<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
-----------------------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ----------
Commission file number 0-27510
--------------------------------
TMCI ELECTRONICS, INC.
- - --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 77-0413814
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1875 DOBBIN DRIVE, SAN JOSE, CA 95133
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (408) 272-5700
------------------------------------------------------
- - --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days. Yes No xxx
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,365,600.
Transitional Small Business Disclosure Format (check one): Yes No x
--- ---
1
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TMCI ELECTRONICS, INC
STATEMENT OF OPERATIONS
[UNAUDITED]
<TABLE>
<CAPTION>
Three Months ended
March 31,
--------------------------
1996 1995
Consolidated Combined
--------------------------
<S> <C> <C>
SALES, net $ 7,730,465 $ 6,442,430
Cost of Goods Sold $ 5,396,750 $ 4,475,061
----------- -----------
Gross Profit $ 2,333,715 $ 1,967,369
Operating Expenses $ 1,856,394 $ 1,359,219
----------- -----------
Income from operations 477,321 608,150
----------- -----------
Other Income [Expense]:
Gain on sale of equipment 122,198 $ -
Other income 34,159 11,880
Non-cash finance Charge (462,122) $ -
Interest expense (140,337) (143,329)
----------- -----------
Total other [expense] (446,102) (131,449)
----------- -----------
Income Before Provision for Income taxes 31,219 $ 476,701
Provision for Income Taxes $ - $ -
Net Income $ 31,219 $ 476,701
----------- -----------
Earnings per Share:
Net Income Per Share $ .01 $ .21
Pro Forma Net Income [see note]
Income Before Provision for Income Taxes $ 31,219 $ 476,701
Proforma Income Taxes 6,200 134,600
----------- -----------
Proforma Net Income $ 25,019 $ 342,101
Pro Forma Net Income per Share
Income before Provision for Income Tax per Share $ .01 $ .25
Pro-Forma Income Tax per Share $ 0 $ .07
----------- -----------
Pro-Forma Net Income per Share $ .01 $ .18
=========== ===========
Weighted Average number of Shares 2,314,171 1,893,600
=========== ===========
</TABLE>
(SEE NOTES TO FINANCIAL STATEMENTS)
2
<PAGE> 3
TMCI ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Current Assets:
Cash $ 3,147,703
Accounts Receivable, Net 3,881,241
Due from Related Party 100,000
Inventory 4,294,761
Deferred Income Taxes 99,800
Prepaid Expenses and Other Current Assets 369,830
-----------
Total Current Assets $11,893,335
-----------
Property and Equipment - Net 3, 605,276
-----------
Other Assets:
Due from Stockholder $ 233,166
Due from Related Party 344,676
Other Assets 865
-----------
Total Other Assets 578,707
-----------
Total Assets $16,077,318
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and Accrued Expenses $ 3,983,440
Line of Credit 1,164,048
Notes Payable - Current Portion 472,009
Capital Lease Obligation - Current Portion 157,336
Due to Affiliate 25,720
-----------
Total Current Liabilities $ 5,802,553
-----------
Long Term Liabilities:
Notes Payable - Net of Current Portion $ 1,412,510
Capital Lease Obligation - Net of Current Portion 470,837
Deferred Income Taxes 405,829
-----------
Total long-term liabilities $ 2,289,176
-----------
Total Liabilities $ 8,091,729
-----------
Commitment and Contingencies
Stockholders' Equity:
Common Stock - .001 par value, 25,000,000 shares
authorized, 3,365,600 issued and outstanding $ 3,366
Additional Paid in Capital $ 6,829,708
Retained Earnings $ 1,152,515
-----------
Total Stockholders' Equity $ 7,985,589
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,077,318
-----------
</TABLE>
(SEE NOTES TO FINANCIAL STATEMENTS)
3
<PAGE> 4
TMCI ELECTRONICS, INC
STATEMENT OF CASH FLOWS
[UNAUDITED]
<TABLE>
<CAPTION>
Three Months ended
March 31,
--------------------------
1996 1995
Consolidated Combined
--------------------------
<S> <C> <C>
Operating Activities
Net Income 31,219 476,701
----------- -----------
Adjustments to reconcile net income to
net cash from operations:
Depreciation and amortization $ 224,247 $ 167,708
Deferred income taxes $ 26,465 $ 73,146
Gain on sale of equipment $ (122,198) $ -
Non-cash financing charge $ 462,122 $ -
Amortization of Deferred loan fees $ 28,500 $ -
Charges in Assets and Liabilities:
[Increase] decrease in:
Accounts receivable, trade $ 301,170 $ (417,980)
Inventory $(1,115,444) $ (85,110)
Prepaid expenses and other current assets $ (202,814) $ (78,840)
Note receivable - Other $ 98,898 $ (8,377)
Increase (decrease) In:
Accounts payable and accrued expenses $ (559,016) $ 7,513
Income taxes payable $ (258,968) $ (103,146)
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Total Adjustments (1,117,038) (274,866)
