SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of the
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending June 30, 1997
Commission File No. 0-15927
COMPUTER POWER, INC.
(Exact name of small business issuer as specified in its Charter)
New Jersey 22-1981869
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
124 West Main Street, High Bridge, New Jersey 08829
(Address of principal or executive office) (Zip Code)
(908) 638-8000
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the prior twelve months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past ninety (90) days. YES
(X); NO ( )
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date prior to filing: August 12, 1997;
$0.01 par value per share; 2,602,700 shares of Common Stock.
Index on Page 2
Total number of pages - 14
COMPUTER POWER, INC. & SUBSIDIARY
Part I Basis of Presentation of Financial Statements ....... 3
BALANCE SHEETS
As of June 30, 1997 and December 31, 1996 ........... 4
STATEMENTS OF OPERATIONS for the three
months and six months ended June 30, 1997
and 1996 ............................................ 5
STATEMENTS OF CASH FLOWS for the six months
ended June 30,1 997 and 1996 ........................ 6
Notes to Financial Statements ....................... 7
Management's Discussion and Analysis of the
results of operations and financial condition ....... 10
Part II Other Information ................................... 13
Signatures .......................................... 14
2
COMPUTER POWER, INC. & SUBSIDIARY
PART I - FINANCIAL INFORMATION
BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
The financial statements set forth herein are unaudited but, in the
opinion of the Company, all adjustments necessary to present fairly the
financial position and the results of operations for these periods have been
made.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB for quarterly reports under
Section 13 or 15(d) of the Securities Act of 1934, and therefore do not include
all information and footnotes necessary for fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
The financial information included in this report has been prepared in
conformity with the accounting principles and methods of those principles
reflected in the financial statements included in the Form 10-KSB as filed with
the Securities and Exchange Commission. Reference should be made to the notes to
the financial statements included in the Company's Form 10-KSB for a description
of significant accounting policies, commitments and other pertinent financial
information.
3
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
June 30 December 31
1997 1996
ASSETS (Unaudited)
- ----------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and Cash Equivalents $ 82,086 $ 68,519
Accounts Receivable, less allowances of $184,137
at June 30, 1997 and $253,956 at December 31, 1996 1,598,285 1,354,890
Inventories 1,057,895 1,538,358
Prepaid Expenses and Other Current Assets 46,220 75,385
--------- ---------
Total Current Assets 2,784,486 3,037,152
PROPERTY PLANT AND EQUIPMENT, at cost
Machinery, equipment and furniture 1,122,925 1,070,377
Leasehold Improvements 333,274 333,274
--------- ---------
1,456,199 1,403,651
Less: Accumulated Depreciation and Amortization (1,168,313) (1,140,168)
--------- ---------
Net Property, Plant and Equipment 287,886 263,483
--------- ---------
TOTAL ASSETS $ 3,072,372 $ 3,300,635
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
- ----------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Notes and Other Debt Payable $ 1,210,920 $ 874,240
Current Maturities of Long Term Debt 369,996 257,146
Accounts Payable 1,085,248 1,110,224
Accrued Liabilities 998,615 888,048
Deferred Revenue 195,128 372,683
--------- ---------
Total Current Liabilities & Deferred Revenue 3,859,907 3,502,341
LONG TERM DEBT 1,560,004 1,732,854
--------- ---------
Total Liabilities 5,419,911 5,235,195
--------- ---------
SHAREHOLDERS' DEFICIT
Preferred Stock, par value $0.01 per share; 2,000,000 shares
authorized, none issued -- --
Common Stock, par value $0.01 per share; 12,000,000 shares
authorized: 2,602,700 shares outstanding at June 30,
1997 and at December 31, 1996 26,027 26,027
Capital in excess of par 3,757,119 3,757,119
Accumulated Deficit (6,055,997) (5,643,018)
Treasury Stock, 24,400 shares, at cost at June 30, 1997
and December 31, 1996 (74,688) (74,688)
--------- ---------
Total Deficit (2,347,539) (1,934,560)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 3,072,372 $ 3,300,635
=========== =========
The accompanying notes to consolidated financial statements are an integral part
of these financial statements
The December 31, 1996 results are derived from audited financial statements.
