U.S. Securities and Exchange Commission
Washington, DC 20549
Form 10-Q/A
(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, 1998
[ ] 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 (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 No X
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 6, 1998 there were
4,196,416 shares of Common Stock, par value $.001, issued and outstanding.
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TMCI ELECTRONICS, INC. AND SUBSIDIARIES
Page
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1997......................................... 3
March 31, 1998 (Unaudited)............................... 3
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1998 and 1997................ 4
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1998 and 1997............... 5
Notes to Consolidated Financial Statements (Unaudited)..... 6
Item 2. Management's Discussion and Analysis................... 9
Part II -- OTHER INFORMATION
Item 6. Exhibit and Reports on Form 8- K....................... 14
Signature....................................................... 15
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TMCI ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1 9 9 8 1 9 9 7
(Unaudited)
ASSETS:
Current Assets:
Cash $ 446,402 $ 312,682
Accounts Receivable, Net 3,257,337 3,950,341
Inventory 11,638,968 9,721,050
Deferred Income Taxes 325,450 183,376
Prepaid Expenses and Other Current Assets 722,223 182,968
Notes Receivable - Stockholders 43,383 39,312
---------- -----------
Total Current Assets 16,433,763 14,389,729
---------- -----------
Property and Equipment, Net 8,933,758 6,583,260
---------- -----------
Other Assets:
Notes Receivable - Stockholders 144,293 144,293
Due from Stockholders 111,984 111,984
Due from Related Party 497,379 469,878
Other Assets 1,043,370 277,438
Goodwill, Net 7,203,367 6,766,564
---------- -----------
Total Other Assets 9,000,393 7,770,157
---------- -----------
Total Assets $34,367,914 $28,743,146
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued Expenses $3,403,595 $ 4,050,925
Line of Credit 4,585,508 3,856,268
Notes Payable - Current Portion 747,384 2,055,256
Promissory Note Stockholder 312,348 1,313,493
---------- -----------
Total Current Liabilities 9,048,835 11,275,942
---------- -----------
Long Term Liabilities:
Notes Payable - Net of Current Portion 7,410,603 3,607,877
Convertible Debentures 1,179,466 --
Deferred Income Taxes 573,338 560,180
---------- -----------
Total Long-Term Liabilities 9,163,407 4,168,057
---------- -----------
Total Liabilities 18,212,242 15,443,999
---------- -----------
Commitment and Contingencies -- --
---------- -----------
Stockholders' Equity:
Common Stock - $.001 par value, 25,000,000 shares
authorized, 4,196,416 issued and outstanding as
of March 31, 1998 and 4,057,758 as of
December 31, 1997 4,196 4,057
Additional Paid in Capital 13,889,720 10,890,233
Retained Earnings 2,261,756 2,404,857
---------- -----------
Total Stockholders' Equity 16,155,672 13,299,147
---------- -----------
Total Liabilities and Stockholders' Equity $34,367,914 $28,743,146
=========== ===========
See notes to consolidated financial statements.
3
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TMCI ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
Three months ended
March 31,
1 9 9 8 1 9 9 7
------- -------
Sales, Net $10,199,819 $ 7,442,688
Cost of Goods Sold 8,453,357 5,487,144
---------- -----------
Gross Profit 1,746,462 1,955,544
Operating Expenses 1,166,192 1,149,694
Depreciation 349,046 248,500
Amortization 166,595 41,456
---------- -----------
Income from Operations 64,629 515,894
---------- -----------
Other Income [Expense]:
Non-Cash Finance Charge (129,093) --
Interest Expense (315,263) (114,042)
Other Income 145,404 108,137
Interest Income - Related Parties 4,071 7,319
---------- -----------
Total Other [Expense] (294,881) 1,414
---------- -----------
[Loss] Income Before Provision for Income Taxes (230,252) 517,308
Provision [Benefit] for Income Taxes (87,151) 210,447
---------- -----------
Net [Loss] Income $ (143,101) $ 306,861
========== ===========
Basic [Loss] Earnings Per Share $ (.04) $ .09
========== ===========
Weighted Average Number of Shares 4,057,758 3,515,829
========== ===========
Diluted [Loss] Earnings Per Share:
Incremental Shares from Assumed Conversion of
Options and Warrants and Potential Common
Shares from Beneficial Conversion Feature 814,963 439,484
========== ===========
Adjusted Weighted Average Number of Shares 4,872,721 3,955,313
========== ===========
Diluted [Loss] Earnings Per Share $ (.04) $ .08
========== ===========
See notes to consolidated financial statements.
