U.S. Securities and Exchange Commission
Washington, D.C. 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 March 31, 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)
Delaware 77-0413814
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1875 Dobbin Drive, San Jose, CA 95133
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 272-5700
Issuer's telephone number
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 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 May 12, 1997 there were
3,596,332 shares of Common Stock, par value .001, issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No x
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TMCI ELECTRONICS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
[Unaudited]
For the Quarter Ended
March 31,
1997 1996
Sales, net $7,442,688 $7,730,465
Cost of goods sold 4,603,745 5,396,750
----------- ----------
Gross profit 2,838,943 2,333,715
Operating expenses 2,323,049 1,856,394
---------- ----------
Income from operations 515,894 477,321
------------ -----------
Other income [expense]:
Gain on sale of equipment -- 122,198
Other income 115,456 34,159
Non-cash finance charge -- (462,122)
Interest expense (114,042) (140,337)
--------- ---------
Total other income [expense] 1,414 (446,102)
--------- ---------
Income before provision for income taxes 517,308 31,219
Provision for income taxes 210,447 --
Net income $ 306,862 $ 31,219
========= ==========
Net income per share $ .08 $ .01
============ ============
Weighted average number of shares outstanding
and common stock equivalents 5,393,166 2,314,171
========= =========
See notes to consolidated financial statements
<PAGE>
TMCI ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS:
Current Assets:
Cash $ 62,936 $ 145,845
Accounts Receivable - Net 3,012,724 2,526,816
Inventory 6,563,485 5,170,661
Prepaid Expenses and Other
Current Assets 336,709 272,587
Deferred Income Taxes 143,078 187,991
Other Receivables 65,269 63,669
Notes Receivable - Stockholders 10,706 10,706
-------------- --------------
Total Current Assets 10,194,907 8,378,275
------------ -----------
Property and Equipment - Net 4,473,963 3,638,300
-------------- ------------
Other Assets:
Notes Receivable - Stockholders 155,520 155,520
Due from Stockholder 238,167 238,167
Due from Related Party 423,953 473,952
Other Assets 11,561 48,152
Goodwill, Net 2,678,391 2,549,261
Total Other Assets 3,507,592 3,465,052
----------- ------------
Total Assets $18,176,462 $15,481,627
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued Expenses 2,510,149 2,929,242
Line of Credit 2,428,977 585,000
Notes Payable - Current Portion 843,975 796,867
Due to Affiliate 30,635 30,634
------------ -------------
Total Current Liabilities 5,813,736 4,341,743
------------ -------------
Long -Term Liabilities:
Notes Payable - Net of Current Portion 2,669,028 2,064,273
Deferred Income Taxes 448,007 436,781
Total Long -Term liabilities 3,117,035 2,501,054
------------ ----------
Total Liabilities 8,930,771 6,842,797
------------ ----------
Commitments and Contingencies -- --
------------ ----------
Stockholders' Equity:
Common Stock - .001 par value, 25,000,000 shares authorized,
3,596,332 issued and outstanding as
of March 31, 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 1,575,533 1,268,671
---------- -----------
Total Stockholders' Equity 9,245,691 8,638,830
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,176,462 $15,481,627
=========== ===========
See notes to consolidated financial statements
<PAGE>
TMCI ELECTRONICS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited]
Three Months Ended
March 31,
1997 1996
Operating Activities
Net Income $306,862 $ 31,219
---------- ---------
Adjustments to reconcile net income to
Net Cash [Used for] Provided by Operations:
Depreciation and Amortization 290,579 224,247
Deferred Income Taxes 56,139 26,374
Gain on Sale of Equipment -- (122,198)
Non-Cash Financing Charge -- 462,122
Amortization of Deferred loan fees -- 28,500
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (177,489) 301,170
Inventory (1,167,523) (1,115,444)
Prepaid Expenses and Other Current Assets (47,812) (202,814)
Note Receivable - Other -- 98,898
Increase (Decrease) in:
Accounts payable and Accrued Expenses (512,601) (559,016)
Income Taxes Payable -- (258,968)
--------- ---------
Total Adjustments (1,558,707) (1,117,038)
Net Cash - Operating Activities - Forward (1,251,845) (1,085,819)
----------- -----------
Investing Activities:
Proceeds from Sales of Equipment -- 178,700
Purchase of Equipment (224,163) (294,335)
Note Receivable 50,000 --
Due from Stockholder -- (1,134)
Business Acquisition, net of cash acquired (923,389) --
----------- ---------
Net Cash - Investing Activities - Forward (1,097,552) (116,769)
----------- ---------
Financing Activities:
Credit Line Advances 2,613,044 6,316,000
Credit Line Payments (822,200) (6,825,028)
Debt Repayment (65,952) (652,947)
Repayment of Bridge Note Payable -- (1,000,000)
Proceeds from Public Offering -- 5,810,594
Proceeds from Note Payable 541,596 --
----------- ---------
Net Cash - Financing Activities 2,266,488 3,648,619
----------- ----------
Net Increase [Decrease] in Cash ( 82,909) 2,446,031
Cash - Beginning of Periods 145,845 701,672
----------- ----------
Cash - End of Periods $62,936 $3,147,703
=========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $84,975 $ 119,217
See notes to consolidated financial statements
<PAGE>
TMCI ELECTRONICS, INC
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 March 31, 1997 and
the results of its operations for the three 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 the weighted average number of
common shares outstanding and common stock equivalents, if dilutive, for each
period presented.
