<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, 2000.
/_/ 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
incorporation or organization) Identification 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
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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
--- ---
2
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POWER DESIGNS, INC.
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of
March 31, 2000 and 1999..............................................5
Condensed Consolidated Statement of Operations for the
three and nine months ended March 31, 2000 and 1999..................6
Condensed Consolidated Statement of Changes
in Stockholders' Deficit for the three and nine months ended
March 31, 2000 and 1999..............................................7
Condensed Consolidated Statement of Cash Flows for
the nine months ended March 31, 2000 and 1999........................8
Notes to Condensed Consolidated Financial Statements.................9
.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS..........................................................14
PART II - OTHER INFORMATION
Item 3. DEFAULTS ON SENIOR SECURITIES.......................................18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K....................................19
Signatures....................................................................20
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, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 121,676 $ 132,004
Accounts receivable, less allowance for doubtful accounts 392,885 353,901
Inventories 799,296 812,364
Prepaid expenses 44,793 27,730
------------ ------------
TOTAL CURRENT ASSETS 1,358,650 1,325,999
------------ ------------
Equipment and Leasehold Improvements, net 303,583 429,660
------------ ------------
Other Assets:
Other assets 167,389 164,937
------------ ------------
167,389 164,937
------------ ------------
TOTAL ASSETS $ 1,829,622 $ 1,920,596
============ ============
LIABILITIES AND STOCKHOLDERS'
DEFICIT
Current Liabilities
Debtor in possession facility $ 245,000 $ 245,000
Advances under factoring agreement -- 172,681
Accounts payable 162,347 120,922
Accrued expenses 121,815 74,306
Accrued legal fees 204,495 127,250
Accrued interest 4,162 4,162
------------ ------------
TOTAL CURRENT LIABILITIES 737,819 744,321
------------ ------------
Long-Term Liabilities
Liabilities subject to compromise 18,088,679 16,847,078
------------ ------------
18,088,679 16,847,078
------------ ------------
TOTAL LIABILITIES 18,826,498 17,591,399
------------ ------------
Stockholders' Deficit
Common stock , $.0001 par value. 10,000,000 shares authorized 240 240
2,391,493 shares issued and outstanding at March 31, 2000 and 1999
Preferred stock, $.01 par value, 1,000,000 shares authorized; 3,167 3,167
316,743 shares issued and outstanding at March 31, 2000 and 1999
Additional paid-in capital 1,382,807 1,382,807
Accumulated deficit (18,383,090) (17,057,017)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (16,996,876) (15,670,803)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,829,622 $ 1,920,596
============ ============
</TABLE>
5
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POWER DESIGNS, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
For The Three and Nine Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
3 months ended 3 months ended 9 months ended 9 months ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales $ 790,108 $ 605,916 $2,485,579 $2,165,685
Cost of Sales 474,382 411,984 1,447,306 1,400,805
---------- ---------- ---------- ----------
GROSS PROFIT (LOSS) 315,726 193,932 1,038,273 764,880
Operating Expenses
Selling, general and admin. expense 201,712 164,628 604,556 517,824
Research and development 44,278 36,138 132,707 113,669
Depreciation and amortization 8,692 8,672 26,122 26,556
---------- ---------- ---------- ----------
254,682 209,438 763,385 658,049
NET PROFIT (LOSS) BEFORE OTHER INCOME
(EXPENSE) AND REORGANIZATION ITEMS 61,044 (15,506) 274,888 106,831
---------- ---------- ---------- ----------
Other income (expense):
Investment income 2,352 403 2,352 2,511
Interest expense * (380,482) (448,267) (1,157,291) (1,262,529)
Other -- 30,066 (10,320) (36,784)
---------- ---------- ---------- ----------
OTHER EXPENSE (378,130) (417,798) (1,165,259) (1,296,802)
---------- ---------- ---------- ----------
NET PROFIT (LOSS) BEFORE REORGANIZATION ITEMS (317,086) (433,304) (890,371) (1,189,971)
Reorganization items 65,223 4,000 131,382 65,885
---------- ---------- ---------- ----------
NET PROFIT (LOSS) $ (382,309) $ (437,304) $(1,021,753) $(1,255,856)
========== ========== ========== ==========
Weighted average number of common
shares outstanding 2,391,493 2,391,493 2,391,493 2,391,493
========== ========== ========== ==========
Net profit (loss) per share $ (0.16) $ (0.18) $ (0.43) $ (0.53)
========== ========== ========== ==========
</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, 2000 and 1999
<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, 1998 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(15,801,161)
Net loss -- -- -- -- -- (818,552)
Balance, December 31, 1998 2,391,493 240 316,743 3,167 1,382,807 (16,619,713)
Net loss -- -- -- -- -- (437,304)
--------- ----- ------- ------- --------- -----------
Balance, March 31, 1999 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(17,057,017)
