SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending September 30, 1999
Commission File No. 0-15927
COMPUTER POWER, INC.
(Exact name of small business issuer as specified in its Charter)
New Jersey 22-1981869
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
124 West Main Street, High Bridge, New Jersey 08829
(Address of principal or executive office) (Zip Code)
(908) 638-8000
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the prior twelve 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
ninety (90) days.
YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date prior to filing:
November 9, 1999; $0.01 par value per share; 3,695,114 shares of Common Stock.
COMPUTER POWER, INC.
Table of Contents
PART I - Basis of the Presentation of the Financial Statements 3.
CONSOLIDATED BALANCE SHEETS 4.
As of September 30, 1999 and December 31, 1998
CONSOLIDATED STATEMENTS OF OPERATIONS 5.
For the three months and nine months ended September 30,
1999 and September 30, 1998
CONSOLIDATED STATEMENTS OF CASH FLOWS 6.
For the three months and nine months ended September 30,
1999 and September 30, 1998
NOTES TO FINANCIAL STATEMENTS 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 9.
RESULTS OF OPERATIONS AND FINACIAL CONDITION
PART II - OTHER INFORMATION 12.
SIGNATURES 13.
COMPUTER POWER, INC.
PART I - FINANCIAL INFORMATION
Basis of the Presentation of the Financial Statements
The financial statements set forth herein are unaudited for the three and
nine month periods ended September 30, 1999 but, in the opinion of the Company,
all adjustments necessary to present fairly the financial position and the
results of operations for these periods have been made.
The accompanying unaudited financial statements have been prepared in
Accordance with the instructions to Form 10-QSB for quarterly reports under
Section 13 or 15(d) of the Securities Act of 1934, and therefore do not include
all information and footnotes necessary for fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
The financial information included in this report has been prepared in
conformity with the accounting principles reflected in the financial statements
included in the Form 10-KSB as filed with the Securities and Exchange
Commission. Reference should be made to the notes to those financial statements
for a description of significant accounting policies, commitments and other
pertinent financial information.
COMPUTER POWER, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited) Audited
ASSETS
Current Assets
Cash and Cash Equivalents $ 142,721 $ 63,204
Accounts Receivable, less allowances of
$188,418 at September 30, 1999 and
$211,485 at December 31, 1998 1,010,500 1,478,937
Inventories 713,057 742,991
Prepaid Expenses and Other Current Assets 41,481 32,714
--------- ---------
Total Current Assets 1,907,759 2,317,846
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost
Machinery, Equipment, and Furniture 1,293,491 1,280,783
Leasehold Improvements 333,274 333,274
Less: Accumulated Depreciation and
Amortization (1,345,722) (1,265,402)
--------- ---------
Net Property, Plant and Equipment 281,043 348,655
--------- ---------
TOTAL ASSETS $ 2,188,802 $2,666,501
========= =========
LIABILITIES AND SHAREHOLDERS DEFICIT
CURRENT LIABILITIES
Notes and Other Debt Payable $1,993,756 $2,337,667
Current Maturities of Long Term Debt 790,179 775,694
Current Maturities of Capital Leases 41,624 53,143
Accounts Payable 971,662 798,866
Accrued Liabilities 722,513 1,014,221
--------- ---------
Total Current Liabilities 4,519,734 4,979,591
--------- ---------
LONG TERM LIABILITIES
Capital leases excluding current maturities 52,527 85,374
Long term debt excluding current maturities 6,250 224,306
-------- --------
Total Long Term Liabilities 58,777 309,680
--------- ---------
Total Liabilities 4,578,511 5,289,271
--------- ---------
COMMITMENTS & CONTINGENCIES
SHAREHOLDERS' DEFICIT
Preferred Stock, par value $0.01 per
share; 2,000,000 shares authorized,
none issued 0 0
Common Stock, par value $0.01 per share;
12,000,000 shares authorized 3,695,114
shares issued at September 30, 1999 and
2,602,700 shares issued at December 31,
1998 36,951 26,027
Capital in Excess of Par 4,021,723 3,757,119
