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, 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: JULY 27, 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 June 30, 1998 and December 31, 1997.............................4
STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 1998 and 1997.............5
STATEMENTS OF CASH FLOWS
For the three and six months ended June 30, 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
2
COMPUTER POWER INC. & SUBSIDIARY
PART I - FINANCIAL INFORMATION
BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
The financial statements set forth herein are unaudited for the three
and six month periods ended June 30, 1998 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.
3
COMPUTER POWER INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
June 30, December 31,
1998 1997
ASSETS (Unaudited)
----------- -----------
Current Assets
Cash and Cash Equivalents $ 62,838 $ 67,300
Accounts Receivable, less allowances of $191,978 at
June 30, 1998 and $179,778 at December 31, 1997 1,327,991 1,312,819
Inventories 1,083,463 1,018,098
Prepaid Expenses and Other Current Assets 37,425 45,204
----------- -----------
Total Current Assets 2,511,717 2,443,421
PROPERTY, PLANT AND EQUIPMENT, at cost
Machinery, Equipment, and Furniture 1,171,056 1,128,797
Leasehold Improvements 333,274 333,274
----------- -----------
1,540,330 1,462,071
Less: Accumulated Depreciation and Amortization (1,231,062) (1,199,725)
----------- -----------
Net Property, Plant and Equipment 273,268 262,346
----------- -----------
TOTAL ASSETS $ 2,784,985 $ 2,705,767
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes and Other Debt Payable $ 1,549,850 $ 899,753
Current Maturities of Long Term Debt 621,527 60,000
Accounts Payable 1,329,025 1,158,435
Accrued Liabilities 1,114,653 981,427
----------- -----------
Total Current Liabilities 4,615,055 3,099,615
LONG TERM DEBT 1,093,473 2,235,000
----------- -----------
Total Liabilities 5,708,528 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 (6,632,001) (6,337,306)
Treasury Stock, 24,400 shares, at cost (74,688) (74,688)
----------- -----------
Shareholder's Deficit (2,923,543) (2,628,848)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 2,784,985 $ 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 AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
NET SALES $ 2,032,412 $ 2,517,551 $ 4,078,464 $ 5,090,199
COST OF SALES 1,575,447 2,060,706 3,128,450 4,097,020
----------- ----------- ----------- -----------
GROSS PROFIT 456,965 456,845 950,014 993,179
OPERATING AND OTHER EXPENSES
Selling Expenses 239,880 316,634 499,492 662,232
General and Administrative Expenses 260,061 306,526 536,851 565,492
Interest Expense, net 105,008 91,747 208,366 178,434
----------- ----------- ----------- -----------
TOTAL OPERATING AND OTHER EXP 604.949 714,907 1,244,709 1,406,158
NET (LOSS) $ (147,984) $ (258,062) $ (294,695) $ (412,979)
=========== =========== =========== ===========
EARNINGS PER SHARE AVAILABLE TO COMMON
SHAREHOLDERS (a):
Basic EPS-
Net loss $ (.06) $ (.10) $ (.11) $ (.16)
Weighted average common shares outstanding 2,578,300 2,578,300 2,578,300 2,578,300
(a) Diluted EPS is not presented for either period, as the effect would be antidilutive.
