<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended March 31, 1999.
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______________to ______________.
Commission File No. 0-1921
POWER DESIGNS INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer as specified in its charter)
DELAWARE 11-1708714
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
14 COMMERCE DRIVE, DANBURY, CONNECTICUT 06810
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(203) 748-7001
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
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 |_| NO |X|
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13 and 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
YES |_| NO |X|
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
2,391,493 as of November 17, 1998
Transitional Small Business Issuer Format (check one):
YES |_| NO |X|
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POWER DESIGNS, INC.
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of
March 31, 1999 and 1998...............................................5
Condensed Consolidated Statement of Operations for
the nine months ended March 31, 1999 and 1998.........................6
Condensed Consolidated Statement of Changes
in Stockholders' Deficit for the nine months ended
March 31, 1999 and 1998...............................................7
Condensed Consolidated Statement of Cash Flows for
the nine months ended March 31, 1999 and 1998.........................8
Notes to Condensed Consolidated Financial Statements..................9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS...........................................................13
PART II - OTHER INFORMATION
Item 3. DEFAULTS ON SENIOR SECURITIES........................................17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................18
Signatures....................................................................19
3
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
4
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POWER DESIGNS, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 132,004 $ 18,616
Accounts receivable, less allowance for doubtful accounts 353,901 548,857
of $0 in 1999; $0 in 1998
Inventories 812,364 860,367
Prepaid expenses 27,730 16,778
------------ ------------
TOTAL CURRENT ASSETS 1,325,999 1,444,618
------------ ------------
Equipment and Leasehold Improvements, net 429,660 721,089
------------ ------------
Other Assets:
Other assets 164,937 22,041
------------ ------------
164,937 22,041
------------ ------------
TOTAL ASSETS $ 1,920,596 $ 2,187,748
============ ============
LIABILITIES AND STOCKHOLDERS'
DEFICIT
Current Liabilities
Debtor in possession facility $ 245,000 $ 245,000
Advances under factoring agreement 172,681 250,772
Accounts payable 120,922 59,853
Accrued expenses 201,556 35,255
Accrued interest 4,162 4,243
------------ ------------
TOTAL CURRENT LIABILITIES 744,321 595,123
------------ ------------
Long-Term Liabilities
Liabilities subject to compromise 15,671,321 14,765,560
------------ ------------
15,671,321 14,765,560
------------ ------------
TOTAL LIABILITIES 16,415,642 15,360,683
------------ ------------
Stockholders' Deficit
Common stock , $.0001 par value. 10,000,000 shares authorized 240 240
2,391,493 shares issued and outstanding at March 31, 1999
and 1998
Preferred stock, $.01 par value, 1,000,000 shares authorized; 3,167 3,167
316,743 shares issued and outstanding at March 31, 1999
and 1998
Additional paid-in capital 1,382,807 1,382,807
Accumulated deficit (15,881,260) (14,559,149)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (14,495,046) (13,172,935)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,920,596 $ 2,187,748
============ ============
</TABLE>
5
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POWER DESIGNS, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
For The Three and Nine Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
3 months ended 3 months ended 9 months ended 9 months ended
March 31, 1999 March 31, 1998 March 31, 1999 March 31, 1998
<S> <C> <C> <C> <C>
Net Sales $ 604,698 $ 523,907 $ 2,161,598 $ 1,760,746
Cost of Sales 411,984 434,830 1,400,805 3,035,123
----------- ----------- ----------- -----------
GROSS PROFIT (LOSS) 192,714 89,077 760,793 (1,274,377)
Operating Expenses
Selling, general and admin. expense 164,628 339,467 517,824 1,571,769
Research and development 36,138 74,517 113,669 345,022
Depreciation and amortization 8,672 8,745 26,556 3,131,000
----------- ----------- ----------- -----------
209,438 422,729 658,049 5,047,791
NET PROFIT (LOSS) BEFORE OTHER INCOME
(EXPENSE) AND REORGANIZATION ITEMS (16,724) (333,652) 102,744 (6,322,168)
----------- ----------- ----------- -----------
Other income (expense):
Investment income 1,218 8,260 6,111 11,931
Interest expense (31,601) (115,889) (123,069) (1,067,818)
----------- ----------- ----------- -----------
OTHER EXPENSE (30,383) (107,629) (116,958) (1,055,887)
----------- ----------- ----------- -----------
NET LOSS BEFORE REORGANIZATION ITEMS (47,107) (441,281) ($ 14,214) (7,378,055)
Reorganization items 4,000 29,000 65,885 29,000
----------- ----------- ----------- -----------
NET LOSS $ (51,107) $ (470,281) $ (80,099) $(7,407,055)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 2,391,493 2,391,493 2,391,493 2,391,493
=========== =========== =========== ===========
Net loss per share $ (0.02) $ (0.20) $ (0.03) $ (3.10)
=========== =========== =========== ===========
</TABLE>
6
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POWER DESIGNS, INC.