========= ===== ======= ======= =========== ============
Balance, June 30, 1999 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(17,361,337)
Net loss -- -- -- -- -- (639,444)
Balance, December 31, 1999 2,391,493 240 316,743 3,167 1,382,807 (18,000,781)
Net Loss -- -- -- -- -- (382,309)
--------- ----- ------- ------- --------- -----------
BALANCE, MARCH 31, 2000 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(18,383,090)
========= ===== ======= ======= =========== ============
</TABLE>
7
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POWER DESIGNS, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
For The Nine Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
9 months ended 9 months ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities
Net profit (loss) $ (1,021,753) $ (1,255,856)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 113,650 113,478
Reorganization items 131,382 65,885
Changes in operating assets and liabilities, net of assets
acquired in business combination:
Decrease (increase) in accounts receivable 32,404 139,694
Decrease (increase) in inventories (88,422) (45,926)
Decrease (increase) in prepaid expenses (590) 6,760
Decrease (increase) in other assets (2,452) (24)
Increase (decrease) in accounts payable and accrued expenses 1,112,265 1,165,083
Increase (decrease) in payables related to reorganization -- --
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
BEFORE REORGANIZATION ITEMS 276,484 189,094
------------ ------------
Reorganization items
Reorganization items paid (57,139) (12,766)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 219,345 176,328
Cash Flows From Investing Activities
Purchase of property and equipment (21,861) (5,040)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (21,861) (5,040)
Cash Flows From Financing Activities
Advances (repayments) under factoring agreement (129,203) (80,646)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (129,203) (80,646)
------------ ------------
NET INCREASE (DECREASE) IN CASH 68,281 90,642
Cash (overdraft) and cash equivalents, beginning of period 53,395 41,362
------------ ------------
Cash (overdraft) and cash equivalents, end of period $ 121,676 $ 132,004
============ ============
</TABLE>
8
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POWER DESIGNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
- --------------------------------------------------------------------------------
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, 2000 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, 2000
and March 31, 1999 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 to 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 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
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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 2,394,099
Accrued expenses 369,638
Accrued interest 3,634,016
Capital lease obligation 142,872 (a)
Payables related to 1994 reorganization including
accrued interest 188,586
-----------
Total $18,088,679
</TABLE>
(a) Notes payable to affiliated companies, preferred shareholders and seller
of assets acquired, as well as capital lease obligations, include secured
debt, which should be considered, due to various factors, subject to
compromise. The Amended Plan of Reorganization filed November 24, 1999
provides for the continuance of allowed secured claims of $1,800,000
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, 1999. Additional interest in the amount of
$1,118,649 on these secured obligations was accrued for the nine months
ended March 31, 2000. Refer to Note 5, for a discussion of the credit
arrangements entered into subsequent to the Chapter 11 filings.
10
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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, 2000 through March 31, 2000.
<TABLE>
<S> <C>
Cash flows from operating activities:
Cash received from customers $ 667,362
Cash paid to suppliers and employees (771,599)
Interest paid (15,325)
---------
Net cash provided by operating activities before
reorganization items (119,562)
---------
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 (123,562)
---------
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 0
Principal payments on pre-petition debt 0
---------
Net cash provided by financing activities 0
Net decrease in cash and cash equivalents (123,562)
Cash and cash equivalents
Beginning 245,238
---------
Ending $ 121,676
---------
</TABLE>
11
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NOTE 5. SIGNIFICANT EVENTS
During the third quarter of fiscal 2000, the company's net profit before other
income and expense and reorganization items was $61,044. This improvement over
the third quarter fiscal 1999 net loss of ($15,506) is largely due to the
increased sales levels which have resulted from the company's increased efforts
in the areas of sales and marketing. In addition, improved manufacturing
efficiencies have resulted in the company's ability to shorten the span of time
between the receipt and the fulfillment of customer orders. Lastly, a greater
percentage of sales growth has been exhibited in the military and linear power
supply product lines, as opposed to that achieved in the variable
autotransformer line. Due to the cost of components and labor required in
production, the power supply family of products yields a higher margin at the
gross profit level, than the other core products manufactured by the company.
