<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, 1997
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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 ________________
Commission file number 0-14659
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TECHDYNE, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-1709103
- -------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2230 WEST 77TH STREET, HIALEAH, FLORIDA 33016
- --------------------------------------- ---------
(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 -- 4,335,167 shares as of July 31, 1997.
<PAGE> 2
TECHDYNE, INC. AND SUBSIDIARIES
INDEX
PART I -- FINANCIAL INFORMATION
The Consolidated Condensed Statements of Income (Unaudited) for the
three and six months ended June 30, 1997 and June 30, 1996 include the accounts
of the Registrant and its subsidiaries.
ITEM 1. FINANCIAL STATEMENTS
(1) Consolidated Condensed Statements of Income for the three
months and six months ended June 30, 1997 and June 30, 1996.
(2) Consolidated Condensed Balance Sheets as of June 30, 1997 and
December 31, 1996.
(3) Consolidated Condensed Statements of Cash Flows for the six
months ended June 30, 1997 and June 30, 1996.
(4) Notes to Consolidated Condensed Financial Statements as of
June 30, 1997.
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 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 6,641,712 $ 6,146,671 $ 12,984,487 $ 12,914,827
Litigation settlement 139,645
Interest and other income 36,292 47,088 76,624 82,451
------------ ------------ ------------ ------------
6,678,004 6,193,759 13,061,111 13,136,923
Cost and expenses:
Cost of goods sold 5,651,657 5,269,645 11,006,499 11,002,851
Selling, general and administrative expenses 685,825 585,141 1,356,302 1,157,063
Interest expense 72,275 74,034 142,255 141,880
------------ ------------ ------------ ------------
6,409,757 5,928,820 12,505,056 12,301,794
------------ ------------ ------------ ------------
Income before income taxes 268,247 264,939 556,055 835,129
Income tax (benefit) provision (1,515) 135,783 (49,029) 315,710
------------ ------------ ------------ ------------
Net income $ 269,762 $ 129,156 $ 605,084 $ 519,419
============ ============ ============ ============
Earnings per share:
Primary $ .06 $ .03 $ .13 $ .11
============ ============ ============ ============
Fully diluted $ .05 $ .11 $ .09
============ ============ ============
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996(A)
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,256,957 $ 3,924,873
Restricted cash 29,887 29,174
Accounts receivable, less allowances of $75,000 at
June 30, 1997 and $83,000 at December 31, 1996 3,871,700 3,106,923
Inventories, less allowances for obsolescence of $152,000
at June 30, 1997 and $134,000 at December 31, 1996 3,753,068 3,049,334
Prepaid expenses and other current assets 537,389 436,358
------------ ------------
Total current assets 11,449,001 10,546,662
Property and Equipment:
Land and improvements 199,200 205,200
Buildings and building improvements 839,314 864,595
Machinery and equipment 3,483,789 3,273,875
Tools and dies 822,389 817,593
Leasehold improvements 142,882 94,119
------------ ------------
5,487,574 5,255,382
Less accumulated depreciation 2,916,728 2,749,339
------------ ------------
2,570,846 2,506,043
Deferred expenses and other assets 210,904 124,313
Costs in excess of net tangible assets acquired, less
accumulated amortization of $46,000 at June 30, 1997
and $44,000 at December 31, 1996 44,994 47,178
------------ ------------
$ 14,275,745 $ 13,224,196
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,500,954 $ 2,457,563
Accrued expenses 1,138,099 935,227
Current portion of long-term debt 109,507 259,731
Income taxes payable 237,070 297,575
------------ ------------
Total current liabilities 3,985,630 3,950,096
Deferred gain on sale of real estate 161,047 161,047
Deferred income taxes 101,595 102,603
Long-term debt, less current portion 1,457,143 1,384,569
Advances from parent 2,720,689 2,457,570
Commitments and Contingencies
Stockholder's Equity
Common stock, $.01 par value, authorized 10,000,000
shares: issued and outstanding 4,335,167 shares at
June 30, 1997; 4,294,019 shares at December 31, 1996 43,351 42,940
Capital in excess of par value 7,745,691 7,551,774
Deficit (1,926,083) (2,531,167)
Foreign currency translation adjustments (13,318) 104,764
------------ ------------
Total stockholders' equity 5,849,641 5,168,311
------------ ------------
$ 14,275,745 $ 13,224,196
============ ============
</TABLE>
(A) Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 filed with the Securities and Exchange Commission
in March 1997.
