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 March 31, 1998
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: May 7, 1998; $0.01
par value per share; 2,602,700 shares of Common Stock.
Index on Page 2
Total number of pages - 13
COMPUTER POWER, INC. & SUBSIDIARY
INDEX
Part I Basis of Presentation of Financial Statements.........................3
BALANCE SHEETS
As of March 31, 1998 and December 31, 1997...................4
STATEMENTS OF OPERATIONS
For the three months ended March 31, 1998 and 1997...........5
STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1998 and 1997...........6
NOTES TO FINANCIAL STATEMENTS.........................................7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION................9
Part II Other Information....................................................11
Signatures....................................................................12
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 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 those financial statements
for a description of significant accounting policies, commitments and other
pertinent financial information.
Page 3
COMPUTER POWER, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
March 31 December 31
1998 1997
ASSETS (Unaudited)
- ---------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and Cash Equivalents $ 67,275 $ 67,300
Accounts Receivable, less allowances of $181,869 at
March 31, 1998 and $179,778 at December 31, 1997 1,513,904 1,312,819
Inventories 1,077,473 1,018,098
Prepaid Expenses and Other Current Assets 33,886 45,204
Total Current Assets 2,692,538 2,443,421
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Machinery, Equipment, and Furniture 1,158,256 1,128,797
Leasehold Improvements 333,274 333,274
----------- -----------
1,491,530 1,462,071
Less: Accumulated Depreciation and Amortization (1,214,949) (1,199,725)
----------- -----------
Net Property, Plant and Equipment 276,581 262,346
----------- -----------
TOTAL ASSETS $ 2,969,119 $ 2,705,767
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
- ---------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Notes and Other Debt Payable $ 1,677,774 $ 899,753
Current Maturities of Long Term Debt 538,196 60,000
Accounts Payable 1,275,541 1,158,435
Accrued Liabilities 1,076,363 981,427
----------- -----------
Total Current Liabilities 4,567,874 3,099,615
LONG TERM DEBT 1,176,804 2,235,000
Total Liabilities 5,744,678 5,334,615
COMMITMENTS & CONTINGENCIES
SHAREHOLDERS' DEFICIT
Preferred Stock, par value $0.01 per share; 2,000,000 shares
authorized, none issued 0 0
Common Stock, par value $0.01 per share; 12,000,000 shares
authorized; 2,602,700 shares issued 26,027 26,027
Capital in Excess of Par 3,757,119 3,757,119
Accumulated Deficit (6,484,017) (6,337,306)
Treasury Stock, 24,400 shares, at cost (74,688) (74,688)
----------- -----------
Total Equity (2,775,559) (2,628,848)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 2,969,119 $ 2,705,767
=========== ===========
The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.
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COMPUTER POWER, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
THREE MONTHS ENDED
MARCH 31
1998 1997
==========================
NET SALES $ 2,046,052 $ 2,569,861
COST OF SALES 1,553,003 2,033,526
----------- -----------
GROSS PROFIT 493,049 536,335
----------- -----------
OPERATING AND OTHER EXPENSES
Selling Expenses 259,612 345,598
General and Administrative Expenses 276,790 258,966
Interest Expense, net (Note 5) 103,358 86,688
----------- -----------
TOTAL OPERATING AND OTHER EXPENSES 639,760 691,252
----------- -----------
NET (LOSS) $ (146,711) $ (154,917)
=========== ===========
EARNINGS PER SHARE AVAILABLE TO COMMON
SHAREHOLDERS (a):
Basic EPS-
Net loss $ (.06) $ (.06)
Weighted average common shares outstanding 2,578,300 2,578,300
(a) Diluted EPS is not presented for either period as the effect of the
inclusion of the potential shares would be antidilutive.
The accompanying notes to the consolidated financial statements are
an integral part of the financial statements.
