<PAGE> 1
FORM 10--Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1996
OR
[ ] 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 1-13924
TECHDYNE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-1709103
- --------------------------------------------- ---------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2230 West 77th Street, Hialeah, Florida 33016
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(305) 556-9210
--------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
---------------------------------------------------------------
(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 reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] or No [ ]
Common Stock Outstanding
Common Stock, $.01 par value --4,294,019 shares as of October 31, 1996.
<PAGE> 2
TECHDYNE, INC. AND SUBSIDIARY
INDEX
PART I -- FINANCIAL INFORMATION
The Consolidated Condensed Statements of Income (Unaudited) for the
three months and nine months ended September 30, 1996 and September 30, 1995
include the accounts of the Registrant and its subsidiary.
Item 1. Financial Statements
1) Consolidated Condensed Statements of Income for the three months
and nine months ended September 30, 1996 and September 30, 1995.
2) Consolidated Condensed Balance Sheets as of September 30, 1996 and
December 31, 1995.
3) Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1996 and September 30, 1995.
4) Notes to Consolidated Condensed Financial Statements as of
September 30, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
TECHDYNE, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales $5,262,912 $8,061,205 $18,177,739 $23,503,229
Litigation settlement 139,645
Interest and other income 55,263 11,688 137,714 34,386
---------- ---------- ----------- -----------
5,318,175 8,072,893 18,455,098 23,537,615
Cost and expenses:
Cost of goods sold 4,494,156 6,881,987 15,497,007 19,815,227
Selling, general and administrative expenses 585,007 584,613 1,742,070 1,716,551
Interest expense 67,588 100,762 209,468 299,370
---------- ---------- ----------- -----------
5,146,751 7,567,362 17,448,545 21,831,148
---------- ---------- ----------- -----------
Income before income taxes 171,424 505,531 1,006,553 1,706,467
Income tax provision (benefit) (9,421) 165,539 306,289 430,774
---------- ---------- ----------- -----------
Net income $ 180,845 $ 339,992 $ 700,264 $ 1,275,693
========== ========== =========== ===========
Earnings per share:
Primary $ .04 $ .10 $ .15 $ .40
========== ========== =========== ===========
Fully diluted $ .03 $ .08 $ .13 $ .32
========== ========== =========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
TECHDYNE, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995(A)
---- -------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,436,832 $ 3,131,540
Restricted cash 29,174 27,801
Accounts receivable, less allowances of $98,000 at
September 30, 1996 and December 31, 1995 2,992,589 3,157,420
Inventories, less allowances for obsolescence of $124,000
at September 30, 1996 and $309,000 at December 31, 1995 3,033,058 3,513,196
Prepaid expenses and other current assets 401,853 641,132
----------- -----------
Total current assets 9,893,506 10,471,089
Property and Equipment:
Land and improvements 187,200 186,000
Buildings and building improvements 788,753 756,193
Machinery and equipment 3,106,429 2,726,787
Tools and dies 809,603 770,639
Leasehold improvements 92,895 90,547
----------- -----------
4,984,880 4,530,166
Less accumulated depreciation 2,590,701 2,287,695
----------- -----------
2,394,179 2,242,471
Deferred expenses and other assets 72,068 113,995
Costs in excess of net tangible assets acquired, less
accumulated amortization of $43,000 at September 30,
1996 and $40,000 at December 31, 1995 48,270 51,546
----------- -----------
$12,408,023 $12,879,101
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,317,323 $ 3,094,504
Accrued expenses 809,186 1,372,634
Current portion of long-term debt 263,000 599,000
Income taxes payable 312,532 483,931
----------- -----------
Total current liabilities 3,702,041 5,550,069
Deferred gain on sale of real estate 161,047 161,047
Deferred income taxes 90,336 89,757
Long-term debt, less current portion 1,356,794 729,753
Advances from parent 2,308,082 2,685,598
Commitments and Contingencies
Stockholder's Equity
Common stock, $.01 par value, authorized 10,000,000
shares: issued and outstanding 4,288,819 shares at
September 30, 1996; 4,043,319 shares at December 31, 42,888 40,433
1995
Capital in excess of par value 7,546,626 7,153,581
Deficit (2,573,611) (3,273,875)
Foreign currency translation adjustments (226,180) (257,262)
----------- -----------
Total stockholders' equity 4,789,723 3,662,877
----------- -----------
$12,408,023 $12,879,101
=========== ===========
</TABLE>
(A) Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 filed with the Securities and Exchange Commission in
March 1996.