4
COMPUTER POWER, INC. & SUBSIDIARY
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
NET SALES $ 2,517,551 $ 2,512,857 $ 5,090,199 $ 5,454,620
COST OF GOODS SOLD 2,060,706 2,203,150 4,097,020 4,293,533
----------- ----------- ----------- -----------
Gross Profit 456,845 309,707 993,179 1,161,087
OPERATING EXPENSES
Selling Expenses 316,634 360,207 662,232 769,443
General and Administrative expenses 306,526 281,560 565,492 562,304
Interest Expenses 91,747 90,915 178,434 183,781
----------- ----------- ----------- -----------
Total Operating Expenses 714,907 732,682 1,406,158 1,515,528
----------- ----------- ----------- -----------
Net (Loss) $ (258,062) $ (422,975) $ (412,979) $ (354,441)
=========== =========== =========== ===========
EARNINGS PER SHARE (Note 6)
PRIMARY EARNINGS PER SHARE $ (0.10) (0.15) $ (0.16) (0.12)
=========== =========== =========== ===========
PRIMARY WEIGHTED AVERAGE SHARES
OUTSTANDING 2,578,300 2,852,700 2,578,300 2,852,700
FULLY DILUTED EARNINGS PER SHARE $ -- $ -- $ -- $ --
=========== =========== =========== =========
Shares issuable upon exercise of warrants and/or options
have not been considered in the calculation of Fully
Diluted Earnings Per Share for 1997 and 1996 as the
results would have been anti-dilutive.
The accompanying notes to consolidated financial statements are an integral part
of these financial statements
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
June 30
--------------------------
CASH (USED) FOR/PROVIDED BY OPERATING ACTIVITIES: 1997 1996
--------------------------
Net (Loss) $(412,979) (354,441)
Adjustments to reconcile net income (loss) to
cash provided by (used for) operating activities
Depreciation & Amortization 28,145 22,185
Changes in Current Assets & Liabilities
Accounts Receivable (243,395) 331,831
Inventories 480,463 80,940
Prepaid Expenses & Other Current Assets 29,165 176,470
Other Non Current Assets 4,000
Accounts Payable (24,976) (524,212)
Accrued Liabilities & Deferred Revenue (66,988) 371,216
--------------------------
Cash (used) for/provided by Operating Activities (210,565) 107,989
CASH USED FOR INVESTING ACTIVITIES:
Capital Expenditures (52,548) (15,641)
--------------------------
Cash used for Investing Activities (52,548) (15,641)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of debt 352,320 300,000
Repayment of note & Term Loan (75,640) (133,494)
--------------------------
Cashed provided by (used for) Financing Activities 276,680 166,506
--------------------------
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS: 13,567 258,854
CASH & CASH EQUIVALENTS, beginning of period 68,519 --
--------------------------
CASH & CASH EQUIVALENTS, end of period $82,086 258,854
==========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income Taxes Paid -- --
Interest Paid $67,706 183,781
The accompanying notes to consolidated financial statements are an integral part
of these financial statements
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COMPUTER POWER, INC & SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
Note 1: The financial information as of June 30, 1997 and the three
and six months ended June 30, 1997 are unaudited but, in the
opinion of the Company, all adjustments necessary to present
fairly the financial position and the results of operations for
these periods have been made. Reference should be made to the
notes to the financial statements included in the Company's Form
10-KSB for a description of significant accounting policies,
commitments and other pertinent financial information.
Note 2: Inventories, which include material, labor and manufacturing
overhead costs, are stated at the lower of cost (on a first in,
first out basis) or market.
