<PAGE> 1
______________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
-----------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from____________ to __________
Commission file number 0-14659
-------
TECHDYNE, INC.
-------------------------------------------------------------
(Name of small business issuer in its charter) -1-
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<S> <C>
FLORIDA 59-1709103
------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employe
incorporation or organization) Identification No.)
2230 W. 77TH STREET, HIALEAH, FLORIDA 33016
---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
</TABLE>
Issuer's telephone number (305) 556-9210
--------------
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Act:
Title of each class
-------------------
Common Stock, $.01 par value
Common Stock Purchase Warrants
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant computed by reference to the closing price at which the stock
was sold on March 17, 1997 was approximately $12,014,000.
As of March 17, 1997 the Company had 4,311,819 outstanding shares of its
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive
Information Statement in connection with the Registrant's Annual Meeting of
Shareholders to be held on Wednesday June 11, 1997.
Registrant's Registration Statement on Form SB-2 dated July 26, 1995, as
amended August 21, 1995 and September 1, 1995, Registration No. 33-94998-A Part
II, Item 27, Exhibits
Annual Reports, Forms 10-K, for the years ended December 31, 1987, 1988,
1990, 1991 and 1995, Part IV, Exhibits.
Annual Reports for Registrant's Parent, Medicore, Inc., Forms 10-K for
the years ended December 31, 1993 and 1994, Part IV, Exhibits.
___________________________________________________________________________
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TECHDYNE, INC.
Index to Annual Report on Form 10-K
Year Ended December 31, 1996
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Page
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PART I
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Item 1. Business....................................................................................... 1
Item 2 Properties..................................................................................... 8
Item 3. Legal Proceedings............................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders............................................. 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................................................... 10
Item 6. Selected Financial Data......................................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................... 11
Item 8. Financial Statements and Supplementary Data..................................................... 15
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................................................... 15
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................. 15
Item 11. Executive Compensation.......................................................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 16
Item 13. Certain Relationships and Related Transactions.................................................. 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 17
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
Techdyne, Inc. (the "Company") is an international contract manufacturer
of electronic, electro-mechanical and plastic insert and injection molded
products, primarily manufactured to customer specifications and designed for
original equipment manufacturers ("OEMs") and distributors in the data
processing, telecommunications and instrumentation industries. Custom-designed
products primarily include conventional and molded cables and wire harnesses
and to a more limited extent, printed circuit boards ("PCBs") and
electro-mechanical assemblies. The Company is also engaged in horizontal
injection molding and vertical insert molding for production of medical and
electronic components.
The Company custom designs and assembles components and finished products
principally for OEMs and their suppliers. Approximately 58% of sales are
domestic and 42% are effected by the Company's wholly owned subsidiary,
Techdyne (Scotland) Limited ("Techdyne (Scotland)") in the European markets and
to a limited extent in the Middle East. The Company has one other Scottish
subsidiary, Techdyne Livingston Limited.
Included among its customers are several Fortune 100 companies. Services
and products are marketed through an in-house marketing staff of 11 persons, in
conjunction with approximately 35 independent manufacturer's sales
representatives.
The Company was incorporated in Florida in 1976 originally under the name
DAK Industries, Incorporated. It was acquired by Medicore, Inc. ("Medicore" or
the "Parent") in 1982 and became a public company in 1985. Medicore, a Nasdaq
National Market company, owns approximately 63% of the Company's Common Stock
(approximately 74% with its convertible promissory note). See "Security
Ownership of Certain Beneficial Owners and Management" and "Certain Relations
and Related Transactions" of the Company's definitive Information Statement
relating to the Annual Meeting of Shareholders to be held on Wednesday, June
11, 1997, which is incorporated herein by reference. The Company established
its European operations in 1987 through its subsidiary Techdyne (Scotland),
which is engaged in similar operations as the Company for the European and
Middle Eastern markets. Unless otherwise noted, Techdyne and its subsidiaries
shall be referred to collectively as the "Company."
The Company's executive offices are located at 2230 West 77th Street,
Hialeah, Florida 33016. The Company's telephone number is (305) 556-9210.
PRODUCTS AND SERVICES
Approximately 800 products, including complete turnkey finished products,
sub-assemblies, molded and non-molded cable assemblies, wire harnesses, PCBs,
injection molded and electronic assembly products, are manufactured by the
Company for approximately 80 OEM customers.
Cable and Harness Assemblies
A cable is an assembly of electrical conductors insulated from each other
and twisted around a central core and jacketed. Cables may be molded or
non-molded.
The Company maintains a large assortment of standard tooling for
D-Subminiature ("D-Subs"), DIN connectors and phono connectors. D-Subs are
connectors which are over-molded with the imprint of the customer's name and
part number. DIN connectors are circular connectors with from two to four
pairs of wires used for computer keyboards. Today's computers are multi-media,
providing audio as well as video, such as the CD-ROM. The phono connector
provides for the audio in the computer.
Flat ribbon cable or ribbon cable assemblies are cables with wires
(conductors) on the same plane with connectors at each end. Flat ribbon cables
are used in computer assemblies and instrumentation.
1
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Discrete cable assemblies are wires with contacts and connectors.
Harnesses are prefabricated wiring with insulation and terminals ready to be
attached to connectors. The cable sales of the Company comprised approximately
82% of the total sales revenue for 1996.
Printed Circuit Boards and Molded Assemblies
PCB assemblies are electronic assemblies consisting of a basic printed
circuit laminate with electronic components including diodes, resistors,
capacitors and transistors, inserted and wave soldered. PCBs may be used
either internally within the customer's products or in peripheral devices. The
variety of PCBs produced by the Company include through hole assemblies, low
and medium volume surface mount PCB assemblies, and mixed technology PCBs.
Through hole assemblies are standard rigid boards with components on one side
and solder pads on the other side. Surface mount circuit assemblies are
components with no leads which are soldered to pads on the surface of the PCB.
The mixed technology PCB combines both through hole and surface mount. Sales
revenue from circuit board and assemblies totaled approximately 8% of 1996
revenue.
Contract Manufacturing Products
Contract manufacturing involves the manufacture of complete finished
assemblies with all sheet metal, power supplies, fans, PCBs as well as complete
sub-assemblies for integration into an OEM's finished products, such as speaker
and lock-key assemblies and diode assemblies that consist of wire, connectors
and diodes that are over-molded, packaged and bar coded for distribution.