Condensed Consolidated Statement of Changes in Stockholders' Deficit
(Unaudited)
For The Three and Nine Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Preferred Stock
Additional
Shares Par Shares Par Paid In Accumulated
Issued Value Issued Value Capital Deficit
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $ (7,152,094)
Net loss -- -- -- -- -- (6,936,774)
Balance, December 31, 1997 2,391,493 240 316,743 3,167 1,382,807 (14,088,868)
Net loss -- -- -- -- -- (470,281)
------------ ------------ ------------ ------------ ------------ ------------
Balance, March 31, 1998 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(14,559,149)
============ ============ ============ ============ ============ ============
Balance, June 30, 1998 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(15,801,161)
Net loss -- -- -- -- -- (28,992)
Balance, December 31, 1998 2,391,493 240 316,743 3,167 1,382,807 (15,830,153)
Net Loss -- -- -- -- -- (51,107)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1999 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(15,881,260)
============ ============ ============ ============ ============ ============
</TABLE>
7
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POWER DESIGNS, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
For The Nine Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
9 months ended 9 months ended
March 31, 1999 March 31, 1998
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (80,099) $(7,407,055)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 113,477 3,234,750
Reorganization items 65,885 29,000
Changes in operating assets and liabilities, net of assets
acquired in business combination:
Decrease (increase) in accounts receivable 139,694 180,285
Decrease (increase) in inventories (45,926) 1,031,881
Decrease (increase) in prepaid expenses 6,760 (15,255)
Decrease (increase) in other assets (24) 53,572
Increase (decrease) in accounts payable and accrued expenses (11,438) 1,011,721
Increase (decrease) in payables related to reorganization -- 86,460
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES BEFORE REORGANIZATION ITEMS 188,330 (1,794,640)
----------- -----------
Reorganization items
Reorganization items paid (12,000) (28,000)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 176,330 (1,822,640)
Cash Flows From Investing Activities
Purchase of property and equipment (5,041) (115,584)
Payments related to assets acquired -- (21,907)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (5,041) (137,491)
Cash Flows From Financing Activities
Net increase (decrease) in advances from affiliates -- 1,135,983
Capital lease obligations incurred on equipment net
of principal repayments -- 60,094
Payment of deferred financing costs -- (25,000)
Proceeds from notes payable -- 558,000
Principal payments on notes payable -- (10,000)
Advances (repayments) under factoring agreement (80,646) 250,772
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (80,646) 1,969,849
----------- -----------
NET INCREASE (DECREASE) IN CASH 90,642 9,717
Cash (overdraft) and cash equivalents, beginning of period 41,362 8,899
----------- -----------
Cash (overdraft) and cash equivalents, end of period $ 132,004 $ 18,616
=========== ===========
</TABLE>
8
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POWER DESIGNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Power Designs, Inc. (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission applicable to a
going concern. These rules assume that assets will be realized and liabilities
will be discharged in the normal course of business. The Company and its
wholly-owned subsidiary filed petitions for relief under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") on January 22, 1998 (the "Filing").
The Debtors are presently operating their business as debtors-in-possession
subject to the jurisdiction of the United States Bankruptcy Court for the
Bridgeport District of Connecticut (the "Bankruptcy Court").
