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 December 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 Identification
incorporation or organization) Number)
14 COMMERCE DRIVE, DANBURY, CONNECTICUT 06810
(Address of principal executive offices) (Zip Code)
(203) 748-7001
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(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 |X| NO |_|
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 |X| No |_|
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
POWER DESIGNS, INC. AND SUBSIDIARY
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
December 31, 2000 and June 30, 2000............................... 5
Consolidated Statements of Operations for
the three and six months ended December 31, 2000 and 1999......... 6
Consolidated Statements of Changes
in Stockholders' Deficit for the three and six months ended
December 31, 2000 and 1999........................................ 7
Consolidated Statements of Cash Flows for
the six months ended December 31, 2000 and 1999................... 8
Notes to Consolidated Financial Statements........................ 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION 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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
4
POWER DESIGNS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2000 June 30, 2000
(Unaudited)
ASSETS
Current Assets:
Cash $ 62,090 $ 47,307
Accounts receivable, less allowance for doubtful accounts 270,685 466,748
Inventories 1,008,989 822,564
Prepaid expenses 36,940 52,124
------------ ------------
TOTAL CURRENT ASSETS 1,378,704 1,388,743
Equipment and Leasehold Improvements, net 196,455 268,178
Other Assets 156,009 177,815
------------ ------------
TOTAL ASSETS $ 1,731,168 $ 1,834,736
============ ============
LIABILITIES AND STOCKHOLDERS'
DEFICIT
Current Liabilities
Debtor in possession facility $ 245,000 $ 245,000
Accounts payable 298,819 187,192
Accrued expenses 151,237 132,392
Accrued legal fees 9,262 165,994
Accrued interest 4,162 4,027
------------ ------------
TOTAL CURRENT LIABILITIES 708,480 734,605
Long-Term Liabilities
Liabilities subject to compromise (Note 3) 19,178,035 18,436,107
------------ ------------
TOTAL LIABILITIES 19,886,515 19,170,712
------------ ------------
Stockholders' Deficit
Common stock , $.0001 par value, 10,000,000 shares authorized; 240 240
2,391,493 shares issued and outstanding
Preferred stock, $.01 par value, 1,000,000 shares authorized; 3,167 3,167
316,743 shares issued and outstanding
Additional paid-in capital 1,382,807 1,382,807
Accumulated deficit (19,541,561) (18,722,190)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (18,155,347) (17,335,976)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,731,168 $ 1,834,736
============ ============
See Notes to Consolidated Financial Statements.
5
POWER DESIGNS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
For The Three and Six Months Ended December 31, 2000 and 1999
3 months ended 3 months ended 6 months ended 6 months ended
December 31, 2000 December 31, 1999 December 31, 2000 December 31, 1999
Net Sales $ 629,408 $ 871,559 $ 1,359,236 $ 1,695,471
Cost of Sales 369,480 470,527 826,748 972,924
----------- ----------- ----------- -----------
GROSS PROFIT 259,928 401,032 532,488 722,547
Operating Expenses
Selling, general and admin. expense 233,722 206,347 425,566 402,844
Research and development 51,304 45,295 93,416 88,429
Depreciation and amortization 7,642 8,639 15,283 17,430
----------- ----------- ----------- -----------
292,668 260,281 534,265 508,703
INCOME (LOSS) BEFORE OTHER INCOME
(EXPENSE) AND REORGANIZATION ITEMS (32,740) 140,751 (1,777) 213,844
----------- ----------- ----------- -----------
Other income (expense):
Investment income 1,241 -- 37,081 --
Interest expense (385,051) (387,842) (769,226) (776,809)
Other (1,346) (720) (1,393) (10,320)
----------- ----------- ----------- -----------
OTHER EXPENSE (385,156) (388,562) (733,538) (787,129)
----------- ----------- ----------- -----------
LOSS BEFORE REORGANIZATION ITEMS (417,896) (247,811) (735,315) (573,285)
Reorganization items 38,411 62,159 84,056 66,159
----------- ----------- ----------- -----------
NET LOSS $ (456,307) $ (309,970) $ (819,371) $ (639,444)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 2,391,493 2,391,493 2,391,493 2,391,493
=========== =========== =========== ===========
Net loss per common share $ (0.19) $ (0.13) $ (0.34) $ (0.27)
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
6
POWER DESIGNS, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Deficit
(Unaudited)
For The Three and Six Months Ended December 31, 2000 and 1999
Common Stock Preferred Stock
------------------------------------------------------------------------------------------------
Additional
Shares Par Shares Par Paid In Accumulated
Issued Value Issued Value Capital Deficit
------------ ---------- ---------- ---------- ------------ ------------
Balance, June 30, 1999 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(17,361,337)
Net loss -- -- -- -- -- (329,474)
Balance, September 30, 1999 2,391,493 240 316,743 3,167 1,382,807 (17,690,811)
Net loss -- -- -- -- -- (309,970)
------------ ---------- ---------- ---------- ------------ ------------
Balance, December 31, 1999 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(18,000,781)
============ ========== ========== ========== ============ ============
Balance, June 30, 2000 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(18,722,190)
Net loss -- -- -- -- -- (363,064)
Balance, September 30, 2000 2,391,493 240 316,743 3,167 1,382,807 (19,085,254)
Net Loss -- -- -- -- -- (456,307)
------------ ---------- ---------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 2000 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(19,541,561)
============ ========== ========== ========== ============ ============
See Notes to Consolidated Financial Statements.
