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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 SEPTEMBER 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 September 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
PART I. FINANCIAL INFORMATION Page
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 Defaults upon Senior Securities 10
Item 4 Submission of Matters to Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
SIGNATURES 11
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Power Efficiency Corporation
Condensed Balance Sheets
September 30, 2001 and December 31, 2000
(Unaudited)
September 30, 2001 December 31, 2000
---------------------- -----------------------
Assets (Restated) (Restated)
Current Assets
Cash and Equivalents $ 14,549 $ 8,492
Accounts Receivable - Trade Net of Reserve of $5,000 240,551 114,166
Inventory 551,111 526,454
Prepaid Expenses 16,893 443
---------------------- -----------------------
Total Current Assets 823,104 649,555
---------------------- -----------------------
PROPERTY AND EQUIPMENT - Net 159,590 132,315
---------------------- -----------------------
OTHER ASSETS
Deposits 15,500 6,000
Patent Application Costs - Net 12,872 17,089
Deferred Financing Costs 38,427 51,936
Goodwill - Net 1,965,480 2,072,043
Customer Contracts and Literature 165,118 197,426
Website and Customer List - Net 84,636 119,260
---------------------- -----------------------
Total Other Assets 2,228,033 2,463,754
---------------------- -----------------------
Total Assets $ 3,264,727 $ 3,245,624
====================== =======================
Liabilities and Stockholders' (Deficit) Equity
Current Liabilities
Line of Credit Agreement $ 385,387 $ 277,887
Accounts Payable and Accrued Expenses 418,492 485,695
Accrued Salaries and Payroll Taxes 51,263 51,611
Stockholder Loan Payable -- 100,000
---------------------- -----------------------
Total Current Liabilities 855,142 915,193
Long Term Liabilities
Stockholder Note Payable (Subordinated) 350,000 --
---------------------- -----------------------
Total Liabilities 1,205,142 915,193
---------------------- -----------------------
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 6,522 6,043
Additional Paid-in Capital 8,866,559 7,950,094
Accumulated Deficit (6,813,496) (5,625,706)
---------------------- -----------------------
Total Stockholders' Equity 2,059,585 2,330,431
---------------------- -----------------------
Total Liabilities and Stockholders' Equity $ 3,264,727 $ 3,245,624
====================== =======================
See Notes to Condensed Financial Statements
-3-
Power Efficiency Corporation
Condensed Statement of Operations
(Unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
-------------------- --------------------- ----------------- ------------------
2001 2000 2001 2000
(Restated) (Restated)
-------------------- --------------------- ----------------- ------------------
REVENUES $ 309,122 $ 40,284 $ 676,580 $ 41,066
-------------------- --------------------- ----------------- ------------------
COSTS AND EXPENSES:
Cost of Sales 174,925 21,493 377,137 21,493
Research and Development 83,520 75,164 212,294 75,664
Selling, General, Administrative
and Manufacturing 382,836 3,746,327 1,054,071 3,788,788
Depreciation and Amortization 70,579 45,128 214,969 58,296
-------------------- --------------------- ------------------ -------------------
Total Costs and Expenses 711,860 3,888,112 1,858,470 3,944,241
-------------------- --------------------- ------------------ -------------------
LOSS BEFORE PROVISION FOR
INCOME TAXES (402,738) (3,847,828) (1,181,890) (3,903,175)
PROVISION FOR INCOME TAXES
5,700 200 5,900 200
-------------------- --------------------- ------------------ ------------------
NET LOSS
$ (408,438) $ (3,848,028) $ (1,187,790) $ (3,903,375)
-------------------- --------------------- ------------------ ------------------
BASIC LOSS PER COMMON
SHARE $ (0.06) $ (0.83) $ (0.18) $ (0.87)
==================== ===================== ================== ==================
AVERAGE COMMON
SHARES OUTSTANDING 6,522,000 4,634,000 6,470,000 4,467,000
==================== ===================== ================== ==================
See Notes to Condensed Financial Statements
-4-
Power Efficiency Corporation
Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended Nine Months Ended
September 30, 2001 September 30, 2000
---------------------------------- -----------------------------------
(Restated)
Cash Flow from Operating Activities
Net Loss $ (1,187,790) $ (3,903,375)
Adjustments to reconcile Net Cash:
Depreciation and Amortization 214,969 58,296
Additional paid in capital relating
to repricing and issuance of stock options -- 3,649,776
Issuance of Stock Options 47,300 --
Debt Restructuring
130,000 --
Changes in certain assets and liabilities:
(Increase) decrease in:
Accounts Receivable (126,385) (9,407)
Deposits (9,500) (2,000)
Inventory - Raw Materials/Finished Goods (24,657) (17,132)
Prepaid Expenses (16,450) (443)
Increase (decrease) in:
Accounts Payable and Accrued Expenses (67,550) (123,394)
------------- ------------
Total Adjustments 147,727 3,555,696
--------------- -------------------
