<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 March 31, 1996
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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.
- - --------------------------------------------------------------------------------
(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
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(Address of principal executive offices) (Zip Code)
(305) 556-9210
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and form 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 -- 4,043,319 shares as of April 30, 1996.
<PAGE> 2
TECHDYNE, INC. AND SUBSIDIARY
INDEX
PART I -- FINANCIAL INFORMATION
The Consolidated Condensed Statements of Income (Unaudited) for the three
months ended March 31, 1996 and March 31, 1995 include the accounts of the
Registrant and its subsidiary.
Item 1. Financial Statements
1) Consolidated Condensed Statements of Income for the three months
ended March 31, 1996 and March 31, 1995.
2) Consolidated Condensed Balance Sheets as of March 31, 1996 and
December 31, 1995.
3) Consolidated Condensed Statements of Cash Flows for the three months
ended March 31, 1996 and March 31, 1995.
4) Notes to Consolidated Condensed Financial Statements as of March 31,
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
MARCH 31
-------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Sales $6,768,156 $6,741,814
Litigation settlement 139,645
Interest and other income 35,363 10,253
---------- ----------
6,943,164 6,752,067
Cost and expenses:
Cost of goods sold 5,733,206 5,543,011
Selling, general and administrative expenses 571,922 552,914
Interest expense 67,846 100,237
---------- ----------
6,372,974 6,196,162
---------- ----------
Income before income taxes 570,190 555,905
Income tax provision 179,927 134,023
---------- ----------
Net income $ 390,263 $ 421,882
========== ==========
Earnings per share:
Primary $ .09 $ .14
========== ==========
Fully diluted $ .07
==========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
TECHDYNE, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995(A)
---- -------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,562,045 $ 3,131,540
Restricted cash 28,493 27,801
Accounts receivable, less allowances of $103,000 at
March 31, 1996 and at December 31, 1995 3,194,820 3,157,420
Inventories, less allowances for obsolescence of $318,000
at March 31, 1996 and $309,000 at December 31, 1995 3,071,465 3,513,196
Prepaid expenses and other current assets 459,916 641,132
----------- -----------
Total current assets 10,316,739 10,471,089
Property and Equipment:
Land and improvements 183,600 186,000
Buildings and building improvements 766,567 756,193
Machinery and equipment 2,754,754 2,726,787
Tools and dies 770,921 770,639
Leasehold improvements 91,582 90,547
----------- -----------
4,567,424 4,530,166
Less accumulated depreciation 2,368,925 2,287,695
----------- -----------
2,198,499 2,242,471
Deferred expenses and other assets 148,926 113,995
Costs in excess of net tangible assets acquired, less
accumulated amortization of $41,000 at March 31,
1996 and $40,000 at December 31, 1995 50,454 51,546
----------- -----------
$12,714,618 $12,879,101
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,519,894 $ 3,094,504
Accrued expenses 1,162,017 1,372,634
Current portion of long-term debt 137,000 599,000
Income taxes payable 653,033 483,931
----------- -----------
Total current liabilities 4,471,944 5,550,069
Deferred gain on sale of real estate 161,047 161,047
Deferred income taxes 88,599 89,757
Long-term debt, less current portion 1,520,279 729,753
Advances from parent 2,457,213 2,685,598
Commitments and Contingencies
Stockholder's Equity
Common stock, $.01 par value, authorized 10,000,000
shares; issued and outstanding 4,043,319 shares 40,433 40,433
Capital in excess of par value 7,153,581 7,153,581
Deficit (2,883,612) (3,273,875)
Foreign currency translation adjustments (294,866) (257,262)
----------- -----------
Total stockholders' equity 4,015,536 3,662,877
----------- -----------
$12,714,618 $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>
THREE MONTHS ENDED
March 31
--------------------------
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Net income $ 390,263 $ 421,882
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 88,044 78,562
Amortization 3,384 4,971
Bad debt expense 30,000
Provision for inventory obsolescence 72,550 98,000
Increase (decrease) relating to operating activities
from:
Accounts receivable (55,834) (324,995)
Inventories 347,018 (1,001,651)
Prepaid expenses and other current assets 173,907 (85,136)
Accounts payable (553,747) 496,020
Accrued expenses (197,745) 127,130
Income taxes payable 175,346 118,835
---------- ----------
Net cash provided by (used in) operating activities 443,186 (36,382)
Investing activities:
Additions to property and equipment, net of minor
disposals (63,166) (67,930)
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 (23,901) (5,106)
---------- ----------
Net cash used in investing activities (87,759) (38,484)
Financing activities:
Proceeds from long-term borrowings 181,476
Payments on long-term debt (61,431) (51,010)
Increase (decrease) in advances from parent (13,874) 39,179
Deferred financing costs (13,616)
---------- ----------
Net cash provided by (used in) financing activities 92,555 (11,831)
Effect of exchange rate fluctuations on cash (17,477) (3,619)
---------- ----------
Increase (decrease) in cash and cash equivalents 430,505 (90,316)
Cash and cash equivalents at beginning of year 3,131,540 439,253
---------- ----------
Cash and cash equivalents at end of period $3,562,045 $ 348,937
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 6
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 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 an 62.5% owned subsidiary of Medicore, Inc. (the
"Parent"), having been 83.1% owned by the Parent until the completion of its
public offering in October 1995.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Business
The Company is a manufacturer of electronic, electro-mechanical and
plastic insert injection molded products used by original equipment
manufacturers and distributors primarily in the data processing,
telecommunication and instrumentation industries.