See notes to consolidated condensed financial statements.
<PAGE> 5
TECHDYNE, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Net income $ 700,264 $1,275,693
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 272,554 245,194
Amortization 11,374 11,620
Bad debt expense 40,000
Provision for inventory obsolescence 32,367 247,000
Increase (decrease) relating to operating
activities from:
Accounts receivable 156,140 (210,697)
Inventories 441,682 (842,223)
Prepaid expenses and other current assets 237,409 (179,558)
Accounts payable (770,486) 424,166
Accrued expenses (558,090) 414,855
Income taxes payable (171,127) 118,991
---------- ----------
Net cash provided by operating activies 352,087 1,545,041
Investing activities:
Additions to property and equipment, net of minor
disposals (414,338) (317,077)
Proceeds from restricted cash 56,294 53,626
Restricted cash (57,667) (54,861)
Proceeds from sale of marketable securities 35,046
Deferred expenses and other assets 48,382 (140,435)
---------- ----------
Net cash used in investing activities (367,329) (423,701)
Financing activities:
Proceeds from long-term borrowings 181,476
Payments on long-term debt (109,978) (241,867)
Exercise of stock options 45,500
Increase (decrease) in advances from parent 186,995 (221,541)
Deferred financing costs (14,451) (9,950)
---------- ----------
Net cash provided by (used in) financing activities 289,542 (473,358)
Effect of exchange rate fluctuations on cash 30,992 2,147
---------- ----------
Increase in cash and cash equivalents 305,292 650,129
Cash and cash equivalents at beginning of year 3,131,540 439,253
---------- ----------
Cash and cash equivalents at end of period $3,436,832 $1,089,382
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 6
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of
Techdyne, Inc. ("Techdyne") and its wholly-owned subsidiary, Techdyne
(Scotland) Limited ("Techdyne (Scotland)"), collectively referred to as the
"Company." All material intercompany accounts and transactions have been
eliminated in consolidation. The Company is a 63.6% owned subsidiary of
Medicore, Inc. (the "Parent"), having been 83.1% owned by the Parent until the
completion of the Company's public offering in October 1995. See Notes 5 and 8.
MAJOR CUSTOMERS
A majority of the Company's sales are to certain major customers. The
loss of or substantially reduced sales to any of these customers would have an
adverse effect on the Company's operations if such sales were not replaced.
Sales by Techdyne (Scotland) to its major customer are substantially
reduced commencing in the third quarter of 1996. In addition, the Company has
experienced the loss of a majority of its sales to one of its major domestic
customers for 1995. See Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
INVENTORIES
Inventories are comprised as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Finished goods $ 604,032 $ 617,851
Work in process 335,199 692,964
Raw materials and supplies 2,093,827 2,202,381
----------- ----------
$ 3,033,058 $3,513,196
=========== ==========
</TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial
statements to conform to the 1996 presentation.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets is comprised as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
United Kingdom VAT tax receivable $207,935 $491,714
Other 193,918 149,418
-------- --------
$401,853 $641,132
======== ========
</TABLE>
<PAGE> 7
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities is comprised as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
United Kingdom VAT tax payable $269,156 $ 659,625
Other 540,030 713,009
-------- ----------
$809,186 $1,372,634
======== ==========
</TABLE>
LONG-LIVED ASSETS
In 1996, the Company has adopted the provisions of FAS 121 -
Accounting for the Impairment of Long-Lived Assets. FAS 121 requires impairment
losses to be recorded on long-lived assets when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Based on current
circumstances, the Company is not aware of any significant impairment losses.
