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 June 30, 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 August 10, 1999 POLYPHASE CORPORATION FORM 10-Q QUARTER ENDED JUNE 30, 1999 - ------------------------------------------------------------------------------- TABLE OF CONTENTS ----------------- PART I. FINANCIAL INFORMATION Page No. - ----------------------------- -------- Item 1. Financial Statements Consolidated Condensed Balance Sheets as of June 30, 1999 and September 30, 1998 2 Consolidated Condensed Statements of Operations for the Three Months Ended June 30, 1999 and 1998 4 Consolidated Condensed Statements of Operations for the Nine Months Ended June 30, 1999 and 1998 5 Consolidated Condensed Statements of Cash Flows for the Nine Months Ended June 30, 1999 and 1998 7 Notes to Consolidated Condensed Financial Statements 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings 17 Item 4. Submission of Matters to a Vote of Security Holders 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, ------------ ------------ 1999 1998 ------------ ------------ (Unaudited) Current assets: Cash $ 1,486,158 $ 423,957 Receivables, net of allowance for doubtful accounts of $514,628 and $562,800 Trade accounts 16,444,721 13,839,250 Current portion of sales contracts 5,419,886 3,879,420 Notes receivable 2,432,655 1,813,232 Inventories 35,952,305 34,568,628 Prepaid expenses and other 1,805,195 527,999 ------------ ------------ Total current assets 63,540,920 55,052,486 ------------ ------------ Property and equipment: Land 432,000 432,000 Buildings and improvements 4,502,035 4,054,854 Machinery, equipment and other 9,919,351 9,490,827 ------------ ------------ 14,853,386 13,977,681 Less-Accumulated depreciation (8,793,054) (7,526,281) ------------ ------------ 6,060,332 6,451,400 ------------ ------------ Other assets: Noncurrent receivables Sales contracts 1,904,285 1,363,039 Related parties 795,100 670,655 Excess of cost over fair value of net assets of businesses acquired, net of accumulated amortization of $3,793,710 and $3,183,743 12,805,029 13,414,996 Other intangible assets 1,573,746 2,494,754 Restricted cash 628,650 672,898 Other 1,456,598 1,425,147 ------------ ------------ 19,163,408 20,041,489 ------------ ------------ $ 88,764,660 $ 81,545,375 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. -2- POLYPHASE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (continued) (Unaudited) Liabilities and Stockholders' Equity June 30, September 30, ------------ ------------ 1999 1998 ------------ ------------ (Unaudited) Current liabilities: Notes payable $ 18,182,919 $ 14,409,681 Note payable and accrued interest to related party 17,513,104 16,307,405 Accounts payable 9,135,852 6,085,703 Accrued expenses and other 3,259,158 3,514,685 Current maturities of long-term debt 5,533,333 3,533,333 ------------ ------------ Total current liabilities 53,624,366 43,850,807 Long term debt, less current maturities 26,834,277 29,220,972 Reserve for credit guarantees 628,650 672,898 ------------ ------------ Total liabilities 81,087,293 73,744,677 ------------ ------------ Warrants to purchase common stock in subsidiary 1,200,000 1,200,000 Stockholders' equity: Preferred stock, $.01 par value, authorized 50,000,000 shares, issued and outstanding 56,440 and 115,000 shares, respectively 564 1,150 Common stock, $.01 par value, authorized 100,000,000 shares, issued and outstanding 17,812,464 and 15,080,050 shares, respectively 178,125 150,800 Paid-in capital 28,916,456 28,623,811 Accumulated deficit (21,642,459) (21,199,744) Notes receivable (975,319) (975,319) ------------ ------------ Total stockholders' equity 6,477,367 6,600,698 ------------ ------------ $ 88,764,660 $ 81,545,375 ============ ============ 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, ---------------------------- 1999 1998 ------------ ------------ Net revenues $ 39,554,615 $ 37,272,305 Cost of sales 32,005,725 30,806,581 ------------ ------------ Gross profit 7,548,890 6,465,724 Selling, general and administrative expenses 5,334,343 4,793,848 ------------ ------------ Operating income 2,214,547 1,671,876 ------------ ------------ Other income (expenses): Interest expense (2,096,476) (2,338,925) Interest income and other 47,424 (7,985) ------------ ------------ Total other income (expenses) (2,049,052) (2,346,910) ------------ ------------ Income (loss) before income taxes 165,495 (675,034) Income taxes - - ------------ ------------ Net income (loss) 165,495 (675,034) Dividends on preferred stock (16,932) (37,500) ------------ ------------ Net income (loss) attributable to common stockholders $ 148,563 $ (712,534) ============ ============ Basic income (loss) per share $ .01 $ (.05) ============ ============ Diluted income (loss) per share $ .01 $ (.05) ============ ============ The accompanying notes are an integral part of these consolidated financial statements. -4- POLYPHASE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) For the Nine Months Ended June 30, ---------------------------- 1999 1998 ------------ ------------ Net revenues $116,789,150 $107,993,318 Cost of sales 96,136,049 88,049,856 ------------ ------------ Gross profit 20,653,101 19,943,462 Selling, general and administrative expenses 14,949,210 13,990,441 ------------ ------------ Operating income 5,703,891 5,953,021 ------------ ------------ Other income (expenses): Interest expense (6,458,211) (6,451,552) Interest income and other 385,871 115,344 Gain on sale of assets - 987,857 ------------ ------------ Total other income (expenses) (6,072,340) (5,348,351) ------------ ------------ Income (loss) before income taxes and extraordinary item (368,449) 604,670 Income taxes - - ------------ ------------ Net income (loss) before extraordinary item (368,449) 604,670 Extraordinary item: Early extinguishment of debt - (616,239) ------------ ------------ Net income (loss) (368,449) (11,569) Dividends on preferred stock (74,266) (117,750) ------------ ------------ Net income (loss) attributable to common stockholders $ (442,715) $ (129,319) ============ ============ 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, ---------------------------- 1999 1998 ------------ ------------ Basic income (loss) per share: Income (loss) before extraordinary item $ (.03) $ .03 Extraordinary item - (.04) ------------ ------------ Net income (loss) per share: $ (.03) $ (.01) ============ ============ Diluted income (loss) per share: Income (loss) before extraordinary item $ (.03) $ .03 Extraordinary item - (.04) ------------ ------------ Net income (loss) per share $ (.03) $ (.01) ============ ============ 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, ---------------------------- 1999 1998 ------------ ------------ Cash flow provided by (used in) operating activities: Net (loss) $ (368,449) $ (11,569) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 3,120,548 3,210,649 Provision for doubtful accounts 121,000 183,848 Gain on sale of assets - (987,857) (Increase) decrease in: Accounts and sales contracts receivable (4,808,183) 47,274 Inventories (1,383,677) (10,140,120) Prepaid expenses and other (1,308,647) 828,094 Accounts payable 3,050,149 (1,205,987) Accrued expenses and other 39,757 715,766 ------------ ------------ Net cash used in operating activities (1,537,502) (7,359,902) ------------ ------------ Cash flows provided by (used in) investing activities: Notes and other receivables (619,423) (1,021,743) Receivables from related parties (124,445) 8,963 Capital expenditures, net (875,705) (1,010,543) ------------ ------------ Net cash used in investing activities $ (1,619,573) $ (2,023,323) ------------ ------------ 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, ---------------------------- 1999 1998 ------------ ------------ Cash flows provided by (used in) financing activities: Borrowings (principal payments) under line of credit arrangements, net $ 3,773,238 $ 2,174,882 Borrowings (principal payments) on other notes payable and long term debt, net 519,004 31,041,039 Exercise of common stock options and warrants 1,300 2,100 Principal payments on term notes - (1,982,280) Principal payments on convertible bonds - (4,300,000) Principal payments on subordinated debentures - (13,000,000) Redemption of Overhill warrants - (2,000,000) Dividends on preferred stock (74,266) (117,750) Deferred financing costs - (2,753,552) Common stock issuance costs - (17,500) ------------ ------------ Net cash provided by financing activities 4,219,276 9,046,939 ------------ ------------ Net increase (decrease) in cash 1,062,201 (336,286) Cash - beginning of period 423,957 1,064,259 ------------ ------------ Cash - end of period $ 1,486,158 $ 727,973 ============ ============ -8- POLYPHASE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued) (Unaudited) For the Nine Months Ended June 30, ---------------------------- 1999 1998 ------------ ------------ Supplemental schedule of cash flow information: Cash paid during the period for : Interest $ 4,171,805 $ 2,594,632 Income taxes $ 752,100 $ - Supplemental schedule of noncash investing and financing activities: In December 1997, in connection with the Overhill Farms credit agreement, warrants were issued having an estimated fair market value of $1,200,000. In connection with the repayment of certain indebtedness to Merrill Lynch in December 1997, the Company issued warrants covering 210,000 shares exercisable at $.01 per share and 210,000 shares exercisable at $1.125 per share. Such warrants were assigned a value of $175,000. 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 145,000 shares of common stock, exercisable 130,000 shares at $.01 per share and 15,000 shares at $.50 per share. The options were assigned a value of $28,000. The accompanying notes are an integral part of these consolidated financial statements. -9- POLYPHASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements June 30, 1999 1. NATURE OF BUSINESS Polyphase Corporation (the "Company" or "Polyphase") is a diversified holding company that, through its subsidiaries, operates in three industry segments: the food segment, the forestry segment and the transformer 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 forestry segment ("Forestry Group"), which consists of the Company's wholly-owned subsidiary Texas Timberjack, Inc. ("TTI" or "Timberjack") and TTI's 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 transformer segment (the "Transformer Group"), which consists of the Company's wholly-owned subsidiary Polyphase Instrument Co. ("PIC"), manufactures and markets electric transformers, inductors and filters. 