Net Cash Used for Operating Activities (1,040,063) (347,679)
--------------- -------------------
Cash Flow From Investing Activities
Equipment Purchases (51,025) --
--------------- -------------------
Cash Flow From Financing Activities
Notes Payable - stockholders 250,000
Proceeds from issuance of Equity Securities 754,645 350,152
Line of credit agreement 107,500 15,682
Expenses associated with issuance of equity --
Securities (15,000)
--------------- -------------
Net Cash Provided by Financing Activities 1,097,145 365,834
------------------ ---------------------
Net Increase in Cash $ 6,057 $ 18,155
================== =====================
Summary:
Cash Balance At End Of Period $ 14,549 $ 17,805
Cash Balance At Beginning Of Period 8,492 (350)
------------------ ---------------------
Net Increase In Cash $ 6,057 $ 18,155
================== =====================
Non-Cash Investing and Financing Activities
Common stock issued March 15, 2001 in connection
with extinguishment of stockholder note payable
$ 230,000 $ --
================== =====================
Common stock issued June 19, 2001 in connection
with professional services rendered $ 30,000 $ --
================== =====================
Common stock issued August 7, 2000 in connection
with acquisition of certain assets and
liabilities of Performance Control, L.L.C. $ -- $ 2,669,388
================== =====================
See Notes to Condensed Financial Statements
-5-
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
September 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 nine months ended
September 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 issuances 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.
-6-
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. FILING OF SEC 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 Sates 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.
-7-
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 September 30, 2001 were
$309,122 compared to $40,284 for the prior year comparable quarter, an
increase of $268,838. Revenues for the nine months ended September 30,
2001 were $676,580 compared to $41,066 for the nine months ended
September 30, 2000, an increase of $635,514. 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
September 30, 2001 was $174,925, or 56.6% of revenues. Cost of
revenues for the nine months ended September 30, 2001 was $377,137, or
55.7% of revenues.
Research and Development: Research and development expenses were
$83,520, or 27% of revenues, for the three months ended September 30,
2001, as compared to $75,164, or 186.6% of revenues, for the three
months ended September 30, 2000. Research and development expenses
were $212,294, or 31.4% of revenues, as compared to $75,664, or 184.3%
of revenues, for the nine months ended September 30, 2001 and
September 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 decreased to $382,836, or
123.9% of revenues, for the three months ended September 30, 2001,
from $3,746,327 (including $3,649,776 due to repricing and issuance of
stock options), or 9,300% of revenues, for the three months ended
September 30, 2000, and decreased to $1,054,071, or 155.8% of
revenues, for the nine months ended September 30, 2001 from $3,788,788
(including $3,649,776 due to repricing and issuance of stock options)
or 9,226% of revenues, for the nine months ended September 30, 2000.
The decrease in expenses was primarily due to the repricing in the
issuance of stock options for the period ended September 30, 2000.
The Company incurred a net loss of $408,438 during the three months
ended September 30, 2001, compared to a net loss of $3,848,028 during
the three months ended September 30, 2000. The Company incurred a net
loss of $1,187,790 during the nine months ended September 30, 2001,
compared to a net loss of $3,903,375 during the nine months ended
September 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
September 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 $385,387 under a bank line of credit. As of
September 30, 2001, the Company had cash and cash equivalents of
$14,549.
Cash used in operating activities for the nine months ended September
30, 2001, was $1,040,063. Cash used in operating activities for the
nine months ended September 30, 2000 was $347,679. In addition, the
Company borrowed $350,000 from a stockholder. Cash used in operating
activities for the nine months ended September 30, 2001 reflected a
net loss of $1,187,790. For the nine months ended September 30, 2000,
cash used in operating activities reflected a net loss of $3,903,375.
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.
-9-
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 September 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
Not applicable
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
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.
-10-
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 /s/ Raymond J. Skiptunis
---------------------------------------
By: Raymond J. Skiptunis
President; Chief Executive Officer and
Chief Financial Officer
-11-
EXHIBIT INDEX
Exhibit No. Document
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.