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
management of the Company believes that the disclosures are adequate to make the
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the notes thereto. In the opinion
of the management of the Company, the condensed consolidated financial
statements include all adjustments, consisting of only normal recurring
adjustments, necessary to fairly present the results for the interim periods to
which these financial statements relate.
The results of operations for the nine months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full year.
The consolidated statements of operations for the periods ended March 31, 1999
and March 31, 1998 include the operations of PDIXF Acquisition Corporation for
these same periods respectively.
Certain reclassifications have been made to the prior period's financial
statements to conform with classifications used in the current period.
NOTE 2. - PETITION FOR RELIEF UNDER CHAPTER 11
In the Chapter 11 case, substantially all liabilities as of the date of the
Filing are subject to resolution under a plan of reorganization to be voted upon
by the Debtors' creditors and stockholders and confirmed by the Bankruptcy
Court. Schedules have been filed by the Debtors with the Bankruptcy Court
setting forth the assets and liabilities of the Debtors as of the Filing as
shown by the Debtors' accounting records. Differences
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between amounts shown by the Debtors and claims filed by creditors will be
investigated and reconciled. The amount and settlement terms for such disputed
liabilities are subject to allowance by the Bankruptcy Court. Ultimately the
adjustment of the total liabilities of the Debtors remains subject to a
Bankruptcy Court approved plan of reorganization, and, accordingly, the amount
of such liabilities is not presently determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts and
other executory pre-petition contracts, subject to Bankruptcy Court approval.
The Debtors continue to review leases and contracts, as well as other
operational changes, and cannot presently determine or reasonably estimate the
ultimate outcome of, or liability resulting from, this review. Claims secured
against the Debtors' assets ("secured claims") also are stayed, although the
holders of such claims have the right to move the Court for relief from the
stay. Secured claims are secured primarily by liens on the Debtor's machinery,
equipment and accounts receivable.
Note 3. Liabilities Subject to Compromise
Liabilities subject to compromise are as follows:
<TABLE>
<S> <C>
Notes payable - affiliated companies $ 7,015,553 (a)
Notes payable - preferred shareholders 1,087,415 (a)
Notes payable - seller of assets acquired 990,000 (a)
Notes payable - others 2,266,500
Accounts payable 2,388,677
Accrued expenses 375,135 (b)
Accrued interest 1,017,719
Accrued warranty expense 198,864
Capital lease obligation 142,872 (a)
Payables related to 1994 reorganization including
accrued interest 188,586
-----------
Total $15,671,321
===========
</TABLE>
(a) Notes payable to affiliated companies, preferred shareholders and seller
of assets acquired, as well as capital lease obligation, include secured
debt, which should be considered, due to various factors, subject to
compromise. The Plan of Reorganization filed May 12, 1998, provides for
allowed secured claims of $2,700,000 against outstanding secured notes of
$9,092,968. As a result of this compromise, the Debtor has accrued
interest on these, as well as other obligations through June 30, 1998.
Additional interest in the amount of $1,175,757 on these secured
obligations was incurred but not yet accrued for the nine months ended
March 31, 1999. Refer to Note 5, for a discussion of the credit
arrangements entered into subsequent to the Chapter 11 filings.
(b) The Debtor received approval from the bankruptcy Court to pay or otherwise
honor certain of its pre-petition obligations, including employee wages.
To date, approximately $78,655 of these arrearages have been liquidated.
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NOTE 4. OPERATING CASH RECEIPTS AND PAYMENTS
The following schedule depicts the operating cash receipts and payments for the
post-petition period of January 1, 1999 through March 31, 1999.
