<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 June 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
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Commission file number 1-13924
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TECHDYNE, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-1709103
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2230 West 77th Street, Hialeah, Florida 33016
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(Address of principal executive offices) (Zip Code)
(305) 556-9210
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such 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 -- 4,246,019 shares as of July 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 six months ended June 30, 1996 and June 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
six months ended June 30, 1996 and June 30, 1995.
2) Consolidated Condensed Balance Sheets as of June 30, 1996 and
December 31, 1995.
3) Consolidated Condensed Statements of Cash Flows for the six months
ended June 30, 1996 and June 30, 1995.
4) Notes to Consolidated Condensed Financial Statements as of June 30,
1996.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Sales $6,146,671 $8,700,210 $12,914,827 $15,442,024
Litigation settlement 139,645
Interest and other income 47,088 12,445 82,451 22,698
---------- ----------- ----------- -----------
6,193,759 8,712,655 13,136,923 15,464,722
Cost and expenses:
Cost of goods sold 5,269,645 7,390,229 11,002,851 12,933,240
Selling, general and administrative expenses 585,141 579,024 1,157,063 1,131,938
Interest expense 74,034 98,371 141,880 198,608
---------- ----------- ----------- -----------
5,928,820 8,067,624 12,301,794 14,263,786
---------- ----------- ----------- -----------
Income before income taxes 264,939 645,031 835,129 1,200,936
Income tax provision 135,783 131,212 315,710 265,235
---------- ----------- ----------- -----------
Net income $ 129,156 $ 513,819 $ 519,419 $ 935,701
========== =========== =========== ===========
Earnings per share:
Primary $ .03 $ .16 $ .11 $ .30
========== =========== =========== ===========
Fully diluted $ .09
===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
TECHDYNE, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995(A)
---- -------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalent $ 3,917,332 $ 3,131,540
Restricted cash 28,493 27,801
Accounts receivable, less allowances of $103,000 at
June 30, 1996 and December 31, 1995 3,086,781 3,157,420
Inventories, less allowances for obsolescence of $193,000
at June 30, 1996 and $309,000 at December 31, 1 2,579,140 3,513,196
Prepaid expenses and other current assets 471,911 641,132
----------- -----------
Total current assets 10,083,657 10,471,089
Property and Equipment:
Land and improvements 186,000 186,000
Buildings and building improvements 783,697 756,193
Machinery and equipment 3,068,547 2,726,787
Tools and dies 809,247 770,639
Leasehold improvements 92,895 90,547
----------- -----------
4,940,386 4,530,166
Less accumulated depreciation 2,527,272 2,287,695
----------- -----------
2,413,114 2,242,471
Deferred expenses and other assets 75,323 113,995
Costs in excess of net tangible assets acquired, less
accumulated amortization of $42,000 at June 30,
1996 and $40,000 at December 31, 1995 49,362 51,546
----------- -----------
$12,621,456 $12,879,101
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,956,893 $ 3,094,504
Accrued expenses 1,257,634 1,372,634
Current portion of long-term debt 260,000 599,000
Income taxes payable 803,885 483,931
----------- -----------
Total current liabilities 4,278,412 5,550,069
Deferred gain on sale of real estate 161,047 161,047
Deferred income taxes 89,757 89,757
Long-term debt, less current portion 1,385,959 729,753
Advances from parent 2,164,072 2,685,598
Commitments and Contingencies
Stockholder's Equity
Common stock, $.01 par value, authorized 10,000,000
shares: issued and outstanding 4,244,619 shares at June
30, 1996; 4,043,319 shares at December 31, 1995 42,446 40,433
Capital in excess of par value 7,502,868 7,153,581
Deficit (2,754,456) (3,273,875)
Foreign currency translation adjustments (248,649) (257,262)
----------- -----------
Total stockholders' equity 4,542,209 3,662,877
----------- -----------
$12,621,456 $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>
SIX MONTHS ENDED
JUNE 30,
-----------------
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Net income $ 519,419 $ 935,701
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 175,936 159,636
Amortization 7,369 8,304
Bad debt expense 30,000
Provision for inventory obsolescence 65,143 193,760
Increase (decrease) relating to operating
activities from:
Accounts receivable 60,175 (1,375,518)
Inventories 850,952 (1,496,478)
Prepaid expenses and other current assets 163,985 (329,771)
Accounts payable (1,121,315) 1,403,478
Accrued expenses (106,418) 483,586
Income taxes payable 320,978 244,096
----------- ----------
Net cash provided by operating activities 936,224 256,794
Investing activities:
Additions to property and equipment, net of minor
disposals (330,276) (186,092)
Proceeds from restricted cash 27,801 26,566
Restricted cash (28,493) (27,060)
Proceeds from sale of marketable securities 35,046
Deferred expenses and other assets 47,989 (64,108)
----------- ----------
Net cash used in investing activities (282,979) (215,648)
Financing activities:
Proceeds from long-term borrowings 181,476
Payments on long-term debt (76,508) (126,488)
Exercise of stock options 1,300
Increase (decrease) in advances from parent 42,985 (8,827)
Deferred financing costs (14,697) 528
----------- ----------
Net cash provided by (used in) financing activities 134,556 (134,787)
(2,009) (6,441)
Effect of exchange rate fluctuations on cash ----------- ----------
Increase (decrease) in cash and cash equivalents 785,792 (100,082)
Cash and cash equivalents at beginning of year 3,131,540 439,253
----------- ----------
Cash and cash equivalents at end of period $ 3,917,332 $ 339,171
