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 September 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: November 12, 1997;
$0.01 par value per share; 2,602,700 shares of Common Stock.
Index on Page 2
Total number of pages - 15
COMPUTER POWER, INC. & SUBSIDIARY
INDEX
Part I Basis of Presentation of Financial Statements ...............3
BALANCE SHEETS
As of September 30, 1997 and December 31, 1996 ..............4
STATEMENTS OF OPERATIONS for the three
months and nine months ended September 30, 1997
and 1996 ....................................................5
STATEMENTS OF CASH FLOWS for the nine months
ended September 30,1997 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
Exhibit .....................................................14
Signatures ..................................................15
Page 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.
Page 3
COMPUTER POWER, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF September 30, 1997 AND DECEMBER 31, 1996
September 30 December 31
1997 1996
(Unaudited)
- ------------------------------------------------------------------------------------------
Cash and Cash Equivalents $ 83,709 $ 68,519
Accounts Receivable, less allowances of $168,056
at September 30, 1997 and $253,956 at December 31, 1996 1,502,222 1,354,890
Inventories 1,217,981 1,538,358
Prepaid Expenses and Other Current Assets 31,043 75,385
--------------------------
Total Current Assets 2,834,955 3,037,152
Machinery, equipment and furniture 1,127,262 1,070,377
Leasehold Improvements 333,274 333,274
--------------------------
1,460,536 1,403,651
Less: Accumulated Depreciation and Amortization (1,182,842) (1,140,168)
--------------------------
Net Property, Plant and Equipment 277,694 263,483
--------------------------
$ 3,112,649 $ 3,300,635
==========================
- ------------------------------------------------------------------------------------------
Notes and Other Debt Payable $ 1,217,213 $ 874,240
Current Maturities of Long Term Debt 369,996 257,146
Accounts Payable 1,198,143 1,110,224
Accrued Liabilities 1,033,617 888,048
Deferred Revenue 130,764 372,683
--------------------------
Total Current Liabilities & Deferred Revenue 3,949,733 3,502,341
Long Term Debt 1,640,004 1,732,854
--------------------------
Total Liabilities 5,589,737 5,235,195
--------------------------
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 at September 30, 1997 and 5,000,000 authorized at
December 31, 1996: 2,602,700 shares outstanding 26,027 26,027
Capital in excess of par 3,757,119 3,757,119
Accumulated Deficit (6,185,546) (5,643,018)
Treasury Stock, 24,400 shares, at cost (74,688) (74,688)
--------------------------
Total Shareholder's Deficit (2,477,088) (1,934,560)
--------------------------
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.
Page 4
COMPUTER POWER, INC. & SUBSIDIARY
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
September 30 September 30
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
NET SALES $ 2,378,939 $ 3,244,224 $ 7,469,138 $ 8,698,845
COST OF GOODS SOLD 1,803,864 3,431,660 5,900,884 7,725,194
----------- ----------- ----------- -----------
Gross Profit 575,075 (187,436) 1,568,254 973,651
OPERATING EXPENSES
Selling Expenses 264,858 408,136 927,090 1,173,776
General and Administrative expenses 332,384 242,374 897,876 808,491
Interest Expenses 107,382 98,393 285,816 282,174
----------- ----------- ----------- -----------
Total Operating Expenses 704,624 748,903 2,110,782 2,264,441
----------- ----------- ----------- -----------
Net (Loss) (129,549) (936,339) (542,528) (1,290,790)
=========== =========== =========== ===========
EARNINGS PER SHARE (Note 6)
PRIMARY EARNINGS PER SHARE $ (0.05) $ (0.36) $ (0.21) $ (0.50)
=========== =========== =========== ===========
PRIMARY WEIGHTED AVERAGE SHARES
OUTSTANDING 2,578,300 2,578,300 2,578,300 2,578,300
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 the
consolidated financial statements are an integral part of these financial
statement. The December 31, 1996 results are derived from audited financial
statements.