4
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TMCI ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
Three months ended
March 31,
1 9 9 8 1 9 9 7
------- -------
Operating Activities
Net [Loss] Income $ (143,101) $ 306,861
---------- -----------
Adjustments to Reconcile Net Income to Net
Cash From Operations:
Depreciation 349,046 248,500
Amortization 166,595 41,456
Deferred Income Taxes (128,917) 56,169
Non-Cash Financing Charge 129,093 --
Reversal of Bad Debt Provision (129,199) --
Charges in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable, Trade 1,019,133 (177,488)
Inventory (1,745,337) (1,167,523)
Prepaid Expenses and Other Current Assets (559,042) (47,812)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses (712,057) (512,008)
Income Taxes Payable (265,005) --
---------- -----------
Total Adjustments (1,875,690) (1,558,706)
---------- -----------
Net Cash Provided by (Used In) Operating Activities (2,018,791) (1,251,845)
---------- -----------
Investing Activities:
Purchases Other Assets (262,105) --
Purchase of Equipment (480,865) (224,163)
Note Receivable - Other -- 50,000
Business Acquisition, Net of Cash Overdraft
Assumed and Acquired (366,600) (923,389)
Net Cash Provided by (Used In) Investing
Activities (1,109,570) (1,097,552)
---------- -----------
Financing Activities:
Credit Line Advances 4,899,758 2,613,044
Credit Line Repayments (361,000) (822,200)
Debt Repayment -- (65,952)
Repayment of Notes Payable (10,389,471) --
Proceeds from Convertible Debentures 3,300,000 --
Notes Payable Proceeds 5,812,794 541,596
---------- -----------
Net Cash Provided by (Used In) Financing Activities 3,262,081 2,266,488
---------- -----------
Net Increase [Decrease] in Cash 133,720 (82,909)
Cash - Beginning of Period 312,682 145,845
---------- -----------
Cash - End of Periods $ 446,402 $ 62,936
========== ===========
See notes to consolidated financial statements.
5
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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 as of March 31, 1998
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, 1997 included in
the Company's Annual Report on Form 10-K.
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"], Enterprise Industries,
Inc.["EII"], Trinity Electronics, Inc., and Try-Die, Inc. [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:
March 31,
1 9 9 8
Raw Materials $ 6,786,795
Work in process 4,120,489
Finished Goods 731,684
-----------
Total $11,638,968
4) Sale of Debentures
On February 10, 1998, the Company closed an offering of 3 Units, each Unit
consisting of 4 of its 5%, $275,000 principal amount Convertible Subordinated
Debentures due February 10, 2001 (the "Debentures") and 100,000 Class B Warrants
to purchase common stock of the Company (the "Warrants") for a total of $3.3
million. Interest on the Debentures accrues quarterly and is payable annually.
Proceeds from the sale of the Debentures were used to repay the $1,000,000 note
issued in connection with the Trinity acquisition; the remainder of the proceeds
went to working capital.
The Debentures are convertible into common stock at the option of the holder at
a variable conversion price ranging from $3.00 to $5.50 per share depending on
the market value of the common stock of the Company at the time of the notice of
conversion. Accordingly, the Company may be required to issue no less than
600,000 shares nor more than 1,100,000 shares of common stock upon conversion of
the Debentures.
6
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TMCI ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
4) Sale of Debentures (Continued)
As a result of the above transaction, the Company recorded a discount on the
convertible debentures and additional paid-in capital in the amount of
$1,412,534 in connection with the beneficial conversion feature of the
subordinated debentures. Accordingly, the discount is being amortized over 2
years when the convertible debentures are first convertible at 70 percent the
market price of the common stock.
