U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________to___________
Commission file number: 1-9083
POLYPHASE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 23-2708876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4800 Broadway, Suite A
Addison, Texas 75001
(Address of principal executive offices)
(972) 386-0101
(Registrants's telephone number, including area code)
Indicate by check mark whether the registrant (1) has 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 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
------------- -------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 17,812,464
--------------------------------
Outstanding at February 10, 2000
POLYPHASE CORPORATION
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1999
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TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION Page No.
- ----------------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
December 31, 1999 and September 30, 1999 2
Consolidated Condensed Statements of
Operations for the Three Months Ended
December 31, 1999 and 1998 4
Consolidated Condensed Statements of
Cash Flows for the Three Months Ended
December 31, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 17
-1-
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
Assets
December 31, September 30,
------------ -------------
1999 1999
------------ -------------
(Unaudited)
Current assets:
Cash $ 1,367,619 $ 375,408
Receivables, net of allowance for doubtful accounts
of $406,942 and $502,667
Trade accounts 19,353,359 17,373,364
Current portion of sales contracts 4,539,604 4,765,072
Notes receivable 3,009,280 3,359,777
Inventories 36,277,864 30,924,744
Prepaid expenses and other 1,987,026 1,663,269
----------- -----------
Total current assets 66,534,752 58,461,634
----------- -----------
Property and equipment:
Land 432,000 432,000
Buildings and improvements 3,548,302 3,481,009
Machinery, equipment and other 9,085,870 8,929,988
----------- -----------
13,066,172 12,842,997
Less-Accumulated depreciation (7,526,970) (7,114,989)
----------- -----------
5,539,202 5,728,008
----------- -----------
Other assets:
Noncurrent receivables, net of allowance for
doubtful accounts of $1,100,000 and
$1,305,220
Sales contracts 1,904,322 2,114,591
Notes receivable - -
Related parties 1,496,054 1,523,096
Excess of cost over fair value of net assets of businesses
acquired, net of accumulated amortization of $3,966,003
and $3,754,614 14,241,442 12,178,209
Other intangible assets 2,023,065 1,216,393
Restricted cash 592,381 625,623
Other 1,585,850 1,674,388
----------- -----------
21,843,114 19,332,300
----------- -----------
$93,917,068 $83,521,942
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
-2-
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
Liabilities and Stockholders' Equity
December 31, September 30,
------------ -------------
1999 1999
------------ -------------
(Unaudited)
Current liabilities:
Notes payable $ 4,595,059 $ 4,403,264
Accounts payable 16,348,021 9,937,347
Accrued expenses and other 3,442,055 3,374,493
Current maturities of long-term debt 6,600,118 6,798,467
------------ ------------
Total current liabilities 30,985,253 24,513,571
Long term debt, less current maturities 36,457,787 33,592,522
Note payable and accrued interest to related party 18,285,677 17,914,842
Reserve for credit guarantees 592,381 625,623
------------ ------------
Total liabilities 86,321,098 76,646,558
------------ ------------
Warrants to purchase common stock
in subsidiary 2,370,000 1,425,378
Stockholders' equity:
Preferred stock, $.01 par value, authorized
50,000,000 shares, issued and outstanding
none and 56,440 shares, respectively - 564
Common stock, $.01 par value, authorized
100,000,000 shares, issued and outstanding
17,812,464 shares 178,125 178,125
Paid-in capital 27,596,046 28,159,887
Accumulated deficit (22,548,201) (22,888,570)
------------ ------------
Total stockholders' equity 5,225,970 5,450,006
------------ ------------
$93,917,068 $83,521,942
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
-3-
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
December 31,
--------------------------
1999 1998
----------- -----------
Net revenues $44,442,950 $34,854,998
Cost of sales 35,000,258 28,830,810
----------- -----------
Gross profit 9,442,692 6,024,188
Selling, general and administrative expenses 6,316,610 4,392,887
----------- -----------
Operating income 3,126,082 1,631,301
----------- -----------
Other income (expenses):
Interest expense (1,992,724) (2,157,675)
Interest income and other 164,726 182,663
----------- -----------
