<PAGE> 1
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 September 30, 1998
[X] 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.
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(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 77-0413814
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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1875 DOBBIN DRIVE, SAN JOSE, CA 95133
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(Address of principal executive offices) (Zip Code)
(408) 272-5700
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Registrant's telephone number
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(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 November 10, 1998 there
were 4,252,199 shares of Common Stock, par value $.001, issued and outstanding.
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TMCI ELECTRONICS, INC. AND SUBSIDIARIES
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PAGE
<S> <C> <C>
PART I -- FINANCIAL INFORMATION ...........................................
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1997.......................................... 3
September 30, 1998 (Unaudited)............................. 3
Consolidated Statements of Operations (Unaudited)
Nine Months Ended September 30, 1998 and 1997.............. 4
Three Months Ended September 30, 1998 and 1997............. 4
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30 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.............................. 16
Signatures............................................................ 17
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TMCI ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for per share data)
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<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash $ 133 $ 313
Accounts Receivable, Net 4,198 3,950
Inventory 11,188 9,721
Deferred Income 2,452 184
Refundable Income Taxes 579 --
Prepaid Expenses and Other Current Assets 398 183
Notes Receivable - Stockholders 13 39
Total Current Assets 18,961 14,390
-------- --------
Property and Equipment, Net 8,559 6,583
Other Assets:
Notes Receivable - Stockholders 144 144
Due from Stockholder 172 112
Due from Related Party 151 470
Other Assets 961 277
Goodwill, Net 7,166 6,767
-------- --------
Total Other Assets 8,594 7,770
-------- --------
Total Assets $ 36,114 $ 28,743
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 4,887 $ 4,051
Line of Credit 7,703 3,856
Notes Payable - Current Portion 953 2,055
Promissory Notes Stockholder -- 1,314
-------- --------
Total Current Liabilities 13,543 11,276
Long Term Liabilities:
Notes Payable - Net of Current Portion 7,283 3,608
Convertible Debentures 1,672 --
Deferred Income Taxes 879 560
-------- --------
Total Long - Term Liabilities 9,834 4,168
-------- --------
Total Liabilities 23,377 15,444
-------- --------
Commitment and Contingencies -- --
-------- --------
Stockholders' Equity:
Common Stock - $.001 par value, 25,000,000 shares
authorized, 4,252,199 issued and outstanding
as of September 30, 1998 and 4,057,758 as of
December 31, 1997 4 4
Additional Paid in Capital 13,994 10,890
Retained Earnings (Deficit) (1,261) 2,405
-------- --------
Total Stockholders' Equity 12,737 13,299
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,114 $ 28,743
======== ========
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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TMCI ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except for per share data)
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<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
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<S> <C> <C> <C>
Sales, Net $ 8,224 $ 10,729 $ 27,150 $ 27,773
Cost of Goods Sold 9,113 7,577 26,135 20,410
----------- ----------- ----------- -----------
Gross Profit (889) 3,152 1,015 7,363
Operating Expenses 2,450 1,989 5,270 4,892
Amortization 219 48 582 137
----------- ----------- ----------- -----------
Income (Loss) from Operations (3,558) 1,115 (4,837) 2,334
----------- ----------- ----------- -----------
Other Income (Expense):
Non-cash Finance Charge (246) -- (622) --
Interest Expense (379) (185) (1,089) (419)
Other Income 123 25 337 173
Interest Income - Related Parties 7 7 17 15
----------- ----------- ----------- -----------
Total Other (Expense) (495) (153) (1,357) (231)
----------- ----------- ----------- -----------
Income (Loss) Before Provision for Income Taxes (4,053) 962 (6,194) 2,103
Provision (Benefit) for Income Taxes (1,718) 355 (2,528) 793
Net Income (Loss) $ (2,335) $ 608 $ (3,666) $ 1,310
=========== =========== =========== ===========
Earnings (Loss) Per Share:
Basic $ (.55) $ .17 $ (.87) $ .37
=========== =========== =========== ===========
Diluted $ (.55) $ .16 $ (.87) $ .33
=========== =========== =========== ===========
Weighted Average Number of Shares 4,227,584 3,515,829 4,197,685 3,515,829
=========== =========== =========== ===========
Weighted Average Number of Shares and
Common Stock Equivalents 4,863,521 3,854,791 4,982,659 3,921,806
=========== =========== =========== ===========
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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TMCI ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1998 1997
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(In thousands)
<S> <C> <C>
Operating Activities:
Net Income (Loss) $ (3,666) $ 1,310
Adjustments to Reconcile Net Income (Loss) to
Net Cash From Operations:
Depreciation 1,230 822
Amortization 582 137
Deferred Income Taxes (1,980) 239
Refundable Taxes (579) --
Non-cash Financing Charge 622 --