Note 3: At June 30, 1997, and December 31, 1996, notes payable and
other current debt included amounts due to related parties and
other lenders as follows:
June 30 December 31
1997 1996
---------------------
1. Subordinated, unsecured notes payable to a director and a
related party, due October 31, 1997, bearing interest at 10%. $ 52,000 $ 52,000
2. Subordinated, unsecured demand note payable to a related
party, bearing interest at 8%. 144,943 144,943
3. Subordinated, unsecured note payable, bearing interest at
12%, amortized in monthly installments of $3,998 plus
interest, due April 30, 1997. - 15,640
4. Subordinated, unsecured note payable to a related entity,
bearing interest at 10%, due February 1, 1998. 250,000 -
5. Subordinated, unsecured note payable to an officer, bearing
interest at 10%, due February 1, 1998. 30,000 -
6. Subordinated, unsecured note payable to a director and a
related party, bearing interest at 10%, due in installments
beginning July, 1997. 18,000 -
7. Revolving credit agreement maturing December 31, 1997,
bearing interest at prime plus 3.5%, secured by all assets of
the Company 715,977 661,657
--------- -------
Total Notes and Other Debt Payable 1,210,920 874,240
--------- -------
Long-term debt consisted of the amounts on the following page at June 30,
1997 and December 31, 1996:
7
COMPUTER POWER, INC & SUBSIDIARY
June 30 December 31
1997 1996
----------------------------------------
1. Term loan, maturing in 1997, bearing interest at prime plus
3.5%, payable in monthly installments of $10,000 plus
interest, secured by receivables, inventory, machinery
and equipment. $ 215,000 275,000
2. Subordinated, unsecured note, payable to an officer,
due July 1, 1999, bearing interest at 9.5%, payable
quarterly 150,000 150,000
3. Subordinated, unsecured notes, payable to a related entity,
due July 1, 1999, bearing interest at 9.5%, payable
quarterly 565,000 565,000
4. Subordinated note, bearing interest at prime plus 4%,
payable in monthly installments of $19,444 plus
interest, payable quarterly, from September 1997 700,000 700,000
through August 2000.
5. Subordinated note, bearing interest at 9.5%, payable
in monthly installments of $6,250 plus interest, payable
quarterly, from July 1997 through November 2000. 300,000 300,000
-----------------------------------------
Total Long Term Debt 1,930,000 1,990,000
Less: Current Portion 369,996 257,146
-----------------------------------------
Net Long Term Debt $ 1,560,004 1,732,854
=========================================
The revolving credit agreement provides for maximum borrowings of
eighty percent (80%) of eligible defined accounts receivable. The
maximum amount, including any amounts outstanding under the term
loan, is $2,000,000. See Item 5, Part II of this document for
discussion of changes in the lending agreement with the Company's
asset based lender.
Note 4. At June 30, 1997, the Company had 1,276,938 stock subscription
warrants and 410,000 stock options outstanding. The stock
subscription warrants are exercisable at various prices ranging
from $0.25 to $0.40 per share. The exercise period for the
warrants ranges from June 1, 1996, through June 1, 2006. The
stock options were issued under an approved stock option plan at
market prices at the time of issue. At June 30, 1997, no warrants
and no options were determined to be common stock equivalents
because the average market price for the first and second
quarters of 1997 was lower than the exercise price of the
warrants and options.
Note 5. The Company owns a 20% interest in Retrofit, Ltd. ("Retrofit"),
of Trinidad, West Indies. Retrofit began manufacturing LED
sub-assemblies for the Company's Astralite business unit in 1996.
The Company's entire investment consisted of a license of its
8
COMPUTER POWER, INC & SUBSIDIARY
patented LED retrofit technology. This investment is carried at
no value. The majority interest in Retrofit is owned by a related
party.
Note 6. Earnings per Share - Fully diluted earnings per share for the
second quarter of 1997 were not calculated since the results
would have been anti-dilutive.