Accumulated Deficit (6,373,695) (6,331,228)
Treasury Stock, 24,400 shares, at cost (74,688) (74,688)
--------- ---------
Total Deficit (2,389,709) (2,622,770)
TOTAL LIABILITIES AND SHAREHOLDERS' --------- ---------
DEFICIT $ 2,188,802 $ 2,661,501
========= =========
See notes to the consolidated financial statements
COMPUTER POWER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
NET SALES $1,394,523 $2,145,559 $4,479,754 $6,224,023
COST OF SALES 1,007,650 1,618,580 3,501,249 4,747,030
--------- --------- --------- ---------
GROSS PROFIT 386,873 526,979 978,505 1,476,993
OPERATING AND OTHER EXPENSES
Selling Expense 104,605 207,664 372,345 707,156
General and Administrative
Expenses 281,615 231,174 718,939 771,025
Interest Expense, net 81,116 105,913 208,042 314,279
------- ------- --------- ---------
TOTAL OPERATING AND OTHER
EXPENSES 467,337 547,751 1,229,327 1,792,460
Net (Loss) before
Extraordinary Gain (80,464) (20,772) (320,822) (315,467)
Extraordinary Gain
(Note 5, Note 6 and Note 7) 87,763 - 278,355 -
------ ------- -------- ---------
NET GAIN (LOSS) $ 7,299 $(20,772) $ (42,467) $(315,467)
====== ======= ======== ========
EARNINGS PER SHARE AVAILABLE TO COMMON SHAREHOLDERS (a):
EPS-before Extraordinary
Gain $(.02) $ (.01) $ (.09) $ (.12)
EPS-Extraordinary Gain .02 .08
---- ---- ---- ----
EPS Net Gain (Loss) 0.00 (.01) (.01) (.12)
==== ==== ==== ====
Weighted average common
shares outstanding 3,695,114 2,578,300 3,695,114 2,578,300
========= ========= ========= =========
(a) Diluted EPS is not presented for either period, as the effect of this
inclusion of potential shares would be immaterial or antidilutive.
The accompanying notes to the consolidated financial statements
are an integral part of the financial statements
COMPUTER POWER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1999 and September 30, 1998
(Unaudited)
September 30, 1999 September 30, 1998
------------------ ------------------
(Unaudited) (Unaudited)
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net Gain (Loss) $ (42,467) $ (315,466)
Adjustments to reconcile net loss to
cash provided by (used for) Operating
activities
Extrordinary Gain (278,355) -
Depreciation & Amortization 80,320 47,299
Changes in Current Assets and Liabilities
Accounts Receivable 468,437 (166,087)
Inventories 29,934 210,165
Prepaid Expenses and Other
Current Assets (8,767) 30,168
Accounts Payable 172,796 (157,449)
Accrued Liabilities (238,352) 188,780
-------- --------
Cash Provided by (Used for) Operating
Activities 183,546 (162,590)
-------- -------
CASH USED FOR INVESTING ACTIVITIES:
Capital Expenditures (12,708) (45,690)
------- -------
Cash (Used for) Investing Activities (12,708) (45,690)
------- ------
CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:
Proceeds from Issuance of Debt 200,000 255,642
Repayment of Debt & Capitalized Leases (291,321) (60,000)
Decrease in Debt due to Warrant Exercise (275,528) -
Increase in Equity due to Warrant Exercise 275,528 -
------- ------
Cash Provided by (Used for) Financing
Activities (91,321) 195,642
------- -------
INCREASE (DECREASE) CASH & CASH
EQUIVALENTS 79,517 (12,638)
CASH & CASH EQUIVALENTS, beginning
of period 63,204 67,300
------- ------
CASH & CASH EQUIVALENTS, end of period 142,721 54,662
======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income Taxes Paid 0 0
Interest Paid 100,124 113,720
The accompanying notes to the consolidated financial statements are
an integral part of the financial statements.
COMPUTER POWER, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1: The financial information as of September 30, 1999 and
for the nine month periods ended September 30, 1999 and September 30,
998 are unaudited but in the opinion of the Company, all adjustments
necessary to present fairly the financial position and the results of
operations for these periods have been made. Reference should be made
to the notes to the financial statements included in the Company s Form
10-KSB for a description of significant accounting policies, commitments
and other pertinent financial information.
Note 2: Inventories, which include material, labor and manufacturing
overhead costs, are stated at the lower of cost (on a first in,
first out basis) or market.