<TABLE>
<S> <C>
Cash flows from operating activities:
Cash received from customers $ 775,868
Cash paid to suppliers and employees (587,949)
Interest paid (36,104)
---------
Net cash provided by operating activities before
reorganization items (151,815)
---------
Operating cash flows from reorganization items:
Professional fees paid for services in connection with
the Chapter 11 proceeding (4,000)
---------
Net cash (used in) reorganization items (4,000)
---------
Net cash provided by (used in) operating activities (147,815)
---------
Cash flows from investing activities:
Distributions from limited partnership 0
---------
Net cash provided by investing activities 0
---------
Cash flows from financing activities:
Net borrowings (repayments) under post-petition short-term
credit facility (111,509)
Principal payments on pre-petition 0
---------
Net cash provided by financing activities (111,509)
Net increase in cash and cash equivalents 36,306
Cash and cash equivalents
Beginning 95,698
---------
Ending $ 132,004
---------
</TABLE>
NOTE 5. SIGNIFICANT EVENTS
During the third quarter of fiscal 1999, the company's net loss before other
income and expense was ($16,724). This improvement over the third quarter fiscal
1998 net loss of
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($333,652) is largely due to the suspension of the uninterruptible power
supply/power line conditioner ("UPS/PLC") product line, which corresponded with
the filing for Chapter 11 protection on January 22, 1998 and subsequent
corporate downsizing.
An overall reduction in personnel and overhead expenditures resulted in
operating expenses of $209,438 for the three months ended March 31, 1999 as
compared to $422,729 for the same period in the prior year. Selling, general and
administrative expenses were $164,628 for the three months ended March 31, 1999
and $339,467 at March 31, 1998. The net profit (loss) for the three months ended
March 31, 1999 is ($51,107). Net profit (loss) for the comparative period in the
prior year is ($470,281).
In January of 1998 pursuant to a court order, the issuer, as
debtor-in-possession, entered into a financing agreement with Venture Partners
Ltd., as agent, to borrow working capital, up to a maximum of $400,000. The
terms of this agreement call for interest at 20% and a term of 120 days. This
debt is collateralized firstly by the machinery and equipment of the issuer, and
secondarily by its accounts receivable. A total of $245,000 is presently
outstanding on this loan. As of this date the term of the note has expired
placing the borrower in default. At this time, no demand for repayment has been
received by the issuer.
Similarly, in February of 1998 the issuer, pursuant to a court order, entered
into a receivable factoring agreement with Porter Capital Corporation
("Porter"), whereby trade receivables are sold to Porter at 94% of face value. A
4% and 2% rebate is returned to the issuer if the receivable is collected within
60 and 90 days respectively. Fees to Porter include a minimum of 2% of the face
amount of the receivables factored, and an annual interest rate of prime on the
outstanding amount advanced. Collateral for this obligation comprises the
factored receivables, with a secondary lien on the machinery and equipment of
the issuer. In September of 1998 the before mentioned agreement was modified to
a minimum fee of 2.5% for receivables collected within 60 days and an additional
1% for each additional 15 days outstanding to a maximum of 90 days. Advances
under this factoring agreement were $172,681 at March 31, 1999.
During the period from February 1998 through July 1999 the Company liquidated
$78,655 of its pre-petition labor and vacation arrearages. As of this date the
only remaining pre-petition labor arrearage is that of certain officers and
accrued vacation pay for all former employees that did not return to work.
During this time period the Company was in discussions with the U.S. Department
of Labor regarding this matter. The Plan of Reorganization addresses the
liquidation of the priority portion of these pre-petition liabilities over a
period of eight months.
On May 12, 1998 a Plan of Reorganization was filed by the debtors with the
Office of the U.S. Trustee. Negotiations pertaining to the specifics of the Plan
of Reorganization among the creditors committee(s) and the debtor continue at
this writing.
12
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Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations.
Current Developments
During the third quarter of fiscal 1999, the issuer and its wholly-owned
subsidiary, continued manufacturing operations as debtors-in-possession under
Chapter 11 protection. The Vantage Partners LLC, a management consulting firm
retained pursuant to court order, together with Melvin A. Becker, Vice President
of Operations, continued in their roles as senior management. Product offerings
were confined to three historical families of products: military grade power
supplies, variable autotransformers, and linear switching power supply products.
Employees and contracted consultants of the issuer at March 31, 1999 number 26.
Since the initial months following the Filing, the company has
successfully resolved issues of material procurement with key suppliers and
reinstated deteriorating relationships with distributors and customers.