Page 5
COMPUTER POWER, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
September 30
---------------------------
CASH (USED) FOR/PROVIDED BY OPERATING ACTIVITIES: 1997 1996
---------------------------
Net (Loss) $ (542,528) $(1,290,789)
Adjustments to reconcile net income (loss) to
cash provided by (used for) operating activities
Depreciation & Amortization 42,674 39,845
Changes in Current Assets & Liabilities
Accounts Receivable (147,332) 370,245
Inventories 320,377 937,570
Prepaid Expenses & Other Current Assets 44,342 160,778
Other Non Current Assets -- --
Accounts Payable 87,919 (697,657)
Accrued Liabilities & Deferred Revenue (96,350) 320,468
--------------------------
Cash (used) for/provided by
Operating Activities (290,898) (159,540)
CASH USED FOR INVESTING ACTIVITIES:
Capital Expenditures (56,885) (45,990)
--------------------------
Cash used for Investing Activities (56,885) (45,990)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of debt 467,609 461,477
Repayment of note & Term Loan (104,636) (167,574)
--------------------------
Cash provided by (used for)
Financing Activities 362,973 293,903
--------------------------
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS: 15,190 88,373
CASH & CASH EQUIVALENTS, beginning of period 68,519 --
--------------------------
CASH & CASH EQUIVALENTS, end of period 83,709 88,373
==========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income Taxes Paid -- --
Interest Paid $ 113,247 $ 186,408
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
Page 6
COMPUTER POWER, INC. & SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
Note 1: The financial information as of September 30, 1997 and the three and
nine months ended September 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 September 30, 1997, and December 31, 1996, notes payable and other
current debt included amounts due to related parties and other lenders
as follows:
September 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, amortized in monthly installments of
$3,000 plus interest beginning July 1997 9,000 --
7 Revolving credit agreement, amended in August 1997, maturing January
31, 1999, bearing interest at prime plus 3.5%, secured by all assets
of the Company 731,270 661,657
---------- ----------
Total Notes and Other Debt Payable 1,217,213 874,240
---------- ----------
Page 7
COMPUTER POWER, INC. & SUBSIDIARY
Long-term debt consisted of the following amounts at September 30, 1997
and December 31, 1996
September 30 December 31
1997 1996
-----------------------
1 Term loan, amended in August 1997, now maturing in 1999, bearing interest
at prime plus 3.5%, payable monthly, with monthly principal payments of
$5,000 beginning January 1998, secured by receivables, inventory, and
fixed asset: 295,000 275,000
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 2,010,000 1,990,000
Less: Current Portion 369,996 257,146
-----------------------
Net Long Term Debt $1,640,004 $1,732,854
=======================
The revolving credit agreement provides for maximum borrowings of
eighty five percent (85%) 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 September 30, 1997, the Company had 1,276,938 stock
subscription warrants and 400,000 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.
Page 8
COMPUTER POWER, INC. & SUBSIDIARY
At September 30, 1997, no warrants and no options were determined
to be common stock equivalents because the average market price
for the first three 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
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
third quarter of 1997 and the nine months ended September 30,
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 Sept 30 Y-T-D Sept 30
----------------------------------------------
Per Share Amounts 1997 1996 1997 1996
----------------------------------------------
Primary Earnings Per Share, as Reported $ (0.05)$ (0.36)$ (0.21) $ (0.50)
SFAS 128 Adjustment -- -- -- --
----------------------------------------------
Basic Earning Per Share $ (0.05)$ (0.36)$ (0.21) $ (0.50)
----------------------------------------------
Fully Diluted Earnings Per Share, as Reported -- -- -- --
SFAS 128 Adjustment -- -- -- --
----------------------------------------------
Diluted Earnings Per Share $ -- $ -- $ -- --
----------------------------------------------
BALANCE OF PAGE INTENTIONALLY LEFT BLANK
Page 9
COMPUTER POWER, INC. & SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
1. REVENUES
For the three months ended September 30, 1997, net sales were about
$2,379,000 compared to about $3,244,000 for the third quarter of 1996, a 26%
reduction. Power Protection business unit sales were weak mainly due to lower
level quoting activity with original equipment manufacturers during the second
and early third quarters. Quoting activity, however, picked up in the latter
part of the third quarter. Astralite business unit sales have been significantly
affected by the uncertainty created by the introduction of a new Underwriters
Laboratory (UL) standard for retrofit products which became effective in August,
1997, and by increased competition for retrofit products.
For the nine month period ended September 30, 1997, sales were about
$7,469,000 in 1997, compared to about $8,699,000 in 1996, a 14% reduction. Power
Protection business unit sales in 1996 included a significant one time sale for
a major construction project. Excluding this one time event, sales declined by
about 7%. The Power Protection business unit is experiencing about the same
level of competition as in 1996, but, as noted above, the level of quoting was
lower earlier this year but has improved as of late. 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 and is confident that it will meet the new code requirements.
2. COST OF SALES
For the three months ended September 30, 1997, cost of sales was about
$1,804,000 compared to about $3,432,000 in 1996. The cost of sales in 1996
included a third quarter charge of $1,000,000 to reduce the carrying value of
its inventory. After removing the effect of this charge, the cost of sales for
1996 was about 75% of sales compared to about 76% of sales in 1997. The cost of
sales for 1997 included increased product engineering investment and provisions
for in warranty services on Power Protection products which were partially
offset by reduced freight in and direct labor expenses. Management has taken
additional steps to reduce cost of sales and expects that the impact will be
realized in 1998.
For the nine month period ended September 30, 1997, cost of sales was
about $5,901,000 compared to about $7,725,000 in 1996. As noted above, the cost
of sales for the third quarter of 1996 included $1,000,000 of charges to reduce
the carrying charges and a $200,000 charge in the second quarter of 1996
primarily related to provisions for obsolete materials. After removing the
effect of these charges (totaling $1,200,000), the cost of sales for 1996 was
about 75% of sales compared to about 79% of sales in 1997. The cost of sales for
1997 included increased product engineering investment and field service
expenses on Power Protection products, which were partially offset by reduced
freight in and direct labor expenses.
