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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 JUNE 30, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FROM ___________ TO _________________
POWER EFFICIENCY CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 22-3337365
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4220 Varsity Drive, Suite E (734) 975-9111
Ann Arbor, MI 48108 (Issuer's Telephone Number,
(Address of Principal Executive Office) Including Area Code)
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 requirements for the past
90 days. Yes X No
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The number of shares outstanding of the Issuer's Common Stock, $.001 Par Value,
as of June 30, 2001 was 6,522,120.
Transitional Small Business Disclosure Format (check one): Yes No X
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POWER EFFICIENCY CORPORATION
FORM 10-QSB INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets as of September 30, 2001 and December 31,
2000 3
Condensed Statements of Operations for the three months ended
September 30, 2001 and 2000 and nine months ended September 30,
2001 and 2000 4
Condensed Statements of Cash Flows for the nine months ended
September 30, 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
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Default Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Power Efficiency Corporation
Condensed Balance Sheets
June 30, 2001 and December 31, 2000
(Unaudited) December 31,
June 30, 2001 2000
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Assets (Restated) (Restated)
Current Assets
Cash and Equivalents $ 84,511 $ 8,492
Accounts Receivable - Trade Net of Reserve of $5,000 198,638 114,166
Inventory 505,951 526,454
Prepaid Expenses 443 443
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Total Current Assets 789,543 649,555
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PROPERTY AND EQUIPMENT - Net 145,902 132,315
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OTHER ASSETS
Deposits 15,500 6,000
Patent Application Costs - Net 12,872 17,089
Deferred Financing Costs 43,555 51,936
Goodwill - Net 2,001,000 2,072,043
Customer Contracts and Literature 175,888 197,426
Website and Customer List - Net 96,177 119,260
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Total Other Assets 2,344,992 2,463,754
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Total Assets $ 3,280,437 $ 3,245,624
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Liabilities and Stockholders' (Deficit) Equity
Current Liabilities
Line of Credit Agreement $ 310,387 $ 277,887
Accounts Payable and Accrued Expenses 152,104 485,695
Accrued Salaries and Payroll Taxes 49,922 51,611
Stockholder Loan Payable -- 100,000
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Total Current Liabilities 512,413 915,193
Long Term Liabilities
Stockholder Note Payable (Subordinated) 300,000 --
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Total Liabilities 812,413 915,193
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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 authorized,
6,522,120 and 6,043,370 issued and outstanding in
2001 and 2000, respectively 6,523 6,043
Additional Paid-in Capital 8,866,559 7,950,094
Accumulated Deficit (6,405,058) (5,625,706)
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Total Stockholders' Equity 2,468,024 2,330,431
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Total Liabilities and Stockholders' Equity $ 3,280,437 $ 3,245,624
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See Notes to Condensed Financial Statements
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Power Efficiency Corporation
Condensed Statement of Operations
(Unaudited)
Three Months Ended Six Months Ended
June, 30, June, 30,
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2001 2000 2001 2000
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(Restated) (Restated)
REVENUES $ 212,408 $ -- $ 367,458 $ 782
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COSTS AND EXPENSES:
Cost of Sales 122,905 -- 202,211 --
Research and Development 61,600 -- 128,774 500
Selling, General, Administrative and
Manufacturing 350,060 16,495 671,235 42,361
Depreciation and Amortization 72,195 6,584 144,390 13,168
----------- ----------- ----------- -----------
Total Costs and Expenses 606,760 23,079 1,146,610 56,029
----------- ----------- ----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (394,352) (23,079) (779,152) (55,247)
PROVISON FOR INCOME TAXES
-- -- 200 --
----------- ----------- ----------- -----------
NET LOSS $ (394,352) $ (23,079) $ (779,352) (55,247)
----------- ----------- ----------- -----------
BASIC LOSS PER COMMON SHARE $ (0.06) $ (0.005) $ (0.12) $ (0.01)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,440,000 4,384,000 6,440,000 4,384,000
=========== =========== =========== ===========
See Notes to Condensed Financial Statements
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Power Efficiency Corporation
Condensed Statements of Cash Flows (Unaudited)
Six Months Ended Six Months Ended
June 30, 2001 June 30, 2000
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(Restated)
Cash Flow from Operating Activities
Net Loss $ (779,352) $ (55,447)
Adjustments to reconcile Net Cash:
used for operating activities:
Depreciation and amortization 144,390 13,168
Issuance of stock options 47,300
Debt Restructuring 130,000
Changes in certain assets and liabilities:
(Increase) decrease in:
Accounts Receivable (84,472) (43,916)
Deposits (9,500) 4,000