Moderate growth in personnel and overhead expenditures resulted in operating
expenses of $254,682 for the three months ended March 31, 2000 as compared to
$209,438 for the same period in the prior year. Selling, general and
administrative expenses were $201,712 for the three months ended March 31, 2000
and $164,628 at March 31, 1999. The net profit (loss) for the three months ended
March 31, 2000 is ($382,309). Net profit (loss) for the comparative period in
the prior year is ($437,304).
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 $0 at March 31, 2000.
12
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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, and its subsequent
amendment, address 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 resulted in an
Amended Plan of Reorganization, which was filed on November 24, 1999.
13
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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 2000, 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, 2000 totaled 30 as opposed to 29 at the end of the prior
quarter.
In the initial months following the Filing, the issuer 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. However despite these efforts, both military and
commercial orders for product continued to plateau during the second and third
fiscal quarters of 1999. Subsequent periods saw continued efforts in the areas
of order procurement and customer satisfaction, and resulted in bookings of
$877,408 and $1,091,440 for the quarters ended June 30, 1999 and September 30,
1999 respectively. The traditional reduction in new orders historically
experienced during the holiday months, evidenced itself in bookings of $604,828
for the quarter ended December 31, 1999 and $659,424 for the quarter ended
March 31, 2000. Open sales orders at March 31, 2000 totaled $392,842.
In an effort to increase market share and to combat the downturn in
product orders historically experienced during the winter months, the issuer
retained a sales and marketing executive in July 1999. In December 1999, the
issuer discontinued its consulting arrangement with an outside sales
professional, begun in April of the same calendar year. At this writing, seven
manufacturer's sales representatives have been contracted to sell product in the
following domestic regions: New England Region, Mid Atlantic Region, Sunbelt
Region, Central Region, Southwest Region, Caribbean Rim Region, and Western
Region. Negotiations are pending with representatives in two additional U.S.
regions. Contemporaneously, a new homepage has been uploaded to the Internet
domain, WWW.POWERDESIGNS.COM. While these efforts are focused on generating
increased order levels, there are, however, no assurances that the issuer will
be able to effectuate these measures, or that such measures will produce the
desired results.
During the third quarter of fiscal year 1998 the issuer also initiated
an effort to relocate from its thirty thousand square foot facility, to a
facility one half the size. As of this date an alternate facility within the
existing industrial park has been identified. Both the current landlord and a
local real estate brokerage firm have been engaged to release
14
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the existing facility. Although the facility continues to be presented to the
marketplace, no new lease transactions have as yet been consummated.
On May 12, 1998 the Issuer 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
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. Ongoing negotiations between the Debtors and
various creditor committee constituencies resulted in an Amended Plan of
Reorganization, which was filed on November 24, 1999 and has been attached as an
exhibit to the Form 10KSB for the period ended June 30,1999.
The amended plan provides for the cancellation of all existing equity
interests, and the issuance of 2,000,000 new common shares to be divided among
Inverness Corporation, Hayes Corporation, and certain unsecured creditors.
Approximately $1.8 million of secured debt is proposed to remain
post-confirmation and will bear interest at 10% annually. Administrative claims,
priority tax claims, and employee priority claims will be paid in accordance
with the terms negotiated with the claimants, or in certain cases, those
provided by law. Certain unsecured claims of PDIXF Acquisition Corporation will
receive a 5% cash settlement in full satisfaction of their outstanding claims.
All remaining claims will be deemed unsecured non-priority claims, and their
holders will receive a proportionate number of common shares in the reorganized
corporation.
A settlement hearing on the amended plan has been continued to May 24,
2000, and may be continued from time to time by the court. Prior to confirmation
of the plan, management of the issuer anticipates the resolution of any
remaining creditor objections, and all corresponding plan amendments resulting
from those resolutions. Should the amended plan not be confirmed, there is
significant probability that the case may be converted to a Chapter 7 case. In
the instance of a conversion to a Chapter 7 liquidation, there is little
likelihood of any value remaining to satisfy the existing equity interests of
the Debtors.
15
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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
$17,000,000, meaning that amounts owed to its creditors exceed the issuer's
assets.
Results of Operations
Third quarter of fiscal 2000 versus third quarter of fiscal 1999.
Net sales increased to $790,108 for the quarter ended March 31, 2000
as compared with $605,916 for the same period in 1999.