3) Common Stock
Effective January 1, 1997, the Company issued 96,560 shares of common stock in
connection with the acquisition of the business as discussed in note 5.
4) Inventory
Inventory consists of the following:
March 31,
1997
Raw Materials $3,529,926
Work in Process 2,237,894
Finished Goods 795,665
-------
Total $6,563,485
5) 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
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 $1,088,000
and assumed liabilities of approximately $323,000 resulting in goodwill of
approximately $122,600. At the same time, the Company entered into an employment
contract with the President of Enterprise.
The following unaudited pro forma combined 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.
March 31, 1996
Total Revenues $ 8,480,465
Net Earnings $ 53,719
Earnings Per Common Share $ .02
Weighted Average Common Shares Outstanding 2,410,731
<PAGE>
6) 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, the Company has classified the
promissory notes as maturing under the original terms provided therein.
<PAGE>
Item 2. Management's Discussion and Analysis
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Overview
Effective March 5, 1996, November 1, 1996, and January 1, 1997, TMCI
Electronics, Inc. ("Company") acquired Touche Manufacturing Company, Inc.
("Touche") and Touche Electronics, Inc. ("TEI"), the San Jose Division of Pen
Interconnect, Inc.("Pen"), and Enterprise Industries, Inc. ("EII"), pursuant to
certain Stock Purchase Agreements and an Asset Purchase Agreement, respectively.
The Touche and TEI, and EII Agreements were executed on December 28, 1995,
November 12, 1996, and January 24, 1997, respectively. Prior to the March 5,
1996 acquisition, the Company's operations consisted of forming of the Company,
preparing for the acquisition of Touche and TEI, as well as preparing for the
initial public offering of its securities discussed below.
Effective January 1, 1997, the Company acquired Enterprise Industries,
Inc., a metal stamping business, to augment the operations at Touche and TEI:
the value-added turnkey and wire and cable manufacturing divisions, and to
broaden its customer base with metal stamping capabilities, respectively. TEI
divisions will produce basic cable products and will provide assembly
capabilities for specialized products for their customers, respectively, while
stamping is expected to diversify overall operations. In addition, the Company's
strategy is 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 consolidated results from Touche,
TEI, Pen and EII after their acquisition by the Company, eliminating
intercompany transactions as represented by the financial statements. The
discussion below should be read in conjunction with the financial statements and
the notes thereto, that appear elsewhere in this report.
Net Sales
Net sales decreased by approximately $287,800 or 4% to $7,442,688 from
$7,730,465 for the quarter ended March 31, 1997 as compared to the quarter ended
March 31, 1996. The decrease in sales was due primarily to a comparatively slow
start during the first two months of operation in the quarter. Because of a
slowly recovering OEM market, the Company's customers lowered their demand
requirements for product and placed smaller orders for manufacture and assembly
with the Company. Even though the first quarter sales results were lower than
that recorded for the same period a year prior, sales for the quarter ended
March 31, 1997 were actually up approximately 32% over the fourth quarter ended
December 31, 1996, which are in line with improving market conditions within the
industry, and it is expected that this trend will continue during 1997.
Gross Profit
Gross profit increased approximately $505,200 or 22% to $2,838,943 from
$2,333,715 for the quarter ended March 31, 1997 as compared to the quarter ended
March 31, 1996. As a percentage of sales, gross profit increased approximately
8% to 38% from 30% for the quarter ended March 31, 1997 as compared to the
quarter ended March 31, 1996. The increase is primarily due to improvements in
operations through better production yield, labor efficiencies, and a reduction
in material costs.
Operating Expenses
General and administrative expenses increased approximately $466,700 or
25% to $2,323,049 from
<PAGE>
$1,856,394 for the quarter ended March 31, 1997 as compared to the quarter ended
March 31, 1996. As a percentage of sales, the Company's general and
administrative expenses increased 7% to 31% from 24% for the quarter ended March
31, 1997, as compared to the quarter ended March 31, 1996. The increase in
operating expenses was primarily due to investments in infrastructure and
through business acquisitions: San Jose Division of Pen Interconnect, Inc. and
Enterprise Industries, Inc. in support of planned growth and expansion. These
investments continue to reflect an increase in personnel, building rental costs,
repairs, promotions and increases in management positions and other related
items.
Other income [expense]
Other income increased approximately $447,500 or 315% to $1,414 from
($446,102) in the quarter ended March 31, 1997 as compared with the quarter
ended March 31, 1996. The increase in other income 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, a
net decrease of approximately $26,300 in interest expense due to a decrease in
borrowings as a result of the utilization of proceeds from the initial public
offering, and a net increase of approximately $81,300 in other income, offset by
a net decrease of approximately $122,200 on the sale of equipment recognized in
the quarter ended March 31, 1996.
