U.S. Securities and Exchange Commission
Washington, DC 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period
ended June 30, 1997
[ ] 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 registrant as specified in its charter)
State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1875 Dobbin Drive, San Jose, CA 95133
(Address of principal executive offices) (Zip Code)
(408) 272-5700
Registrant's telephone number
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report, and (2) has been subject to such
filing requirements for the past 90 days. Yes X 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. As of July 28, 1997 there were
3,596,332 shares of Common Stock, par value .001, issued and outstanding.
<PAGE>
TMCI ELECTRONICS, INC.
Page
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Historical Financial Statements
Consolidated Balance Sheets
December 31, 1996................................................ 3
June 30, 1997..................................................... 3
Consolidated Statements of Operations
Quarters Ended June 30, 1997 and 1996............................ 4
Six Months Ended June 30, 1997 and 1996.......................... 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997................................... 5
Six Months Ended June 30, 1996................................... 5
Notes to Consolidated Financial Statements........................... 6
Item 2. Management's Discussion and Analysis............................. 8
Part II -- OTHER INFORMATION
Item 6. Exhibit and Reports on Form 8-K................................. 11
Signature................................................................ 12
Exhibit 11 Computation of Earnings Per Share............................. 13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TMCI ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
(Unaudited)
ASSETS:
Current Assets:
Cash $ 29,304 $ 145,845
Accounts Receivable, Net 3,709,036 2,526,816
Inventory 7,532,589 5,170,661
Deferred Income Taxes -- 272,587
Prepaid Expenses and Other Current
Assets 348,035 187,991
Other Receivables 60,334 63,669
Notes Receivable - Stockholders 204,197 10,706
------------ ------------
Total Current Assets 11,883,495 8,378,275
------------ ------------
Property and Equipment, Net 5,060,791 3,638,300
------------ ------------
Other Assets:
Notes Receivable - Stockholders -- 155,520
Due from Stockholder's 200,195 238,167
Due from Related Party 484,065 473,952
Other Assets 18,640 48,152
Goodwill, Net 2,812,857 2,549,261
------------ ------------
Total Other Assets 3,515,757 3,465,052
------------ ------------
Total Assets $ 20,460,043 $ 15,481,627
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued
Expenses $ 2,733,769 $ 2,929,242
Line of Credit 2,581,968 585,000
Notes Payable - Current Portion 892,274 796,867
Due to Affiliate 30,635 30,634
------------ ------------
Total Current Liabilities 6,238,646 4,341,743
------------ ------------
Long Term Liabilities:
Notes Payable - Net of Current
Portion 4,110,933 2,064,273
Deferred Income Taxes 468,849 436,781
------------ -----------
Total Long-Term Liabilities 4,579,782 2,501,054
------------ -----------
Total Liabilities 10,818,428 6,842,797
------------ -----------
Commitment and Contingencies -- --
Stockholders' Equity:
Common Stock - .001 par value,
25,000,000 shares authorized,
3,596,332 issued and outstanding as
of June 30, 1997 and 3,499,772 as of
December 31, 1996 3,597 3,500
Additional Paid in Capital 7,666,561 7,366,659
Retained Earnings 1,971,457 1,268,671
------------ ------------
Total Stockholders' Equity 9,641,615 8,638,830
------------ ------------
Total Liabilities and Stockholders' ------------ ------------
Equity $ 20,460,043 $ 15,481,627
============ ============
See notes to consolidated financial statements
<PAGE>
TMCI ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
SALES, Net $ 9,601,706 $ 7,519,668 $17,044,394 $15,250,133
Cost of Goods Sold 6,254,930 5,022,516 10,858,674 10,419,266
----------- ----------- ----------- -----------
Gross Profit 3,346,776 2,497,152 6,185,720 4,830,867
Operating Expenses 2,642,883 2,021,379 4,965,912 3,877,773
----------- ----------- ----------- -----------
Income from Operations 703,913 475,773 1,219,808 953,094
----------- ----------- ----------- -----------
Other Income [Expense]:
Gain on sale of Equipment -- 14,302 -- 136,500
Life Insurance -- (2,291) -- (2,291)
Non-cash Finance Charge -- -- -- (462,122)
Interest Expense (118,819) (59,847) (234,184) (200,184)