STOCK-BASED COMPENSATION
In 1996, the Company has adopted the provisions of FAS 123 -
Accounting for Stock-Based Compensation. The Company will continue to account
for stock-based compensation plans under the provisions of APB 25 - Accounting
for Stock Issued to Employees. The Company will disclose the pro forma
information required for stock-based compensation plans in its annual financial
statements in accordance with FAS 123.
NOTE 2--INTERIM ADJUSTMENTS
The financial summaries for the three months and nine months ended
September 30, 1996 and September 30, 1995 are unaudited and include, in the
opinion of management of the Company, all adjustments (consisting of normal
recurring accruals) necessary to present fairly the earnings for such periods.
Operating results for the three months and nine months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1996.
While the Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these Consolidated
Condensed Financial Statements be read in conjunction with the financial
statements and notes included in the Company's latest annual report for the
year ended December 31, 1995.
NOTE 3 -- LONG-TERM DEBT
On February 8, 1996, the Company refinanced its term loan by entering
into several loans with a Florida bank. One credit facility is a $2,000,000
line of credit due on demand secured by the Company's accounts receivable,
inventory, furniture, fixtures and intangible assets and bears interest at the
bank's prime rate plus 1.25%. There were no amounts outstanding under this line
of credit at September 30, 1996 and no amounts have been drawn down on this
line as of September 30, 1996.
<PAGE> 8
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 3 --LONG-TERM DEBT -- (CONTINUED)
The bank has also extended two commercial term loans to the Company,
one for $712,500 for five years expiring on February 7, 2001 at an annual rate
of interest equal to 8.28% with a monthly payment of principal and interest of
$6,925 based on a 15-year amortization schedule with the unpaid principal and
accrued interest due on the expiration date. This term loan which had an
outstanding balance of $697,000 at September 30, 1996 has a prepayment penalty
and is secured by a mortgage on properties in Hialeah, Florida owned by the
Company's Parent, two of which properties are leased to the Company and one
parcel being vacant land used as a parking lot. Under this term loan the
Company is obligated to adhere to a variety of affirmative and negative
covenants.
The second commercial term loan is for the principal amount of
$200,000 for a period of five years bearing interest at a per annum rate of
1.25% over the bank's prime rate and requiring monthly principal payments with
accrued interest of $3,333 through expiration on February 7, 2001. This
$200,000 term loan which had a balance of $177,000 at September 30, 1996
carries no prepayment penalty and is secured by all of the Company's tangible
personal property, goods and equipment, and all cash or noncash proceeds of
such collateral.
The financing under the new term loans provided cash proceeds to the
Company of approximately $181,000 and included payment of the balance due under
the Company's previous term loan of $517,000 and payment of a mortgage of the
Parent on a building leased to the Company of $215,000 which has been reflected
as a reduction in the intercompany advances due the Parent, both of which
represent non-cash financing activities which is a supplemental disclosure
required by FAS 95.
The Parent has unconditionally guaranteed the payment and performance
by the Company of the $2,000,000 revolving loan and the two commercial term
loans.
A default of the $712,500 term loan will be deemed a default of the
$2,000,000 revolving line, but only a financial default of the $2,000,000
revolving line will be deemed a default of the $712,500 term loan.
The Company has a promissory note payable to a local bank of $145,000
at September 30, 1996 and December 31, 1995, with interest payable monthly at
prime with the note maturing April 1997. This note is secured by 2 certificates
of deposit of a related company and one certificate of deposit of the Company.
The prime rate was 8.25% as of September 30, 1996 and 8.5% as of
December 31, 1995.
In October 1994, Techdyne (Scotland) finalized the purchase of the
facility which houses it's operations at a cost of approximately $730,000. The
principal balance outstanding under this mortgage had a U.S. dollar equivalency
of approximately $575,000 and $591,000 at September 30, 1996 and December 31,
1995, respectively.