Total other income (expenses) (1,827,998) (1,975,012)
----------- -----------
Income (loss) before income taxes, discontinued
operations and extraordinary item 1,298,084 (343,711)
Income taxes 18,741 -
----------- -----------
Income (loss) before discontinued operations
and extraordinary item 1,279,343 (343,711)
Discontinued operations - 3,326
Extraordinary item--early extinguishment of debt (1,290,431) -
----------- -----------
Net loss (11,088) (340,385)
Gain (dividends) on reacquired preferred stock 351,457 (33,098)
----------- -----------
Net income (loss) attributable to common stockholders $ 340,369 $ (373,483)
=========== ===========
Net income (loss) per share - basic and diluted:
Before discontinued operations and extraordinary item $ .09 $ (.02)
Discontinued operations - -
Extraordinary item (.07) -
=========== ===========
Net income (loss) per share $ .02 $ (.02)
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
December 31,
--------------------------
1999 1998
----------- -----------
Cash flow provided by (used in) operating activities:
Net loss $ (11,088) $ (340,385)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 855,192 982,132
Extraordinary item 1,290,431 -
Discontinued operations - (3,326)
Changes in:
Accounts and sales contracts receivable (1,544,258) 1,294,612
Inventories (5,353,120) (2,102,553)
Prepaid expenses and other (235,219) (259,600)
Accounts payable 6,410,674 1,477,645
Accrued expenses and other 95,457 148,985
----------- -----------
Net cash provided by
operating activities 1,508,069 1,197,510
----------- -----------
Cash flows provided by (used in) investing
activities:
Notes and other receivables 350,497 (26,614)
Receivables from related parties 27,042 (160,328)
Capital expenditures, net (223,175) (466,338)
----------- -----------
Net cash provided by (used in)
investing activities $ 154,364 $ (653,280)
----------- -----------
The accompanying notes are an integral part
of these consolidated financial statements.
-5-
POLYPHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Three Months Ended
December 31,
--------------------------
1999 1998
------------ -----------
Cash flows provided by (used in) financing activities:
Refinancing of Overhill indebtedness:
Borrowings $ 38,502,176 $ -
Repayments (32,322,005) -
Redemption of warrants (3,700,000) -
Deferred financing costs (1,832,907) -
Borrowings (principal payments) on other
notes payable and long term debt, net (867,486) (120,850)
Repurchase of preferred stock (450,000) -
------------ -----------
Net cash used in
financing activities (670,222) (120,850)
------------ -----------
Net increase in cash 992,211 423,380
Cash - beginning of period 375,408 401,393
------------ -----------
Cash - end of period $ 1,367,619 $ 824,773
============ ===========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ 1,667,989 $ 1,948,674
Income taxes $ 5,000 $ -
Supplemental schedule of noncash investing and financing activities:
In November 1999, in connection with the Overhill Farms refinancing, warrants
were issued having an estimated fair market value of $2,370,000.
In December 1998, the Company made partial payments on a lawsuit obligation,
together with certain associated expenses, by issuing 150,000 shares of common
stock.
The accompanying notes are an integral part
of these consolidated financial statements.
-6-
POLYPHASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
December 31, 1999
1. NATURE OF BUSINESS
Polyphase Corporation (the "Company" or "Polyphase") is a diversified
holding company that, through its subsidiaries, operates in two industry
segments: the food segment and the forestry segment. The food segment (the
"Food Group"), which consists of the Company's wholly-owned subsidiary,
Overhill Farms, Inc. ("Overhill"), produces high quality entrees, plated
meals, soups, sauces and poultry, meat and fish specialities. The Company's
100% ownership of Overhill is subject to warrants outstanding to purchase a
minority position in Overhill. The forestry segment (the "Forestry Group"),
which consists of the Company's wholly-owned subsidiary Texas Timberjack,
Inc. ("Timberjack" or "TTI") and its majority-owned subsidiaries Southern
Forest Products LLC ("SFP") and Wood Forest Products LLC ("WFP"),
distributes, leases and provides financing for industrial and commercial
timber equipment and is also engaged in certain related timber and sawmill
operations. The Company's transformer segment, which manufactures and
markets electronic transformers, inductors and filters (the "Transformer
Group"), was discontinued in fiscal 1999, as a result of the sale of the
Company's wholly-owned subsidiary, Polyphase Instrument Co. ("PIC").
