-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GEN7oxjTI3Hv4iF99iW3KsUPEf1VqwKTQfKxT8qNbaMbiSaCyxcu1JzKdkcBFcLm bedvUzrY46RK4wn2mxEsjw== 0000930661-99-000267.txt : 19990217 0000930661-99-000267.hdr.sgml : 19990217 ACCESSION NUMBER: 0000930661-99-000267 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLYPHASE CORP CENTRAL INDEX KEY: 0000748212 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-CONSTRUCTION & MINING (NO PETRO) MACHINERY & EQUIP [5082] IRS NUMBER: 232708876 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09083 FILM NUMBER: 99541621 BUSINESS ADDRESS: STREET 1: 16885 DALLAS PARKWAY CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 2147320010 MAIL ADDRESS: STREET 1: 16885 DALLAS PKWY CITY: DALLAS STATE: TX ZIP: 75248 FORMER COMPANY: FORMER CONFORMED NAME: KAPPA NETWORKS INC DATE OF NAME CHANGE: 19910721 10-Q 1 FORM 10-Q 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 December 31, 1998 [_] 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 16,657,321 ------------------------------- Outstanding at February 5, 1999 POLYPHASE CORPORATION FORM 10-Q QUARTER ENDED DECEMBER 31, 1998 - -------------------------------------------------------------------------------- TABLE OF CONTENTS -----------------
PART I. FINANCIAL INFORMATION Page No. - ----------------------------- -------- Item 1. Financial Statements Consolidated Condensed Balance Sheets as of December 31, 1998 and September 30, 1998 2 Consolidated Condensed Statements of Operations for the Three Months Ended December 31, 1998 and 1997 4 Consolidated Condensed Statements of Cash Flows for the Three Months Ended December 31, 1998 and 1997 6 Notes to Consolidated Condensed Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 13 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 14 Signature Page 15
-1- POLYPHASE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS Assets
(Unaudited) December 31, September 30, ----------- ------------ 1998 1998 ----------- ------------ Current assets: Cash $ 850,205 $ 423,957 Receivables, net of allowance for doubtful accounts of $526,635 and $562,800 Trade accounts 13,125,310 13,839,250 Current portion of sales contracts 3,653,222 3,879,420 Notes receivable 1,839,846 1,813,232 Inventories 36,671,181 34,568,628 Prepaid expenses and other 784,055 527,999 ----------- ----------- Total current assets 56,923,819 55,052,486 ----------- ----------- Property and equipment: Land 432,000 432,000 Buildings and improvements 4,450,753 4,054,854 Machinery, equipment and other 9,582,330 9,490,827 ----------- ----------- 14,465,083 13,977,681 Accumulated depreciation 7,910,855 7,526,281 ----------- ----------- 6,554,228 6,451,400 ----------- ----------- Other assets: Noncurrent receivables Sales contracts 1,283,565 1,363,039 Related parties 830,983 670,655 Excess of cost over fair value of net assets of businesses acquired, net of accumulated amortization of $3,387,066 and $3,183,743 13,211,673 13,414,996 Other intangible assets 2,185,519 2,494,754 Restricted cash 644,171 672,898 Other 1,413,551 1,425,147 ----------- ----------- 19,569,462 20,041,489 ----------- ----------- $83,047,509 $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) LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited) December 31, September 30, ----------- ------------ 1998 1998 ----------- ------------ Current liabilities: Notes payable $ 14,139,109 $ 14,409,681 Note payable and accrued interest to related party 16,722,729 16,307,405 Accounts payable 7,740,095 6,085,703 Accrued expenses and other 3,743,904 3,514,685 Current maturities of long-term debt 4,283,333 3,533,333 ------------ ------------ Total current liabilities 46,629,170 43,850,807 Long term debt, less current maturities 28,256,370 29,220,972 Reserve for credit guarantees 644,171 672,898 ------------ ------------ Total liabilities 75,529,711 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 99,034 and 115,000 shares, respectively 990 1,150 Common stock, $.01 par value, authorized 100,000,000 shares, issued and outstanding 16,002,321 and 15,080,050 shares, respectively 160,023 150,800 Paid-in capital 28,705,331 28,623,811 Accumulated deficit (21,573,227) (21,199,744) Notes receivable (975,319) (975,319) ------------ ------------ Total stockholders' equity 6,317,798 6,600,698 ------------ ------------ $ 83,047,509 $ 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 December 31, ------------------------------ 1998 1997 ----------- ----------- Net revenues $36,055,968 $37,392,317 Cost of sales 29,900,516 30,425,160 ----------- ----------- Gross profit 6,155,452 6,967,157 Selling, general and administrative expenses 4,512,351 4,596,486 ----------- ----------- Operating income 1,643,101 2,370,671 ----------- ----------- Other income (expenses): Interest expense (2,166,149) (1,849,768) Interest income and other 182,663 (10,950) Gain on sale of assets - 987,857 ----------- ----------- Total other income (expenses) (1,983,486) (872,861) ----------- ----------- Income (loss) before income taxes and extraordinary item (340,385) 1,497,810 Income taxes - - ----------- ----------- Net income (loss) before extraordinary item (340,385) 1,497,810 Extraordinary item: Early extinguishment of debt - (616,239) ----------- ----------- Net income (loss) (340,385) 881,571 Dividends on preferred stock (33,098) (40,875) ----------- ----------- Net income (loss) attributable to common stockholders $ (373,483) $ 840,696 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. -4- POLYPHASE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (continued) (Unaudited)
For the Three Months Ended December 31, --------------------------- 1998 1997 ------------ ----------- Basic income (loss) per common share: Income (loss) before extraordinary item $(.02) $ .10 Extraordinary item - (.04) ----- ----- Net income (loss) per common share-basic $(.02) $ .06 ===== ===== Diluted income (loss) per common share: Income (loss) before extraordinary item $(.02) $ .09 Extraordinary item - (.04) ----- ----- Net income (loss) per common share-diluted $(.02) $ .05 ===== =====