These products can be totally designed and manufactured by the Company through
its computer-aided design system, engineering and supply procurement.
Alternatively, the customer may provide specifications and the Company will
assist in the design and engineering or manufacture to the customer's
specifications. Contract manufacturing products include rack assemblies for
data processing and video editing and custom disk drive enclosures for OEMs.
Medical Products
The Company produces lancets for Medicore, which Parent company
distributes medical supplies. A lancet is a small sharp pointed instrument
used to prick the finger to draw blood for laboratory testing. Lancets
produced by the Company are vertical insert molded disposable products
distributed under the trade names Medi-Lance(TM), Lady Lite(TM) and under the
name Medi-Let, or under private label if requested by the customer.
Reworking and Refurbishing
Customers provide the Company with materials and sub-assemblies acquired
from other sources which the customer has determined requires modified design
or engineering changes. The Company redesigns, reworks, refurbishes and
repairs these materials and sub-assemblies.
Contract manufacturing, medical product sales, reworking and refurbishing
together amounted to approximately 9% of sales for 1996. Management believes
that circuit board sales and contract manufacturing will provide the Company
with substantial increases in revenues in the next few years.
MANUFACTURING AND SUPPLIES
Components and products are custom designed and developed to fit specific
customer requirements and specifications. The Company's industrial, electrical
and mechanical engineers work in close liaison with its customer's engineering
department from inception through design, prototypes, production and packaging.
2
<PAGE> 5
The Company's engineering staff reviews and structures the bill of
materials for purchasing, coordinates manufacturing instructions and
operations, and reviews inspection criteria with the quality control
department. The engineering staff also determines any special capital
equipment requirements, tooling and dies, which must be acquired.
The Company maintains a large assortment of standard tooling. New
manufacturing jobs may require new tooling and dies, but most presses and
related equipment are standard.
The Company maintains modern state-of-the-art equipment at all of its
facilities for crimping, stripping, terminating, soldering, sonic welding and
sonic cleaning which permits the Company to produce conventional and complex
molded cables. In assembly of PCBs, the Company owns state-of-the-art
equipment.
In addition to assembly operations, the Company in 1994, became more
involved in contract manufacturing of moderate to high volume turnkey
assemblies and sub-assemblies, including injection molded and electronic
assembly products. See "Business - Products" above. Finished turnkey
assemblies include the entire finished product and the entire manufacturing
process from design and engineering to purchasing raw materials, manufacturing
and assembly of the component parts, testing, packaging and delivery of the
product to the customer. By contracting assembly production, OEMs are able to
keep pace with continuous and complex technological changes and improvements by
making rapid modifications to their products without costly retooling and
without any extensive capital investments for new or altered equipment.
The Scottish manufacturing facility, located in Livingston, Scotland,
focuses mainly on the electronics industry producing primarily molded cables,
wire harnesses and electro-mechanical assemblies, incorporating multifaceted
design and production capabilities.
The Company also has "supplier partnerships" to meet customers' needs.
This involves the Company accomplishing the in-house manufacturing requirements
of the customer. Through EDI (electronic data interchange) the customer
conveys its needs on a weekly basis based on a rolling quarterly forecast.
Materials used in the Company's operations consist of metals, electronic
components such as cable, wire, resistors, capacitors, diodes, PCBs and plastic
resins. These materials are readily available from a large number of suppliers
and manufacturers. The Company has not experienced any significant disruptions
from shortages of materials or delivery delays of its suppliers and believes
that its present sources and the availability of its required materials are
adequate. The Company has a computerized system of material requirements
planning, purchasing, sales and marketing functions.
Operational improvements implemented several years ago have improved the
overall efficiency of manufacturing, particularly in the area of inventory
management, including purchasing which is geared more closely to current needs
resulting in reduced obsolescence problems. See Item 6, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
QUALITY AND PROCESS CONTROL
The Company, in March, 1995 for its Hialeah, Florida facility , and in
December, 1996 for its Houston, Texas facility, received from Underwriter's
Laboratories, an independent quality assurance organization, the ISO 9002
quality assurance designation, which is the international standard of quality
with respect to all systems of operations, including, among others, purchasing,
engineering, manufacturing, sales, inventory control and quality. Techdyne
(Scotland) received its BS 5750 quality assurance designation in 1991 from
British Standards Institute. These quality assurance designations are only
provided to those manufacturers which exhibit stringent quality and process
control assurances after extensive evaluation and auditing by these independent
quality assurance organizations.
3
<PAGE> 6
Quality control is essential to the Company's operations since low-cost
and high quality production are primary competitive standards and are vital to
the services of the Company. See "Business - Competition" below. Product,
components, assemblies and sub-assemblies manufactured by the Company are
thoroughly inspected visually and electronically to assure all components are
to strict specifications and are functional and safe. Management believes it
is one of the manufacturers of choice for the major Fortune 100 companies,
certain of whom are its customers, based upon its excellent record of quality
production.
Strict process controls are also standard operating procedure. Process
controls deal with the controls relating to the entire manufacturing process.
The Company strives for a CPK of two, i.e., twice as critical as customer
tolerances.
During the course of initial qualification and production cycles, new and
existing customers inspect the Company and its operations. Over the years the
Company's product and manufacturing quality has received excellent ratings.
MARKETING AND SALES
Domestic sales are generated by five regional sales managers covering the
Northeast, Southeast, West and Southwest regions of the United States. There
are also two in-house marketing personnel, including Barry Pardon, the
President of the Company. The regional sales managers have six independent
manufacturer representative agencies who employ approximately 35 salesmen.
Sales are also generated through catalogues, brochures and trade shows. Within
the last year, the Company hired three new sales managers to maximize its
growth potential in circuit board and contract manufacturing sales. The
Company believes that the new additions to the sales staff will accomplish this
effectively in the coming year.
The manufacturer sales representatives, primarily marketing electronic and
similar high technology-products, are retained under exclusive sales
representative agreements for specific territories and are paid on a commission
basis. The sales representatives cannot represent any other person engaged in
the business of manufacturing services similar to those of the Company, nor
represent any person who may be in competition with the Company. The
agreements further prohibit the sales representative from disclosing trade
secrets or calling on customers of the Company for one year from termination of
their agreement.
Techdyne (Scotland) has four in-house sales personnel who market its
products, primarily ribbon and discreet cable assemblies, electro-mechanical
products, and molded cable assemblies, as well as engaged in rework and
refurbishing products (see "Business - Products - Reworking and Refurbishing
above") for customers in Scotland, England, Ireland, Germany and the Middle
East.