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and its majority-owned subsidiaries. All
material intercompany accounts and transactions are eliminated. Certain
prior year amounts have been reclassified to conform to the current year
presentation.
The financial statements included herein have been prepared by the Company,
without an audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not misleading.
The information presented reflects all adjustments (consisting solely of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods when read
in conjunction with the financial statements and the notes thereto included
in the Company's latest financial statements filed as part of Form 10-K for
the year ended September 30, 1999.
-7-
3. INVENTORIES
Inventories are summarized as follows: December 31, September 30,
1999 1999
----------- ------------
Finished goods $26,623,401 $22,409,448
Raw materials 9,704,463 8,565,296
Inventory reserve (50,000) (50,000)
----------- -----------
Total $36,277,864 $30,924,744
=========== ===========
As of December 31, 1999 and September 30, 1999, finished goods inventories
consisted of approximately $9,860,000 and $7,804,000 in inventories at the
Food Group, $15,891,000 and $13,603,000 in timber and logging related
equipment, and $872,000 and $1,003,000 in finished wood products,
respectively. As of December 31, 1999 and September 30, 1999, raw materials
inventories consisted of approximately $7,173,000 and $5,872,000 in
inventories at the Food Group and $2,531,000 and $2,693,000 in harvested but
unprocessed timber, respectively.
4. TAXES
For the quarter ended December 31, 1999, the actual federal income tax
expense attributable to income from continuing operations differed from the
net amounts recorded by the Company. The Company's subsidiaries recorded a
provision for federal income taxes of approximately $145,000 using the
statutory rate of 34% and the Company then applied a like amount of its
existing valuation allowance as a reduction of this amount, resulting in a
net federal provision for the quarter of zero. The provision for the quarter
represents state income taxes only.
5. LONG-TERM DEBT
In November 1999, Overhill refinanced substantially all its existing debt.
The new facility amounted to $44 million, consisting of a $16 million line
of credit provided by Union Bank of California, N.A. ("Union Bank"),
together with $28 million in the form of a five-year term loan provided by
Levine Leichtman Capital Partners II, L.P. ("LLCP").
The line of credit with Union Bank expires in November 2002 and provides for
borrowings limited to the lesser of $16 million or an amount determined by a
defined borrowing base consisting of eligible receivables and inventories.
Borrowings under the line bear interest at a rate, as selected by Overhill
at the time of borrowing, of prime plus .25% or LIBOR plus 2.75%. The
agreement contains various covenants including restrictions on capital
expenditures, requirements to maintain specified net worth levels and debt
service ratios, and generally prohibits loans, advances or dividends from
Overhill to the Company and limits payments of taxes and other expenses to
Polyphase to specified levels. The line of credit is guaranteed by the
Company and collateralized by certain assets of Overhill and the Overhill
common stock owned by Polyphase.
-8-
The term loan with LLCP is a secured senior subordinated note bearing
interest at 12% per annum, with interest payable monthly until maturity in
October 2004. Principal payments in an amount equal to 50% of the excess
cash flow, as defined, for Overhill's previous fiscal year are also payable
annually commencing in January 2001. Voluntary principal payments are
permitted after October 31, 2001, subject to certain prepayment penalties.
The agreement contains various covenants including restrictions on capital
expenditures, minimum EBITDA and net worth levels, and specified debt
service and debt to equity ratios. In addition, the terms of the agreement
restrict changes in control, generally prohibit loans, dividends or advances
by Overhill to the Company and limit payments of taxes and other expenses to
Polyphase to specified levels. The term loan with LLCP is guaranteed by the
Company and collateralized by certain assets of Overhill. The agreement also
requires Overhill to pay to LLCP, during each January, annual consulting
fees of $180,000.
In connection with the agreement, LLCP was issued warrants to purchase 17.5%
of the common stock of Overhill, exercisable immediately at a nominal
exercise price. During the first two years following the date of the
agreement, Overhill has the right to repurchase 5% of Overhill's shares from
LLCP for $3 million and/or to repurchase all 17.5% of the Overhill shares
subject to the LLCP warrant within five days of the term loan being repaid
at their then determined fair market value. If such shares are not
purchased, LLCP will be entitled under the agreement to receive a cash
payment of $500,000 from Overhill. At the date of issuance, the warrants
granted to LLCP were estimated to have a fair value of $2.37 million.