Gain on Sale of Equipment -- (1)
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (126) (2,425)
Inventory (1,295) (2,543)
Prepaid Expenses and Other Current Assets (224) (181)
Increase (Decrease) In:
Accounts Payable and Accrued Expenses 863 357
Income Taxes Payable (265) 459
-------- --------
Total Adjustments (1,172) (3,136)
Net Cash Provided By (Used in) Operating Activities (4,838) (1,826)
-------- --------
Investing Activities:
Purchase of Other Assets (976) --
Proceeds from Sale of Equipment -- 4
Purchase of Equipment (2,122) (650)
Note Receivable - Other 306 --
Business Acquisition,
Net of Cash Acquired (367) (1,129)
-------- --------
Net Cash Provided By (Used in) Investing Activities (3,159) (1,775)
-------- --------
Financing Activities:
Credit Line Advances 22,169 4,668
Credit Line Repayments (14,465) (2,101)
Debt Repayment (11,186) (3,235)
Proceeds from Convertible Debentures 3,300 --
Notes Payable Proceeds 7,999 4,235
-------- --------
Net Cash Provided By (Used in) Financing Activities 7,817 3,567
-------- --------
Net Increase (Decrease) in Cash (180) (34)
Cash - Beginning of Period 313 146
-------- --------
Cash - End of Period $ 133 $ 112
======== ========
</TABLE>
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 September 30,
1998 and the results of its operations for the three and nine month periods then
ended. The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
These financial statements should 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"], Tri-Die Incorporated ["Tri-Die"] and Trinity Electronics, Inc.
["Trinity"], [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:
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<CAPTION>
September 30,
1998
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(in thousands)
<S> <C>
Raw Materials $ 5,626
Work in process 4,517
Finished Goods 1,045
-------
Total $11,188
=======
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4) SALE OF DEBENTURES
On February 10, 1998, the Company closed an offering of three Units, each Unit
consisting of four of its 5%, $275,000 principal amount Convertible Subordinated
Debentures due 2001 and the obligation to issue 300,000 Class B Warrants to
purchase common stock of the Company under certain circumstances (the "Class B
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 of the Company at the option of
the holder, at a variable conversion price ranging from $3.00 to $4.46875 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 738,462 shares nor more than 1,100,004 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
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to occur of the one year anniversary of the closing date of the sale of the
Debentures or three months following the registration of the Common Stock
issuable 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 has registered the Common Stock
underlying the Debentures and the Class B Warrants with the Securities and
Exchange Commission for resale.
In connection with the foregoing issuance, the Company incurred 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 expense allowance which
resulted in the payment of $172,250 in cash and an assignment of $68,750 in
escrow for the convenience of the Company which resulted in the issuance of one
quarter of one Debenture. As additional consideration for the placement of the
Debentures, the Agreement calls for (1) the issuance of the number of shares of
common stock 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 73,846
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.
Upon exercise of any Class B Warrants issued in the offering, the Agreement
provides that the finders shall receive a cash fee equal to 4% of the amount
received upon exercise of such Class B 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
parties to the Agreement 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 (the
"Loan and Security Agreement") with Fleet Capital Corporation ("Fleet")
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 September 30, 1998, the Company had borrowed approximately $15,650,000
under the Loan and Security Agreement. Borrowings were in the form of two Term
Loans ("Term Loan A" and "Term Loan B," respectively), an equipment loan (the
"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 $4.5 million and accrues interest at the rate of
prime plus 0.5%. Term Loan B is in the principal amount of $1.8 million and
accrues interest at the rate of prime plus 1.5%. The Equipment Loan is in the
principal amount of $2.0 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 borrowing base permits the Company to
borrow on up to 85% of its eligible accounts receivable (as defined) and up to
55% of its eligible inventory (as defined, including raw material and finished
goods). As of September 30, 1998, the Company had borrowed $7,657,118 in
revolving credit loans which included $6,157,118 borrowings permitted under the
borrowing base and $1,500,000 in excess of the borrowing base. 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 the London Interbank Offered Rate ("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%.
7
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Effective 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%.
Since June 30, 1998, the Company has been in violation of the cash flow covenant
under the Loan and Security Agreements. Fleet has been renewing waivers to the
cash flow covenant monthly. In addition, the Company recently violated its
minimum net worth covenant under the Loan and Security Agreement. Fleet recently
waived the minimum tangible net worth requirement until November 16, 1998.