Other Income 38,746 5,545 155,525 39,704
Interest Income -- 28,018 -- 28,018
----------- ----------- ----------- -----------
Total Other [Expense] ( 80,073) (14,273) (78,659) (460,375)
----------- ----------- ----------- -----------
Income Before Provision for
Income taxes 623,840 461,500 1,141,149 492,719
Provision for Income Taxes 227,916 189,215 438,363 200,090
Net Income $395,924 $272,285 $702,786 $292,630
======== ======== ======== ========
Earnings Per Share:
Net Income Per Share $.09 $.08 $.17 $.10
======== ======== ======== ========
Weighted Average Number of
Shares and Common Stock
Equivalents 5,393,166 3,365,600 5,393,166 2,839,886
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
TMCI ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
Six Months Ended
June 30,
--------
1997 1996
Operating Activities ---- ----
Net Income $702,786 $292,630
Adjustments to reconcile net income to
Net cash from operations:
Depreciation and amortization 618,096 395,256
Deferred income taxes 220,059 9,234
Gain on sale of equipment -- (136,500)
Non-cash financing charge -- 462,122
Amortization of Deferred loan fees -- 28,500
Charges in Assets and Liabilities:
[Increase] decrease in:
Accounts receivable, trade (873,801) 1,875,938
Inventory (2,136,627) (1,579,740)
Prepaid expenses and other current assets ( 71,460) (144,408)
Increase (decrease) In:
Accounts payable and accrued expenses (364,828) (1,621,746)
Income taxes payable 68,394 (121,212)
--------- ---------
Total Adjustments (2,540,167) (832,556)
Net cash provided by (used in) operating activities (1,837,381) (539,926)
--------- ---------
Investing Activities:
Proceeds from sales of equipment -- 193,000
Purchase of equipment (488,605) (321,689)
Note receivable - Other -- 98,898
Due from Stockholder -- ( 6,134)
Business acquisition, net of cash acquired (1,109,314) --
--------- ----------
Net cash provided by (used in) investing activities (1,597,919) (35,834)
--------- ----------
Financing activities:
Credit line Advances 3,703,135 1,381,129
Credit line Repayments (1,759,300) (1,381,129)
Debt repayment (2,860,049) (906,706)
Repayment of bridge note payable -- (1,000,000)
Proceeds from public offering -- 5,810,594
Notes payable proceeds 4,234,973 --
--------- ---------
Net cash provided by (used in) financing activities 3,318,759 2,259,312
--------- ---------
Net Increase [decrease] in cash (116,541) 1,683,552
Cash - Beginning of period 145,845 701,672
--------- ---------
Cash - End of Periods $29,304 $2,385,224
========= =========
See notes to consolidated financial statements
<PAGE>
TMCI ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1)Basis of reporting
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. 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 June 30, 1997 and
the results of its operations for the six month period 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 year ended December 31, 1996 included in
the Company's Annual Report on Form 10-KSB.
The consolidated financial statements include the accounts of TMCI
Electronics, Inc. ["TMCI"], and its wholly-owned subsidiaries, Touche
Manufacturing Company, Inc. ["Touche"], Touche Electronics Inc. ["TEI"], and
Enterprise Industries, Inc.["EII"], [collectively, the "Company"]. All
significant intercompany balances and transactions have been eliminated in
consolidation.
2) Income Per Share
Income per share of common stock is based on weighed average number of common
shares outstanding and common stock equivalents, if dilutive. for each period
presented.
3) Inventory
Inventory consists of the following:
June 30,
1997
--------
Raw Materials $4,242,291
Work in process 2,473,995
Finished Goods 816,303
-----------
Total $7,532,589
-----------
4) Acquisition of Business
Effective January 1, 1997, the Company acquired 100% of the outstanding shares
of common stock of Enterprise Industries, Inc., a North Hollywood, California
based metal stamping manufacturing business for a total purchase price of
$1,300,000, consisting of $1,000,000 in cash and the issuance of 96,560 shares
of the Company's common stock. The Company acquired assets of approximately
$1,499,000 and assumed liabilities of approximately $323,000 resulting in
goodwill of approximately $124,000, which will be amortized over 15 years under
the straight line method. The acquisition will be accounted for under the
purchase method. At the same time, the Company entered into an employment
contract with the President of Enterprise.