Techdyne (Scotland) has established a line of credit with a Scottish
bank with a U.S. dollar equivalency of approximately $312,000 at September 30,
1996 and had an option for additional funding which provided a total line of
$620,000 at December 31, 1995. No amounts were outstanding under this line of
credit as of September 30, 1996 or December 31, 1995.
The Company's other debt includes various capital lease and other
financing obligations. These financing obligations represent a noncash
financing activity which is a supplemental disclosure required by FAS 95.
The carrying amount of the Company's borrowings under its debt
agreements approximate their fair value.
<PAGE> 9
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 3 --LONG-TERM DEBT -- (CONTINUED)
Interest payments on long-term debt amounted to approximately $35,000
and $103,000 for the three months and nine months ended September 30, 1996 and
$36,000 and $111,000 for the same periods of the preceding year.
NOTE 4 -- INCOME TAXES
On January 5, 1990, the Parent purchased an additional 21.1% interest
in the Company, thereby allowing the Company to be included in the consolidated
federal and state income tax returns of the Parent. Subsequent to the
completion of the Company's public offering on October 2, 1995, the Company
files separate federal and state income tax returns with its income tax
liability reflected on a separate return basis.
The Company had a net operating loss carryforward of approximately
$5,000,000 at September 30, 1996 and December 31, 1995, expiring between 2005
and 2008. Subsequent to completion of the Company's public offering, the
Company's net operating losses can only be used to offset its taxable income
and cannot be utilized in the consolidated federal and state income tax returns
of the Parent as was done previously.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Other deferred tax liabilities, which total approximately $340,000 result from
temporary differences including tax over book depreciation and are more than
offset by deferred tax assets. Deferred tax assets of approximately $1,970,000
result primarily from the net operating loss carryforwards noted above which
result in related deferred tax assets of approximately $1,870,000 and include
differences in book and tax bases of receivables and inventory and other
temporary differences which result in related deferred tax assets of
approximately $100,000. Deferred tax assets have not been reflected in the
financial statements as a result of their being offset by a valuation allowance
of approximately $1,720,000 at September 30, 1996 and $1,857,000 at December
31, 1995.
The Company had domestic income tax expense of $2,000 for the three
months and nine months ended September 30, 1996 and $4,000 and $17,000 for the
same periods of the preceding year.
Techdyne (Scotland) had income tax expense (benefit) of $(12,000) and
$304,000 for the three months and nine months ended September 30, 1996 and
$137,000 and $371,000 for the same periods of the preceding year.
Income tax payments were $487,000 for the three months and nine months
ended September 30, 1996 and $272,000 for the three months and nine months
ended September 30, 1995.
NOTE 5 -- TRANSACTIONS WITH PARENT
The Parent provides certain administrative services to the Company
including office space and general accounting assistance. These expenses and
all other central operating costs are charged on the basis of direct usage,
when identifiable, or on the basis of time spent. In the opinion of management,
this method of allocation is reasonable. The amount of expenses allocated by
the Parent totaled $102,000 and $306,000 for the three months and nine months
ended September 30, 1996 and for the same periods of the preceding year.
The advances from Parent bore interest at the short-term Treasury bill
rate until April 10, 1995 and interest at 5.7% from that date. As of April 10,
1995, the advances were formalized into a demand convertible promissory note
pursuant to which $1,500,000 was repaid to the Parent upon completion of
Company's public offering on October 2, 1995. The balance of the note
including accrued interest, which
<PAGE> 10
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 5 -- TRANSACTIONS WITH PARENT--(CONTINUED)
amounted to $2,955,000 at September 30, 1996, may be converted into common
stock of the Company at the option of the Parent at a conversion price of $1.75
per share. The Parent converted $350,000 of this note into 200,000 shares of
the Company's common stock in June 1996, increasing its ownership interest in
the Company at that time from 62.5% to 64.3 %. Advances from the Parent on the
balance sheet has been presented net of an advance receivable from the Parent
of approximately $647,000 at September 30, 1996 with interest at 5.7%. Interest
on the advances amounted to $32,000 and $106,000 and $65,000 and $188,000 for
the three months and nine months ended September 30, 1996 and September 30,
1995, respectively. The Parent has agreed not to require repayment of the
intercompany advances prior to October 1, 1997 and, therefore the advances have
been classified as long-term at September 30, 1996.