As of July 29, 1998, the Company had outstanding Revolving Credit Loans of
approximately $509,000 in excess of the borrowing base under the Loan and
Security Agreement. In connection with this excess borrowing, the chief
executive officer of the Company personally guaranteed all amounts due to Fleet
under the Loan and Security Agreement.
As of September 30, 1998, the Company exceeded its borrowing amount under the
Loan and Security Agreement by $ 1,500,000. Fleet has indicated to the Company
that it will no longer advance funds to the Company when total borrowings exceed
this amount.
6) SUBSEQUENT EVENT
On October 15, 1998, the Company and Fleet entered into the Second Amendment to
the Loan and Security Agreement (the "Second Amendment") in connection with the
overadvances under the Loan and Security Agreement. The Second Amendment
requires the Company to amortize the overadvances in the amount of $25,000 per
week commencing on October 21, 1998 through November 16, 1998 at which time the
entire balance on the overadvance is due and payable. In addition, the Second
Amendment requires that the Company pay Fleet an overadvance fee of $50,000 for
each period of thirty (30) days or any portion thereof that the overadvances are
outstanding. Such penalty is payable on the 15th day of each month commencing on
October 15, 1998 and continuing thereafter until the overadvances are paid in
full. In addition, the Company is currently negotiating with Fleet regarding a
waiver of its defaults to the Loan and Security Agreement, as amended. Based on
its discussions with Fleet, the Company believes that Fleet will waive such
defaults for a 30 day period subject to certain conditions currently being
negotiated.
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 operates 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 and Trinity 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 decreased by approximately $2,505,000 or 23% to $8,224,000 from
$10,729,000 for the quarter ended September 30, 1998 as compared to the quarter
ended September 30, 1997. Year to date, the Company's net sales decreased
approximately $623,000 or 2% to $27,150,000 from $27,773,000 for the nine months
ended September 30, 1998 as compared to the nine months ended September 30,
1998. Sales decreased primarily due to a decline in sales by Touche and TEI as a
result of the slowdown in the semiconductor capital equipment market segment
offset by growth in the computer and medical industries, an increase of sales at
Enterprise and the acquisitions of Trinity and Tri-Die. The slowdown caused many
Touche and TEI customers to reschedule their orders for delivery in the fourth
quarter of the year. In addition, one customer canceled a significant order due
to be completed by January, 1999. The Company currently anticipates that the
slowdown in the semiconductor capital equipment market segment will continue
through at least the second quarter of 1999.
Beginning in the second quarter, the Company began taking steps to
counteract the slowdown in orders from the OEMs in the semiconductor capital
equipment market by intensifying its efforts in the medical test equipment,
computer, and telecommunications markets for Touche and TEI. As a result of
these efforts, the Company saw an increase in orders in October, 1998 from the
medical equipment and
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computer industry segments.
Gross Profit (Loss)
Gross profit (loss) decreased approximately $4,041,000 to $(889,000) from
$3,152,000 for the quarter ended September 30, 1998 as compared to the quarter
ended September 30, 1997. As a percentage of sales, gross profit decreased 40%
to (11 %) from 29% for the quarter ended September 30, 1998 as compared to the
same period in 1997. The gross profit of $3,152,000 for the period ended
September 30, 1997 is different than the $4,015,000 reported in the Company's
10-Q for the fiscal quarter ended September 30, 1997 as a result of a
reallocation of certain items from operating expenses to cost of goods sold.
Gross profit decreased as a result of lower sales (resulting in higher fixed
cost per unit allocations) coupled with a direct labor inefficiency during
production slow downs and the allocation of certain fixed charges of overhead to
cost of goods sold. Gross profit was also impacted by an inventory writedown in
the amount of $135,000 for certain slow moving inventory, and a $288,000
adjustment of leasehold improvements for amounts paid in lieu of rent for its
Southern California facility. In response to slowing demand in the semiconductor
capital equipment market, Touche and TEI reduced their respective labor force
during the quarter ended September 30, 1998.
Gross profit decreased $6,348,000 to $1,015,000 from $7,363,000 for the
nine months ended September 30, 1998 as compared to the same period in 1997.
During this period, gross profit also decreased as a result of certain obsolete
and slow moving inventory writedowns in the amount of $830,000 and $135,000
which were recorded in the second and third quarters of 1998, respectively, due
to the cancellation of certain orders in the semiconductor capital equipment
segment and management's valuation of certain slow moving items.