7
POWER DESIGNS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For The Six Months Ended December 31, 2000 and 1999
6 months ended 6 months ended
December 31, 2000 December 31, 1999
Cash Flows From Operating Activities
Net loss $(819,371) $(639,444)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization 73,323 75,675
Provision for bad debts 4,274 --
Reorganization items 84,056 66,159
Changes in operating assets and liabilities:
Decrease in accounts receivable 191,789 138,366
Increase in inventories (186,425) (58,107)
Decrease (increase) in prepaid expenses 15,184 (5,836)
Decrease in other assets 21,806 --
Increase in accounts payable and accrued expenses 688,747 801,950
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES
BEFORE REORGANIZATION ITEMS 73,383 378,763
Reorganization items
Reorganization items paid (57,000) (53,139)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,383 325,624
--------- ---------
Cash Flows From Investing Activities
Purchase of property and equipment (1,600) (4,578)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (1,600) (4,578)
--------- ---------
Cash Flows From Financing Activities
Repayments under factoring agreement -- (129,203)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES -- (129,203)
--------- ---------
NET INCREASE IN CASH 14,783 191,843
Cash, beginning of period 47,307 53,395
--------- ---------
Cash, end of period $ 62,090 $ 245,238
========= =========
See Notes to Consolidated Financial Statements.
8
POWER DESIGNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1. BASIS OF PRESENTATION
The 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 consolidated financial statements
should be read in conjunction with the notes thereto. In the opinion of the
management of the Company, the 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 six months ended December 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 December 31,
2000 and December 31, 1999 include the operations of PDIXF Acquisition
Corporation for these same periods respectively.
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 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.
9
POWER DESIGNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
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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:
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 2,342,401
Accrued expenses 401,621
Accrued interest 4,743,087
Capital lease obligation 142,872 (a)
Payables related to 1994 reorganization including
accrued interest 188,586
-----------
Total $19,178,035
===========
(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 August 22, 2000
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
secured obligations in the amount of $4,743,087 through December 31, 2000.
10
POWER DESIGNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
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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 October 1, 2000 through December 31, 2000.
Cash flows from operating activities:
Cash received from customers $ 755,179
Cash paid to suppliers and employees (745,831)
Interest paid (9,535)
---------
Net cash used in operating activities before
reorganization items (187)
---------
Operating cash flows from reorganization items:
Professional fees paid for services in connection with
the Chapter 11 proceeding (39,213)
---------
Net cash used in reorganization items (39,213)
---------
Net cash used in operating activities (39,400)
---------
Cash flows from investing activities:
Purchase of property and equipment (1,600)
Distributions from limited partnership 1,240
---------
Net cash used in investing activities (360)
---------
Net decrease in cash (39,760)
Cash
Beginning 101,850
---------
Ending $ 62,090
=========
11
POWER DESIGNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
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NOTE 5. SIGNIFICANT EVENTS
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 and a
Second, Third, and Fourth Amended Plan of Reorganization which were filed on
August 22, 2000, December 22, 2000 and January 23, 2001 respectively. The
confirmation hearing for the plan of reorganization was continued to January 23,
2001. Subject to further court requests for documentation, the debtors have yet
to receive final court approval of the plan.
NOTE 6. ENTERPRISE WIDE DISCLOSURES
The following table presents revenue from external customers for each of the
Company's groups of products for the three and six month periods ended
December 31, 2000 and 1999:
3 months ended 3 months ended
December 31, 2000 December 31, 1999
Military power supplies $ 261,816 $ 588,470
Variable autotransformers 208,529 167,987
Linear power supplies 144,407 106,819
Service support 14,656 8,283
-----------------------------------
$ 629,408 $ 871,559
===================================
6 months ended 6 months ended
December 31, 2000 December 31, 1999
Military power supplies $ 720,484 $ 987,323
Variable autotransformers 387,622 463,613
Linear power supplies 220,504 164,789
Service support 30,626 79,746
-----------------------------------
$1,359,236 $1,695,471
===================================
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Current Developments
During the second quarter of fiscal year 2001, the issuer, as
Debtors-in-Possession, have continued operations on a limited scale. Pursuant to
a court order, the issuer retained The Vantage Partners LLC, a management
consulting firm, who, together with Melvin A. Becker, Vice President of
Operations, have comprised senior management since the petition filing. Anthony
F. Intino II, a principal of The Vantage Partners LLC, and general manager of
the issuer, was appointed President of the issuer on December 20, 2000.