Substantially all of the Company's sales and reorders are effected through
competitive bidding. Most sales are accomplished through purchase orders with
specific quantity price and delivery terms. Some production, such as its
supplier partnerships (see "Business - Manufacturing and Supplies" above), are
accomplished under open purchase orders with components released against
customer requests.
The customer base consists primarily of Fortune 100 companies. In 1996,
approximately 73% of the Company's sales were made to numerous locations of
four major customers Compaq Computer Corporation ("Compaq") (35%), IBM (18%),
EMC and its related suppliers (12%), and Motorola (9%). The Company sells to
these major companies as well as approximately 80 other smaller customers which
comprise the remaining 25% of sales. The Company's sales to Avid Technology,
Inc. ("Avid") totaling 19% of sales for 1995 year were down to 1% for fiscal
1996. Techdyne (Scotland) had a substantial portion of its sales,
approximately 84% to Compaq. During 1996, bidding for Compaq orders became more
competitive due to Far Eastern competition which resulted in substantially
reduced sales to that customer with lower profit margins on remaining sales. A
loss or substantially reduced sales to any major customer would necessarily
have a materially adverse affect on the Company as was the case with Compaq in
4
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Europe and Avid in the United States. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
BACKLOG
On December 31, 1996, the Company's backlog of orders amounted to
approximately $7,300,000, of which approximately $1,320,000 was represented by
the orders for Techdyne (Scotland) operations. Management believes, based on
past experience and relationships with its customers and knowledge of its
manufacturing capabilities, that substantially all of its backlog orders are
firm and will be filled within this fiscal year. The purchase orders within
which the Company performs do not provide for cancellation. Over the last
several years cancellations have been minimal and management does not
believe that any significant amount of the backlog orders will be canceled.
There is no assurance that the backlog data is a reliable indicator of future
sales.
PATENTS AND TRADEMARKS
The Company does not have nor does it rely on patents or trademarks to
establish or protect its market position. Dependency is placed more on design,
engineering, manufacturing cost containment, quality and marketing skills to
establish or maintain market position.
CAPITAL EXPENDITURES
During each of the three years in the period ended December 31, 1996, the
Company's capital expenditures were approximately:
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CAPITAL EXPENDITURES
---------------------------------------
LAND, BUILDINGS MACHINERY
YEAR ENDED AND LEASEHOLD AND
DECEMBER 31 IMPROVEMENTS EQUIPMENT TOTAL
- ----------- ------------ --------- -----------
<S> <C> <C> <C>
1996................... $131,175 $573,129 $ 704,304
1995................... $207,903 $322,766 $ 530,669
1994................... $759,087 $293,519 $1,052,606
</TABLE>
FOREIGN OPERATIONS
The following is summarized financial information for the Company's
foreign operations. All significant intercompany accounts and transactions
have been eliminated.
<TABLE>
<CAPTION>
Year Ended December 31,
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1996 1995 1994
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<S> <C> <C> <C>
Net Sales and Other Income
United States...................... $14,274,064 $18,113,978 $12,654,945
Europe(1).......................... 10,160,116 12,310,380 7,880,738
------------- ------------- -------------
$24,434,180 $30,424,358 $20,535,683
============= ============= =============
Net Income (Loss)
United States...................... $ 222,812 $ 318,896 $ 152,722
Europe(1).......................... 519,896 996,422 566,158
------------- ------------- -------------
$ 742,708 $ 1,315,318 $ 718,880
============= ============= =============
Identifiable Assets(2)
United States...................... $ 7,438,983 $ 6,277,221 $ 4,830,839
Europe(1).......................... 5,785,213 6,601,880 3,910,579
------------- ------------- -------------
$13,224,196 $12,879,101 $ 8,741,418
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(Notes on the following page)
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(1) TECHDYNE (SCOTLAND) SALES ARE PRIMARILY TO CUSTOMERS IN THE UNITED
KINGDOM. THE BALANCE OF THE SALES WERE MADE TO GERMANY, WHICH SALES WERE
INITIATED IN 1994, AND MINIMALLY TO ISRAEL. THESE PERCENTAGES ARE BASED
SOLELY ON FOREIGN SALES.
(2) INCLUDES ASSETS DIRECTLY IDENTIFIABLE WITH THE APPLICABLE OPERATIONS.
The Company will be continuing its efforts to expand its foreign sales
throughout Europe.
Expansion of its Scottish production facility by 3,500 square feet was recently
completed.
COMPETITION
The Company experiences substantial competition from many areas including
divisions of large electronic and high-technology firms, as well as from
numerous smaller, specialized companies. Competitive price advantages may also
be available to competitors with less expensive off-shore operations,
particularly from the Far East. Management believes the primary competitive
factors to be price, quality of production, prompt customer service, timely
delivery, engineering expertise and technical assistance to customers. Among
this mix of competitive standards, management believes it is competitive with
respect to delivery time, quality, cost and customer service. Management also
believes its competitive position is internationally enhanced through its
European manufacturing and marketing operations through Techdyne (Scotland).
See "General", "Manufacturing and Supplies" and "Foreign Operations" under
"Business" above.
Due to the number and variety of competitors, reliable data relative to
the Company's competitive position in the electronic components and assembly
industry is difficult to develop and is not known.
EMPLOYEES
The Company currently employs approximately 255 full-time people. Of
these approximately 99 are employed in its Florida facilities located in
Hialeah, of which three are employed in marketing, including its President, six
in engineering, 78 in manufacturing, quality assurance and production, and 12
are engaged in administrative, accounting, warehousing and support activities.
The Company's Houston, Texas facility employs approximately 33 persons, of
which one is in marketing, 29 are in manufacturing, quality and manufacturing
engineering, and three are in administration, accounting, warehousing and
support activities. The Austin, Texas manufacturing facility, presently
employs approximately 18 persons of which 13 are in manufacturing and
production, and five are in administration. The Company maintains a small
office in Massachusetts with two employees, one in marketing and one in
administration. Its Scottish subsidiary employs approximately 103 people of
which 78 are in production, engineering and the balance in administrative,
sales, accounting and support activities.
In addition, to its full-time employees, the Company domestically
regularly utilizes the services of temporary workers retained through local
agencies. Presently there are approximately 52 such workers. Many of these
temporary workers, upon fulfilling in excess of 320 hours of service, may be
employed on a full time basis as needed.