In addition, the Company is issuing 25,000 Warrants per Debenture for each
Debenture outstanding as of the earlier to occur of the one year anniversary of
the closing date of the sale of the Debentures or the date three months
following the registration of the common stock usable upon conversion of the
Debentures and upon the exercise of the Warrants. The Warrants have an exercise
price of $5.50 per share, subject to adjustment for dilutive issuances. The
Company is obligated to register the common stock underlying the Debentures and
the Warrants with the Securities and Exchange Commission.
As a result of the above transaction, the Company recorded a discount on the
convertible debentures and additional paid-in capital in the amount of $837,000
in connection with the value of the warrants. Accordingly, the discount is being
amortized over 3 years when the warrants expire.
The Company recorded a non-finance charge of $129,000 in connection with the
amortization of the beneficial conversion feature of the convertible debentures
and the amortization associated with the value of the warrants.
In connection with the foregoing issuance, the Company paid a finder's fee in
the amount of $176,000 in cash pursuant to terms of a Non Circumvention and
Finder's Fee Agreement (the "Agreement") and a $66,000 credit toward the
purchase of one quarter of one Debenture. The Agreement calls for (1) the
issuance of the number of shares of common stock to equal to 5% of the principal
amount of the securities sold divided by the greater of (a) any stated
conversion price in the Debenture and (b) the average of the closing bid and
asked prices of the common stock of the Company for the five trading days prior
to the closing and, (2) in this case, a number of warrants equal to 10% of the
number of shares issuable based on the Stated Conversion Price as defined in the
Agreement, to be determined between 60,000 and 110,000. The warrants are to be
issued at 125% of the average of the closing of the bid and asked prices of the
common stock of the Company for the five trading days preceding their issuance,
are non callable and expire three years from their date of issuance.
The Agreement also provides that upon exercise of any Warrants issued in the
offering, the finders shall receive a cash fee equal to 4% of the amount
received upon exercise of the Warrants; common stock equal to 5% of the number
of shares issued upon such exercise; and warrants equal to 10% of the number of
shares issued upon such exercise (excluding warrants exercised by the finders or
their affiliates). The warrants shall have an exercise price of 125% of the
average of the bid and asked prices for the Company on the five trading dates
preceding the transaction, shall be non callable, and shall expire three years
from the date of issuance.
5) Fleet Capital Line of Credit
On March 2, 1998, the Company entered into a Loan and Security Agreement with
Fleet Capital Corporation (the "Fleet Facility") providing for borrowings of up
to $25,000,000 based on certain formulas contained within the Loan and Security
Agreement. The Company paid a finder's fee of $250,000 and a loan fee of
$250,000 in connection with the transaction. As of March 31, 1998, the Company
was eligible to borrow up to approximately $13,260,000 under the Fleet Facility
and had borrowed $12,076,758. Borrowings were in the form of two Term Loans
("Term Loan A" and "Term Loan B," respectively), an equipment loan (the
Equipment Loan, together with the Term Loans, the "Fixed Loans") and revolving
credit loans (the "Revolving Credit Loans"). Term Loan A is in the principal
amount of $4.7 million and accrues interest at the rate of prime plus 0.5%. Term
Loan B is in the principal amount of $2.0 million and accrues interest at the
rate of prime plus 1.5%. The Equipment Loan is in the principal amount of $4.0
million and accrues interest at the rate of prime plus 0.5%.
7
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TMCI ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
5) Fleet Capital Line of Credit (Continued)
The Revolving Credit Loans are in such amount as the Company elects, up to the
borrowing base permitted by the Loan and Security Agreement and accrue interest
at the rate of 0.25% plus prime. The Fixed Loans are payable in monthly
installments of principal and interest with principal amortizing over a seven
year period and the balance due on March 2, 2003; interest only on the Revolving
Credit Loans is payable monthly with the principal due upon termination of the
Loan and Security Agreement. Interest on the Fixed Loans and Revolving Credit
Loans is adjusted daily. Interest on the Fixed Loans may be adjusted downward by
0.25% each year for two years if the Company meets certain performance criteria
as reflected in its audited financial statements for the fiscal years ended
December 31, 1998 and December 31, 1999, respectively. Interest on the Revolving
Credit Loan may be adjusted downward by 0.25% only once if the Company meets the
performance criteria as reflected in its audited financial statements for the
fiscal year ended December 31, 1998. In addition, if the Company meets the
conditions specified for December 31, 1998, it may, at its option, have the
interest rate on (1) the Revolving Credit Loan converted into LIBOR plus 2.5%;
(2) Term Loan A and the Equipment Loan converted into LIBOR plus 2.75%; and (3)
Term Loan B converted into LIBOR plus 3.75%.
