RICHEY ELECTRONICS INC, 10-Q, 1997-11-07

RICHEY ELECTRONICS INC
10-Q, 1997-11-07
ELECTRONIC PARTS & EQUIPMENT, NEC

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<PAGE>

FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 26, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 0-9788

RICHEY ELECTRONICS, INC.
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 33-0594451
--------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)

7441 Lincoln Way, Garden Grove, California 92641
-----------------------------------------------------
(Address of Principal Executive Office) (Zip Code)

(714) 898-8288
----------------------------------------------------
(Registrant's Telephone Number, including Area Code)

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 reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----

As of November 4, 1997, 9,068,417 shares of the registrant's Common Stock,
$0.001 par value, were issued and outstanding.

<PAGE>

PART I-FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

RICHEY ELECTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

SEPTEMBER 26, DECEMBER 31,
1997 1996
-------------- --------------
ASSETS
CURRENT ASSETS
Cash $ 29,000 $ 30,000
Trade receivables 33,941,000 27,111,000
Inventories 49,291,000 37,631,000
Deferred income taxes 2,629,000 2,629,000
Other current assets 960,000 1,235,000
-------------- --------------
Total current assets $ 86,850,000 $ 68,636,000
-------------- --------------
LEASEHOLD IMPROVEMENTS, EQUIPMENT
FURNITURE AND FIXTURES, net $ 5,167,000 $ 3,668,000
-------------- --------------

OTHER ASSETS AND INTANGIBLES
Deferred income taxes $ 4,031,000 $ 2,218,000
Deferred debt costs 2,325,000 2,533,000
Other 380,000 473,000
Goodwill 49,849,000 47,233,000
-------------- --------------
$ 56,585,000 $ 52,457,000
-------------- --------------
$ 148,602,000 $ 124,761,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 4,459,000 $ 4,012,000
Accounts payable 24,900,000 16,551,000
Accrued expenses 3,886,000 4,502,000
Accrued restructuring costs -- 538,000
-------------- --------------
Total current liabilities $ 33,245,000 $ 25,603,000
-------------- --------------

LONG-TERM DEBT
Subordinated notes payable $ 2,000,000 $ 2,000,000
Convertible subordinated notes payable 55,755,000 55,755,000
Other long-term debt 18,049,000 7,450,000
-------------- --------------
$ 75,804,000 $ 65,205,000
-------------- --------------
STOCKHOLDERS' EQUITY
Preferred Stock -- --
Common Stock $ 9,000 $ 9,000
Additional paid-in-capital 21,730,000 21,001,000
Retained earnings 17,950,000 12,943,000
Cumulative translation adjustment (136,000) --
-------------- --------------
Total stockholders' equity $ 39,553,000 $ 33,953,000
-------------- --------------
$ 148,602,000 $ 124,761,000
-------------- --------------
-------------- --------------

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

<PAGE>

RICHEY ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>

QUARTER ENDED NINE MONTHS ENDED
------------------------------------ -----------------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1997 1996 1997 1996
--------------- --------------- --------------- ---------------

<S> <C> <C> <C> <C>
Net Sales: $ 65,091,000 $ 53,713,000 $ 181,231,000 $ 170,309,000

Cost of Goods Sold: 48,963,000 39,597,000 135,912,000 127,074,000
--------------- --------------- --------------- ---------------

Gross Profit: $ 16,128,000 $ 14,116,000 $ 45,319,000 $ 43,235,000
--------------- --------------- --------------- ---------------

Operating expenses:
Selling, warehouse, general, and
administrative $ 11,401,000 $ 9,298,000 $ 31,476,000 $ 30,284,000

Amortization of intangibles 429,000 369,000 1,178,000 1,072,000
--------------- --------------- --------------- ---------------

$ 11,830,000 $ 9,667,000 $ 32,654,000 $ 31,356,000
--------------- --------------- --------------- ---------------

Operating income $ 4,298,000 $ 4,449,000 $ 12,665,000 $ 11,879,000

Interest Expense 1,578,000 1,519,000 4,294,000 4,150,000

Income before income taxes $ 2,720,000 $ 2,930,000 $ 8,371,000 $ 7,729,000

Federal and state income taxes 1,094,000 1,176,000 3,364,000 3,098,000
--------------- --------------- --------------- ---------------

Net income $ 1,626,000 $ 1,754,000 $ 5,007,000 $ 4,631,000
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

Earnings per Share

Primary $ 0.18 $ 0.19 $ 0.55 $ 0.51
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

Fully Diluted $ 0.17 $ 0.18 $ 0.53 $ 0.50
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

Weighted Average number of
shares outstanding

Primary 9,064,000 9,063,000 9,064,000 9,059,000
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

Fully Diluted 13,011,000 13,010,000 13,011,000 12,153,000
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3

<PAGE>

RICHEY ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

NINE MONTHS ENDED
-----------------------------------
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
-------------- ---------------

<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,007,000 $ 4,631,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,534,000 2,325,000
Deferred income taxes 1,067,000 1,154,000
Changes in operating assets and liabilities,
net of effect of business combinations:
(Increase) in trade receivables (3,622,000) (215,000)
(Increase) in inventories (8,794,000) (5,589,000)
Decrease in other assets 392,000 460,000
Increase (decrease) in accounts
payable and accrued expenses 2,060,000 (291,000)
-------------- --------------
Net cash provided by (used in)
operating activities ($ 1,356,000) $ 2,475,000
-------------- --------------

CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchase of leasehold improvements and equipment ($ 1,243,000) ($ 1,005,000)
Payment of acquisition and restructuring costs (7,348,000) (5,892,000)
-------------- --------------
Net cash (used in) investing activities ($ 8,591,000) ($ 6,897,000)
-------------- --------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net advances (repayments) on long-term revolving line of credit $ 10,013,000 ($ 8,361,000)
(Payments) on long-term debt -- (40,871,000)
Proceeds from issuance of convertible debt -- 55,755,000
Transaction costs associated with refinancing activities (38,000) (2,667,000)
Proceeds from issuance of common stock 8,000 25,000
-------------- --------------
Net cash provided by financing activities $ 9,983,000 $ 3,881,000
-------------- --------------
Net effect of translation on cash ($ 37,000) $ 0
-------------- --------------
(Decrease) in cash ($ 1,000) ($ 541,000)

CASH
Beginning $ 30,000 $ 572,000
-------------- --------------
Ending $ 29,000 $ 31,000
-------------- --------------
-------------- --------------

</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4

<PAGE>

RICHEY ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)

NINE MONTHS ENDED
------------------------------
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------- -------------

SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION

Cash Payments For:

Interest $ 5,114,000 $ 3,479,000
------------ ------------

Income taxes $ 1,640,000 $ 349,000
------------ ------------

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES

Acquisition of MS Electronics:

Working capital acquired $ 888,000

Fair market value of other assets acquired
including goodwill 2,231,000
------------

Purchase price and related transaction costs $ 3,119,000
------------
------------

Acquisition of Simmonds Technology:

Working capital acquired $ 362,000
Fair market value of equipment acquired 1,384,000
Deferred income taxes 2,920,000
Goodwill 3,635,000
Long-term lease obligations (756,000)
Common stock warrants issued (730,000)
------------
Purchase price and related transaction costs $ 6,815,000
------------
------------

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5

<PAGE>

RICHEY ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 26, 1997
(UNAUDITED)

