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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1995
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-27510
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TMCI ELECTRONICS, INC.
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(Name of small business issuer in its charter)
DELAWARE 77-0413814
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1875 DOBBIN DRIVE, SAN JOSE CA 95133
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (408) 272-5700
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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- ------------------------------- ---------------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
UNITS
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(Title of Class)
COMMON STOCK
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(Title of Class)
CLASS OF WARRANTS
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes / / No /X/
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /X/
State issuer's revenues for its most recent fiscal year. $28,098,919
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State the aggregate market value of the voting stock held by
non-affiliates computed by such reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a specified date
within the past 60 days. (See definition of affiliate in Rule 12b-2 of the
Exchange Act): $18,783,500 AS OF MAY 15, 1996
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Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if assumptions are stated.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes / / No / /
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each issuer's classes of
common equity, as of the latest practicable date. 3,365,600 as of May 15, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10- KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The list documents should be clearly described for identification purposes
(e.g., annual report to security holders for fiscal year ended December 24,
1990).
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
<PAGE> 3
PART I
This Form 10-KSB contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results and the timing of
certain events could differ materially from those projected in the
forward-looking statements as a result of difficulties in product development,
sales, competition, changes in the economy and other unforeseen events. In the
event that this annual report is used in connection with an investment in TMCI
Electronics, Inc., prospective investors should carefully consider the
possibility that forward-looking statements discussed herein may differ
materially from the actual operating results.
ITEM 1. BUSINESS
OVERVIEW
TMCI Electronics, Inc. (the "Company") was incorporated in the State of
Delaware on December 7, 1995 for the purpose of acquiring the businesses of
Touche Manufacturing, Inc. ("Touche") and Touche Electronics, Inc. ("TEI"). The
principal executive offices of the Company, Touche and TEI are located in San
Jose, California. Touche and TEI were principally owned by Rolando Loera, the
President and Chief Executive Officer of the Company. The Company acquired all
of the issued and outstanding shares of common stock of Touche and TEI on March
11, 1996 from Mr. Loera and all of the minority shareholders of Touche and TEI
pursuant to the terms of certain Stock Purchase Agreements dated December 28,
1995 (the "Stock Purchase Agreements").
Following the exchange of common stock of Touche and TEI contemplated
by the Stock Purchase Agreements, the Company's business became that of Touche
and TEI. The Company now derives its revenues from the operation of Touche and
TEI as its wholly owned subsidiaries.
Touche and TEI provide custom manufacturing and value-added services,
respectively, to original equipment manufacturers ("OEMs"). Their customers are
concentrated into four (4) different segments of the Information Technology
Industry and include manufacturers of mini, mainframe, micro and personal
computers, telecommunications equipment, semiconductor manufacturing test
equipment and medical test equipment. Touche and TEI do not manufacture or
produce any products that are sold to customers from inventory; all of their
products are manufactured to customer specifications and all value-added
services are performed to the specifications of the customer.
TOUCHE MANUFACTURING COMPANY, INC.
Touche manufactures custom designed fabricated metal cabinets or
enclosures for OEMs that produce computers, telecommunications equipment,
semiconductor manufacturing test equipment and medical test equipment. These
products are used by the OEMs to house various types of electronic components.
Touche is a full service manufacturing facility for such products. As such,
Touche's engineering and design personnel work closely with each customer to
design and build an initial prototype of the specified cabinet or enclosure.
Based upon the actual production of the prototype, its design and specifications
are reviewed and a cost effective manufacturing process is developed. All of the
various manufacturing processes, which include metal shearing, punching, bending
and welding, as well as machining, detailing, zinc plating, painting and final
assembly are provided in-house by Touche. All of the raw materials used to
manufacture these products are readily available from numerous suppliers at
competitive prices. By controlling the various manufacturing processes in-house,
Touche is able to provide its customers custom manufactured metal cabinets or
enclosures in a timely, efficient and cost-effective manner. The full service
manufacturing capability enables Touche to derive a competitive advantage over
manufacturers that have to sub-contract for one or more of the various
manufacturing processes. All of Touche's products are manufactured to specific
customer requirements pursuant to contracts or purchase orders with the
respective customers. Approximately 75% of Touche's manufacturing is performed
on a mass production basis for metal cabinets or enclosures, while the remaining
25% is in developing prototype products for future development by its customers.
TOUCHE ELECTRONICS, INC.
In late 1992, a number of Touche's customers expressed an interest in
identifying methods of reducing their own manufacturing costs. This desire led
the management of Touche to examine its existing manufacturing capabilities and
to consider other types of services that could be offered to its customers in
conjunction with its manufacturing of custom designed fabricated
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metal cabinets or enclosures. Accordingly, in early 1993 TEI was formed as a
sister company to Touche. TEI provides value-added turnkey services to many of
Touche's OEM customers. Today, these services are primarily the installation of
cable and harness assemblies into the products manufactured by Touche and also
into enclosure products manufactured by other local enclosure manufacturers that
do not have the in-house capability to provide such services. All of TEI's
value-added turnkey services are provided pursuant to contracts or purchase
orders with its customers.
The custom manufacturing of fabricated metal cabinets or enclosures
combined with the capability to provide cable and harness assembly services
enables Touche and TEI to attract and retain customer business that they may not
have otherwise obtained, thereby enhancing their competitive position in the
marketplace.
CUSTOMER PRODUCT SERVICES
Touche and TEI work with their respective customers in designing and
engineering products and in helping to develop prototypes for such products
before production manufacturing. The following processes are involved in
providing these services: shearing, bending, sheet metal, welding, machining,
detailing, zinc plating, painting and assembly. These services are currently
provided to a wide range of computer manufacturing companies, telecommunications
equipment manufacturing companies, semiconductor test equipment manufacturing
companies and medical test equipment manufacturing companies throughout the
Silicon Valley area.
The business of Touche and TEI, in providing customers with custom
designed and manufactured products or services, comprises four major market
areas:
Computer Systems. Touche and TEI manufacturing and assembly businesses
provide a full complement of manufacturing capabilities for mini and mainframe
computers, microcomputers and personal computers. Even though this segment of
the information technology industry is being reshaped by evolutionary changes in
semiconductor design and memory capacity, the Company intends to increase its
marketing efforts in these areas. However, the Company's principal focus will
remain in commercial markets.
Telecommunications Equipment. The changes in the basic structure of the
telecommunications segment of the information technology industry is reflected
in the recently adopted legislation that allows for wireless communications and
cable operators to offer telephone service over coaxial connections to the home.
The information superhighway is expected to provide new avenues into the home.
The use of coaxial cable and fiber optics will give companies the bandwidth
necessary to deliver hundreds of channels of voice, data, and video services.
Based on the changing conditions within the industry, telecommunications
equipment is forecast to continue to grow at an above average annual rate.
Touche and TEI believe that, with their present and future manufacturing and
service capabilities, they are well positioned to take on the competitive
challenges of this growing industry. Penetration of this market segment is
considered a more long term goal for the Company. Marketing activities in this
segment are directly in line with the Company's current development of
manufacturing facilities for the production of specific types of wire and cable
that is used in the computer systems segment of the information technology
industry.
Test Equipment. Touche and TEI intend to market their product
manufacturing and service capabilities in test equipment market areas. The
Company's target customers are principally large and medium-sized corporations
that specialize in the design and development of scientific measurement and
production devices that may be used by major producers in the semiconductor
industry who design and manufacture wafers that produce computer chips and the
like. The Company will continue to explore and expand new opportunities with its
customer base and look to refine the diversification of its production
capabilities in designing and manufacturing products within this market segment
as well as others.
Medical Equipment. Touche and TEI intend to continue marketing their
manufacturing and cable harness assembly services, respectively, to existing and
prospective OEMs of medical equipment. The Company targets customers with strong
track records in the design, development and production of sophisticated medical
diagnostic and analysis equipment, such as MRI equipment, which is used in
hospital and medical clinics by medical doctors to assist in their diagnoses of
otherwise very serious and complicated patient medical problems. The Company
believes that this segment of the information technology industry will grow,
offering increased opportunities to companies like Touche and TEI which are
positioned to provide cost-effective manufacturing services at competitive
prices.
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MAJOR CUSTOMERS
Touche and TEI's customers include various information technology
industry related companies, such as Hewlett Packard Company, Lam Research
Corporation, Tandem Computers Incorporated, Applied Materials, Inc., KLA
Instruments Corporation, Varian Associates, Inc. and Teradyne, Inc. For the year
ended December 31, 1995, revenues derived from three customers (Lam Research
Corporation, Tandem Computers Incorporated and Hewlett Packard Company) amounted
to approximately 33%, 18% and 19%, respectively, of total revenue, excluding
intercompany sales. For the year ended December 31, 1994, revenue from three
customers amounted to 29%, 26% and 13%, respectively, of total revenue,
excluding intercompany sales. For the year ended December 31, 1993, revenue from
these three customers amounted to approximately 23%, 22% and 8% of total
revenue, excluding intercompany sales. As the sales arrangements with these
customers are terminable upon short notice, the loss of any of them would have a
material adverse impact on the Company's revenues and profits, given the
significant percentage of revenues derived from these customers. The Company
believes, however, that the expansion of services offered to these customers
through the Company's vertical expansion will contribute toward the on-going
relationship with these customers.
MANUFACTURING
Touche and TEI's engineering, production and assembly facilities have
adequate space for their current operations, and also for the planned
implementation of clean room assembly, wire cable harness manufacturing and
metal stamping, and are capable of fabricating and assembling computers,
telecommunications equipment, semiconductor manufacturing test equipment and
medical test equipment. Touche and TEI maintain a comprehensive manufacturing,
assembly and quality control inspection program to ensure that all products meet
exacting customer requirements for performance and quality workmanship prior to
delivery. Touche and TEI are in the business of fabricating custom-designed
metal enclosures. This product and service cannot be homogenized into one
operation or manufacturing approach for its entire production line. With each
custom order received from a customer comes a different list of requirements for
manufacturing design, process and finish. In addition, the manufacturing
environment allows for the manufacture of both prototype and production of the
various types of customer products. To support its operations, Touche and TEI
have purchased a wide variety of sophisticated automated machinery and shop
equipment, components, tools and supplies from proven outside vendors,
distributors and service organizations.
MARKETING AND SALES
Touche and TEI's marketing strategy focuses on developing long-term
relationships with producers of computers, telecommunication equipment,
semiconductor manufacturing test equipment and medical test equipment. Touche
and TEI's customer base consists of manufacturers of computers, medical
equipment and test equipment markets and Touche and TEI intend to expand over
the next few years this customer base to include a greater number of
manufacturers of telecommunications equipment. Telecommunications equipment
sales is an area in which little has been done to penetrate the market on the
local level. However, the Company's marketing efforts will continue to reflect
the evolution of the principal industry segments of the information technology
industry.
Touche and TEI will continue to focus and concentrate on major existing
customers and to pursue new business from other potential customers in evolving
segments of the information technology industry. The ability of the Company to
maintain its relationships with its major existing customers shall remain a
significant factor in determining the future growth of the Company. The Company
intends to achieve growth through competitive pricing strategies, expansion of
existing turnkey capabilities and more aggressive direct sales efforts. As a
result of the limited and focused target market, Touche and TEI's marketing
efforts will rely primarily on direct sales efforts, which will emphasize the
Company's design-engineering and quality control manufacturing capabilities.
Touche and TEI's sales activities are handled by a combination of
direct sales personnel and limited use of independent sales representatives, who
may also sell products of the Company's competitors. Because of the complexity
and analysis involved in the customer's design and purchase decision, management
emphasizes active interaction between the direct sales staff, its independent
sales representatives and the buyer or engineer throughout the selling process.
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SOURCES OF SUPPLY, MAJOR SUPPLIERS AND BACKLOG
The largest suppliers of Touche and TEI are Pen Interconnect Systems
and Lassen Electronics, Inc. Purchases from these vendors accounted for
approximately 9% and 8.8%, respectively, of the combined purchases of Touche and
TEI in fiscal 1995.
