-----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, CUyh0TrquK7N0baUpixa/laELDHwJ6DLk6+kazhCBsrxOFQeMnbVqAyHzNsjrKDH mMt04qWnewhVqpXFCZoA9A== 0000912057-00-009318.txt : 20000307 0000912057-00-009318.hdr.sgml : 20000307 ACCESSION NUMBER: 0000912057-00-009318 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POWER DESIGNS INC CENTRAL INDEX KEY: 0000079829 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 111708714 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-01921 FILM NUMBER: 559171 BUSINESS ADDRESS: STREET 1: 14 COMMERCE DR CITY: DANBURY STATE: CT ZIP: 06810 BUSINESS PHONE: 2037487001 MAIL ADDRESS: STREET 1: 14 COMMERCE DR CITY: DANBURY STATE: CT ZIP: 06810 10QSB 1 10QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-QSB (Mark One) /X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended December 31, 1999. / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ______________to ______________. Commission File No. 0-1921 ------------------ POWER DESIGNS INC. - -------------------------------------------------------------------------------- (Name of Small Business Issuer as specified in its charter) Delaware 11-1708714 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 14 Commerce Drive, Danbury, Connecticut 06810 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (203) 748-7001 - -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) 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 that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES NO X - --- ---- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Sections 12, 13 and 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No X ---- ---- APPLICABLE ONLY TO CORPORATE REGISTRANTS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 2,391,493 as of November 17, 1998 Transitional Small Business Issuer Format (check one): Yes No X ---- ---- 2 POWER DESIGNS, INC. FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999 INDEX
PART I - FINANCIAL INFORMATION PAGE NO. Item 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheet as of December 31, 1999 and 1998..................................5 Condensed Consolidated Statement of Operations for the six months ended December 31, 1999 and 1998.............6 Condensed Consolidated Statement of Changes in Stockholders' Deficit for the six months ended December 31, 1999 and 1998..................................7 Condensed Consolidated Statement of Cash Flows for the six months ended December 31, 1999 and 1998.............8 Notes to Condensed Consolidated Financial Statements........9 . Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS..................................................14 PART II - OTHER INFORMATION Item 3. DEFAULTS ON SENIOR SECURITIES...............................18 Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................19 Signatures.................................................................20
3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements 4 POWER DESIGNS, INC. Condensed Consolidated Balance Sheet (Unaudited) December 31, 1999 and 1998
1999 1998 ---- ---- ASSETS Current Assets: Cash $ 245,238 $ 95,698 Accounts receivable, less allowance for doubtful accounts 286,923 563,325 Inventories 768,981 814,100 Prepaid expenses 50,039 24,773 ------------ ------------ TOTAL CURRENT ASSETS 1,351,181 1,497,896 ------------ ------------ Equipment and Leasehold Improvements, net 324,275 467,299 ------------ ------------ Other Assets: Other assets 164,937 164,937 ------------ ------------ 164,937 164,937 ------------ ------------ TOTAL ASSETS $ 1,840,393 $ 2,130,132 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Debtor in possession facility $ 245,000 $ 245,000 Advances under factoring agreement -- 311,581 Accounts payable 168,400 105,695 Accrued expenses 169,667 110,242 Accrued legal fees 145,771 127,250 Accrued interest 4,027 4,162 ------------ ------------ TOTAL CURRENT LIABILITIES 732,865 903,930 ------------ ------------ Long-Term Liabilities Liabilities subject to compromise 17,722,095 16,459,701 ------------ ------------ 17,722,095 16,459,701 ------------ ------------ TOTAL LIABILITIES 18,454,960 17,363,631 ------------ ------------ Stockholders' Deficit Common stock , $.0001 par value. 10,000,000 shares authorized 240 240 2,391,493 shares issued and outstanding at December 31, 1999 Preferred stock, $.01 par value, 1,000,000 shares authorized; 3,167 3,167 316,743 shares issued and outstanding at December 31, 1999 Additional paid-in capital 1,382,807 1,382,807 Accumulated deficit (18,000,781) (16,619,713) ------------ ------------ TOTAL STOCKHOLDERS' DEFICIT (16,614,567) (15,233,499) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,840,393 $ 2,130,132 ============ ============
5 POWER DESIGNS, INC. Condensed Consolidated Statement of Operations (Unaudited) For The Three and Six Months Ended December 31, 1999 and 1998
