10QSB 1 a2039271z10qsb.txt 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, 2000. |_| 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 |X| NO |_| 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 |X| No |_| 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. AND SUBSIDIARY FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000 INDEX PART I - FINANCIAL INFORMATION PAGE NO. Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of December 31, 2000 and June 30, 2000............................... 5 Consolidated Statements of Operations for the three and six months ended December 31, 2000 and 1999......... 6 Consolidated Statements of Changes in Stockholders' Deficit for the three and six months ended December 31, 2000 and 1999........................................ 7 Consolidated Statements of Cash Flows for the six months ended December 31, 2000 and 1999................... 8 Notes to Consolidated Financial Statements........................ 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................13 PART II - OTHER INFORMATION Item 3. DEFAULTS ON SENIOR SECURITIES.....................................17 Item 6. EXHIBITS AND REPORTS ON FORM 8-K..................................18 Signatures....................................................................19 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements 4 POWER DESIGNS, INC. AND SUBSIDIARY Consolidated Balance Sheets
December 31, 2000 June 30, 2000 (Unaudited) ASSETS Current Assets: Cash $ 62,090 $ 47,307 Accounts receivable, less allowance for doubtful accounts 270,685 466,748 Inventories 1,008,989 822,564 Prepaid expenses 36,940 52,124 ------------ ------------ TOTAL CURRENT ASSETS 1,378,704 1,388,743 Equipment and Leasehold Improvements, net 196,455 268,178 Other Assets 156,009 177,815 ------------ ------------ TOTAL ASSETS $ 1,731,168 $ 1,834,736 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Debtor in possession facility $ 245,000 $ 245,000 Accounts payable 298,819 187,192 Accrued expenses 151,237 132,392 Accrued legal fees 9,262 165,994 Accrued interest 4,162 4,027 ------------ ------------ TOTAL CURRENT LIABILITIES 708,480 734,605 Long-Term Liabilities Liabilities subject to compromise (Note 3) 19,178,035 18,436,107 ------------ ------------ TOTAL LIABILITIES 19,886,515 19,170,712 ------------ ------------ Stockholders' Deficit Common stock , $.0001 par value, 10,000,000 shares authorized; 240 240 2,391,493 shares issued and outstanding Preferred stock, $.01 par value, 1,000,000 shares authorized; 3,167 3,167 316,743 shares issued and outstanding Additional paid-in capital 1,382,807 1,382,807 Accumulated deficit (19,541,561) (18,722,190) ------------ ------------ TOTAL STOCKHOLDERS' DEFICIT (18,155,347) (17,335,976) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,731,168 $ 1,834,736 ============ ============
See Notes to Consolidated Financial Statements. 5 POWER DESIGNS, INC. AND SUBSIDIARY Consolidated Statements of Operations (Unaudited) For The Three and Six Months Ended December 31, 2000 and 1999
3 months ended 3 months ended 6 months ended 6 months ended December 31, 2000 December 31, 1999 December 31, 2000 December 31, 1999 Net Sales $ 629,408 $ 871,559 $ 1,359,236 $ 1,695,471 Cost of Sales 369,480 470,527 826,748 972,924 ----------- ----------- ----------- ----------- GROSS PROFIT 259,928 401,032 532,488 722,547 Operating Expenses Selling, general and admin. expense 233,722 206,347 425,566 402,844 Research and development 51,304 45,295 93,416 88,429 Depreciation and amortization 7,642 8,639 15,283 17,430 ----------- ----------- ----------- ----------- 292,668 260,281 534,265 508,703 INCOME (LOSS) BEFORE OTHER INCOME (EXPENSE) AND REORGANIZATION ITEMS (32,740) 140,751 (1,777) 213,844 ----------- ----------- ----------- ----------- Other income (expense): Investment income 1,241 -- 37,081 -- Interest expense (385,051) (387,842) (769,226) (776,809) Other (1,346) (720) (1,393) (10,320) ----------- ----------- ----------- ----------- OTHER EXPENSE (385,156) (388,562) (733,538) (787,129) ----------- ----------- ----------- ----------- LOSS BEFORE REORGANIZATION ITEMS (417,896) (247,811) (735,315) (573,285) Reorganization items 38,411 62,159 84,056 66,159 ----------- ----------- ----------- ----------- NET LOSS $ (456,307) $ (309,970) $ (819,371) $ (639,444) =========== =========== =========== =========== Weighted average number of common shares outstanding 2,391,493 2,391,493 2,391,493 2,391,493 =========== =========== =========== =========== Net loss per common share $ (0.19) $ (0.13) $ (0.34) $ (0.27) =========== =========== =========== ===========
See Notes to Consolidated Financial Statements. 6 POWER DESIGNS, INC. AND SUBSIDIARY Consolidated Statements of Changes in Stockholders' Deficit (Unaudited) For The Three and Six Months Ended December 31, 2000 and 1999
Common Stock Preferred Stock ------------------------------------------------------------------------------------------------ Additional Shares Par Shares Par Paid In Accumulated Issued Value Issued Value Capital Deficit ------------ ---------- ---------- ---------- ------------ ------------ 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) ============ ========== ========== ========== ============ ============ Balance, June 30, 2000 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(18,722,190) Net loss -- -- -- -- -- (363,064) Balance, September 30, 2000 2,391,493 240 316,743 3,167 1,382,807 (19,085,254) Net Loss -- -- -- -- -- (456,307) ------------ ---------- ---------- ---------- ------------ ------------ BALANCE, DECEMBER 31, 2000 2,391,493 $ 240 316,743 $ 3,167 $ 1,382,807 $(19,541,561) ============ ========== ========== ========== ============ ============