On March 26, 1998, the Company and Fleet entered into the First Amendment to the
Loan and Security Agreement (the "First Amendment") in connection with the
acquisition of Try-Die Incorporated. Among other things, the First Amendment
provides that the Company may elect to convert the interest rate on (1) the
Revolving Credit Loans into LIBOR plus 2.75%; (2) Term Loan A and the Equipment
Loans into LIBOR plus 3%; and (3) Term Loan B into LIBOR plus 4%.
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.
6) Acquisition of Try-Die, Inc.
Effective, February 1, 1998, the Company acquired 100% of the capital stock of
Try-Die, Inc., a metal stamping manufacturer, located in Los Angeles, California
for a total purchase price of $1,000,000, which included a payment of $250,000
in cash and $750,000 in common stock of TMCI, based upon $5.409 per share for a
total number of shares of 138,658. The acquisition was accounted for utilizing
the purchase method and the operations of Try-Die, Inc. are included in the
Company's result of operations from February 1, 1998. Try-Die, Inc. will become
a wholly owned subsidiary of Enterprise Industries, Inc.
8
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Item 2. Management's Discussion and Analysis
General
The information in this discussion 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. Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ from those projected. These risks and uncertainties include, but are not
limited to, those described below. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Overview
The Company's strategy has been to expand its core and value added
business to satisfy its customers and their growing demand for more outsourcing
of contract manufacturing services. On November 1, 1996, TEI acquired the San
Jose cable and harness manufacturing division of Pen Interconnect, Inc. On
January 1, 1997, the Company acquired Enterprise Industries, Inc.("Enterprise"),
a metal stamping business. Effective October 1, 1997, the Company acquired the
operations of Trinity Electronics, Inc., ("Trinity"), a passive distributor of
board level electronic components; Trinity formally merged with a wholly owned
subsidiary of the Company on December 22, 1997. Effective February 1, 1998, the
Company acquired Try-Die Incorporated ("Try-Die"), a metal stamping company
which will operate as a wholly owned subsidiary of Enterprise; Try-Die formally
merged with a wholly owned subsidiary of the Company on April 23, 1998.
Results of Operations
The results of operations utilizes the consolidated results from Touche,
TEI, Enterprise, Trinity and Try-Die after their acquisition by the Company,
eliminating intercompany transactions. 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 increased by approximately $2,757,000 or 37% to $10,200,000 from
$7,443,000 for the quarter ended March 31, 1998 as compared to the quarter ended
March 31, 1997. The sales increase resulted primarily from the acquisitions of
Trinity and an increase in sales by TEI. However, the Company did not ship as
much as anticipated as a result of a slowdown in the semiconductor capital
equipment industry which caused customers in that industry to reschedule their
orders for delivery in the second and third quarters of the year. The Company
currently anticipates that the slowdown in the semiconductor capital equipment
market segment will continue through at least the first quarter of 1999.