COMMON STOCK
----------------------------------------------------------
ADDITIONAL CUMULATIVE
PREFERRED SHARES PAR PAID-IN RETAINED TRANSLATION
STOCK OUTSTANDING VALUE CAPITAL EARNINGS ADJUSTMENT TOTAL
--------- ----------- -------- ----------- ------------- ------------- ------------

<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 -- 9,063,000 $ 9,000 $21,001,000 $12,943,000 -- $33,953,000

Stock issued for options -- 1,000 8,000 -- -- 8,000
Common stock warrants
Issued in conjunction
with STI acquisition -- -- -- 721,000 -- -- 721,000

Translation adjustment -- -- -- -- -- (136,000) (136,000)

Net Income -- -- -- -- 5,007,000 -- 5,007,000
--------- ----------- -------- ----------- ------------- ------------- ------------
Balance, September 26, 1997 -- 9,064,000 $ 9,000 $21,730,000 $17,950,000 ($ 136,000) $39,553,000
--------- ----------- -------- ----------- ------------- ------------- ------------

</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6

<PAGE>

RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Richey Electronics, Inc. (the "Company" or "Richey Electronics") is a
specialty distributor of electronic components and a provider of related
value-added assembly services. The Company distributes a broad line of
connectors, switches, wires, cables and heat shrinkable tubing and other
interconnect, electromechanical and passive components used in the assembly and
manufacturing of electronic equipment. Richey Electronics also provides a wide
variety of value-added assembly services. These value-added assembly services
consist of (i) component assembly, which is the assembly of components to
manufacturer specifications and (ii) contract assembly, which is the assembly of
cable assemblies, battery packs and mechanical assemblies to customer
specifications. The Company's customers are primarily small- and medium-sized
original equipment manufacturers.

SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In management's opinion, the accompanying financial statements
reflect all material adjustments, consisting of only normal and recurring
adjustments, necessary for a fair statement of the results for the interim
periods presented. The results for the interim periods ended September 26, 1997
and September 27, 1996 are not necessarily indicative of the results which will
be reported for the entire year. For further information, refer to the audited
financial statements of the Company and notes thereto for the year ended
December 31, 1996, included in the Company's Annual Report on Form 10-K.

RECENT PRONOUNCEMENTS

In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
establishes standards for computing and presenting earnings per share. This
standard redefines earnings per share under generally accepted accounting
principles. Under this standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share is replaced by
diluted earnings per share. SFAS No. 128 will be effective for the Company for
its fiscal years beginning with 1998. If the Company had applied SFAS No. 128
in the accompanying unaudited financial statements, its earnings per share would
not have changed.

In the first six months of 1997, the FASB also issued SFAS No. 129,
Disclosure of Information about Capital Structure, SFAS No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Reporting Disaggregated Information
about a Business Enterprise. These statements will be effective for the Company
for its fiscal years beginning with 1998. Management has not yet completed its
analysis to determine the impact implementations of SFAS No. 129, 130 and 131
will have on the Company's financial statements.

<PAGE>

RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

PRINCIPLES OF CONSOLIDATION

The accompanying unaudited financial statements consolidate the accounts of
Richey Electronics and its wholly owned Canadian subsidiary which was acquired
on June 13, 1997. All material intercompany transactions have been eliminated.

EARNINGS PER SHARE

The weighted average number of shares used for computing fully diluted
earnings per share assumes that the 7% Convertible Subordinated Notes due 2006
(the "Notes") which were sold by the Company in the first quarter of 1996
through a private offering are converted at $14.125 per share on the date they
were issued. The Notes are not common stock equivalents and, therefore, are not
considered in determining the primary weighted average number of shares. Net
income used in computing fully diluted earnings per share is increased for the
interest expense, net of tax, associated with the Notes.

INCOME TAXES

Income tax expense in these interim financial statements is recorded based
upon the Company's expected annual effective income tax rate.

FOREIGN CURRENCY TRANSLATION

The financial statements of the Company's Canadian subsidiary are
translated into US dollars in accordance with Statement of Financial Accounting
Standards No. 52, Foreign Currency Translation, using the Canadian dollar as the
functional currency. The Company translates the balance sheet accounts at the
exchange rate on the balance sheet date and the income statement at the average
exchange rate for the period. Translation gains and losses are recorded in
stockholders' equity, and transaction gains and losses are reflected in income.

<PAGE>

RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

NOTE 2. BUSINESS COMBINATIONS

ACQUISITIONS IN 1996

On March 19, 1996, the Company completed the acquisition of the assets and
business of MS Electronics, Inc. MS Electronics specialized in the distribution
of interconnect, electromechanical and passive electronic components and
provided related value-added assembly services in the Baltimore-Washington
marketplace. On December 5, 1996, the Company acquired the assets and business
of Summit Distributors, Inc., a Buffalo, New York distributor of interconnect,
electromechanical and passive electronic components. These acquisitions were
accounted for as purchase business combinations, with the operations of the
acquired business included subsequent to the acquisition date. Pro forma
financial information is not provided with respect to these acquisitions because
they would not have materially changed reported sales or net income.

STI ACQUISITION IN 1997

DESCRIPTION OF ACQUISITION

On June 13, 1997, the Company completed the purchase (the "STI
Acquisition") of all of the issued and outstanding common stock of Simmonds
Technologies Inc. ("STI"), an indirect wholly owned subsidiary of Simmonds
Capital Limited ("Simmonds"), for $1. STI is a distributor of interconnect,
electromechanical and passive electronic components, headquartered in Toronto,
Ontario, with additional branch locations in the Montreal, Ottawa, Winnipeg,
Saskatoon, Calgary, Edmonton and Vancouver regions.

In events related to the STI Acquisition, the Company also issued to
Simmonds a warrant to purchase 197,044 shares of common stock of the Company at
an exercise price of $10.15 per share. For purchase accounting purposes, the
value of this warrant was estimated to be $730,000. In addition, through STI,
the Company contributed approximately $1.1 million toward the future settlement
of certain of STI's long-term capital lease obligations and facility leases to
be retained by Simmonds. Simmonds agreed to be responsible for negotiating such
settlements and obtaining releases of STI's obligations under such leases. The
Company also transferred to Simmonds $3.4 million of STI non-core inventory
which the Company believes it will not be able to use in its operations.
Simmonds also received a right to a future payment due March 31, 2002 from STI
based upon a percentage of STI's operating earnings as defined by agreement
between the parties. For purchase accounting purposes, this future payment will
be accounted for as contingent consideration and will be recorded as additional
purchase price when the amount is determinable. The additional consideration
will be recorded as goodwill and amortized over the remaining economic life of
the goodwill, or approximately ten years.

Under the terms of the transaction, the Company refinanced STI's bank
indebtedness of approximately $5.7 million. The Company funded the STI bank
debt refinancing and the contribution toward settlement of certain long-term
obligations referred to above, by drawing upon the Company's $45 million
revolving line of credit with Wells Fargo Bank, N.A.

<PAGE>

RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

The STI Acquisition was accounted for as a purchase business combination,
with the operations of STI included subsequent to the date of acquisition.

In July 1997, the Company changed the name of STI to Richey Electronics
Limited.

PRO FORMA FINANCIAL INFORMATION

The following pro forma results of continuing operations assume that the
STI Acquisition (which occurred on June 13, 1997) had occurred on January 1,
1996, and January 1, 1997, after giving effect to certain adjustments including
amortization of acquired goodwill, interest expense and related tax effects.
The pro forma results do not reflect any cost savings directly attributable to
the acquisition.