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, 1998. -10- 3. INVENTORIES Inventories are summarized as follows: June 30, September 30 1999 1998 ------------ ------------ Finished goods $ 26,220,263 $ 24,162,010 Work-in-process 470,117 430,507 Raw materials 9,593,925 10,228,111 Inventory reserve (332,000) (252,000) ------------ ------------ Total $ 35,952,305 $ 34,568,628 ============ ============ As of June 30, 1999, finished goods inventories are comprised of approximately $7,223,000 in inventories at the Food Group, $17,077,000 in timber and logging related equipment, $1,378,000 in finished wood products and $542,000 in transformers. As of June 30, 1999, raw materials inventories are comprised of approximately $5,660,000 in inventories at the Food Group, $2,861,000 in harvested but unprocessed timber and $1,073,000 in transformer parts. 4. TAXES The Federal income tax returns of TTI for the year ended March 31, 1994 and for the stub period ended June 24, 1994, were audited by the Internal Revenue Service. Both of these tax periods were prior to the acquisition of TTI by Polyphase. During the current period, the Internal Revenue Service assessed TTI with additional taxes of approximately $752,000 for the year ended March 31, 1994. The Company and TTI are appealing the IRS decision, and, in anticipation of further contesting the matter in District Court, TTI made a cash payment to the IRS for $1,185,000 (which is included in other current assets), representing the above tax assessment plus interest of $433,000. In the event the IRS reverses its earlier position, TTI would be entitled to a full refund of the amount paid. If the appeal is denied, TTI would seek recovery through District Court proceedings, and in that event, would consider the necessity of establishing appropriate valuation accounts for any amounts not considered recoverable. Management believes, based upon the advice of counsel, that this issue will ultimately be resolved without a material financial effect on TTI or the Company. -11- 5. EARNINGS PER SHARE The following table sets forth the computations of basic and diluted earnings per share: For the Three Months Ended June 30 ---------------------------- 1999 1998 ------------ ------------ Numerator: Net income (loss) $ 165,495 $ (675,034) Preferred dividends (16,932) (37,500) ------------ ------------ Net income (loss) attributable to common stockholders $ 148,563 $ (712,534) ============ ============ Denominator: Denominator for basic earnings per share - weighted average shares 17,758,045 14,785,541 ------------ ------------ Effect of dilutive securities: Convertible preferred stock 1,962,567 - ------------ ------------ Dilutive potential common shares (a) 1,962,567 - ------------ ------------ 19,720,612 14,785,541 ============ ============ For the Nine Months Ended June 30, ------------ ------------ 1999 1998 ------------ ------------ Numerator: Net income (loss) before extraordinary item $ (368,449) $ 604,670 Preferred dividends (74,266) (117,750) ------------ ------------ (442,715) 486,920 Extraordinary item - (616,239) ------------ ------------ Income (loss) available to common stockholders $ (442,715) $ (129,319) ============ ============ Denominator: Denominator for basic earnings per share- weighted average shares (a) 16,665,603 14,419,541 ============ ============ (a) Dilutive potential common shares were excluded from the computation in loss periods since their effect would have been antidilutive. -12- 6. STOCKHOLDERS' EQUITY During the nine months ended June 30, 1999, Infinity Investors Limited ("Infinity"), the holder of the Company's Series A-3 Preferred Stock, converted a total of 58,560 shares of such stock, together with accrued dividends of $205,648, into a total of 2,302,414 shares of the Company's common stock. Based upon the market price of the Company's common stock as of June 30, 1999, the holder would have been entitled to approximately 1.8 million common shares upon conversion of its remaining preferred stock and accrued dividends. Any additional conversions of the Series A-3 Preferred Stock require that the Company file an application with the American Stock Exchange ("AMEX") for the listing of such additional common shares prior to issuance. The AMEX Company Guide requires stockholder approval as a prerequisite to the filing of such additional listing application. At the Company's Annual Meeting held May 27, 1999, a majority of the stockholders voted against a proposal to file an additional listing application with respect to the conversion of additional