See notes to consolidated condensed financial statements.
<PAGE> 5
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 605,084 $ 519,419
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 187,500 175,936
Amortization 8,118 7,369
Provision for inventory obsolescence 40,468 65,143
Deferred income taxes 1,956
Increase (decrease) relating to operating activities
from:
Accounts receivable (776,876) 60,175
Inventories (769,825) 850,952
Prepaid expenses and other current assets (106,879) 163,985
Accounts payable 58,051 (1,121,315)
Accrued expenses 215,511 (106,418)
Income taxes payable (50,740) 320,978
----------- -----------
Net cash (used in) provided by operating activities (587,632) 936,224
Investing activities:
Additions to property and equipment, net of minor
disposals (301,146) (330,276)
Proceeds from restricted cash 29,174 27,801
Restricted cash (29,887) (28,493)
Deferred expenses and other assets (92,152) 47,989
----------- -----------
Net cash used in investing activities (394,011) (282,979)
Financing activities:
Proceeds from long-term borrowings 181,476
Payments on long-term debt (59,167) (76,508)
Exercise of stock options and warrants 194,328 1,300
Increase in advances from parent 263,118 42,985
Deferred financing costs 1,238 (14,697)
----------- -----------
Net cash provided by financing activities 399,517 134,556
Effect of exchange rate fluctuations on cash (85,790) (2,009)
----------- -----------
(Decrease) increase in cash and cash equivalents (667,916) 785,792
Cash and cash equivalents at beginning of year 3,924,873 3,131,540
----------- -----------
Cash and cash equivalents at end of period $ 3,256,957 $ 3,917,332
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 6
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Techdyne,
Inc. ("Techdyne") and its subsidiaries, Techdyne (Scotland) Limited ("Techdyne
(Scotland)"), and Techdyne (Livingston) Limited which is a subsidiary of
Techdyne (Scotland), collectively referred to as the "Company." All material
intercompany accounts and transactions have been eliminated in consolidation.
The Company is a 62.9% owned subsidiary of Medicore, Inc. (the "Parent"). See
Note 5.
INVENTORIES
Inventories are comprised as follows:
June 30, December 31,
1997 1996
---------- ------------
Finished goods $ 440,366 $ 486,863
Work in process 546,132 478,481
Raw materials and supplies 2,766,570 2,083,990
---------- ----------
$3,753,068 $3,049,334
========== ==========
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial
statements to conform to the 1997 presentation.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets is comprised as follows:
June 30, December 31,
1997 1996
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United Kingdom VAT tax receivable $210,584 $182,508
Other 326,805 253,850
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$537,389 $436,358
======== ========
ACCRUED EXPENSES
Accrued expenses is comprised as follows:
June 30, December 31,
1997 1996
---------- ------------
United Kingdom VAT tax payable $ 217,070 $ 299,431
Other 921,029 635,796
---------- ----------
$1,138,099 $ 935,227
========== ==========
<PAGE> 7
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE 2 -- INTERIM ADJUSTMENTS
The financial summaries for the three months and six months ended June
30, 1997 and June 30, 1996 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, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1997.
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, 1996.
NOTE 3 -- LONG-TERM DEBT
On February 8, 1996, the Company refinanced its term loan by entering
into three loan agreements 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, 1997 and no amounts had been drawn down on
this line as of that date. In conjunction with the Company's acquisition of
Lytton Incorporated on July 31, 1997 (see Note 9), the line of credit was
modified and was increased to $2,500,000 with the interest rate reduced to prime
plus .75% and various other modifications. The line was fully drawn down in
connection with this acquisition. See Note 9.
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 had an outstanding
balance of $678,000 and $691,000 at June 30, 1997 and December 31, 1996,
respectively, 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.
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 term loan which
had a balance of $147,000 and $167,000 at June 30, 1997 and December 31, 1996,
respectively, is secured by all of the Company's tangible personal property,
goods and equipment, and all cash or noncash proceeds of such collateral.
The Parent has unconditionally guaranteed the payment and performance
by the Company of the revolving loan and the two commercial term loans.
The Company has a promissory note payable to a local bank of $145,000
at June 30, 1997 and December 31, 1996, with interest payable monthly at prime
with the note maturing April 2000. 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 8.50% as of June 30, 1997 and 8.25% as of December
31, 1996.