Note 3: At September 30, 1999 and December 31, 1998, notes
payable and current debt included amounts due to related parties and
other lenders as follows:
September 30, 1999 December 31, 1998
------------------ -----------------
Revolving Credit agreement due $710,991 $ 910,098
January 31, 2000, secured by
Accounts Receivable and Inventory,
bearing interest at the Prime Rate
(8.25% at September 30, 1999)
(See Note 4)
Subordinated, unsecured notes to a related 518,043 565,000
entity due July 1, 1999, now extended
indefinitely, bearing interest at 9.5%,
with quarterly interest payments
(See Note 5)
Term loan, secured by Accounts Receivable 192,152 285,000
and Inventory, due January 31, 2000,
bearing interest at the Prime Rate
(See Note 4)
Subordinated, unsecured note payable to a 225,000 250,000
related entity due February 1, 1998, now
extended indefinitely, bearing interest
at 10%, with quarterly interest payments
(See Note 5)
Subordinated, unsecured note payable to a 0 150,000
director due July 1, 1999, bearing interest
at 9.5%, with quarterly interest payments
(See Note 7)
Working Capital loan payable to a related 200,000 0
party, secured by Accounts Receivable and
Inventory
Subordinated, unsecured demand note, bearing 96,569 96,569
interest at 8%
Subordinated, unsecured note payable 32,000 32,000
originally due October 31, 1997, now extended
indefinitely, bearing interest at 10%, with
quarterly interest payments
Subordinated, unsecured note payable to a 0 30,000
director due February 1, 1998, bearing
interest at 10% (See Note 7)
Subordinated, unsecured note payable to a
director originally due October 31, 1997,
now extended indefinitely, bearing interest
at 10%, with quarterly interest payments 19,000 19,000
--------- ---------
Total Notes and Other Debt Payable $ 1,993,755 $ 2,337,667
========= =========
Long-term debt consists of the following at September 30,1999 and December 31,
1998:
September 30, 1999 December 31, 1998
------------------ -----------------
Subordinated note, due August 1, 2000,
bearing interest at prime plus 4%,
payable monthly (See Note 5) $ 521,429 $ 700,000
Convertible debenture, due November
2000, bearing interest at 9.5%,
payable monthly (See Note 5) 275,000 300,000
-------- ---------
Total Long Term Debt 796,429 1,000,000
Less: Current Portion 790,179 775,694
------- ---------
Net Long Term Debt $ 6,250 $ 224,306
======= =========
Note 4: The Company has a revolving credit agreement and a term loan with
an asset based lender. The revolving agreement provides for a maximum
borrowing of 85% of eligible accounts receivable, as defined. The loan
provides for a maximum borrowing of 50% of eligible inventory, as
defined. The total amount of revolving credit and loan borrowing is
capped at $2,000,000. Based on the amount of eligible Accounts
Receivable and Inventory at September 30, 1999, the Company was fully
borrowed.
Note 5: On May 25, 1999, Public Access Lighting LLC exchanged $275,528.50 of
principal on a number of debt instruments it had acquired in the 1st
Quarter of 1999 for 1,102,114 shares of Common Stock through the exercise
of warrants it had also acquired in the 1st Quarter of 1999.
Note 6: During the third quarter, the Company s principal shareholder
forgave $87,763 in interest on the debt it owns. This included $47,456 in
interest accrued in the second quarter. The Company and its principal
shareholder continue to work to complete the capital restructuring begun
with the conversion of the Warrants discussed in Note 5.
Note 7: On June 30, 1999, the Company repaid $45,000 of debt to a former
director. As part of the same transaction, that director simultaneously
forgave accrued interest of $55,592 and the remaining $135,000 of
principal.
Note 8: In management s opinion, the interest forgiven in connection with
the ongoing capital restructuring discussed in Notes 6 and Note 7 will not
be taxable in accordance with applicable sections of the Internal Revenue
Code. Therefore, no income taxes have been provided for this
extraordinary gain.