The raw materials, such as sheet metal, metal frames and other
electrical wire or cable components used in the development and manufacture of
Touche and TEI's customer products, are generally available from domestic
suppliers at competitive prices; fabrication of certain major components may be
subcontracted for on an as-needed basis. With the exception of other material
requirements, sheet metal may be purchased on an as-needed basis under a
consignment arrangement with suppliers. Touche and TEI do not have any long term
contracts for new materials. Touche and TEI have not experienced any significant
difficulty in obtaining adequate supplies to perform under their respective
contracts.
Touche and TEI have established operating policies that require the
development and maintenance of a second vendor source for purchasing materials
and supplies that are needed to perform under contract for their customers. This
purchasing requirement focuses on the prevention of potential problems that
might otherwise originate from a single supplier's financial condition. Such
policies allow greater flexibility in keeping purchasing costs down and greater
assurance that raw material is available in order to meet customer contract and
delivery requirements.
At December 31, 1995, Touche and TEI's combined backlog was
approximately $8 million. Touche and TEI do not believe that their combined
rolling backlog at any particular time is necessarily indicative of their future
business or performance.
CUSTOMER SERVICE AND SUPPORT
Touche and TEI handle all customer service-related inquiries or
complaints through the sales staff who have been assigned to handle and manage
account relationships. This requirement enables the salesperson to monitor and
control the quality of production during the entire manufacturing process, which
is designed to help prevent production problems before shipment is made to
customers. Such efforts are supported by Touche and TEI's engineering
departments which are directly involved in the development process of the
products.
To ensure that adequate support is given to customers, each salesperson
has formal sales training augmented by direct participation in the manufacturing
process at Touche and TEI's facility and also in the installation and acceptance
tests at the customer's facility.
PATENT, TRADEMARK, COPYRIGHT AND PROPRIETARY RIGHTS
The Company does not have any patent or copyright applications pending,
because the Company does not offer or provide any original design work that is
not otherwise proprietary to the product design-engineering of their customers.
The Company owns common law trademark rights to its "Touche" trademark and
servicemark.
COMPETITION
The information technology industry (computers, telecommunications
equipment, semiconductor manufacturing test equipment and medical test
equipment) is highly competitive, involves rapid technological change and is
characterized by substantial competition. Touche and TEI's competitors range
from small firms to mid-sized local companies. Competition is generally based on
several factors, including quality of work, reputation, price and marketing
approach. Touche and TEI are established in the industry and maintain a strong
competitive presence by delivering high-quality work in a timely fashion within
the customer's budget constraints.
Touche and TEI offer full-service facility capabilities to customers,
which includes the capability of taking the development of an enclosure from
conception, to design, to prototype, to full fabrication of the finished
product. This process offers better control over quality, turnaround time and
delivery. This process also enables Touche and TEI to price their products based
on marketing its services as a full-service facility compared to competitors who
may offer the same services, but at different locations that may be less
efficient and less cost-effective to a customer.
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Because of the continuing change by OEMs from manufacturers to
design-engineering and marketing organizations, companies like Touche and TEI
are receiving a much greater share of the overall manufacturing task of products
that are designed for manufacture by their customers. The process itself removes
more and more of the subcontracting and replaces it with a prime contractor
status gradually eliminating the need for submitting joint subcontracting work
proposals. By the Company reducing the number of subcontractors, the customers
benefit from the reduction in the turnaround time and the maintenance of more
efficient and quality based manufacturers. The creation and maintenance of a
"one-stop shop" manufacturing environment is believed to be advantageous to
Touche and TEI's success as an effective competitor in the industry.
NEW PRODUCT SERVICE LINES OF BUSINESS
To continue to respond to their customers' needs and to strengthen and
diversify their competitive position in the marketplace, Touche and TEI intend
to introduce the additional services listed below. Neither Touche nor TEI has
derived any revenues to date from these services.
Clean Room Assembly. This new service is designed to generate
additional business from existing customers that have asked TEI to provide clean
room assembly capabilities for certain specialized products. These customers
include OEMs as well as other local enclosure manufacturers that are currently
customers of TEI. This service is directly linked to the value-added services
currently provided by TEI. The implementation of this service is not expected to
be a significant cost to TEI and is being funded out of its current cash flow.
Additional space will not be required for this service and TEI expects that it
will hire one or two additional employees that are experienced in clean room
assembly.
Wire and Cable Manufacturing. The wire cable and harness manufacturing
capability is intended to be achieved through the development of in-house
capacity and/or the acquisition of an existing company that produces basic cable
products, coaxial and antenna lead-in wire, hookup wire and mullet-conductor
cable. The Company has not entered into any negotiations to acquire any such
company and it is not anticipated that the development of such capability
in-house would require any significant expenditure of the Company's resources.
Space is currently available to continue the development of these manufacturing
processes; however, TEI will be required to hire additional employees that are
experienced in wire cable harness manufacturing. TEI will expand its
manufacturing capability of wire cable and harness assemblies as customer
demands dictate. This manufacturing process is directly linked to the types of
manufacturing currently provided by Touche.
Metal Stamping. The introduction of this manufacturing process will be
achieved through the acquisition of an existing company that engages in job
stamping, metal stamping or other stamped and pressed metal end products or
through the development of in-house capacity if such manufacturing processes are
needed by its customers. The Company has not entered into any negotiations to
acquire any such company and it is not anticipated that the development of such
capability in-house would require any significant expenditure of the Company's
resources.
GOVERNMENT REGULATION
Substantial environmental laws have been enacted in the United States
and California in response to public concern over environmental deterioration.
These laws and the implementing regulations affect nearly every activity of
Touche and TEI. The principal federal and state legislation which has the most
significant effect on the Company's business includes the following: The
Comprehensive Environmental Response, Compensation and Liability Act; The
Resource Conservation and Recovery Act; The Clean Air Act; The Safe Drinking
Water Act; The Emergency Planning and Community Right-to-Know Act; The Clean
Water Act; and The Toxic Substance Control Act. Failure by the Company, Touche
or TEI to comply with applicable federal and state environmental regulations
could result in the Company incurring substantial fines and penalties and/or
having restraining orders issued against it.
EMPLOYEES
As of December 31, 1995, Touche and TEI employed approximately 335
persons, including the officers of the Company, all of whom are full-time
employees and none of whom are subject to collective bargaining agreements. Of
these full-time employees, 35 are engaged in administration and finance, 280 in
manufacturing, engineering and production, 7 in marketing and sales and 11 in
operations and development. Many of Touche and TEI's employees have overlapping
responsibilities in these job descriptions.
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The Company believes that its combined future success will depend in
large measure upon the continued ability of Touche and TEI to recruit and retain
technical personnel. Competition for qualified technical personnel is
significant, particularly in the geographic area in which the Company, Touche
and TEI are located. Touche and TEI have never experienced a work stoppage. The
Company, Touche and TEI believe that their relationships with their employees
are good.
ITEM 2. DESCRIPTION OF PROPERTY
Touche leases approximately 145,000 square feet of factory
manufacturing space in two adjacent buildings which are equipped with
state-of-the-art metal fabrication equipment. Touche leases approximately
123,000 square feet at 1875 Dobbin Drive, San Jose, California 95133, which
consists of 113,000 square feet in manufacturing space and approximately 10,000
square feet of office space. The 1875 Dobbin Drive lease term commenced on
January 1, 1993 and ends on April 20, 2013. In addition, TEI leases
approximately 78,000 square feet of manufacturing space at 1881-1899 Dobbin
Drive, San Jose, California 95133. The 1881-1889 Dobbin Drive lease term
commenced on November 1, 1993 and ends on November 30, 2013. Touche leases
approximately 22,000 square feet of manufacturing space at 1565-C Mabury Road,
San Jose, California 95133. The 1565-C Mabury Road lease term commenced on July
1, 1995 and expires on August 31, 1998. All lease agreements are negotiated on a
triple net basis with landlords.
ITEM 3. LEGAL PROCEEDINGS
None of the Company, Touche or TEI is a party to any material legal
proceedings and, to the best of the Company's information, knowledge and belief,
none is contemplated or has been threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company received unanimous approval from its shareholders by
written consent for its 1995 Stock Option Plan (the "Plan") on December 22,
1995. The Plan provides for up to 500,000 shares of Common Stock of the Company
to be issued pursuant to stock options or restricted stock grants. The Plan also
permits stock appreciation rights to be issued in tandem with stock options.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System for Mid/small cap issuers.
Quotation began on March 6, 1996. On March 29, 1996, the bid price for the
Company's Common Stock was $8.375 and the ask price was $9.00. There are
approximately ten holders of record of the Company's Common Stock as of May 23,
1996. The Company has not paid any dividends on its Common Stock in the past two
years.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Effective March 11, 1996, the Company acquired Touche and TEI pursuant
to certain Stock Purchase Agreements executed on December 28, 1995. Prior to
that time, the Company's operations consisted of forming the Company, preparing
for the acquisition of Touche and TEI, as well as preparing for the initial
public offering of its securities discussed below.
PLAN OF OPERATIONS
The Company intends to continue the operation of Touche and TEI and to
introduce new competitive products and services for its existing and prospective
customers. These products and services, which include Clean Room Assembly, Metal
Stamping, and Wire Cable and Harness Assemblies Manufacturing, will be developed
in-house or through the acquisition of an existing company or companies. To
date, the Company has not entered into any negotiations to acquire any such
company. The Company continues to develop these new products and services
in-house. In the event that a suitable acquisition candidate is identified and a
transaction is successfully negotiated, management believes that the Company's
available working capital combined with appropriate bank financing will be
sufficient to fund the cash portion of any such acquisition.
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RESULTS OF OPERATIONS
The Results of Operations discussion utilizes the combined results from
the operating subsidiaries (Touche and TEI) prior to their acquisition by the
Company eliminating intercompany transactions as represented by the Pro Forma
Combined Financial Statements. The Capital Resources and Liquidity section and
the Inflation section relates to the Company with its wholly-owned subsidiaries.
TOUCHE MANUFACTURING COMPANY, INC. AND TOUCHE ELECTRONICS, INC.
The following table sets forth the combined statements of operations of
Touche and TEI for the periods indicated:
Combined Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
------------ ------------
<S> <C> <C>
Sales (1) $ 28,089,919 $ 20,869,434
Cost of goods sold (1) 19,991,649 14,950,750
------------ ------------
Gross Profit 8,107,270 5,918,684
Operating expenses 6,384,946 4,938,454
------------ ------------
Income from Operations 1,722,324 980,230
------------ ------------
Other Income 40,394 109,865
Interest Income 39,002 35,002
Interest expense (615,881) (602,733)
Non Cash Finance Charge (287,878) -0-
Gain on Sale of Equipment 109,655 835
------------ ------------
Total Other Expense (714,708) 457,011)
------------ ------------
Income before provision for
income taxes 1,007,616 523,219
Pro forma provision for income taxes 509,100 209,288
------------ ------------
$ 498,516 $ 313,931
============ ============
</TABLE>
(1) Net of intercompany sales and cost of goods sold as follows:
<TABLE>
<S> <C>
December 31, 1995 $4,649,012
December 31, 1994 $1,951,788
</TABLE>
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Fiscal 1995 Compared to Fiscal 1994
Revenue increased by $7,228,985 to $28,098,919 from $20,869,934 or
approximately 35% for the fiscal year ended December 31, 1995, as compared with
the fiscal year ended December 31, 1994. This increase reflects the continuing
change in the operating philosophy of the OEMs serviced by Touche and TEI. Such
OEMs continue to focus their resources on the design-engineering and marketing
aspects of their businesses, directing more of the manufacturing activities to
specialized full service contract manufacturers like Touche and TEI. This trend
has resulted in an increase in the number and dollar amount of contracts started
in 1995 as compared to 1994. The Company also believes that the increase in the
number of contracts started in 1994 is a result of the strength of the economy,
the growth of the information technology industry in the areas of both voice and
data, and the diversification of manufacturing processes offered by its
subsidiaries. There can be no assurance that the economy will continue to be
strong or that OEMs will continue to increase their out-sourcing of
manufacturing activities to specialized firms such as the Company.