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 $588,000 and $622,000 at June 30, 1997 and December 31, 1996,
respectively.
<PAGE> 8
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE 3 -- LONG-TERM DEBT -- (CONTINUED)
Techdyne (Scotland) has a line of credit with a Scottish bank with a
U.S. dollar equivalency of approximately $332,000 and $342,000 at June 30, 1997
and December 31, 1996, respectively. No amounts were outstanding under this line
of credit as of June 30, 1997 or December 31, 1996.
Interest payments on long-term debt amounted to approximately $34,000
and $67,000 for the three months and six months ended June 30, 1997 and $37,000
and $68,000 for the same periods of the preceding year.
NOTE 4 -- INCOME TAXES
Subsequent to the completion of the Company's public offering on
October 2, 1996, the Company files separate federal and state income tax returns
with its income tax liability reflected on a separate return basis and its 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.
The Company had domestic income tax expense (benefit) of approximately
$6,000 and $15,000 for the three months and six months ended June 30, 1997 and
$(4,000) for the three months ended June 30, 1996 with no year to date
provision as of June 30, 1996.
Techdyne (Scotland) had an income tax benefit of approximately $8,000
and $54,000 for the three months and six months ended June 30, 1997 and income
tax expense of approximately $140,000 and $316,000 for the same periods of the
preceding year.
There were no income tax payments were for the three months and six
months ended June 30, 1997 or for the same periods of the preceding year.
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 have been charged on the basis of direct usage
when identifiable or on the basis of time spent. Effective October 1, 1996, the
services provided to the Company by the Parent were formalized under a 2 year
service agreement for $408,000 per year. The amount of expenses allocated by the
Parent and those covered under the service agreement effective October 1, 1996
totaled $102,000 and $204,000 for the three months and six months ended June 30,
1997 and for the same periods of the preceding year.
The balance of the Company's demand convertible promissory note payable
to the Parent including accrued interest, which amounted to $3,083,000 at June
30, 1997 and $2,998,000 at December 31, 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. Advances from the Parent on the balance
sheet has been presented net of an advance receivable from the Parent of
approximately $363,000 at June 30, 1997 and $540,000 at December 31, 1996 with
interest at 5.7%. Interest on the net advances amounted to $38,000 and $74,000
for the three months and six months ended June 30, 1997 and $37,000 and $74,000
for the same periods of the preceding year. The Parent has agreed not to require
repayment of the intercompany advances prior to July 1, 1998 and, therefore the
advances have been classified as long-term at June 30, 1997.
<PAGE> 9
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE 5 -- TRANSACTIONS WITH PARENT--CONTINUED
The Company manufactures certain products for the Parent. Sales of the
products were $49,000 and $101,000 for the three months and six months ended
June 30, 1997 and $79,000 and $151,000 for the same periods of the preceding
year.
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.
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 171,600 outstanding as of June 30, 1997, 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 300 shares
were exercised in the first quarter of 1997.
On February 27, 1996 the Company granted stock options, not part of the
1994 Plan, to directors of the Company and its subsidiaries for 142,500 shares
exercisable at $1.75 per share for five years. In April 1996, 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.
On June 6, 1997, the Board of Directors adopted a Stock Option Plan
with 500,000 shares of its common stock reserved under the plan with the plan
approved by shareholders at the annual meeting of shareholders on June 11, 1997.
On June 23, 1997, the Board granted options under the plan for an aggregate of
375,000 shares of common stock exercisable for five years through June 22, 2002
at $3.25 per share the closing price of the common stock on that date as
reported by Nasdaq.
NOTE 8 -- COMMON STOCK
The Company completed a public offering of common stock and warrants on
October 2, 1995. Pursuant to the offering 1,000,000 shares of common stock were
issued, and there are 1,000,000 redeemable common stock purchase warrants to
purchase warrants to purchase one common share each with an exercise price of
$5.00 exercisable from September 13, 1995 through September 13, 1998. During the
first half of 1997, approximately 41,000 warrants were exercised resulting in
proceeds of approximately $194,000, net of underwriter commissions on the
warrant exercises.