Gross profit margins before fixed overhead charges were 26% and 41% for the
nine months ended September 30, 1998 and 1997, respectively. Variable costs that
are included in costs of goods sold were primarily materials, labor, indirect
labor costs and shop supplies which represented 37%, 23%, 8% and 6%,
respectively for the nine months ended September 30, 1998 and 27%, 21%, 5% and
6%, respectively for the nine months ended September 30, 1997. The increase in
the percentage of material costs for the nine months ended September 30, 1998
were primarily a result of the write off of inventory due to the cancellation of
certain orders for semiconductor test equipment. The rise in the percentage of
labor costs for the period ended September 30, 1998 resulted from certain labor
inefficiencies during production slow downs.
Operating Expenses
General and administrative expenses increased approximately $632,000 or 31%
to $2,669,000 from $2,037,000 for the quarter ended September 30, 1998 as
compared to the quarter ended September 30, 1997. The operating expenses of
$2,037,000 for the period ended September 30, 1997 is different than the
$2,900,000 reported the Company's 10-Q for the fiscal quarter ended September
30, 1997 as a result of a reallocation of certain items from operating expenses
to cost of goods sold. As a percentage of sales, the Company's general and
administrative expenses increased 13% to 32% from 19% for the quarter ended
September 30, 1998, as compared to the quarter ended September 30, 1997. The
increase in operating expenses was primarily due to an increase in expenses from
the above noted acquisition and other acquisitions terminated during the period,
and the addition of new management to support the Company's infrastructure and
growth. In addition, operating expenses were increased by a reserve for
cancellation of certain potential open purchase orders with vendors in the
amount of $100,000. Operating expenses increased $823,000 or 16% to $5,852,000
from $5,029,000 for the nine months ended September 30, 1998 as compared to the
same period in 1997. The increase in operating expenses is due to the reasons
discussed above for the three months ended September 30, 1998.
Operating Income
Operating income decreased approximately $4,673,000 to $(3,558,000) from
$1,115,000 for the quarter ended September 30, 1998 as compared to the quarter
ended September 30, 1997. For the year to date, operating income decreased
$7,171,000 to $(4,837,000) from $2,334,000 for the nine months ended September
30, 1998 as compared to the nine months ended September 30, 1997. Operating
income decreased as a result of a decrease in sales, an increase in expenses as
a result of the recent acquisitions, and an increase in cost of goods sold as
discussed above.
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Other Income [Expense]
Other expense increased approximately $342,000 to $495,000 from $153,000 in
the quarter ended September 30, 1998 as compared with the quarter ended
September 30, 1997. The increase in other expenses was primarily due to (1) an
increase in interest paid of $194,000 resulting from increased borrowings under
the Company's credit facility in order to finance inventory; and (2) a non-cash
finance charge of $246,000 resulting from the issuance of the Company's
convertible subordinated debentures. Other expense increased $1,126,000 to
$1,357,000 from $231,000 for the nine months ended September 30, 1998 as
compared to the same period in 1997. The increase in other expense is
attributable to the reasons discussed above for the three months ended September
30, 1998.
Net Income (Loss)
Net income (loss) decreased by approximately $2,943,000 to $(2,335,000)
from $608,000 for the quarter ended September 30, 1998 as compared to the
quarter ended September 30, 1997. The decrease in net income was primarily due
to a decline in sales, an increase in the cost of goods sold, an increase in
interest expense from increased borrowings and non-cash finance charges relating
to the placement of the debentures.
Liquidity and Capital Resources
The Company's working capital increased by approximately $2,304,000 to
$5,418,000 from $3,114,000 as of September 30, 1998 as compared to December 31,
1997. The increase resulted primarily from an increase in inventory of
approximately $1,467,000, an increase in deferred income taxes of $2,848,000,
and an increase in other assets of $684,000 offset primarily by an increase in
borrowings under the credit facility of $3,847,000. The increase in inventory is
due to a change in product mix to more value added electronics which require a
greater investment 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.
Cash to fund operating activities during the nine month period ended
September 30, 1998 increased $3,012,000 to approximately $4,838,000 as compared
to $1,826,000 in the same period in 1997. The increase resulted primarily from
the increased loss from operations during the period, an increase in deferred
taxes, an increase in inventory due primarily to rescheduling and cancellation
of orders as well as inventory write downs, offset by depreciation, amortization
and non cash finance charges. Cash used in investing activities increased
primarily due to an increase in the purchase of equipment as the Company made
major expenditures at Enterprise as well as an increase in other assets as a
result of prepaid loan fees, offset by a decline in cash used in business
acquisitions.
Cash provided by financing activities increased as a result of the net advances
from the Company's credit line and proceeds from convertible debentures.
During the nine months ended September 30, 1998 and September 30, 1997, the
Company invested approximately $2,122,000 and $650,000, 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 decrease at a level that is consistent with the
Company's projected growth and operational projects. Management has projected
capital expenditure requirements of approximately $50,000 for the remaining
portion of fiscal year ending December 31, 1998.