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 CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
JUNE 30,
----------------------
1998 1997
--------- ---------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net Loss $(294,695) $(412,979)
Adjustments to reconcile net loss to cash used for operating activities
Depreciation & Amortization 31,337 28,145
Changes in Current Assets and Liabilities
Accounts Receivable (15,172) (243,395)
Inventories (65,365) 480,463
Prepaid Expenses and Other Current Assets 7,779 29,165
Accounts Payable 170,590 (24,976)
Accrued Liabilities 133,226 (66,988)
--------- ---------
Cash Used for Operating Activities (32,300) (210,565)
CASH USED FOR INVESTING ACTIVITIES:
Capital Expenditures (42,259) (52,548)
--------- ---------
Cash Used for Investing Activities (42,259) (52,548)
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES:
Proceeds from Issuance of Debt 100,097 352,320
Repayment of Debt (30,000) (75,640)
--------- ---------
Cash Provided by Financing Activities 70,097 276,680
--------- ---------
(DECREASE) INCREASE IN CASH & CASH EQUIVALENTS (4,462) 13,567
CASH & CASH EQUIVALENTS, beginning of period 67,300 68,519
--------- ---------
CASH & CASH EQUIVALENTS, end of period $ 62,838 $ 82,086
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income Taxes Paid $ 0 $ 0
Interest Paid $ 71,626 $ 67,706
The accompanying notes to the 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, 1998 and the three and six
months ended June 30, 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 June 30, 1998 and December 31, 1997, notes payable and current debt
included amounts due to related parties and other lenders as follows:
June 30, 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 $ 777,281 $ 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 prime plus 3% on any additional
balance inclusive of the revolving credit agreement 345,000 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 $1,549,850 $ 899,753
---------- ----------
Long-term debt consists of the following at June 30,1998 and December 31,1997:
June 30, 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
Convertible debenture, due November 2000 bearing
interest at 9.5%, payable monthly 300,000 300,000
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
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 621,527 60,000
---------- ----------
Net Long Term Debt $1,093,473 $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 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 accumulated unpaid debt service
through year end 1998. The Company continues to accrue interest on the
deferred debt and its interest.
Note 4. At June 30, 1998 the Company had 1,899,079 stock subscription warrants
and 351,000 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,
1998, no warrants or options were determined to be common stock
equivalents because the average market price was lower than the
exercise price of the warrants and options. During the first quarter of
1998 the Company determined that 966,079 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. This was confirmed by an outside consultant.
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 $148,000 during the second quarter of 1998, or
($.06) per share compared to a loss of $258,000 or ($.10) per share during the
second quarter of 1997. Sales for the second quarter of 1998 were approximately
$485,000 lower than the second quarter of 1997, however, the Company was able to
more than offset this decline with cost reduction actions taken during the last
half of 1997 and during the first half of 1998.
For the six month period ended June 30, 1998 the Company recorded a loss of
$295,000, or ($.11) per share compared to a loss of $413,000 or ($.16) per share
for the six months ending June 30, 1997. Sales for the six months ended June 30,
1998 were approximately $1,012,000 lower than the six months ended June 30,
1997, however the Company has shown less of a loss because of cost reduction
actions taken in the second half of 1997 and the first half of 1998.
2. REVENUES
For the three months ended June 30, 1998 net sales were $2,032,000 or 19% below
the second quarter of 1997. Net Sales for the Astralite division were down 38%
compared to the same period last year mainly due to a UL code change that
occurred in August of 1997 and caused the Company to discontinue the manufacture
of its LED Retrofit Kit. Although the Company introduced a new universal UL
approved product during the first quarter of 1998, product sales continue below
last year. The Power Protection Division sales were below last year's sales
mainly due to the planned phase out of the non-profitable custom UPS business.
For the six months ended June 30, 1998 net sales were $4,078,000 or 20% below
the first six months ended June 30, 1997. Net Sales for the Astralite division
were down 40% compared the same period last year mainly due to a UL code change
that occurred in August of 1997 and caused the Company to discontinue the
manufacture of its LED Retrofit Kit. Although the Company introduced a new
universal UL approved product during the first quarter of 1998, product sales
continue below last year. The Power Protection Division sales were below last
year's sales mainly due to the planned phase out of the non-profitable custom
UPS business.
3. COST OF SALES
Cost of sales for the second quarter 1998 of $1,575,000 was approximately 78% of
net sales compared to 82% for the same period last year. The Company has
continued to manage its variable costs, primarily material and direct labor, at
improved levels with respect to sales
Cost of sales for the six months ended June 1998 of $3,128,000 was approximately
77% of net sales compared to 80% for the same period last year. The Company has
continued to manage its variable costs, primarily material at improved levels
with respect to sales. Research and development activities as a percentage of
sales have increased in the first half of 1998 as compared to the same period in
1997.
4. OPERATING AND OTHER EXPENSES
Selling expenses were about $240,000 (12% of sales) for the second quarter of
1998 versus approximately $317,000 (13% of sales) for the same period in 1997.