NOTE 9 -- ACQUISITION
On July 31, 1997, the Company acquired Lytton, Incorporated, which is
engaged in the manufacture and assembly of printed circuit boards and other
electronic products for commercial customers. The modified bank line of credit
(see Note 3) provided $2,500,000 cash required at closing. In addition, the
purchase price included 300,000 shares of Techdyne, Inc. common stock which the
Company has agreed to use its best efforts to have registered within 120 days
from the closing date of the acquisition. The Company has guaranteed that the
seller will realize a minimum of $2,000,000 from the sale of these shares which
had a fair value of approximately $1,031,000 based on the closing price of the
Company's common stock on the date of the acquisition with the guaranteed sales
proceeds amounting to $2,400,000 if certain earnings objective are met by Lytton
in a specified one year period. In addition, the Stock Purchase Agreement
provides for incentive consideration based on specific sales levels of Lytton
for each of three years as specified in the Agreement.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements contained in this Quarterly Report on Form 10-Q that are
not historical are forward looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, intentions,
beliefs, or strategies regarding the future. Forward looking statements include
the Company's statements regarding liquidity, anticipated cash needs and
availability, and anticipated expense levels in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" including the pursuit
of new business to replace lost sales from several major customers in 1996 and
the development of new products and facilities. All forward looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward looking statement. It is important to note that the Company's actual
results could differ materially from those in such forward looking statements.
Among the factors that could cause actual results to differ materially are the
factors detailed in the risks discussed in the "Risk Factors" section included
in the Company's Registration Statement, Form S-3 as filed with the Securities
and Exchange Commission ("Commission") (effective December 11, 1996).
The Company's manufacturing and assembly operations are subject to
substantial competition from divisions of large electronic and high-technology
firms and numerous smaller, specialized companies. Strong competition derives
from price advantages of competitors with less expensive off-shore operations,
particularly the Far East manufacturers. This imposes pressure on the Company's
bidding orders and profit margins.
The Company's future growth as an international contract manufacturer
of precision electronic, electro-mechanical and plastic insert and injection
molded products for OEMs in the data processing, telecommunication and
instrumentation industries, will be influenced by several factors including
technological developments, the ability of the Company to efficiently meet the
design and production requirements of its customers, and the market acceptance
of its customers' products. Further factors impacting the success of the
Company's operations are increases in expenses associated with continued sales
growth, the ability of the Company to control costs, management's ability to
evaluate new orders to target satisfactory profit margins, the capacity of the
Company to develop and manage the introduction of new products, and competition,
as well as pursue acquisitions in new geographic and product markets. Quality
control is also essential to the Company's operations, since customers demand
strict compliance with design and product specifications. Any adverse change in
the Company's excellent quality and process controls could adversely affect its
relationship with customers and ultimately its revenues and profitability.
RESULTS OF OPERATIONS
Consolidated revenues increased approximately $484,000 (8%) for the
three months ended June 30, 1997 and decreased approximately $76,000 (1%) for
the six months ended June 30, 1997 compared to the same periods of the preceding
year which included an increase in sales revenues of $495,000 (8%) and $70,000
(1%) for the three months and six months ended June 30, 1997 compared to the
same periods of the preceding year. Domestic sales revenues increased $1,923,000
(67%) and $3,695,000 (61%) and European-based sales revenues decreased
$1,428,000 (44%) and $3,625,000 (53%) compared to the same periods of the
preceding year. Interest and other income decreased approximately $11,000 and
$6,000 for the three months and six months ended June 30, 1997 compared to the
same periods of the preceding year largely as a result of decreased cash
balances invested. Prior year revenues included approximately $140,000 from a
litigation settlement in the first quarter.
The decrease in European-based sales was largely attributable to a
decrease of $2,096,000 (71%) and $4,471,000 (73%) in sales to Compaq Computer
Corp. by Techdyne (Scotland). Revenues of Techdyne (Scotland) continue to be
highly dependent on sales to Compaq which accounted for approximately 46% and
50% of the sales of Techdyne (Scotland) for the three months and six months
ended June 30, 1997 and 90% and 89% for the same periods of the preceding year.
The bidding for Compaq orders has become more competitive which has resulted in
substantially reduced Compaq sales and lower profit margins on remaining Compaq
sales. Techdyne (Scotland) is pursuing new business development and is also
continuing cost reduction efforts to remain competitive on Compaq business.
However, there can be no assurance as to the success of such efforts.