The following unaudited pro forma consolidated results of operations reflect the
acquisition as if it had occurred at the beginning of the period presented.
These pro forma results may not be indicative of the results that actually would
have occurred if the acquisition had been in effect on the date indicated.
<PAGE>
June 30, 1996
-------------
Total Revenues $ 16,960,930
-------------
Net Earnings $ 400,068
-------------
Earnings Per Common Share $ .14
-------------
Weighted Average Common Shares Outstanding 2,936,446
-------------
5) Arbitration of Pen Interconnect Acquisition
Subsequent to the closing of the acquisition of the San Jose Division of Pen
Interconnect, a dispute arose concerning various aspects of the transaction. On
February 14, 1997, TMCI filed a Demand for Arbitration against Pen, seeking a
substantial purchase price reduction or, in the alternative, other remedies and
damages as provided by law. Management has suspended all payments to Pen,
including payments due under the promissory notes, aggregating $900,000. Pen has
sought to accelerate the promissory notes. Management, after consultation with
legal counsel, believes that it will prevail in all material aspects of the
dispute. Accordingly, at December 31, 1996 and June 30, 1997, the Company has
classified the promissory notes as maturing under the original terms provided
therein. An arbitrator has been selected and agreed upon by all parties to the
legal proceedings.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Certain information set forth in this report includes "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and is subject to certain risks and uncertainties, including but not
limited to, the Company's limited operating history, entry into new lines of
business and the uncertainty of success of its newly acquired subsidiaries,
dependence upon major customers, risk of inventory obsolescence, substantial
competition and dependence upon a small number of key executives. Readers are
cautioned not to place undue reliance on these forward looking statements, which
are made as of the date hereof. The Company undertakes no obligation to release
any revisions to the forward looking statements to reflect events or
circumstances after the date hereof or to reflect unanticipated events or
developments.
Results of Operations
The results of operations utilizes the consolidated results from TMCI
Electronics, Inc. and its subsidiaries ( collectively, the "Company"). The
discussion below should be read in conjunction with the financial statements and
the notes thereto, that appear elsewhere in this report.
Net Sales
The Company's net sales increased approximately $2,082,000 or 28% to
$9,601,706 from $7,519,668 in the second quarter ended June 30, 1997, as
compared with the second quarter ended June 30, 1996. The growth in second
quarter sales was due primarily to a significant increase in existing as well as
new customer orders, and the introduction of new product services, which relies
upon the health of the market economy, and the general trend in product
development and demand. In contrast, the Company's net sales increased
approximately $1,794,300 or 12% to $17,044,394 from $15,250,133 for the six
month period ended June 30, 1997, as compared with the six month period ended
June 30, 1996, reflecting a slow start during the first two months of operation
and lower comparative sales results in the first quarter ended March 31, 1997,
as compared with the first quarter ended March 31, 1996. The increase in sales
is primarily due to the acquisitions of wire cable and metal stamping
manufacturing businesses as new products were included in consolidated
operations.
Gross Profit
The Company's gross profit increased approximately $849,600 or 34% to
$3,346,776 from $2,497,152 in the second quarter ended June 30, 1997, as
compared with the second quarter ended June 30, 1996. As a percentage of sales,
the Company's gross profit increased approximately 2% to 35% from 33% in the
second quarter ended June 30, 1997, as compared with the second quarter ended
June 30, 1996. In contrast, the Company's gross profit increased approximately
$1,354,853 or 28% to $6,185,720 from $4,830,867 for the six month period ended
June 30, 1997, as compared with the six month period ended June 30, 1996. As a
percentage of sales, gross profit increased approximately 4% to 36% from 32% for
the six month period ended June 30, 1997, as compared with the six month period
ended June 30, 1996. The second quarter and six month period increases in gross
profit are primarily due to better production yield and labor efficiencies, and
the acquisition of wire cable and metal stamping businesses which have allowed
the Company to reduce material costs and to tighten controls on costs, which the
Company has been able to achieve through the successful acquisition and
integration of the wire cable and stamping manufacturing businesses into its
operations.