See Notes to Consolidated Financial Statements. 7 POWER DESIGNS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited) For The Six Months Ended December 31, 2000 and 1999
6 months ended 6 months ended December 31, 2000 December 31, 1999 Cash Flows From Operating Activities Net loss $(819,371) $(639,444) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 73,323 75,675 Provision for bad debts 4,274 -- Reorganization items 84,056 66,159 Changes in operating assets and liabilities: Decrease in accounts receivable 191,789 138,366 Increase in inventories (186,425) (58,107) Decrease (increase) in prepaid expenses 15,184 (5,836) Decrease in other assets 21,806 -- Increase in accounts payable and accrued expenses 688,747 801,950 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE REORGANIZATION ITEMS 73,383 378,763 Reorganization items Reorganization items paid (57,000) (53,139) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 16,383 325,624 --------- --------- Cash Flows From Investing Activities Purchase of property and equipment (1,600) (4,578) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (1,600) (4,578) --------- --------- Cash Flows From Financing Activities Repayments under factoring agreement -- (129,203) --------- --------- NET CASH USED IN FINANCING ACTIVITIES -- (129,203) --------- --------- NET INCREASE IN CASH 14,783 191,843 Cash, beginning of period 47,307 53,395 --------- --------- Cash, end of period $ 62,090 $ 245,238 ========= =========
See Notes to Consolidated Financial Statements. 8 POWER DESIGNS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 1. BASIS OF PRESENTATION The 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 consolidated financial statements should be read in conjunction with the notes thereto. In the opinion of the management of the Company, the 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, 2000 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, 2000 and December 31, 1999 include the operations of PDIXF Acquisition Corporation for these same periods respectively. 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 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. 9 POWER DESIGNS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued -------------------------------------------------------------------------------- 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 2,342,401 Accrued expenses 401,621 Accrued interest 4,743,087 Capital lease obligation 142,872 (a) Payables related to 1994 reorganization including accrued interest 188,586 ----------- Total $19,178,035 ===========
(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 August 22, 2000 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 secured obligations in the amount of $4,743,087 through December 31, 2000. 10 POWER DESIGNS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued -------------------------------------------------------------------------------- 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, 2000 through December 31, 2000. Cash flows from operating activities: Cash received from customers $ 755,179 Cash paid to suppliers and employees (745,831) Interest paid (9,535) --------- Net cash used in operating activities before reorganization items (187) --------- Operating cash flows from reorganization items: Professional fees paid for services in connection with the Chapter 11 proceeding (39,213) --------- Net cash used in reorganization items (39,213) --------- Net cash used in operating activities (39,400) --------- Cash flows from investing activities: Purchase of property and equipment (1,600) Distributions from limited partnership 1,240 --------- Net cash used in investing activities (360) --------- Net decrease in cash (39,760) Cash Beginning 101,850 --------- Ending $ 62,090 =========
11 POWER DESIGNS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued -------------------------------------------------------------------------------- NOTE 5. SIGNIFICANT EVENTS 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 and a Second, Third, and Fourth Amended Plan of Reorganization which were filed on August 22, 2000, December 22, 2000 and January 23, 2001 respectively. The confirmation hearing for the plan of reorganization was continued to January 23, 2001. Subject to further court requests for documentation, the debtors have yet to receive final court approval of the plan. NOTE 6. ENTERPRISE WIDE DISCLOSURES The following table presents revenue from external customers for each of the Company's groups of products for the three and six month periods ended December 31, 2000 and 1999:
3 months ended 3 months ended December 31, 2000 December 31, 1999 Military power supplies $ 261,816 $ 588,470 Variable autotransformers 208,529 167,987 Linear power supplies 144,407 106,819 Service support 14,656 8,283 ----------------------------------- $ 629,408 $ 871,559 =================================== 6 months ended 6 months ended December 31, 2000 December 31, 1999 Military power supplies $ 720,484 $ 987,323 Variable autotransformers 387,622 463,613 Linear power supplies 220,504 164,789 Service support 30,626 79,746 ----------------------------------- $1,359,236 $1,695,471 ===================================