The Company plans to adopt SFAS No. 128, "Earnings per Share,"
which becomes effective December 15, 1997. On that basis, the
Company's reported earnings per share for the periods reported
upon would be as follows:
Quarter Ended June 30 Y-T-D June 30
-----------------------------------------------------------------------------
Per Share Amounts 1997 1996 1997 1996
-----------------------------------------------------------------------------
Primary Earnings Per Share, as Reported $ (0.10) $ (0.15) $ (0.16) (0.12)
SFAS 128 Adjustment - - - -
-----------------------------------------------------------------------------
Basic Earning Per Share $ (0.10) $ (0.15) $ (0.16) (0.12)
-----------------------------------------------------------------------------
Fully Diluted Earnings Per Share, as Reported $ - $ - $ - -
SFAS 128 Adjustment - - - -
=============================================================================
Diluted Earnings Per Share $ - $ - $ - -
=============================================================================
BALANCE OF PAGE INTENTIONALLY LEFT BLANK
9
COMPUTER POWER, INC & SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
1. REVENUES
For the three months ended June 30, 1997, net sales were about
$2,518,000 compared to about $2,513,000 for the second quarter of 1996. Power
Protection business unit sales were strong mainly due to favorable lighting
inverter product line market conditions. Astralite business unit sales, however,
have been significantly affected by increased competition for retrofit products
and, to some extent by the uncertainty created by the introduction of a more
stringent Underwriters Laboratory (UL) standard for retrofit products which
becomes effective in August, 1997.
For the six month period ended June 30, 1997, sales were about
$5,090,000 in 1997 compared to about $5,455,000 in 1996, a 7% reduction. Power
Protection business unit sales in 1996 included a significant one time sale for
a major construction project. Excluding this one time event, Company sales
declined by about 2%. The Power Protection business unit is experiencing about
the same level of competition as in 1996, but the Astralite business unit has
experienced increased competition for retrofit products and to some extent has
been impacted by the UL standard change for retrofit products noted previously.
The Company continues to actively pursue the certification of products which
will meet the new stricter code requirements.
2. COST OF SALES
For the three months ended June 30, 1997, cost of sales was about
$2,061,000 compared to about $2,203,000 in 1996. The cost of sales in 1996
included $200,000 of charges related to provisions for obsolete materials and
for manufacturing efficiencies. After removing the effect of these charges, the
cost of sales for 1996 was about 79.6% of sales compared to about 81.9% of sales
in 1997. The cost of sales for 1997 included increased product engineering
investment, provisions for in warranty services on Power Protection products,
and increased overhead cost expensed from inventory as inventory levels were
reduced, partially offset by reduced cost of material freight in expenses.
For the six month period ended June 30, 1997, cost of sales was about
$4,097,000 compared to about $4,294,000 in 1996. As noted above, the cost of
sales for 1996 included $200,000 of charges related to provisions for obsolete
materials and for manufacturing efficiencies. After removing the effect of these
charges, the cost of sales for 1996 was about 75% of sales compared to about 80%
of sales in 1997. The cost of sales for 1997 included increased product
engineering investment, provisions for in warranty services on Power Protection
products, and increased overhead cost expensed from inventory as inventory
levels were reduced.
3. OPERATING AND OTHER EXPENSES
Selling expenses for the three month period ended June 30, 1997 were
about $317,000 compared to $360,000 in 1996. Spending for travel, entertainment,
and promotional expenses were reduced in 1997. For the six month period ending
June 30, 1997, selling expenses were about $662,000 compared to $769,000 in
1996. During the first quarter of 1996, the Company incurred sales commission
expenses of around $70,000 more than in the same period of 1997. The Company
continues to closely monitor its sales and marketing investment.