Inventory - Raw Materials/Finished Goods 20,503 28,679
Increase (decrease) in:
Accounts Payable and Accrued Expenses (335,279) (106,727)
Accrued salaries and payroll taxes 14,930
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Total Adjustments (87,058) (44,738)
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Net Cash Used for Operating Activities (866,410) (298,137)
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Cash Flow From Investing Activities
Equipment Purchases (29,716) --
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Cash Flow From Financing Activities
Notes Payable - stockholders 200,000 --
Proceeds from issuance of equity securities 754,645 350,152
Expenses associated with issuance of
equity securities (15,000) --
Line of credit agreement 32,500 --
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Net Cash Provided by Financing Activities 972,145 350,152
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Net Increase in Cash 76,019 $ 18,155
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Summary:
Cash Balance At End Of Period $ 84,511 $ 17,805
Cash Balance At Beginning Of Period 8,492 (350)
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Net Increase In Cash $ 76,019 $ 18,155
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Non- Cash Investing and Financing Activities
Common stock issued in connection with
extinguishment of stockholders note payable $ 230,000
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Common Stock issued in connection with
professional services rendered $ 30,000
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See Notes to Condensed Financial Statements
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POWER EFFICIENCY CORPORATION NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 June
30, 2001 balance sheet was derived from unaudited financial
statements, and does not include all disclosures required by generally
accepted accounting principles.
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 and six months ended June 30,
2001 are not necessarily indicative of the results to be expected for
the full year.
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.
4. PER SHARE DATA
Per share data was computed by dividing net loss by the weighted
average number of shares outstanding during the period.
5. LINE OF CREDIT AGREEMENT
On October 31, 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 January 31, 2002. All inventory, accounts
receivable, equipment and instruments collateralize the line of credit
agreement. The bank has a general lien on all corporate assets.
6. STOCKHOLDER LOAN
On May 24, 2001, the Company received a $300,000 loan from a
stockholder. On August 30, 2001 and September 12, 2001, the Company
received additional loans of $25,000 each from the same stockholder.
These loans are due on June 1, 2003 and are subordinated to Bank One.
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7. 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.
8. ISSUANCE OF STOCK OPTIONS
On May 23, 2001, the Company granted 10,000 stock options at an
exercise price of $2.00. Because the weighted average price per share
was $6.73 the Company recognized additional compensation expense of
$47,300. This additional compensation expense is included in selling,
general and administrative expenses.
9. AGREEMENT WITH A STRATEGIC ADVISOR
On May 23, 2001, the Company's board of directors ratified an
agreement with a strategic advisor, owned by a director of the
Company, to provide strategic direction and operational strategies to
the Company. The initial term of this agreement is one year (January 1
to December 31, 2001) and it shall automatically renew for successive
thirty-six month periods. The agreement may be terminated by either
party giving notice of termination at least 180 days prior to its
conclusion. The strategic advisor receives $500 per month, plus
expenses, until the Company raises $1.0 million or more in investments
at which time the monthly compensation shall increase to $4,500 per
month, plus expenses. The agreement also provides for the strategic
advisor to receive non-qualified stock options to purchase 50,000
shares of common stock at an exercise price of $2.00 per share each
year. These non-qualified stock options are exercisable at any time
during each year the agreement is in effect. The non-qualified stock
options were issued to the strategic advisor in 2002. No options were
issued to the strategic advisor under the agreement in 2001.
10. STOCKHOLDER'S EQUITY
On May 14, 2001, the Company sold 118,750 shares of common stock to an
accredited investor. The first 25,000 shares were sold for $100,000
and the remaining 93,750 shares were sold for $300,000.
On June 19, 2001, the Company issued 10,000 shares of common stock for
payment of services. The total fees that were set aside in exchange
for the stock were equal to $30,000.
11. 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 and 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
services 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, future events or otherwise.
Results of Operations
Revenues: Revenues for the three months ended June 30, 2001 were
$212,048 compared to none for the prior year comparable quarter, an
increase of $212,048. Revenues for the six months ended June 30,2001
were $367,458 compared to $782 for the six months ended June30, 2000,
an increase of $366,676. The increase in revenues was principally
attributable to the completion of performance testing by certain
customers and the conversion of the test units into purchases.
