U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB (AMENDMENT NO. 1)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2001
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO __________
Commission File No. 0-31805
POWER EFFICIENCY CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 22-3337365
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(State or other jurisdiction of incorporation or (I.R.S. Employer Identification NO.)
organization)
4220 Varsity Drive Suite E
Ann Arbor, MI 48108
(734-975-9111)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 requirement for the past 90 days.
Yes X No__
The number of shares outstanding of the Issuer's Common Stock, $.001 Par Value,
as of March 31, 2001 was 6,393,370.
Transitional Small Business Disclosure Format (check one): Yes ___ No X
Table of Contents
POWER EFFICIENCY CORP.
FORM 10-QSB INDEX
Index 2
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets as of March 31, 2001 and December 31, 2000 3
Condensed Statements of Operations for the three months ended March 31, 2001 and 2000 4
Condensed Statements of Cash Flows for the three months ended March 31, 2001 and 2000 5
Notes to Consolidated Financial Statements 6/7
Item 2. Management's Discussion and Analysis or Plan of Operation 8/9
Part II. OTHER INFORMATION Page
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
2
Power Efficiency Corporation
Condensed Balance Sheets
March 31, 2001 and December 31, 2000
(Unaudited)
March 31, 2001 December 31, 2000
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(Restated) (Restated)
Assets
Current Assets
Cash and Equivalents $ 2,294 $ 8,492
Accounts Receivable - Trade, Net of reserve of $5,000 104,625 114,166
Inventory 562,434 526,454
Prepaid Expenses 443 443
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Total Current Assets 669,796 649,555
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Property and Equipment, Net 142,543 132,315
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Other Assets
Deposits 6,000 6,000
Patent Application Costs (Net) 14,980 17,089
Deferred Financing Costs 47,746 51,936
Goodwill 2,036,522 2,072,043
Customer Contacts, Manuals and Sales Literature 186,657 197,426
Website and Customer List 107,719 119,260
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Total Other Assets 2,399,624 2,463,754
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$ 3,211,963 $ 3,245,624
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Liabilities and Stockholders' (Deficit) Equity
Current Liabilities
Line of Credit Agreement $ 372,887 $ 277,887
Accrued Salaries and Payroll Taxes 49,922 51,611
Accounts Payable and Accrued Expenses 413,723 485,695
Stockholder Loan Payable - 100,000
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Total Current Liabilities 836,532 915,193
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Stockholders' Equity
Preferred Stock, $.001 par value 1,000,000 shares authorized,
none outstanding - -
Common Stock, $.001 par value, 9,000,000 shares
authorized, 6,393,370 and 6,043,370 shares issued and outstanding
in 2001 and 2000, respectively 6,368 6,043
Additional Paid-in Capital 8,379,769 7,950,094
Accumulated Deficit (6,010,706) (5,625,706)
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Total Stockholders' Equity 2,375,431 2,330,431
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Total Liabilities and Stockholders' Equity $ 3,211,963 $ 3,245,624
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See notes to condensed Financial Statements.