Note 9: At September 30, 1999 the Company had 8,869 stock subscription
warrants and 263,500 stock options outstanding. The stock subscription
warrants are exercisable at $0.25 per share. The exercise period for the
warrants ranges from June 1, 1996, through June 1, 2006. 13,500 stock
options were issued under an approved stock option plan at market prices
at the time of issue. 250,000 options were issued on June 1, 1999 to the
new President at an exercise price of $0.25. At September 30, 1999, no
warrants or options were determined to be common stock equivalents because
the average market price for the first nine months of 1999 was lower than
the exercise price of the warrants and options.
Note 10: At 12/31/98, the Company had an Operating Loss Carry Forward of
approximately $6,472,000 available to offset future taxable income through
2009. (See also Note 8)
Note 11: There were 3,695,114 diluted weighted average common shares
outstanding for the three-month period ending September 30, 1999 and
2,578,300 for the same period in 1998. For the nine months ending
September 30, 1999, and 1998 the effects of options and warrants were not
considered when calculating fully diluted earnings per share, since the
results would have been either immaterial or anti-dilutive.
COMPUTER POWER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED
This report contains certain forward-looking statements regarding the Company,
its business prospects and results of operations that 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, includes the
Company's ability to successfully develop new products for new markets;
acceptance of new products; the possibility of the Company losing a large
customer or key personnel; the Company s ability to manage growth; periodic
cash shortages; the impact of the competition on the Company s revenue; delays
in the Company's introduction of new products; and the possibility of the
Company failing to keep pace with emerging technologies.
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.
EXTRAORDINARY GAIN
During the third quarter, the Company s majority shareholder and largest
debtholder forgave $87,763 in interest on its long term debt. This included
$47,456 of interest accrued in the 2nd Quarter.
The Company recorded a net gain of $7,299 during the third quarter of 1999, or
$0.00 per share, after giving effect to the Interest Forgiveness. Before giving
effect to this event, the Company recorded a net loss of ($80,464) or ($0.02)
per share, compared to a net loss of ($20,772) or ($0.01) per share during the
third quarter in 1998.
The Company recorded a net loss of $(42,467) during the first three quarters
of 1999, or ($0.01) per share, after giving effect to the Interest
Forgiveness and Capital Restructuring. Before giving effect to this event,
the Company recorded a net loss of ($320,822) or ($0.09) per share, compared
to a net loss of ($315,467) or ($0.12) per share during the same period of
1998.
2. REVENUES
For the third quarter ended September 30, 1999, net sales were $1,394,523 or
$751,036 (35%), below the same period in 1998. Net sales for Astralite
emergency lighting products decreased to a combination of market pressures
and a regulatory change in the marketplace placing the company at a
competitive disadvantage. The Original Equipment Manufacturer s (OEM) portion
of the Company s business was off due to the timing of new orders.
For the nine months ended September 30, 1999 net sales were $4,479,754 compared
to $6,224,023 in 1998, representing a decrease of approximately 28%. Net sales
for the Astralite division were down compared to the same period last year.
Power protection sales were also down for the nine months, reflecting a delay in
incoming orders and a periodically soft market during the summer months
3. COST OF SALES
Cost of sales declined from $1,618,580 for the third quarter ending September
30, 1998 to $1,007,650 for the period ending September 30, 1999. The decline in
the cost of sales is primarily due to lower sales volume. Due to the effect of
cost cutting measures begun in early 1999, the Gross Margin (Net Sales less Cost
of Sales divided by Net Sales) improved to 28% in 1999 versus 25% in 1998. This
continues the improvement of the second quarter.
Cost of sales declined from $4,747,030 for the first nine months ending
September 30, 1998 to $3,501,249 for the period ending September 30, 1999.
The decline in the cost of sales is primarily due to lower sales volume.
However, for the nine months ending September 30, 1999, Gross Margin continued
to reflect the higher initial effects of first quarter cost cutting measures
that overshadowed the improvements of the second and third quarters. As a
result this key ratio came in at 22% and remained below the 24% for 1998.
4. OPERATING AND OTHER EXPENSES
Operating and other expenses for the third quarter of 1999 declined to $467,337
compared to $547,751 for the same period in 1998, due to lower Interest Expense
and Selling Expense. Interest Expense declined because lower sales volume lead
to lower borrowing needs. Selling Expenses also declined due to lower
commissions paid as a result of the decline in sales volume but also because of
internal cost cutting measures.