Net Income
Net income increased by approximately $275,600 or 883% to $306,862 from
$31,219 for the quarter ended March 31, 1997 as compared to the quarter ended
March 31, 1996. The increase in net income was primarily due to: (1) income from
operations of approximately $515,900, and (2) other income of approximately
$115,500, offset by a provision for income taxes of approximately $210,500, and
interest expense of approximately $114,000.
Liquidity and Capital Resources
The Company has a long-term revolving line of credit with Manufacturers
Bank ("Mfrs"), which expires June 1, 1997, and bears interest at Mfrs' base rate
plus 1/2% which was based on the completion of re-negotiations for increased
credit limits and lower interest rates. These completed negotiations permits the
Company to borrow up to $4,400,000 based on a stipulated percentage of
contractually defined eligible trade accounts receivable, including EII. The
Company had approximately $2,429,000 in outstanding borrowings under the line of
credit as of March 31, 1997. In addition, the Company and Mfrs have agreed to a
term facility of up to $2,500,000 available for equipment purchases, which will
bear interest at Mfrs' base rate plus 1%. There were approximately $1,624,400
outstanding borrowings under this facility as of March 31, 1997.
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 apply the remaining proceeds to working capital.
The Company's working capital increased by approximately $344,600 from
$4,036,532 to $4,381,171 in the first fiscal quarter ended March 31, 1997. The
increase resulted primarily from an increase in accounts receivable of
approximately $485,900, an increase in inventory of approximately $1,392,800, a
decrease in accounts payable of approximately $419,100, and an increase in bank
short-term borrowings of approximately $1,844,000. The increase in inventory is
due to the Company's planned growth and business acquisition during the quarter
ended March 31, 1997.
The Company required cash to fund operating activities of approximately
($1,252,500) in the fiscal quarter ended March 31, 1997 as compared to required
cash to fund operating activities of approximately ($1,085,800) in the fiscal
quarter ended March 31, 1996. Cash used in investing and financing activities,
includes
<PAGE>
the purchase of equipment, note receivable, debt reduction, acquisition of a
Stamping Company (see Note 5, Acquisition of Business), note payable proceeds,
bank short-term borrowings, proceeds from public offering, and repayment of
bridge note payable, was approximately $1,267,100 and $3,648,600 in the quarters
ended March 31, 1997 and March 31, 1996, respectively.
During the quarter ended March 31, 1997 and March 31, 1996, the Company
spent approximately $224,200 and $294,300, 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 operational projects. Management has projected capital
expenditure requirements of approximately $2,000,000 for the fiscal year ending
December 31, 1997. This increase will be supported by increased bank borrowings
and internal operations.
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 expenditure requirements for the next twelve months.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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, the Company has classified the
promissory notes as maturing under the original terms provided therein.
Item 2. Changes in Securities.
On January 24, 1997, the Company completed the acquisition of 100% of the
outstanding shares of capital stock of Enterprise Industries, Inc. for a total
purchase price of $1,500,000 consisting of $1,000,000 in cash and the issuance
of 96,560 shares of the Company's common stock pursuant to an exemption under
the Securities Act.
However, the effective date of acquisition is January 1, 1997. (See Note 5)
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
10.1 Stock Purchase Agreement of Enterprise Industries, Inc.*
11.0 Computation of Earnings Per Share
(b) On February 7, 1997 the Company filed with the Securities and Exchange
Commission (the "Commission"), a Current Report on Form 8-K containing
information relating to the acquisition, by the Company, of Enterprise
Industries, Inc. ("EII") pursusant to a Stock Purchase Agreement effective
January 1, 1997.
*Incorporated by reference from the registrant's Current Report on Form 8-K
filed on February 7, 1997 (File No. 0-27510)
<PAGE>
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 13, 1997 By:_____________________________________
Charles Shaw, Chief Financial Officer
(Principal Financial Officer)
<PAGE>
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 13, 1997 /s/ Charles Shaw
-------------------------------------
Charles Shaw, Chief Financial Officer
(Principal Financial Officer)
TMCI Electronics, Inc.
Exhibit 11
Computation of Earnings Per Share
For the Quarter Ended
March 31,
1997 1996
EPS:
Net Income $306,862 $31,219
======== =======
Weighted average shares outstanding 3,515,829 2,314,171
========= =========
EPS $0.09 $0.01
========= =========
Primary & Fully Diluted EPS:
Net Income $306,862 $31,219
Additional net income due to decrease in
interest expense and increase in interest
income, net of income taxes 114,401 --
--------- --------
Adjusted net income $421,263 $31,219
======== ========
Weighted average shares outstanding and
common stock equivalents 3,515,829 2,314,171
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 equilalents 5,393,166 2,314,171
========= =========
Primary & Fully Diluted EPS $0.08 $0.01
========= =========
<PAGE>