Similarly, gross profit increased from $193,932 for the third quarter
in fiscal 1999 to $315,726 for the same quarter in fiscal 2000. The resulting
increase was primarily due to the improving manufacturing efficiencies and
increased production volumes achieved by the issuer, as well as the particular
blend of products shipped during the third fiscal quarter. Although revenue rose
approximately 30% over the same quarter in the prior year, cost of sales only
increased by 15% from $411,984 for the third quarter of fiscal 1999 to $474,382
for the same period in fiscal 2000. A substantial portion of the improved
performance is due to the mix of core product sold in the third fiscal quarter,
concentrating more predominantly on military and linear power supply sales
rather than on autotransformer sales. Quarterly interest and other expense
decreased from $417,798 as of March 31, 1999 to $378,130 as of March 31, 2000
primarily the result of the elimination of advances outstanding under the
factoring agreement for the respective periods. A slow departure from severe
overhead curtailment, combined with measured growth in personnel and operations
subsequent to the bankruptcy petitions, contribute to the increase in operating
expenses from $209,438 for the quarter ending March 31, 1999 as compared to
$254,682 for the quarter ending March 31, 2000. As a result of these conditions,
the net profit (loss) for the three months ending March 31, 2000 is ($382,309),
as compared to ($437,304) for the same period in fiscal 1999.
16
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First nine months of fiscal 2000 versus first nine months of fiscal
1999.
Net sales increased from $2,165,685 for the nine months ended March
31, 1999 as compared to $2,485,579 for the nine months ended March 31, 2000.
Likewise, gross profit (loss) increased from $764,880 for the nine
months ended March 31, 1999 to $1,038,273 for the nine months ended March 31,
2000 the result of the same trends comparatively as those noted in the
paragraphs above. Despite the more marked increase in revenue, cost of sales
only increased slightly from $1,400,805 for the period ended March 31, 1999 to
$1,447,306 for the same period in fiscal 2000. The modest increase in cost of
sales, relative to revenue, is due to the post-petition improvements in
manufacturing efficiency, the ability to buy components at more attractive
prices due to increased volumes and liquidity, as well as the superior gross
margins inherent in the production of power supply products over autotransformer
products. The reduction in advances under the factoring agreement accounts for
the decrease in interest and other expense to $1,165,259 as of March 31, 2000
from $1,296,802 as of March 31, 1999. As a result of these conditions, the net
profit (loss) for the nine months ending March 31, 2000 is ($1,021,753), as
compared to ($1,255,856) for the same period in fiscal 1999.
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.
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;
17
<PAGE>
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.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Financial Data Schedule
19
<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: March 15, 2000 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
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 121,676
<SECURITIES> 0
<RECEIVABLES> 392,885
<ALLOWANCES> 0
<INVENTORY> 799,296
<CURRENT-ASSETS> 1,358,650
<PP&E> 851,240
<DEPRECIATION> (547,657)
<TOTAL-ASSETS> 1,829,622
<CURRENT-LIABILITIES> 737,819
<BONDS> 18,088,679
240
0
<COMMON> 3,167
<OTHER-SE> (17,000,283)
<TOTAL-LIABILITY-AND-EQUITY> 1,829,622
<SALES> 790,108
<TOTAL-REVENUES> 790,108
<CGS> 474,382
<TOTAL-COSTS> 474,382
<OTHER-EXPENSES> 254,682
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 378,130
<INCOME-PRETAX> (317,086)
<INCOME-TAX> 0
<INCOME-CONTINUING> (317,086)
<DISCONTINUED> 0
<EXTRAORDINARY> 65,223
<CHANGES> 0
<NET-INCOME> (382,309)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 121,676
<SECURITIES> 0
<RECEIVABLES> 392,885
<ALLOWANCES> 0
<INVENTORY> 799,296
<CURRENT-ASSETS> 1,358,650
<PP&E> 851,240
<DEPRECIATION> (547,657)
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<BONDS> 18,088,679
240
0
<COMMON> 3,167
<OTHER-SE> (17,000,283)
<TOTAL-LIABILITY-AND-EQUITY> 1,829,622
<SALES> 2,485,579
<TOTAL-REVENUES> 2,485,579
<CGS> 1,447,306
<TOTAL-COSTS> 1,447,306
<OTHER-EXPENSES> 763,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,165,259
<INCOME-PRETAX> (890,371)
<INCOME-TAX> 0
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<NET-INCOME> (1,021,753)
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<EPS-DILUTED> (0.43)
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