Net Cash - Operating Activities - Forward $(1,085,819) $ 201,835
----------- -----------
Investing Activities:
Proceeds from sales of equipment $ 178,700 $ -
Purchase of equipment $ (294,335) $ (267,256)
Note receivable $ - $ (2,575)
Due from Stockholder $ (1,134) $ (14,611)
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Net Cash - Investing Activities - Forward $ (116,769) $ (284,442)
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Financing Activities:
Credit line, net $ (509,028) $ 87,343
Debt repayment $ (652,947) $ (178,837)
Repayment of Bridge note payable $(1,000,000) $ -
Proceeds from public offering $ 5,810,594 $ -
Note payable proceeds $ - $ 228,742
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Net Cash - Financing Activities $ 3,648,619 $ 137,248
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Net Increase [Decrease] in Cash $ 2,446,031 $ 54,641
Cash - Beginning of Periods $ 701,672 $ 15,916
----------- -----------
Cash - End of Periods $ 3,147,703 $ 70,557
=========== ===========
</TABLE>
(SEE NOTES TO FINANCIAL STATEMENTS)
4
<PAGE> 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Effective March 11, 1996, TMCI Electronics, Inc. ("Company") acquired Touche
Manufacturing Company, Inc. ("Touche") and Touche Electronics, Inc. ("TEI")
pursuant to certain Stock Purchase Agreements executed on December 28, 1995.
Prior to that time, the Company's operations consisted of forming of the
Company, preparing for the acquisition of Touche and TEI, as well preparing for
the initial public offering of its securities discussed below.
In the first quarter ended March 31, 1996, the Company made a limited investment
to start two new divisions at TEI: the Wire and Cable Manufacturing division and
the Clean Room Assembly division. These divisions will produce basic cable
products and will provide clean-room assembly capabilities for specialized
products for their customers, respectively. The Company's strategy has been to
expand its core and value added businesses by increasing its product offerings
to satisfy its customers' needs and their growing demand for more outsourcing of
contract manufacturing services.
Results of Operations
The results of operations utilizes the combined results from Touche and TEI
prior to their acquisition by the Company, eliminating intercompany transactions
as represented by the financial statements. The table and the discussion below
should be read in conjunction with the financial statements and the notes
thereto that appear elsewhere in this report.
<TABLE>
<CAPTION>
Combined Statements of Operations
Three Months Ended
March 31,
---------
1996 1995
----------- -----------
<S> <C> <C>
Sales(1) $ 7,730,465 $ 6,442,430
Cost of goods sold(1) 5,396,750 4,475,061
----------- -----------
Gross Profit 2,333,715 1,967,369
Operating expenses 1,856,394 1,359,219
----------- -----------
Income before tax provision 477,321 608,150
Other income (expense) (305,765) 11,880
Interest expense (140,337) (143,329)
----------- -----------
Net income $ 31,219 $ 476,701
=========== ===========
</TABLE>
(1) Net of intercompany sales and cost of goods sold as follows:
<TABLE>
<S> <C>
March 31,1996.............................. $1,569,812
March 31,1995.............................. $1,368,806
</TABLE>
7
<PAGE> 6
Net Sales
Net sales increased by approximately $1,288,000 or 20% to $7,730,465 from
$6,442,430 for the fiscal quarter ended March 31, 1996 as compared to the fiscal
quarter ended March 31, 1995. The increase in sales was due primarily to an
increase in the volume of contracts from the core business and value-added
turnkey business.
Gross Profit
Gross profit increased approximately $366,300 or 16% to $2,333,715 from
$1,967,369 for the fiscal quarter ended March 31, 1996 as compared to the fiscal
quarter ended March 31, 1995. As a percentage of sales, gross profit stayed
basically even for the fiscal quarter ended March 31, 1996 as compared to the
fiscal quarter ended March 31, 1995. Certain improvements in operational
efficiencies were offset by lower margins in the turnkey business.
Operating Expenses
Operating expenses increased approximately $497,200 or 37% to $1,856,394 from
$1,359,219 for the fiscal quarter ended March 31, 1996 as compared to the fiscal
quarter ended March 31, 1995. As a percentage of sales, the Company's operating
expenses increased 3% to 24% from 21% for the fiscal quarter ended March 31,
1996 as compared to the fiscal quarter ended March 31, 1995. Operating expenses
increased primarily due to an investment in infrastructure to support planned
substantial growth, including two new operating divisions. This investment
included additional personnel, building rental costs, repairs, professional
fees, promotions of certain engineers to management positions and other items.