11
<PAGE> 12
Sale of Debentures. On February 10, 1998, the Company closed an offering of
three Units, each Unit consisting of four of its 5%, $275,000 principal amount
Convertible Subordinated Debentures due 2001 and the obligation to issue 300,000
Class B Warrants to purchase common stock of the Company under certain
circumstances (the "Class B 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 and for working capital.
The Debentures are convertible into Common Stock of the Company at the
option of the holder, at a variable conversion price ranging from $3.00 to
$4.46875 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 738,462 shares nor more than 1,100,004 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 three months following the
registration of the Common Stock issuable 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 has
registered the Common Stock underlying the Debentures and the Class B Warrants
with the Securities and Exchange Commission for resale by the holders thereof.
In connection with the foregoing issuance, the Company incurred 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 expense allowance
which resulted in the payment of $172,250 in cash and an assignment of $68,750
in escrow for the convenience of the Company which resulted in the issuance of
one quarter of one Debenture. As additional consideration for the placement of
the Debentures, the Agreement calls for (1) the issuance of the number of shares
of common stock 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
73,846 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.
Upon exercise of any Class B Warrants issued in the offering, the Agreement
provides that the finders shall receive a cash fee equal to 4% of the amount
received upon exercise of such Class B 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
parties to the Agreement 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 (the "Loan and Security Agreement") with Fleet Capital
Corporation ("Fleet") 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 September 30, 1998, the Company had borrowed
approximately $15,650,000 under the Loan and Security Agreement. Borrowings were
in the form of two Term Loans ("Term Loan A" and "Term Loan B," respectively),
an equipment loan (the "Equipment Loan") (the Equipment Loan,
12
<PAGE> 13
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 $4.5
million and accrues interest at the rate of prime plus 0.5%. Term Loan B is in
the principal amount of $1.8 million and accrues interest at the rate of prime
plus 1.5%. The Equipment Loan is in the principal amount of $2.0 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 borrowing base permits the Company
to borrow on up to 85% of its eligible accounts receivable (as defined) and up
to 55% of its eligible inventory (as defined, including raw material and
finished goods). As of September 30, 1998, the Company had borrowed $7,657,118
in revolving credit loans which included $6,157,118 borrowings permitted under
the borrowing base and $1,500,000 in excess of the borrowing base. 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 the London Interbank Offered Rate ("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%.
Effective 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%.
As of July 29, 1998, the Company had outstanding Revolving Credit Loans of
approximately $509,000 in excess of the borrowing base under the Loan and
Security Agreement. In connection with this excess borrowing, the chief
executive officer of the Company personally guaranteed all amounts due to Fleet
under the Loan and Security Agreement.
Since June 30, 1998, the Company has been in violation of the cash flow
covenants under the Loan and Security Agreement. Fleet has been renewing waivers
to the cash flow covenant monthly. In addition, the Company recently violated
its minimum tangible net worth requirement in the Loan and Security Agreement
which Fleet has also waived until November 16, 1998.
As of September 30, 1998, the Company exceeded its borrowing amount under
the Loan and Security Agreement by $ 1,500,000. Fleet has indicated to the
Company that it will no longer advance funds to the Company when total
borrowings exceed this amount.
SUBSEQUENT EVENT
On October 15, 1998, the Company and Fleet entered into the Second
Amendment to the Loan and Security Agreement (the "Second Amendment") in
connection with the overadvances under the Loan and Security Agreement. The
Second Amendment requires the Company to amortize the overadvances in the amount
of $25,000 per week commencing on October 21, 1998 through November
13
<PAGE> 14
16, 1998 at which time the entire balance on the overadvance is due and payable.
In addition, the Second Amendment requires that the Company pay Fleet an
overadvance fee of $50,000 for each period of thirty (30) days or any portion
thereof that the overadvances are outstanding. Such penalty is payable on the
15th day of each month commencing on October 15, 1998 and continuing thereafter
until the overadvances are paid in full and no longer are outstanding.
The Company experienced continued restrictions on its cash flow during the
quarter ended September 30, 1998. It has not been in compliance with the cash
flow requirements of the Loan and Security Agreement since June 30, 1998. In
addition, the Company is currently not in compliance with the minimum tangible
net worth requirement of the Loan and Security Agreement. Continued softness in
the semiconductor capital equipment market, the cancellation of a significant
order and the long time period necessary to generate sales in other market
segments contributed to these difficulties. In addition, the Company is
obligated to repay the $1.4 million overadvance with Fleet by November 16, 1998.