As a result of the transactions, Overhill repaid in full the $22.7 million
senior subordinated notes and the $9.7 million balance of its revolving line
of credit with previous lenders. Additionally, Overhill repurchased, for
$3.7 million, the warrants held by a previous lender to purchase 30% of
Overhill's common stock; the excess of such repurchase amount over the
carrying value of the warrant amounted to approximately $2.3 million and was
recorded as goodwill. In connection with the refinancing, Overhill was
permitted to make a one-time advance of $1.25 million to Polyphase for
working capital and other specified purposes. Overhill incurred costs and
expenses in connection with the refinancing totaling approximately $1.9
million, substantially all of which has been, or will be, paid to the
lenders. The early extinguishment of the previous indebtedness resulted in
an extraordinary loss of approximately $1.3 million (net of a $500,000
refund for early payment of the senior subordinated notes) during the
quarter ended December 31, 1999.
-9-
6. EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted
earnings per share:
For the Three Months Ended
December 31,
-------------------------------
1999 1998
----------- ----------
Numerator:
Income (loss) before discontinued operations
and extraordinary item $ 1,279,343 $ (343,711)
Gain (dividends) on reacquired preferred stock 351,457 (33,098)
------------- ------------
1,630,800 (376,809)
Discontinued operations - 3,326
Extraordinary item (1,290,431) -
------------- ------------
Net income (loss) attributable to common stockholders $ 340,369 $ (373,483)
============= ============
Denominator:
Denominator for basic earnings
per share - weighted average shares 17,812,464 15,396,070
------------- ------------
Effect of dilutive securities (a):
Convertible preferred stock 1,075,853 -
Stock options - -
Warrants - -
------------- ------------
Dilutive potential common shares (a) 1,075,853 -
------------- ------------
Denominator for diluted earnings per share 18,888,317 15,396,070
============= ============
Net income (loss) per share - basic and diluted:
Before discontinued operations and extraordinary item $ .09 $ (.02)
Discontinued operations - -
Extraordinary item (.07) -
------------- ------------
Net income (loss) per share $ .02 $(.02)
============= ============
(a) Dilutive potential common shares were excluded from the computation in 1998
since their effect would have been antidilutive.
-10-
7. STOCKHOLDERS' EQUITY
During November 1999, the Company and Infinity Investors Limited, the holder
of the Company's Series A-3 preferred stock, entered into a settlement
agreement whereby, among other things, the Company agreed to repurchase all
Series A-3 preferred stock owned by Infinity, including all accrued but
unpaid dividends, for $450,000 cash, and Infinity agreed to the dismissal of
all litigation against the Company with respect to various matters related
to its ownership of the preferred stock. As a result of the settlement, the
Company recorded a gain of approximately $351,000, related to the difference
in the carrying value of the preferred stock plus the accrued dividends and
the settlement amount. Such amount was accounted for by recording a
reduction of the Company's accumulated deficit during the quarter ended
December 31, 1999.
The Company, during November 1998, entered into an agreement, whereby it
agreed to pay a $500,000 judgment relating to certain litigation in fiscal
1998, in monthly payments of $8,000 (including interest at 10% per annum)
over an eighteen month period, with a balloon payment due at the end of that
period. In connection therewith, the Company, during the year ended
September 30, 1999, issued a total of 300,000 shares of its common stock
valued at $85,000, as partial payment against the judgment, together with
certain costs associated therewith. Of such shares, 150,000 were issued
during the quarter ended December 31, 1998.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Statements contained in this Form 10-Q that are not historical facts, including,
but not limited to, any projections contained herein, are forward-looking
statements and involve a number of risks and uncertainties. The actual results
of the future events described in such forward-looking statements in this Form
10-Q could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: adverse economic conditions, industry competition and other
competitive factors, government regulation and possible future litigation.
Results of Operations
Revenues for the three months ended December 31, 1999 increased $9,588,000
(27.5%) to $44,443,000 from $34,855,000 during the three months ended December
31, 1998. The increase in revenues is primarily attributable to sales gains by
Overhill. Gross profits increased $3,419,000 to $9,443,000 in the current year
from $6,024,000 in the prior year, as a result of both the volume increase, as
well as an increase in gross margins rates to 21.2% in the current quarter as
compared to 17.3% in the first quarter of fiscal 1999. During the period,
operating income increased 91.7% to $3,126,000 in fiscal 2000 from $1,631,000 in
fiscal 1999.