3 months ended 3 months ended 6 months ended 6 months ended December 31, 1999 December 31, 1998 December 31, 1999 December 31, 1998 Net Sales $ 871,559 $ 811,194 $ 1,695,471 $ 1,559,769 Cost of Sales 470,527 501,596 972,924 988,821 ----------- ----------- ----------- ----------- GROSS PROFIT (LOSS) 401,032 309,598 722,547 570,948 Operating Expenses Selling, general and admin. expense 206,347 172,029 402,844 353,196 Research and development 45,295 37,763 88,429 77,531 Depreciation and amortization 8,639 9,023 17,430 17,884 ----------- ----------- ----------- ----------- 260,281 218,815 508,703 448,611 NET PROFIT (LOSS) BEFORE OTHER INCOME (EXPENSE) AND REORGANIZATION ITEMS 140,751 90,783 213,844 122,337 ----------- ----------- ----------- ----------- Other income (expense): Investment income -- 1,265 -- 2,108 Interest expense (387,842) (405,281) (776,809) (814,262) Other (720) (34,315) (10,320) (66,850) ----------- ----------- ----------- ----------- OTHER EXPENSE (388,562) (438,331) (787,129) (879,004) ----------- ----------- ----------- ----------- NET PROFIT (LOSS) BEFORE REORGANIZATION ITEMS (247,811) (347,548) (573,285) (756,667) Reorganization items 62,159 57,885 66,159 61,885 ----------- ----------- ----------- ----------- NET PROFIT (LOSS) $ (309,970) $ (405,433) $ (639,444) $ (818,552) =========== =========== =========== =========== Weighted average number of common shares outstanding 2,391,493 2,391,493 2,391,493 2,391,493 =========== =========== =========== =========== Net profit (loss) per share $ (0.13) $ (0.18) $ (0.27) $ (0.34) =========== =========== =========== ===========
6 POWER DESIGNS, INC. Condensed Consolidated Statement of Changes in Stockholders' Deficit (Unaudited) For The Three and Six Months Ended December 31, 1999 and 1998
Common Stock Preferred Stock --------------------------------------------------------------------------- Additional Shares Par Shares Par Paid In Accumulated Issued Value Issued Value Capital Deficit --------------------------------------------------------------------------- Balance, June 30, 1998 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(15,801,161) Net loss -- -- -- -- -- (413,119) Balance, September 30, 1998 2,391,493 240 316,743 3,167 1,382,807 (16,214,280) Net loss -- -- -- -- -- (405,433) --------- ------ ------- -------- ------------ ------------- Balance, December 31, 1998 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(16,619,713) ========= ====== ======= ======== ============ ============= Balance, June 30, 1999 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(17,361,337) Net loss -- -- -- -- -- (329,474) Balance, September 30, 1999 2,391,493 240 316,743 3,167 1,382,807 (17,690,811) Net Loss -- -- -- -- -- (309,970) --------- ------ ------- -------- ------------ ------------- BALANCE, DECEMBER 31, 1999 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(18,000,781) ========= ====== ======= ======== ============ =============
7 POWER DESIGNS, INC. Condensed Consolidated Statement of Cash Flows (Unaudited) For The Six Months Ended December 31, 1999 and 1998
6 months ended 6 months ended December 31, 1999 December 31, 1998 Cash Flows From Operating Activities Net profit (loss) $(639,444) $(818,552) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 75,675 75,839 Reorganization items 66,159 61,885 Changes in operating assets and liabilities, net of assets acquired in business combination: Decrease (increase) in accounts receivable 138,366 (69,730) Decrease (increase) in inventories (58,107) (47,662) Decrease (increase) in prepaid expenses (5,836) 9,717 Decrease (increase) in other assets - (24) Increase (decrease) in accounts payable and accrued expenses 801,950 798,415 Increase (decrease) in payables related to reorganization - - --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES BEFORE REORGANIZATION ITEMS 378,763 9,888 --------- --------- Reorganization items Reorganization items paid (53,139) (8,766) --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 325,624 1,122 Cash Flows From Investing Activities Purchase of property and equipment (4,578) (5,040) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (4,578) (5,040) Cash Flows From Financing Activities Advances (repayments) under factoring agreement (129,203) 58,254 --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (129,203) 58,254 --------- --------- NET INCREASE (DECREASE) IN CASH 191,843 54,336 Cash (overdraft) and cash equivalents, beginning of period 53,395 41,362 --------- --------- Cash (overdraft) and cash equivalents, end of period $ 245,238 $ 95,698 ========= =========