The Company is continuing to seek additional investment capital in order to be
able to repay its overadvance and meet its obligations as they become due. The
Company has not raised these funds and is currently negotiating with Fleet
regarding a waiver of its defaults to the Loan and Security Agreement, as
amended. Based on its discussions with Fleet, the Company believes that Fleet
will waive such defaults for a 30 day period subject to certain conditions
currently being negotiated. Without a waiver from Fleet for each succeeding 30
day period and an infusion of capital, there can be no assurance that the
Company can continue to meet its obligations as they become due.
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.
Cash Flow and Liquidity. The Company is currently indebted to Fleet, its
primary lender, in the
14
<PAGE> 15
amount of $1.4 million in excess of its borrowing base. Fleet is requiring that
this amount be repaid as of November 16, 1998. The Company is currently
negotiating with Fleet for a waiver of its defaults under the Loan and Security
Agreement and believes that Fleet will waive such defaults for a 30 day period,
subject to certain conditions currently being negotiated. Without waiver from
Fleet for each succeeding 30 day period or an infusion of capital, there can be
no assurance that the Company can continue to meet its obligations as they
become due.
Year 2000 Readiness Statement
The Company recognizes the issues resulting from its existing computer
programs being written using two digits rather than four digits to define the
applicable year. In the year 2000, the Company's date sensitive computer
programs may recognize "00" as 1900 rather than 2000. Systems that fail to
properly recognize such information will likely generate erroneous data or cause
a system to fail in either case causing a disruption of operations such as
inability to process customer transactions. Management has initiated a program
to prepare its computer systems for the year 2000 by the beginning of 1999.
Costs will be expensed as incurred and currently are not expected to be
material. However, significant uncertainty exists concerning the potential costs
and effects associated with any year 2000 compliance program. The Company has no
contingency plans at this time.
Year 2000 compliance for the Company's data systems involves a two step
process: (1) all subsidiaries need to be integrated into a single software
application; (2) the software application needs to be upgraded to the year 2000
compliant version. Currently, Touche Manufacturing Company, Inc. and Trinity
Electronics, Inc. operate on the new software application. The Company
anticipates that Touche Electronics, Inc., Enterprise Industries, Inc. and
Tri-Die, Inc. will be on the new software system by December 20, 1998.
Thereafter, the Company will implement the commercially available upgrade which
it anticipates it will complete by January 31, 1999.
The Company's personal computers and network are currently year 2000
compliant with limited exceptions expected to be remedied by December, 1998.
With respect to its voice and facsimile communications, the Company is
similarly in the process of linking its Northern California operations into a
single PBX and will then upgrade the systems in both Northern and Southern
California for year 2000 compliance. The Company anticipates completing the
upgrade by January 31, 1999.
Although management anticipates that its systems and applications will be
year 2000 compliant on a timely basis, there can be no assurance that the
systems of other companies on which the Company's systems rely will be year 2000
compliant in the same time frame. Confirmations will be requested from the
Company's primary processing vendors and customers that plans are being
developed to address processing of transactions in the year 2000. Any such
failure on the part of other companies with whom the Company transacts business
to be year 2000 compliant on a timely basis may have an adverse impact on the
operations of the Company.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
10 Second Amendment to Loan and Security Agreement
27 Financial Data Schedule
</TABLE>
16
<PAGE> 17
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: November 16, 1998 By: /s/ EDMUND J. BECMER
-------------------------------
Edmund J. Becmer,
Chief Financial Officer
(Principal Financial Officer)
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10 Second Amendment to Loan and Security Agreement
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.0
TMCI ELECTRONICS, INC.
TOUCHE MANUFACTURING COMPANY, INC.
TOUCHE ELECTRONICS, INC.
ENTERPRISE INDUSTRIES, INC.
TRINITY ELECTRONICS, INC.
TRY-DIE, INC.
1875 DOBBIN DRIVE
SAN JOSE, CA 95133
October 15, 1998
Fleet Capital Corporation
200 Glastonbury Boulevard
Glastonbury, CT 06033
Re: Second Amendment To Loan And Security Agreement
Gentlemen:
Reference is made to the Loan and Security Agreement dated as of March 2,
1998 (as amended, the "Loan Agreement"), among Fleet Capital Corporation, as
Lender, and TMCI Electronics, Inc. ("TMCI"), Touche Manufacturing Company, Inc.,
Touche Electronics, Inc., Enterprise Industries, Inc., Trinity Electronics, Inc.
and Try-Die, Inc. (collectively, the "Borrowers"), as Borrowers. All capitalized
terms used herein that are not otherwise specifically defined herein shall have
the meanings given such terms in the Loan Agreement.