<PAGE> 11
RESULTS OF OPERATIONS--CONTINUED
Approximately 64% and 69% of the Company's consolidated sales for the
three months and six months ended June 30, 1997 were made to four customers.
Customers generating in excess of 10% of sales included Compaq (13% and 13%),
IBM (28% and 29%), EMC and its related suppliers (13% and 17%). The loss of, or
substantially reduced sales to any of these customers, as has occurred with
Compaq in Europe commencing in the third quarter of 1996, would have an adverse
effect on the Company's operations.
Cost of goods sold as a percentage of sales remained relatively stable,
amounting to 85% for the three months and six months ended June 30, 1997
compared to 86% and 85% for the same periods of the preceding year.
Selling general and administrative expenses, increased approximately
$101,000 and $199,000 for the three months and six months ended June 30, 1997
compared to the same periods of the preceding year largely due to the
substantially increased operations of the Company's Austin, Texas facility.
Interest expense remained relatively stable compared to the preceding
year for both the three months and six months ended June 30, 1997. The prime
rate was 8.5% at June 30, 1997 and 8.25% at December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $7,463,000 at June 30, 1997 increasing $867,000
(13%) during the first half of 1997. This increase included a substantial
reduction in current debt as a result of the Company extending a $145,000 bank
note payable due April 1997 for an additional 3 years with the change in other
components of working capital resulting primarily from increased sales levels
compared to the prior quarter.
Included in the changes in components of working capital was a decrease
of $668,000 in cash and cash equivalents, which included net cash used in
operating activities of $588,000, net cash used in investing activities of
$394,000 (including $301,000 from additions to property and equipment) and net
cash provided by financing activities of $400,000 (including net proceeds from
common stock purchase warrants and options exercised of approximately $194,000,
payments on long-term debt of $59,000 and a net increase in advances from the
Parent of $263,000).
In February 1996, the Company refinanced its bank loan agreement with a
Florida bank. The new financing included 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 as of June 30, 1997, and no amounts had been drawn down on this
line. A $712,500 term loan, which had a remaining principal balance of $678,000
and $691,000 at June 30, 1997 and December 31, 1996, respectively, 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 $147,000 and $167,000 at June 30,
1997 and December 31, 1996, respectively, 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 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. The Company was in default of certain financial reporting
requirements regarding these loans as of December 31, 1996 for which the bank
has granted waivers as of December 31, 1996 and extending through December 31,
1997. In connection with the Company's acquisition of Lytton Incorporated in
July 1997, the line of credit was increased to $2,500,000 with various other
modifications, including removal of conditions regarding use of proceeds upon
any sale of Techdyne (Scotland). In connection with this acquisition, the
increased line of $2,500,000 was fully drawn down in July 1997. See Notes 3 and
9 to "Notes to Consolidated Condensed Financial Statements".
The Company has outstanding borrowings of $145,000 from a local bank
with interest payable monthly with a renewal of the present note maturing April,
2000. Techdyne (Scotland) has a line of credit with a Scottish bank, with a U.S.
dollar equivalency of approximately $332,000 and $342,000 at June 30, 1997 and
December 31, 1996, respectively, 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
June 30, 1997 or December 31, 1996. See Note 3 to "Notes to Consolidated
Condensed Financial Statements".
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES--CONTINUED
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 $588,000 and $622,000 at June 30, 1997
and December 31, 1996, respectively based on exchange rates in effect at each of
these dates. See Note 3 to "Notes to Consolidated Condensed Financial
Statements".
The Company has established a new manufacturing facility in Milford,
Massachusetts with the facility having an initial 5 year lease term with the
Company's occupancy commencing in late April 1997. This facility is intended to
assist in meeting increased customer demand in the Northeastern United States,
as well as to increase service levels to customers in the Northeast and to
penetrate new markets. The Company has increased its manufacturing capacity at
its Houston and Austin, Texas facilities to meet increased customer demand in
the Southwestern United States. Most of the costs related to its new facilities,
including leasehold improvements, equipment and furniture and fixtures, and the
costs of expansion of existing facilities will be provided from the proceeds
from the Company's 1995 security offering which, together with the Company's
refinanced credit facilities, should be adequate for these expenditures required
over the next 12 months.