Gross Profit
Gross profit decreased approximately $209,000 to $1,746,000 from
$1,955,000 for the quarter ended March 31, 1998 as compared to the quarter ended
March 31, 1997. As a percentage of sales, gross profit decreased approximately
9% to 17% from 26% for the quarter ended March 31, 1998 as compared to the
quarter ended March 31, 1997. Gross profit for the quarter ended March 31, 1998
decreased by approximately $965,000 from the $2,711,000 originally reported by
the Company in its 10- Q for the quarter ended March 31, 1998 to $1,746,000 as a
result of a restatement due to an inventory overstatement of approximately
$520,000 that occurred in March 1998 and a reclassification of approximately
$445,000 of indirect labor costs to costs of goods sold during the quarter. The
gross profit of $1,955,000 for the period ended March 31, 1997 is different than
the $2,838,943 reported in the Company's 10-Q for the fiscal quarter ended March
31, 1997 as a result of a reallocation of certain items from operating expenses
to cost of goods sold. In addition, gross profit for the quarter ended March 31,
1997 decreased by approximately $285,000 from the $2,241,000 originally reported
by the Company in its 10-Q for the quarter ended March 31, 1998 to $1,955,000 as
result of a reclassification of additional indirect labor costs to costs of
goods sold during the quarter. Gross profit percentage decreased for the quarter
ended March 31, 1998, primarily as a result of: (1) an increase in direct labor
9
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due to certain inefficiencies as a result of the slowdown in the semiconductor
capital equipment industry; and (2) an increase in overhead as a result of (a)
an increase in depreciation expense on capital equipment used in the
manufacturing process and (b) an increase in indirect labor costs. In response
to slowing demand in the semiconductor test equipment market, Touche and TEI
reduced their labor force during the quarter ended March 31, 1998.
Operating Expenses
General and administrative expenses increased approximately $242,000 or
17% to $1,682,000 from $1,440,000 for the quarter ended March 31, 1998 as
compared to the quarter ended March 31, 1997. Operating expenses for the quarter
ended March 31, 1998 decreased by approximately $445,000 from the $2,126,000
originally reported by the Company in its 10-Q for the quarter ended March 31,
1998 to $1,682,000 as a result of a reclassification of approximately $445,000
of indirect labor costs to costs of goods sold. The operating expenses of
$1,440,000 for the period ended March 31, 1997 is different than the $2,323,000
reported in the Company's 10-Q for the fiscal quarter ended March 31, 1997 as a
result of a reallocation of certain items from operating expenses to cost of
goods sold. In addition, operating expenses for the quarter ended March 31, 1997
decreased by approximately $285,000 from the $1,434,000 originally reported by
the Company in its 10-Q for the quarter ended March 31, 1998 to $1,149,000 as a
result of a reclassification of additional indirect labor costs to costs of
goods sold. As a percentage of sales, the Company's general and administrative
expenses decreased 4% to 11% from 15% for the quarter ended March 31, 1998, as
compared to the quarter ended March 31, 1997. The increase in operating expenses
was primarily a result of an increase in amortization expense from goodwill, and
the addition of new management personnel to support the Company's infrastructure
and growth strategically planned through acquisitions.
Operating Income
Operating income decreased approximately $451,000 or 87% to $65,000 from
$516,000 for the quarter ended March 31, 1998 as compared to the quarter ended
March 31, 1997. Operating income for the quarter ended March 31, 1998 decreased
by approximately $520,000 from the $585,000 originally reported by the Company
in its 10-Q for the quarter ended March 31, 1998 to $65,000 as a result of a
restatement due to an inventory overstatement that occurred in March 1998.
Operating income decreased as a result of an increase in costs of goods sold due
to a slow down in the semiconductor capital equipment industry and an increase
in operating expenses, offset in part by an increase in revenues from the
Company's acquisition of Trinity.
Other income [expense]
Other expenses increased approximately $294,000 to $295,000 from $1,000 in
the quarter ended March 31, 1998 as compared with the quarter ended March 31,
1997. The increase in other expenses was primarily due to (1) an increase in
interest paid of $201,000 resulting from increased borrowings under the
Company's credit facility in order to finance inventory; and (2) a non cash
finance charge of $129,000 resulting from the issuance of the Company's 5%,
$275,000 in principal amount, Convertible Subordinated Debentures offset in part
by an increase of $30,000 in other income.
Net [Loss] Income
Net income decreased by approximately $450,000 or a loss of $143,000 from
net income of $307,000 for the quarter ended March 31, 1998 as compared to the
quarter ended March 31, 1997. Net income for the quarter ended March 31, 1998
decreased by approximately $312,000 from the net income of $169,000 originally
reported by the Company in its 10-Q for the quarter ended March 31, 1998 to a
net loss of $143,000 as a result of a restatement due to an inventory
overstatement of approximately $520,000 that occurred in March 1998, offset by
an income tax change of approximately $208,000. The decrease in net income was
primarily due to a decrease in gross profit as a result of the slow down in the
semiconductor industry, an increase in interest paid to finance inventory and
non-cash finance charges relating to the debenture placement.