8 POWER DESIGNS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 - -------------------------------------------------------------------------------- NOTE 1. BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by Power Designs, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission applicable to a going concern. These rules assume that assets will be realized and liabilities will be discharged in the normal course of business. The Company and its wholly-owned subsidiary filed petitions for relief under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") on January 22, 1998 (the "Filing"). The Debtors are presently operating their business as debtors-in-possession subject to the jurisdiction of the United States Bankruptcy Court for the Bridgeport District of Connecticut (the "Bankruptcy Court"). Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management of the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the notes thereto. In the opinion of the management of the Company, the condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary to fairly present the results for the interim periods to which these financial statements relate. The results of operations for the six months ended December 31, 1999 are not necessarily indicative of the results to be expected for the full year. The consolidated statements of operations for the periods ended December 31, 1999 and December 31, 1998 include the operations of PDIXF Acquisition Corporation for these same periods respectively. Certain reclassifications have been made to the prior period's financial statements to conform to classifications used in the current period. NOTE 2. - PETITION FOR RELIEF UNDER CHAPTER 11 In the Chapter 11 case, substantially all liabilities as of the date of the Filing are subject to resolution under a plan of reorganization to be voted upon by the Debtors' creditors and stockholders and confirmed by the Bankruptcy Court. Schedules have been filed by the Debtors with the Bankruptcy Court setting forth the assets and liabilities of the Debtors as of the Filing as shown by the Debtors' accounting records. Differences between amounts shown by the Debtors and claims filed by creditors will be investigated and reconciled. The amount and settlement terms for such disputed liabilities are subject 9 to allowance by the Bankruptcy Court. Ultimately the adjustment of the total liabilities of the Debtors remains subject to a Bankruptcy Court approved plan of reorganization, and, accordingly, the amount of such liabilities is not presently determinable. Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts and other executory pre-petition contracts, subject to Bankruptcy Court approval. The Debtors continue to review leases and contracts, as well as other operational changes, and cannot presently determine or reasonably estimate the ultimate outcome of, or liability resulting from, this review. Claims secured against the Debtors' assets ("secured claims") also are stayed, although the holders of such claims have the right to move the Court for relief from the stay. Secured claims are secured primarily by liens on the Debtor's machinery, equipment and accounts receivable. NOTE 3. LIABILITIES SUBJECT TO COMPROMISE Liabilities subject to compromise are as follows: Notes payable - affiliated companies $ 7,015,553 (a) Notes payable - preferred shareholders 1,087,415 (a) Notes payable - seller of assets acquired 990,000 (a) Notes payable - others 2,266,500 Accounts payable 2,394,099 Accrued expenses 369,638 Accrued interest 3,267,432 Capital lease obligation 142,872 (a) Payables related to 1994 reorganization including 188,586 accrued interest -------------- Total $ 17,722,095
(a) Notes payable to affiliated companies, preferred shareholders and seller of assets acquired, as well as capital lease obligations, include secured debt, which should be considered, due to various factors, subject to compromise. The Amended Plan of Reorganization filed November 24, 1999 provides for the continuance of allowed secured claims of $1,800,000 against outstanding secured notes of $9,092,968. As a result of this compromise, the Debtor has accrued interest on these, as well as other obligations through June 30, 1999. Additional interest in the amount of $751,929 on these secured obligations was accrued for the six months ended December 31, 1999. Refer to Note 5, for a discussion of the credit arrangements entered into subsequent to the Chapter 11 filings. 10 NOTE 4. OPERATING CASH RECEIPTS AND PAYMENTS The following schedule depicts the operating cash receipts and payments for the post-petition period of October 1, 1999 through December 31, 1999. Cash flows from operating activities: Cash received from customers $ 955,675 Cash paid to suppliers and (750,182) employees Interest paid (13,367) --------- Net cash provided by operating activities before reorganization items 192,126 --------- Operating cash flows from reorganization items: Professional fees paid for services in connection with the Chapter 11 proceeding (34,000) --------- Net cash (used in) reorganization items (34,000) --------- Net cash provided by (used in) operating activities 158,126 --------- Cash flows from investing activities: Distributions from limited partnership 0 --------- Net cash provided by investing 0 activities --------- Cash flows from financing activities: Net borrowings (repayments) under post-petition short-term credit facility (31,088) Principal payments on pre-petition 0 --------- Net cash provided by financing activities (31,088) Net increase in cash and cash equivalents 127,038 Cash and cash equivalents Beginning 118,200 --------- Ending $ 245,238 ---------