Interest Expense
Interest expense for the three month period ended March 31, 1996 was
approximately $140,300, representing a slight decrease of approximately $3,000
or 2% from the three month period ended March 31, 1995. Interest expense
decreased during the three month period ended March 31, 1996 due to scheduled
repayments of outstanding debt and capital lease obligations, and a decline in
bank borrowings.
Net Income
Net income decreased approximately $445,482 or 93% to $31,219 from $476,701 for
the fiscal quarter ended March 31, 1996 as compared to the fiscal quarter ended
March 31, 1995. The decline in net income was due primarily to: (1) a one-time
financing charge of approximately $462,100 on certain bridge loans that were
made to the Company in the fourth quarter of 1995 to help fund its initial
public offering, and (2) increased operating expenses incurred to fund two new
divisions which did not generate income in the first quarter; partially offset
by a gain of approximately $122,000 on the sale of capital equipment, and
approximately $35,000 in other income.
8
<PAGE> 7
Liquidity and Capital Resources
The Company has a long-term revolving line of credit with Manufacturers Bank
("Mfrs"), which expires May 1, 1997, and bears interest at Mfrs' base rate plus
3/4%. This facility permits the Company to borrow up to $4,000,000 based on a
stipulated percentage of contractually defined eligible trade accounts
receivable. The Company had approximately $1,164,000 in outstanding borrowings
under the line of credit as of March 31, 1996. In addition, the Company and Mfrs
have agreed to a term facility of up to $1,500,000 available for equipment
purchases, which will bear interest at Mfrs' base rate plus 1 1/4%. There were
approximately $798,900 outstanding borrowings under this facility as of March
31, 1996.
On March 11, 1996, the Company closed an Initial Public Offering of its
securities resulting in net proceeds of approximately $ 5.8 million. The Company
used the proceeds of the offering to repay certain bridge notes and other debt
and applied the remaining proceeds to working capital.
The Company's working capital increased by approximately $5,000,000 from
$1,100,000 to $6,100,000 during the first fiscal quarter ended March 31, 1996.
This increase resulted primarily from an increase in cash of approximately
$2,500,000 from the initial public offering net proceeds, an increase in
inventory of approximately $1,100,000, a decrease in account payable of
approximately $900,000 and a decrease in the line of credit draw-down of
approximately $500,000. The increase in inventory resulted mainly from planned
growth in sales volume.
The Company required cash to fund operating activities of approximately
($1,085,800) in the fiscal quarter ended March 31, 1996 as compared to
generating cash from operating activities of approximately $201,800 in the
fiscal quarter ended March 31, 1995. Additional cash was required to pay for
inventory buildup, a reduction in accounts payable, tax payments and an increase
in prepaid expenses. Cash used in investing and financing activities, which
includes sale and purchase of equipment, deferred offering costs, debt
reduction, bridge note payable, note receivable from Touche Properties, Inc.,
issuance of common stock and additional paid-in capital was approximately
$3,648,600 and $137,200 in the fiscal quarters ended March 31, 1996 and March
31, 1995, respectively.
During the three-month period ended March 31, 1996, the Company's property,
plant, and equipment increased by approximately $687,600. Management has
projected capital equipment expenditures to be approximately $450,000 for the
remainder of fiscal 1996. During the three-month period ended March 31, 1996,
the Company spent approximately $294,300 of cash to purchase capital assets,
which was funded through long-term borrowing.
Management expects the Company's level of future capital
expenditures to remain at current levels consistent with the Company's
operational projects. Management has projected capital expenditure requirements
of approximately $450,000 for fiscal December 31, 1996.
Management believes that its current financial position, together with available
borrowings under the Company's various credit facilities will be sufficient to
meet the Company's anticipated operating needs and projected capital assets
purchase requirements for the next twelve months.
Certain statements made above relating to plans, objectives and economic
performance go beyond historical information and may provide an indication of
future results. To that extent, they are forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and 21E of the
Securities Exchange Act of 1934, as amended, and each is subject to factors that
could cause actual results to differ from those in the forward looking
statement. Such factors include but are not limited to, the assumption that no
material changes in the general market conditions will occur and the assumption
that the Company does not incur any unprojected material capital expenditures.
9
<PAGE> 8
TMCI ELECTRONICS, INC
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1) BASIS OF REPORTING
The entities noted below executed an exchange of shares among entities under
common control, upon the effectiveness of a public offering of securities [ See
Note 6 ]
The balance sheet as of March 31, 1996 is presented on a consolidated basis and
includes TMCI Electronics, Inc. ["TMCI"], and its wholly -owned subsidiaries,
Touche Manufacturing Company, Inc. ["Touche"] and Touche Electronics Inc.