Liquidity has been improved by increased shipping levels and a concentrated
effort on credit and collection issues with all customers. Marketing efforts
have been increased in the areas of product literature development, internet
advertisement, and sales representative solicitation. Despite these efforts,
both military and commercial orders for product continued to plateau in the
third fiscal quarter. Open sales orders at March 31, 1999 total $290,650.
Subsequent periods saw continued efforts in the areas of order procurement and
customer satisfaction, and have resulted in open sales orders at October 31,
1999 of $703,220 and shipments in excess of the monthly average.
During the third quarter of fiscal year 1998 the company also initiated an
effort to relocate from its thirty thousand square foot facility, to a facility
one half the size. As of this date it has been determined that a down sizing and
subletting of the current facility would be an alternative approach. A local
real estate brokerage firm has been retained to sublet the existing facility.
Although the facility continues to be presented to the marketplace, no sublease
transactions have as yet been consummated.
On May 12, 1998 the Company and its wholly-owned subsidiary, PDIXF
Acquisition Corporation, filed a Plan of Reorganization with the Office of the
U.S. Trustee.
The Plan is a proposal of PDI and PDIXF to their Creditors and holders of
Equity Interests. The Plan is the product of discussions with the Debtors'
senior secured creditor, Inverness, which has agreed to support the Plan. The
Plan undertakes to resolve all secured claims, administrative claims, priority
claims, unsecured claims and equity interests. The Debtors believe that the
distributions to be made, pursuant to the terms of this Plan, will produce for
Creditors not less than they would receive if the Debtors' cases were converted
to cases under Chapter 7 of the Code, the Debtors' assets liquidated and
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appropriate distributions therein were made as required by the Code.
A copy of the Plan of Reorganization for Power Designs, Inc. and PDIXF
Acquisition Corporation has been attached as an exhibit to the Form 10QSB for
the period ended March 31, 1998. The Plan is currently the subject of ongoing
negotiation between the Debtors and various creditor committee constituencies.
Liquidity and Capital Resources
Pursuant to a court order, the issuer, as debtor-in-possession, has
entered into a financing agreement with Venture Partners Ltd., as agent, to
borrow working capital, up to a maximum of $400,000. The terms of this agreement
call for interest at 20% and a term of 120 days. This debt is collateralized
firstly by the machinery and equipment of the issuer, and secondarily by its
accounts receivable. A total of $245,000 is presently outstanding on this loan.
Similarly, the issuer, pursuant to a court order, has entered into a
receivable factoring agreement with Porter Capital Corporation ("Porter"),
whereby trade receivables are sold to Porter at 94% of face value. A 4% and 2%
rebate is returned to the issuer if the receivable is collected within 60 and 90
days respectively. Fees to Porter include a minimum of 2% of the face amount of
the receivables factored, and an annual interest rate of prime on the
outstanding amount advanced. Collateral for this obligation comprises the
factored receivables, with a secondary lien on the machinery and equipment of
the issuer. In September of 1998 the initial six-month term had elapsed and the
right to extend the agreement for a period of one year had been exercised. With
this renewal the before mentioned agreement has been modified to a minimum fee
of 2.5% for receivables collected within 60 days and an additional 1% for each
additional 15 days outstanding to a maximum of 90 days.
The issuer currently has a net stockholders' deficit of approximately
$14,495,000, meaning that amounts owed to its creditors exceed the issuer's
assets.
The issuer is in the process of implementing and executing a Year 2000
compliance plan with the objective of having all of their significant business
systems, including those that affect facilities and manufacturing activities,
functioning properly with respect to the Year 2000 issue before January 1, 2000.
The issuer has assessed their internal processes and systems, and believes that
sales, administration, and general operations are substantially Year 2000
compliant. Prior to purchasing any new equipment or software, it is the issuer's
policy to ensure that the specifications include Year 2000 compliance.
As part of this assessment, significant service providers, vendors,
suppliers, and customers that are believed to be critical to business operations
after January 1, 2000, have been identified and steps are being undertaken in an
attempt to reasonably ascertain
14
<PAGE>
their stage of Year 2000 readiness. The issuer intends to complete this inquiry
and assessment of the Year 2000 readiness of the systems and products of these
third parties by late 1999. However, due to the need to devote management and
financial resources to other operational matters, the issuer has not as yet
completed this inquiry and assessment.