The Company has no unions and believes its relationships with its
employees is good.
ITEM 2. PROPERTIES
The following chart summarizes the properties leased by the Company.
6
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SPACE PROPERTY LANDLORD TERM RENT
- ------------ -------------- -------------- -------------- ---------------
16,000 sq ft 2230 W 77th St Medicore 5 yrs. to $130,000/yr
(exec. offs., Hialeah, FL (Parent) March 31, 2000 plus taxes,
mfg.) utilities,
insurance
(net, net)(1)
12,000 sq ft 2200 W 77th St Medicore 5 yrs. to $130,000/yr
(warehouse) Hialeah, FL (Parent) March 31, 2000 plus taxes,
utilities,
insurance
(net, net)(1)
11,000 sq ft 9742 and 9750 George Month to month $5,490 per
(mfg. Whithorn Drive Whimpey as of November month
& offices) Houston, TX of Texas, Inc. 29, 1996
200 sq. ft. 200 Turnpike Road MMP Realty Month to month $250/month plus
(office) Southborough, MA Trust heat, electricity
and janitorial
6,825 sq ft 800 Paloma Dr. AmorRon 3 yrs. $45,000/yr
(offices Round Rock (Austin), Park Ltd. to April 14, plus taxes,
mfg.) TX(2) 1998; one utilities,
three year insurance
renewal (net, net)
</TABLE>
__________
(1) THE $130,000 PER YEAR RENTAL IS THE AGGREGATE FOR BOTH PROPERTIES, 2230
WEST 77TH STREET, HIALEAH, FLORIDA AND 2200 WEST 77TH STREET, HIALEAH,
FLORIDA WITH ADJACENT PARKING. THE RENT WAS REDUCED TO $100,000 PER ANNUM
FOR THE 12 MONTHS FROM APRIL 1, 1996 TO MARCH 31, 1997.
(2) RIGHT OF FIRST REFUSAL TO LEASE ADJACENT SPACE (APPROXIMATELY 5,400 SQ.
FT.).
In July, 1994, Techdyne (Scotland) purchased the 27,000 square foot
facility it had been leasing in Livingston, Scotland. The purchase was
accomplished for approximately $730,000 with a 15-year mortgage which has a
U.S. dollar equivalency of approximately $622,000 at December 31, 1996. See
Item 6, "Management's Discussion and Analysis of Financial Condition and
Results of Operations." This facility was recently expanded by 3,500 square
feet. See "Business - Foreign Operations" above.
The Company maintains state-of-the-art manufacturing, quality control
testing and packaging equipment at all of its facilities in Florida, Texas and
Scotland.
The Company believes that its equipment and facilities are adequate for
its current operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in or subject to any claims or litigation.
In the first quarter of 1996 a temporary worker was injured at the Company.
The extent of his injuries or related costs are not known. The injured party
is insured through the temporary agency. The Company also believes its
insurance is adequate to cover any potential claims. See Note 6 to "Notes to
Consolidated Financial Statements."
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the Company's fiscal
year to a vote of security holders through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The table below indicates the high and low bid prices by quarter for the
Company's Common Stock for the three quarters ended September 30, 1995 as
reported by the OTC Bulletin Board. On October 2, 1995 the Company's Common
Stock and Warrants commenced trading on the Boston Stock Exchange under the
symbols "TDN" and "TDNW," respectively, and on Nasdaq SmallCap under the
symbols "TCDN" and "TCDNW," respectively. On November 6, 1996, the Common
Stock and Warrants were listed and traded on the Nasdaq National Market under
the same symbol and ceased trading on the Boston Stock Exchange. The fourth
quarter information for 1995 and the quarterly information for 1996 in the
table reflects the high and low bid prices for the Common Stock as reported by
Nasdaq.
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Bid Price
----------------------
1995
---------------------------------
High Low
---------- ----------
1st Quarter...................... 1 5/8 1
2nd Quarter..................... 3 3/4 1 1/2
3rd Quarter...................... 6 3/4 3 1/8
4th Quarter...................... 7 1/4 5 3/8
Bid Price
----------------------
1996
---------------------------------
High Low
---------- ----------
1st Quarter...................... 8 5 15/16
2nd Quarter..................... 9 7/8 6 1/2
3rd Quarter...................... 9 1/2 6 3/8
4th Quarter...................... 9 1/8 5
</TABLE>
Bid and asked prices are without adjustment for retail mark-ups,
mark-downs or commissions, and may not necessarily represent actual
transactions.
At March 17, 1997, the Company had 67 shareholders of record and based
upon its annual meeting estimates it has approximately 900 beneficial owners of
its Common Stock.
The Company has not paid, nor does it have any present plans to pay cash
dividends on its Common Stock in the immediate future. In February, 1996, the
Company refinanced its credit facilities with a Florida bank, including three
loan arrangements, one of which restricts the payment of dividends except if
such does not exceed 30% of the Company's net income in any year. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Relationships and Related Transactions" of the
Company's definitive Information Statement relating to the Annual Meeting of
Shareholders to be held Wednesday, June 11, 1997, incorporated herein by
reference.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the four years ended December
31, 1996 are derived from the audited consolidated financial statements. The
selected financial data for the year ended December 31, 1992 are derived from
unaudited financial statements. The data should be read in conjunction with
the consolidated financial statements, related notes and other financial
information included herein.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 24,434 $ 30,424 $ 20,536 $ 15,288 $ 15,566
Net income (loss) 743 1,315 719 1 (776)
Income (loss) per common share .16 .38 .24 --- (.26)
Weighted average shares
outstanding and equivalents 4,769,320 3,466,139 3,042,910 3,042,910 3,042,910
========= ========= ========= ========= =========
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Working capital........................... $ 6,597 $ 4,921 $2,988 $ 1,909 $ 1,572
Total assets.............................. 13,224 12,879 8,741 5,543 5,237
Long-term debt (1)........................ 3,842 3,415 5,823 4,806 4,695
Total liabilities......................... 8,056 9,216 9,685 7,284 6,957
Shareholders' equity (deficit)............ 5,168 3,663 944 (1,741) (1,720)
</TABLE>
- ----------------
(1) Includes advances from Parent.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements contained in this Annual Report on Form 10-K 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
the 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 Techdyne business to replace lost sales from
several major customers in 1996, 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 SB-2 as filed with the Securities and Exchange Commission
("Commission") (effective September 13, 1995).
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.