Nine Months Ended Nine Months Ended
September 26, 1997 September 27, 1996
------------------ ------------------

Net sales (000) $ 192,447 $ 194,020

Net income (000) $ 2,621 $ 1,035

Earnings per share

Primary $ .29 $ .11

Fully diluted $ .29 $ .11

The Summit Distributors, Inc., acquisition would not have materially
changed pro forma net sales or net income. This pro forma financial information
does not purport to be indicative of the results of operations that would have
occurred had the STI Acquisition actually taken place at January 1, 1996, and
January 1, 1997.

<PAGE>

RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

PRELIMINARY ALLOCATION OF PURCHASE PRICE

The following preliminary allocation of the purchase price after adjusting
to fair value the assets and liabilities of STI is based upon estimates that are
currently available and is subject to change based upon final numbers. The
final allocation will be contingent upon completion of management's assessment
of the fair value of net assets acquired and resolution of certain material
lease obligations which Simmonds is required to settle and obtain releases for.

U.S. Dollars
------------

Consideration and liabilities assumed:

Bank debt assumed and then refinanced $ 5,720

Accounts payable, accrued expenses and lease
obligations assumed 5,942

Cash contribution toward settlement of long-term
lease obligations 1,095

Transaction costs 730

Common stock warrants 730

Contingent payment obligation --
------------
$ 14,217
------------
------------

Allocated to:

Current assets $ 6,278

Deferred tax assets 2,920

Leasehold improvements, fixtures and assets
acquired under capital leases 1,384

Goodwill 3,635
------------

$ 14,217
------------
------------

In the preliminary allocation of the purchase price, the Company has
recorded a deferred tax asset of $2,920,000, which is net of a valuation
allowance of approximately $1,000,000. This deferred tax asset represents STI
net operating loss carryforwards. Realization of this deferred tax asset is
dependent upon the Company generating Canadian taxable income of approximately
$6,500,000 before the expiration dates of these loss carryforwards which are
2002 and 2003. Due to the uncertainty inherent in forecasts of future results,
management has established the valuation allowance to reduce the net deferred
tax asset to the tax benefit expected to be realized over the next three to five
years.

<PAGE>

RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

ASSUMPTION OF LEASE OBLIGATIONS

In connection with the STI Acquisition, certain operating and capital lease
obligations were assumed. As of the date of the STI Acquisition, future minimum
lease payments under these capital and operating leases were as follows:

OPERATING
YEAR ENDING CAPITAL LEASES LEASES TOTAL
------------- --------------- ----------- -----------

1997 $ 238,000 $ 262,000 $ 500,000

1998 374,000 510,000 884,000

1999 372,000 443,000 815,000

2000 164,000 372,000 536,000

2001 37,000 373,000 410,000

Thereafter 4,000 3,398,000 3,402,000
--------------- ----------- -----------

Total minimum payments 1,189,000 5,358,000 6,547,000

Less: Amount Representing 142,000 -- 142,000
Interest
--------------- ----------- -----------
Present value of net
minimum lease payments $ 1,047,000 $ 5,358,000 $ 6,405,000

The capital lease obligations are included in other long-term debt and current
maturities of long-term debt on the balance sheet. This lease commitment
schedule reflects the entire operating lease obligation for the Pickering
(Toronto) facility or approximately $365,000 a year through December 2010. The
Company has entered into an informal sublease arrangement for 50% of this
facility. By December 31, 1997, the Company expects to enter into a new lease
for this reduced space. The above schedule does not reflect obligations under
the leases for which Simmonds is responsible for obtaining settlements and
releases as described above.

NOTE 3. STOCK OPTIONS

The Company has a stock option plan adopted in 1992 and amended and
restated in 1997. In general, the options granted under this plan vest at a
rate of 25% per year over a four-year period and expire ten years from the date
of grant. The exercise price for all options granted is equal to the fair
market value of the stock at the date of the grant. As of September 26, 1997,
total options authorized for grant were 1,300,000, of which 630,992 were
available for grant.

<PAGE>

RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

During the nine months ended September 26, 1997, 60,500 options were granted to
employees at a price of $12.875, 1,250 options were exercised and 12,500 options
were canceled.

NOTE 4. NET OPERATING LOSS CARRYFORWARDS

As of December 31, 1996, the Company had acquired net operating loss
carryforwards ("NOLs") as described below with the indicated expiration dates.
In addition, the Company has NOLs acquired in conjunction with the STI
Acquisition. Those amounts are not reflected in the following NOLs:

EXPIRATION DATE Federal
--------------- ---------------
2005. . . . . . . . . . . . . . . . $ 454,000
2006. . . . . . . . . . . . . . . . 9,673,000
2007. . . . . . . . . . . . . . . . 2,588,000
2008. . . . . . . . . . . . . . . . 771,000
---------------
$ 13,486,000
---------------
---------------

Section 382 of the Internal Revenue Code of 1986, as amended and the related
regulations impose certain limitations on a corporation's ability to use NOLs if
more than a 50% ownership change occurs. The Company's issuance of additional
common stock in 1995, together with an earlier acquisition, constitute a more
than 50% ownership change. As a result, the usage of these NOLs is restricted
to approximately $4,900,000 on an annual basis.

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

SUMMARY OF SELECTED DATA
(UNAUDITED)

The following table sets forth certain items in the statements of
operations as a percent of net sales for periods shown and additional items of a
statistical nature.

QUARTER ENDED NINE MONTHS ENDED
SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27,
1997 1996 1997 1996
---------- --------- --------- ---------

<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net Sales. . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold . . . . . . . . . . . . . . . . 75.2 73.7 75.0 74.6
---------- --------- --------- ---------
Gross Profit. . . . . . . . . . . . . . . . . 24.8 26.3 25.0 25.4
---------- --------- --------- ---------
Selling, warehouse, general & administrative . . . 17.5 17.3 17.4 17.8
Amortization of intangibles. . . . . . . . . . . . 0.7 0.7 0.6 0.6
---------- --------- --------- ---------
Operating Income. . . . . . . . . . . . . . . 6.6 8.3 7.0 7.0
Interest Expense . . . . . . . . . . . . . . . . . 2.4 2.8 2.4 2.5
---------- --------- --------- ---------
Income before income taxes. . . . . . . . . . 4.2 5.5 4.6 4.5
Federal and state income taxes . . . . . . . . . . 1.7 2.2 1.8 1.8
---------- --------- --------- ---------
Net income. . . . . . . . . . . . . . . . . . 2.5% 3.3% 2.8% 2.7%
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>

<TABLE>
SEPT. 26, JUNE 27, MARCH 28, DEC. 31, SEPT. 27,
1997 1997 1997 1996 1996
BALANCE SHEET AND OTHER DATA: ----------- ------------ ------------ ------------ -----------