Approximately twenty-nine individuals are presently employed in the production
of the three core product lines. Management's efforts continue in the following
areas: streamlining operating costs, improving manufacturing quality and
material procurement efficiencies, and furthering credit availability with
vendors and suppliers. Increased resources have been directed toward the areas
of new customer relationships, enhanced promotional efforts and definition of
market channels.
The company has successfully resolved issues of material procurement with
key suppliers and reinstated deteriorating relationships with distributors
and customers. Although liquidity was improved in prior years by increased
shipping levels and a concentrated effort on credit and collection issues,
reduced shipments in the current year have impacted liquidity conversely. A
general decline in military spending, offset by only modest increases in
commercial sales, has resulted in a continued reduction in product orders
during the second fiscal quarter of 2001. Both military and commercial orders
for product fail to exhibit stable levels of predictability. Open sales
orders at December 31, 2000 total $374,359.
To combat the declining flow of new orders for military product, the
issuer has initiated steps to expand the sale of its off-the-shelf
autotransformer and laboratory power supply products. In addition to various
advertising measures and several additions to its internal sales force, the
issuer has likewise retained the services of various outside sales consultants
and manufacturer's representatives in an effort to expand the customer base and
increase product revenue. Contemporaneously, a new homepage has been uploaded to
the Internet domain, WWW.POWERDESIGNS.COM. This website currently displays an
overview of the linear, military and autotransformer product lines. While these
efforts are focused on generating increased commercial 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.
Coupled with overhead cost containment measures, the issuer has also
completed an engineering effort to redesign certain products in its linear power
supply family. These new designs have proven easier and more cost effective to
manufacture, and they provide a greater range of product features and
reliability. To date, orders for this family of products continue to languish
below the issuer's expectations. Current initiatives to
13
expand the market share include competitive product analysis and re-pricing,
coupled with a redirection of product from the distribution channel to direct
customer sales.
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 Power Designs, Inc. 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 10-QSB 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 10-KSB 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 Second Amended Plan of Reorganization for Power Designs, Inc. and PDIXF
Acquisition Corporation was filed with the Office of the U.S. Trustee on August
22, 2000. This amendment modifies repayment terms for allowed federal and state
employee and tax claims, and modifies certain releases and indemnification
granted to third party affiliates of the issuer. The Second Amended Plan of
Reorganization has been attached as an exhibit to the Form 10-KSB for the period
ended June 30, 2000. Third and Fourth Amended Plans of Reorganization were
subsequently filed on December 22, 2000 and January 23, 2001 respectively. These
amendments finalize the terms for administrative and other claims settlements
and certain mutual releases between the issuer and remaining objecting
creditors, inclusive of the issuer's current landlord and Porter Capital
Corporation.
Concurrent with the filing of the Third Amended Plan of Reorganization,
the board of directors of the issuer approved a resolution to indemnify and
hold harmless the defendants in an action, brought outside the venue of the
bankruptcy court, by a creditor of the issuer, against all claims, damages,
settlements and awards that the defendants may incur or pay as a result of the
action taken. The defendants are comprised of various directors, affiliates
and officers of the issuer. Similar indemnification was also resolved for the
same defendants against any damages, which may be sustained as a result of
any future actions brought by this creditor relating to the issuer, inclusive
of any and all costs and attorney's fees incurred in defending the action.
While the defendants have, to date, disputed the alleged complaint, there
are, however, no assurances that the defendants will be able to effectuate a
favorable judgment, or that such judgment will not result in a liability for
the issuer.
14
A settlement hearing on the amended plan was held on January 23, 2001. In
anticipation of a confirmation of the plan, the issuer filed a Findings of Fact,
Conclusions of Law, and Order Under Sections 1129 (a) and (b) of the Bankruptcy
Code Confirming Fourth Amended Plan of Reorganization with the office of the
U.S. Trustee on February 13, 2001. 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.
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.
As of this date, this indebtedness 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.
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 day.
Unless terminated with written notice, the agreement automatically renews at
the end of each six-month term. At December 31, 2000 the agreement was not
terminated, and the issuer had no outstanding advances under this factoring
agreement.
The issuer currently has a net stockholders' deficit of approximately
$18,200,000, meaning that amounts owed to its creditors exceed the issuer's
assets.
Results of Operations
Second quarter of fiscal 2001 versus second quarter of fiscal 2000.
Net sales decreased by 28% to $629,408 for the quarter ended December 31,
2000 as compared with $871,559 for the same period in 1999.