With the anticipated decrease in sales the Company reduced its costs in 1998 as
compared to the same period in 1997.
Selling expenses were about $499,000 (12% of sales) for the six months ended
June 30, 1998 compared to approximately $662,000 (13% of sales) for the six
months ended June 30, 1997.
General and administrative expenses were approximately $260,000 in the second
quarter 1998 compared to $307,000 in the same quarter in 1997. The main areas of
reduction were: 1) personnel, 2) inspection fees, and 3) supplies as compared to
the second quarter last year.
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COMPUTER POWER INC. & SUBSIDIARY
General and administrative expenses were about $537,000 for the six months ended
June 30, 1998 compared to approximately $565,000 for the six months ended June
30, 1997. The main areas of reduction were: 1) personnel, 2) inspection fees,
and 3) supplies as compared to the first six months of 1997.
Interest expense for the second quarter of 1998 was $105,000 compared to $92,000
for the same quarter in 1997. The increase primarily resulted from a higher
level of debt.
Interest expense for the first six months of 1998 was $208,000 compared to
$178,000 for the same six months in 1997. The increase primarily resulted from a
higher level of debt.
5. LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's investment in Total Assets was approximately
$2,785,000 or $79,000 more than the $2,706,000 reported at December 31, 1997.
Inventory increased by about $65,000 as Astralite Retrofit Kit units were added
to stock in support of the new UL product introduction.
At June 30, 1998, the Company's Liabilities and Stockholders' Equity increased
by $79,000 and was essentially comprised of: (1) a loss for the six months of
295,000, (2) an increase in debt of $70,000 and, (3) an increase in accounts
payable, accrued liabilities and accrued interest of $304,000. The Company has
two raw material suppliers, one of which is a related party, that provide
extended terms. As of June 30, 1998 these vendors were owed a total of
approximately $334,000 of which approximately $275,000 was outstanding as a
result of those terms.
The Company is currently negotiating with the landlord, a related party, for a
revision of the building lease terms including a reduction in rent as a result
of reducing the space that it currently occupies at the High Bridge location.
Presently, the Company is making payments based upon a rent reduction proposal
that outlines certain terms and conditions that must be satisfied in order to
amend the present lease agreement. However, the Company does not have a waiver
of default in writing with respect to past due contractual amounts outstanding
which total about $40,000 as of June 30, 1998. Should the landlord decide to
terminate discussions and institute actions under default provisions and the
Company were unable to satisfy the obligations then due, it would result in a
default of the Company's asset based lending agreements.
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 weighted average common shares outstanding in each period.
For the three months ending June 30, 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.
The Company continues to review and evaluate the Year 2000 issue as it relates
to its internal computer and electronic systems and third party computers and
electronic systems as well as those of its vendors. The Company expects to incur
internal staff costs as well as other expenses related to these issues. In
addition, the appropriate course of action may include replacement or an upgrade
to certain systems or equipment that would be capitalized and depreciated
accordingly. The cost of compliance and its effect on future results of
operations is not anticipated to be material in any given year.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 is effective for the fiscal years beginning after June 15, 1999. Currently,
the Company expects the impact of SFAS 133 will be immaterial.
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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:
Mr. Richard O. Hobday and Mr. Kenneth Rind resigned from the Board of
Directors for personal reasons. This reduced the number of Board
members to five. Mr. Hollis Hosein, Group Finance Manager, and Mr.
Kelvin Mahabir, General Manager Business Development were elected to
the Board of Directors in accordance with the 1998 deferral of debt
service agreement reached with Readymix (West Indies) Limited. Both of
these individuals are employees of Trinidad Cement Limited which is the
parent company of Readymix (West Indies) Limited. On July 29, 1998 both
of these individuals tendered their resignations without explanation.
Currently, these Board seats remain vacant.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a) Exhibits: None
b) Reports on Form 8-K: None.
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.
Date: August 5, 1998 /s/ HIRO HIRANANDANI
---------------------------------------
Hiro Hiranandani -
President & Chief Executive Officer
Date: August 5, 1998 /s/ THOMAS E. MARREN, JR.
---------------------------------------
Thomas E. Marren, Jr. -
V.P & Chief Financial Officer
12