To minimize potential disruptions, the issuer intends to adopt a
contingency plan, if deemed necessary, to address any issues raised during the
planned assessment in 1999. Because no specific instance of material Year 2000
non-compliance has been discovered to date, the issuer has not adopted a
contingency plan to deal with Year 2000 issues.
Based upon the internal investigation to date, the issuer does not expect
the total costs of the Year 2000 review and compliance to have a material
adverse effect on the business or financial results. The issuer may have to
spend a material amount to develop and implement a contingency plan during 1999,
if the issuer finds that a material supplier or other third party upon whom the
issuer relies will face business interruptions as a result of Year 2000 issues.
Based upon the review of the Year 2000 issues to date, the issuer does not
anticipate significant interruption of normal internal operations. The failure
to correct a material Year 2000 problem could result in an interruption in, or a
failure of, certain normal business activities or operations. Such failures
could materially and adversely affect the issuer's results of operations,
liquidity and financial condition. The issuer believes that, with the completion
of its Year 2000 assessment as scheduled, the possibility of significant
interruptions of normal operations should be minimized.
Results of Operations
Results for the first nine months of fiscal 1999 reflect a significant
downsizing in operations which followed the issuer's Chapter 11 filing, and
therefore represent a substantial change from the pre-petition figures for the
same period in fiscal 1998. Accordingly a period-to-period comparison of the
historical results of operations and financial condition of the issuer is not
meaningful.
Third quarter of fiscal 1999 versus third quarter of fiscal 1998.
Net sales increased to $604,698 for the quarter ended March 31, 1999 as
compared with $523,907 for the same period in 1998.
Similarly, gross profit (loss) increased from $89,077 for the third
quarter in fiscal 1998 to $192,714 for the same quarter in fiscal 1999. The
resulting increase was primarily due to the shift to more profitable, core
product manufacturing during the third quarter of fiscal 1998. Cost of sales
decreased slightly from $434,830 for the third quarter of fiscal 1998 to
$411,984 for the same period in fiscal 1999. A substantial portion of the
increased performance is due to the shift to core product in the latter part of
January 1998,
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resulting in a significant improvement in manufacturing yields and product
margins. The bankruptcy filing in January has had a favorable impact on interest
expense, allowing the company to service only that portion of the post filing
debt attributable to post filing operating activity. Quarterly interest expense
decreased from $107,629 as of March 31, 1998 to $30,383 as of March 31, 1999.
Severe overhead curtailment and general downsizing of operations subsequent to
the bankruptcy petitions, contribute to the reduction in operating expenses from
$422,729 for the quarter ending March 31, 1998 as compared to $209,438 for the
quarter ending March 31, 1999.
First nine months of fiscal 1998 versus first nine months of fiscal 1999.
Net sales increased from $1,760,746 for the nine months ended March 31,
1998 as compared to $2,161,598 for the nine months ended March 31, 1999.
Likewise, gross profit (loss) increased from a loss of ($1,274,377) for
the nine months ended March 31, 1998 to a profit of $760,793 for the nine months
ended March 31, 1999. The significant prior year gross loss is the result of low
UPS/PLC manufacturing yields and a substantial reduction in UPS/PLC inventory
value. Cost of Sales decreased from $3,035,123 for the period ended March 31,
1998 to $1,400,805 for the same period in fiscal 1999. A substantial portion of
the decrease is due to the fiscal 1998 inventory devaluation noted above. The
staying of pre-petition interest bearing obligations pursuant to the issuer's
Chapter 11 filing accounts for the decrease in interest expense to $116,958 as
of March 31,1999 from $1,055,887 as of March 31, 1998. As a result of these
conditions, the halting of the UPS/PLC production and full impairment of
Goodwill totaling $2,846,557, the net profit (loss) for the nine months ending
March 31, 1999 is ($80,099), as compared to ($7,407,055) for the same period in
fiscal 1998.