In 1990, the Company sold real property to its Parent. The Parent
assumed outstanding mortgages on the property. The gain on the sale of
approximately $161,000 has been deferred due to the relationship between the
parties. The premises are leased from the Parent under a 5 year net lease
expiring March 31, 2000. In connection with the Company refinancing its term
loan, a mortgage of the Parent on a building leased to the Company was paid off
which has been reflected as a reduction of approximately $215,000 in the
intercompany advances due the Parent. See Note 3.
The Company manufactures certain products for the Parent. Sales of the products
were $59,000 and $210,000 and $62,000 and $167,000 for the three months and
nine months ended September 30, 1996 and September 30, 1995, respectively.
NOTE 6 -- CONTINGENCIES
In the first quarter of 1996, a temporary worker provided by a
temporary personnel agency was injured while working at the Company. The worker
was insured through the temporary personnel agency. While the full extent of
the temporary worker's injuries and the ultimate costs associated with those
injuries are not presently known, the Company anticipates that its insurance is
adequate to cover any potential claims which might arise.
A litigation initiated by the Company in 1994 in the Florida courts
has been settled on terms favorable to the Company.
NOTE 7 -- STOCK OPTIONS
In May 1994, the Company adopted a stock option plan for up to 250,000
options. Pursuant to this plan, in May 1994, the Board of Directors granted
227,500 options, of which there are 179,200 outstanding as of September 30,
1996, to certain of its officers, directors, employees and consultants. These
options are exercisable for a period of five years at $1 per share. Options for
400 shares were exercised in the fourth quarter of 1995, options for 1,300
shares were exercised in the second quarter of 1996, and options for 44,200
shares were exercised in the third quarter of 1996.
On February 27, 1995 the Company granted stock options, not part of
the 1994 Plan, to directors of Techdyne and its subsidiary for 142,500 shares
exercisable at $1.75 per share for five years. In April 1995, the Company
granted a stock option for 10,000 shares, not part of the 1994 Plan, to its
general counsel at the same price and terms as the directors' options.
NOTE 8 -- COMMON STOCK
On October 2, 1995, the Company completed a public offering of its
securities providing it with net proceeds of approximately $3,321,000.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Consolidated revenues decreased approximately $2,755,000 (34%) and
$5,083,000 (22%) for the three months and nine months ended September 30, 1996
compared to the same periods of the preceding year. Domestic revenues, which
included a litigation settlement of $140,000 during the first quarter of 1996,
decreased $1,054,000 (22%) and $5,065,000 (34%) and European-based revenues
decreased $1,701,000 (52%) and $18,000 for the three months and nine months
ended September 30, 1996 compared to the same periods of the preceding year.
Approximately 53% and 67% of the Company's consolidated sales for the
three months and nine months ended September 30, 1996 were made to four
customers, of which Compaq Computer Corp. ("Compaq") accounted for 22% and 40%,
IBM for 14% and 13%. The other two customers each accounted for less than 10%
of the Company's sales during the three months and nine months ended September
30, 1996. The loss of, or substantially reduced sales to, any of these
customers would have an adverse effect on the Company's operations if such
sales are not replaced. The Company had domestic sales of $5,653,000 to another
major customer for 1995. As a result of a change in the product produced for
that customer, and not based on quality or service, the Company anticipates a
loss of a majority of its sales to that customer during 1996. Sales to that
customer amounted to $28,000 and $226,000 for the three months and nine months
ended September 30, 1996 compared to $1,832,000 and $5,250,000 for the same
periods of the preceding year. The Company is pursuing new business development
to replace these lost sales, although there can be no assurance as to the
success of such efforts.