3
Power Efficiency Corporation
Condensed Statements of Operations - Unaudited
Three Months
Ended March 31,
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2001
(Restated) 2000
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REVENUES $ 155,050 $ 782
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COSTS AND EXPENSES: -
Cost of Sales 79,307
Research and Development 67,174 500
Manufacturing 35,205 6,630
Selling, general and administrative 285,969 19,236
Depreciation and Amortization 72,195 6,584
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Total Costs and Expenses 539,850 32,950
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LOSS BEFORE PROVISION FOR INCOME TAXES (384,800) (32,168)
PROVISION FOR INCOME TAXES 200 -
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NET LOSS $ (385,000) $ (32,168)
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BASIC LOSS PER COMMON SHARE $ (.06) $ (.07)
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WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,149,500 4,384,000
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See notes to condensed Financial Statements
4
Power Efficiency Corporation
Condensed Statements of Cash Flow - Unaudited
Quarter Ended March 31, 2001 and 2000
March 31, 2001 March 31, 2000
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(Restated)
Cash Flow From Operating Activities
Net Loss $(385,000) $ (32,168)
Adjustments to reconcile net loss to net cash:
Used for operating activities:
Depreciation and Amortization 72,195 6,384
Debt restructuring 130,000 -
Accounts Receivable - Trade 9,541 19,012
Inventory - Raw Materials/Finished Goods (35,980) -
Accounts Payable and Accrued Expenses (73,661) 7,213
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Total Adjustments (102,095) 32,609
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Net Cash (Used For) Provided By $(282,905) $ 441
Operating Activities
Investing Activities
Equipment Purchases (18,293) -
Financing Activities
Proceeds from issuance of equity securities 200,000 -
Notes Payable - Bank 95,000 -
Net Cash Provided By Financing Activities 295,000 -
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Net (Decrease) Increase in Cash $ (6,198) $ 441
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Summary:
Cash Balance At End Of Period $ 2,294 $ 91
Cash Balance At Beginning Of Period 8,492 (350)
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Net (Decrease) Increase in Cash $ (6,198) $ 441
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Non-cash Investing and Financing Activities
Common Stock issued in connection with
extinguishment of stockholder note payable $ 230,000
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See notes to condensed Financial Statements
5
POWER EFFICIENCY CORPORATION NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1, BASIS OF PRESENTATION
The accompanying unaudited financial statements, which are for interim
periods, do not include all disclosures required to be presented in the
annual financial statements. These unaudited financial statements
should be read in conjunction with the financial statements and the
footnotes thereto for the year ended December 31, 2000 contained in
Power Efficiency Corporation's (the "Company") Form 10-KSB Annual
Report and Form 10-SB Registration Statement, as amended from time to
time, as filed with the Securities and Exchange Commission. The March
31, 2001 balance sheet was derived from unaudited financial statements,
and does not include all disclosures required by generally accepted
accounting principles.
NOTE 2, INTERIM PERIODS
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial statements.
The results of operations for the three months ended March 31, 2001 are
not necessarily indicative of the results to be expected for the full
year.
NOTE 3, GOING CONCERN
The accompanying condensed interim financial statements have been
prepared assuming the Company is a going concern which assumption
contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. The financial statements do not
include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amount of liabilities
that might be necessary should the Company be unable to continue in
existence. Continuation of the Company as a going concern is dependent
on achieving profitable operations. Management's plans to achieve
profitability include developing new products, obtaining new customers
and increasing sales to existing customers. Management also plans to
raise additional capital through equity issuance or other types of
financing.
NOTE 4, PER SHARE DATA
Per share data was computed by dividing net loss by the weighted
average number of shares outstanding during the period.
NOTE 5, REVENUE
For financial reporting purposes, the Company reports revenues from
sales as product is shipped and invoiced.
NOTE 6, LINE OF CREDIT AGREEMENT
On May 1, 2001 the company renegotiated its line of credit agreement
with the bank to extend the expiration date of its line of up to
$750,000 to October 31, 2001. The line of credit agreement is
collateralized by all inventory, accounts receivable, equipment and
instruments. The bank has a general lien on all corporate assets.
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NOTE 7, ISSUANCE OF STOCK OPTIONS
On March 23, 2001, the Company granted 180,000 stock options at an
exercise price of $2.00. Since the weighted average price per share was
$1.83, the Company is not required to recognize compensation expense.
NOTE 8, DEBT RESTRUCTURING
On March 15, 2001, the Company settled a loan payable to a Stockholder
in the amount of $100,000, plus interest thereon, and the option to
purchase 75,000 shares of common stock for 125,000 shares of common
stock. The Company accounted for this transaction as a capital
transaction between related parties during the first quarter of 2001.
The difference of $130,000 between the fair value of the equity
interest and the carrying amount of the payable was recognized as a
loss by the Company and is included in selling, general and
administrative expenses.