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COMPUTER POWER, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
March 31
--------
1998 1997
======================
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net Loss $(146,711) $(154,917)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities
Depreciation & Amortization 15,224 13,615
Changes in Current Assets and Liabilities
Accounts Receivable (201,085) (237,172)
Inventories (59,375) 289,538
Prepaid Expenses and Other Current Assets 11,318 9,801
Accounts Payable 117,106 1,079
Accrued Liabilities & Deferred Revenue 94,936 (93,595)
--------- ---------
Cash Used for Operating Activities (168,587) (171,651)
CASH USED FOR INVESTING ACTIVITIES:
Capital Expenditures (29,459) (18,075)
--------- ---------
Cash Used for Investing Activities (29,459) (18,075)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from Issuance of Debt 198,021 270,385
Repayment of Debt 0 (71,601)
--------- ---------
Cash Provided by Financing Activities 198,021 198,784
--------- ---------
(DECREASE) INCREASE IN CASH & CASH EQUIVALENTS (25) 9,058
CASH & CASH EQUIVALENTS, beginning of period 67,300 68,519
--------- ---------
CASH & CASH EQUIVALENTS, end of period $ 67,275 $ 77,577
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income Taxes Paid $ 0 $ 0
Interest Paid $ 35,805 $ 33,413
The accompanying notes to the consolidated financial statements are
an integral part of the financial statements.
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COMPUTER POWER, INC. & SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
Note 1: The financial information as of March 31, 1998 and the three
months ended March 31, 1998 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 March 31, 1998, and December 31, 1997, notes payable and other
current debt included amounts due to related parties and other
lenders as follows:
March 31 December 31
----------------------------
1998 1997
=======================
Revolving credit agreement due January 31, 1999, bearing
interest at prime plus 3.5% on the first $500,000 and 3%
on any additional balance inclusive of the term loan $ 875,205 $ 752,184
Term loan, due January 31, 1999 with monthly installments of
$5,000 per month bearing interest at prime plus 3.5%
for the first $500,000 and plus 3% on any additional
balance inclusive of the revolving credit agreement 375,000 0
Subordinated, unsecured note payable to a related entity due
February 1, 1998, bearing interest at 10% 250,000 0
Subordinated, unsecured demand note, bearing interest at 8% 96,569 96,569
Subordinated, unsecured note payable due October 31,1997
bearing interest at 10%, with quarterly interest payments 32,000 32,000
Subordinated, unsecured note payable to a director due
February 1, 1998, bearing interest at 10% 30,000 0
Subordinated, unsecured note payable to a director due
October 31, 1997 bearing interest at 10% 19,000 19,000
----------- ---------
Total Notes and Other Debt Payable $ 1,677,774 $ 899,753
----------- ---------
Long-term debt consists of the following at March 31,1998 and December 31,
1997:
March 31 December 31
--------------------
1998 1997
======================
Subordinated note, due August 1, 2000 bearing interest
at prime plus 4%, payable monthly $ 700,000 $ 700,000
Subordinated, unsecured notes to a related entity due
July 1, 1999 bearing interest at 9.5%, with
quarterly interest payments 565,000 565,000
Term loan, due January 31, 1999 with monthly installment
of $5,000 per month bearing interest at prime plus 3.5%
for the first $500,000 and plus 3% on any additional
balance inclusive of the revolving credit agreement 0 300,000
Convertible debenture, due November 2000 bearing
interest at 9.5%, payable monthly 300,000 300.000
Subordinated, unsecured note payable to a related
entity due February 1, 1998, bearing interest at 10%,
with quarterly interest payments 0 250,000
Subordinated, unsecured note payable to a director due
July 1, 1999, bearing interest at 9.5%,
with quarterly interest payments 150,000 150,000
Subordinated, unsecured note payable to a director due
February 1, 1998, bearing interest at 10%, with
quarterly interest payments 0 30,000
---------- ----------
Total Long Term Debt 1,715,000 2,295,000
Less: Current Portion 538,196 60,000
---------- ----------
Net Long Term Debt $1,176,804 $2,235,000
========== ==========
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COMPUTER POWER, INC. & SUBSIDIARY
The Company has a revolving credit agreement and a term loan with
an asset based lender.
The revolving credit agreement provides for a maximum borrowing of
85% of eligible accounts receivable, as defined. The total amount
of revolving credit and term loan borrowing is capped at
$2,000,000
Except for the revolving credit agreement and the term loan, the
Company has obtained a deferral on its debt service through year
end 1998. The Company continues to accrue interest on the deferred
debt and its interest.
Note 4. At March 31, 1998 the Company had 1,899,079 stock subscription
warrants and 356,000 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 March 31, 1998, no warrants or
options were determined to be common stock equivalents because the
average market price for the first quarter of 1998 was lower than
the exercise price of the warrants and options. During the first
quarter of 1998 the company determined that 966,080 warrants had
to be issued in exchange for the deferral of debt service through
year end 1998.
