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 June 30, 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 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 August 3, 2000 POLYPHASE CORPORATION FORM 10-Q QUARTER ENDED JUNE 30, 2000 - ------------------------------------------------------------------------------- TABLE OF CONTENTS ----------------- PART I. FINANCIAL INFORMATION Page No. - ----------------------------- -------- Item 1. Financial Statements Consolidated Condensed Balance Sheets as of June 30, 2000 and September 30, 1999 2 Consolidated Condensed Statements of Operations for the Three Months Ended June 30, 2000 and 1999 4 Consolidated Condensed Statements of Operations for the Nine Months Ended June 30, 2000 and 1999 5 Consolidated Condensed Statements of Cash Flows for the Nine Months Ended June 30, 2000 and 1999 7 Notes to Consolidated Condensed Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings 17 Item 6. Exhibits and Reports on Form 8-K 18 Signature Page 19 -1- POLYPHASE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS Assets June 30, September 30, ----------- ------------- 2000 1999 ----------- ------------- (Unaudited) Current assets: Cash $ 667,500 $ 375,408 Receivables, net of allowance for doubtful accounts of $526,187 and $502,667 Trade accounts 20,853,741 17,373,364 Current portion of sales contracts 3,919,939 4,765,072 Notes receivable 3,881,923 3,359,777 Inventories 33,599,828 30,924,744 Prepaid expenses and other 2,840,497 1,663,269 ----------- ------------- Total current assets 65,763,428 58,461,634 ----------- ------------- Property and equipment: Land 432,000 432,000 Buildings and improvements 3,780,443 3,481,009 Machinery, equipment and other 9,399,583 8,929,988 ----------- ------------- 13,612,026 12,842,997 Less-Accumulated depreciation (8,146,687) (7,114,989) ----------- ------------- 5,465,339 5,728,008 ----------- ------------- Other assets: Noncurrent receivables, net of allowance for doubtful accounts of $1,264,563 and $1,305,220 Sales contracts 1,936,478 2,114,591 Notes receivable - - Related parties 1,741,168 1,523,096 Excess of cost over fair value of net assets of businesses acquired, net of accumulated amortization of $4,437,699 and $3,754,614 13,769,746 12,178,209 Other intangible assets 1,771,406 1,216,393 Restricted cash 715,556 625,623 Other 1,533,166 1,674,388 ----------- ------------- 21,467,520 19,332,300 ----------- ------------- $92,696,287 $ 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 June 30, September 30, ------------ ------------- 2000 1999 ------------ ------------- (Unaudited) Current liabilities: Notes payable $ 7,726,421 $ 4,403,264 Accounts payable 11,017,737 9,937,347 Accrued expenses and other 3,224,587 3,374,493 Current maturities of long-term debt 5,200,118 6,798,467 ------------ ------------- Total current liabilities 27,168,863 24,513,571 Long term debt, less current maturities 36,360,005 33,592,522 Note payable and accrued interest to related party 19,019,285 17,914,842 Reserve for credit guarantees 715,556 625,623 ------------ ------------- Total liabilities 83,263,709 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 (20,711,593) (22,888,570) ------------ ------------- Total stockholders' equity 7,062,578 5,450,006 ------------ ------------- $ 92,696,287 $ 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 June 30, ------------------------ 2000 1999 ----------- ----------- Net revenues $46,647,829 $37,702,120 Cost of sales 37,509,993 30,315,010 ----------- ----------- Gross profit 9,137,836 7,387,110 Selling, general and administrative expenses 6,390,444 5,179,478 ----------- ----------- Operating income 2,747,392 2,207,632 ----------- ----------- Other income (expenses): Interest expense (2,040,163) (2,093,380) Interest income and other 318,144 47,424 ----------- ----------- Total other income (expenses) (1,722,019) (2,045,956) ----------- ----------- Income before income taxes and discontinued operations 1,025,373 161,676 Income taxes - - ----------- ----------- Income before discontinued operations 1,025,373 161,676 Discontinued operations - 3,819 ----------- ----------- Net income 1,025,373 165,495 Dividends on preferred stock - (16,932) ----------- ----------- Net income attributable to common stockholders $ 1,025,373 $ 148,563 =========== =========== Net income per share - basic and diluted: Before discontinued operations $ .06 $ .01 Discontinued operations - - ----------- ----------- Net income per share $ .06 $ .01 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. -4- POLYPHASE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (continued) (Unaudited) For the Nine Months Ended June 30, --------------------------- 2000 1999 ------------ ------------ Net revenues $134,578,013 $112,252,220 Cost of sales 107,201,464 92,035,429 ------------ ------------ Gross profit 27,376,549 20,216,791 Selling, general and administrative expenses 18,683,658 14,543,509 ------------ ------------ Operating income 8,692,891 