11 NOTE 5. SIGNIFICANT EVENTS During the second quarter of fiscal 2000, the company's net profit before other income and expense was $140,751. This improvement over the second quarter fiscal 1999 net profit of $90,783 is largely due to the increased sales levels which have resulted from the company's increased efforts in the areas of sales and marketing. In addition, improved manufacturing efficiencies have resulted in the company's ability to shorten the span of time between the receipt and the fulfillment of customer orders. Lastly, a greater percentage of sales growth has been exhibited in the military and linear power supply product lines, as opposed to that achieved in the variable autotransformer line. Due to the cost of components and labor required in production, the power supply family of products yields a higher margin at the gross profit level, than the other core products manufactured by the company. Moderate growth in personnel and overhead expenditures resulted in operating expenses of $260,281 for the three months ended December 31, 1999 as compared to $218,815 for the same period in the prior year. Selling, general and administrative expenses were $206,347 for the three months ended December 31, 1999 and $172,029 at December 31, 1998. The net profit (loss) for the three months ended December 31, 1999 is ($309,970). Net profit (loss) for the comparative period in the prior year is ($405,433). In January of 1998 pursuant to a court order, the issuer, as debtor-in-possession, entered into a financing agreement with Venture Partners Ltd., as agent, to borrow working capital, up to a maximum of $400,000. The terms of this agreement call for interest at 20% and a term of 120 days. This debt is collateralized firstly by the machinery and equipment of the issuer, and secondarily by its accounts receivable. A total of $245,000 is presently outstanding on this loan. As of this date the term of the note has expired placing the borrower in default. At this time, no demand for repayment has been received by the issuer. Similarly, in February of 1998 the issuer, pursuant to a court order, entered into a receivable factoring agreement with Porter Capital Corporation ("Porter"), whereby trade receivables are sold to Porter at 94% of face value. A 4% and 2% rebate is returned to the issuer if the receivable is collected within 60 and 90 days respectively. Fees to Porter include a minimum of 2% of the face amount of the receivables factored, and an annual interest rate of prime on the outstanding amount advanced. Collateral for this obligation comprises the factored receivables, with a secondary lien on the machinery and equipment of the issuer. In September of 1998 the before mentioned agreement was modified to a minimum fee of 2.5% for receivables collected within 60 days and an additional 1% for each additional 15 days outstanding to a maximum of 90 days. Advances under this factoring agreement were $0 at December 31, 1999. 12 During the period from February 1998 through July 1999 the Company liquidated $78,655 of its pre-petition labor and vacation arrearages. As of this date the only remaining pre-petition labor arrearage is that of certain officers and accrued vacation pay for all former employees that did not return to work. During this time period the Company was in discussions with the U.S. Department of Labor regarding this matter. The Plan of Reorganization, and its subsequent amendment, address the liquidation of the priority portion of these pre-petition liabilities over a period of eight months. On May 12, 1998 a Plan of Reorganization was filed by the debtors with the Office of the U.S. Trustee. Negotiations pertaining to the specifics of the Plan of Reorganization among the creditors committee(s) and the debtor resulted in an Amended Plan of Reorganization, which was filed on November 24, 1999. 