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.
Restricted Cash
Restricted cash represents cash balances pledged as collateral on a
promissory note. See Note 2.
Inventories
Inventories, which consist primarily of raw materials used in the
production of electronic components, are valued at the lower of cost (first-in,
first-out method) or market value. The cost of finished goods and work in
process consists of direct materials, direct labor and an appropriate portion
of fixed and variable manufacturing overhead. Inventories are comprised as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -----------
<S> <C> <C>
Finished goods................................................................ $ 639,493 $ 617,851
Work in process............................................................... 692,888 692,964
Raw materials and supplies.................................................... 1,739,084 2,202,381
---------- ----------
$3,071,465 $3,513,196
========== ==========
</TABLE>
<PAGE> 7
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Property and Equipment
Property and equipment is stated on the basis of cost. Depreciation is
computed by the straight-line method over the estimated useful lives of the
assets for financial reporting purposes and by accelerated methods for income
tax purposes.
Deferred Expenses
Deferred expenses, except for deferred loans costs, are amortized on the
straight-line method, over their estimated benefit period ranging to 60 months.
Deferred loan costs are amortized over the lives of the respective loans.
Cost in Excess of Net Tangible Assets Acquired
The cost in excess of net tangible assets acquired are being amortized
over 25 years. If, in the opinion of management, an impairment of value
occurs, based on the undiscounted cash flow method, any writedowns will be
charged to expense.
Foreign Operations
Sales of the Company's wholly owned subsidiary, Techdyne (Scotland), are
primarily to customers in the United Kingdom with limited sales to other
European and Middle East markets.
The financial statements of the foreign subsidiary have been translated
into U.S. dollars in accordance with FASB Statement No. 52. All balance sheet
accounts have been translated using the current exchange rates at the balance
sheet date. Income statement accounts have been translated using the average
exchange rate for the period. The translation adjustments resulting from the
change in exchange rates from period to period have been reported separately as
a component of stockholders' equity. Foreign currency transaction gains and
losses, which are not material, are included in the results of operations.
These gains and losses result from exchange rate changes between the time
transactions are recorded and settled, and for unsettled transactions, exchange
rate changes between the time the transactions are recorded and the balance
sheet date.
Customer Payment Terms
The majority of the Company's sales are made at payment terms of net
amount due in 30-45 days, depending on the customer.
Income Taxes
Deferred income taxes at the end of each period are determined by applying
enacted tax rates applicable to future periods in which the taxes are expected
to be paid or recovered to differences between the financial accounting and tax
basis of assets and liabilities.
<PAGE> 8
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Earnings per Share
Primary earnings per share for the three months ended March 31, 1996 has
been computed based on the weighted average number of shares outstanding plus
common equivalent shares from dilutive stock options using the modified
treasury stock method and average market price, considering the 20% limitation
on shares assumed repurchased under the modified treasury stock method, and for
the three months ended March 31, 1995 is based on the weighted average number
of shares outstanding. Fully diluted per share data has not been presented for
1995 as it is not dilutive. Fully diluted earnings per share for the three
months ended March 31, 1996 is computed on the basis of weighted average shares
outstanding plus common equivalent shares from dilutive stock options using the
modified treasury stock method and average market price plus shares assumed to
be issued on the conversion of the convertible promissory note to the Company's
Parent, with earnings adjusted for interest expense related to the convertible
promissory note which is assumed to be converted.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying
amounts reported in the balance sheet for cash and cash equivalents approximate
their fair values. The credit risk associated with cash and cash equivalents
is considered low due to the high quality of the financial institutions in
which the assets are invested.