5,673,282 ------------ ------------ Other income (expenses): Interest expense (6,114,518) (6,442,165) Interest income and other 650,020 385,871 ------------ ------------ Total other income (expenses) (5,464,498) (6,056,294) ------------ ------------ Income (loss) before income taxes, discontinued operations and extraordinary item 3,228,393 (383,012) Income taxes 112,442 - ------------ ------------ Income (loss) before discontinued operations and extraordinary item 3,115,951 (383,012) Discontinued operations - 14,563 Extraordinary item--early extinguishment of debt (1,290,431) - ------------ ------------ Net income (loss) 1,825,520 (368,449) Gain (dividends) on reacquired preferred stock 351,457 (74,266) ------------ ------------ Net income (loss) attributable to common stockholders $ 2,176,977 $ (442,715) ============ ============ The accompanying notes are an integral part of these consolidated financial statements. -5- POLYPHASE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (continued) (Unaudited) For the Nine Months Ended June 30, ------------------------- 2000 1999 ---------- ---------- Net income (loss) per share - basic and diluted: Before discontinued operations and extraordinary item $ .19 $ (.03) Discontinued operations - - Extraordinary item (.07) - ---------- ---------- Net income (loss) per share: $ .12 $ (.03) ========== ========== The accompanying notes are an integral part of these consolidated financial statements. -6- POLYPHASE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended June 30, ----------------------------- 2000 1999 ------------ ------------ Cash flow provided by (used in) operating activities: Net income (loss) $ 1,825,520 $ (368,449) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,485,264 3,052,148 Provision for doubtful accounts 74,820 121,000 Discontinued operations - (14,563) Extraordinary item 1,290,431 - Changes in: Accounts and sales contracts receivable (2,531,951) (4,775,888) Inventories (2,675,084) (1,708,677) Prepaid expenses and other (1,036,006) (1,298,975) Accounts payable 1,080,390 2,837,106 Accrued expenses and other 611,597 193,005 ------------ ------------ Net cash provided by (used in) operating activities 1,124,981 (1,963,293) ------------ ------------ Cash flows provided by (used in) investing activities: Notes and other receivables (522,146) (619,423) Receivables from related parties (218,072) (124,445) Capital expenditures, net (769,029) (803,175) ------------ ------------ Net cash used in investing activities $ (1,509,247) $ (1,547,043) ============ ============ The accompanying notes are an integral part of these consolidated financial statements. -7- POLYPHASE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued) (Unaudited) For the Nine Months Ended June 30, ----------------------------- 2000 1999 ------------ ------------ 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 479,094 4,437,242 Exercise of common stock options - 1,300 Repurchase of preferred stock (450,000) - ------------ ------------ Net cash provided by financing activities 676,358 4,438,542 ------------ ------------ Net increase in cash 292,092 928,206 Cash - beginning of period 375,408 401,393 ------------ ------------ Cash - end of period $ 667,500 $ 1,329,599 ============ ============ Supplemental schedule of cash flow information: Cash paid during the period for : Interest $ 4,465,218 $ 4,155,759 Income taxes $ 19,858 $ - Supplemental schedule of noncash investing and financing activities: In connection with the Overhill Farms refinancing in November 1999, warrants were issued having an estimated fair market value of $2,370,000. During the nine months ended June 30, 1999, the Company made partial payments on a lawsuit obligation, together with certain associated expenses, by issuing 300,000 shares of common stock valued at $85,000. During the nine months ended June 30, 1999, the Company settled certain disputed obligations by granting options on a total of 145,000 shares of common stock, exercisable 130,000 shares at $.01 per share and 15,000 shares at $.50 per share. Such options were assigned a value of $28,000. The accompanying notes are an integral part of these consolidated financial statements. -8- POLYPHASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements June 30, 2000 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 have been 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. -9- 3. INVENTORIES Inventories are summarized as follows: June 30, September 30, 2000 1999 ------------ ------------- Finished goods $ 25,722,464 $ 22,409,448 Raw materials 8,127,870 8,565,296 Inventory reserve (250,506) (50,000) ------------ ------------- Total $ 33,599,828 $ 30,924,744 ============ ============= As of June 30, 2000 and September 30, 1999, finished goods inventories consisted of approximately $8,197,000 and $7,804,000 in inventories at the Food Group, $16,860,000 and $13,603,000 in timber and logging related equipment, and $665,000 and $1,003,000 in finished wood products, respectively. As of June 30, 2000 and September 30, 1999, raw materials inventories consisted of approximately $6,875,000 and $5,872,000 in inventories at the Food Group and $1,253,000 and $2,693,000 in harvested but unprocessed timber, respectively. 