13 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations. Current Developments During the second quarter of fiscal 2000, the issuer and its wholly-owned subsidiary, continued manufacturing operations as debtors-in-possession under Chapter 11 protection. The Vantage Partners LLC, a management consulting firm retained pursuant to court order, together with Melvin A. Becker, Vice President of Operations, continued in their roles as senior management. Product offerings were confined to three historical families of products: military grade power supplies, variable autotransformers, and linear switching power supply products. Employees and contracted consultants of the issuer at December 31, 1999 totaled 29 as opposed to 26 at the end of the prior quarter. In the initial months following the Filing, the issuer successfully resolved issues of material procurement with key suppliers and reinstated deteriorating relationships with distributors and customers. Liquidity has been improved by increased shipping levels and a concentrated effort on credit and collection issues with all customers. Marketing efforts have been increased in the areas of product literature development, internet advertisement, and sales representative solicitation. However despite these efforts, both military and commercial orders for product continued to plateau during the second and third fiscal quarters of 1999. Subsequent periods saw continued efforts in the areas of order procurement and customer satisfaction, and resulted in bookings of $877,408 and $1,091,440 for the quarters ended June 30, 1999 and September 30, 1999 respectively. The traditional reduction in new orders historically experienced during the holiday months, evidenced itself in bookings of $604,828 for the quarter ended December 31, 1999. Open sales orders at December 31, 1999 totaled $517,903. In an effort to increase market share and to combat the downturn in product orders historically experienced during the winter months, the issuer retained a sales and marketing executive in July 1999. In December 1999, the issuer discontinued its consulting arrangement with an outside sales professional, begun in April of the same calendar year. At this writing, seven manufacturer's sales representatives have been contracted to sell product in the following domestic regions: New England Region, Mid Atlantic Region, Sunbelt Region, Central Region, Southwest Region, Caribbean Rim Region, and Western Region. Negotiations are pending with representatives in two additional U.S. regions. Contemporaneously, a new homepage has been uploaded to the Internet domain, www.powerdesigns.com. This website currently displays the entire linear, military and autotransformer product lines. While these efforts are focused on generating increased order levels, there are, however, no assurances that the issuer will be able to effectuate these measures, or that such measures will produce the desired results. During the third quarter of fiscal year 1998 the issuer also initiated an effort to relocate from its thirty thousand square foot facility, to a facility one half the size. As of this date an alternate facility within the existing industrial park has been identified. Both 14 the current landlord and a local real estate brokerage firm have been engaged to release the existing facility. Although the facility continues to be presented to the marketplace, no new lease transactions have as yet been consummated. On May 12, 1998 the Issuer and its wholly-owned subsidiary, PDIXF Acquisition Corporation, filed a Plan of Reorganization with the Office of the U.S. Trustee. The Plan is a proposal of PDI and PDIXF to their Creditors and holders of Equity Interests. The Plan is the product of discussions with the Debtors' senior secured creditor, Inverness, which has agreed to support the Plan. The Plan undertakes to resolve all secured claims, administrative claims, priority claims, unsecured claims and equity interests. The Debtors believe that the distributions to be made, pursuant to the terms of this Plan, will produce for Creditors not less than they would receive if the Debtors' cases were converted to cases under Chapter 7 of the Code, the Debtors' assets liquidated and appropriate distributions therein were made as required by the Code. A copy of the Plan of Reorganization for Power Designs, Inc. and PDIXF Acquisition Corporation has been attached as an exhibit to the Form 10QSB for the period ended March 31, 1998. Ongoing negotiations between the Debtors and various creditor committee constituencies resulted in an Amended Plan of Reorganization, which was filed on November 24, 1999 and has been attached as an exhibit to the Form 10KSB for the period ended June 30,1999. The amended plan provides for the cancellation of all existing equity interests, and the issuance of 2,000,000 new common shares to be divided among Inverness Corporation, Hayes Corporation, and certain unsecured creditors. Approximately $1.95 million of secured debt is proposed to remain post-confirmation and will bear interest at 10% annually. Administrative claims, priority tax claims, and employee priority claims will be paid in accordance with the terms negotiated with the claimants, or in certain cases, those provided by law. Certain unsecured claims of PDIXF Acquisition Corporation will receive a 5% cash settlement in full satisfaction of their outstanding claims. All remaining claims will be deemed unsecured non-priority claims, and their holders will receive a proportionate number of common shares in the reorganized corporation. A confirmation