<S> <C> <C> <C> <C> <C>
Total assets (000) $ 148,602 $ 144,699 $ 129,946 $ 124,761 $ 128,420
Working capital (000) $ 53,605 $ 51,418 $ 45,555 $ 43,033 $ 43,311
Ratio of current assets to current liabilities 2.6 2.7 2.6 2.7 2.6
Short-term debt (000) $ 4,459 $ 3,201 $ 3,553 $ 4,012 $ 263
Subordinated long-term notes payable (000) $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,958
Convertible subordinated notes payable (000) $ 55,755 $ 55,755 $ 55,755 $ 55,755 $ 55,755
Other long-term debt (000) $ 18,049 $ 18,157 $ 7,450 $ 7,450 $ 10,034
Inventory turnover 4.0x 4.0x 4.2x 4.4x 4.2x
Days sales outstanding in accounts receivable 47.5 44.3 45.0 44.1 46.1
Customer order backlog (U.S. only) (000) $ 58,600 $ 57,255 $ 57,900 $ 53,800 $ 51,000
Stockholders' equity (000) $ 39,553 $ 37,983 $ 35,656 $ 33,953 $ 32,048
</TABLE>

<PAGE>

RESULTS OF OPERATIONS

Net income for the third quarter of 1997 was $1,626,000 ($0.17 per share,
fully diluted) compared with net income of $1,754,000 ($0.18 per share, fully
diluted) for the third quarter of 1996. Net income for the nine months ended
September 26, 1997, was $5,007,000 ($0.53 per share, fully diluted) compared
with $4,631,000 ($0.50 per share, fully diluted) for the same period in 1996, an
increase of 8.1%.

The results of operations for the third quarter of 1997 give effect to the
first full quarter of Canadian operations acquired in the STI Acquisition. The
Canadian operations generated $5,810,000 of net sales and $1,578,000 of
operating expenses for the third quarter of 1997. Absent the effect on earnings
of the Canadian acquisition, net income would have been approximately $0.19 per
share, fully diluted.

Net sales for the third quarter of 1997 rose to $65,091,000 from
$53,713,000 for the same period in 1996, an increase of 21.2%. Net sales for
the first nine months of 1997 were $181,231,000 compared to net sales of
$170,309,000 for the same period in 1996, an increase of 6.4%. The increase in
sales was due to the STI Acquisition and internal growth as a result of the
continuing recovery in the electronics distribution industry.

Net sales of electronic components increased to $45,239,000 in the third
quarter of 1997 from $36,454,000 in the third quarter of 1996, an increase of
24%. Net sales of value-added assembly services increased to $19,852,000 for
the third quarter of 1997 from $17,259,000 for the same period of 1996, an
increase of 15%. Component sales increased primarily due to the newly-acquired
Canadian operation which sells mostly electronic components. The value-added
sales increased as a result of the continuing trend by OEM's to outsource
assembly operations. Value-added sales were 33.5% of total sales in the United
States in the third quarter of 1997, up from 32.2% in the second quarter of 1997
and 32.1% in the third quarter of 1996.

The Company believes that order backlog (confirmed orders from customers
for shipment within the next 12 months) generally averages two to three months'
sales in the electronics distribution industry. The Company's order backlog in
the United States at September 26, 1997 was $58,600,000, up from $51,000,000 at
September 27, 1996 and up from $53,800,000 at December 31, 1996.

Gross profit margin for the first nine months of 1997 was 25.0% compared to
gross profit margin of 25.4% for the first nine months of 1996. Gross profit
margin for the third quarter of 1997 was 24.8% compared to a margin of 26.3% for
the third quarter of 1996. The decrease in margins to more normal levels for
the third quarter of 1997 and the first nine months of 1997 was primarily
because of customer orders returning to more normal patterns compared to the
high turns, high margin business experienced in 1996. The more normal ordering
patterns are the result of ongoing recovery in the electronics distribution
industry.

Operating expenses for the third quarter of 1997 were $11,830,000 (18.2% of
net sales) compared to $9,667,000 (18.0% of net sales) for the third quarter of
1996. For the first nine months of 1997, operating expenses were $32,654,000
(18.0% of net sales) compared to $31,356,000 (18.4% of net sales) for the first
nine months of 1996. The reduction in operating expenses as a percentage of net
sales for the first nine months of 1997 was primarily the result of savings
realized from the operational integration of Deanco into the Company through
reductions

<PAGE>

in duplicative facilities, personnel and other operating costs. These savings
were partially offset by investments, primarily in sales, marketing and MIS
personnel and by operating expenses associated with the Company's newly-acquired
Canadian operations. The increase in operating expenses as a percentage of
sales for the third quarter of 1997 over the same quarter in 1996 was primarily
due to the fact that STI's expenses as a percentage of sales were historically
higher than those of the Company.

The Company has undertaken, consistent with its acquisition plan, a major
reorganization of the Canadian operations which encompassed closure of two
unprofitable sales offices, an approximately one-third reduction in employee
staffing levels nationwide, and centralization of warehousing, purchasing and
accounting functions primarily in Toronto. The Company has also completed the
downsizing of the Montreal and Vancouver facilities and has begun the computer
conversion process from the acquired Canadian operations to the Company's
computer systems.

Interest expense for the third quarter of 1997 was $1,578,000 as compared
with $1,519,000 for the third quarter of 1996. The increase in interest expense
was primarily due to an increase in borrowings as a result of the STI
Acquisition.

Federal and state income tax expense decreased to $1,094,000 (40% effective
rate) for the quarter ended September 26, 1997 from $1,176,000 (40% effective
rate) for the corresponding period of 1996. This decrease was proportional to
the decrease in pre-tax earnings for the quarter. See Note 4 of Notes to
Condensed Consolidated Financial Statements for further discussion of income tax
matters.

LIQUIDITY AND CAPITAL RESOURCES

The Company currently maintains with Wells Fargo Bank, N.A. a $45 million
revolving line of credit. The Company used this line of credit to fund the
purchase of STI on June 13, 1997. As of September 26, 1997, the Company had
outstanding borrowings under this revolving line of credit of $20,629,000 and
additional borrowing capacity of $24,371,000.

Working capital increased to $53,605,000 on September 26, 1997 from
$43,033,000 on December 31, 1996, an increase of $10,572,000. During the first
nine months of 1997, the Company generated $15,199,000 of earnings before
interest, income taxes, depreciation and amortization ("EBITDA") as compared to
EBITDA of $14,204,000 for the corresponding period of 1996, an increase of 7.0%.

During the first nine months of 1997, operating activities generated
$11,060,000 in cash from net income, depreciation, amortization, deferred income
taxes, decreases in other assets and increases in accounts payable and accrued
expenses. During the same period, the Company invested $12,416,000 in inventory
and receivables. Thus, operating activities for the first nine months of 1997
used net cash of $1,356,000 as compared to net cash of $2,475,000 provided by
operating activities for the same period of 1996. During the first nine months
of 1997, the Company used $8,591,000 in investing activities, including
$1,243,000 for capital expenditures relating to normal investments in leasehold
improvements, software, furniture, fixtures and equipment, $532,000 for payment
of restructuring costs accrued in connection with acquisitions and $6,816,000
relating to the acquisition of STI. See Note 2 of Notes to Condensed
Consolidated Financial Statements. This use of cash was financed with
borrowings under the Company's revolving line of credit.

<PAGE>

For the quarter ended September 26, 1997, inventory turnover was 4.0x
compared to 4.2x for the quarter ended September 27, 1996 and 4.4x for the
quarter ended December 31, 1996. Of the $11,600,000 increase in inventory,
approximately $3.2 million was due to the STI Acquisition, with the balance
being approximately equally due to inventory investment in nationally franchised
lines and lower than anticipated sales growth in the first nine months of 1997.