The growth in the information technology industry has placed greater
demand on the products produced by the customers of Touche and TEI. In turn,
such growth has placed greater demand on the enclosure manufacturing, value
added assembly, and cable and harness installation services provided by the
Company. Furthermore, the diversification of manufacturing processes, through
the vertical integration into these value-added assembly and cable and harness
installation elements of the business, has provided the Company with growth
opportunities which were not previously available.
Inasmuch as the Company's three largest customers accounted for
approximately 70% of revenues for the fiscal year ended December 31, 1995, with
the largest accounting for 33% of such revenues, the disruption or loss of any
one of these three customers could have a material adverse impact on the total
revenues of the Company. The expansion of services offered by the Company,
however, in the view of management will contribute to the expansion of the
Company's customer base and toward the strengthening of the on-going
relationship with the Company's major customers.
Gross profit increased by $2,188,586 or approximately 37% to $8,107,270
from $5,918,684 for the fiscal year ended December 31, 1995, as compared with
the fiscal year ended December 31, 1994. In addition, gross profit as a
percentage of revenue has increased from approximately 28% in fiscal 1994 period
to approximately 29% in fiscal 1995. The increase in gross profit is due
primarily to decreases in labor and subcontracting costs and the significant
increases in Touche and TEI's contract revenue, which was more than sufficient
to offset an approximate 56% increase in the cost of materials and supplies
during the period. The Company's gross profit margins may be materially impacted
by the diversity of its operations which are constantly improved in order to
meet the growing demands of the competitive market bidding processes with its
customers. For instance, the Company's planned expansion into the manufacture of
wire cable and harness assemblies is expected to improve the profitability of
TEI by virtue of its ability to produce wire cable and harness assemblies at a
cost below the cost of purchase from another manufacturer. The Company's planned
expansion into clean room assembly and metal stamping are each expected to
improve profits incrementally. The Company's gross profit margins also may be
materially impacted by the pricing of product services which is directly
affected by increases in direct labor and material costs.
As a contract manufacturer, the Company's production capabilities are
limited to providing services for products that are designed and marketed by
OEMs, with the type and quantity of such product services being driven by the
greater need for such products by the business community and personal end-user.
The Company's competitive environment is very sensitive to diversity of its
services and operations which tend to drive prices down because of higher levels
of customer concentration, thus, making it less competitive and more of a
captive customer.
Operating expenses increased $1,446,492 or approximately 29% to
$6,384,946 from $4,938,454 in 1995 as compared to 1996. This increase was
primarily due to the increase in the number of contracts in 1995 as compared to
1994.
Net income after taxes increased by $184,585 or approximately 59% to
$498,516 from $313,931 in 1995 as compared to 1994. This increase was primarily
due to increased contract revenue.
8
<PAGE> 11
CAPITAL RESOURCES AND LIQUIDITY
Cash balances at December 31, 1994 and December 31, 1995 were
approximately $22,000 and $702,000 respectively. Historically, the impact of
Touche and TEI's rapid growth and under-capitalization have precluded the
generation of consistent maintenance of adequate cash flows from operations.
In November 1995, the Company borrowed $1,000,000 from four bridge
investors (the "Bridge Financing"). The Company issued four promissory notes
(the "Notes") aggregating $1,000,000 in principal amount and bearing interest at
8% per annum. In connection with the Bridge Financing, the Company also agreed
to issue to such investors 200,000 bridge units, each consisting of two (2)
shares of Common Stock, and six (6) Class A Warrants. The Company repaid the
Notes with the proceeds of the public offering discussed below. In connection
with the Bridge Financing, the Company incurred approximately $750,000 in non
cash financing charges and is amortizing these charges over the life of the
Notes. For 1995, the Company incurred a non-cash financing charge of $287,878.
On March 11, 1996, the Company closed an initial public offering of its
securities resulting in net proceeds to the Company of approximately $5,800,000.
The Company sold 1,472,000 units (the "Units") consisting of one share of Common
Stock, $0.001 par value per share and one redeemable Class A Warrant at a price
of $5.00 per Unit. Each Class A Warrant entitles the holder to purchase one
share of Common Stock at a price of $5.50 per share for a period of four years
beginning March 5, 1997. The Company may redeem the Class A Warrants any time
after March 5, 1997, upon thirty days written notice, if the average closing
price or bid price of the Common Stock, as reported by the principal market on
which the Common Stock is quoted or traded, equals or exceeds $8.75 per share,
for any 20 consecutive trading days ending within five days prior to the date of
the notice of redemption. The Company used some of the proceeds from the
offering to repay the bridge notes and other debt and applied the remainder of
the proceeds to working capital.
The Company continues to maintain a combined short-term line of credit
with a financial institution which permits it to borrow up to 80% of eligible
accounts receivable as defined in the line of credit agreement up to $3,867,000.
Interest on the line of credit is prime plus 3.5%. As of December 31, 1995, the
Company owed $1,700,279 for sums borrowed pursuant to the line of credit at an
interest rate of 12%. In March 1996, the Company arranged for a new line of
credit with Manufacturer's Bank at a lower interest rate and repaid the funds
due from the previous line of credit.
Touche and TEI are also dependent upon trade terms for material,
supplies and subcontract work.
The existing and past operations of the Company, Touche and TEI as
wholly-owned subsidiaries do not require a significant investment in property
and plant. Future capital expenditures will consist of hardware and software,
office equipment and furniture and will be financed through cash from
operations. The Company has committed to capital expenditures of approximately
$450,000 in 1996 and expects to finance these expenditures through line of
credit financing.
Touche and TEI expect that their fiscal 1996 cash requirements will be
covered by cash from operations, the line of credit and the proceeds of the
public offering. In the event that the Company determines to expand into one or
more new lines of business by means of an acquisition, the Company may require
additional financing depending upon the size of any such acquisition. There can
be no assurance that such financing will be available or that it will be
available on acceptable terms.
INFLATION
Touche and TEI have continued to experience the benefits of a low
inflation economy locally, regionally and nationally. However, Touche and TEI
enter into mostly short-term fixed price contracts and a large portion of these
contracts is labor intensive. Accordingly, the short-term contracts are less
susceptible to inflationary pressures and may have less of an impact on the
eventual profitability of the contracts.
ITEM 7 FINANCIAL STATEMENTS
The financial statements are attached as an Exhibit hereto.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
9
<PAGE> 12
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The current directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Rolando Loera 42 Chairman, President and Chief Executive Officer; Director
Livino D. Ribaya, Jr. 47 Vice President-Manufacturing
Frank Ramirez III 40 Vice President-Engineering
Charles E. Shaw 51 Vice President-Chief Financial Officer; Director
Robert Loera 29 Controller and Secretary; Director
Dominic A. Polimeni 49 Director
</TABLE>
Each of the directors of the Company holds office until the next annual
meeting of stockholders, or until their successors are elected and qualified. At
present, the Company's bylaws provide for not less than one director nor more
than five directors. Currently, there are four directors of the Company. The
bylaws permit the Board of Directors to fill any vacancy and such director may
serve until the next annual meeting of shareholders or until such director's
successor is elected and qualified. The bylaws have been amended to provide for
the next annual meeting of shareholders to be held in May, 1997. Officers serve
at the discretion of the Board of Directors. There are no family relationships
among any officers or directors of the Company except that Robert Loera is the
brother of Rolando Loera.
The principal occupation and business experience for each officer and
director of the Company for at least the last five years are as follows:
Rolando Loera. Mr. Rolando Loera has been Chairman, President, Chief
Executive Officer and a Director of the Company since December 1995 and has held
similar positions with Touche since September 1992. Prior to that he was Chief
Financial Officer of a predecessor of Touche for eight years. Mr. Loera holds a
bachelor of arts degree in Business Administration from the University of
Washington.
Livino D. Ribaya, Jr. Mr. Ribaya has been Vice President-Manufacturing
of the Company since December 1995 and has held the same position with Touche
since September 1992. Prior to that he was employed by a predecessor to Touche
since 1978 in a variety of positions. Mr. Ribaya has a B.S. in Mechanical
Engineering from the Mauja Institute of Technology, Manila, Philippines.
Frank Ramirez III. Mr. Ramirez has been Vice President-Engineering of
the Company since December 1995 and has held the same position with Touche since
1978. Prior to that he was employed by a predecessor to Touche since 1978 in a
variety of positions. Mr. Ramirez has an A.A. degree in Mechanical Drafting from
San Jose City College.
Charles E. Shaw. Mr. Shaw has been Vice President, Chief Financial
Officer, and a Director of the Company since December 1995 and has held the same
positions with Touche since 1993. Prior to that he was President and Chief
Executive Officer of Compro Business Solutions, Inc., a business and management
consulting firm established by Mr. Shaw in 1992. During 1988 through 1992, he
served as Vice President and Chief Financial Officer of Douglas Broadcasting,
Inc. a $51 million radio broadcast network. Mr. Shaw has a B.S. in Business
Administration from the City University of New York, a Masters of Business
Administration from New York University and a L.L.B. from LaSalle Law School.
10
<PAGE> 13
Robert Loera. Mr. Robert Loera has been Controller, Secretary and a
Director of the Company since December 1995 and has been Controller of Touche
since June, 1992. Mr. Robert Loera is Rolando Loera's brother. Mr. Robert Loera
has a B.S. in Business Administration from the University of Washington.
Dominic A. Polimeni. Mr. Dominic A. Polimeni has been a Director of the
Company since March, 1996. Mr. Polimeni has been involved with acquisitions,
divestitures, corporate finance and corporate management for more than fifteen
years. Previously, he practiced as a CPA for more than twelve years. Since
October of 1994, Mr. Polimeni has been the Chairman and Chief Executive Officer
of Quest Electronic Hardware, Inc., a distributor of fasteners and electronic
hardware sold to electronic equipment manufacturers. Mr. Polimeni has also been
the President and Chief Operating Officer of Questron Technology, Inc., a
publicly traded company which owns Quest, since March 31, 1995 and Chairman and
Chief Executive Officer of Questron since February, 1996. He has also been a
Managing Director of Gulfstream Financial Group, Inc., a financial consulting
and investment banking firm, since 1990. He held the position of Chief Financial
Officer of Arrow Electronics, Inc., an international electronics distribution
company traded on the New York Stock Exchange, for four years from 1986 to 1990.
He also held several other positions, including general management positions,
with Arrow over an eight-year period from 1981 to 1990. He has held the position
of Chief Operating Officer of Fugazy Express, Inc., a New York based
transportation company, in its start-up phase, and was a Partner in the New York
office of Arthur Young & Company. He holds a BBA degree from Hofstra University.
ITEM 10. EXECUTIVE COMPENSATION
The Company has made no compensation payments as of December 31, 1995,
excluding the grant of a stock option to Rolando Loera described below. The
following table sets forth remuneration paid by Touche and TEI during fiscal
years 1993, 1994 and 1995, to the named officers and directors of the Company.
For the periods shown, no other executive officer received remuneration in
excess of $100,000 per annum.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual ------------
Compensation Securities
Name of Individual or ------------ Underlying Other
Number of Persons in Group Position with Company Year Salary Bonus Options/SARs(#) Compensation
- -------------------------- --------------------- ---- ------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Rolando Loera Chairman, President 1995 $225,000 -0- 100,000 -0-
and Chief Executive 1994 $150,000 -0- -0- -0-
Officer; Director 1993 $140,648 -0- -0- -0-
</TABLE>
11
<PAGE> 14
OPTION SAR IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f)
% of Total
Number of Option/SARs
Securities Granted to Exercise or
Underlying Options/ Employees in Base Price Market Expiration
Name SARs Granted Fiscal Year ($/sh) Price/Share Date
- ---- ------------------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Rolando Loera 100,000 100% $3.75 $3.75(1) December 21, 2005
</TABLE>
(1) The Company's Common Stock was not publicly traded on the date of grant of
the option. The Company's Board of Directors determined that the then fair
market value of the Common Stock was $3.75 per share.
AGGREGATED OPTIONS/SAR EXERCISED IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired on Value FY-End(#) FY-End($)
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rolando Loera -0- -0- 0/100,000 0/$493,750.00(1)
</TABLE>
- ----------------------
(1) No market for the Company's Common Stock existed on December 31, 1995. The
value of the unexercised in-the-money option was determined using the average of
the bid and the asked price of the Company's Common Stock as of March 29, 1996.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement ("Agreement")
dated as of December 28, 1995 with Rolando Loera. The term of employment
commenced on March 11, 1996 and will expire on the fifth anniversary thereof.