10
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Liquidity and Capital Resources
The Company's working capital increased by approximately $4,271,000 to
$7,385,000 from $3,114,000 for the fiscal quarter ended March 31, 1998 as
compared to the fiscal year ended December 31, 1997. Working capital for the
quarter ended March 31, 1998 decreased by approximately $312,000 from the
$7,697,000 originally reported by the Company in its 10-Q per the quarter ended
March 31, 1998 to $7,385,000 as a result of a restatement due to an inventory
overstatement of approximately $520,000 that occurred in March 1998 offset by an
income tax change of approximately $205,000. The increase resulted primarily
from an increase in inventory of approximately $1,918,000, an increase in cash
of $134,000, an increase in prepaid expenses and other current assets of
$539,000, a decrease in accounts payable of $647,000, and a decrease in the note
due to the stockholder of $1,001,000, offset primarily by an increase in
borrowings under the credit facility of $729,000, and a decrease in accounts
receivable of $693,000. The increase in inventory is due to the Company's
acquisitions of Trinity Electronics, Inc. in the fourth quarter of 1997 and
Try-Die Incorporated during the first quarter of 1998, a change in product mix
to more electronics which require a greater investment in raw materials as well
as the need to hold inventories for a longer than expected period as a result of
rescheduled orders by customers of Touche and TEI.
The Company required cash to fund operating activities of approximately
$2,019,000 in the fiscal quarter ended March 31, 1998 as compared to required
cash to fund operating activities of approximately $1,252,000 in the fiscal
quarter ended March 31, 1997. The increase resulted primarily from an increase
in inventory of $1,745,000, an increase in prepaid expenses of $559,000, an
increase in depreciation of $101,000, an increase in amortization of $125,000,
and a non cash finance charge of $129,000 related to the Debentures, offset
primarily by a decrease in accounts payable of $712,000, a decrease in income
taxes payable of $265,000, and a reversal of a bad debt provision by the Company
in the amount of $129,000. Inventory for the quarter decreased by approximately
$520,000 from the increase of $2,265,000 originally reported by the Company in
its 10-Q for the quarter ended March 31, 1998 to $1,745,000 as a result of a
restatement due to an inventory overstatement of approximately $520,0000 that
occurred in March 1998. Cash used in investing and financing activities remained
relatively constant with $1,109,000 used and included the purchase of equipment
and other assets as well as the acquisition of a metal stamping company (see
Note 6, Acquisition of Business).
During the quarter ended March 31, 1998 and March 31, 1997, the Company
spent approximately $481,000 and $224,200, 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 $1,800,000 for the fiscal year ending
December 31, 1998. This increase will be supported by increased bank borrowings
and internal operations.
Sale of Debentures. On February 10, 1998, the Company closed an offering
of 3 Units, each Unit consisting of 4 of its 5%, $275,000 principal amount
Convertible Subordinated Debentures due February 10, 2001 (the "Debentures") and
100,000 Class B Warrants to purchase common stock of the Company (the
"Warrants") for a total of $3.3 million. Interest on the Debentures accrues
quarterly and is payable annually. Proceeds from the sale of the Debentures were
used to repay the $1,000,000 note issued in connection with the Trinity
acquisition; the remainder of the proceeds went to working capital.
The Debentures are convertible into common stock at the option of the
holder at a variable conversion price ranging from $3.00 to $5.50 per share
depending on the market value of the common stock of the Company at the time of
the notice of conversion. Accordingly, the Company may be required to issue no
less than 600,000 shares nor more than 1,100,000 shares of common stock upon
conversion of the Debentures.