Days sales outstanding in accounts receivable were 47.5 days at September
26, 1997 compared to 46.1 days at September 27, 1996 and 44.1 days at December
31, 1996. The increase in the number of days outstanding is due to slower
collections caused by the UPS strike which impacted invoicing and collection
patterns. In addition, STI's days outstanding were historically higher than
those of the Company. Management expects to be able, over the long term, to
improve the Canadian operation's number of days outstanding.

YEAR 2000

The Company is in the process of conducting a comprehensive review of its
computer and other operating systems to identify the systems that could be
affected by the "Year 2000" issue and is conducting detailed testing. These
reviews and testing are expected to be completed by the second quarter of 1998.
The Year 2000 issue is the result of computer programs being written using two
digits (rather the four) to define the applicable year. As a result, certain
programs that have time sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in systems failure
or miscalculations. The Company presently believes that, with minor
modifications to existing software, the Year 2000 issue will not pose
significant operational problems for the Company's computer systems as so
modified and corrected. However, if such modifications are not completed
timely, this issue could have an impact on the operations of the Company.

<PAGE>

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 2. CHANGES IN SECURITIES.

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits required by Item 601 of Regulation S-K.

2.1 Share Purchase Agreement dated June 13, 1997, among Richey
Electronics, Inc., SCL Electronics Ltd., Simmonds Technologies
Inc. and Simmonds Capital Limited (Incorporated by reference
from the Current Report on Form 8-K for Richey Electronics,
Inc., dated June 26, 1997, filed June 26, 1997 as exhibit 2.1
thereof).

2.2 Intercompany Debt Repayment Agreement dated June 13, 1997 among
Simmonds Capital Limited, SCL Electronics Ltd. and Simmonds
Technologies Inc. (Incorporated by reference from the Current
Report on Form 8-K for Richey Electronics, Inc., dated June 26,
1997, filed June 26, 1997 as exhibit 2.2 thereof).

3.1 Restated Certificate of Incorporation of Richey Electronics,
Inc. (Incorporated by reference from the Registration Statement
on Form S-1, filed January 7, 1994, Registration No. 33-73916
as exhibit 3.1 thereof).

3.2 Bylaws of Richey Electronics, Inc. (Incorporated by reference
from the Registration Statement on Form S-1, filed January 7,
1994, Registration No. 33-73916 as exhibit 3.2 thereof).

4.1 Indenture between Richey Electronics, Inc. and First Trust of
California, National Association, dated as of February 15, 1996
(Incorporated by

<PAGE>

reference from the Annual Report on Form 10-K for Richey
Electronics, Inc. filed March 26, 1996 as exhibit 4.1 thereof).

4.2 Registration Rights Agreement among Richey Electronics, Inc.,
Jefferies & Company, Inc. and Cruttenden Roth Incorporated,
dated as of February 26, 1996 (Incorporated by reference from
the Registration Statement on Form S-2, filed April 26, 1996,
Registration No. 333-02983 as exhibit 4.2 thereof).

4.3 Warrant dated June 13, 1997, to purchase common stock of Richey
Electronics, Inc., expiring March 31, 2002 (Incorporated by
reference from the Current Report on Form 8-K for Richey
Electronics, Inc., dated June 26, 1997, filed June 26, 1997 as
exhibit 4.1 thereof).

10.1 Amendment to Lease dated September 2, 1997, amending the Lease
Agreement dated December 2, 1994, between Richey Electronics,
Inc., and Principal Mutual Life Insurance Company.

10.2 Standard Sublease dated September 3, 1997, between Richey
Electronics, Inc., and Corning OCA Corporation.

11.1 Statement regarding computation of per share earnings

27.1 Financial Data Schedule

(b) Reports on Form 8-K.

Current Report Amendment No. 1 on Form 8-K/A dated July 8, 1997
and filed on July 8, 1997 reporting on pro forma financial
information relating to the acquisition of Simmonds
Technologies Inc., including the following:

Unaudited Pro Forma Condensed Balance Sheets (March 31,
1997)

Unaudited Pro Forma Condensed Statements of Operations (Year
Ended December 31, 1996)

Unaudited Pro Forma Condensed Statements of Operations
(Three Months Ended March 31, 1997)

Notes to Unaudited Pro Forma Financial Statements)

Current Report Amendment No. 2 on Form 8-K/A dated August 25,
1997 and filed on August 26, 1997 reporting on audited
financial information for Simmonds Technologies Inc., including
the following:

1994 Combined Financial Statements

<PAGE>

Auditors' Report

Combined Balance Sheet as at December 31, 1994

Combined Statement of Operations and Retained Earnings,
Period Ended December 31, 1994

Combined Statement of Changes in Financial Position,
Period Ended December 31, 1994

Notes to Combined Financial Statements, Period Ended
December 31, 1994

1995 Financial Statements

Auditors' Report

Balance Sheet as at December 31, 1995

Statement of Operations and Retained Earnings, Year
Ended December 31, 1995

Statement of Changes in Financial Position, Year Ended
December 31, 1995

Notes to Financial Statements, Year Ended December 31,
1995

1996 Financial Statements

Auditors' Report

Balance Sheet as at December 31, 1996

Statement of Operations and Retained Earnings (Deficit),
Year Ended December 31, 1996

Statement of Changes in Financial Position, Year Ended
December 31, 1996

Notes to Financial Statements, Year Ended December 31,
1996

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

RICHEY ELECTRONICS, INC.
(Registrant)

By /s/ Richard N. Berger
---------------------------
Richard N. Berger
Vice President,
Chief Financial Officer
and Secretary

November 7, 1997

<PAGE>

EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION

3.2 Bylaws of Richey Electronics, Inc. (Incorporated by reference
from the Registration Statement on Form S-1, filed January 7,
1994, Registration No. 33-73916 as exhibit 3.2 thereof).

4.1 Indenture between Richey Electronics, Inc. and First Trust of
California, National Association, dated as of February 15, 1996
(Incorporated by reference from the Annual Report on Form 10-K
for Richey Electronics, Inc. filed March 26, 1996 as exhibit
4.1 thereof).

10.1 Amendment to Lease dated September 2, 1997, amending the Lease
Agreement dated December 2, 1994, between Richey Electronics,
Inc., and Principal Mutual Life Insurance Company.

10.2 Standard Sublease dated September 3, 1997, between Richey
Electronics, Inc., and Corning OCA Corporation.

<PAGE>

11.1 Statement regarding computation of per share earnings

27.1 Financial Data Schedule

<PAGE>

FIFTH AMENDMENT TO LEASE

This Fifth Amendment to Lease ("Fifth Amendment") is entered into as of this 2nd
day of September, 1997, by and between Principal Mutual Life Insurance Company
("Lessor") and Richey Electronics, Inc., a California Corporation ("Lessee")
with respect to the following facts:

A. Lessor and Lessee entered into that certain Lease ("Lease") dated
December 2, 1994, with respect to premises situated in the County of Orange,
State of California, commonly known as 7441 Lincoln Way, Garden Grove,
California, consisting of approximately 21,117 square feet of space
("Premises").

B. Lessor and Lessee entered into a First Amendment to Lease, dated May 24,
1995, that changed the Commencement Date of the Lease on the Premises.

C. Lessor and Lessee entered into a Second Amendment to Lease dated June 19,
1995, to lease temporary storage space on the Second Floor of the Premises.