The annual salary under the Agreement is $225,000. The term of employment will
be automatically extended for an additional five year term in the absence of
notice from either party. This salary may be increased to reflect annual cost of
living increases and may be supplemented by discretionary and performance
increases as may be determined by the Board of Directors except that during the
first three years following the Effective Date, his salary may not exceed
$225,000. Mr. Loera is also eligible to receive an annual bonus of up to
$100,000, payable in four quarterly installments. The Agreement provides that
during the initial three years of the term of employment, an annual bonus of
$100,000 will be awarded to Mr. Loera and that such bonus awards will be used by
Mr. Loera to repay the $303,325 loan TEI to Touche Properties, Inc. referred to
in Item 12 below. Bonuses during the remainder of the term of employment will be
at the discretion of the Board of Directors. No objective criteria have been
established for determining the amount of any bonuses for subsequent years.
The Agreement provides, among other things, for participation in an
equitable manner in any profit-sharing or retirement plan for employees or
executives and for participation in other employee benefits applicable to
employees and executives of the Company. The Agreement further provides for the
use of an automobile and other fringe benefits commensurate
12
<PAGE> 15
with his duties and responsibilities. The Agreement also provides for benefits
in the event of disability. Under the Agreement, the Company is also obligated
to procure and pay the premiums for a $1 million term life policy and, in the
event of Mr. Loera's death, to use the death benefit under such policy to
purchase from Mr. Loera's estate shares of the Company's Common Stock at its
fair market value.
Pursuant to the Agreement, employment may be terminated by the Company
with cause or by the executive with or without good reason. Termination by the
Company without cause, or by the executive for good reason, would subject the
Company to liability for liquidated damages in an amount equal to the terminated
executive's current salary ($225,000) and a pro rata portion of his prior year's
bonus (up to $100,000) annually, for the remaining term of the Agreement,
payable in equal monthly installments, without any set-off for compensation
received from any new employment. In addition, the terminated executive would be
entitled to continue to participate in and accrue benefits under all employee
benefit plans and to receive supplemental retirement benefits to replace
benefits under any qualified plan for the remaining term of the Agreement to the
extent permitted by law.
STOCK OPTION PLAN
The Company has adopted a stock option plan, effective December 22,
1995. Under such plan, key employees and officers and consultants of the Company
may be granted options to purchase shares of the Company's Common Stock at their
fair market value on the date of grant. The plan provides for an aggregate of
500,000 options. Options to purchase 100,000 shares at $3.75 per share were
granted to Rolando Loera effective December 22, 1995. These options vest two
years from the date of grant and will expire December 2005. The plan also
permits Stock Appreciation Rights to be granted in tandem with options. Finally,
the plan permits awards of Restricted Stock.
Any future awards will be determined by the Board of Directors or a
Committee established by the Board.
13
<PAGE> 16
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
Company's Common Stock owned on the date of May 13, 1996 by (i) each person who
is known by the Company to own beneficially more than five percent (5%) of the
Company's common stock; (ii) each of the Company's officers and directors; and
(iii) all officers and directors as a group:
<TABLE>
<CAPTION>
Name and Position Number Percentage
Address(1) With Company Of Shares of Shares(2)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rolando Loera Chairman, President and Chief 892,920(3) 26%
Executive Officer; Director
Frank Ramirez, III Vice President--Engineering 149,360 4%
Livino D. Ribaya, Jr. Vice President--Manufacturing 74,680 2%
Charles E. Shaw Vice President--Chief Financial -0- -0-
Officer; Director
Robert Loera Controller and Secretary; Director -0- -0-
Dominic A. Polimeni Director 37,340 1%
Rolando Loera Trustee for Touche Employee Stock 27,280 1%
Ownership Plan
All Officers and Directors 1,218,920 36%
as a Group (5 persons)
</TABLE>
* Less than 1%
(1) Unless otherwise noted, c/o TMCI Electronics, Inc., 1875 Dobbin Drive, San
Jose, CA 95133.
(2) Does not include the exercise of up to 1,492,000 Class A Warrants
outstanding as of March 11, 1996 or options to purchase 100,000 shares of
Common Stock of the Company granted to Rolando Loera which vest in December
21, 1997.
(3) Does not include options to purchase 100,000 shares of Common Stock granted
to Rolando Loera on December 22, 1995 which vest on December 21, 1997.
14
<PAGE> 17
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was incorporated in the State of Delaware on December 7,
1995, under the name TMCI Electronics, Inc. A predecessor of the Company was
organized under the laws of the State of California ("TMCI California") on
September 26, 1995 and was merged into the Company on December 28, 1995.
Mr. Loera was originally issued 600,000 shares of TMCI California's
common stock for $1,000. Upon the merger of TMCI California into the Company,
Mr. Loera was issued 600,000 shares of the Company's Common Stock in exchange
for his shares of TMCI California.
On March 16, 1994, $50,000 and on April 1, 1994, $25,000 was advanced
to Touche by Frank Ramirez III and Livino Ribaya, Jr., employees of Touche and
TEI, in exchange for convertible promissory notes bearing interest at 7.382% and
6.75% per annum and payable in monthly installments of $920 and $979,
respectively, through 2009. Identical loans were made to TEI on the same dates
by the same employees. In June 1995, $25,000 was advanced to each of Touche and
TEI by Jose Antonio Agredano in exchange for a convertible promissory note
bearing interest at 10% per annum and payable in monthly installments of $950.
All of these notes were converted into shares of Touche and TEI immediately
prior to the Effective Date of the Stock Purchase Agreements described below.
The Company entered into Stock Purchase Agreements dated as of December
28, 1995 (the "Stock Purchase Agreements") with Rolando Loera, Chairman,
President and Chief Executive Officer of the Company, and Rolando Loera as
Trustee for the Touche Employee Stock Ownership Plan pursuant to which the
Company has acquired all of the issued and outstanding stock of Touche and TEI
in exchange for the issuance of 893,600 shares of the Company's Common Stock.
Immediately prior to the close as of the public offering on March 11, 1996,
Messrs. Jose Antonio Agredano, Frank Ramirez III and Livino Ribaya, Jr.
exercised their right to acquire shares of Touche and TEI which they converted
into 74,680, 149,360 and 74,680 shares of the Company, respectively. The
remaining 594,880 shares were issued to Rolando Loera and to the Touche Employee
Stock Ownership Plan.
TEI leases approximately 78,000 square feet of space located at
1881-1899 Dobbin Drive, San Jose, California from Touche Properties, Inc.
("TPI"), a company wholly owned by Rolando Loera, Chairman, President and Chief
Executive Officer of the Company, pursuant to a lease agreement dated November
1, 1993. In addition, TEI leases space to subtenants. Touche is one subtenant.
The other two subtenants are unaffiliated with the Company. Rent expense
amounted to approximately $161,000. Such amounts represent payments by TEI and
Touche to TPI, exclusive of any subtenant payments.
In connection with its acquisition of 1881-1899 Dobbin Drive (the
"Property"), TPI borrowed $1,000,000 from the Small Business Administration.
This loan bears interest at 6.359% per annum, matures on January 1, 1994 and is
secured by a first mortgage on the Property. Touche and TEI, inter alia, have
guaranteed the satisfaction of TPI's obligations under this loan.
TPI also borrowed $303,325 from Touche in December, 1993. This loan
bears interest at 10% per annum, and principal and interest are payable in equal
monthly installments until satisfied. The principal balance on the loan
increased as a result of certain expenses of TPI advanced by Touche. The
outstanding balance of the loan as of December 31, 1995 was $440,000.
In addition, in 1993 Touche made loans to Rolando Loera aggregating
$87,190.39. This loan bears interest at 10% per annum and is payable in monthly
installments of $1,000. Certain additions were made to the principal amount of
the loan in fiscal 1995 to account for payments of certain personal expenses of
Rolando Loera by Touche. Accordingly, the outstanding principal balance on the
loan was $232,000 at December 31, 1995.
15
<PAGE> 18
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Financial Statements
Report of Independent Auditors F-1
Combined Balance Sheet as of December 31, 1995 F-2 - F-3
Combined Statements of Operations for the
Years Ended December 31, 1995 and 1994 F-4
Combined Statements of Stockholder's Equity F-5
Combined Statements of Cash Flows for the
Years Ended December 31, 1995 and 1994 F-6 and F-7
Notes to Combined Financial Statements F-8 - F-19
Report of Independent Auditors on Supplemental Information S-1
Combining Balance Sheet as of December 31, 1995 S-2 - S-3
Combining Statement of Operations for the
Years Ended December 31, 1995 and 1994 S-4 - S-5
16
<PAGE> 19
(b) Exhibits
3.0 Certificate of Incorporation, filed with Delaware Secretary of State on
December 7, 1995.*
3.1 By-laws.*
4.0 Specimen Copy of Common Stock Certificate.*
4.1 Form of Class A Warrant Certificate.*
4.3 Form of Underwriters' Purchase option.*
4.4 Form of Warrant Agreement.*
10.0 Employment Agreement, Rolando Loera, dated December 28, 1995.*
10.2 Subscription Paper dated November 6, 1995.*
10.5 Small Business Loan Agreement dated October 26, 1993 with related
Guarantees of Touche Manufacturing Company, Inc., Touche Electronics, Inc. and
Rolando Loera.*
10.6 Lease Agreement dated January 1, 1993 relating to 1875 Dobbin Drive, San
Jose, CA.*
10.7 Lease Agreement dated October 25, 1993 relating to 1881 - 1899 Dobbin
Drive, San Jose, CA.*
10.9 1995 Stock Option Plan.*
10.10 Touche Manufacturing Company, Inc. Employee Stock Option Plan.*
21.0 Subsidiaries of the Registrant.*
*Incorporated by reference from registration statement number 33-80973
on form SB-2 originally filed with the Commission on December 29, 1995.
17
<PAGE> 20
SIGNATURE PAGE
In accordance with Section 13(a) or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TMCI Electronics, Inc.
By (Signature and Title) /s/Rolando Loera
---------------------
ROLANDO LOERA
Chairman,
President and
Chief Executive Officer
Date: May 29, 1996
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /s/ Rolando Loera By: /s/Dominic A. Polimeni
---------------------------------- -----------------------------
ROLANDO LOERA, Chairman, President DOMINIC A. POLIMENI, Director
and Chief Executive Officer, Director
Date: May 29, 1996 Date: May 29, 1996
By: /s/Charles E. Shaw
----------------------------------
CHARLES E. SHAW, Vice President
Chief Financial Officer, Director
Date: May 29, 1996
By: /s/Robert Loera
----------------------------------
ROBERT LOERA, Controller, Secretary
and Director
Date: May 29, 1996
18
<PAGE> 21
INDEX TO FINANCIAL STATEMENTS
================================================================================
TMCI ELECTRONICS, INC.
Report of Independent Auditors................................. F-1
Combined Balance Sheet as of December 31, 1995................. F-2 - F-3
Combined Statements of Operations for the Years Ended
December 31, 1995 and 1994..................................... F-4
Combined Statements of Stockholders' Equity.................... F-5
Combined Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994..................................... F-6 - F-7
Notes to Combined Financial Statements......................... F-8 - F-19
Report of Independent Auditors on Supplemental Information..... S-1
Combining Balance Sheet as of December 31, 1995................ S-2 - S-3
Combining Statements of Operations for the Years Ended
December 31, 1995 and 1994 .................................... S-4 - S-5
. . . . . . . . . . .
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
TMCI Electronics, Inc.
San Jose, California
We have audited the accompanying combined balance sheet of TMCI
Electronics, Inc., Touche Manufacturing Company, Inc. and Touche Electronics,
Inc. as of December 31, 1995, and the related combined statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1995. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
TMCI Electronics, Inc., Touche Manufacturing Company, Inc., and Touche
Electronics, Inc. as of December 31, 1995, and the combined results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
February 13, 1996
F-1
<PAGE> 23
TMCI ELECTRONICS, INC.