Similarly, gross profit decreased from $401,032 for the second quarter in
fiscal
15
2000 to $259,928 for the same quarter in fiscal 2001. The resulting decrease was
primarily due to the overall decline in new product orders for military grade
power supplies experienced in fiscal 2001, coupled with approximately $400,000
of one-time non-recurring business in this product line in the prior fiscal
year. Cost of sales decreased correspondingly from $470,527 for the second
quarter of fiscal 2000 to $369,480 for the same period in fiscal 2001. Quarterly
interest and other expense decreased only slightly from $388,562 as of December
31, 1999 to $385,156 as of December 31, 2000 primarily the result of a final
receipt of minimal investment income related to a New York limited partnership
interest previously owned by the issuer. Increased deployment of resources into
the areas of engineering and sales and marketing contribute to the increase in
operating expenses from $260,281 for the quarter ending December 31, 1999 as
compared to $292,668 for the quarter ended December 31, 2000. Conversely, fewer
legal and court fees related to the Chapter 11 filing were incurred in the
quarter ended December 31, 2000, as those incurred in the quarter ended December
31, 1999. Therefore, reorganization expense decreased from $62,159 in fiscal
2000 to $38,411 for the same period in fiscal 2001. As a result of these
conditions, the net loss for the three months ended December 31, 2000 is
$456,307, as compared to $309,970 for the same period in prior year.
First six months of fiscal 2001 versus first six months of fiscal 2000.
Net sales decreased from $1,695,471 for the six months ended December 31,
1999 to $1,359,236 for the six months ended December 31, 2000.
Likewise, gross profit decreased from $722,547 for the six months ended
December 31, 1999 to $532,488 for the six months ended December 31, 2000 the
result of the same trends comparatively as those noted in the paragraphs above.
In accordance with the decrease in revenue, cost of sales decreased from
$972,924 for the period ended December 31, 1999 to $826,748 for the same period
in fiscal 2001. A substantial portion of the decrease is due to reduction in
military product sales, offset by the comparatively inferior gross margins
inherent in the production of the commercial products, both power supply and
autotransformer, over the military products. A one-time receipt of investment
income related to a New York limited partnership interest sold by the issuer,
coupled with a modest reduction in outstanding advances under the factoring
agreement, accounts for the decrease in interest and other expense to $733,538
as of December 31, 2000 from $787,129 as of December 31, 1999. As a result of
these conditions, the net loss for the six months ending December 31, 2000 is
$819,371, as compared to $639,444 for the same period in fiscal 2000.
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 establish additional customer relationships, and to continue the
debtor-in-possession financing upon confirmation of a plan of reorganization,
and to ultimately replace said financing with more conventional debt instruments
in future periods. However, there can be no assurances that the issuer will be
able to obtain such additional debt financing, or be
16
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;
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
Item 6. Exhibits and Reports on Form 8-K
(10) MATERIAL CONTRACTS
(i) Plan of Reorganization for Power Designs, Inc. and PDIXF
Acquisition Corporation
(INCORPORATED BY REFERENCE TO EXHIBIT
10(xv) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1998)
(ii) Disclosure Statement for the Plan of Reorganization for Power
Designs, Inc. and PDIXF Acquisition Corporation
(INCORPORATED BY REFERENCE TO EXHIBIT
10(xv) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1998)
(iii) Amended Plan of Reorganization for Power Designs, Inc. and
PDIXF Acquisition Corporation
(INCORPORATED BY REFERENCE TO EXHIBIT
10(v) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1999)
(iv) Disclosure Statement for the Amended Plan of Reorganization
for Power Designs, Inc. and PDIXF Acquisition Corporation
(INCORPORATED BY REFERENCE TO EXHIBIT
10(vi) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1999)
(v) Second Amended Plan of Reorganization for Power Designs, Inc.
and PDIXF Acquisition Corporation
(INCORPORATED BY REFERENCE TO EXHIBIT
10(vi) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 2000)
(vi) Fourth Amended Plan of Reorganization for Power Designs, Inc.
and PDIXF Acquisition Corporation
(vii) Findings of Fact, Conclusions of Law, and Order Under Sections
1129(a) and (b) of the Bankruptcy Code Confirming Fourth
Amended Plan of Reorganization of Power Designs, Inc. and
PDIXF Acquisition Corp. Under Chapter 11 of the Bankruptcy
Code
(27) FINANCIAL DATA SCHEDULES
(i) Financial Data Schedules
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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: February 20, 2001 POWER DESIGNS, INC.
Danbury, Connecticut (Registrant)
By: /s/ Anthony F. Intino II
---------------------------
Anthony F. Intino II
President
By: /s/ Allison E. Bertorelli
---------------------------
Allison E. Bertorelli
Chief Financial Officer
19