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>
March 31, December 31,
1996 1995
---------- -----------
<S> <C> <C>
United Kingdom VAT tax receivable....................................... $322,884 $491,714
Other................................................................... 137,032 149,418
-------- --------
$459,916 $641,132
======== ========
</TABLE>
<PAGE> 9
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 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>
March 31, December 31,
1996 1995
---------- -----------
<S> <C> <C>
United Kingdom VAT tax payable..................................................... $ 619,564 $ 659,625
Other.............................................................................. 542,453 713,009
---------- ----------
$1,162,017 $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 -- 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 but in no event after June 30, 1996, 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 March 31, 1996.
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 $709,000 at March 31, 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, and the Company may not merge or acquire businesses, create or
transfer any assets to a subsidiary, if the aggregate annual value of such
transactions exceeds $750,000, cannot sell its interest in its subsidiary
Techdyne (Scotland) or allow that Scottish subsidiary to sell all or
substantially all of its assets or properties, except inventory in the ordinary
course of business, for which the aggregate book value exceeds $500,000. This
term loan further provides
<PAGE> 10
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996
(UNAUDITED)
NOTE 2 -- LONG-TERM DEBT -- (CONTINUED)
for restrictions on transactions with related persons, restrictions on
dividends except if such does not exceed 30% of the Company's net income in any
year, precludes changes in ownership in the Company which would reduce the
Parent's ownership to less than 51% and restricts the Company from engaging in
any new unrelated business.
The mortgage issued by the Parent to secure the $712,500 term loan
provides the bank with reappraisal rights so that should the principal amount
outstanding under the note exceed 75% of the reappraisal value of the mortgaged
property, such excess has to be repaid by the Company and/or the Parent. The
Parent, as lessor to the Company of these mortgaged properties has assigned the
leases, rents and profits to the bank as further security for this $712,500
term loan, provided the Parent may continue to collect the rents until an event
of default, in any. The Parent has also subordinated the $2,500,000 of
indebtedness due to it from the Company, provided the Company may make payments
to the Parent on the subordinated debt from funds received in the Company's
recent September, 1995 public offering of stock and warrants or from retained
earnings arising subsequent to March 31, 1995, so long as at the time of
payment the Company is in compliance with the financial covenants of the term
loan agreement. The Parent, as lessor of the properties mortgaged, has
subordinated its interests in the leases to the mortgage held by the bank to
secure this term loan.
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 $197,000 at March 31, 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.
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
March 31, 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 March 31, 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. In
connection with the purchase of the real property,
<PAGE> 11
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996
(UNAUDITED)
NOTE 2 -- LONG-TERM DEBT -- (CONTINUED)
Techdyne (Scotland) made a $110,000 payment and obtained a 15 year mortgage of
approximately $620,000 with a variable interest rate of 2% above the bank base
rate. The principal balance outstanding under this mortgage had a U.S. dollar
equivalency of approximately $577,000 and $591,000 at March 31, 1996 and
December 31, 1995, respectively. The mortgage transaction represents a noncash
financing activity which is a supplemental disclosure required by SFAS 95.
Techdyne (Scotland) has established a line of credit with a Scottish bank
with a U.S. dollar equivalency of approximately $612,000 at March 31, 1996 and
$620,000 at December 31, 1995. This line of credit, which was increased in
June 1995 from its previous level of $318,000, operates as an overdraft
facility and is secured by assets of Techdyne (Scotland) and is guaranteed by
Techdyne. No amounts were outstanding under this line of credit as of March
31, 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 all of the above debt amounted to approximately
$31,000 and $37,000 for the three months ended March 31, 1996 and March 31,
1995, respectively.
NOTE 3 -- 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
will file 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 March 31, 1996 and at 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 form temporary
differences including tax over book depreciation and are more than offset by
deferred tax assets. Deferred tax assets of approximately $2,115,000 result
primarily from the net operating loss carryforwards noted above which result in
related deferred tax assets of approximately $1,885,000 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
$230,000. Deferred tax assets have not been reflected in the financial
statements as a result of their being offset by a valuation allowance of
approximately $1,864,000 at
<PAGE> 12
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996
(UNAUDITED)
NOTE 3 -- INCOME TAXES -- (CONTINUED)
March 31, 1996 and $1,857,000 at December 31, 1995.