NOTE 9, FILING OF FORM 10-KSB FOR FISCAL YEAR 2001-APRIL 2002
In conjunction with the Company's filing of its Form 10-KSB for the
year ended December 31, 2001 with the United States Securities and
Exchange Commission (the "SEC") on or about April 1, 2002, certain
modifications were made to previously filed financial statements for
2000 and the first, second and third quarters of 2001. Such
modifications related primarily to the valuation of the Performance
Control acquisition, the valuation of the repriced options, the value
of options issued during the periods and settlement of a loan payable
for common stock.
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Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion is designed to provide a review of the financial
condition and results of operations of Power Efficiency Corporation (the
"Company"). This discussion should be read in conjunction with the financial
statements related notes.
Forward-Looking Statements
This discussion and analysis of financial condition and results of operations,
and other sections of this report, contain forward-looking statements that are
based on management's beliefs, assumptions, current expectations, estimates and
projections about the industrial and commercial motor industry, the economy, and
about the Company itself. Words such as "anticipates," "believes," "estimates,"
"judgment," "expects," "forecasts," "intends," "is likely," "plans," "predicts,"
"projects," variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions
("Risk Factors") that are difficult to predict with regard to timing, extent,
likelihood and degree of occurrence. Therefore, actual results and outcomes may
materially differ from what may be expressed, implied or forecasted in such
forward-looking statements.
Risk Factors include, but are not limited to, demand for products and services;
the degree of competition by competitors; changes in tax laws; changes in
prices, levies and assessments; the impact of technological advances and issues;
governmental and regulatory policy changes; the outcomes of pending and future
litigation and contingencies; trends in customer behavior; the ability to raise
capital and maintain financing sources; development of the Company's products;
and changes in the national economy. In addition, recent events relating to the
terrorist attacks on September 11, 2001 and other terrorist activities have
created significant global economic and political uncertainties that may have
material and adverse effects on financial markets, the economy, and demand for
the Company's service and products. These are representative of the Risk Factors
that could cause a difference between an ultimate actual outcome and a preceding
forward-looking statement. The Company undertakes no obligation to update, amend
or clarify forward-looking statements, whether as a result of new information,
further events or otherwise.
The Registrant generates revenues from a single business segment, the design,
development, marketing and sale of proprietary solid state electrical components
designed to effectively reduce energy consumption in alternating current
induction motors.
The Registrant began generating revenues from sale of its patented Power
Commander line of motor controllers in 1995. As of December 31, 2000, the
Registrant had total stockholders equity of $2,330,431, primarily as a result of
the Registrant's August 7, 2000, purchase of the assets of Performance Control,
LLC ("PerCon"), the largest distributor of the Registrant's products. The
transaction was accounted for as a purchase and PerCon's Statement of Operations
is not included in the first quarter results comparison. The Registrant
relocated its principal offices and facilities to PerCon's facilities in Ann
Arbor, Michigan.
The consolidation of both entities allowed the Registrant to incorporate the
administrative, sales, marketing and manufacturing operations by PerCon. PerCon
had developed sales contacts with major OEM's in the elevator/escalator industry
and transferred those agreements. The fully integrated organization allowed the
Registrant to obtain a bank line of credit up to $750,000 for the build up in
inventory collateralized by the current inventory and account receivables. Also,
the recent Private Placement 506 offering had additional subscribers that
enabled the Registrant to address the consolidated Accounts Payable.
The first quarter of 2001 reflects the combined entities with respect to
operating expenses, research and development etc. The expected savings in
operating expenses, cost of goods will be reflected in year 2001.
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Results of Operation
Three Months Ended March 31,2001 Compared to Three Months Ended March 31, 2000
Revenues. Revenues for the three months ended March 31, 2001 was $155,050
compared to $782 of miscellaneous income for the prior comparable quarter, an
increase of $154,268. The increase in revenue was principally attributable to
the completion of performance testing by our clients and the conversion of the
test units into purchases.
Cost of revenues. Cost of revenues for the three months ended March 31, 2001 was
$79,307, or 51% of revenues. The increase in Cost of Revenues was due to the
increased volume in sales.
Research and development. Research and development expenses were $67,174, or 43%
of revenues, for the three months ended March 31, 2001 as compared to $500, or
64% of revenues, for the three months ended March 31, 2000 due to increased
research and development activity after the acquisition of PerCon.