On July 31, 1997, the Company acquired Lytton Incorporated, which is
engaged in the manufacture and assembly of printed circuit boards and other
electronic products for commercial customers. This acquisition required
$2,500,000 cash at closing, funded by the modified bank line of credit, as well
as 300,000 shares of Techdyne, Inc. common stock which had a fair value of
approximately $1,031,000 based on the closing price of the Company's common
stock on the date of acquisition for which the Company has guaranteed $2,000,000
minimum proceeds ($2,400,000 if certain earnings objectives are met) to the
seller with the Stock Purchase Agreement also providing for incentive
consideration based on specific sales levels of Lytton for each of three
specified years. See Notes 3 and 9 to "Notes to Consolidated Condensed Financial
Statements".
The Company anticipates that current levels of working capital and
working capital from operations, including those of Lytton Incorporated will be
adequate successfully meet liquidity demands for at least the next twelve
months, including the financing obligations incurred in the acquisition of
Lytton.
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 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
On June 11,1997, the Company held its annual meeting of shareholders to
elect its five member Board of Directors to serve until the next annual meeting
in 1998. Each director, Messrs. Thomas K Langbein, Peter D. Fischbein, Barry
Pardon, Joseph Verga and Anthony C. D' Amore, was elected by a vote of 2,766,297
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
solicitations since the Parent owns 63% of the voting equity of the Company.
ITEM 5. OTHER INFORMATION
On July 31, 1997, the Company acquired Lytton Incorporated, a private
corporation engaged in the manufacture, assembly and sale of printed circuit
boards and other electronic products for over 40 major commercial customers. The
combined revenue of the companies for their last fiscal year was in excess of
$40,000,000. The acquisition was accomplished with $2,500,000 and 300,000 shares
of the Company's common stock together with guarantees relating to the sums
received by the Seller upon her sale of the Company's common stock, provided the
shares are sold by July 30, 1998, and incentive consideration which, for the 12
month periods ending March 31, 1998, 1999 and 2000, includes payment to the
Seller of Lytton Incorporated, 4% of Lytton's sales over $14,000,000 up to
$20,000,000, and 5% of Lytton's sales over $20,000,000.
The cash portion of the consideration was obtained from the Company's
revolving loan with Barnett Bank, N.A. which loan was increased from $2,000,000
to $2,500,000 on July 31, 1997, the closing date of the Lytton acquisition.
The acquisition and bank financing has been reported by the Company in
its Current Report on Form 8-K dated August 12, 1997.
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
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation and Succession
(i) Stock Purchase Agreement between Patricia Crossley,
Lytton Incorporated and the Company dated July 31,
1997 (incorporated by reference to the Company's
Current Report on Form 8-K dated August 12, 1997
("August, 1997 Form 8-K"), Item 7(c)(2)(i)).
(99) Additional Exhibits
(i) First Amendment to Loan and Security Agreement, Loan
Agreement, and Security Agreement between the
Comp[any and Barnett Bank, N.A. dated July 31, 1997
(incorporated by reference to the Company's August,
1997 Form 8-K, Item 7(c) (99)(i)).
(ii) Revolving Demand Promissory Note from the Company to
Barnett Bank, N.A. dated July 31, 1997 (incorporated
by reference to the Company's August, 1997 Form 8-K,
Item 7(c) (99)(ii))
<PAGE> 14
(iii) Unconditional and Continuing Guaranty of Payments and
Performance by Medicore, Inc. in favor of Barnett
Bank, N.A. dated July 31, 1997 (incorporated by
reference to the Company's August, 1997 Form 8-K,
Item 7(c) (99)(iii)).
(iv) Subordination Agreement among the Company, Barnett
Bank, N.A. and Medicore, Inc. dated July 31, 1997
(incorporated by reference to the Company's August,
1997 Form 8-K, Item 7(c) (99)(iv)).
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on June 4, 1997
with respect to Item 5, "Other Events" relating to certain leases;
there were no financial statements filed.
The Company filed a Current Report on Form 8-K on June 24,
1997 with respect to Item 5, "Other Events" relating to the adoption of
the 1997 Stock Option Plan; there were no financial statements filed.
The Company has recently filed a current Report on form 8-K,
Item 2, "Acquisition or Disposition of Assets" dated August 12, 1997
relating to the acquisition by the Company of Lytton Incorporated on
July 31, 1997. Financial statements relating to the acquisition will be
filed within 60 days of that Current Report.
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: August 13, 1997
<PAGE> 15
EXHIBIT INDEX
Exhibit
No.