["TEI"]. [collectively, the "Company"]. The consolidated financial statements
for the period ended March 31, 1996 includes the results of operations, cash
flow and changes in stockholders' equity for the three months then ended.
The combined financial statements for the period ended March 31, 1995, include
the results of operations, cash flow and changes in stockholders' equity for
Touche and TEI for the three months then ended.
The accompanying unaudited consolidated and combined financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to form 10-QSB and Item
301(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, such statements include all adjustments
(consisting only of normal recurring items) which are considered necessary for a
fair presentation of the financial position of the Company at March 31, 1996 and
the results of its operations and cash flows for the three month periods ended
March 31, 1996 and 1995 then ended. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full year.
It is suggested that these financial statements be read in conjunction with the
financial statement and notes for the period ended December 31, 1995 included in
the Company's 10KSB.
2) INCOME PER SHARE
Income per share of common stock is based on weighed average number of common
shares outstanding for each period presented. Common stock equivalents are
included if dilutive.
3) COMMON STOCK
At March 31, 1996, 3,365,600 shares of the Company's common stock were issued
and outstanding.
5
<PAGE> 9
4) INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
March 31,
1996
----------
<S> <C>
Raw Materials $2,106,816
Finished Goods 139,039
Work in process:
Materials 1,561,840
Direct Labor 233,643
Overhead 253,420
----------
Total $4,294,761
----------
</TABLE>
5) REVOLVING CREDIT LINE
On March 28, 1996, 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 of $
4 million. Interest on this credit line is calculated at prime plus 3/4 % which
at March 31, 1996 was 9%. The line of credit agreement , which shall continue
for one year, is secured with all of the assets of the company.
6) PUBLIC OFFERING
On March 11, 1996, the Company closed the 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 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 twenty consecutive trading days ending within five days prior to the
date of the notice of redemption.
7) PRO FORMA INCOME TAXES
As of March 10, 1996, the Initial Public Offering which resulted in the
termination of the "S" corporation status of TEI had not yet occurred. The pro
forma tax amounts have been computed as if the termination had occurred at the
beginning of all periods presented.
6
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS and REPORTS on FORM 8-K
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
1996 1995
---- ----
<S> <C> <C>
Fully Diluted:*
Weighted average number of Common Shares Outstanding
Disregarding Potentially Dilutive Common Stock
Purchase Warrants and options 2,314,171 1,893,600
Assumed Exercise of Options 53,125 0
Assuming Conversion of Warrants(1) 0 0
--------- ---------
Weighted average number of Common Shares Outstanding
as adjusted 2,367,296 1,893,600
--------- ---------
Income for Fully Diluted Calculations 31,219 476,701
--------- ---------
Fully Diluted Earnings per Common Share .02 .21
--------- ---------
</TABLE>
(1) Class A Warrants are excluded from the calculation as they do not become
exercisable until March 5, 1997. However, if effect was given to the exercise of
all such warrants, Weighted average number of common shares outstanding as
adjusted would have been increased by 798,880.
* This calculation is submitted in accordance with Securities Exchange Act of
1934 Release No. 9083 Although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
10
<PAGE> 11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TMCI Electronics, Inc.
-----------------------------
(Registrant)
Date: May 20, 1996 /s/ Charles Shaw
-------------------------------------
Charles Shaw, Chief Financial Officer
(Principal Financial Officer)
11
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TMCI Electronics, Inc.
-----------------------------
(Registrant)
Date: May 20, 1996 /s/ Charles Shaw
-------------------------------------
Charles Shaw, Chief Financial Officer
(Principal Financial Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,147,703
<SECURITIES> 0
<RECEIVABLES> 3,889,520
<ALLOWANCES> 8,279
<INVENTORY> 4,294,761
<CURRENT-ASSETS> 11,893,335
<PP&E> 3,829,523
<DEPRECIATION> 224,247
<TOTAL-ASSETS> 16,077,318
<CURRENT-LIABILITIES> 5,802,553
<BONDS> 0
0
0
<COMMON> 3,366
<OTHER-SE> 7,982,223
<TOTAL-LIABILITY-AND-EQUITY> 16,077,318
<SALES> 7,730,465
<TOTAL-REVENUES> 0
<CGS> 5,396,750
<TOTAL-COSTS> 7,253,144
<OTHER-EXPENSES> 305,765
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140,337
<INCOME-PRETAX> 31,219
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,219
<EPS-PRIMARY> .01
<EPS-DILUTED> .02
</TABLE>