D. Lessor and Lessee entered into a Third Amendment to Lease dated December
18, 1995, to lease approximately 6,221 square feet on the Second Floor of the
Premises.

E. Lessor and Lessee entered into a Fourth Amendment to Lease dated June 19,
1996, to lease storage space at 7391 Lincoln Way.

F. Lessor and Lessee wish to amend the Lease as follows:

NOW THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, Lessor and Lessee agree as follows:

1. The Fourth Amendment for approximately 8,472 square feet of first
floor storage space at 7391 Lincoln Way, Garden Grove, California ("1st Floor
Storage Space") is of no further force and effect.

2. Lessor and Lessee wish to expand the Premises by leasing an additional
14,591 rentable square feet of second floor office space (the "Additional
Space") at 7441 Lincoln Way, Garden Grove, CA as reflected on Exhibit "A"
attached hereto.

3. The commencement date for the Additional Space shall be October 15,
1997, and the termination date shall be January 14, 2001.

4. The Base Monthly Rent as of October 15, 1997 shall be adjusted to
$24,520.05 NNN per month.

5. Lessee's pro-rata share of the Operating Expenses for the Premises as
further defined in the Lease shall be 100% of the Building.

6. Lessee shall lease the Additional Space "as is" with the exception of
Lessor's installation, at Lessor's sole cost and expense, of building standard
carpet and base in a color to be chosen by Lessee.

7. Addendum II to the Lease dated December 2, 1994 "opportunity to
negotiate Additional Space for Lease" is of no further force and effect.

F. Amendment Controls. To the extent there is any conflict between the
provisions of the Lease and the provisions of this Fourth Amendment, the
provisions of this Fourth Amendment shall control.

G. All other terms definitions and conditions of the Lease remain unmodified
and in full force and effect.

<PAGE>

NOW, THEREFORE, Lessor and Lessee have executed this Fifth Amendment as of the
date first set forth hereinabove.

LESSOR:

PRINCIPAL MUTUAL LIFE INSURANCE COMPANY

By:
----------------------------------
Its:
----------------------------------
Date:
----------------------------------

LESSEE:

RICHEY ELECTRONICS, INC.,

A DELAWARE CORPORATION

By:
----------------------------------
Its:
----------------------------------
Date:
----------------------------------

Exhibits: Exhibit A

10467

<PAGE>

DIAGRAM

<PAGE>
EXHIBIT 10.2

AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

STANDARD SUBLEASE
(LONG-FORM TO BE USED WITH PRE-1996 AIR LEASES)

1. PARTIES. This Sublease, dated, for reference purposes only,
September 3, 1997, is made by and between Richey Electronics ("SUBLESSOR")and
Corning OCA Corporation ("SUBLESSEE").

2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee
hereby subleases from Sublessor for the term, at the rental, and upon all of
the conditions set forth herein, that certain real property, including all
improvements therein, and commonly known by the street address of 7441
Lincoln Way, Suite 200 located in the County of Orange, State of California
and generally described as (describe briefly the nature of the property)
approximately 14,591 square feet of office/R&D space - part of a larger
43,151 square foot freestanding building as further designated on Exhibit "A"
fifty-six (56) non-exclusive and undesignated parking stalls. ("Premises").

3. TERM.

3.1 TERM. The term of this Sublease shall be for twenty-four (24)
months commencing on October 15, 1997 and ending on October 14, 1999 unless
sooner terminated pursuant to any provision hereof.

3.2 DELAY IN COMMENCEMENT. Sublessor agrees to use its best
commercially reasonable efforts to deliver possession of the Premises by the
commencement date. If, despite said efforts, Sublessor is unable to deliver
possession as agreed, Sublessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Sublease. Sublessee shall
not, however, be obligated to pay Rent or perform its other obligations until it
receives possession of the Premises. If possession is not delivered within
thirty days after the commencement date, Sublessee may, at its option, by notice
in writing within ten days after the end of such thirty day period, cancel this
Sublease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Sublessor within said ten
day period, Sublessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Sublessee when required and Sublessee
does not terminate this Sublease, as aforesaid, any period of rent abatement
that Sublessee would otherwise have enjoyed shall run from the date of delivery
of possession and continue for a period equal to what Sublessee would otherwise
have enjoyed under the terms hereof, but minus any days of delay caused by the
acts or omissions of Sublessee. If possession is not delivered within 120 days
after the commencement date, this Sublease shall automatically terminate unless
the Parties agree, in writing, to the contrary.

4. RENT.

4.1 BASE RENT. Sublessee shall pay to Sublessor as Base Rent for
the Premises equal monthly payments of $9,484.15 in advance, on the first
day of each month of the term hereof. Sublessee shall pay Sublessor upon the
execution hereof 18,968.30 as Base Rent for the month of October 1997 and a
security deposit for the premises. Base Rent for any period during the term
hereof which is for less than one month shall be a pro rata portion of the
monthly installment.

4.2 RENT DEFINED. All monetary obligations of Sublessee to Sublessor
under the terms of this Sublease (except for the Security Deposit) are deemed to
be rent ("RENT"). Rent shall be payable in lawful money of the United States to
Sublessor at the address stated herein or to such other persons or at such other
places as Sublessor may designate in writing.

5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon
execution hereof $9,484.15 as security for Sublessee's faithful performance
of Sublessee's obligations hereunder. If Sublessee fails to pay Rent or
other charges due hereunder, or otherwise defaults with respect to any
provision of this Sublease, Sublessor may use, apply or retain all or any
portion of said deposit for the payment of any Rent or other charge in
default or for the payment of any other sum to which Sublessor may become
obligated by reason of Sublessee's default, or to compensate Sublessor for
any loss or damage which Sublessor may suffer thereby. If Sublessor so uses
or applies all or any portion of said deposit, Sublessee shall within ten
days after written demand therefore forward to Sublessor an amount sufficient
to restore said Deposit to the full amount provided for herein and
Sublessee's failure to do so shall be a material breach of this Sublease.
Sublessor shall not be required to keep said Deposit separate from its
general accounts. If Sublessee performs all of Sublessee's obligations
hereunder, said Deposit, or so much thereof as has not therefore been applied
by Sublessor, shall be returned, without payment of interest to Sublessee (or
at Sublessor's option, to the last assignee, if any, of Sublessee's interest
hereunder) at the expiration of the term hereof, and after Sublessee has
vacated the Premises. No trust relationship is created herein between
Sublessor and Sublessee with respect to said Security Deposit.

6. USE.

6.1 AGREED USE. The Premises shall be used and occupied only for
general office and engineering of fiber optic products and related purposes.
and for no other purpose.

