U.S. 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
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EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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For the transition period from to
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Commission File Number:
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PSI INDUSTRIES, INC.
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(Exact name of Small Business Issuer as specified in its Charter)
FLORIDA 59-2736501
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1160 B South Rogers Circle, Boca Raton, Florida
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33487 (Address of principal executive offices)
(561) 997-1133
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(Issuer's telephone number)
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(Former Name, former address and former fiscal year, if changed since last
Report.)
Check mark whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 11,600,777 shares of Common
Stock as of September 1, 1999.
<PAGE>
PSI INDUSTRIES, INC.
INDEX
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
Balance Sheet - June 30, 1999
Statements of Operations for the Three Months and Six Months
Ended June 30, 1999 and 1998
Statements of Cash Flows for the Six Months Ended June 30, 1999
Item 2. Management's Discussion and Analysis and Plan of Operations
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
Item 5. Other Information
<PAGE>
PSI INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Contents
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flow 3
<PAGE>
PSI INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
June 30, 1999 1998
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(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalent $ 13,653 $ 275,987
Accounts receivable, net of allowance for doubtful accounts
of $2,096,085 in 1999 and $217,415 in 1998 2,228,051 3,096,434
Inventories 3,371,753 12,270,811
Deferred income taxes 194,324 194,324
Prepaid expenses and other current assets 122,032 1,108,178
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Total current assets 5,929,813 16,945,734
Notes receivable from and advances to related parties 473,611 458,787
Property and equipment, net 1,347,103 1,400,653
Other assets 254,579 528,802
============ ============
Total assets $ 8,005,106 $ 19,333,976
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 7,249,329 $ 4,849,882
Accrued expenses 344,844 233,620
Notes payable 124,610 303,320
Line of credit 6,597,587 6,425,413
Current portion of long-term notes payable 33,328 33,328
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Total current liabilities 14,349,698 11,845,563
Deferred income taxes 194,324 194,324
Long-term notes payable 613,755 632,152
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock-Series A $.0001 par value,
70,000 shares authorized, 48,667 shares issued and
outstanding in 1998, $1,460,010 liquidation value -- 5
Convertible Preferred Stock-Series B $.001 par value,
20,000 shares authorized, 15,022 shares issued and
outstanding, $1,502,200 liquidation value 15 15
Common Stock, $.0001 par value-60,000,000 shares authorized, 11,600,777
and 9,985,743 shares issued and outstanding in 1999 and 1998, respectively 1,160 999
Paid-in capital 9,629,045 9,052,777
Stock subscription receivable (605,747) (39,747)
Accumulated deficit (16,177,144) (2,352,112)
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Total stockholders' equity (7,152,671) 6,661,937
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Total liabilities and stockholders' equity $ 8,005,106 $ 19,333,976
============ ============
</TABLE>
1
<PAGE>
PSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
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1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 4,999,361 $ 6,713,286 $ 12,151,444 $ 13,628,846
Cost of sales 14,287,311 4,252,764 19,959,484 10,356,507
Gross profit (9,287,950) 2,460,522 (7,808,040) 3,272,339
Selling, general and administrative expenses 4,368,435 1,195,438 5,559,281 2,111,761
Product development costs 51,980 40,237 103,895 66,178
Operating income (13,708,365) 1,224,847 (13,471,216) 1,094,400
Other expenses:
Interest expense, net of interest income 186,137 169,015 335,567 304,071
Income before income taxes (13,894,502) 1,055,832 (13,806,783) 790,329
Income tax provision -- 137,637 -- 137,637
Net income $(13,894,502) $ 918,195 $(13,806,783) $ 652,692
Cumulative preferred stock dividend 18,250 18,250 36,500
Net income to common stockholders $(13,894,502) $ 899,945 $(13,825,033) $ 616,192
============ ============ ============ ============
Net income per common share-basic $ (1.20) $ 0.10 $ (1.25) $ 0.07
============ ============ ============ ============
Net income per common share-diluted $ (1.20) $ 0.09 $ (1.25) $ 0.06
============ ============ ============ ============
Weighted average number of common shares-basic 11,600,777 8,867,523 11,076,709 8,854,661
============ ============ ============ ============
Weighted average number of common shares-diluted 11,600,777 9,829,017 11,076,709 9,903,643
============ ============ ============ ============
</TABLE>
2
<PAGE>
PSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Six months ended June 30,
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1999 1998
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(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(13,806,783) $ 652,692
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Bad debt expense 1,895,000 42,000
Depreciation 66,192 42,000
Issuance of common stock for services 1,200
Changes in operating assets and liabilities:
Accounts receivable (1,026,617) (574,911)
Inventories 8,825,348 (866,150)
Prepaid expenses and other current assets 986,146 (23,470)
Other assets 274,223 464,973
Accounts payable 2,399,447 504,727
Accrued expenses 111,224 (14,840)
Notes payable (105,000)
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Total Adjustments 13,425,963 (424,471)
============ ============
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (380,820) 228,221
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (12,642) (44,411)
Advances to stockholders (14,824) (8,046)
NET CASH USED IN INVESTING ACTIVITIES (27,466) (52,457)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from/(payments to) line of credit, net 172,174 15,221
Proceeds from issuance of common and preferred stock, net of issuance costs 10,425 4,200
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Principal payments on borrowings (18,397) (11,332)
Distributions to stockholders (18,250) (36,500)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 145,952 (28,411)
NET (DECREASE) INCREASE IN CASH (262,334) 147,353
============ ============
CASH AT BEGINNING OF PERIOD 275,987 224,680
============ ============
CASH AT END OF OF PERIOD $ 13,653 $ 372,033
============ ============
</TABLE>
3
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS
General
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On June 2, 1999, Dominick Seminara resigned as the Company's Chief
Executive Officer and Chairman of the Board and Ben Cohen, then the Company's
President and a Director, was appointed as Chairman of the Board and Chief
Executive Officer. In addition, on June 4, 1999 Mirco Vietti resigned as a
Director of the Company and was removed as an officer of the Company. As
previously disclosed, and subsequent to the resignations of Mr. Seminara and Mr.
