH, end of year $ 58,168 $ 63,204
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $106,402 $145,039
Income Taxes paid $200 $200
See notes to the Consolidated Financial Statements
20
<PAGE>
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.
Going Concern Uncertainty
At December 31, 1999 the Company is in default on certain
covenants and debt agreements and had a working capital
deficiency and a shareholders' deficit. This raises
substantial doubt of the Company's ability to continue as a
going concern.
Management is working closely with its lenders to cure the
defaults. These defaults revolve around the transition from
the Company's non-Y2K compliant Accounting and Manufacturing
system and its new Y2K compliant system. . As of December
31st, management implemented several of the manufacturing and
all of the financial reporting modules. During the first half
of 2000, the Company will continue to be actively engaged in
completing the remainder of the modules required to support
operations and financial accounting requirements.
Furthermore, management has implemented several programs to
reduce costs and to reduce the break-even point necessary for
profitable operations. Management believes that its 2000
budget, which reflects the anticipated results of these
programs, is reasonable and attainable and will provide
sufficient cash to sustain operations during 2000.
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.
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.
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 $ 389,320
Work in process 111,901
Finished goods 384,875
Reserve for Scrap and Obsolescence (73,760)
--------
$812,336
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-
21
<PAGE>
Vehicles 3 years
Computer equipment under capital leases 3-5 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. Repairs and
maintenance, which do not add to the useful life of the
underlying assets, are expensed as incurred.
Revenue Recognition
Sales revenue is recognized at the date of shipment to the
customer.
Advertising Costs
Advertising costs are charged to operations when incurred.
Advertising expense was approximately $11,858 and $110,000 for
the years ended December 31, 1999 and 1998, respectively.
Research and Development Costs
Research and development costs are charged to operations as
incurred and amounted to approximately $265,000 and $314,000
in 1999 and 1998, respectively.
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
gain or loss per share was 3,358,503 in 1999 and 2,578,300 in
1998. Diluted EPS is not presented for either period, as the
effect of the inclusion of the potential shares would be
anti-dilutive.
(2) ACCRUED LIABILITIES
At December 31, 1999 accrued liabilities were as follows-
Accrued Interest $41,318
Accrued Warranty $123,063
Accrued Payables-Other $43,520
Accrued Wages and Salaries $67,502
Miscellaneous Accrued Liabilities $79,846
-------
Total accrued liabilities $355,249
(3) CAPITAL LEASES
The Company leases certain equipment under capital leases expiring in
various years through 2002. The assets and liabilities under capital
leases are recorded at the lower of the present value of the minimum
lease payments or the fair value of the asset at the inception of the
lease. The assets are amortized over the lower of their related lease
terms or their estimated productive lives. Amortization of assets under
capital leases is included in the depreciation expense in 1999 and
1998.
22
<PAGE>
Properties under capital leases are as follows:
December, 31
1999 1998
Telephone equipment $ 65,127 $ 65,127
Data Processing equipment $109,000 $150,496
-------- --------
Subtotal $174,127 $215,623
Less accumulated depreciation $ 35,433 $ 62,696
-------- --------
Total $138,694 $152,927
The following is a schedule of minimum lease payments due under capital
leases as of 12/31/99.
Year Ending, December 31, 1999
2000 $56,986
2001 $39,005
-------
Total net minimum capital lease payments 95,991
Less amounts representing interest $8,376
------
Present value of net minimum capital lease payments $87,615
Less current maturities of capital lease obligations $50,547
-------
Obligations under capital leases, excluding current maturities $37,068
-------
(4) DEBT:
At December 31,1999, notes and other debt payable include amounts due
to related parties and other lenders as follows-
<TABLE>
<CAPTION>
Principal
Amount Note
---------- ------
<S> <C> <C>
Secured Revolving Credit Agreement, bearing interest at Prime plus 2 $ 925,565 (a)(b)
Secured Working Capital Loans from a related party, bearing interest at 260,000
10% due June 15, 2000
Subordinated, unsecured demand note, bearing interest at 8% 96,569
----------
Total notes and other debt payable 1,282,134
==========
Long-term debt consists of the following at December 31, 1999-
Subordinated unsecured note payable due October 31, 1997 bearing interest 32,000 (b)
at 10%. This note has been extended indefinitely.
Subordinated unsecured notes payable to a director due October 31, 1997 19,000 (b)
bearing interest at 10%. This note has been extended indefinitely.
Term Loans, secured by corporate vehicles due November 30, 2003, bearing 34,125
interest at 13.75%
----------
85,125
Less- Current maturities 7,482
----------
Long-term debt 77,643
==========
<FN>
(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.
(b) The individual or company holding this note has
agreed to the deferral of all principal and interest.
(c) On January 29, 1999, the Company entered into a
FINANCING AND SECURITY AGREEMENT and AMENDMENT to the
FINANCING and SECURITY AGREEMENT with Prin Vest
Financial Corp ("the Lender"), providing for a credit
facility of $2,000,000. Borrowings under the line are
based on the Lender's Mobilization Financing program
parameters that are based upon account receivable and
inventory advances against future collections.
23
<PAGE>
At December 31, 1999, the Company was in default of
certain of its covenants and agreements, causing the
Lender to issue a Forbearance Agreement limiting and
adjusting certain fees and rights under the original
and Amended Security Agreement. The Company remains
in default and is currently negotiating with the
Lender to cure its defaults. In the event that such
negotiations are not successful, a withdrawal of the
current credit facility could have a materially
adverse effect on the Company.