The Borrowers have incurred and anticipate continuing to incur Overadvances
under the Loan Agreement. The Borrowers have agreed with Lender to cause such
Overadvances to be reduced and repaid in accordance with the schedule provided
herein. Accordingly, subject to the terms and conditions hereof, the Lender and
Borrowers agree as follows:
1. Amendments.
a. Overadvance Repayment. Section 1.4 is added to the Loan Agreement as
follows:
"1.4 Overadvances. Notwithstanding the provisions of subsection
3.2.1 that require that Overadvances be repaid on demand, Lender
agrees that Overadvances may be incurred and may remain
outstanding in an aggregate amount not in excess of the amount
set forth below for the period corresponding thereto:
<TABLE>
<CAPTION>
Maximum
Overadvance Amount Period
------------------ ------
<S> <C> <C> <C> <C> <C>
$1,500,000 10/15/98 - 10/21/98
$1,475,000 10/22/98 - 10/29/98
$1,450,000 10/29/98 - 11/4/98
$1,425,000 11/5/98 - 11/11/98
$1,400,000 11/11/98 - 11/15/98
0 11/16/98 - and thereafter
</TABLE>
1
<PAGE> 2
All Overadvances made hereunder shall accrue interest on the
principal amount outstanding at the end of each at a fluctuating
rate per annum equal to .25% plus the Prime Rate. All
Overadvances are and shall be deemed to be Obligations under this
Agreement and the other Loan Documents and secured by all of the
Collateral. Until such time as the Overadvances are paid in full,
all proceeds from any Collateral including, without limitation,
from the sale of any assets of the Borrowers or tax refunds
payable to the Borrowers and payments made to Borrowers from any
other source, including, without limitation, from the issuance of
equity or subordinated Indebtedness by any Borrower shall,
subject to the Lender's rights to approve any such transaction
under the Loan Agreement, be paid to Lender to be applied to
repay the Overadvances."
2. Reserve. Pursuant to Section 1.1.1. of the Loan Agreement, Borrowers
acknowledge and agree that Lender has established a $1,000,000 inventory
reserve. This reserve shall be maintained in effect until such time as the
Lender determines, in its sole discretion, that the Borrowers' inventory
monitoring and reporting systems are fully operational and satisfactory to
the Lender. In the event that the Lender agrees to the release of this
inventory reserve, any Revolving Credit Loans then available will be used
first to repay any outstanding Overadvances, as determined by Lender.
3. Fee. Borrowers shall pay Lender a continuing Overadvance Fee of $50,000 for
each period of thirty (30) days or any portion thereof that Overadvances
are outstanding, payable on the fifteenth (15th) day of each month
commencing on October 15, 1998 and continuing thereafter until the
Overadvances are paid in full and no longer are outstanding.
4. Confirmation of Representations and Warranties. The Borrowers represent and
warrant that (a) the representations and warranties made in the Loan
Documents are true, correct and complete on the date hereof; (b) they are
in compliance with all the covenants and agreements contained in the Loan
Documents; and (c) except as explicitly waived by the Lender in its letter
to the Borrowers dated August 13, 1998, no Default or Event of Default
exists or has occurred and is continuing under the Loan Documents. The
Borrowers acknowledge and agree that they are unconditionally liable for
the full, prompt and complete performance and payment of all Obligations
arising under the Loan Documents or otherwise, without defenses,
counterclaims or setoffs of any kind or nature. The Lender, by entering
into this Amendment, does not waive any rights and remedies it may have
under the Loan Documents or otherwise, including, without limitation,
arising or resulting from any Default or Event of Default, and all of such
rights and remedies are hereby expressly reserved.
5. Authority. Each Borrower represents and warrants that it is a corporation
duly organized and in good standing under the laws of its state or other
jurisdiction of incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other jurisdictions where
the nature and extent of the business transacted by it or the ownership of
assets makes such qualification necessary, except for those jurisdictions
in which the failure to so qualify would not have a material adverse effect
on the financial condition,
2
<PAGE> 3
results of operation or businesses of Borrower or the rights of Lender
hereunder or under any of the other Financing Documents. Each Borrower
represents and warrants that the execution, delivery and performance of
this Amendment is within the corporate powers of each Borrower, has been
duly authorized and are not in contravention of law or the terms of the
certificates of incorporation, by-laws, or other organizational
documentation of such Borrower, or any indenture, agreement or undertaking
to which such Borrower is a party or by which such Borrower or its property
are bound. Each Borrower represents and warrants that this Amendment
constitutes the legal, valid and binding obligation of each Borrower
enforceable in accordance with its terms.