Part I Exhibits
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
Part II Exhibits
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation
and Succession
(i) Stock Purchase Agreement between Patricia Crossley,
Lytton Incorporated and the Company dated July 31,
1997 (incorporated by reference to the Company's
Current Report on Form 8-K dated August 12, 1997
("August, 1997 Form 8-K"), Item 7(c)(2)(i)).
(99) Additional Exhibits
(i) First Amendment to Loan and Security Agreement, Loan
Agreement, and Security Agreement between the
Comp[any and Barnett Bank, N.A. Dated July 31, 1997
(incorporated by reference to the Company's August,
1997 Form 8-K, Item 7(c)(99)(i)).
(ii) Revolving Demand Promissory Note from the Company to
Barnett Bank, N.A. dated July 31, 1997 (incorporated
by reference to the Company's August, 1997 Form 8-K,
Item 7(c) (99)(ii))
(iii) Unconditional and Continuing Guaranty of Payments and
Performance by Medicore, Inc. in favor of Barnett
Bank, N.A. dated 31, 1997 (incorporated by reference
to the Company's August, 1997 Form 8-K, Item 7(c)
(99)(iii)).
(iv) Subordination Agreement among the Company, Barnett
Bank, N.A. and Medicore, Inc. dated July 31, 1997
(incorporated by reference to the Company's August,
1997 Form 8-K, Item 7(c) (99)(iv)).
<PAGE> 1
TECHDYNE, INC. AND SUBSIDIARIES
EXHIBIT 11 -- COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 4,334,590 4,056,977 4,316,329 4,050,198
Net effect of dilutive stock options-based on the
modified treasury stock method 552,432 696,512 554,300 645,732
---------- ---------- ---------- ----------
4,887,022 4,753,489 4,870,629 4,695,930
========== ========== ========== ==========
Net income $ 269,762 $ 129,156 $ 605,084 $ 519,419
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 27,158 33,393
---------- ---------- ---------- ----------
$ 296,920 $ 129,156 $ 638,477 $ 519,419
========== ========== ========== ==========
Net income per share $ .06 $ .03 $ .13 $ .11
========== ========== ========== ==========
FULLY DILUTED
Weighted average shares outstanding 4,334,590 4,056,977 4,316,329 4,050,198
Assumed conversion of convertible promissory note 1,749,563 1,834,214 1,737,315 1,828,667
Net effect of dilutive stock options-based on the
modified treasury stock method 552,432 721,513 554,300 721,513
---------- ---------- ---------- ----------
6,636,585 6,612,704 6,607,944 6,600,378
========== ========== ========== ==========
Net income $ 269,762 $ 129,156 $ 605,084 $ 519,419
Adjustment for interest on convertible note 43,630 41,246 86,649 84,464
Interest expense reduction per modified treasury stock
method 27,158 33,393
---------- ---------- ---------- ----------
$ 340,550 $ 170,402 $ 725,126 $ 603,883
========== ========== ========== ==========
Net income per share $ .05 $ .03 $ .11 $ .09
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,256,957
<SECURITIES> 0
<RECEIVABLES> 3,871,700<F1>
<ALLOWANCES> 0
<INVENTORY> 3,753,068<F2>
<CURRENT-ASSETS> 11,449,001
<PP&E> 5,487,574
<DEPRECIATION> 2,916,728
<TOTAL-ASSETS> 14,275,745
<CURRENT-LIABILITIES> 3,985,630
<BONDS> 1,457,143
0
0
<COMMON> 43,351
<OTHER-SE> 5,806,290
<TOTAL-LIABILITY-AND-EQUITY> 14,275,745
<SALES> 12,984,487
<TOTAL-REVENUES> 13,061,111
<CGS> 11,006,499
<TOTAL-COSTS> 11,006,499
<OTHER-EXPENSES> 1,356,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142,255
<INCOME-PRETAX> 556,055
<INCOME-TAX> (49,029)
<INCOME-CONTINUING> 605,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 605,084
<EPS-PRIMARY> .13
<EPS-DILUTED> .11
<FN>
<F1>ACCOUNTS RECEIVABLE ARE NET OF ALLOWANCE OF $75,000 AT JUNE 30, 1997.
<F2>INVENTORIES ARE NET OF RESERVE OF $152,000 AT JUNE 30, 1997.
</FN>
</TABLE>