Substantially all of the Company's assets have been
pledged as security under the related debt.
</FN>
</TABLE>
(5) 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-
1999 1998
Tax (benefit) provision at statutory rate 1,357,000 $21,000
Provision for valuation allowance (1,357,000) (21,000)
----------- --------
Income tax provision recorded in
the financial statements $0 $0
========== ========
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, 1999 are as follows-
Accrued interest 17,000
Depreciation 6,000
Reserve for slow moving inventory 30,000
Allowance for doubtful accounts 21,000
Accrued warranty costs 49,000
Accrued vacation 26,000
Operating loss carryforwards 1,534,000
---------
1,683,000
Less- Valuation allowance (1,683,000)
-----------
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 carry
forwards and other temporary differences.
At December 31, 1999, the Company has operating loss carry forwards of
approximately $3,385,000 for income tax return purposes that are
available to offset future taxable income expiring through December 31,
2018.
(6) 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.
24
<PAGE>
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.
All these options have been cancelled. On June 1, 1999,
250,000 options were granted at a price of $.25 per share. As
of December 31, 1999, 282,000 shares of the Company's
authorized but unissued common stock were reserved for the
potential issuance of stock options.
A summary of the activity in options under the stock option
plans is as follows-
1999 1998
---- ----
Number of shares under stock option plans-
Outstanding at beginning of year 397,000 366,000
Granted 250,000 200,000
Exercised 0 0
Canceled (365,000) (169,000)
Outstanding at end of year 282,000 397,000
Available for grant at end of year 218,000 219,000
Exercisable at end of year 26,000 142,000
Weighted average exercise price-
Granted $ 0.25 $ 0.19
Exercised $ 0.05 $ 0.00
Canceled $ 0.33 $ 0.33
Outstanding at end of year $ 0.26 $ 0.32
Exercisable at end of year $ 0.36 $ 0.36
Weighted average fair value of options
granted during the period $ 0.25 $ 0.22
<TABLE>
<CAPTION>
Number of Securities Options Outstanding
---------------------------------------------------------------------------
Number Outstanding At Weighted Average Remaining Weighted Average
Range of Exercise Prices December 31, 1999 Contractual Life Exercise Price
------------------------- ----------------- ---------------- --------------
<S> <C> <C> <C>
$.125-.25 260,000 9.3 years $0.19
$.251-.40 22,000 4.2 years $0.40
</TABLE>
Options Exercisable
--------------------------------------------------
Number Outstanding Weighted Average
Range of Exercise Prices At December 31, 1999 Exercise Price
------------------------ -------------------- --------------
$.25-$.40 26,000 $0.38
25
<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 1999 and 1998
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 1999 and
1998, respectively, would have been increased to the pro forma
amounts indicated below-
1999 1998
---- ----
Net income (loss)-
As reported $1,998,949 $6,078
Pro forma $1,959,709 $(250,459)
Basic earnings (loss) per share-
As reported $0.59 $0.00
Pro forma $0.58 ($0.10)
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 1999 and
1998, respectively: dividend yield of 0% and 0%; expected
volatility of 98% and 161%, risk-free interest rate of 4.5%
and 4.5% 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.
(7) COMMITMENTS AND CONTINGENCIES:
------------------------------
(A) The minimum annual rentals under the terms of the lease were
as follows as of December 31, 1999.
2000 $145,975
2001 $137,700
Rental expense amounted to $237,000 in both 1999 and 1998.
(8) BENEFIT PLAN:
-------------
The Company maintains a 401(k) plan that 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 $17,632 and $15,000
for the years ended December 31, 1999 and 1998, respectively.
(9) MAJOR CUSTOMERS
For the year ended December 31, 1999, the Company had a major customer,
sales to which represented approximately 16.5% of the Company's revenues.
The company had an accounts receivable balance due from this customer of
approximately $74,000 at December 31, 1999. The loss of this customer
would have a materially adverse affect on the Company.
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(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable, accrued expenses, notes
payable, long-term debt, and capitalized lease obligations:
The carrying amount approximates fair value because of the
short-term maturity of these instruments.
Limitations: Fair value estimates are made at the specific point in
time, based on relevant information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and therefore cannot
be determined with precision. Changes in assumptions could
significantly affect the estimates.
(11) EXTRA ORDINARY ITEM
On June 30, 1999, a former President, CEO and Director forgave $135,000 out of
$180,000 in original principal as well as $47,000 in Accrued Interest. The
$135,000 in principal forgiveness and approximately $47,000 in Accrued Interest
are being recognized as an Extraordinary Item.
In January 1999, Public Access Lighting, LLC purchased certain Company notes,
warrants and shares of common stock. On May 25, 1999, Public Access Lighting
exercised the warrants and purchased 1,102,114 common shares at $.25 per share.
It paid for those shares by surrendering approximately $275,000 in principal
amount of debt. In conjunction with the purchase, Public Access Lighting, LLC
agreed to forgive the remaining principal notes and accrued interest, totaling
$1,770,000. This forgiveness is being recognized as an Extraordinary Item.
It is the Company's opinion that it met various tests of the tax code that make
the forgiveness of its debt excludible from Net Income. Accordingly, the Company
has not reserved for income taxes. The Company did apply the gain against other
tax attributes, namely the Net Operating Loss Carryforward. Because of the
change in control that occurred in January 1999, the Company will be limited in
its ability to fully apply the Net Operating Loss Carryforward to future
profits, if any.
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