=========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 6
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 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 64.3% 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 expected to be
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
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>
June 30, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Finished goods $ 521,515 $ 617,851
Work in process 429,999 692,964
Raw materials and supplies 1,627,626 2,202,381
---------- ----------
$2,579,140 $3,513,196
========== ==========
</TABLE>
<PAGE> 7
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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>
June 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
United Kingdom VAT tax receivable $240,273 $491,714
Other 231,638 149,418
-------- --------
$471,911 $641,132
======== ========
</TABLE>
<PAGE> 8
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 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>
June 30, December 31,
1996 1995
---------- -----------
<S> <C> <C>
United Kingdom VAT tax payable $ 580,001 $ 659,625
Other 677,633 713,009
---------- ----------
$1,257,634 $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 six months ended June 30,
1996 and June 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 six months ended June 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 June 30, 1996 and no amounts have been drawn down on this line as of
June 30, 1996.
<PAGE> 9
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 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 $703,000 at June 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 $187,000 at June 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 SFAS 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.
<PAGE> 10
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
(UNAUDITED)
NOTE 3 -- LONG-TERM DEBT -- (CONTINUED)
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
June 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 June 30, 1996 and 8.5% as of December 31,
1995.
In July 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 $579,000 and $591,000 at June 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 $308,000 at June 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 June 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 SFAS 95.
The carrying amount of the Company's borrowings under its debt agreements
approximate their fair value.
Interest payments on long-term debt amounted to approximately $37,000 and
$68,000 for the three months ended June 30, 1996 and $38,000 and $75,000 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 June 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.
<PAGE> 11
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
(UNAUDITED)
NOTE 4 -- INCOME TAXES -- (CONTINUED)
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 $2,100,000 result
primarily from the net operating loss carryforwards noted above which result in
related deferred tax assets of approximately $1,950,000 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
$150,000. Deferred tax assets have not been reflected in the financial
statements as a result of their being offset by a valuation allowance of
approximately $1,850,000 at June 30, 1996 and $1,857,000 at December 31, 1995.
The Company had no domestic income tax expense for the six months ended
June 30, 1996 due to domestic operation losses for this period and had a
domestic income tax (benefit) of approximately $(4,000) for the three months
ended June 30, 1996 and had a domestic income expense of approximately $13,000
and $32,000 for the same periods of the preceding year.
Techdyne (Scotland) had income tax expense of $140,000 and $316,000 for
the three months and six months ended June 30, 1996 and $119,000 and $234,000
for the same periods of the preceding year.
There were no income tax payments for the six months ended June 30, 1996
or June 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 $204,000 for the three months and
six months ended June 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 amounted to $2,913,000 at June 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 from 62.5% to 64.3 %. Advances
from parent on the balance sheet has been presented net of an advance
receivable from the Parent of approximately $749,000 at June 30, 1996 with
interest at 5.7%. Interest on the advances amounted to $37,000 and $74,000 and
$61,000 and $123,000 for the three months and six months ended June 30, 1996
and June 30, 1995, respectively. The Parent has agreed not to require
repayment of the intercompany advances prior to July 1, 1997 and, therefore the
advances have been classified as long-term at June 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.
<PAGE> 12
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
(UNAUDITED)
NOTE 5 -- TRANSACTIONS WITH PARENT--(CONTINUED)
The Company manufactures certain products for the Parent. Sales of the
products were $79,000 and $151,000 and $55,000 and $106,000 for the three
months and six months ended June 30, 1996 and June 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 currently 222,800 outstanding, to certain of
its officers, directors, employees and consultants. These options are
excercisable for a period of five years at $1 per share. Options for 400
shares were exercised in the fourth quarter of 1995 and options for 1,300
shares were exercised in the second 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> 13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Consolidated revenues decreased approximately $2,519,000 (29%) and
$2,328,000(15%) for the three months and six months ended June 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 $3,013,000 (51%) and $4,011,000 (39%) and European-based revenues
increased $494,000 (18%) and $1,683,000 (32%) for the three months and six
months ended June 30, 1996 compared to the same periods of the preceding year.