================================================================================
COMBINED BALANCE SHEET AS OF DECEMBER 31, 1995.
================================================================================
<TABLE>
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash $ 701,672
Accounts Receivable - Net 4,182,411
Inventory 3,179,317
Due from Related Party 100,000
Note Receivable - Other 98,989
Prepaid Expenses and Other Current Assets 167,016
Deferred Income Taxes 164,960
-----------
TOTAL CURRENT ASSETS 8,594,365
-----------
PROPERTY AND EQUIPMENT - NET 2,918,677
-----------
OTHER ASSETS:
Due from Stockholder 232,033
Due from Related Party 344,676
Deferred Loan Fees - Net 28,500
Deferred Offering Costs 292,986
Other Assets 930
-----------
TOTAL OTHER ASSETS 899,125
-----------
TOTAL ASSETS $12,412,167
===========
</TABLE>
See Notes to Combined Financial Statements.
F-2
<PAGE> 24
TMCI ELECTRONICS, INC.
================================================================================
COMBINED BALANCE SHEET AS OF DECEMBER 31, 1995.
================================================================================
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 4,814,964
Due to Affiliate 25,720
Line of Credit 1,644,576
Notes Payable - Current Portion 459,539
Capital Lease Obligations - Current Portion 256,237
Convertible Promissory Notes - Current Portion 15,204
Income Taxes Payable 258,168
-----------
TOTAL CURRENT LIABILITIES 7,474,408
-----------
LONG-TERM LIABILITIES:
Bridge Notes Payable 537,878
Notes Payable - Net of Current Portion 1,198,116
Capital Lease Obligations - Net of Current Portion 478,505
Convertible Promissory Notes - Net of Current Portion 113,590
Deferred Income Taxes 429,215
-----------
TOTAL LONG-TERM LIABILITIES 2,757,304
-----------
COMMITMENTS AND CONTINGENCIES --
-----------
TOTAL LIABILITIES 10,231,712
-----------
STOCKHOLDERS' EQUITY:
Common Stock, $.001 Par Value, 25,000,000 Shares
Authorized, 600,000 Issued and Outstanding 600
Additional Paid-in Capital 1,029,829
Retained Earnings 1,150,026
-----------
TOTAL STOCKHOLDERS' EQUITY 2,180,455
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,412,167
===========
</TABLE>
See Notes to Combined Financial Statements.
F-3
<PAGE> 25
TMCI ELECTRONICS, INC.
================================================================================
COMBINED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
SALES - NET $ 28,098,919 $ 20,869,434
COST OF GOODS SOLD 19,991,649 14,950,750
------------ ------------
GROSS PROFIT 8,107,270 5,918,684
OPERATING EXPENSES 6,384,946 4,938,454
------------ ------------
INCOME FROM OPERATIONS 1,722,324 980,230
------------ ------------
OTHER INCOME [EXPENSE]:
Other Income 40,394 109,865
Interest Income 39,002 35,022
Interest Expense (615,881) (602,733)
Non-Cash Finance Charge (287,878) --
Gain on Sale of Equipment 109,655 835
------------ ------------
TOTAL OTHER [EXPENSE] (714,708) (457,011)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,007,616 523,219
PROVISION FOR INCOME TAXES 534,200 103,577
------------ ------------
NET INCOME $ 473,416 $ 419,642
============ ============
EARNINGS PER SHARE:
Net Income Per Share $ 0.25 $ 0.22
============ ============
PRO FORMA NET INCOME [SEE NOTE 22] [UNAUDITED]:
Income Before Provision for Income Taxes $ 1,007,616 $ 523,219
Pro Forma Income Taxes 509,100 209,288
------------ ------------
PRO FORMA NET INCOME $ 498,516 $ 313,931
============ ============
PRO FORMA NET INCOME PER SHARE [UNAUDITED]:
Income Before Provision for Income Tax Per Share $ 0.53 $ 0.28
Pro Forma Income Tax Per Share 0.27 0.11
------------ ------------
PRO FORMA NET INCOME PER SHARE $ 0.26 $ 0.17
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 1,893,600 1,893,600
============ ============
</TABLE>
See Notes to Combined Financial Statements.
F-4
<PAGE> 26
TMCI ELECTRONICS, INC.
================================================================================
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
COMMON STOCK
------------ ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1994 -- $ -- $ -- $ 256,968 $ 256,968
Issuance of Common Stock
November 6, 1995 and exchange of
Shares Among Entities under
Common Control [Reflected
Retroactively
- See Note 19B and C] 600,000 600 279,829 -- 280,429
---------- ---------- ---------- ---------- ----------
BALANCE - JANUARY 1, 1994 600,000 600 279,829 256,968 537,397
Net Income for the Year Ended
December 31, 1994 -- -- -- 419,642 419,642
---------- ---------- ---------- ---------- ----------
BALANCE - DECEMBER 31, 1994 600,000 600 279,829 676,610 957,039
Finance Charge Incurred on Bridge
Notes Payable -- -- 750,000 -- 750,000
Net Income for the Year Ended
December 31, 1995 -- -- -- 473,416 473,416
---------- ---------- ---------- ---------- ----------
BALANCE - DECEMBER 31, 1995 600,000 $ 600 $1,029,829 $1,150,026 $2,180,455
========== ========== ========== ========== ==========
</TABLE>
See Notes to Combined Financial Statements.
F-5
<PAGE> 27
TMCI ELECTRONICS, INC.
================================================================================
COMBINED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 473,416 $ 419,642
------------ ------------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operations:
Depreciation and Amortization 702,056 604,599
Deferred Income Taxes 201,272 25,052
[Gain] on Sale of Equipment -- (835)
Amortization of Deferred Loan Fees 114,000 22,500
Non-Cash Finance Charge 287,878 --
Contribution to ESOP Plan -- 50,000
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (1,855,640) (305,608)
Inventory (800,439) (1,177,426)
Prepaid Expenses (104,192) (26,955)
Employee Advances -- (61)
Advance Under Note Receivable 8,698 5,019
Note Receivable - Other -- (102,142)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 2,087,105 886,278
Income Taxes Payable 179,145 44,174
------------ ------------
Total Adjustments 819,883 24,595
------------ ------------
NET CASH - OPERATING ACTIVITIES - FORWARD 1,293,299 444,237
------------ ------------
INVESTING ACTIVITIES:
Advances Under Stockholders Note Receivable (170,370) --
Collection of Stockholder Note Receivable -- 25,527
Incorporation Fees 354 --
Acquisition of Equipment (343,956) (171,297)
Proceeds from Sale of Equipment -- 7,000
------------ ------------
NET CASH - INVESTING ACTIVITIES - FORWARD (513,972) (138,770)
------------ ------------
FINANCING ACTIVITIES:
Payments for Deferred Offering Costs (292,986) --
Proceeds from Bridge Loan Payable 1,000,000 --
Advance Under Line of Credit 51,513 --
Repayment of Line of Credit -- (351,835)
Proceeds of Note Payable 137,085 1,651,092
Payment of Deferred Loan Costs -- (165,000)
Repayment of Note Payable (625,827) (1,198,241)
Repayment of Capital Lease Obligations (251,886) (315,100)
Advance with Affiliates (100,182) (78,452)
Advances Under Convertible Promissory Notes 6,144 150,000
Repayment of Convertible Promissory Note (18,432) (8,918)
Common Stock Issued 1,000 --
------------ ------------
NET CASH - FINANCING ACTIVITIES - FORWARD $ (93,571) $ (316,454)
</TABLE>
See Notes to Combined Financial Statements.
F-6
<PAGE> 28
TMCI ELECTRONICS, INC.
================================================================================
COMBINED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES - FORWARDED $ 1,293,299 $ 444,237
NET CASH - INVESTING ACTIVITIES - FORWARDED (513,972) (138,770)
NET CASH - FINANCING ACTIVITIES - FORWARDED (93,571) (316,454)
----------- -----------
NET INCREASE [DECREASE] IN CASH 685,756 (10,987)
CASH - BEGINNING OF YEARS 15,916 26,903
----------- -----------
CASH - END OF YEARS $ 701,672 $ 15,916
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 578,492 $ 581,332
Income Taxes $ 156,707 $ 36,449
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The following table sets forth property and equipment costs which were
completely financed through equipment contracts:
<TABLE>
<CAPTION>
December 31,
- ------------
<S> <C>
1995 $124,035
1994 $209,002
</TABLE>
In November 1995, the Company incurred a non-cash finance charge of
$750,000 in connection with bridge financing, of which $287,878 was charged to
operations at December 31, 1995 [See Note 12].
See Note 19 for information about the Stock Purchase Agreement and
exchange of shares.
During 1995, Touche contributed 16,667 shares of their stock valued at
$50,000 to settle a liability to their Employee Stock Ownership Plan [See Note
17].
See Notes to Combined Financial Statements.
F-7
<PAGE> 29
TMCI ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
[1] FINANCIAL STATEMENT PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS
Subsequent to December 31, 1995, the entities noted below executed an exchange
of shares among entities under common control and common management, immediately
prior to a public offering of securities [See Note 19C].
The effects of this recapitalization and merger are reflected retroactively in
these combined financial statements.
The balance sheet as of December 31, 1995 is presented on a combined basis and
includes TMCI Electronics, Inc. ["TMCI"], Touche Manufacturing, Inc. ["Touche"],
and Touche Electronics, Inc. ["TEI"] [collectively, the "Company"]. The
financial statements for the year ended December 31, 1995 include the results of
operations, cash flows and changes in stockholders' equity for Touche and TEI
for the twelve months then ended; and the results of operations, cash flows and
changes in stockholders' equity for TMCI from September 26, 1995 [date of
incorporation] to December 31, 1995 [See Note 2].
The combined financial statements for the year ended December 31, 1994 include
the results of operations, cash flows and changes in stockholders' equity for
Touche and TEI.
All significant intercompany transactions have been eliminated for all period
presented.
The Company manufactures custom-fabricated metal enclosures for manufacturers of
computers, telecommunications equipment, semiconductor manufacturing test
equipment and medical test equipment. The Company also assembles and installs
wire cable harnesses used in custom-fabricated metal enclosures for
manufacturers of computers, telecommunications test equipment and medical test
equipment.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION - TMCI was incorporated on September 26, 1995, under the
laws of the State of California. At the date of incorporation, there was no
issuance of, nor subscriptions for, its capital stock.
The Company entered into Stock Purchase Agreements [the "Agreements"] [See Note
19C] with the stockholders of Touche and TEI to acquire all of their issued and
outstanding stock. The consummation of the Agreements occurred immediately prior
to the effective date of the Company's proposed public offering.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS - Cash equivalents are comprised of certain highly liquid
investments with a maturity of three months or less when purchased. At December
31, 1995, there were no cash equivalents.
INVENTORY - Inventory is recorded at the lower of cost or market. Cost, which
includes materials, labor and overhead, is determined using the first-in,
first-out basis method.
PROPERTY AND EQUIPMENT AND DEPRECIATION - Property and equipment is stated at
cost. Depreciation is computed utilizing the straight-line method over the
estimated useful lives of the assets.
The Company is the lessee of machinery and equipment under capital leases
expiring in various years through 2000. These assets, which have been included
in property and equipment, are recorded at the lower of the present value of the
minimum lease payments or the fair value of the asset. The assets are
depreciated over the lower of their related lease terms or their estimated
productive lives. Depreciation of assets under capital leases is included in
depreciation expense for the year ended December 31, 1995.
F-8
<PAGE> 30
TMCI ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #2
================================================================================
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
DEFERRED LOAN COSTS - Deferred loan costs are being amortized over the term of
the loan using the straight-line method.
DEFERRED OFFERING COSTS - Amounts paid or accrued for costs associated with the
anticipated public offering [See Note 19C] will be expensed and not recorded as
a reduction of the net proceeds, if the offering is not consummated.
RISK CONCENTRATIONS - Financial instruments that potentially subject the Company
to concentrations of credit risk include cash and cash equivalents and accounts
receivable arising from its normal business activities. The Company places its
cash and cash equivalents with high credit quality financial institutions
located in the Western United States.