It is the intention of the present management of the issuer to concentrate
its resources on the production of its existing three product lines, to reduce
operating and occupancy costs where possible, to improve marketing strategies
and further customer relationships, and to replace the debtor-in-possession
financing with less costly conventional debt instruments upon confirmation of a
plan of reorganization. However, there can be no assurances that the issuer will
be able to obtain such additional debt financing, or be successful at
streamlining and improving operating results.
Certain statements contained in this Item 2 regarding matters that are not
historical facts, including, among others, statements regarding the future
adequacy of the issuer's working capital, its ability to raise capital through
debt or equity offerings, its ability to maintain or improve its present cash
flow, are "forward-looking statements". Such forward-looking statements involve
risks and uncertainties which may cause the actual results, performance or
achievements of the issuer to be materially different from any future results,
performance or achievements, express or implied by such forward-looking
statements.
16
<PAGE>
These forward-looking statements are identified by their use of forms of
such terms and phrases as "expects," "intends," "goals," "estimates,"
"projects," "plans," "anticipates," "should," "future," "believes," and
"scheduled". The variables which may cause differences include, but are not
limited to, the following: general economic and business conditions;
competition; success of operating initiatives; operating costs; advertising and
promotional efforts; the existence or absence of adverse publicity; changes in
business strategy or development plans; the ability to retain management;
availability, terms and deployment of capital; business abilities and judgement
of personnel; availability of qualified personnel; labor and employee benefit
costs; availability and costs of raw materials and supplies; and changes in, or
failure to comply with, government regulations. Although the issuer believes
that the assumptions underlying the forward-looking statements contained herein
are reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking statements included in this filing
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the issuer or any
other person that the objectives and expectations of the issuer will be
achieved.
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
As of this date the principal amount of the Venture Partners Ltd., as
agent indebtedness described at Part I, Item 2 above was not paid in full,
thereby placing the issuer in default. As of this date no demand for repayment
has been made and all interest payments are current. There are no renewal
negotiations pending.
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Financial Data Schedule
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 2, 1999 POWER DESIGNS, INC.
Danbury, Connecticut (Registrant)
By: /s/ Melvin A. Becker
------------------------------
Melvin A. Becker
Secretary
By: /s/ Anthony F. Intino II
------------------------------
Anthony F. Intino II
Chief Financial Officer
19
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 132,004
<SECURITIES> 0
<RECEIVABLES> 353,901
<ALLOWANCES> 0
<INVENTORY> 812,364
<CURRENT-ASSETS> 1,325,999
<PP&E> 825,831
<DEPRECIATION> (396,171)
<TOTAL-ASSETS> 1,920,596
<CURRENT-LIABILITIES> 744,321
<BONDS> 15,671,321
0
3,167
<COMMON> 240
<OTHER-SE> (14,495,046)
<TOTAL-LIABILITY-AND-EQUITY> 1,920,596
<SALES> 604,698
<TOTAL-REVENUES> 604,698
<CGS> 411,984
<TOTAL-COSTS> 411,984
<OTHER-EXPENSES> 209,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,383
<INCOME-PRETAX> (47,107)
<INCOME-TAX> 0
<INCOME-CONTINUING> (47,107)
<DISCONTINUED> 0
<EXTRAORDINARY> 4,000
<CHANGES> 0
<NET-INCOME> (51,107)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 132,004
<SECURITIES> 0
<RECEIVABLES> 353,901
<ALLOWANCES> 0
<INVENTORY> 812,364
<CURRENT-ASSETS> 1,325,999
<PP&E> 825,831
<DEPRECIATION> (396,171)
<TOTAL-ASSETS> 1,920,596
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0
3,167
<COMMON> 240
<OTHER-SE> (14,495,046)
<TOTAL-LIABILITY-AND-EQUITY> 1,920,596
<SALES> 2,161,598
<TOTAL-REVENUES> 2,161,598
<CGS> 1,400,805
<TOTAL-COSTS> 1,400,805
<OTHER-EXPENSES> 658,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,958
<INCOME-PRETAX> (14,214)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,214)
<DISCONTINUED> 0
<EXTRAORDINARY> 65,885
<CHANGES> 0
<NET-INCOME> (80,099)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