Consolidated net income before discontinued operations and extraordinary item
for the three months ended December 31, 1999 increased $1,623,000 to $1,279,000
from a net loss of $344,000 during the three months ended December 31, 1998.
After the effect of an extraordinary expense of $1,290,000 related to the early
extinguishment of debt in connection with major refinancing by Overhill and a
gain of $351,000 on the reacquisition of preferred stock, net income
attributable to common stockholders amounted to $340,000 ($.02 per share).
The Food Group's revenues increased $10,103,000 (42%) to $34,162,000 for the
three months ended December 31, 1999, as compared to $24,059,000 for the three
months ended December 31, 1998. Gross profits increased $3,128,000 (79.4%) to
$7,067,000, compared to $3,939,000 in the prior year, primarily due to continued
volume increases from both new and existing national accounts, together with
the effect of improved purchasing practices, including the outsourcing of
certain production. Operating income increased $1,435,000 to $2,837,000 in the
current period, compared to $1,402,000 in the same period in fiscal 1999.
Revenues for the Forestry Group for the three months ended December 31, 1999
decreased $515,000 (4.8%) to $10,281,000 from $10,796,000 for the three months
ended December 31, 1998. Operating income for the same period increased $148,000
to $338,000 for the three months ended December 31, 1999 from $190,000 for the
three months ended December 31, 1998. This increase is due to improved results
from increased sales and margins on timber products operations, and, while sales
of logging equipment decreased slightly, gross margins improved somewhat from
the comparable period in fiscal 1999.
-12-
Liquidity and Capital Resources
During the three months ended December 31, 1999, the Company's operating
activities resulted in cash provided of approximately $1,508,000, compared to
cash provided of $1,198,000 during the comparable period in the previous year.
The cash provided during the current year is generally due to improved operating
results and increases in accounts payable, reduced by increases in receivables
and inventories, all resulting primarily from volume increases by Overhill.
During the three months ended December 31, 1999, the Company's investing
activities resulted in cash provided of approximately $154,000, compared to a
use of cash of $653,000 during the comparable period in the previous year. The
Company's cash provided resulted primarily from collections on notes and other
receivables.
During the three months ended December 31, 1999, the Company's financing
activities resulted in a use of cash of approximately $670,000 as compared to a
use of cash of $121,000 in the comparable period in the previous year. The cash
provided from the refinancing of substantially all indebtedness of Overhill was
offset by principal reductions on Timberjack loans and by the repurchase of the
Company's Series A-3 preferred stock.
The Company believes that funds available to it from operations and existing
capital resources will be adequate for its capital requirements for the next
twelve months.
Year 2000
The Company initiated a Year 2000 program to identify and address issues
associated with the ability of its business systems and equipment to properly
recognize the Year 2000. The purpose of this effort was to avoid interruption
of the operations of the Company as a result of the century change that occurred
on January 1, 2000. The Company's program included a review of its software
systems, a review of its operating systems, upgrading or retirement of non-
compliant hardware and contacting key suppliers to assess their Year 2000
readiness.
The Food Group has completed the installation of a new integrated accounting,
inventory, sales and purchasing system to replace the existing manual and
computer systems supporting operations. The system software and hardware has
been certified by the vendor to be Year 2000 compliant and has been implemented
as a parallel system. The Forestry Group has reviewed its existing software and
has completed an upgrade modification.
The Company began the second phase of its Year 2000 compliance project in late
January 1999. The Company's subsidiaries contacted key vendors to assess their
Year 2000 readiness and evaluate the effect of non-compliance on the Company's
future business.
-13-
Subsequent to December 31, 1999, the Company has not experienced any disruptions
or additional costs as a result of the century change. However, because all Year
2000 issues may not reveal themselves until later in 2000, no assurances can be
given that the Company will not experience any interruptions due to Year 2000
issues. The Company will continue to monitor these matters throughout the year.