Page 10
COMPUTER POWER, INC. & SUBSIDIARY
3. OPERATING AND OTHER EXPENSES
Selling expenses for the three months ended September 30, 1997 were
about $265,000 compared to $408,000 in 1996, a $143,000 reduction and were about
$927,000 compared to $1,174,000 for the nine months ended September 30, 1997 and
1996 respectively. The Company continually monitors and adjusts its sales and
marketing investment in relation to the level of sales and as a result
expenditures for promotions, commissions, and salaries were lower than 1996.
General and administrative expenses for the three months ended
September 30, 1997 were approximately $332,000, compared to about $242,000 in
the prior year. The increase was primarily due to settlement of a sales tax
audit, supplies and other miscellaneous expenses. For the nine month period
ended September 30, 1997, expenses were about $898,000 in 1997 as compared to
about $808,000 in 1996. The $90,000 increase was primarily to UL licensing fees
and settlement of a sales tax audit, which were partially offset with reductions
in the cost of professional fees and bad debt expense.
Interest expense in the third quarter of 1997 was about $107,000 or
about $9,000 higher than the third quarter of 1996. The increase was primarily
due to an interest charge related to a sales tax audit completed in the third
quarter of 1997. The interest expense for the first nine months was about
$286,000, or about $4,000 higher than the first nine months of 1996. Excluding
the interest charge for the sales tax audit, 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 September 30, 1997, the Company's investment in assets was about
$3,113,000 or about $188,000 less than at December 31, 1996. The change in
assets was due to a $147,000 increase in accounts receivable mainly due to an
increase in Days Sales Outstanding (DSO) from an average of 58 days at December
31, 1996 to an average of 64 days at the end of the third quarter. In addition,
the Company has added about $57,000 in fixed assets, primarily customer service
hardware and software. These increases were more than offset by a $320,000
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 loss of $542,000 for the period which was
primarily financed by $280,000 increase in financing provided by a related
entity and an officer of the Company and $105,000 increase of the inventory term
loan with the Company's primary lender.
The Company has two raw material suppliers, one of which is a related
party, that provide extended payments terms. As of September 30, 1997, these
vendors were owed a total of about $578,000, of which about $238,000 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 one year term loans 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
Page 11
COMPUTER POWER, INC. & SUBSIDIARY
extension. In August, 1997, the Company completed negotiations with its primary
lender concerning its revolving credit. As a result of renegotiations, the
lender refinanced a term loan secured by the Company's inventory for $105,000,
with principal payments deferred until January, 1998, and improved the terms and
conditions for borrowing under the revolving credit agreement, when payments of
$5,000 per month will begin. (See exhibit a)
The Company projects that funding available to it from the revolving
credit and inventory term loan arrangements (See exhibit a), 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 $129,547 in the third
quarter of 1997, or ($0.05) per share, as compared to a loss of $936,336 or
($0.36) per share in the similar period last year. Year to date, the Company
lost $542,527 or ($0.21) per share in 1997, as compared to a loss of $1,290,787,
or ($0.50) per share in 1996. There were 2,578,300 weighted average common
shares outstanding in each period, respectively. For the three months and nine
months ended September 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
Page 12
COMPUTER POWER, INC. & SUBSIDIARY
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.
The amended agreement, is now extended until January 31, 1999 with certain terms
and conditions that are more favorable to the Company (see exhibit a). 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.
On October 31, 1997 Mr. Paul A. Kohmescher joined the company as
Controller replacing Richard T. Johnson, who resigned. Mr. Kohmescher has over
twenty years experience in various accounting and financial positions, and more
than seven years of senior management experience with an electrical equipment
manufacturer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a) Exhibits: Letter dated October 24, 1997 confirming the Amended
Loan Agree- ment with Rosenthal & Rosenthal.
b) Reports on Form 8-K: None.
Page 13
COMPUTER POWER, INC. & SUBSIDIARY
ITEM 6 EXHIBIT (a)
Description Offered
Credit Line $2,000,000
Inventory Loan $300,000
Repackage May 1, 1997 Yes
Monthly Amortization Begin Jan 1, 1998 $5,000
Collateral Negotiate When Business Turns
Release When Loan = 15% of Inventory Value Profitable
Receivables
Advance Formula 85% Domestic
Foreign Discretionary
Interest Rate
First $500,000 of Borrowing Prime + 3.5%
Borrowing over $500,000 Prime + 3%
Float Business Days 3
Commitment Fee $15,000
Payable Monthly
Minimum Monthly Fee $5,000
Loan Level at 12% $500,000
Term January 31,1999
Termination Fee Maximum $25,000
Liquidated Damages Cap at Termination Fee Amount of $25,000
Effective Date
Increase in Availability Immediate
Other Terms January 1, 1998
Page 14
COMPUTER POWER, INC. & SUBSIDIARY
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: November 12, 1997 /s/ Hiro Hiranandani
--------------------
Hiro Hiranandani
President & Chief Executive Officer
Date: November 12, 1997 /s/Thomas E. Marren, Jr.
------------------------
Thomas E. Marren, Jr.
V.P & Chief Financial Officer
Page 15