Approximately 74% of the Company's consolidated sales for the three
months and six months ended June 30, 1996 were made to four customers, of which
Compaq Computer Corp. ("Compaq") accounted for 48% and 47% , IBM for 10% and
13%, and Motorola for 10% and 8%. The other customer accounted for less than
10% of the Company's sales during the three months and six months ended June
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 $39,000 and $198,000 for the three months
and six months ended June 30, 1996 compared to $2,376,000 and $3,419,000 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 90% and 89% of the sales of
Techdyne (Scotland) for the three months and six months ended June 30, 1996 and
83% and 81% 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
anticipated 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,
increasing to 86% for the three months and six months ended June 30, 1996
compared to 85% and 84% for the same periods of the preceding year. The
increase was largely attributable to the decrease in sales to the major
customer noted above which had relatively higher margins.
Selling, general and administrative expenses remained relatively stable
increasing $6,000 and $25,000 during the three months and six months ended
June 30, 1996 compared to the same periods of the preceding year.
Interest expense decreased by $24,000 and $57,000 for the three months and
six months ended June 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 June 30, 1996 and 8.5% at December 31,
1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $5,805,000 at June 30, 1996 increasing $884,000
(15%) during the first six 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 and
accounts payable are a result of reduced purchasing activity largely resulting
from anticipated reductions in Techdyne (Scotland) sales to Compaq.
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES -- CONTINUED
Included in the changes in components of working capital was an increase
of $786,000 in cash and cash equivalents, which included net cash provided by
operating activities of $936,000 net cash used in investing activities of
$283,000 (including $330,000 from additions to property plant and equipment)
and net cash provided by financing activities of $135,000 (resulting largely
from proceeds of the bank refinancing of $181,000 and payments on long-term
debt of $77,000).
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 June 30, 1996 and no amounts have been drawn down
on this line as of June 30, 1996. A $712,500 term loan which had a remaining
principal balance of $703,000 at June 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 $187,000 at June 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 $308,000 at June 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 June 30,
1996 or December 31, 1995.
In July, 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 $579,000 at June 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> 15
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 5, 1996, the Company held its annual meeting of shareholders to
elect its five member Board of Directors to serve until the next
annual meeting in 1997. Each director, Messrs. Thomas K. Langbein,
Peter D. Fischbein, Barry Pardon, Joseph Verga and Anthony C. D'Amore,
was elected by a vote of 2,558,797 shares for and no votes against.
There were no abstentions and no broker non-votes due to the meeting
being called pursuant to an Information Statement under Regulation 14C
of the Securities Exchange Act of 1934 with no proxy solicitation since
the Parent owned 63% of the voting equity of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Part I Exhibits
(11) Statements re: computation of per share earnings
Part II Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended June 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
Accounting Officer
Dated: August 9, 1996
<PAGE> 16
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 4,056,977 3,042,910 4,050,198 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 696,512 148,984 645,732 74,492
--------- ---------- ---------- ----------
4,753,489 3,191,894 4,695,930 3,117,402
========== ========== ========== ==========
Net income $ 129,156 $ 513,819 $ 519,419 $ 935,701
========== ========== ========== ==========
Net income per share $.03 $.16 $.11 $.30
==== ==== ==== ====
FULLY DILUTED
Weighted average shares outstanding 4,056,977 4,050,198
Assumed conversion of convertible promissory note 1,834,214 1,828,667
Net effect of dilutive stock options-based on the
modified treasury stock method 721,513 721,513
---------- ----------
6,612,704 6,600,378
========== ==========
Net income $ 129,156 $ 519,419
Adjustment for interest on convertible note 41,246 84,464
---------- ----------
$ 170,402 $ 603,883
========== ==========
Net income per share $.03 $.09
==== ====
</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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,917,332
<SECURITIES> 0
<RECEIVABLES> 3,086,781<F1>
<ALLOWANCES> 0
<INVENTORY> 2,579,140<F2>
<CURRENT-ASSETS> 10,083,657
<PP&E> 4,940,386
<DEPRECIATION> 2,527,272
<TOTAL-ASSETS> 12,621,456
<CURRENT-LIABILITIES> 4,278,412
<BONDS> 1,385,959
0
0
<COMMON> 42,446
<OTHER-SE> 4,499,763
<TOTAL-LIABILITY-AND-EQUITY> 12,621,456
<SALES> 12,914,827
<TOTAL-REVENUES> 13,136,923
<CGS> 11,002,851
<TOTAL-COSTS> 11,002,851
<OTHER-EXPENSES> 1,157,063
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141,880
<INCOME-PRETAX> 835,129
<INCOME-TAX> 315,710
<INCOME-CONTINUING> 519,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 519,419
<EPS-PRIMARY> .11
<EPS-DILUTED> .09
<FN>
<F1>ACCOUNTS RECEIVABLES ARE NET OF ALLOWANCE OF $103,000 AT JUNE 30, 1996.
<F2>INVENTORIES ARE NET OF RESERVE OF $193,000 AT JUNE 30, 1996.
</FN>
</TABLE>