9
<PAGE> 12
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 customer's 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. 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. See Item 1, "Business-Quality and
Process Control."
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Consolidated revenues decreased approximately $5,990,000 (20%) for the
year ended December 31, 1996 compared to the preceding year which included a
$6,237,000 (21%) decrease in sales revenues. Domestic sales revenues decreased
$4,019,000 (22%) and European-based sales revenues decreased $2,218,000 (18%)
for the year ended December 31, 1996 compared to the same period of the
preceding year. Interest and other income increased approximately $247,000,
which included $140,000 from a litigation settlement and approximately $107,000
increase in interest income resulting from interest on Scotland funds invested
which were previously tied up in receivables and inventory prior to the cutback
in Compaq business in the third quarter of 1996 and interest on funds invested
resulting from the Company's security offering completed in October 1995.
The decrease in domestic sales compared to the preceding year was largely
attributable to a decrease in sales of $5,337,000 to Avid Technology which was
offset to some degree by a net increase in sales to other customers. The
decrease in European-based sales was largely attributable to a decrease of
$2,160,000 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 84% of the sales of Techdyne
(Scotland) for the year ended December 31, 1996 and 86% for 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 cost reduction efforts to remain
competitive on Compaq business. However, there can be no assurance as to the
success of such efforts.
Approximately 73% of the Company's consolidated sales for the year ended
December 31, 1996 were made to four customers. Customers generating in excess
of 10% of sales included Compaq (35%), IBM (18%) and EMC and its related
suppliers (12%). The loss of, or substantially reduced sales to any of these
customers, as occurred with Avid domestically and Compaq in Europe in 1996,
would have an adverse effect on the Company's operations if such sales are not
replaced. The Company is pursuing new business development efforts to replace
lost sales, although 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 year ended December 31, 1996 compared to 85% for the
preceding year.
Selling general and administrative expenses remained relatively stable,
decreasing approximately $16,000 for the year ended December 31, 1996 compared
to the preceding year.
10
<PAGE> 13
Interest expense decreased by approximately $100,000 for the year ended
December 31, 1996 compared to the preceding year due largely to a decrease of
approximately $88,000 in interest on the intercompany advances from Medicore.
The prime rate was 8.25% at December 31, 1996 and 8.5% at December 31, 1995.
1995 COMPARED TO 1994
Consolidated revenues increased approximately $9,888,675 (48%) for the
year ended December 31, 1995 compared to the preceding year. Domestic revenues
increased $5,415,000 (43%) and European-based revenues increased $4,430,000
(56%) for the year ended December 31, 1995 compared to the same period of the
preceding year.
The increase in domestic revenues compared to the preceding year, in
addition to an overall net increase in sales to existing customers, reflects
continuing new customer development efforts and additional revenues resulting
from an increased level of customer service made possible through the Company's
Houston, Texas manufacturing facility and recently established Austin, Texas
facility.
Revenues of Techdyne (Scotland) continue to be highly dependent on sales
to Compaq which accounted for approximately 86% of the sales of Techdyne
(Scotland) for the year ended December 31, 1995 and 80% for the preceding year.
Sales by Techdyne (Scotland) to Compaq increased $4,280,000 (68%) for the year
ended December 31, 1995 compared to 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.
Approximately 80% of the Company's consolidated sales for the year ended
December 31, 1995 were made to five customers, two of which were major
customers, Compaq (36%) and Avid (19%). The other three 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 Avid for 1995. As a result of a change in
the product produced for Avid which accounted for a substantial portion of the
sales to that customer, the Company anticipates a loss of a majority of its
sales to Avid during the next year. 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.
Cost of goods sold as a percentage of sales remained relatively stable,
increasing to 85% for the year ended December 31, 1995 compared to 84% for the
preceding year. The increase in sales revenues, along with improved
manufacturing efficiencies and overall cost reduction efforts, resulted in an
increase in operating profits of $929,000 for the year ended December 31, 1995
compared to the preceding year.
Selling general and administrative expenses increased $492,000 (26%)
during the first half of 1995 compared to the preceding year. This increase
was primarily due to the increase in support activities associated with the
nearly 48% increase in overall sales revenues between the periods, including
increase in administrative personnel, related benefits and sales commissions.
Selling, general and administrative expenses as a percentage of sales decreased
to 8% for the year ended December 31, 1995 compared to 9% for the preceding
year as a result of cost containment efforts in selling, general and
administrative expenses and associated economies of scale.
Interest expense increased by $90,000 for the year ended December 31, 1995
compared to the preceding year due to the mortgage associated with Techdyne
(Scotland's) purchase of its manufacturing
11
<PAGE> 14
facility, previously leased, and an increase in average interest rates. The
prime rate was 8.5% at December 31, 1995 and December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $6,597,000 at December 31, 1996 increasing
$1,676,000 (34%) during 1996. This increase included a substantial reduction
in current debt as a result of the Company's bank refinancing with the change
in other components of working capital resulting primarily from the overall
reduction in sales levels compared to the preceding year.
Included in the changes in components of working capital was an increase
of $793,000 in cash and cash equivalents, which included net cash provided by
operating activities of $725,000, net cash used in investing activities of
$488,000 (including $480,000 from additions to property plant and equipment)
and net cash provided by financing activities of $414,000 (including proceeds
of the bank refinancing of $181,000, payments on long-term debt of $140,000 and
a net increase in advances from the Parent of $336,000).
In February 1996, the Company refinanced its bank loan agreement with a
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 as of December 31, 1996, and no amounts have been drawn down on
this line. A $712,500 term loan, which had a remaining principal balance of
$691,000 at December 31, 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 $167,000 at December 31, 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 2 to "Notes to Consolidated Financial
Statements." 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.
The Company has outstanding borrowings of $145,000 from 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 $342,000 at December 31, 1996, and had an option
for additional funding which provided a total line of $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 December 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 $622,000 and $591,000 at December 31,
1996 and December 31, 1995, respectively based on exchange rates in effect at
each of these dates.
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,
one of which is presently under consideration for the Northeastern United
States with such facilities requiring approximately $300,000 each for leasehold
improvements, equipment and furniture and fixtures. Most of these costs will
be provided from the proceeds of 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.
12
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES--CONTINUED
The Company is seeking to expand its operations possibly through
acquisitions of companies in similar businesses. There can be no assurance
that the Company would be able to finance such acquisitions from its own
capital or be able to obtain sufficient external financing.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section to this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on directors of the Company is included under the caption
"Election of Directors" of the Company's definitive Information Statement
relating to the Annual Meeting of Shareholders to be held on Wednesday, June
11, 1997, which is incorporated herein by reference.