Revenues of Techdyne (Scotland) continue to be highly dependent on
sales to Compaq which accounted for approximately 74% and 86% of the sales of
Techdyne (Scotland) for the three months and nine months ended September 30,
1996 and 87% and 83% for the same periods of the preceding year. While the
Company believes that Techdyne (Scotland) will maintain significant sales to
Compaq, the bidding for Compaq orders has become more competitive which the
Company anticipates will result in substantially reduced Compaq sales and lower
profit margins on remaining Compaq sales. Techdyne (Scotland) is pursuing new
business development to replace substantial reductions in Compaq business
beginning in the third quarter of 1996 and to pursue cost reduction efforts to
remain competitive on Compaq business. However, there can be no assurance as to
the success of such efforts.
Cost of goods sold as a percentage of sales remained relatively
stable, amounting to 85% for the three months and nine months ended September
30, 1996 compared to 85% and 84% for the same periods of the preceding year.
Selling, general and administrative expenses remained relatively
stable increasing $26,000 during the nine months ended September 30, 1996
compared to the same period of the preceding year, with such expenses
approximately equal for the third quarter of both years.
Interest expense decreased by $33,000 and $90,000 for the three months
and nine months ended September 30, 1996 compared to the same periods of the
preceding year due primarily to a decrease in interest on the intercompany
advances from Medicore. The prime rate was 8.25% at September 30, 1996 and 8.5%
at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $6,191,000 at September 30, 1996 increasing
$1,270,000 (26%) during the first nine months of 1996 which included a
substantial reduction in current debt as a result of the Company's bank
refinancing and the litigation settlement proceeds. The significant reductions
in inventories, prepaid expenses and other current assets, accounts payable and
accrued expenses are largely a result of reduced purchasing activity resulting
from reductions in Techdyne (Scotland) sales to Compaq.
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES -- CONTINUED
Included in the changes in components of working capital was an
increase of $305,000 in cash and cash equivalents, which included net cash
provided by operating activities of $352,000, net cash used in investing
activities of $367,000 (including $414,000 from additions to property plant and
equipment) and net cash provided by financing activities of $290,000 (including
proceeds of the bank refinancing of $181,000 and payments on long-term debt of
$110,000 and a net increase in advances from parent of $187,000).
In February 1996, the Company refinanced its bank loan agreement with
a different Florida bank. The new financing provides for a $2,000,000 line of
credit, due on demand, secured by the Company's accounts receivable, inventory,
furniture, fixtures and intangible assets. There were no amounts outstanding
under this line of credit at September 30, 1996 and no amounts have been drawn
down on this line as of September 30, 1996. A $712,500 term loan which had a
remaining principal balance of $697,000 at September 30, 1996 is secured by two
buildings and land owned by the Parent. The second term loan for $200,000 which
had a remaining principal balance of $177,000 at September 30, 1996 is secured
by the Company's tangible personal property, goods and equipment. The Parent
has guaranteed these loans and has subordinated $2,500,000 due from the
Company, provided that the Company may make payments to the Parent on this
subordinated debt from funds from the Company's security offering and from
earnings. The Company has further agreed that in the event that it should sell
its interest in Techdyne (Scotland), which is not anticipated, 50% of the
selling price would be used to repay the $712,500 term loan facility. See Note
3 to "Notes to Consolidated Condensed Financial Statements."
The Company has outstanding borrowings of $145,000 form a local bank
with interest payable monthly and the notes maturing April, 1997. Techdyne
(Scotland) has a line of credit with a Scottish bank, with a U.S. dollar
equivalency of approximately $312,000 at September 30, 1996 and had an option
for additional funding which provided a total line of $620,000 at December 31,
1995. The Company has decided not to utilize this option for additional
funding. The line of credit is secured by the assets of Techdyne (Scotland)
and guaranteed by the Company. This line of credit operates as an overdraft
facility. No amounts were outstanding under this line of credit as of September
30, 1996 or December 31, 1995.