The accompanying notes are an integral part of these consolidated financial statements. -5- POLYPHASE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended December 31, -------------------------- 1998 1997 ----------- ----------- Cash flow provided by (used in) operating activities: Net income (loss) $ (340,385) $ 881,571 Adjustments to reconcile net income (loss) to net cash provided by (used in ) operating activities: Depreciation and amortization 1,004,932 1,203,606 Provision for doubtful accounts - 50,000 Gain on sale of assets - (987,857) Extraordinary item-early extinguishment of debt - 616,239 Changes in: Accounts and sales contracts receivable 1,019,612 (2,524,535) Inventories (2,102,553) (1,766,038) Prepaid expenses and other (244,460) (53,919) Accounts payable 1,654,392 887,332 Accrued expenses and other 312,002 393,668 ----------- ----------- Net cash provided by (used in ) operating activities 1,303,540 (1,299,933) ----------- ----------- Cash flows provided by (used in) investing activities: Notes and other receivables (26,614) (914,308) Receivables from related parties (160,328) 8,963 Capital expenditures, net (487,402) (252,289) ----------- ----------- Net cash used in investing activities (674,344) (1,157,634) ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. -6- POLYPHASE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued) (Unaudited)
For the Three Months Ended December 31, -------------------------- 1998 1997 ----------- ------------ Cash flows provided by (used in) financing activities: Borrowings (principal payments) under line of credit arrangements, net $ 351,014 $ 1,282,242 Borrowings (principal payments) on other notes payable and long-term debt, net (520,864) 24,773,669 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) Deferred financing costs - (2,753,552) Dividends on preferred stock (33,098) (40,875) Stock issuance costs - (17,500) ----------- ------------ Net cash provided by (used in) financing activities (202,948) 1,961,704 ----------- ------------ Net increase (decrease) in cash 426,248 (495,863) Cash - beginning of period 423,957 1,064,259 ----------- ------------ Cash - end of period $ 850,205 $ 568,396 =========== ============ Supplemental schedule of cash flow information: Cash paid during the period for : Interest $1,957,148 $ 1,815,288 Income taxes $ - $ -
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. In December 1998, the Company made a partial payment on a lawsuit obligation, together with certain associated expenses, by issuing 150,000 shares of common stock. The accompanying notes are an integral part of these consolidated financial statements. -7- POLYPHASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 1998 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") 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 1998 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. 3. TAXES For the quarter ended December 31, 1998, the actual Federal income tax expense attributable to income from continuing operations differed from the net amounts recorded by the Company. The Company's subsidiaries recorded a provision for Federal income taxes of approximately $75,000 using the statutory tax rate of 34% and then applied a like amount of the existing valuation allowance, resulting in a net provision for the quarter of zero. As of December 31, -8- 1998, the Company had a remaining valuation allowance of approximately $5.4 million and net operating loss carryforwards of approximately $12.0 million. 4. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
December 31, 1998 1997 ----------- ----------- Numerator: Net income (loss) before extraordinary item $ (340,385) $ 1,497,810 Extraordinary item - (616,239) ----------- ----------- (340,385) 881,571 Preferred dividends (33,098) (40,875) ----------- ----------- Income (loss) attributable to common stockholders $ (373,483) $ 840,696 =========== =========== Denominator: Denominator for basic earnings per share- weighted average shares 15,396,070 13,987,226 Effect of dilutive securities (a): Convertible preferred stock - 1,071,185 Stock options - 317,008 Warrants - 62,129 ----------- ----------- Dilutive potential common shares - 1,450,322 ----------- ----------- Denominator for diluted earnings per share 15,396,070 15,437,548 =========== ===========
(a) Dilutive potential common shares were excluded from the computation in 1998 since their effect would have been antidilutive. 5. STOCKHOLDERS' EQUITY During the three months ended December 31, 1998, the holder of the Company's Series A-3 Preferred Stock converted a total of 15,966 shares of such stock, together with accrued dividends of $57,784, into a total of 772,271 shares of common stock. Based upon the market price of the Company's common stock as of December 31, 1998, the holder would have been entitled to approximately 3.5 million common shares upon conversion of its remaining preferred stock and accrued dividends. Pursuant to a conversion of the Series A-3 Preferred Stock in January 1999, the holder was issued an additional 375,000 shares of common stock. The same holder has requested a further conversion of the Series A-3 Preferred Stock into 400,000 common shares. -9- The Company, during the three months ended December 31, 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 December 1998, issued 150,000 shares of its common stock as partial payment against the judgment, together with certain costs associated therewith. Also in connection with this agreement, an additional issuance of 150,000 shares was made in January 1999 in further payment of the obligation. -10- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Certain 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 from the forward-looking statements are: adverse economic conditions, industry