4. TAXES For the nine months ended June 30, 2000, 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 $1,133,000 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 period of zero. The provision for the period represents estimated 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. -10- 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 nine months ended June 30, 2000. -11- 6. EARNINGS PER SHARE The following table sets forth the computations of basic and diluted earnings per share: For the Three Months Ended June 30, ------------------------------ 2000 1999 ------------ ------------ Numerator: Income before discontinued operations $ 1,025,373 $ 161,676 Dividends on preferred stock - (16,932) ------------ ------------ 1,025,373 144,744 Discontinued operations - 3,819 ------------ ------------ Net income attributable to common stockholders $ 1,025,373 $ 148,563 ============ ============ Denominator: Denominator for basic earnings per share- weighted average shares 17,812,464 17,758,045 ------------ ------------ Effect of dilutive securities (a): Convertible preferred stock - 1,962,567 Stock options 75,329 - Warrants - - ------------ ------------ Dilutive potential common shares (a) 75,329 1,962,567 ------------ ------------ Denominator for diluted earnings per share 17,887,793 19,720,612 ============ ============ Net income per share - basic and diluted: Before discontinued operations $ .06 $ .01 Discontinued operations - - ------------ ------------ Net income per share $ .06 $ .01 ============ ============ -12- For the Nine Months Ended June 30, ----------------------------- 2000 1999 ------------ ------------ Numerator: Income (loss) before discontinued operations and extraordinary item $ 3,115,951 $ (383,012) Gain (dividends) on reacquired preferred stock 351,457 (74,266) ------------ ------------ 3,467,408 (457,278) Discontinued operations - 14,563 Extraordinary item (1,290,431) - ------------ ------------ Net income (loss) attributable to common stockholders $ 2,176,977 $ (442,715) ============ ============ Denominator: Denominator for basic earnings per share- weighted average shares 17,812,464 16,665,603 ------------ ------------ Effect of dilutive securities (a): Convertible preferred stock 358,618 - Stock options 6,019 - Warrants - - ------------ ------------ Dilutive potential common shares (a) 364,637 - ------------ ------------ Denominator for diluted earnings per share 18,177,101 16,665,603 ============ ============ Net income (loss) per share - basic and diluted: Before discontinued operations and extraordinary item $ .19 $ (.03) Discontinued operations - - Extraordinary item (.07) - ------------ ------------ Net income (loss) per share $ .12 $ (.03) ============ ============ (a) Dilutive potential common shares were excluded from the computation in loss periods since their effect would have been antidilutive. -13- 7. STOCKHOLDERS' EQUITY During November 1999, the Company and Infinity Investors Limited ("Infinity"), 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 nine months ended June 30, 2000. 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. The remaining balance related to the judgment obligation was repaid during the nine months ended June 30, 2000. -14- 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 nine months ended June 30, 2000 increased $22,326,000 (19.9%) to $134,578,000 from $112,252,000 during the nine months ended June 30, 1999. The increase in revenues is primarily attributable to sales gains by Overhill. Gross profits increased $7,160,000 to $27,377,000 in the current year from $20,217,000 in the comparable period in 1999, as a result of both the volume increase, as well as an increase in gross margin rates to 20.3% in the current year as compared to 18.0% in the comparable period in fiscal 1999. During the current nine month period, operating income increased 53.2% to $8,693,000 from $5,673,000 for the comparable period in the prior year. Consolidated income before discontinued operations and extraordinary item for the nine months ended June 30, 2000 increased $3,499,000 to $3,116,000 from a loss of $383,000 during the nine months ended June 30, 1999. 