The executive officers of the Company are elected by the Board of
Directors at its first meeting following the Annual Meeting of Shareholders to
serve during the ensuing year and until their respective successors are elected
and qualified. The present officers and directors have comprised the Board
since 1993. There are no family relationships between any of the executive
officers of the Company. The following information indicates the position and
age of the executive officers at April 30, 1997, and their business experience
during the prior five years.
<TABLE>
<S> <C> <C> <C>
Name Age Position with the Company Position Held Since
- ------------------ --- ---------------------------------- -----------------------------
Thomas K. Langbein 51 Chairman of the Board and 1982
Chief Executive Officer 1990
Barry Pardon 45 President 1991
and Director 1990
Joseph Verga 45 Senior Vice President, Secretary, 1988
Treasurer and Director 1990
Daniel R. Ouzts 50 Vice President - Finance Controller 1986
</TABLE>
13
<PAGE> 16
THOMAS K. LANGBEIN was financial consultant to Medicore until 1980, when
he became Chairman of the Board of Directors, Chief Executive Officer and
President of Medicore. Mr. Langbein is also an officer and director of most of
Medicore's subsidiaries. He is Chairman of the Board and Chief Executive
Officer of DCA, another public subsidiary of Medicore. Mr. Langbein was
Chairman of the Board of Directors of the Company in 1985, formerly having been
Vice President and Treasurer. Peter D. Fischbein was appointed Chairman of the
Board in 1990 until 1991, when Mr. Langbein reassumed that position. In 1990,
Mr. Langbein was appointed as President and Chief Executive Officer and Mr.
Langbein relinquished the Presidency to Barry Pardon in November, 1991. Mr.
Langbein is also a Director of Techdyne (Scotland). In 1971, Mr. Langbein
organized and currently is the President, sole director and owner of Todd &
Company, Inc. ("Todd"), a broker dealer registered with the Securities and
Exchange Commission and the NASD. Mr. Langbein devotes most of his time to the
affairs of the Company and Medicore. See "Certain Relationships and Related
Transactions" of the Company's definitive Information Statement relating to the
Annual Meeting of Shareholders to be held on Wednesday, June 11, 1997,
incorporated herein by reference.
BARRY PARDON joined the Company in November, 1980 as national sales
manager and initiated the independent manufacturer representatives sales force.
Mr. Pardon became Vice President of Marketing in 1981, and was appointed
Executive Vice President (Marketing) in 1988, and was appointed President in
November, 1991. Mr. Pardon is a director of Techdyne (Scotland).
JOSEPH VERGA joined the Company in 1979 as purchasing agent. In 1980, he
became production control manager and Vice President, in 1981 the operations
manager, and in 1983 was elected a director and appointed Secretary of the
Company. In 1985 he was appointed Treasurer and in 1988 was made Senior Vice
President of Operations.
DANIEL R. OUZTS joined Medicore in 1980 as Controller of its plasma
division, and in 1983 became Controller of Medicore. He became Vice President
of Finance of the Company and Medicore in 1986. He has been the controller of
DCA since 1983, and was appointed as Vice-President and Treasurer of that
company in June, 1996. Mr. Ouzts is a certified public accountant. See
"Certain Relationships and Related Transactions" of the Company's definitive
Information Statement relating to the Annual Meeting of Shareholders to be held
on Wednesday June 11, 1997, incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information on executive compensation is included under the caption
"Executive Compensation" of the Company's definitive Information Statement
relating to the Annual Meeting of Shareholders to be held on Wednesday June 11,
1997, which is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on beneficial ownership of the Company's voting securities by
each director and all officers and directors as a group, and for each of the
named executive officers disclosed in the Summary Compensation Table (see
"Executive Compensation" of the Company's definitive Information Statement
relating to the Annual Meeting of Shareholders to be held on Wednesday June 11,
1997, which is incorporated herein by reference), and by any person known to
the Company to beneficially own more than 5% of any class of voting security of
the Company, is included under the caption "Security Ownership of Certain
Beneficial Owners and Management" of the Company's definitive Information
Statement relating to the Annual Meeting of Shareholders to be held on June 11,
1997, which is incorporated herein by reference.
14
<PAGE> 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on certain relationships and related transactions is included
under the caption "Certain Relationships and Related Transactions" of the
Company's definitive Information Statement relating to the Annual Meeting of
Shareholders to be held on Wednesday June 11, 1997, which is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following is a list of documents filed as part of this report.
1. All financial statements
See Index to Consolidated Financial Statements
2. Exhibits
<TABLE>
<S> <C>
(3)(i) Articles of Incorporation (incorporated by reference
to the Company's Registration Statement on Form SB-2 dated
July 26, 1995, as amended August 21, 1995 and September 1,
1995, Registration No. 33-94998-A ("Form SB-2"), Part II, Item
27, 3(a)). *
(ii) By-Laws (incorporated by reference to the Company's Form
SB-2, Part II, Item 27, 3(b)). *
(4)(i) Form of Common Stock Certificate (incorporated by reference to
the Company's Form SB-2, Part II, Item 27, 4(a)). *
(ii) Form of Redeemable Common Stock Purchase Warrant
(incorporated by reference to the Company's Form SB-2,
Part II, Item 27, 4(b)). *
(iii) Form of Underwriter's Warrant (incorporated by reference to
the Company's Form SB-2, Part II, Item 27, 4(c)).*
(iv) Form of Warrant Agreement between the Company, Continental
Stock Transfer & Trust Co., and Joseph Dillon & Co., Inc.