hearing on the amended plan has been continued to March 21, 2000, and may be continued from time to time by the court. Should the amended plan not be confirmed, there is significant probability that the case may be converted to a Chapter 7 case. In the instance of a conversion to a Chapter 7 liquidation, there is little likelihood of any value remaining to satisfy the existing equity interests of the Debtors. Liquidity and Capital Resources Pursuant to a court order, the issuer, as debtor-in-possession, has entered into a financing agreement with Venture Partners Ltd., as agent, to borrow working capital, up to a maximum of $400,000. The terms of this agreement call for interest at 20% and a 15 term of 120 days. This debt is collateralized firstly by the machinery and equipment of the issuer, and secondarily by its accounts receivable. A total of $245,000 is presently outstanding on this loan. Similarly, the issuer, pursuant to a court order, has entered into a receivable factoring agreement with Porter Capital Corporation ("Porter"), whereby trade receivables are sold to Porter at 94% of face value. A 4% and 2% rebate is returned to the issuer if the receivable is collected within 60 and 90 days respectively. Fees to Porter include a minimum of 2% of the face amount of the receivables factored, and an annual interest rate of prime on the outstanding amount advanced. Collateral for this obligation comprises the factored receivables, with a secondary lien on the machinery and equipment of the issuer. In September of 1998 the initial six-month term had elapsed and the right to extend the agreement for a period of one year had been exercised. With this renewal the before mentioned agreement has been modified to a minimum fee of 2.5% for receivables collected within 60 days and an additional 1% for each additional 15 days outstanding to a maximum of 90 days. The issuer currently has a net stockholders' deficit of approximately $16,600,000, meaning that amounts owed to its creditors exceed the issuer's assets. The issuer has completed the implementation of a Year 2000 compliance plan. At this writing, all of their significant business systems, including those that affect facilities and manufacturing activities, are functioning properly with respect to the Year 2000 issue. The issuer has assessed their internal processes and systems, and believes that sales, administration, and general operations are substantially Year 2000 compliant. Prior to purchasing any new equipment or software, it is the issuer's policy to ensure that the specifications include Year 2000 compliance. Because no specific instance of material Year 2000 non-compliance has been discovered to date, the issuer has not adopted a contingency plan to deal with Year 2000 issues. Based upon the expenditures to date, the issuer believes the total costs of the Year 2000 review and compliance to be minimal. The issuer believes that, with the completion of its Year 2000 assessment as scheduled, the possibility of significant interruptions of normal operations have been minimized. Results of Operations Second quarter of fiscal 2000 versus second quarter of fiscal 1999. Net sales increased to $871,559 for the quarter ended December 31, 1999 as compared with $811,194 for the same period in 1998. Similarly, gross profit increased from $309,598 for the second quarter in fiscal 1999 to $401,032 for the same quarter in fiscal 2000. The resulting increase was primarily due to the improving manufacturing efficiencies and increased production volumes achieved by the issuer, as well as the particular blend of products shipped during 16 the second fiscal quarter. Although revenue rose respectively, cost of sales actually decreased slightly from $501,596 for the second quarter of fiscal 1999 to $470,527 for the same period in fiscal 2000. A substantial portion of the improved performance is due to the mix of core product sold in the second fiscal quarter, concentrating more predominantly on military and linear power supply sales rather than on autotransformer sales. Quarterly interest and other expense decreased from $438,331 as of December 31, 1998 to $388,562 as of December 31, 1999 primarily the result of the decrease in advances outstanding under the factoring agreement for the respective periods. A slow departure from severe overhead curtailment, combined with measured growth in personnel and operations subsequent to the bankruptcy petitions, contribute to the increase in operating expenses from $218,815 for the quarter ending December 31, 1998 as compared to $260,281 for the quarter ending December 31, 1999. As a result of these conditions, the net profit (loss) for the three months ending December 31, 1999 is ($309,970), as compared to ($405,433) for the same period in fiscal 1999. First six months of fiscal 2000 versus first six months of fiscal 1999. Net sales increased from $1,559,769 for the six