12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Current Developments During the second quarter of fiscal year 2001, the issuer, as Debtors-in-Possession, have continued operations on a limited scale. Pursuant to a court order, the issuer retained The Vantage Partners LLC, a management consulting firm, who, together with Melvin A. Becker, Vice President of Operations, have comprised senior management since the petition filing. Anthony F. Intino II, a principal of The Vantage Partners LLC, and general manager of the issuer, was appointed President of the issuer on December 20, 2000. Approximately twenty-nine individuals are presently employed in the production of the three core product lines. Management's efforts continue in the following areas: streamlining operating costs, improving manufacturing quality and material procurement efficiencies, and furthering credit availability with vendors and suppliers. Increased resources have been directed toward the areas of new customer relationships, enhanced promotional efforts and definition of market channels. The company has successfully resolved issues of material procurement with key suppliers and reinstated deteriorating relationships with distributors and customers. Although liquidity was improved in prior years by increased shipping levels and a concentrated effort on credit and collection issues, reduced shipments in the current year have impacted liquidity conversely. A general decline in military spending, offset by only modest increases in commercial sales, has resulted in a continued reduction in product orders during the second fiscal quarter of 2001. Both military and commercial orders for product fail to exhibit stable levels of predictability. Open sales orders at December 31, 2000 total $374,359. To combat the declining flow of new orders for military product, the issuer has initiated steps to expand the sale of its off-the-shelf autotransformer and laboratory power supply products. In addition to various advertising measures and several additions to its internal sales force, the issuer has likewise retained the services of various outside sales consultants and manufacturer's representatives in an effort to expand the customer base and increase product revenue. Contemporaneously, a new homepage has been uploaded to the Internet domain, WWW.POWERDESIGNS.COM. This website currently displays an overview of the linear, military and autotransformer product lines. While these efforts are focused on generating increased commercial 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. Coupled with overhead cost containment measures, the issuer has also completed an engineering effort to redesign certain products in its linear power supply family. These new designs have proven easier and more cost effective to manufacture, and they provide a greater range of product features and reliability. To date, orders for this family of products continue to languish below the issuer's expectations. Current initiatives to 13 expand the market share include competitive product analysis and re-pricing, coupled with a redirection of product from the distribution channel to direct customer sales. 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 Power Designs, Inc. 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 10-QSB 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 10-KSB 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 $1.8 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 Second Amended Plan of Reorganization for Power Designs, Inc. and PDIXF Acquisition Corporation was filed with the Office of the U.S. Trustee on August 22, 2000. This amendment modifies repayment terms for allowed federal and state employee and tax claims, and modifies certain releases and indemnification granted to third party affiliates of the issuer. The Second Amended Plan of Reorganization has been attached as an exhibit to the Form 10-KSB for the period ended June 30, 2000. Third and Fourth Amended Plans of Reorganization were subsequently filed on December 22, 2000 and January 23, 2001 respectively. These amendments finalize the terms for administrative and other claims settlements and certain mutual releases between the issuer and remaining objecting creditors, inclusive of the issuer's current landlord and Porter Capital Corporation. Concurrent with the filing of the Third Amended Plan of Reorganization, the board of directors of the issuer approved a resolution to indemnify and hold harmless the defendants in an action, brought outside the venue of the bankruptcy court, by a creditor of the issuer, against all claims, damages, settlements and awards that the defendants may incur or pay as a result of the action taken. The defendants are comprised of various directors, affiliates and officers of the issuer. Similar indemnification was also resolved for the same defendants against any damages, which may be sustained as a result of any future actions brought by this creditor relating to the issuer, inclusive of any and all costs and attorney's fees incurred in defending the action. While the defendants have, to date, disputed the alleged complaint, there are, however, no assurances that the defendants will be able to effectuate a favorable judgment, or that such judgment will not result in a liability for the issuer. 14 A settlement hearing on the amended plan was held on January 23, 2001. In anticipation of a confirmation of the plan, the issuer filed a Findings of Fact, Conclusions of Law, and Order Under Sections 1129 (a) and (b) of the Bankruptcy Code Confirming Fourth Amended Plan of Reorganization with the office of the U.S. Trustee on February 13, 2001. 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 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, this indebtedness 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. 