(incorporated by reference to the Company's Form SB-2,
Part II, Item 27, 4(d)). *
(v) 1994 Stock Option Plan of the Company (incorporated by
reference to Medicore, Inc.'s(1) Annual Report on Form 10-K
for the year ended December 31, 1994 ("Medicore's 1994
Form 10-K"), Part IV, Item 14 (a) 3(10)(lxv)). *
(vi) Form of Stock Option Certificate under 1994 Stock Option Plan
(incorporated by reference to Medicore's(1) 1994 Form 10-K,
Part IV, Item 14 (a) 3 (10)(lxvi)) *
(vii) Form of 1995 Non-Qualified Stock Option (incorporated by
reference to Medicore's(1) 1994 Form 10-K, Part IV, Item 14
(a) 3 (10)(lxvii)). *
(10)(i) Lease Agreement between the Company and Medicore, Inc.(1)
dated July 17, 1990 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990 ("1990 Form 10-K"), Part IV,
Item 14 (a) 3 (10) (vii)). *
</TABLE>
15
<PAGE> 18
<TABLE>
<S> <C>
(ii) Lease Renewal Letter from the Company to Medicore, Inc.(1)
dated December 19, 1994 (incorporated by reference to the
Company's 1990 Form 10-K, Part IV, Item 10(b)). *
(iii) Lease Agreement between Techdyne (Houston), Inc.(2) and
George Whimpey of Texas, Inc. dated July 30, 1991
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991 ("1991 Form
10-K"), Part IV, Item 14 (a) 3 (10) (viii)). *
(iv) Assignment and Assumption Agreement between Techdyne
(Houston), Inc.(2), Medicore, Inc.(1) and George Whimpey of
Texas, Inc. dated February 28, 1992 (incorporated by
reference to the 1991 Form 10-K, Part IV, Item 14 (a) 3
(10) (ix)). *
(v) Lease Agreement between the Company and George Whimpey of
Texas, Inc. dated February 4, 1994 (incorporated by
reference to Medicore,(1) Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1993, Part IV, Item 14 (a) 3
(10) (xxxiv)). *
(vi) Form of Exclusive Sales Representative Agreement
(incorporated by reference to Medicore, Inc.'s (1) Annual
Report on Form 10-K for the year ended December 31, 1994
("Medicore's 1994 Form 10-K"), Part IV, Item 14 (a) 3
(10)(lxiv)), Part IV, Item 14 (a)(10)(h)). *
(vii) Employment Agreement between the Company and Barry Pardon
dated March 13, 1996(incorporated by reference to the
Company's Annual report on Form 10-K for the year ended
December 31, 1995; Part IV, Item 14(a)(10)(viii).*
(viii) Employment Agreement between Techdyne (Scotland) Ltd.(3) and
John Clark Grieve dated March 11, 1988 (incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1987, Part IV, Item 14 (a) 3 (10)
(x)). *
(ix) Guarantee of Techdyne (Scotland) Ltd.(3) Line of Credit with
Royal Bank of Scotland Plc dated March 3, 1989 (incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988, Part IV, Item 14 (a)
3 (10) (vii)) *
(x) Mortgage by Techdyne (Scotland) Ltd.(3) to the Royal Bank of
Scotland dated August 8, 1994 (incorporated by reference to
Medicore, Inc.'s(1) Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 ("Medicore June, 1994 Form
10-Q"), Part II Item 6(a)(28)(vi)). *
(xi) Agreement ("Missives") between Techdyne (Scotland) Ltd.(3)
and Livingston Development Corporation regarding Purchase by
Techdyne (Scotland) Ltd.(3) of Its Facility dated June 15,
1994 (incorporated by reference to Medicore June, 1994
Form 10-Q, Part II, Item 6(a)(28)(vii)). *
(xii) Lease Agreement between the Company and AmorRon Park, Limited
dated April 21, 1995 (incorporated by reference to the
Company's Form SB-2, Part II, Item 27, 10 (z)). *
(xiii) Promissory Note to Medicore, Inc.(1) dated April 10, 1995
(incorporated by reference to the Company's Form SB-2, Part
II, Item 27, 10 (a)(a)). *
</TABLE>
16
<PAGE> 19
<TABLE>
<S> <C>
(xiv) Rental Agreement between the Company and MMP Realty Trust
dated August 29, 1995 (incorporated by reference to the
Company's Form SB-2, Part II, Item 27, 10 (a)(d)). *
(xv) Loan and Security Agreement between the Company and Barnett
Bank of South Florida, N.A. ("Barnett Bank") for $2,000,000
dated February 8, 1996 (incorporated by reference to the
Company's Current Report on Form 8-K, dated February 23,
1996 ("February 1996 Form 8-K"), Item 7(c)(99)(i)). *
(xvi) Revolving Demand Promissory Note for $2,000,000 from the
Company to Barnett Bank dated February 8, 1996 (incorporated
by reference to February 1996 Form 8-K, Item 7(c)(99)(ii)). *
(xvii) Unconditional and Continuing Guaranty of Payment and
Performance by Medicore, Inc.(1) in favor of Barnett Bank
dated February 8, 1996 (incorporated by reference to
February 1996 Form 8-K, Item 7(c)(99)(iii)). *
(xviii) Subordination Agreement among Barnett Bank, the Company and
Medicore, Inc.(1) dated February 8, 1996 (incorporated by
reference to February 1996 Form 8-K, Item 7(c)(99)(iv)). *
(xix) Loan Agreement for $712,500 between the Company and Barnett
Bank dated February 8, 1996 (incorporated by reference to
February 1996 Form 8-K, Item 7(c)(99)(v)). *
(xx) Promissory Note for $712,500 from the Company to Barnett
Bank, dated February 8, 1996 (incorporated by reference to
February 1996 Form 8-K, Item 7(c)(99)(vi)). *
(xxi) Mortgage and Security Agreement between Medicore, Inc.(1) and
Barnett Bank dated February 8, 1996 (incorporated by
reference to February 1996 Form 8-K, Item 7(c)(99)(vii)). *
(xxii) Assignment of Leases, Rents and Profits by Medicore, Inc.(1)
in favor of Barnett Bank dated February 8, 1996 (incorporated
by reference to February 1996 Form 8-K, Item 7(c)(99)(viii)).
*
(xxiii) Promissory Note for $200,000 from the Company to Barnett
Bank dated February 8, 1996 (incorporated by reference to
February 1996 Form 8-K, Item 7(c)(99)(ix)). *
(xxiv) Security Agreement between the Company and Barnett Bank
dated February 8, 1996 (incorporated by reference to February
1996 Form 8-K, Item 7(c)(99)(x)).*
(xxv) Service Agreement between the Company and Medicore, Inc.(1)
dated October 25, 1996.
(11) Statement re: computation of per share earnings.
(21) Subsidiaries of the registrant.
_________________
</TABLE>
17
<PAGE> 20
* Documents incorporated by reference not included in Exhibit Volume.
(1) PARENT OF THE COMPANY OWNING 63% OF THE COMPANY'S OUTSTANDING SHARES (74%
IF INCLUDE CONVERTIBLE PROMISSORY NOTE).