The Company periodically has money in financial institutions that is subject to
normal credit risk beyond insured amounts. This credit risk, representing the
excess of the bank's deposit liabilities reported by the bank over the amounts
that would have been covered by federal insurance, amounted to approximately
$669,000 at December 31, 1995.
The Company's extension of credit to its customers, which are primarily located
in the Silicon Valley, California, results in accounts receivable arising from
its normal business activities. The Company does not require collateral from its
customers, but routinely assesses the financial strength of its customers. Based
upon factors surrounding the credit risk of its customers and the Company's
historical collection experience, an allowance for uncollectible accounts
amounting to $8,279 has been established. The Company believes that its accounts
receivable credit risk exposure beyond such allowance is limited. Such
assessment may be subject to change in the near term.
The Company had sales to three unrelated customers in the computer industry
approximating 33%, 18% and 19%, respectively, of the Company's total net sales
for the year ended December 31, 1995. For the year ended December 31, 1994,
sales to these three unrelated customers approximated 29%, 26% and 13%,
respectively. The loss of one or more of these customers may have a severe
impact on the Company in the near term.
PRO FORMA EARNINGS PER SHARE - Historical earnings per share will not be
indicative of the continuing capital structure of the Company upon the
consummation of the reorganization described in Note 19C. The 1,893,600 shares,
used in the computations of earnings per share, as if they were outstanding for
all periods presented, give effect to the following transactions: (i) the
issuance of 600,000 shares to the majority stockholder in December 1995, (ii)
the conversion of convertible debt into 298,720 shares of common stock, (iii)
the issuance of 400,000 shares of common stock to bridge lenders and (iv) the
recapitalization and stock exchange among the companies, certain individuals and
the Touche Employee Stock Ownership Plan, resulting in the issuance of 594,880
shares of common stock by the Company.
[3] INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31,
1 9 9 5
-------
<S> <C>
Raw Materials $1,400,311
Work-in Process:
Materials 1,309,528
Direct Labor 212,510
Overhead 256,968
----------
TOTAL $3,179,317
==========
</TABLE>
F-9
<PAGE> 31
TMCI ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #3
================================================================================
[4] NOTE RECEIVABLE - OTHER
As of December 31, 1995, the Company had advanced $98,989 to the landlord of its
warehouse and office facilities. This note is payable in monthly installments of
$2,215, including interest at 10% per annum, and matures in August 1999. In
January 1996, the Company refinanced a note payable, whereby the landlord
assumed the outstanding balance of the note [See Note 9]. In consideration of
the transaction, the Company canceled the outstanding note receivable from the
landlord and executed a note payable to the landlord in the amount of
approximately $291,000.
[5] PROPERTY AND EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31,
1 9 9 5
-------
<S> <C>
Machinery and Equipment $ 3,859,253
Furniture and Fixtures 478,248
Transportation Equipment 166,676
Leasehold Improvements 69,533
-----------
Total 4,573,710
Less: Accumulated Depreciation and Amortization (1,655,033)
-----------
TOTAL $ 2,918,677
===========
</TABLE>
Depreciation and amortization expense amounted to $702,056 and $604,599 for the
years ended December 31, 1995 and 1994, respectively. Property and equipment is
depreciated using the straight-line method for financial statement purposes and
an accelerated method for tax over their estimated productive lives. The
estimated productive lives range from 5 to 7 years.
The following is a summary of property held under capital leases, which have
been included in property and equipment as set forth above. Amortization expense
on property under capital lease is included in depreciation expense:
<TABLE>
<CAPTION>
December 31,
1 9 9 5
-------
<S> <C>
Machinery and Equipment $ 1,062,251
Auto 77,496
Office Equipment 158,013
-----------
Total Property Held Under Capital Lease 1,297,760
Less: Accumulated Amortization (469,442)
-----------
NET $ 828,318
===========
</TABLE>
Amortization of property held under capital lease is calculated using the
straight-line method while an accelerated method is used for tax purposes.
Amortization is calculated over the lesser of the assets' estimated productive
life, or the lease term.
[6] DUE FROM RELATED PARTY
The Company has amounts due from an entity controlled by the majority
stockholder of the Company with interest to 10% per annum. At December 31, 1995,
the balance due the Company amounted to $444,676. Interest income on these
amounts approximated $30,000 for each of the years ended December 31, 1995 and
1994. In addition, the entity borrowed $1,000,000 from the Small Business
Administration. The Company has guaranteed amounts due under the loan.
F-10
<PAGE> 32
TMCI ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #4
================================================================================
[7] DUE FROM STOCKHOLDER
The December 31, 1995 balance due from the stockholder is comprised of two
unsecured promissory notes due on demand from the Company's president.
Each of the notes due from the Company's president call for interest payable at
10% per annum. The cumulative balance outstanding of these notes was $232,033 at
December 31, 1995.
[8] LINE OF CREDIT
In March 1994, the Company entered into a loan and security agreement with a
financial institution providing for the Company to borrow up to 80% of its
eligible accounts receivable, as defined in the agreement, up to a maximum
$3,867,000. Interest on this credit line is calculated at prime plus 3.5%. Prime
at December 31, 1995 was 8.5%. The line of credit agreement, which contains
certain standard covenants, is collateralized by all of the assets of the
Company and has been guaranteed by the majority stockholder of the Company and
an affiliate [See Note 20C].
[9] NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31,
1 9 9 5
-------
<S> <C>
Notes payable to financial institution in monthly installments
of $18,883 plus interest at the bank's prime rate plus 3.5%
[Prime was 8.5% at December 31, 1995]; guaranteed by the
majority stockholder of the Company and two related
companies; due April 1999. $ 603,540
Note payable to financing company with monthly payments of $228
including principal and interest at 12.00% per annum; due
October 1997; collateralized by automotive equipment. 4,471
Note payable to financing company with monthly payments of $280
including principal and interest at 10.75% per annum; due
January 1998; collateralized by automotive equipment. 6,255
Note payable to financing company with monthly payments of $362
including principal and interest at 9.87% per annum; due
December 1998; collateralized by automotive equipment. 11,967
Note payable to financing company with monthly payments of
$14,709 including principal and interest at 7.9% per annum;
due November 1998; collateralized by machinery and equipment. 430,652
Note payable to financing company with monthly payments of
$6,005 including principal and interest at 10.75% per annum;
due April 2004; collateralized by property held by an
affiliated entity [See Note 4]. 395,714
Note payable to individual with monthly payments of $1,057 per
month including interest at 9.82% per annum; due July 1999.
This note is convertible into 74,680 shares of Company common
stock [See Note 19C and 20A]. 38,174
----------
Total - Forward $1,490,773
</TABLE>
F-11
<PAGE> 33
TMCI ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #5
================================================================================
[9] NOTES PAYABLE [CONTINUED]
<TABLE>
<CAPTION>
December 31,
1 9 9 5
-------
<S> <C>
Total - Forwarded $1,490,773
Note payable to financing company with monthly payments of $1,606
including principal and interest at 11.09% per annum; due
January 2000; collateralized by machinery and equipment. 69,060
Note payable to financing company with monthly payments of $2,454
including principal and interest at 8.5% per annum; due
December 1999; collateralized by machinery and equipment. 97,822
----------
Total 1,657,655
Less: Current Portion 459,539
----------
NONCURRENT PORTION $1,198,116
==========
</TABLE>
Current maturities on long-term debt at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Due by
December 31,
- ------------
<S> <C>
1996 $ 459,539
1997 475,002
1998 373,785
1999 95,995
2000 49,503
Thereafter 203,831
----------
TOTAL $1,657,655
==========
</TABLE>
Interest expense amounted to $615,881 and $602,733 for the years ended December
31, 1995 and 1994, respectively.
[10] CAPITAL LEASE OBLIGATIONS
The Company has entered into various capital leases for machinery and equipment
[See Note 5]. The following table sets forth the future minimum lease payments
during the next five years for leases in effect at December 31, 1995:
<TABLE>
<CAPTION>
Year ending
- -----------
<S> <C>
1996 $ 320,156
1997 249,735
1998 146,201
1999 87,488
2000 51,034
Thereafter --
---------
Total Minimum Lease Payments 854,614
Imputed Interest (119,872)
---------
Present Value of Minimum Lease Payments 734,742
Current Portion (256,237)
---------
LONG-TERM CAPITAL LEASE OBLIGATION $ 478,505
=========
</TABLE>
F-12
<PAGE> 34
TMCI ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #6
================================================================================
[11] OTHER LIABILITIES
Pursuant to a purchase agreement with the previous owner of the operating assets
of the business, consummated in September 1992, the Company will assume, and has
agreed to perform and pay when due, all of the liabilities, obligations, and
contracts of the previous owner as of August 31, 1992, and any additional
liabilities arising in the ordinary course of business. Accrued expenses include
management's estimate of their liability under this purchase agreement of
approximately $112,000.
[12] BRIDGE NOTES PAYABLE
In November and December 1995, the Company borrowed an aggregate of $1,000,000
in bridge loans, as evidenced by four promissory notes of $250,000 each bearing
a rate of eight percent [8%] simple interest. The loans mature on the earlier of
one year from inception or the consummation of a public offering of the
Company's securities [See Note 20B]. As additional consideration, solely for
making the loans, the Company granted the lenders the right to receive an
aggregate of 200,000 units ["Bridgeholder's Units"]. Each Bridgeholder's Unit
consists of (i) two shares of Common Stock, (ii) two Class A Redeemable Common
Stock Purchase Warrants ["Class A Warrants"] and (iii) two Class B Redeemable
Common Stock Purchase Warrants ["Class B Warrants"]. The Lenders may exercise
the right to receive the Bridgeholder's Units by delivering the notice thereof
to the Company at any time after the effective date of the offering. The holders
of the Bridge Units agreed not to sell, pledge, hypothecate, encumber or
otherwise dispose of any of the Bridge Units for a period of thirteen months
following the effective date of the offering. The Company has valued these units
at $3.75 per unit. This valuation represents a fifty percent discount from the
price at which options were granted to the Company's president on December 22,
1995 [See Note 19D]. Such discount was reflected due to restrictions imposed on
the holders of the Bridge Units as to the salability of the units issued. The
Company has accounted for the $750,000 value of the Bridgeholder's Units as debt
issue costs to be amortized by the interest method over the expected life of the
promissory notes. For the year ended December 31, 1995, amortization of $287,878
of such costs is reflected in the statement of operations while the bridge loans
in the balance sheet are presented net of the remaining $462,122 of unamortized
charges at that date.
[13] CONVERTIBLE PROMISSORY NOTES
On March 16, 1994 and April 1, 1994, the Company received advances of $100,000
and $50,000 respectively from two employees of the Company, in the form of
convertible promissory notes, bearing interest at 7.38% and 6.75% per annum, and
payable in monthly installments of $920 and $979, respectively, through 2009.
Maturities of the convertible promissory notes are as follows:
<TABLE>
<S> <C>
1996 $ 15,204
1997 17,388
1998 19,620
1999 13,468
2000 11,518
Thereafter 51,596
--------
TOTAL $128,794
========
</TABLE>
These notes may be converted into a maximum of 224,040 shares of the Company's
stock [See Notes 19C and 20A].
F-13
<PAGE> 35
TMCI ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #7
================================================================================
[14] INCOME TAXES
TMCI and Touche are Subchapter C corporations subject to the tax provisions
under that section of the Internal Revenue Code.
TEI elected to be taxed under the provision of Subchapter S of the Internal
Revenue Code. Under those provisions, the Company does not pay federal corporate
income taxes on its taxable income. Instead, the stockholders are liable for
federal and state income taxes on the Company's taxable income. The Company is,
however, responsible for California state income tax at the rate of 2 1/2% of
taxable income with a minimum tax of $800. The Company's S corporation election
will be terminated upon the consummation of a public offering of its securities
[See Note 20B].
Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts, and consist primarily of depreciation, inventory
capitalization, allowance for bad debts, contribution deductions, and the
alternative minimum tax.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
CURRENT TAX EXPENSE:
Federal $ 354,200 $ --
State 66,900 2,503
--------- ---------
Totals 421,100 2,503
Less: Benefit of Net Operating Loss Carryforward (86,100) --
--------- ---------
TOTAL CURRENT PROVISION 335,000 2,503
--------- ---------
DEFERRED:
Federal 203,800 60,035
State (4,600) 41,039
--------- ---------
TOTAL DEFERRED PROVISION 199,200 101,074
--------- ---------
TOTAL PROVISION FOR TAXES $ 534,200 $ 103,577
========= =========
</TABLE>
The components of the deferred tax liability as of December 31, 1995 are as
follows:
<TABLE>
<S> <C>
Deferred Tax Asset:
Alternative Minimum Tax Credits $ 29,700
Non-Cash Financing Charge 115,200
Inventory Capitalization 20,060
--------
164,960
Valuation Allowance --
--------
Deferred Tax Asset - Current 164,960
Deferred Tax Liabilities
Excess Tax Over Book Accumulated Depreciation -
Non-Current 429,215
--------
NET DEFERRED TAX LIABILITIES $264,255
========
</TABLE>
F-14
<PAGE> 36
TMCI ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #8
================================================================================
[14] INCOME TAXES [CONTINUED]
A reconciliation between the Company's effective tax rate and the U.S. statutory
rate follows:
<TABLE>
<CAPTION>
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
U.S. Statutory Rate Applied to Pretax Income 34% 34%
State Tax Provision - Net of Federal Tax Benefit 6 6
Effect of S Corporation Operations 2 (10)
Other 11 (10)
--- ---
TOTAL EFFECTIVE TAX RATE 53% 20%
=== ===
</TABLE>
[15] NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1995, the Company utilized the remaining balance of its
federal and state net operating loss carryforwards as an offset to its federal
and state income tax expense.
[16] RELATED PARTY TRANSACTIONS
A substantial portion of the Company's production and administrative facilities
are leased from an affiliate which is 100% owned by the Company's sole
stockholder. The lease commenced in November 1993 and expires on November 30,
2013. Minimal rentals under this lease over the next five years and thereafter
are approximately as follows:
<TABLE>
<S> <C>
1996 $ 377,000
1997 507,200
1998 507,200
1999 507,200
2000 507,200
Thereafter 6,551,100
----------
TOTAL $8,956,900
==========
</TABLE>
As of December 31, 1995 and 1994, the Company owed the affiliate $25,720 and
$65,720, respectively, for unpaid rentals.
[17] EMPLOYEES' STOCK OWNERSHIP PLAN
Effective as of January 1, 1993, Touche adopted a Noncontributory Employees'
Stock Ownership Plan ["the Plan"] covering all full-time employees who have met
certain service requirements. It provides for discretionary contributions by
Touche as determined annually by the directors and stockholders.
For the year ended December 31, 1994, Touche incurred an obligation to the ESOP
Plan of $50,000. The 1994 obligation was satisfied in 1995 when Touche
contributed 16,667 shares of their stock to the Plan. As of December 31, 1995
and 1994, the Plan owned approximately 10% and 8%, respectively, of Touche's
outstanding shares.
F-15
<PAGE> 37
TMCI ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #9
================================================================================
[18] COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company signed a twenty [20] years and eight [8] months
lease commencing September 1, 1992 for its manufacturing and office facilities.
The base rent beginning on the commencement date and continuing through April
30, 2003 is $470,160 per year. Annual rental increases on each January 1st shall
be adjusted per the average annual Consumer Price Index - San
Francisco/Oakland/San Jose Metropolitan Area. Beginning on May 1, 2003 and
continuing through the remaining lease term, the base rent will be the
prevailing market rate.
The Company is leasing various office equipment on 24 to 36 month leases. At the
end of each lease, they are subject to a fair market value purchase option.
Minimum lease payments for the next 5 years and thereafter [not including the
CPI increases] are:
<TABLE>
<S> <C>
1996 $ 470,160
1997 470,160
1998 470,160
1999 470,160
2000 470,160
Thereafter 5,798,640
----------
TOTAL $8,149,440
==========
</TABLE>
Rent expense amounted to $730,417 and $608,420 for the years ended December 31,
1995 and 1994, respectively.
EQUIPMENT ACQUISITION - In 1995, the Company entered into two agreements to
purchase machinery and equipment totaling $457,553. As of December 1995, the
Company had not yet taken delivery of this equipment.
EMPLOYMENT AGREEMENT - The Company has entered into an employment agreement
["Agreement] dated as of December 28, 1995 with its president. The term of
employment will commence upon the effective date of the public offering [See
Note 19C] and will expire on the fifth anniversary thereof. The annual salary
under the Agreement is $225,000. The term of employment will be automatically
extended for an additional five year term in the absence of notice from either
party. This salary may be increased to reflect annual cost of living increases
and may be supplemented by discretionary and performance increases as may be
determined by the Board of Directors except that during the first three years
following the effective date, his salary may not exceed $225,000. The president
is also eligible to receive an annual bonus of up to $100,000, payable in four
installments. The Agreement provides that during the initial three years of the
term of employment, an annual bonus of $100,000 will be awarded to the president
and that such bonus awards will be used by him to repay certain indebtedness
[See Note 6]. Bonuses during the remainder of the term of employment will be at
the discretion of the Board of Directors.
The Agreement provides, among other things, for participation in an equitable
manner in any profit-sharing or retirement plan for employees or executives and
for participation in other employee benefits applicable to employees and
executives of the Company. The Agreement further provides for the use of an
automobile and other fringe benefits commensurate with his duties and
responsibilities. The Agreement also provides for benefits in the event of
disability.
F-16
<PAGE> 38
TMCI ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #10
================================================================================
[19] STOCKHOLDERS' EQUITY
[A] DESCRIPTION OF SECURITIES - The authorized capital stock of the Company
consists of 25,000,000 shares of common stock, $.001 par value per share. The
common stock carries no conversion rights and is not subject to redemption or to
any sinking fund provisions. All shares of common stock are entitled to share
equally in dividends from sources legally available therefor when, as and if
declared by the Board of Directors and, upon liquidation or dissolution of the
Company, whether voluntary or involuntary, to share equally in the assets of the
Company available for distribution to stockholders. All outstanding shares of
common stock are validly authorized and issued, fully paid and nonassessable.
[B] ISSUANCE OF COMMON STOCK - On November 6, 1995, the Company issued 600,000
shares of its common stock to a sole stockholder in exchange for $1,000.
[C] STOCK PURCHASE AGREEMENTS AND PUBLIC OFFERING - TMCI has entered into Stock
Purchase Agreements [the "Agreements"], dated as of December 28, 1995, with the
stockholders of Touche and TEI to acquire all of the issued and outstanding
stock of Touche and TEI.
Under terms of the Agreements, the President, Chief Executive Officer and
Chairman of TMCI, individually, and as trustee of the Plan, has agreed to
exchange shares of Touche and TEI for 567,600 and 27,280 shares, respectively,
of TMCI.
As previously referred to [See Notes 9 and 13 ], certain noteholders will
exchange the stock of Touche and TEI received upon conversion of such notes for
298,720 shares of TMCI [See Note 20A].
In December 1995, the Company filed a registration statement with the Securities
Exchange Commission for a public offering for 1,280,000 units ["Units"] of its
securities at $5.00 per Unit. Each Unit consists of one share of common stock
and one redeemable Class A warrant. Each Class A warrant entitles the holder to
purchase one share of common stock at $5.50 per share during the four year
period commencing one year from the effective date. The Class A warrants are
redeemable under certain conditions.
TMCI's acquisition of Touche and TEI will occur immediately prior to the
effective date of the public offering.
[D] STOCK OPTION PLAN - The Company has adopted a stock option plan, effective
December 22, 1995. Under such plan, key employees and officers and consultants
of the Company will be granted options to purchase shares of the Company's
common stock at their fair market value on the date of grant. The plan provides
for an aggregate of 500,000 options. On December 22, 1995, the Company's
president was granted options to purchase 100,000 shares of common stock at
$3.75 per share. The options vest two years from the date of grant and will
expire in December 2005. The Plan also permits stock appreciation rights to be
granted in tandem with options.
[20] SUBSEQUENT EVENTS [UNAUDITED] SUBSEQUENT TO THE DATE OF THE REPORT OF THE
INDEPENDENT AUDITORS
[A] CONVERSION OF DEBT-TO-EQUITY - Immediately prior to the consummation of the
public offering [See Note 20B], the holders of the convertible promissory notes
issued by Touche and TEI [See Notes 9 and 13] exercised the conversion right of
the notes and exchange them for 298,720 shares of TMCI.
F-17
<PAGE> 39
TMCI ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #11
================================================================================
[20] SUBSEQUENT EVENTS [UNAUDITED] (CONTINUED)
[B] PUBLIC OFFERING - On March 11, 1996, the Company closed the initial public
offering of its securities [See Note 19C] resulting in net proceeds to the
Company of approximately $5,800,000. The Company sold 1,472,000 Units consisting
of one share of common stock, $0.001 par value per share and one redeemable
Class A warrant at a price of $5.00 per Unit. Each Class A warrant entitles the
holder to purchase one share of common stock at a price of $5.50 per share for a
period of four years beginning March 5, 1997. The Company may redeem the Class A
warrants any time after March 5, 1997, upon thirty days written notice, if the
average closing price or bid price of the common stock, as reported by the
principal market on which the common stock is quoted or traded, equals or
exceeds $8.75 per share, for any 20 consecutive trading days ending within five
days prior to the date of the notice of redemption. The Company used a portion
of the proceeds from the offering to repay the bridge notes described in Note
12.
[C] LINE OF CREDIT ARRANGEMENT - In March 1996, the Company arranged for a line
of credit facility and term loan facility with a new financial institution. The
new facilities bear interest rates ranging from of prime + .75% to prime + 1.25%
and have been used to pay off the existing line of credit facilities and other
debt aggregating approximately $2,800,000.
[21] FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments," which requires disclosing fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the balance sheet.
The fair value of the financial instruments disclosed herein is not necessarily
representative of the amount that could be realized or settled, nor does the
fair value amount consider the tax consequences of realization or settlement.
The following table summarizes financial instruments by individual balance sheet
classifications as of December 31, 1995:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Loan Receivable - Stockholder $ 232,033 $ 232,033
Bridge Loan Payable $ 537,878 $ 537,878
Note Payable - Net of Current Portion $1,198,116 $1,198,116
Convertible Promissory Notes
- Net of Current Portion $ 113,590 $ 113,590
</TABLE>
In assessing the fair value of these financial instruments, the Company was
required to make assumptions, which were based on estimates of market conditions
and risks existing at that time. For certain instruments, including cash,
accounts receivable, notes receivable, accounts payable, amounts due to and from
related parties and affiliates, and short-term debt, management estimates that
the carrying amount approximated fair value for the majority of these
instruments because of their short maturities. Management estimates that the
carrying amount of its long-term indebtedness approximates fair value since the
interest rates currently offered to the Company for debt of the same remaining
maturities approximates the average interest rates which the Company is
currently paying. The Company does not believe it is practicable to estimate the
fair value of the guarantee described in Note 6 and does not believe exposure to
loss is likely.
[22] PRO FORMA INCOME TAXES [UNAUDITED]
As of December 31, 1995, the Conversion of Debt to Equity, Stock Purchase
Agreements, and Public Offering [See Note 19] had not occurred. The pro forma
effect of the income tax expense on the Company's net income if all of these
events had occurred at the beginning of the fiscal years presented is shown on
the combined statement of operations. The pro forma tax amounts have been
computed based on statutory rates in effect for the periods presented.
F-18
<PAGE> 40
TMCI ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #12
================================================================================
[23] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of," in March of
1995. SFAS No. 121 established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
Adoption of SFAS No. 121 is not expected to have a material impact on the
Company's financial statements.
The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to the
intrinsic valued based method of accounting prescribed by Accounting Principles
Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company has not decided if it will adopt SFAS No. 123 or continue to apply APB
Opinion No. 25 for financial reporting purposes. SFAS No. 123 will have to be
adopted for financial note disclosure purposes in any event. The accounting
requirements of SFAS No. 123 are effective for transactions entered into in
fiscal years that begin after December 15, 1995; the disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995.