The Company had a domestic income tax expense of approximately $4,000 and
$19,000 for the three months ended March 31, 1996 and March 31, 1995,
respectively.
Techdyne (Scotland) had income tax expense of $176,000 and $115,000 for
the three months ended March 31, 1996 and March 31, 1995, respectively.
There were no income tax payments for the three months ended March 31,
1996 or March 31, 1995.
NOTE 4 -- 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 for the three months ended March 31,
1996 and the three months ended March 31, 1995.
The advances from Parent bear 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 not
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 may be
converted into common stock of the Company at the option of the Parent at a
conversion price of $1.75 per share. Interest on the advances amounted to
$37,000 and $63,000 for the three months ended March 31, 1996 and March 31,
1995, respectively.
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 at an annual rental of $130,000 plus applicable taxes. 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
2.
The Company manufactures certain products for the Parent. Sales of the
products were $72,000 and $51,000 for the three months ended March 31, 1996 and
March 31, 1995, respectively.
NOTE 5 -- 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
<PAGE> 13
TECHDYNE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1996
(UNAUDITED)
NOTE 5 -- CONTINGENCIES -- CONTINUED
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 6 -- STOCK OPTIONS
In May 1994, the Company adopted a stock option plan for up to 250,000
non-qualified options. Pursuant to this plan, in May 1994, the Board of
Directors granted 227,500 options 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.
On February 27, 1995 the Company granted non-qualified 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. These options may be
exercised for cash or subject to Board approval, in part by cash, (minimum par
value for the shares purchased) and the balance by a three-year recourse
promissory note. Such notes would be secured by the shares purchased (to be
held in escrow with no transfer rights pending full payment) with interest
based on the coupon rate yield of a 52-week U.S. Treasury bill immediately
preceding the execution and issuance of the promissory note, with voting rights
for the underlying shares remaining with the shareholder until default, if any,
on the note. In April 1995, the Company granted a non-qualified 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.
The Board of Directors of the Company has determined that the fair value
of the Company's common stock was not in excess of the exercise price on the
date of grant for the stock options granted during 1995 and 1994 and,
therefore, no amounts have been charged to operations in connection with any
grants of options.
NOTE 7 -- COMMON STOCK
On October 2, 1995, the Company completed a public offering of 1,000,000
shares of common stock and 1,000,000 common stock purchase warrants with an
exercise price of $5.00 which are exercisable through September 12, 1998
providing it with net proceeds of approximately $3,321,000. The Company has
repaid $1,500,000 of its indebtedness to the Parent and intends to use the
remainder of the proceeds from the offering to establish new facilities, expand
existing products, upgrade plant and equipment, hire additional direct sales
personnel and for working capital. The Company, which was previously 83.1% by
the Parent, subsequent to the offering is owned 62.5% by the Parent. The
Parent has conversion rights for the balance of the convertible promissory
note, representing indebtedness from the Company to the Parent, which, at March
31, 1996 was approximately $2,457,000 and is convertible at $1.75 per common
share. See Note 4.
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Consolidated revenues increased approximately $191,000 (3%) including
$140,000 from a litigation settlement for the three months ended March 31, 1996
compared to the preceding year. Domestic revenues, which included the
litigation settlement, decreased $998,000 (23%) and European-based revenues
increased $1,189,000 (49%).
Approximately 81% of the Company's consolidated sales for the three months
ended March 31, 1996 were made to four customers, of which Compaq accounted for
47% and IBM for 22%. The other two customers each accounted for less than 10%
of the Company's sales. 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. The Company had 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. The Company
intends to pursue new business development efforts to replace these lost sales,
although there can be no assurance as to the success of such efforts. Sales to
that customer for the first quarter of 1996 amounted to $159,000 compared to
$1,042,000 for the same period of the preceding year.
Revenues of Techdyne (Scotland) continue to be highly dependent on sales
to Compaq which accounted for approximately 88% of the sales of Techdyne
(Scotland) for the three months ended March 31, 1996 and 79% for the preceding
year. While the Company believes that Techdyne (Scotland) will maintain
substantial sales to Compaq, the bidding for Compaq orders has become more
competitive which the Company anticipates may result in some loss of Compaq
business and result in lower profit margins on Compaq sales. Techdyne
(Scotland) intends to pursue new business development efforts to replace
anticipated reductions in Compaq business 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,
amounted to 85% for the three months ended March 31, 1996 compared to 82% for
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 $19,000 during the first three months of 1996 compared to the same
period of the preceding year.