preferred shares by Infinity. The Company, as well as its directors, are currently in litigation with Infinity regarding issues related to this matter. The Company, during November 1998, entered into an agreement, whereby the Company 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 nine months ended June 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. -13- 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, 1999 increased $8,796,000 (8.1%) to $116,789,000 from $107,993,000 during the nine months ended June 30, 1998. The increase in revenues is primarily attributable to sales gains by Overhill. The volume increase resulted in a gross profit increase of $710,000 to $20,653,000 in 1999 from $19,943,000 in 1998, more than compensating for a slight decrease (from 18.5% in 1998 to 17.7% in 1999) in gross margins rates. An increase in selling, general and administrative expenses of $959,000 resulted in an operating income decrease of $249,000 (4.2%) to $5,704,000 for the nine months ended June 30, 1999, as compared to $5,953,000 in 1998. Consolidated net income before extraordinary item for the nine months ended June 30, 1999 decreased $973,000 to a net loss of $368,000 from net income of $605,000 during the nine months ended June 30, 1998. Net income for the prior period included a one time gain of $988,000 from the sale of the Company's corporate headquarters in December 1997. The Food Group's revenues increased $11,549,000 (16.8%) to $80,099,000 for the nine months ended June 30, 1999, as compared to $68,550,000 for the nine months ended June 30, 1998. Gross profits increased $2,617,000 (23.7%) to $13,649,000, compared to $11,032,000 in the prior year, primarily due to increased business from both new and existing national accounts, together with the effect of negotiated decreases in materials costs. Operating income increased $1,367,000 to $5,014,000 in 1999, compared to $3,647,000 in fiscal 1998. Revenues for the Forestry Group for the nine months ended June 30, 1999 decreased $4,089,000 (11.3%) to $32,153,000 from $36,242,000 for the nine months ended June 30, 1998. Operating income for the same period decreased $2,473,000 to $990,000 for the nine months ended June 30, 1999 from $3,463,000 for the nine months ended June 30, 1998. This decrease was primarily attributable to a softness in the East Texas timber market, resulting in a $1,949,000 decrease in gross margins for the current period, coupled with an increase of $524,000 in selling, general and administrative expenses. Revenues for the Transformer Group for the nine months ended June 30, 1999 increased $1,336,000 to $4,537,000 from $3,201,000 for the comparable period in fiscal 1998. Operating income decreased to $31,000 for the nine months ended June 30, 1999 from $36,000 for the comparable period in fiscal 1998. -14- Liquidity and Capital Resources During the nine months ended June 30, 1999, the Company's operating activities resulted in a use of cash of approximately $1,538,000, compared to cash used of $7,360,000 during the comparable period in fiscal 1998. The use of cash during the current year is generally due to increases in trade receivables, offset somewhat by increases in accounts payable, both resulting primarily from volume increases by Overhill. During the nine months ended June 30, 1999, the Company's investing activities resulted in a use of cash of approximately $1,620,000, compared to a use of cash of $2,023,000 in fiscal 1998. The Company's use of cash resulted primarily from increases in notes receivable and capital expenditures by Texas Timberjack and its subsidiaries. During the nine months ended June 30, 1999, the Company's financing activities provided cash of approximately $4,219,000 as compared to cash provided of $9,047,000 in the comparable period in fiscal 1998. The source of cash during the current year consisted primarily of advances under revolving lines of credit by Timberjack and Overhill. The Company has principal payment obligations to Long Horizons and to Mr. Harold Estes. The Company's management believes that cash generated from operations, together with available lines of credit, possible refinancings and contemplated debt and/or equity placements, will be sufficient to meet the Company's liquidity requirements for the next twelve months. Year 2000 The Company has 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 is to avoid interruption of the operations of the Company as a result of the century change that will occur on January 1, 2000. The Company's program includes review of its software systems, review of its operating systems, upgrade or retirement of non-compliant hardware and contacting key suppliers to assess their Year 2000 readiness. The Food Group is completing 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 is the process of completing an upgrade modification. Each group will retire or replace its existing hardware as deemed necessary and should be completely tested and on line by September 1999. The Company began the second phase of its Year 2000 compliance