competition and other competitive factors, government regulation and possible future litigation. Revenues for the three months ended December 31, 1998 decreased $1,336,000 (4%) to $36,056,000 from $37,392,000 during the three months ended December 31, 1997. Operating income decreased $728,000 (31%) to $1,643,000 from $2,371,000 during the comparable period. The decrease in sales during the first quarter was primarily attributable to lower demand for heavy equipment at Texas Timberjack. Net income before extraordinary item for the three months ended December 31, 1998 decreased $1,838,000 to a net loss of $340,000 from net income of $1,498,000 during the three months ended December 31, 1997. The decrease in net income is attributable to lower revenues and gross margins coupled with increases in selling, general and administrative expenses at TTI. Net income for the period ended December 31, 1997, included a one time gain of $988,000 from the sale of the Company's corporate headquarters in December 1997. The Company realized a net loss for the three months ended December 31, 1997 of $373,000, as compared to net income of $841,000 in the comparable period of fiscal 1998. Revenues for the Food Group for the three months ended December 31, 1998 increased $835,000 (4%) to $24,059,000 from $23,223,000 for the three months ended December 31, 1997. Operating income for the three months ended December 31, 1997 increased $54,000 (4%) to $1,402,000 from $1,348,000 for the three months ended December 31, 1997. Overhill's increased operating income was primarily due to slight increases in gross margins and a reduction in general and administrative expenses as management has reduced selling expenses related to the retail business. Revenues for the Forestry Group for the three months ended December 31, 1998 decreased $2,463,000 (19%) to $10,796,000 from $13,259,000 for the three months ended December 31, 1997, while operating income for the for the three months ended December 31, 1998 decreased $1,184,000 (86%) to $190,000 from $1,374,000 for the three months ended December 31, 1997. The decrease in revenue and operating income was primarily due to softness in the timber market during the period resulting in fewer sales of equipment. For the three months ended December 31, 1998 the Texas Timberjack subsidiaries contributed revenues of $1,539,000 and a net loss of $83,000 to the consolidated amounts. Revenues for the Transformer Group for the three months ended December 31, 1998 increased $291,000 (32%) to $1,201,000 from $910,000 for the three months ended December 31, 1997, while operating income for the for the three months ended December 31, 1998 increased $6,000 (100%). -11- LIQUIDITY AND CAPITAL RESOURCES During the three months ended December 31, 1998, the Company's operating activities provided cash of approximately $1,303,000 compared to a use of cash of $1,264,000 during the comparable period in fiscal 1998. The increased cash provided over the comparable period, resulted primarily from increases in accounts payable and decreases in receivables. During the three months ended December 31, 1998, cash used in investing activities was approximately $674,000 compared to a use of cash of $1,158,000 during the comparable period in fiscal 1998. The Company's use of cash in the current period consisted primarily of capital expenditures at Texas Timberjack and its sawmill subsidiary. During the three months ended December 31, 1998, cash used in financing activities was approximately $203,000 as compared to cash provided of $1,962,000 in the comparable period in fiscal 1998. The source of cash during the prior period consisted primarily of net proceeds from the approximate $24.2 million loan facility at Overhill Farms. The Company plans to continue its program of expansion and diversification through the acquisition of additional operating companies. Funding for these acquisitions is anticipated to come primarily from a combination of internally generated funds and from additional borrowings. The Company also has principal payment obligations to Merrill Lynch, Long Horizons and Mr. Harold Estes. The Company's management believes that cash generated from operations, together with available lines of credit, possible refinancing 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. The corporate office's hardware and software systems are in the process of upgrading for obsolescence, which complements the Year 2000 Project. Each group will retire or replace its existing hardware as deemed necessary and should be completely tested and on line by June 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 -12- 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 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. -13- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and its subsidiaries are involved in certain legal actions and claims arising in the ordinary course of business. Management believes (based on advice of legal counsel) that such litigation and claims will be resolved without material effect on the Company's financial position or results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K - The following reports were filed on Form 8-K during the quarter ended December 31, 1998. NONE -14- SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. POLYPHASE CORPORATION (REGISTRANT) Date: February 12, 1999 By: /s/ James Rudis ------------------------ James Rudis President Date: February 12, 1999 By: /s/ William E. Shatley ------------------------ William E. Shatley Chief Financial Officer -15- INDEX TO EXHIBITS Exhibit No. Exhibit ------------- ----------------------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS SEP-30-1999 DEC-31-1998 850 0 18,618 527 36,671 56,924 14,465 7,911 83,048 46,629 28,256 160 0 1 6,157 83,048 36,056 36,056 29,901 29,901 4,512 0 2,166 (340) 0 (340) 0 0 0 (373) (.02) (.02)
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