Selling, general, manufacturing and administrative. Selling, general,
manufacturing and administrative expenses increased to $321,174, or 207% of
revenues, for the three months ended March 31, 2001 from $25,866, or 3,307% of
revenues, for the three months ended March 31, 2000. The increase in expenses
was primarily due to a loss of $130,000 recognized on a loan settlement with a
Stockholder, and increases in sales, marketing and administrative personnel from
two to eight. There was additional travel due to new customers in the
Asia-Pacific region and substantial administrative fees for professional
services due to the filing of the Form 10-SB.
As a result, the Company incurred a net loss of $385,000 during the three months
ended March 31, 2001, compared to a net loss of $32,168 during the three months
ended March 31, 2000.
Liquidity and Capital Resources
Since inception, the Registrant has financed its operations primarily through
the sale of equity securities and using bank borrowings. As of March 31, 2001,
the Registrant has received a total of approximately $1,829,261 from public and
private offerings of its equity securities and received approximately $372,887
under a bank line of credit. As of March 31, 2001, the Registrant had cash and
cash equivalents of $2,294.
Cash used in operating activities was for the three months ended March 31, 2001,
was $282,905 in 2001, and ($441) in 2000. Cash used in operating activities in
the three months ended March 31, 2001 reflected a net loss of $385,000. In 2000,
cash used in operating activities reflected a net loss of $32,168.
The Registrant expects to experience growth in its operating expenses,
particularly in research and development and selling, general and administrative
expenses, for the foreseeable future in order to execute its business strategy.
As a result, the Registrant anticipates that operating expenses, as well as
planned increases in inventory expenditures, will constitute a material use of
any cash resources.
Management believes that its existing cash and cash equivalents are insufficient
to meet the Registrant's anticipated cash needs for the next 6 months. Since
capital resources are insufficient to satisfy the Registrant's liquidity
requirements, Management intends to seek to sell additional equity securities or
debt securities or obtain debt financing. The Registrant has not made
arrangements to obtain additional financing and there is no assurance that
financing, if required, will be available in amounts or on terms acceptable to
Management, if at all.
The Company was not required to and did not engage an independent accountant to
review the quarterly financial statements for the year ended December 31, 2000.
As such, the financial information for the quarter ended March 31, 2000, which
is included with this filing, were not reviewed by an independent accountant.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved with certain claims and counterclaims related
to litigation for breach of contract arising out of the manufacture and assembly
of certain electronic component parts. The Company has accrued approximately
$21,300 at March 31, 2001 related to these claims. In the opinion of management,
after consultation with legal counsel, the outcome of such matter is not
expected to have a material adverse effect on the Company's financial position
or results of operations.
ITEM 2. CHANGES IN SECURITIES
In connection with a private placement memorandum dated May 16, 2000 the company
sold 225,000 shares of its common stock in 1st quarter 2001. The company also
issued 125,000 shares of common stock to cancel a note payable to a shareholder
in the amount of $100,000. The Company accounted for this transaction as a
capital transaction between related parties during the first quarter of 2001.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
ADDITION TO MANAGEMENT. On March 12, 2001 Douglas C. Finch was hired as
Vice-President of Operations. Mr. Finch was President of Plastigage Corporation,
a family-owned manufacturer of extruded and injection molded plastic automotive
components from 1999 to 2000. He spent five years with Enprotech a subsidiary of
Itochu Corporation involved in merger and acquisitions. He also spent two years
managing a subsidiary of high-speed electric motors and power electronics. Mr.
Finch received a BSc and Masters in Aeronautical Engineering from Massachusetts
Institute of Technology and an MBA in 1991 from Harvard Graduate School of
Business Administration. Mr. Finch has no beneficial ownership of common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K NONE
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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POWER EFFICIENCY CORPORATION
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Date: September 6, 2002 /s/ Raymond J. Skiptunis
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Raymond J. Skiptunis
President, Chief Executive Officer
And Chief Financial Officer
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