To date, the Company has had no material expenditures for direct Year 2000
compliance procedures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's interest expense is affected by changes in prime and LIBOR rates
as a result of its various line of credit arrangements. If these market rates
increase by an average of 1% in fiscal 2000, the Company's interest expense
would increase by approximately $200,000 based on the outstanding line of credit
balances at December 31, 1999.
The Company does not own, nor does it have an interest in any other market risk
sensitive instruments.
-14-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During fiscal 1997, five substantially identical complaints were filed in the
United States District Court for the District of Nevada against the Company and
certain of its officers and directors. The complaints each sought certification
as a class action and asserted liability based on alleged misrepresentations
that the plaintiffs claimed resulted in the market price of the Company's stock
being artificially inflated. The defendants filed motions to dismiss in each of
the lawsuits. Without certifying the cases as class actions, the District Court
consolidated the cases into a single action. In June 1998, the District Court
ordered the plaintiffs to file an amended complaint within thirty days, finding
that their original allegations failed to state a claim under the federal
securities laws. The plaintiffs then filed a motion for reconsideration of the
Court's ruling. The defendants opposed that motion, and the Court denied the
plaintiff's motion for reconsideration. The plaintiffs did not file an amended
complaint within the specified thirty day time period, but subsequently filed an
amended complaint, claiming that they were entitled to additional time within
which to file an amended pleading by reason of a scheduling order issued by the
Court. The defendants moved to dismiss the case on the grounds that the amended
complaint was filed too late and failed to state a claim for securities fraud
under applicable legal authorities. The plaintiffs have sought a stay of the
Court's consideration of defendants' motion to dismiss, asserting that there is
uncertainty as to the legal standards to be applied in securities fraud cases.
The Court has not ruled on plaintiff's motion to stay or defendants' motion to
dismiss. However, management believes (based upon advice of legal counsel) that
this litigation will be resolved without material effect on the Company's
financial condition, results of operations or cash flows.
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. Management believes (based
on the advice of legal counsel) that such litigation and claims will be resolved
without material effect on the Company's financial condition, results of
operations or cash flows.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Loan and Security Agreement, dated November 24, 1999, between
Overhill Farms, Inc., Overhill L.C. Ventures, Inc. and Union Bank of
California, N.A.
10.2 Revolving Note, dated November 24, 1999, in the principal amount
of $16,000,000, payable to the order of Union Bank of California, N.A.,
as payee, by Overhill Farms, Inc. as borrower.
10.3 Continuing Guaranty, dated November 24, 1999, by Overhill L.C.
Ventures, Inc. and Polyphase Corporation in favor of Union Bank of
California, N.A.
10.4 Pledge Agreement, dated November 24, 1999, by Overhill Farms,
Inc., Polyphase Corporation and Overhill L.C. Ventures, Inc. in favor
of Union Bank of California, N.A.
-15-
10.5 Intercreditor and Subordination Agreement, entered into as of
November 24, 1999, by and between Levine Leichtman Capital Partners II,
L.P., as subordinated lender, and Union Bank of California, N. A., as
senior lender.
10.6 Securities Purchase Agreement, dated as of November 24, 1999, by
and among Overhill Farms, Inc., as issuer, Polyphase Corporation and
Overhill L.C. Ventures, Inc., as guarantors, and Levine Leichtman
Capital Partners II, L.P., as purchaser.
10.7 Secured Senior Subordinated Note, dated November 24, 1999, in the
principal amount of $28,000,000, payable to the order of Levine
Leichtman Capital Partners, II, L.P., as holder, by Overhill Farms,
Inc., as borrower.
10.8 Warrant to Purchase 166.04 Shares of Common Stock of Overhill
Farms, Inc., dated November 24, 1999, by Levine Leichtman Capital
Partners II, L.P.
10.9 Investor Rights Agreement, entered into as of November 24, 1999,
by and among Overhill Farms, Inc., Polyphase Corporation and Levine
Leichtman Capital Partners II, L.P.
27.1 Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter ended December 31, 1999.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POLYPHASE CORPORATION
(Registrant)
Date: February 10, 2000 By: /s/ James Rudis
-------------------------
James Rudis
Chairman, President and
Chief Executive Officer
Date: February 10, 2000 By: /s/ William E. Shatley
------------------------
William E. Shatley
Senior Vice President and
Chief Financial Officer
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