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COMPUTER POWER, INC & SUBSIDIARY
General and administrative expenses for the three month period ending
June 30, 1997 were approximately $307,000, compared to about $282,000 in the
prior year primarily reflecting an accrual in 1997 for a three year sales tax
audit adjustment. For the first six month period ended June 30, 1997 expenses
were about $565,000 in 1997 as compared to about $562,000 in 1996 with an
unfavorable sales tax audit adjustment and other miscellaneous expenses
essentially offset with reductions in the cost of professional fees.
Interest expense in the second quarter of 1997 was about $92,000 or
about $1,000 higher than the second quarter of 1996. The increase was primarily
due to a higher level of borrowing in 1997. The interest expense for the first
six months was about $178,000, or about $6,000 lower than the first six months
of 1996. The reduction of interest expense primarily resulted from replacing
debt to the Company's asset based lender, with effective interest rates in
excess of 14%, with debt from related parties, at rates of 10% or less. This was
virtually offset by an increased level of borrowing (See # 4, below).
4. LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company's investment in assets was about
$3,072,000 or about $228,000 less than at December 31, 1996. The change in
assets was due to a $243,000 increase in accounts receivable mainly due to an
increase in Days Sales Outstanding (DSO) from an average of 58 days to an
average of 64 days. In addition, the Company has added about $53,000 in fixed
assets, primarily customer service hardware and software. These increases were
more than offset by a $480,000 decrease in inventory, as the Company continued
with its inventory management programs begun in the fourth quarter of 1996. The
change in liabilities and stockholder's equity reflects a $280,000 increase in
financing provided by a related entity and an officer of the Company.
The Company has two raw material suppliers, one of which is a related
party, that provide extended payments terms. As of June 30, 1997, these vendors
were owed a total of about $456,000, of which about $246,000 was outstanding as
a result of those terms.
During February 1997, the Company arranged additional financing from a
related entity and an officer of the Company totaling $280,000. The new
financing provides for a one year term loan maturing February 1, 1998. Should
the Company be unable to pay down the obligation when due, warrants to purchase
Company stock will be issued in exchange for a one year payment extension.
The Company projects that funding available to it from the revolving
credit and inventory term loan arrangement (See Part II, Section 5), and
negotiated deferrals of debt service should be sufficient to cover operating
cash requirements for the foreseeable future.
As a result of the foregoing, the Company lost $258,062 in the second
quarter of 1997, or ($0.10) per share, as compared to a loss of $422,975 or
($0.15) per share in the similar period last year. Year to date, the Company
lost $412,979 or ($0.16) per share in 1997, as compared to a loss of $354,441,
or ($0.12) per share in 1996. There were 2,578,300 and 2,852,700 fully diluted
weighted average common shares outstanding in each period, respectively, after
considering the
11
COMPUTER POWER, INC & SUBSIDIARY
dilutive effects of outstanding options and warrants. For the
three months and six months ended June 30, 1997, the effects of options and
warrants were not considered when calculating fully diluted earnings per share,
since the results would have been anti-dilutive.
BALANCE OF PAGE INTENTIONALLY LEFT BLANK
12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
None.
ITEM 2. CHANGE IN SECURITIES:
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5. OTHER INFORMATION:
On May 6, 1997, the Company's asset based lender agreed to modify
certain terms and conditions of a loan agreement expiring on December 31, 1997.
When executed, the agreement will be extended until January 31, 1999 with
certain terms and conditions that are more favorable to the Company. In
addition, certain related party investors have agreed to continue to finance
product and business development for both Power Protection and Astralite
business units for the foreseeable future by deferring principal and interest
payments on various loan obligations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a) Exhibits: None
b) Reports on Form 8-K: None.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUTER POWER, INC. & SUBSIDIARY
Date: August 14, 1997 /S/ HIRO HIRANANDANI
-------------------------------------
Hiro Hiranandani
President & Chief Executive Officer
Date: August 14, 1997 /S/ THOMAS E. MARREN, JR.
-------------------------------------
Thomas E. Marren, Jr.
V.P & Chief Financial Officer