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 day. Unless terminated with written notice, the agreement automatically renews at the end of each six-month term. At December 31, 2000 the agreement was not terminated, and the issuer had no outstanding advances under this factoring agreement. The issuer currently has a net stockholders' deficit of approximately $18,200,000, meaning that amounts owed to its creditors exceed the issuer's assets. Results of Operations Second quarter of fiscal 2001 versus second quarter of fiscal 2000. Net sales decreased by 28% to $629,408 for the quarter ended December 31, 2000 as compared with $871,559 for the same period in 1999. Similarly, gross profit decreased from $401,032 for the second quarter in fiscal 15 2000 to $259,928 for the same quarter in fiscal 2001. The resulting decrease was primarily due to the overall decline in new product orders for military grade power supplies experienced in fiscal 2001, coupled with approximately $400,000 of one-time non-recurring business in this product line in the prior fiscal year. Cost of sales decreased correspondingly from $470,527 for the second quarter of fiscal 2000 to $369,480 for the same period in fiscal 2001. Quarterly interest and other expense decreased only slightly from $388,562 as of December 31, 1999 to $385,156 as of December 31, 2000 primarily the result of a final receipt of minimal investment income related to a New York limited partnership interest previously owned by the issuer. Increased deployment of resources into the areas of engineering and sales and marketing contribute to the increase in operating expenses from $260,281 for the quarter ending December 31, 1999 as compared to $292,668 for the quarter ended December 31, 2000. Conversely, fewer legal and court fees related to the Chapter 11 filing were incurred in the quarter ended December 31, 2000, as those incurred in the quarter ended December 31, 1999. Therefore, reorganization expense decreased from $62,159 in fiscal 2000 to $38,411 for the same period in fiscal 2001. As a result of these conditions, the net loss for the three months ended December 31, 2000 is $456,307, as compared to $309,970 for the same period in prior year. First six months of fiscal 2001 versus first six months of fiscal 2000. Net sales decreased from $1,695,471 for the six months ended December 31, 1999 to $1,359,236 for the six months ended December 31, 2000. Likewise, gross profit decreased from $722,547 for the six months ended December 31, 1999 to $532,488 for the six months ended December 31, 2000 the result of the same trends comparatively as those noted in the paragraphs above. In accordance with the decrease in revenue, cost of sales decreased from $972,924 for the period ended December 31, 1999 to $826,748 for the same period in fiscal 2001. A substantial portion of the decrease is due to reduction in military product sales, offset by the comparatively inferior gross margins inherent in the production of the commercial products, both power supply and autotransformer, over the military products. A one-time receipt of investment income related to a New York limited partnership interest sold by the issuer, coupled with a modest reduction in outstanding advances under the factoring agreement, accounts for the decrease in interest and other expense to $733,538 as of December 31, 2000 from $787,129 as of December 31, 1999. As a result of these conditions, the net loss for the six months ending December 31, 2000 is $819,371, as compared to $639,444 for the same period in fiscal 2000. 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 establish additional customer relationships, and to continue the debtor-in-possession financing upon confirmation of a plan of reorganization, and to ultimately replace said financing with more conventional debt instruments in future periods. However, there can be no assurances that the issuer will be able to obtain such additional debt financing, or be 16 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". 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. 17 Item 6. Exhibits and Reports on Form 8-K (10) MATERIAL CONTRACTS (i) Plan of Reorganization for Power Designs, Inc. and PDIXF Acquisition Corporation (INCORPORATED BY REFERENCE TO EXHIBIT 10(xv) TO FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1998) (ii) Disclosure Statement for the Plan of Reorganization for Power Designs, Inc. and PDIXF Acquisition Corporation (INCORPORATED BY REFERENCE TO EXHIBIT 10(xv) TO FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1998) (iii) Amended Plan of Reorganization for Power Designs, Inc. and PDIXF Acquisition Corporation (INCORPORATED BY REFERENCE TO EXHIBIT 10(v) TO FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1999) (iv) Disclosure Statement for the Amended Plan of Reorganization for Power Designs, Inc. and PDIXF Acquisition Corporation (INCORPORATED BY REFERENCE TO EXHIBIT 10(vi) TO FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1999) (v) Second Amended Plan of Reorganization for Power Designs, Inc. and PDIXF Acquisition Corporation (INCORPORATED BY REFERENCE TO EXHIBIT 10(vi) TO FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 2000) (vi) Fourth Amended Plan of Reorganization for Power Designs, Inc. and PDIXF Acquisition Corporation (vii) Findings of Fact, Conclusions of Law, and Order Under Sections 1129(a) and (b) of the Bankruptcy Code Confirming Fourth Amended Plan of Reorganization of Power Designs, Inc. and PDIXF Acquisition Corp. Under Chapter 11 of the Bankruptcy Code (27) FINANCIAL DATA SCHEDULES (i) Financial Data Schedules 18 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 20, 2001 POWER DESIGNS, INC. Danbury, Connecticut (Registrant) By: /s/ Anthony F. Intino II --------------------------- Anthony F. Intino II President By: /s/ Allison E. Bertorelli --------------------------- Allison E. Bertorelli Chief Financial Officer 19