In October, 1994, Techdyne (Scotland) purchased the facility housing
its operations for approximately $730,000, obtaining a 15-year mortgage which
had a U.S. dollar equivalency of approximately $575,000 at September 30, 1996
and $591,000 at December 31, 1995.
Given its current level of working capital and its refinanced bank
loan, management believes current levels of working capital are adequate to
successfully meet liquidity demands for at least the next twelve months.
INFLATION
Inflationary factors have not had a significant effect on the
Company's operations. The Company attempts to pass on increased costs and
expenses by increasing selling prices when and where possible and by developing
different and improved products for its customers that can be sold at targeted
profit margins.
<PAGE> 13
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Part I Exhibits
(11) Statements re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
Part II Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
September 30, 1996.
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.
Techdyne, Inc.
By /s/ Daniel R. Ouzts
-------------------
DANIEL R. OUZTS, Vice President/
Finance, Controller and Principal
Financial Officer
Dated: November 8, 1996
<PAGE> 14
EXHIBIT INDEX
Exhibit
No.
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
<PAGE> 1
TECHDYNE, INC. AND SUBSIDIARY
EXHIBIT 11 -- COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
PRIMARY
<S> <C> <C> <C> <C>
Weighted average shares outstanding 4,062,608 3,042,910 4,121,951 3,042,910
Net effect of dilutive stock options-based on the modified
treasury stock method for 1996 and the treasury stock
method for 1995 719,573 262,849 672,901 137,278
---------- ---------- ---------- ----------
4,782,181 3,305,759 4,794,853 3,180,188
========== ========== ========== ==========
Net income $ 180,845 $ 339,992 $ 700,264 $1,275,693
========== ========== ========== ==========
Net income per share $ .04 $ .10 $ .15 $ .40
========== ========== ========== ==========
FULLY DILUTED
Weighted average shares outstanding 4,262,608 3,042,910 4,121,951 3,042,910
Assumed conversion of convertible promissory note 1,676,587 1,579,747 1,812,139 1,006,872
Net effect of dilutive stock options-based on the modified
treasury stock method 747,437 297,604 745,981 198,403
---------- ---------- ---------- ----------
6,686,632 4,920,261 6,680,071 4,248,185
========== ========== ========== ==========
Net income $ 180,845 $ 339,992 $ 700,264 $1,275,693
Adjustment for interest on convertible note 41,810 39,719 135,571 75,120
---------- ---------- ---------- ----------
$ 222,655 $ 379,711 $ 835,835 $1,350,813
========== ========== ========== ==========
Net income per share $ .03 $ .08 $ .13 $ .32
========== ========== ========== ==========
</TABLE>
Note: Fully diluted earnings per share data has not been presented for 1995 as
it is not dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,436,832
<SECURITIES> 0
<RECEIVABLES> 2,992,589<F1>
<ALLOWANCES> 0
<INVENTORY> 3,033,058<F2>
<CURRENT-ASSETS> 9,893,506
<PP&E> 4,984,880
<DEPRECIATION> 2,590,701
<TOTAL-ASSETS> 12,408,023
<CURRENT-LIABILITIES> 3,702,041
<BONDS> 1,356,794
0
0
<COMMON> 42,888
<OTHER-SE> 4,746,835
<TOTAL-LIABILITY-AND-EQUITY> 12,408,023
<SALES> 18,177,739
<TOTAL-REVENUES> 18,455,098
<CGS> 15,497,007
<TOTAL-COSTS> 15,497,007
<OTHER-EXPENSES> 1,742,070
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 209,468
<INCOME-PRETAX> 1,006,553
<INCOME-TAX> 306,289
<INCOME-CONTINUING> 700,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 700,264
<EPS-PRIMARY> .15
<EPS-DILUTED> .13
<FN>
<F1>ACCOUNTS RECEIVABLE ARE NET OF ALLOWANCE OF $98,000 AT SEPTEMBER 30, 1996.
<F2>INVENTORIES ARE NET OF RESERVE OF $124,000 AT SEPTEMBER 30, 1996.
</FN>
</TABLE>