In addition, the Company is issuing 25,000 Warrants per Debenture for each
Debenture outstanding as of the earlier to occur of the one year anniversary of
the closing date of the sale of the Debentures or the date three months
following the registration of the common stock usable upon conversion of the
Debentures and upon the exercise of the Warrants. The Warrants have an exercise
price of $5.50 per share, subject to adjustment for dilutive issuances. The
Company is obligated to register the common stock underlying the Debentures and
the Warrants with the Securities and Exchange Commission.
11
<PAGE>
In connection with the foregoing issuance, the Company paid a finder's fee
in the amount of $176,000 in cash pursuant to terms of a Non Circumvention and
Finder's Fee Agreement (the "Agreement") and a $66,000 credit toward the
purchase of one quarter of one Debenture. The Agreement calls for (1) the
issuance of the number of shares of common stock to the finders equal to 5% of
the principal amount of the securities sold divided by the greater of (a) any
stated conversion price in the Debenture and (b) the average of the closing bid
and asked prices of the common stock of the Company for the five trading days
prior to the closing and, (2) in this case, a number of warrants equal to 10% of
the number of shares issuable based on the Stated Conversion Price as defined in
the Agreement, to be determined between 60,000 and 110,000. The warrants are to
be issued at 125% of the average of the closing of the bid and asked prices of
the common stock of the Company for the five trading days preceding their
issuance, are non callable and expire three years from their date of issuance.
The Agreement also provides that upon exercise of any Warrants issued in
the offering, the finders shall receive a cash fee equal to 4% of the amount
received upon exercise of the Warrants; common stock equal to 5% of the number
of shares issued upon such exercise; and warrants equal to 10% of the number of
shares issued upon such exercise (excluding warrants exercised by the finders or
their affiliates). The warrants shall have an exercise price of 125% of the
average of the bid and asked prices for the Company on the five trading dates
preceding the transaction, shall be non callable, and shall expire three years
from the date of issuance.
Fleet Capital Line of Credit. On March 2, 1998, the Company entered into a
Loan and Security Agreement with Fleet Capital Corporation (the "Fleet
Facility") providing for borrowings of up to $25,000,000 based on certain
formulas contained within the Loan and Security Agreement. The Company paid a
finder's fee of $250,000 and a loan fee of $250,000 in connection with the
transaction. As of March 31, 1998, the Company was eligible to borrow up to
approximately $13,260,000 under the Fleet Facility and had borrowed $12,076,758.
Borrowings were in the form of two Term Loans ("Term Loan A" and "Term Loan B,"
respectively), an equipment loan (the Equipment Loan, together with the Term
Loans, the "Fixed Loans") and revolving credit loans (the "Revolving Credit
Loans"). Term Loan A is in the principal amount of $4.7 million and accrues
interest at the rate of prime plus 0.5%. Term Loan B is in the principal amount
of $2.0 million and accrues interest at the rate of prime plus 1.5%. The
Equipment Loan is in the principal amount of $4.0 million and accrues interest
at the rate of prime plus 0.5%.
The Revolving Credit Loans are in such amount as the Company elects, up to
the borrowing base permitted by the Loan and Security Agreement and accrue
interest at the rate of 0.25% plus prime. The Fixed Loans are payable in monthly
installments of principal and interest with principal amortizing over a seven
year period and the balance due on March 2, 2003; interest only on the Revolving
Credit Loans is payable monthly with the principal due upon termination of the
Loan and Security Agreement. Interest on the Fixed Loans and Revolving Credit
Loans is adjusted daily. Interest on the Fixed Loans may be adjusted downward by
0.25% each year for two years if the Company meets certain performance criteria
as reflected in its audited financial statements for the fiscal years ended
December 31, 1998 and December 31, 1999, respectively. Interest on the Revolving
Credit Loan may be adjusted downward by 0.25% only once if the Company meets the
performance criteria as reflected in its audited financial statements for the
fiscal year ended December 31, 1998. In addition, if the Company meets the
conditions specified for December 31, 1998, it may, at its option, have the
interest rate on (1) the Revolving Credit Loan converted into LIBOR plus 2.5%;
(2) Term Loan A and the Equipment Loan converted into LIBOR plus 2.75%; and (3)
Term Loan B converted into LIBOR plus 3.75%.