project in late January. The Company's subsidiaries are contacting key vendors to assess their Year 2000 readiness and evaluate the effect of non-compliance on the Company's future business. Despite efforts to address the Year 2000 problem, there can be no guarantee that critical suppliers or entities on which the Company relies will be converted on a timely basis. The Company believes, based upon preliminary findings, that most vendors are performing internal Year 2000 projects similar to the Company's and that non-compliant vendors will offer alternative measures for time sensitive -15- products. Contingency plans for obtaining goods and services from non-compliant vendors will be addressed on a case by case basis. To date, the Company has had no material expenditures for direct Year 2000 compliance procedures. The Company believes that neither the cost of its planned upgrade and modification program nor a failure to timely complete such program, will have a material adverse effect on the Company's financial condition, results of operations or cash flows. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not own, nor does it have an interest in any market risk sensitive investments. -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 filed motions to dismiss in each of the lawsuits asserting that the plaintiffs' allegations failed to state a claim. 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 (30) days, finding that there is a heightened pleading standard for federal securities law claims. The plaintiffs then filed a motion for reconsideration of the Court's ruling. The defendants opposed that motion, and the Court, in March 1999, denied the plaintiffs' motion for reconsideration. The plaintiffs did not file an amended complaint within the specified thirty (30) day time period, claiming that they were entitled to additional time to file an amended pleading by reason of a scheduling order issued by the Court. Defendants moved to dismiss the consolidated cases in light of the plaintiffs' failure to file an amended complaint. Thereafter, plaintiffs filed an amended complaint. Defendants responded with an amended motion to dismiss, arguing that the plaintiffs' filing came too late and that it was insufficient to state a claim. There has been no ruling on defendants' amended motion to dismiss, and plaintiffs have now sought a stay of the proceedings in light of a recent appellate court decision. Consequently, it cannot be determined at this time whether the plaintiffs' amended complaint will be dismissed. However, management believes 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. Item 4. Submission of Matters to a Vote of Security Holders On May 27, 1999, the Company held its 1999 Annual Meeting of Stockholders (the "Annual Meeting"). At the Annual Meeting, the following matters were considered and voted upon: (a) the election of four (4) directors of the Company; (b) an amendment to the 1994 Employee Stock Option Plan for Polyphase Corporation (the "1994 Employee Plan") to increase the number of shares of common stock authorized and reserved for issuance upon the exercise of stock options granted pursuant to the 1994 Employee Plan by 750,000 shares, from 1,000,000 to 1,750,000 shares; and (c) the filing of a listing application with the American Stock Exchange, Inc. ("AMEX"), enabling the Company to issue additional shares of common stock in excess of restrictive limits set forth by the AMEX, upon conversion of shares of a series of the Company's preferred stock. -17- The following table sets forth certain information relating to the voting by stockholders on the matters referred to above: Votes Cast Votes Against Broker For Or Withheld Abstentions Non-Votes ---------- ------------- ----------- --------- Director Nominees James Rudis 15,243,110 435,071 - - Michael F. Buck 15,242,610 435,571 - - George R. Schrader 15,243,110 435,071 - - William E. Shatley 15,243,110 435,071 - - Amendment to 1994 Employee Plan 10,182,854 5,279,117 216,210 - Filing of AMEX Listing Application 1,251,173 8,204,186 131,110 6,091,712 Reference is made to the Company's definitive proxy statement, mailed on May 7, 1999 to stockholders of record on April 19, 1999, for more complete information relating to the 1999 Annual Meeting. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K - One report on Form 8-K was filed during the quarter ended June 30, 1999. The report, dated April 30, 1999, reported under Item 5 thereof that on April 26, 1999, the Board of Directors had, by unanimous written consent, amended Article III, Section 1 of the Company's bylaws relating to the election of directors. -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 12, 1999 By: /s/ James Rudis --------------- James Rudis Chairman, President and Chief Executive Officer Date: August 12, 1999 By: /s/ William E. Shatley ---------------------- William E. Shatley Senior Vice President, Treasurer and Chief Financial Officer -19- INDEX TO EXHIBITS Exhibit No. Exhibit ----------- ----------------------- 27 Financial Data Schedule