Operating Expenses
General and administrative expenses increased approximately $621,500 or
31% to $2,642,883 for the second quarter ended June 30, 1997, as compared with
the second quarter ended June 30, 1996. As percentage of sales, general and
administrative expenses increased approximately 1% to 28% from 27% for the
second quarter ended June 30, 1997, as compared with the second quarter ended
June 30, 1996. In contrast, the Company's general and administrative expenses
increased approximately $1,088,139 or 28% to $4,965,912 from $3,877,773 for the
six month period ended June 30, 1997, as compared with the six month period
ended June 30, 1996.
<PAGE>
As a percentage of sales, the Company's general and administrative expenses
increased 4% to 29% from 25% for the six month period ended June 30, 1997, as
compared with the six month period ended June 30, 1996. The increase in
operating expenses was primarily attributable to the new acquired businesses:
San Jose Division of Pen Interconnect, Inc. and Enterprise Industries, Inc. The
impact of these acquisitions are reflected in increases in personnel, building
rental costs, repairs and maintenance, promotions and increases in management
positions and other related business operations.
Interest Expense
The Company's interest expense for the second quarter ended June 30, 1997
was approximately $118,800, representing an increase of approximately $59,000
over the second quarter ended June 30, 1996. In contrast, interest expense for
the six month period ended June 30, 1997 was approximately $234,200,
representing an increase of approximately $34,000 from the six month period
ended June 30, 1996. The Company's interest expense increased during the second
quarter and six month period ended June 30, 1997, due to increases in bank
borrowings in the second quarter and six month period ended June 30, 1997, as
compared to the second quarter and six month period ended June 30, 1996.
Other Income [Expense]
The Company's other expenses increased approximately $66,000 to $80,073
from $14,273 in the second quarter ended June 30, 1997, as compared with the
second quarter ended June 30, 1996. The increase was primarily due to a net
decrease of approximately $14,300 on the sale of equipment, a net decrease of
approximately $28,000 in interest income, and a net increase of approximately
$59,000 in interest expenses recognized, offset by a net increase of
approximately $33,200 in other income. In contrast, the Company's other expenses
decreased approximately $381,700 to $(78,659) from (460,375) in the six month
period ended June 30, 1997, as compared with the six month period ended June 30,
1996. The decrease in other expenses was primarily due to a net decrease of
approximately $462,100 in a one-time financing charge on certain bridge loans
that was incurred by the Company in the first quarter of 1996, and a net
increase of approximately $115,800 in other income, primarily due to interest
and rental income, and one time refunds from utilities, and Workmens'
Compensation, offset by a net decrease of approximately $136,500 on the sale of
equipment, and a net decrease of approximately $28,000 in interest income
recognized in the six month period ended June 30, 1996.
Net Income
Net income increased approximately $123,600 or 45% to $395,924 from
$272,285 in the second quarter ended June 30, 1997, as compared with the second
quarter ended June 30, 1996. The second quarter increase in net income was
primarily due to: (1) a net increase in income from operations of approximately
$228,100, and (2) a net increase in other expenses of approximately $65,800, and
offset by a net increase in the provision for income taxes of approximately
$38,700. In contrast, the Company's net income increased approximately $410,200
or 140% to $702,786 from $292,630 for the six month period ended June 30, 1997
as compared with the six month period ended June 30, 1996. The six month period
increase in net income was due primarily to: (1) a net increase in income from
operations of approximately $266,700, and (2) a net decrease in other expenses
of approximately $381,700, and offset by a net increase in the provision for
income taxes of approximately $238,300.
Liquidity and Capital Resources
The Company has a long-term revolving line of credit with Manufacturers
Bank ("Mfrs."), which was renewed on June 1, 1997 for an additional year, and
bears interest at Mfrs.' base rate plus 1/4%. This facility, which has been
increased by $1,100,000, allows the Company to borrow up to $5,500,000 based on
a stipulated percentage of contractually defined eligible trade accounts
receivable. The Company had approximately $2,582,000 in outstanding borrowings
under the line of credit as of June 30, 1997. In addition, the Company and Mfrs.
have agreed to a term facility of up to $4,500,000 available for equipment
purchases, which will bear interest at Mfrs.' base fixed rate of 8.75% per
annum. There were approximately $3,176,700 outstanding borrowings under this
facility as of June 30, 1997, with a remaining availability of approximately
$1,323,300 under the equipment line and approximately $2,918,000 under the
revolving line of credit at June 30, 1997.