Note 5. The Company determined that the cost of the warrants that were
issued in exchange for the deferral of debt service referenced in
note 4 was not material. The value was determined, and confirmed
by an outside consultant, using the Black-Scholes option pricing
model and included estimates of the Company's stock price, its
volatility based on the average closing bid price for the period
December 1996 to December 1997, a risk free rate of return of
5.8%, and an exercise period of five years.
Note 6. 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.
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COMPUTER POWER, INC. & SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
1. GENERAL COMMENTS
The Company recorded a loss of $147,000 during the first quarter of 1998, or
($.06) per share compared to a loss of $155,000 or ($.06) per share during the
first quarter of 1997. Sales for the first quarter of 1998 were approximately
$524,000 lower than the first quarter of 1997, however, the Company was able to
completely offset this decline due to cost reduction actions taken during the
last half of 1997.
2. REVENUES
For the three months ended March 31, 1998 net sales were $2,046,000 or 20% below
the first quarter of 1997. The Astralite division, the primary cause of this
decline, experienced a 41% reduction in sales due to a UL code change which
required the Company to discontinue the manufacturing of its LED Retrofit Kit
product line as of August 1997. In January 1998, the Company introduced the
first and only LED Retrofit Kit to meet the new stringent UL code requirements
and began shipments in February 1998. The Power Protection Division experienced
an 11% decline in sales primarily due to a planned phase out of the
non-profitable custom UPS business. The program of investment in new product
research and development which began in 1996 continues.
3. COST OF SALES
Cost of sales for the first quarter 1998 of $1,553,000 was approximately 76% of
net sales compared to 79% for the same period last year. The Company has
continued to manage its variable costs, primarily direct labor and material, at
slightly improved levels with respect to sales. Research and development
activities as a percentage of sales have increased in the first quarter of 1998
as compared to the same quarter in 1997.
4. OPERATING AND OTHER EXPENSES
Selling expenses were about $260,000 for the first quarter of 1998 versus
approximately $346,000 for the same period in 1997. The Company kept its
expenses at approximately 13% of net sales for both periods. With the
anticipated decrease in sales the Company reduced its costs in 1998 as compared
to the same period in 1997.
General and administrative expenses were approximately $277,000 in 1998 compared
to $259,000 in the same quarter in 1998. The primary reason is because the
Company exceeded its bad debt collection projection in 1997.
Interest expense for the first quarter of 1998 was $103,000 compared to $87,000
in 1997. The increase primarily resulted from an increase in debt incurred by
the company. The cost of the warrants issued in exchange for the deferral of
debt service through year 1998 was determined to be immaterial (see notes 4 &
5).
5. LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's investment in Total Assets was approximately
$2,969,000 or $263,000 more than the $2,706,000 reported at December 31, 1997.
The significant components of the change are (1) increase in Accounts Receivable
of $201,000 due to an increase in days sales outstanding, and (2) an increase in
inventory of $59,000 due to a longer operating cycle time in one product line.
At March 31, 1998, the Company's Liabilities and Stockholders' Equity increased
by $263,000 and was essentially comprised of: (1) an increase in borrowing of
$198,000, (2) an increase in Accounts Payable and Accrued Liabilities of
Page 9
COMPUTER POWER, INC. & SUBSIDIARY
$212,000, due to special terms with certain vendors and an increase in deferred
interest, which was partially offset by (3) the loss for the quarter of
$147,000.
The company has two raw material suppliers, one of which is a related
party, that provide extended terms. As of March 31, 1998 these vendors were owed
a total of approximately $358,000 of which approximately $271,000 was
outstanding as a result of those terms.
The Company anticipates that borrowing available to it through its
revolving credit agreement and term loan facilities along with the negotiated
deferral of debt service for the year should be sufficient to cover operating
cash requirements during 1998 (see Note 5 to the Financial Statements). In
addition, the Company has obtained a commitment from a major stockholder to
supplement working capital should the need arise in 1998.
There were 2,578,300 diluted weighted average common shares outstanding
in each period. For the three months ending March 31, 1998, and 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.
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Page 10
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:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a) Exhibits: None
b) Reports on Form 8-K: None.
Page 11
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: May 8, 1998 /s/ HIRO HIRANANDANI
---------------------------------------
Hiro Hiranandani - President & Chief Executive Officer
Date: May 8, 1998 /s/ THOMAS E. MARREN, JR.
---------------------------------------
Thomas E. Marren, Jr. - V.P & Chief Financial Officer
Page 12