Vietti, management discovered certain accounting irregularities and as a result
the financial statements reflect total assets decreasing by $11,328,870 to
$8,005,106 as of June 30, 1999, as compared to $19,333,976 at December 31, 1998.
In addition, the Company sustained a loss in the amount of $13,806,783 for the
six months ended June 30, 1999 as compared to a gain of $652,692 for the six
months ended June 30, 1998.
As a result of the foregoing, on July 29, 1999 the Company filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the Southern District of Florida
(West Palm Beach Division).
Currently the Company is being operated by a Debtor in Possession under
court order and is exploring a number of reorganization possibilities. However,
should the Company be unable to reorganize, the Company may have to be
liquidated under Chapter 7 of the United State Bankruptcy Code.
Results of Operations
---------------------
Net Sales:
The Company's net sales for the three and six months ended June 30,
1999 were $4,999,361 and $12,151,444, respectively compared to $6,713,286 and
$13,628,846 for the three and six months ended June 30, 1998, respectively.
Gross Profit:
Gross profit (loss) for the three and six months ended June 30, 1999
were $(13,894,502) and $(13,806,783), respectively, compared to $918,195 and
$652,692 for the three and six months ended June 30, 1998, respectively.
4
<PAGE>
Selling, General and Administrative Expenses:
Selling, general and administrative expenses for the three and six
months ended June 30, 1999 were $4,386,435 and $5,559,281, respectively compared
to $1,195,438 and $2,111,761 for the three and six months ended June 30, 1998,
respectively.
Net Income:
Net income for the three and six months ended June 30, 1999 was
$(13,894,502) and $(13,806,783), respectively compared to $918,195 and $652,692
for the three and six months ended June 30, 1998, respectively.
Year 2000:
Until recently, many computer programs were written using two digits
rather than four digits to define the applicable year in the twentieth century.
Such software may recognize the date using "00" as the year 1900 rather than the
year 2000. Utilizing both internal and external resources, the Company has
converted or replaced various programs, hardware and instrumentation systems to
make them Year 2000 compatible. The Company's Year 2000 project is comprised of
two components - business applications and equipment. The business applications
component consists of the Company's business computer systems, as well as the
computer systems of third-party suppliers or customers, whose Year 2000 problems
could potentially impact the Company. Equipment exposures consist of personal
computers, system servers and telephone equipment whose Year 2000 problems could
also impact the Company. Management believes that the cost of its Year 2000
initiatives is not expected to be material to the Company's results of
operations or financial position.
5
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-B
The following exhibits are filed as part of this report:
Exhibits:
(27.1) Financial Data Schedule
(b) Reports on Form 8-K
(i) June 17, 1999 - Item 5, Other Events
6
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned as duly authorized officers of the Registrant.
PSI INDUSTRIES, INC.
By:/s/ Barry Shear
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Barry Shear,
Acting President
By:/s/ Martin Epstein
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Martin Epstein,
Principal Financial and
Accounting Officer
DATED: October 14, 1999
7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,653
<SECURITIES> 0
<RECEIVABLES> 4,324,136
<ALLOWANCES> 2,096,085
<INVENTORY> 3,371,753
<CURRENT-ASSETS> 5,929,813
<PP&E> 1,755,174
<DEPRECIATION> 408,071
<TOTAL-ASSETS> 8,005,106
<CURRENT-LIABILITIES> 14,349,698
<BONDS> 613,755
0
15
<COMMON> 1,160
<OTHER-SE> (7,153,846)
<TOTAL-LIABILITY-AND-EQUITY> 8,005,106
<SALES> 4,999,361
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 4,420,415
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186,137
<INCOME-PRETAX> (13,894,502)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,894,502)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,894,502)
<EPS-BASIC> (1.20)
<EPS-DILUTED> (1.20)
</TABLE>