<PAGE>
The Company's working capital increased by approximately $1,608,300 from
$4,036,532 to $5,644,849 in the six month period ended June 30, 1997. The
increase resulted primarily from an increase in accounts receivable of
approximately $1,182,200, an increase in inventory of approximately $2,361,900,
an increase in prepaid expenses of approximately $160,000, an increase in notes
receivable of approximately $193,500, a decrease in accounts payable of
approximately $195,500, offset by an increase in short-term bank borrowings of
approximately $1,997,000, and a decrease in cash of approximately $116,500.
The Company required cash to fund operating activities of approximately
($1,837,400) in the six month period ended June 30, 1997 as compared to required
cash to fund operating activities of approximately ($539,926) in the six month
period ended June 30, 1996. Cash used in investing and financing activities,
includes the purchase of equipment, debt reduction, acquisition of Enterprise
Industries, Inc., note payable proceeds, bank short-term borrowings, and
repayment of bridge note payable, was approximately $1,720,800 and $2,223,500 in
the six months ended June 30, 1997 and June 30, 1996, respectively.
During the six month period ended June 30, 1997 and June 30, 1996, the
Company spent approximately $488,600 and $321,700, respectively, to purchase
capital equipment which was funded through long-term borrowings and current
operations. Additionally, management expects the Company's level of future
capital expenditures to increase at a level that is consistent with the
Company's projected growth and operations. Management has projected capital
expenditure requirements of approximately $2,000,000 for the calendar year
ending December 31, 1997. This increase will be supported by increased bank
borrowings and internal operations.
Management believes that its current financial position, coupled with the
increase in the Company's available borrowings under its various short and
long-term credit facilities will be sufficient to meet the projected operating
needs and capital expenditure requirements through the year ending December 31,
1997.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) This Report contains the following Exhibits as required by Item 601 of
Regulation S-B.
Exhibit Description
- ------ -----------
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three month period ended June
30, 1997.
<PAGE>
SIGNATURES
Pursuant to 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: August 1, 1997 By:_____________________________________
Charles E. Shaw, Chief Financial Officer
(Principal Financial Officer)
f:\corp\client\touche\tmci\10-qsb
<PAGE>
TMCI Electronics, Inc.
Exhibit 11
Computation of Earnings Per Share
Six Months Ended
June 30,
-----------------
1997 1996
---- ----
EPS:
Net Income $702,786 $ 292,630
========= =========
Weighted Average Shares Outstanding 3,596,332 2,839,886
========= =========
EPS $0.20 $0.10
========= =========
Primary & Fully Diluted EPS:
Net Income $702,786 $ 292,630
Additional Net Income due to decrease in
Interest Expense and increase in Interest
Income, net of Income taxes 213,974 --
--------- --------
Adjusted Net Income $916,760 $292,630
========= ========
Weighted Average Number Shares Outstanding and
Common Stock Equivalents 3,515,829 2,839,886
Equivalent Shares Outstanding assuming
exercise of the Options and Warrants under
the modified Treasury Stock method 1,796,834 --
Shares held in escrow in connection
with acquisition 80,503 --
--------- ---------
Total Weighted Shares Outstanding
and Common Stock Equivalents 5,393,166 2,839,886
========= =========
Primary & Fully Diluted EPS $0.17 $0.10
========= =========
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statements of operations and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> dec-31-1997
<PERIOD-END> jun-30-1997
<CASH> 29,304
<SECURITIES> 0
<RECEIVABLES> 3,821,002
<ALLOWANCES> 111,966
<INVENTORY> 7,532,589
<CURRENT-ASSETS> 11,883,495
<PP&E> 7,945,568
<DEPRECIATION> 2,884,777
<TOTAL-ASSETS> 20,460,043
<CURRENT-LIABILITIES> 6,238,646
<BONDS> 0
0
0
<COMMON> 3,597
<OTHER-SE> 9,638,018
<TOTAL-LIABILITY-AND-EQUITY> 20,460,043
<SALES> 17,044,394
<TOTAL-REVENUES> 17,044,394
<CGS> 10,858,674
<TOTAL-COSTS> 15,824,586
<OTHER-EXPENSES> 156,325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234,184
<INCOME-PRETAX> 1,141,949
<INCOME-TAX> 439,163
<INCOME-CONTINUING> 702,786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 702,786
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