Interest expense decreased by $32,000 for the three months ended March 31,
1996 compared to the preceding year due primarily to a decrease in interest on
the intercompany advances from Medicore. The prime rate was 8.25% at March 31,
1996 and 8.5% at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $5,845,000 at March 31, 1996 increasing $924,000
(19%) during the first three 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.
Included in the changes in components of working capital was an increase
of $431,000 in cash and cash equivalents, which included net cash provided by
operating activities of $443,000 net cash used in investing activities of
$88,000 (including $63,000 from additions to property plant and equipment) and
net cash provided by financing activities of $93,000 (resulting largely from
proceeds of the bank refinancing of $181,000 and payments on long-term debt of
$61,000).
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES -- CONTINUED
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 but in no event after June 30, 1996, secured by the
Company's accounts receivable, inventory, furniture, fixtures and intangible
assets. There were no amounts outstanding under this line of credit as of
March 31, 1996. A $712,500 term loan which had a remaining principal balance
of $709,000 at March 31, 1996 is secured by two buildings and land owned by
Medicore. The second term loan for $200,000 which had a remaining
principal balance of $197,000 at March 31, 1996 is secured by the Company's
tangible personal property, goods and equipment. Medicore has guaranteed these
loans and has subordinated $2,500,000 due from the Company, provided that the
Company may make payments to Medicore 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 2 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 $612,000 at March 31, 1996 and $620,000 at
December 31, 1995 which 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 March
31, 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 $577,000 at March 31, 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.
Management anticipates the future establishment of satellite facilities, as
well as upgrading the Company's existing plant and equipment. Most of these
costs would be provided from the proceeds of its 1995 security offering (see
Note 7 to "Notes to Consolidated Condensed Financial Statements") which,
together with the Company's new credit facilities, should be adequate for these
expenditures required over the next 12 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> 16
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statements re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
March 31, 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/ Dennis W. Healey
--------------------------------
DENNIS W. HEALEY, Executive Vice
President and Principal Financial
Officer
By /s/ Daniel R. Ouzts
------------------------------
DANIEL R. OUZTS, Vice President/
Finance, Controller and Principal
Accounting Officer
Dated: May 8, 1996
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No.
-------
<S> <C>
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
TECHDYNE, INC. AND SUBSIDIARY
EXHIBIT 11 -- COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
PRIMARY
Weighted average shares outstanding 4,043,319 3,042,919
=========
Net effect of dilutive stock options-based on the modified
treasury stock method for 1996 670,936
---------
4,714,255
=========
Net income $ 390,263 $ 421,882
=========
Interest expense reduction from application of assumed
proceeds from exercise of options and warrants in excess of
20% limitation, as per modified treasury stock method 12,632
---------
$ 402,895
=========
Net income per share $ .09 $ .14
========= =========
FULLY DILUTED
Weighted average shares outstanding 4,043,319
Assumed conversion of convertible promissory note 1,404,122
Net effect of dilutive stock options-based on the modified
treasury stock method 670,936
---------
6,118,377
=========
Net income $ 390,263
Adjustment for interest on convertible note 34,919
Interest expense reduction per modified treasury stock method 12,632
---------
$ 437,814
=========
Net income per share $ .07
=========
</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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,562,045
<SECURITIES> 0
<RECEIVABLES> 3,194,820<F1>
<ALLOWANCES> 0
<INVENTORY> 3,071,465<F2>
<CURRENT-ASSETS> 10,316,739
<PP&E> 4,567,424
<DEPRECIATION> 2,368,925
<TOTAL-ASSETS> 12,714,618
<CURRENT-LIABILITIES> 4,471,944
<BONDS> 1,520,279
0
0
<COMMON> 40,433
<OTHER-SE> 4,890,283
<TOTAL-LIABILITY-AND-EQUITY> 12,714,618
<SALES> 6,768,156
<TOTAL-REVENUES> 6,943,164
<CGS> 5,733,206
<TOTAL-COSTS> 5,733,206
<OTHER-EXPENSES> 571,922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,846
<INCOME-PRETAX> 570,190
<INCOME-TAX> 179,927
<INCOME-CONTINUING> 390,263
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 390,263
<EPS-PRIMARY> .09
<EPS-DILUTED> .07
<FN>
<F1>ACCOUNTS RECEIVABLE ARE NET OF ALLOWANCE OF $103,000 AT MARCH 31, 1996.
<F2>INVENTORIES ARE NET OF RESERVE OF $318,000 AT MARCH 31, 1996.
</FN>
</TABLE>