Cost of Revenues: Cost of revenues for the three months ended June 30,
2001 was $122,905, or 57.9% of revenues. Cost of revenues for the six
months ended June 30, 2001 was $202,211, or 55.0% of revenues.
Research and Development: Research and development expenses were
$61,600 or 29% of revenues, for the three months ended June 30, 2001,
as compared to none for the three months ended June 30, 2000. Research
and development expenses were $128,774, or 35.0% of revenues, as
compared to $500, or 64.0% of revenues, for the six months ended June
30, 2001 and June 30, 2000, respectively. The increase is due in part
to additional research and development activity after the acquisition
of Performance Control, L.L.C.
-8-
Selling, General, Administrative and Manufacturing: Selling, general,
administrative and manufacturing expenses increased to $350,060 or
164.8% of revenues, for the three months ended June 30, 2001, from
$16,495 for the three months ended June 30, 2000, and increased to
$671,235, or 182.7% of revenues, for the six months ended June 30,
2001 from $42,361, or 5,417% of revenues, for the six months ended
June 30, 2000. The increase in expenses was primarily due to the to an
increase in personnel required to adequately have sufficient sales and
manufacturing help.
The Company incurred a net loss of $394,352 during the three months
ended June 30, 2001, compared to a net loss of $23,079 during the
three months ended June 30, 2000. The Company incurred a net loss of
$779,352 during the six months ended June 30, 2001, compared to a net
loss of $55,247 during the six months ended June 30, 2000.
Financial Condition, Liquidity, and Capital Resources
Since inception, the Company has financed its operations primarily
through the sale of equity securities and using bank borrowings. As of
June 30, 2001, the Company has received a total of approximately
$2,250,000 from public and private offerings of its equity securities
and received approximately $310,387 under a bank line of credit. As of
June 30, 2001, the Company had cash and cash equivalents of $84,511.
Cash used in operating activities for the six months ended June 30,
2001, was $866,410. Cash used in operating activities for the six
months ended June 30, 2000 was $298,137. In addition, the Company
borrowed $300,000 from a stockholder. Cash used in operating
activities for the six months ended June 30, 2001 reflected a net loss
of $779,352 for the six months ended June 30, 2000, cash used in
operating activities reflected a net loss of $55,447.
The Company 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 Company 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 Company's anticipated cash needs for the next
6 months. Since capital resources are insufficient to satisfy the
Company's liquidity requirements, management intends to seek to sell
additional equity securities or debt securities or obtain debt
financing. The Company 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.
The Company was not required to and did not engage on independent
accountant to review the quarterly financial statements for the year
ended December 31, 2000. As such, the financial information for the
quarter and six months ended June 30, 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 through June 30, 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
On May 14, 2001, the Company sold 118,750 shares of common stock to an
accredited investor. The first 25,000 shares were sold for $100,000 and the
remaining 93,750 shares were sold for $300,000.
On June 19, 2001, the Company issued 10,000 shares of common stock for
payment of services. The total fees that were set aside in exchange for the
stock were equal to $30,000.
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
On July 1, 2001, the Company executed a three-year lease for office
space in New Hyde Park, New York. The annual payments under this lease are
approximately $61,000. The space is used by the Company to service the New York
metropolitan area, which contains the largest concentration of elevators in the
United States.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following documents are filed as exhibits to this
report on Form 10-QSB:
Exhibit No. Document
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3.1 Certificate of Incorporation. Previously filed as an
exhibit to the Company's Form 10-SB filed on October
20, 2000. Here incorporated by reference.
3.2 Bylaws. Previously filed as an exhibit to the
Company's Form 10-SB filed on October 20, 2000. Here
incorporated by reference.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter covered by this Form 10-QSB.
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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.
POWER EFFICIENCY CORPORATION
(Registrant)
Date: September 6, 2002 By: /s/ Raymond J. Skiptunis
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President, Chief Executive Officer and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Document
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3.1 Certificate of Incorporation. Previously filed as an exhibit
to the Company's Form 10-SB filed on October 20, 2000. Here
incorporated by reference.
3.2 Bylaws. Previously filed as an exhibit to the Company's Form
10-SB filed on October 20, 2000. Here incorporated by
reference.