months ended December 31, 1998 as compared to $1,695,471 for the six months ended December 31, 1999. Likewise, gross profit (loss) increased from $570,948 for the six months ended December 31, 1998 to $722,547 for the six months ended December 31, 1999 the result of the same trends comparatively as those noted in the paragraphs above. Despite the increase in revenue, cost of sales decreased slightly from $988,821 for the period ended December 31, 1998 to $972,924 for the same period in fiscal 2000. A substantial portion of the decrease is due to the post-petition improvements in manufacturing efficiency, the ability to buy components at more attractive prices due to increased volumes and liquidity, as well as the superior gross margins inherent in the production of power supply products over autotransformer products. The reduction in advances under the factoring agreement accounts for the decrease in interest and other expense to $787,129 as of December 31,1999 from $879,004 as of December 31, 1998. As a result of these conditions, the net profit (loss) for the six months ending December 31, 1999 is ($639,444), as compared to ($818,552) for the same period in fiscal 1999. It is the intention of the present management of the issuer to concentrate its resources on the production of its existing three product lines, to reduce operating and occupancy costs where possible, to improve marketing strategies and further customer relationships, and to replace the debtor-in-possession financing with less costly conventional debt instruments upon confirmation of a plan of reorganization. However, there can be no assurances that the issuer will be able to obtain such additional debt financing, or be successful at streamlining and improving operating results. Certain statements contained in this Item 2 regarding matters that are not historical facts, including, among others, statements regarding the future adequacy of the issuer's working capital, its ability to raise capital through debt or equity offerings, its ability to maintain or improve its present cash flow, are "forward-looking statements". 17 Such forward-looking statements involve risks and uncertainties, which may cause the actual results, performance or achievements of the issuer to be materially different from any future results, performance or achievements, express or implied by such forward-looking statements. These forward-looking statements are identified by their use of forms of such terms and phrases as "expects," "intends," "goals," "estimates," "projects," "plans," "anticipates," "should," "future," "believes," and "scheduled". The variables which may cause differences include, but are not limited to, the following: general economic and business conditions; competition; success of operating initiatives; operating costs; advertising and promotional efforts; the existence or absence of adverse publicity; changes in business strategy or development plans; the ability to retain management; availability, terms and deployment of capital; business abilities and judgement of personnel; availability of qualified personnel; labor and employee benefit costs; availability and costs of raw materials and supplies; and changes in, or failure to comply with, government regulations. Although the issuer believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this filing will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the issuer or any other person that the objectives and expectations of the issuer will be achieved. PART II. OTHER INFORMATION Item 3. Defaults Upon Senior Securities As of this date the principal amount of the Venture Partners Ltd., as agent indebtedness described at Part I, Item 2 above was not paid in full, thereby placing the issuer in default. As of this date no demand for repayment has been made and all interest payments are current. There are no renewal negotiations pending. 18 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Financial Data Schedule 19 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. Date: February 29, 2000 POWER DESIGNS, INC. Danbury, Connecticut (Registrant) By: /s/ Melvin A. Becker ------------------------------ Melvin A. Becker Secretary By: /s/ Anthony F. Intino II ------------------------------ Anthony F. Intino II Chief Financial Officer 20 EX-27.1 2 EXHIBIT 27.1
5 3-MOS JUN-30-2000 DEC-31-1999 245,238 0 286,923 0 768,981 1,351,181 833,957 (509,682) 1,840,393 732,865 17,722,095 0 3,167 240 (16,617,974) 1,840,393 871,559 871,559 470,527 470,527 260,281 0 388,562 (247,811) 0 (247,811) 0 62,159 0 (309,970) (0.13) (0.13)
EX-27.2 3 EXHIBIT 27.2
5 6-MOS JUN-30-2000 DEC-31-1999 245,238 0 286,923 0 768,981 1,351,181 833,957 (509,682) 1,840,393 732,865 17,722,095 0 3,167 240 (16,617,974) 1,840,393 1,695,471 1,695,471 972,924 972,924 508,703 0 787,129 (573,285) 0 (573,285) 0 66,159 0 (639,444) (0.27) (0.27)
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