. . . . . . . . . . . . .
F-19
<PAGE> 41
REPORT OF INDEPENDENT AUDITORS ON SUPPLEMENTAL INFORMATION
To the Board of Directors of
TMCI Electronics, Inc.
San Jose, California
Our report on our audits of the combined financial statements of TMCI
Electronics, Inc., Touche Manufacturing Company, Inc. ["Touche"] and Touche
Electronics, Inc. ["TEI"] as of December 31, 1995 and for each of the two years
in the period ended December 31, 1995, appears on Page F-1. Those audits were
made for the purpose of forming an opinion on the combined financial statements
taken as a whole. The combining information on Pages S-2- S-5 has been subjected
to the auditing procedures applied in the audits of the combined financial
statements and is presented for purposes of additional analysis of the combined
financial statements rather than to present the financial position and results
of operations of the individual companies. Accordingly, we do not express an
opinion on the financial position and results of operations of the individual
companies. However, in our opinion, the combining information is fairly stated
in all material respects in relation to the combined financial statements taken
as a whole.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
February 13, 1996
S-1
<PAGE> 42
TMCI ELECTRONICS, INC.
================================================================================
COMBINING BALANCE SHEET AS OF DECEMBER 31, 1995.
================================================================================
<TABLE>
<CAPTION>
HISTORICALS
-----------------------------------------------
TMCI
ELECTRONICS, COMBINING
INC. TOUCHE TEI ADJUSTMENTS COMBINED
---- ------ --- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash $ 701,672 $ -- $ -- $ -- $ 701,672
Accounts Receivable - Net -- 2,435,808 1,746,603 -- 4,182,411
Inventory -- 1,149,854 2,029,463 -- 3,179,317
Due from Related Parties -- 992,480 -- (892,480) 100,000
Note Receivable - Other -- 98,989 -- -- 98,989
Due from Related Parties 200,000 -- -- (200,000) --
Prepaid Expenses and Other
Current Assets -- 145,379 21,637 -- 167,016
Deferred Income Taxes 115,200 49,760 -- -- 164,960
----------- ----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 1,016,872 4,872,270 3,797,703 (1,092,480) 8,594,365
PROPERTY AND EQUIPMENT
- NET -- 2,758,080 160,597 -- 2,918,677
STOCKHOLDER LOAN -- 232,033 -- -- 232,033
DUE FROM RELATED PARTY -- 344,676 -- -- 344,676
DEFERRED LOAN FEES - NET -- 28,500 -- -- 28,500
DEFERRED OFFERING COSTS 292,986 -- -- -- 292,986
OTHER ASSETS -- -- 930 -- 930
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS $ 1,309,858 $ 8,235,559 $ 3,959,230 $(1,092,480) $12,412,167
=========== =========== =========== =========== ===========
</TABLE>
S-2
<PAGE> 43
TMCI ELECTRONICS, INC.
================================================================================
COMBINING BALANCE SHEET AS OF DECEMBER 31, 1995.
================================================================================
<TABLE>
<CAPTION>
HISTORICALS
------------------------------------------------
TMCI
ELECTRONICS, COMBINING
INC. TOUCHE TEI ADJUSTMENTS COMBINED
---- ------ --- ----------- --------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts Payable and Accrued
Expenses $ 206,749 $ 2,815,054 $ 1,793,161 $ -- $ 4,814,964
Due to Affiliate -- 100,000 1,018,200 (1,092,480) 25,720
Line of Credit -- 740,506 904,070 -- 1,644,576
Notes Payable - Current
Portion -- 459,539 -- -- 459,539
Capital Lease Obligations -
Current Portion -- 256,237 -- -- 256,237
Convertible Promissory Notes -- 7,602 7,602 -- 15,204
Income Taxes Payable -- 258,168 -- -- 258,168
----------- ----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 206,749 4,637,106 3,723,033 (1,092,480) 7,474,408
----------- ----------- ----------- ----------- -----------
LONG-TERM LIABILITIES:
Bridge Notes Payable 537,878 -- -- -- 537,878
Notes Payable - Net of Current
Portion -- 1,100,294 97,822 -- 1,198,116
Capital Lease Obligations - Net
of Current Portion -- 478,505 -- -- 478,505
Convertible Promissory Notes -
Net of Current Portion -- 56,795 56,795 -- 113,590
Deferred Income Taxes -- 429,215 -- -- 429,215
----------- ----------- ----------- ----------- -----------
TOTAL LONG-TERM LIABILITIES 537,878 2,064,809 154,617 -- 2,757,304
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES 744,627 6,701,915 3,877,650 (1,092,480) 10,231,712
----------- ----------- ----------- ----------- -----------
COMMITMENTS AND
CONTINGENCIES -- -- -- -- --
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock 600 278,429 1,000 (279,429) 600
Additional Paid-in Capital 750,400 -- -- 279,429 1,029,829
Retained Earnings [Deficit] (185,769) 1,255,215 80,580 -- 1,150,026
----------- ----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 565,231 1,533,644 81,580 -- 2,180,455
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,309,858 $ 8,235,559 $ 3,959,230 $(1,092,480) $12,412,167
=========== =========== =========== =========== ===========
</TABLE>
S-3
<PAGE> 44
TMCI ELECTRONICS, INC.
================================================================================
COMBINING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995.
================================================================================
<TABLE>
<CAPTION>
HISTORICALS
----------------------------------------------------
TMCI
ELECTRONICS, COMBINING
INC. TOUCHE TEI ADJUSTMENTS COMBINED
---- ------ --- ----------- --------
<S> <C> <C> <C> <C> <C>
SALES - NET $ -- $ 23,601,854 $ 9,146,077 $ (4,649,012) $ 28,098,919
COST OF GOODS SOLD -- 16,091,220 8,549,441 (4,649,012) 19,991,649
------------ ------------ ------------ ------------ ------------
GROSS PROFIT -- 7,510,634 596,636 -- 8,107,270
OPERATING EXPENSES 5,145 5,825,178 554,623 -- 6,384,946
------------ ------------ ------------ ------------ ------------
[LOSS] INCOME FROM
OPERATIONS (5,145) 1,685,456 42,013 -- 1,722,324
------------ ------------ ------------ ------------ ------------
OTHER INCOME [EXPENSE]:
Other Income -- 1,775 38,619 -- 40,394
Interest Income -- 39,002 -- -- 39,002
Interest Expense (7,946) (477,891) (130,044) -- (615,881)
Non-Cash Finance Charge (287,878) -- -- -- (287,878)
Gain on Sale of Equipment -- 109,655 -- -- 109,655
------------ ------------ ------------ ------------ ------------
TOTAL OTHER [EXPENSE] (295,824) (327,459) (91,425) -- (714,708)
------------ ------------ ------------ ------------ ------------
[LOSS] INCOME BEFORE
PROVISION FOR INCOME
TAXES (300,969) 1,357,997 (49,412) -- 1,007,616
PROVISION FOR INCOME TAXES (115,200) 649,400 -- -- 534,200
------------ ------------ ------------ ------------ ------------
NET [LOSS] INCOME $ (185,769) $ 708,597 $ (49,412) $ -- $ 473,416
============ ============ ============ ============ ============
EARNINGS PER SHARE:
Net [Loss]
Income Per Share $ (.10) $ .37 $ (.02) $ -- $ .25
============ ============ ============ ============ ============
PRO FORMA NET INCOME
[UNAUDITED] [22]:
[Loss] Income Before Provision
for Income Taxes $ (300,969) $ 1,357,997 $ (49,412) $ -- $ 1,007,616
Pro Forma Income Taxes (115,200) 649,400 -- (25,100) 509,100
------------ ------------ ------------ ------------ ------------
PRO FORMA NET [LOSS]
INCOME $ (185,769) $ 708,597 $ (49,412) $ (25,100) $ 498,516
============ ============ ============ ============ ============
PRO FORMA NET [LOSS] INCOME
PER SHARE [UNAUDITED]:
[Loss] Income Before Provision
for Income Tax Per Share $ (.16) $ .71 $ (.02) $ .01 $ .53
Pro Forma Income Tax
Per Share (.06) .34 -- -- .27
------------ ------------ ------------ ------------ ------------
PRO FORMA NET INCOME
[LOSS] PER SHARE $ (.10) $ .37 $ (.02) $ .01 $ .26
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES 1,893,600
============
</TABLE>
S-4
<PAGE> 45
TMCI ELECTRONICS, INC.
================================================================================
COMBINING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994.
================================================================================
<TABLE>
<CAPTION>
HISTORICALS
-----------------------------------------------------
TMCI
ELECTRONICS, COMBINING
INC. TOUCHE TEI ADJUSTMENTS COMBINED
---- ------ --- ----------- --------
<S> <C> <C> <C> <C> <C>
SALES - NET $ -- $ 18,023,424 $ 4,797,798 $ (1,951,788) $ 20,869,434
COST OF GOODS SOLD -- 12,539,399 4,363,139 (1,951,788) 14,950,750
-------------- ------------ ------------ ------------ ------------
GROSS PROFIT -- 5,484,025 434,659 -- 5,918,684
OPERATING EXPENSES -- 4,667,588 270,866 -- 4,938,454
-------------- ------------ ------------ ------------ ------------
INCOME [LOSS] FROM
OPERATIONS -- 816,437 163,793 -- 980,230
-------------- ------------ ------------ ------------ ------------
OTHER INCOME [EXPENSE]:
Other Income -- 85,235 24,630 -- 109,865
Interest Income -- 35,022 -- -- 35,022
Interest Expense -- (545,165) (57,568) -- (602,733)
Gain on
Sale of Equipment -- 835 -- -- 835
-------------- ------------ ------------ ------------ ------------
TOTAL OTHER [EXPENSE] -- (424,073) (32,938) -- (457,011)
-------------- ------------ ------------ ------------ ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES -- 392,364 130,855 -- 523,219
PROVISION FOR INCOME TAXES -- 101,874 1,703 -- 103,577
-------------- ------------ ------------ ------------ ------------
NET INCOME $ -- $ 290,490 $ 129,152 $ -- $ 419,642
============== ============ ============ ============ ============
PRO FORMA NET INCOME
[UNAUDITED] [22]:
Income Before Provision
for Income Taxes $ -- $ 392,364 $ 130,855 $ -- $ 523,219
Pro Forma Income Taxes -- 101,874 52,342 55,072 209,288
-------------- ------------ ------------ ------------ ------------
PRO FORMA NET INCOME $ -- $ 290,490 $ 78,513 $ (55,072) $ 313,931
============== ============ ============ ============ ============
EARNINGS PER SHARE:
Net Income Per Share $ -- $ .15 $ .07 $ -- $ .22
============== ============ ============ ============ ============
PRO FORMA NET INCOME
[UNAUDITED]:
Income Before Provision for
Income Tax Per Share $ -- $ .21 $ .07 $ -- $ .28
Pro Forma Income Tax Per
Share -- .05 .03 .03 .11
-------------- ------------ ------------ ------------ ------------
PRO FORMA NET INCOME
[LOSS] PER SHARE $ -- $ .16 $ .04 $ (.03) $ .17
============== ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES 1,893,600
============
</TABLE>
S-5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 701,672
<SECURITIES> 0
<RECEIVABLES> 4,190,690
<ALLOWANCES> 8,279
<INVENTORY> 3,179,317
<CURRENT-ASSETS> 8,594,365
<PP&E> 3,620,733
<DEPRECIATION> 702,056
<TOTAL-ASSETS> 12,412,167
<CURRENT-LIABILITIES> 7,474,408
<BONDS> 0
0
0
<COMMON> 600
<OTHER-SE> 2,179,855
<TOTAL-LIABILITY-AND-EQUITY> 12,412,167
<SALES> 28,089,919
<TOTAL-REVENUES> 0
<CGS> 19,991,649
<TOTAL-COSTS> 26,376,595
<OTHER-EXPENSES> 98,827
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 615,881
<INCOME-PRETAX> 1,007,616
<INCOME-TAX> 534,200
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 473,416
<EPS-PRIMARY> .25
<EPS-DILUTED> 0
</TABLE>