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 $2,177,000 ($.12 per share) in the current year compared to a loss of $443,000 ($.03 per share) in fiscal 1999. The Food Group's revenues increased $23,847,000 (29.8%) to $103,946,000 for the nine months ended June 30, 2000 as compared to $80,099,000 for the nine months ended June 30, 1999. Gross profits increased $6,886,000 to $20,535,000, compared to $13,649,000 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 $3,190,000 to $8,204,000 in the current period, compared to $5,014,000 for the same period in fiscal 1999. Revenues for the Forestry Group for the nine months ended June 30, 2000 decreased $1,521,000 (4.7%) to $30,632,000 from $32,153,000 for the nine months ended June 30, 1999. Operating income for the same period decreased $217,000 to $773,000 for the nine months ended June 30, 2000 from $990,000 for the nine months ended June 30, 1999. These decreases in revenues and operating results are due to a continued softness in the East Texas timber market, affecting both the Texas Timberjack core equipment business as well as its sawmill operations, which is expected to continue at least into the next fiscal year. -15- Liquidity and Capital Resources During the nine months ended June 30, 2000, the Company's operating activities provided cash of approximately $1,125,000, compared to cash used of $1,963,000 during the comparable period in fiscal 1999. The cash provided in the current year is generally due to improved operating results which were offset somewhat by increases in receivables and inventories.. During the nine months ended June 30, 2000, the Company's investing activities resulted in a use of cash of approximately $1,509,000, compared to a use of cash of $1,547,000 during the comparable period in fiscal 1999. The Company's use of cash in the current year consisted of capital expenditures and increases in Timberjack's nontrade receivables. During the nine months ended June 30, 2000, the Company's financing activities provided cash of approximately $676,000 as compared to cash provided of $4,438,000 during the comparable period in fiscal 1999. The cash provided in the current year resulted generally from the refinancing of substantially all indebtedness of Overhill which was offset somewhat 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. 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, on an annualized basis, would increase by approximately $200,000, based on the outstanding line of credit balances at June 30, 2000. The Company does not own, nor does it have an interest in any other market risk sensitive instruments. -16- 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 named in those original complaints 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 which satisfied the Court's interpretation of the pleading standards set by the Private Securities Litigation Reform Act (the "PSLRA"). The plaintiffs then filed a motion for reconsideration of the Court's ruling. The defendants opposed that motion, and the Court subsequently denied the plaintiffs' motion for reconsideration. The plaintiffs then filed an amended complaint which named two additional companies as defendants. The original defendants moved to dismiss the amended complaint, among other things, on the grounds that it failed to state a claim for securities fraud under the PSLRA. The plaintiffs sought a stay of the Court's consideration of the original defendants' second motion to dismiss, asserting that there was uncertainty as to the legal standards to be applied in securities fraud cases. At a hearing held on March 3, 2000, the Court denied the plaintiffs' motion to stay and ruled on the second motion to dismiss, granting it in part and denying it in part. The Court gave the plaintiffs ninety (90) days to conduct discovery on a limited issue and directed that motions for summary judgment should be submitted shortly after the conclusion of the discovery period. Following the March 3, 2000 hearing, the two companies named as additional defendants in the amended complaint filed a motion to dismiss, claiming that the plaintiffs had failed to state a claim against them under the PSLRA. The Court has not ruled on that motion to dismiss. The ninety (90) day period for the limited pretrial discovery has expired, and all of the defendants have filed motions for summary judgment. However, the plaintiffs have requested an extension of the discovery period, and a magistrate judge has granted that request. The defendants have filed a motion for reconsideration with respect to that ruling; however, no decision has been made with respect to that motion. Furthermore, the plaintiffs have requested an extension of time to respond to the defendants' motions for summary judgment, and no decision has been made with respect to that request. 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 that such litigation and claims will be resolved without material effect on the Company's financial position or results of operations. -17- Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter ended June 30, 2000. -18- 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: August 9, 2000 By: /s/ JAMES RUDIS ----------------------------- James Rudis Chairman, President and Chief Executive Officer Date: August 9, 2000 By: /s/ WILLIAM E. SHATLEY ----------------------------- William E. Shatley Senior Vice President and Chief Financial Officer -19- INDEX TO EXHIBITS Exhibit No. Exhibit ----------------- --------------------------- 27.1 Financial Data Schedule