6.2 COMPLIANCE. Sublessor warrants that the improvements on the
Premises comply with all applicable covenants or restrictions of record and
applicable building codes, regulations and ordinances ("APPLICABLE
REQUIREMENTS") in effect on the commencement date. Said warranty does not apply
to the use to which Sublessee will put the Premises or to any alterations or
utility installations made or to be made by Sublessee. NOTE: Sublessee is
responsible for determining whether or not the zoning is appropriate for its
intended use, and acknowledges that past uses of the Premises may no longer be
allowed. If the Premises do not comply with said warranty, Sublessor shall,
except as otherwise provided, promptly after receipt of written notice from
Sublessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at the Sublessor's expense. If Sublessee does
not give Sublessor written notice of a non-compliance with this warranty within
six months following the commencement date, correction of that non-compliance
shall be the obligation of Sublessee at its sole cost and expense. If the
Applicable Requirements are hereafter changed so as to require during the term
of this Sublease the construction of an addition to or an alteration of the
Building, the remediation of any Hazardous Substance, or the reinforcement or
other physical modification of the Building ("CAPITAL EXPENDITURE"), Sublessor
and Sublessee shall allocate the cost of such work as follows:

Page 1 of 4

<PAGE>

(a) If such Capital Expenditures are required as a result of the
specific and unique use of the Premises by Sublessee as compared with uses by
tenants in general, Sublessee shall be fully responsible for the cost thereof
provided, however, that if such Capital Expenditure is required during the last
two years of this Sublease and the cost thereof exceeds six months' Base Rent,
Sublessee may instead terminate this Sublease unless Sublessor notifies
Sublessee in writing, within ten days after receipt of Sublessee's termination
notice that Sublessor has elected to pay the difference between the actual cost
thereof and the amount equal to six months' Base Rent. If the Parties elect
termination, Sublessee shall immediately cease the use of the Premises which
requires such Capital Expenditure and deliver to Sublessor written notice
specifying a termination date at least ninety days thereafter. Such termination
date shall, however, in no event be earlier then the last day that Sublessee
could legally utilize the Premises without commencing such Capital Expenditure.

(b) If such Capital Expenditure is not the result of the specific and
unique use of the Premises by Sublessee (such as governmentally mandated seismic
modifications, then Sublessor shall pay for said Capital Expenditure and the
cost thereof shall be prorated between the Sublessor and Sublessee and the
Sublessee shall only be obligated to pay, each month during the remainder of the
term of this Sublease, on the date on which Rent is due, an amount equal to the
product of multiplying the cost of such Capital Expenditure by a fraction, the
numerator of which is one, and the denominator of which is the number of months
of the useful life of such Capital Expenditure as such useful life is specified
pursuant to Federal income tax regulations or guidelines for depreciation
thereof (including interest on the unamortized balance as is then commercially
reasonable in the judgment of Sublessor's accountant), with Sublessee reserving
the right to prepay its obligation at any time. Provided, however, that if such
Capital Expenditure is required during the last two years of this Sublease or if
Sublessor reasonably determines that it is not economically feasible to pay its
share thereof, Sublessor shall have the option to terminate this Sublease upon
ninety days prior written notice to Sublessee unless Sublessee notifies
Sublessor, in writing, within ten days after receipt of Sublessor's termination
notice that Sublessee will pay for such Capital Expenditure. If Sublessor does
not elect to terminate, and fails to tender its share of any such Capital
Expenditure, Sublessee may advance such funds and deduct same, with interest,
from Rent until Sublessor's share of such costs have been fully paid. If
Sublessee is unable to finance Sublessor's share, or if the balance of the Rent
due and payable for the remainder of this Sublease is not sufficient to fully
reimburse Sublessee on an offset basis, Sublessee shall have the right to
terminate this Sublease upon ten days written notice to Sublessor.

(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Sublessee as a result of an actual or proposed change in use, change in
intensity of use, or modification to the Premises then, and in that event,
Sublessee shall be fully responsible for the cost thereof, and Sublessee shall
not have any right to terminate this Sublease.

6.3 ACCEPTANCE OF PREMISES AND LESSEE. Sublessee acknowledges that:

(a) it has been advised by Brokers to satisfy itself with respect to
the condition of the Premises (including but not limited to the electrical, HVAC
and fire sprinkler systems, security, environmental aspects, and compliance with
Applicable Requirements), and their suitability for Sublessee's intended use.

(b) Sublessee has made such investigation as it deems necessary with
reference to such matters and assumes all responsibility therefor as the same
relate to its occupancy of the Premises, and

(c) neither Sublessor, Sublessor's agents, nor any Broker has made
any oral or written representations or warranties with respect to said matters
other than as set forth in this Sublease.

In addition, Sublessor acknowledges that:

(a) Broker has made no representations, promises or warranties
concerning Sublessee's ability to honor the Sublease or suitability to occupy
the Premises, and

(b) it is Sublessor's sole responsibility to investigate the
financial capability and/or suitability of all proposed tenants.

7. MASTER LEASE

7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter the "MASTER LEASE", a copy of which is attached hereto marked
Exhibit 1, wherein PRINCIPAL MUTUAL LIFE INSURANCE COMPANY is the lessor,
hereinafter the "MASTER LESSOR"

7.2 This Sublease is and shall be at all times subject and
subordinate to the Master Lease.

7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this Sublease
document shall control over the Master Lease. Therefore, for the purposes of
this Sublease, wherever in the Master Lease the word "Lessor" is used it
shall be deemed to mean the Sublessor herein and wherever in the Master Lease
the word "Lessee" is used it shall be deemed to mean the Sublessee herein.

7.4 During the term of this Sublease and for all periods subsequent
for obligations which have arisen prior to the termination of this Sublease, and
only with respect to the Premises covered by this Sublease, Sublessee does
hereby expressly assume and agree to perform and comply with, for the benefit
of Sublessor and Master Lessor, each and every obligation of Sublessor under
the Master Lease except for the following paragraphs which are excluded
therefrom: PARAGRAPH 14e

7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "SUBLESSEE'S ASSUMED OBLIGATIONS".
The obligations that sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "SUBLESSOR'S REMAINING OBLIGATIONS".

7.6 Sublessee shall hold Sublessor free and harmless from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.

7.7 Sublessor agrees to maintain the Master Lease during the entire
term of this Sublease, subject, however, to any earlier termination of the
Master Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless from
all liability, judgments, costs, damages, including reasonable attorneys fees,
claims or demands arising out of Sublessor's failure to comply with or perform
Sublessor's Remaining Obligations.

7.8 Sublessor represents to Sublessee that the Master Lease is in
full force and effect and that no default exists on the part of any Party to the
Master Lease.

8. ASSIGNMENT OF SUBLEASE AND DEFAULT.

8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease, subject however to the provisions of
Paragraph 8.2 hereof.

8.2 Master Lessor, by executing this document, agrees that until a
Default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the Rent accruing
under this Sublease. However, if Sublessor shall Default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all Rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the Rent from the Sublessee, be deemed liable
to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.

Page 2 of 4

<PAGE>

8.3 Sublessor hereby irrevocably authorizes and directs Sublessee
upon receipt of any written notice from the Master Lessor stating that a Default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the Rent due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such Rent
to Master Lessor without any obligation or right to inquire as to whether such
Default exists and notwithstanding any notice from or claim from Sublessor to
the contrary and Sublessor shall have no right or claim against Sublessee for
any such Rent so paid by Sublessee.

8.4 No changes or modifications shall be made to this Sublease
without the consent of Master Lessor.

9. CONSENT OF MASTER LESSOR.

9.1 In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within ten days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.

9.2 In the event that the obligations of the Sublessor under the
Master Lease have been guaranteed by third parties then neither this Sublease,
nor the Master Lessor's consent, shall be effective unless, within 10 days of
the date hereof, said guarantors sign this Sublease thereby giving their consent
to this Sublease.

9.3 In the event that Master Lessor does give such consent then:

(a) Such consent shall not release Sublessor of its obligations
or alter the primary liability of Sublessor to pay the Rent and perform and
comply with all of the obligations of Sublessor to be performed under the Master
Lease.