Operating and other expenses for the first nine months of 1999 totaled
$1,299,327 compared to $1,792,460, representing a decrease of $493,133, due to
lower borrowing costs and lower selling expenses due to a reduction in
salaries, lower commissions and reduced advertising and promotion expenses.
5. LIQUIDITY AND CAPITAL RESOURCES
For the period ended September 30, 1999, the Company's operations generated
$183,546 in cash. This was largely the result of a $468,437 decrease in
accounts receivable. This additional cash flow from operations was primarily
used to reduce bank borrowings and capital leases by $291,321. As a result,
cash for the first nine months showed an increase of $79,517. The Company's
financial resources are primarily borrowings available to it through its
revolving credit agreement and inventory loan facilities. As its borrowings are
tied to the levels of accounts receivable and inventory, the Company is
typically fully borrowed. At September 30, 1999, the Company was
fully borrowed given the amount of Accounts Receivable and Inventory it had on
its books at that time. Should those levels increase due to increasing sales,
the Company has available an additional $903,143 in borrowing capacity to meet
that growth.
As noted in Note (12) to the Company s audited Consolidated Financial Statements
for the year ended December 31, 1998, in January and February, 1999 Public
Access Lighting, L.L.C. ( PAL ) purchased certain Company notes, warrants and
shares of Common stock. At that time, PAL stated its intent to recapitalize
the Company with new financing and to assist in a marketing association with
the Company.
As noted in Note 5, PAL has converted its warrants, paying for it by
surrendering $275,528.50 in principal. In addition by September 30, 1999, it
added working capital through loans totaling $200,000.
The Company continues to work on restructuring the remainder of its long-term
debt. However, there can be no assurance that it will successful in these
efforts. Should it be unsuccessful, the Company s ability to attract the
capital necessary to move forward will be seriously in question.
6. YEAR 2000 ISSUES
With respect to the Company s information technology systems, the Company's
accounting and manufacturing systems have been in use almost since the
inception of the Company. During 1998, management determined that their
current version was not Year 2000 compliant. The software vendor offered an
upgrade to make the system date sensitive. However, the system was not
Microsoft compatible and very limited in scope as compared with new information
technology. Accordingly, the Company purchased a new operating system to
transition into Year 2000. New system software has been installed and user
training has commenced. Future updates to that system will be made available
under technical support contracts with the software service provider.
The Company is about six months late in their original implementation schedule
due to management changes and demands made to run the existing business with a
limited staff. There are currently systems problems as manufacturing orders and
raw materials on order are now being taken for finished products scheduled for
delivery in Year 2000. The problems in controlling these issues are being
managed. The Company can not provide total assurance that there will not be a
systems interruption, or other material adverse event, should the implementation
schedule or ultimate success of the implementation not occur within the required
timeframes.
Non-information technology systems, including telecommunications, have been
tested and appear to be Year 2000 compliant.
With respect to external factors concerning its vendors and customers readiness
for Year 2000, in 1998 to date, on an informal basis in normal business dealings
with these third parties, nothing has come to the Company s attention that
requires action. Additionally, the Company continues to receive statements from
its suppliers indicating their readiness for any Year 2000 issues. These
statements have not indicated to the Company any issues that require action.
Notwithstanding such cautionary initiatives, intelligence gathered from informal
discussions and the results from targeted mailing to key vendors and customers,
(even if all responses come in with assurances of Year 2000 compliance), there
can be no guarantee that the systems of such third parties, customers and
suppliers, on which the Company relies, will be converted in a timely manner, or
that the failure to convert would not have a material adverse effect on the
Company.
COMPUTER POWER, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
On August 30, 1999, Leake-Stuarts, Inc., d/b/a Light Bulb Supply Company
filed suit against the Company in Colorado seeking an unspecified amount
of damages. The complaint alleges that the Company is liable under its
Warranty covering the sale of certain exit signs manufactured by the
Astralite division of the Company. The Company has retained Colorado
counsel to defend in this matter.
ITEM 2. CHANGE IN SECURITIES:
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
None
SIGNATURES
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 thereunto duly authorized.
Date: November 15, 1999 /s/. James Hooley
-----------------------------------
James Hooley
President & Chief Financial Officer