6. Miscellaneous. This Amendment shall be deemed to be a Loan Document under
the Loan Agreement. The Borrowers agree to pay all reasonable attorneys'
fees incurred by Lender in connection with the negotiation and preparation
of this Amendment and the instruments and documents prepared in connection
herewith. This Amendment supersedes all prior correspondence and
discussions relating to the subject matter hereof. This Amendment shall be
governed and construed under the laws of the State of Connecticut and is
subject to all the rights and waivers, including the waiver of jury trial,
set forth in the Loan Agreement. Except as explicitly set forth herein, the
Borrowers confirm that the Loan Agreement and other Loan Documents have not
been amended or modified and, as amended hereby, continue in full force and
effect.
7. Confirmation of Guaranty. The undersigned Guarantor consents to the
execution and performance of this Amendment by the Borrowers. The Guarantor
confirms and agrees that this Amendment and the performance by the
Borrowers of the transactions contemplated herein shall not limit,
restrict, extinguish or otherwise impair the liability of the Guarantor to
the Lender with respect to the full and punctual payment and performance of
the Obligations in accordance with the terms of the Guaranty by the
undersigned Guarantor, the terms of which are hereby ratified and confirmed
in all respects.
8. PREJUDGMENT REMEDY WAIVER; COMMERCIAL TRANSACTION.
EACH BORROWER HEREBY WAIVES RIGHTS AS IT MAY HAVE TO NOTICE AND/OR HEARING
UNDER ANY APPLICABLE FEDERAL OR STATE LAWS INCLUDING, WITHOUT LIMITATION,
CONNECTICUT GENERAL STATUTES SECTION 52-278A, ET SEQ. AS AMENDED,
PERTAINING TO THE EXERCISE BY LENDER OF SUCH RIGHTS AS THE LENDER MAY HAVE,
INCLUDING, BUT NOT LIMITED TO, THE RIGHT TO SEEK PREJUDGEMENT REMEDIES
AND/OR DEPRIVE BORROWERS OF OR AFFECT THE USE OF OR POSSESSION OR ENJOYMENT
OF ANY BORROWER'S PROPERTY PRIOR TO THE RENDITION OF A FINAL JUDGMENT
AGAINST ANY BORROWER. EACH BORROWER FURTHER WAIVES ANY RIGHT IT MAY HAVE TO
REQUIRE LENDER TO PROVIDE A BOND OR OTHER SECURITY AS A PRECONDITION TO OR
IN CONNECTION WITH ANY PREJUDGMENT REMEDY SOUGHT BY AGENT AND LENDER, AND
WAIVE ANY OBJECTION TO THE ISSUANCE OF SUCH PREJUDGMENT REMEDY BASED ON ANY
OFFSETS, CLAIMS, DEFENSES
3
<PAGE> 4
OR COUNTERCLAIMS TO ANY ACTION BROUGHT BY ANY LENDER. EACH BORROWER HEREBY
REPRESENTS, COVENANTS AND AGREES THAT THE PROCEEDS OF THE LOANS EVIDENCED
BY THIS AGREEMENT SHALL BE USED FOR GENERAL COMMERCIAL PURPOSES AND THAT
SUCH LOANS CONSTITUTE A "COMMERCIAL TRANSACTION" AS DEFINED BY THE STATUTES
OF THE STATE OF CONNECTICUT.
Executed as an instrument under seal as of the date first written above.
<TABLE>
<S> <C>
WITNESS: BORROWERS:
TMCI ELECTRONICS, INC.
TOUCHE MANUFACTURING
COMPANY, INC.
TOUCHE ELECTRONICS, INC.
ENTERPRISE INDUSTRIES, INC.
TRINITY ELECTRONICS, INC.
TRY-DIE, INC.
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
GUARANTOR:
-----------------------------------
Rolando Loera, Individually
Accepted and Agreed:
LENDER:
FLEET CAPITAL CORPORATION
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
</TABLE>
4
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 133
<SECURITIES> 0
<RECEIVABLES> 4,466
<ALLOWANCES> 268
<INVENTORY> 11,188
<CURRENT-ASSETS> 18,961
<PP&E> 13,237
<DEPRECIATION> 4,697
<TOTAL-ASSETS> 36,114
<CURRENT-LIABILITIES> 13,543
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 12,733
<TOTAL-LIABILITY-AND-EQUITY> 36,114
<SALES> 27,150
<TOTAL-REVENUES> 0
<CGS> 26,135
<TOTAL-COSTS> 31,987
<OTHER-EXPENSES> 268
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,089
<INCOME-PRETAX> (6,194)
<INCOME-TAX> (2,528)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,666)
<EPS-PRIMARY> (0.87)
<EPS-DILUTED> (0.87)
</TABLE>