(b) The acceptance of Rent by Master Lessor from Sublessee or
anyone else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.

(d) In the event of any Default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
anyone else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.

(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor or anyone else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.

(f) In the event that Sublessor shall Default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid Rent nor any
Security Deposit paid by Sublessee, nor shall Master Lessor be liable for any
other Defaults of the Sublessor under the Sublease.

9.4 The signatures of the Master Lessor and any Guarantors of
Sublessor at the end of this document shall constitute their consent to the
terms of this Sublease.

9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no Default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.

9.6 In the event that Sublessor Defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any Default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. If such Default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.

10. BROKERS FEE.

10.1 Upon execution hereof by the parties, Sublessor shall pay to
Lee & Associates a licensed real estate broker, ("BROKER"), a fee as set
forth in a separate agreement between Sublessor and Broker, or in the event
there is no such separate agreement, the sum of $9,104.78 for brokerage
services rendered by Broker to Sublessor in this transaction.

10.2 Sublessor agrees that if Sublessee exercises any option or right
of first refusal as granted by Sublessor herein, or any option or right
substantially similar thereto, either to extend the term of this Sublease, to
renew this Sublease, to purchase the Premises, or to lease or purchase adjacent
property which Sublessor may own or in which Sublessor has an interest, then to
Sublessor shall pay to Broker a fee in accordance with the schedule of Broker in
effect at the time of the execution of this Sublease. Notwithstanding the
foregoing, Sublessor's obligation under this Paragraph 10.2 is limited to a
transaction in which Sublessor is acting as a Sublessor, lessor or seller.

10.3 INTENTIONALLY OMITTED.

10.4 INTENTIONALLY OMITTED.

10.5 INTENTIONALLY OMITTED.

11. ATTORNEY'S FEES. If any party or the Broker named herein brings an
action to enforce the terms hereof or to declare rights hereunder, the
prevailing party in any such action, on trial and appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
Court.

12. ADDITIONAL PROVISIONS. [If there are no additional provisions, draw a
line from this point to the next printed word after the space left here. If
there are additional provisions place the same here.]

(A) Prior to commencement, Sublessor shall install new carpeting and
matching base-boards in the office area.

(B) Upon execution of the lease and prior to October 1, 1997, Sublessee
shall be entitled to access to the facility for the purpose of installing
fixtures, phones and data cabling and other occupancy improvements.

Page 3 of 4

<PAGE>

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY REAL ESTATE BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE
TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
SUBLEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PROPERTY, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR SUBLESSEE'S INTENDED USE.

WARNING: IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
CERTAIN PROVISIONS OF THE SUBLEASE MAY NEED TO BE REVISED TO COMPLY WITH THE
LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.

Executed at: Richey Electronics
-------------------------- --------------------------------------
on: By /s/ Richard N. Berger
----------------------------------- ------------------------------------
Address: By
------------------------------ ------------------------------------
"Sublessor" (Corporate Seal)

Executed at: Corning OCA Corporation
-------------------------- --------------------------------------
on: By /s/ J. Child
----------------------------------- ------------------------------------
Address: By
------------------------------ ------------------------------------
"Sublessee" (Corporate Seal)

Executed at: Principal Mutual Life Insurance Company
-------------------------- --------------------------------------
on: By
----------------------------------- ------------------------------------
Address: By
------------------------------ ------------------------------------
"Master Lessor" (Corporate Seal)

NOTE: THESE FORMS ARE OFTEN MODIFIED TO MEET CHANGING REQUIREMENTS OF LAW AND
NEEDS OF THE INDUSTRY. ALWAYS WRITE OR CALL TO MAKE SURE YOU ARE UTILIZING THE
MOST CURRENT FORM: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 SO. FLOWER
ST., SUITE 600, LOS ANGELES, CA 90017. (213) 687-8777.

Paragraph 12 (continued)

(c) Notwithstanding any other terms of the sublease, Sublessee may,
without Sublessor's or Master Lessor's consent, assign this sublease or
sub-sublease any portion of the Premises, to Corning Incorporated or any other
entity of which Corning Incorporated owns (directly or indirectly) at least 50%
of the equity; Sublessor's and Master Lessor's right of entry to, or
inspection of the Premises shall be subject to reasonable notice and
confidentiality provisions, except in cases of emergency. Notwithstanding any
provision of 7.3, and whenever in the Master Lease the word "Premises" is
used, it shall be deemed to mean only the premises which are subject to this
Sublease, and no other property leased to Sublessor.

Notwithstanding any provision of 7.4, Sublessee does not assume any obligation
to pay rent or any other cost or liability with respect to any property other
than the leased Premises. Sublessor's remaining obligation shall include any
contractual or other obligation to the property other than the Premises subject
to this Sublease. (Sublessee shall be responsible for any costs and expenses
attributed to the Premises during the course of the Sublease.)

Page 4 of 4

<PAGE>

EXHIBIT "A"
7441 LINCOLN WAY, #200
GARDEN GROVE, CALIFORNIA

(Diagram of Premises)

<PAGE>

EXHIBIT 11.1

RICHEY ELECTRONICS, INC.
COMPUTATION OF EARNINGS PER SHARE
($ AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

Quarter Ended Nine Months Ended
------------------------ ------------------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net income used to compute primary
earnings per share $ 1,626 $ 1,754 $ 5,007 $ 4,631
------- ------- ------- -------
Weighted average number of shares used
to compute primary earnings per share 9,064 9,063 9,064 9,059
------- ------- ------- -------
Primary earnings per share $ 0.18 $ 0.19 $ 0.55 $ 0.51
------- ------- ------- -------
------- ------- ------- -------

FULLY DILUTED EARNINGS PER SHARE:
Net income $ 1,626 $ 1,754 $ 5,007 $ 4,631

Add: Interest on convertible
subordinated notes payable, net of taxes 622 617 1,840 1,451
------- ------- ------- -------

Net income used to compute fully
diluted earnings per share $ 2,248 $ 2,371 $ 6,847 $ 6,082
------- ------- ------- -------
------- ------- ------- -------
9,064 9,063 9,064 9,059

Weighted average number of shares
Outstanding

Add: Weighted average shares of
convertible subordinated notes payable
assuming conversion 3,947 3,947 3,947 3,094
------- ------- ------- -------
Weighted average number of shares used
to compute fully diluted earnings per
share 13,011 13,010 13,011 12,153
------- ------- ------- -------
------- ------- ------- -------

Fully diluted earnings per share $ 0.17 $ 0.18 $ 0.53 $ 0.50
------- ------- ------- -------
------- ------- ------- -------

</TABLE>

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-26-1997
<CASH> 29
<SECURITIES> 0
<RECEIVABLES> 33,941
<ALLOWANCES> 0
<INVENTORY> 49,291
<CURRENT-ASSETS> 86,850
<PP&E> 5,167
<DEPRECIATION> 0
<TOTAL-ASSETS> 148,602
<CURRENT-LIABILITIES> 33,245
<BONDS> 75,804
0
0
<COMMON> 9,000
<OTHER-SE> 39,544
<TOTAL-LIABILITY-AND-EQUITY> 148,602
<SALES> 181,231
<TOTAL-REVENUES> 0
<CGS> 135,912
<TOTAL-COSTS> 167,388
<OTHER-EXPENSES> 1,178
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,294
<INCOME-PRETAX> 8,371
<INCOME-TAX> 3,364
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,007
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.53

</TABLE>