On March 26, 1998, the Company and Fleet entered into the First Amendment
to the Loan and Security Agreement (the "First Amendment") in connection with
the acquisition of Try-Die Incorporated. Among other things, the First Amendment
provides that the Company may elect to convert the interest rate on (1) the
Revolving Credit Loans into LIBOR plus 2.75%; (2) Term Loan A and the Equipment
Loans into LIBOR plus 3%; and (3) Term Loan B into LIBOR plus 4%.
Management believes that its current financial position, together with
available borrowings under the Company's credit facility will be sufficient to
meet the Company's anticipated operating needs and projected capital expenditure
requirements for the next twelve months.
12
<PAGE>
Risks Inherent in the Company's Business
Customer Concentration; Order Flow. The largest customers of the Company
are Lam Research Corporation and Tandem Computers Incorporated. Sales to these
customers accounted for 12% and 14%, respectively, of the revenues of the
Company for the year ended December 31, 1997. For the same period, sales to the
Company's nine largest customers accounted for approximately 57% of net sales.
The Company is dependent upon continued revenues from its top customers.
Any material delay, cancellation or reduction of orders from these or other
significant customers could have an adverse material effect on the Company's
results of operations. The percentage of the Company's sales to its major
customers may fluctuate from period to period.
Fluctuations in Operating Results. A number of factors affect the
company's operating results, including the mix of turnkey and manufacturing
projects, capacity utilization, price competition, the degree of automation that
can be used in the assembly process, the efficiencies that can be achieved by
the Company in managing inventories and fixed assets, the timing of orders from
major customers, fluctuations in demand for customer products, the timing of
expenditures in anticipation of increased sales, customer product delivery
requirements, increased costs and shortages of components or labor. Changes in
any of these factors in any given period could materially impact the operating
results of the Company during that period.
Dependence Upon Customer Markets. The Company's business depends
exclusively upon contracts and orders from original equipment manufacturers
("OEMs") of electronic equipment. These OEMs manufacture computers,
semiconductor test equipment, telecommunications equipment and medical
equipment. The markets for the products sold by these customers is particularly
volatile. Further, the products manufactured by these customers are subject to
rapid technological change and obsolescence. Changes in the market for customer
products have and will continue to materially impact that results of the
Company. Accordingly, any material change in the markets serviced by the Company
could have a material effect on the Company's results.
13
<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-K.
Exhibit Description
10.0 Loan and Security Agreement dated March 2, 1998 by and among TMCI
Electronics, Inc., its wholly owned subsidiaries and Fleet Capital
Corporation (1)
10.1 First Amendment to Loan and Security Agreement dated March 2, 1998 by
and among TMCI Electronics, Inc., its wholly owned subsidiaries and
Fleet Capital Corporation. (2)
27.1 Financial Data Schedule
(b) The Company filed one report on Form 8-K on January 6, 1998 with respect to
its acquisition of Trinity Electronics, Inc. on December 22, 1997.
Notes:
(1) Incorporated by reference from Registrant's Form 10-K filed with the
Securities and Exchange Commission on April 1, 1998.
(2) Available from the issuer upon request.
14
<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 6, 1998 By: /s/ Edmund J. Becmer
---------------------
Edmund J. Becmer, Chief Financial Officer
(Principal Financial Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement 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-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 446,402
<SECURITIES> 0
<RECEIVABLES> 3,257,337
<ALLOWANCES> 0
<INVENTORY> 11,638,968
<CURRENT-ASSETS> 16,433,763
<PP&E> 8,933,758
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,367,914
<CURRENT-LIABILITIES> 9,048,835
<BONDS> 0
0
0
<COMMON> 4,196
<OTHER-SE> 16,151,476
<TOTAL-LIABILITY-AND-EQUITY> 34,367,914
<SALES> 10,199,819
<TOTAL-REVENUES> 10,199,819
<CGS> 8,453,357
<TOTAL-COSTS> 1,681,833
<OTHER-EXPENSES> (20,382)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 315,263
<INCOME-PRETAX> (230,252)
<INCOME-TAX> (87,151)
<INCOME-CONTINUING> (143,101)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (143,101)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
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