(2) SUBSIDIARY DISSOLVED IN 1992.
(3) WHOLLY-OWNED SUBSIDIARY.
(b) The Registrant filed no Current Report on Form 8-K during its fourth
fiscal quarter.
18
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ THOMAS K. LANGBEIN
-------------------------------
THOMAS K. LANGBEIN, Chairman of
the Board of Directors and Chief
Executive Officer
March 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Name Title Date
- ---------------------- --------------------------------- ---------------
Chairman of the Board
of Directors, Chief
/s/ THOMAS K. LANGBEIN Executive Officer March 24, 1997
- ----------------------
Thomas K. Langbein
/s/ BARRY PARDON President and Director March 24, 1997
- ----------------------
Barry Pardon
/s/ JOSEPH VERGA Senior Vice President,
- ---------------------- Secretary, Treasurer
Joseph Verga and Director March 24, 1997
/s/ DANIEL R. OUZTS Vice President and
- ---------------------- Controller
Daniel R. Ouzts March 24, 1997
/s/ PETER D. FISCHBEIN Director March 24, 1997
- ----------------------
Peter D. Fischbein
/s/ ANTHONY C. D'AMORE Director March 24, 1997
- ----------------------
Anthony C. D'Amore
</TABLE>
19
<PAGE> 22
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (A) (1) AND (2), (C) AND (D)
LIST OF FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENTS SCHEDULES
YEAR ENDED DECEMBER 31, 1996
TECHDYNE, INC.
HIALEAH, FLORIDA
<PAGE> 23
FORM 10-K--ITEM 14(A)1 AND (2)
TECHDYNE, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Techdyne, Inc. and
subsidiaries are included in Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated balance sheets--December 31, 1996 and 1995. F-3
Consolidated Statements of Income--Years ended December 31, 1996,
1995, and 1994. F-4
Consolidated Statements of Stockholders' Equity (Deficit)--Years ended
December 31, 1996, 1995 and 1994. F-5
Consolidated Statements of Cash Flows--Years ended December 31, 1996,
1995, and 1994. F-6
Notes to Consolidated Financial Statements--December 31, 1996. F-7
</TABLE>
The following financial statement schedule of Techdyne, Inc. and
Subsidiaries is included in Item 14(d):
Schedule II -- Valuation and qualifying accounts.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
F-1
<PAGE> 24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Techdyne, Inc.
We have audited the accompanying consolidated balance sheets of Techdyne, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity (deficit), and cash flows for each of
the three years in the period ended December 31, 1996. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Techdyne, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
March 21, 1997
Miami, Florida
F-2
<PAGE> 25
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
1996 1995
---- ----
<S> ASSETS <C> <C>
Current Assets:
Cash and cash equivalents $ 3,924,873 $ 3,131,540
Restricted cash 29,174 27,801
Accounts receivable, less allowances of $83,000 at
December 31, 1996 and $103,000 at December 31, 1995 3,106,923 3,157,420
Inventories, less allowances for obsolescence of $134,000
at December 31, 1996 and $309,000 at December 31, 1995 3,049,334 3,513,196
Prepaid expenses and other current assets 436,358 641,132
----------- -----------
Total current assets 10,546,662 10,471,089
Property and Equipment:
Land and improvements 205,200 186,000
Buildings and building improvements 864,595 756,193
Machinery and equipment 3,273,875 2,726,787
Tools and dies 817,593 770,639
Leasehold improvements 94,119 90,547
----------- -----------
5,255,382 4,530,166
Less accumulated depreciation 2,749,339 2,287,695
----------- -----------
2,506,043 2,242,471
Deferred expenses and other assets 124,313 113,995
Costs in excess of net tangible assets acquired, less accumulated
amortization of $44,000 at December 31, 1996 and $40,000 at
December 31, 1995 47,178 51,546
----------- -----------
$13,224,196 $12,879,101
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,457,563 $ 3,094,504
Accrued expenses 935,227 1,372,634
Current portion of long-term debt 259,731 599,000
Income taxes payable 297,575 483,931
----------- -----------
Total current liabilities 3,950,096 5,550,069
Deferred gain on sale of real estate 161,047 161,047
Deferred income taxes 102,603 89,757
Long-term debt, less current portion 1,384,569 729,753
Advances from parent 2,457,570 2,685,598
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.01 par value, authorized 10,000,000 shares;
issued and outstanding 4,294,019 shares in 1996 and
4,043,319 shares in 1995 42,940 40,433
Capital in excess of par value 7,551,774 7,153,581
Deficit (2,531,167) (3,273,875)
Foreign currency translation adjustments 104,764 (257,262)
----------- -----------
Total stockholders' equity 5,168,311 3,662,877
----------- -----------
$13,224,196 $12,879,101
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 26
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Sales $24,116,018 $30,353,470 $20,515,256
Interest and other income 318,162 70,888 20,427
----------- ------------ -----------
24,434,180 30,424,358 20,535,683
Cost and expenses:
Cost of goods sold 20,747,534 25,785,745 17,318,641
Selling, general and administrative
expenses 2,404,456 2,420,344 1,927,908
Interest expense 271,736 371,385 280,978
----------- ------------ -----------
23,423,726 28,577,474 19,527,527
----------- ------------ -----------
Income before income taxes 1,010,454 1,846,884 1,008,156
Income tax provision 267,746 531,566 289,276
----------- ------------ -----------
Net income $ 742,708 $ 1,315,318 $ 718,880
=========== ============ ===========
Earnings per share:
Primary $ .16 $ .38 $ .24
=========== ============ ===========
Fully diluted $ .14 $ .31
=========== ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 27
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C> <C> <C> <C>
FOREIGN
CAPITAL IN CURRENCY
COMMON EXCESS OF TRANSLATION
STOCK PAR VALUE DEFICIT ADJUSTMENTS TOTAL
------- ---------- ------------ ----------- ------------
Balance at January 1, 1994 $30,429 $3,842,401 $(5,308,073) $(306,189) $(1,741,432)
Net income 718,880 718,880
Foreign currency translation adjustments 78,444 78,444
------- ---------- ----------- ---------- -----------
Balance at December 31, 1994 30,429 3,842,401 (4,589,193) (227,745) (944,108)
Net income 1,315,318 1,315,318
Net proceeds from security offering with
issuance of 1,000,000 common shares 10,000 3,310,784 3,320,784
Exercise of stock options 4 396 400
Foreign currency translation adjustments (29,517) (29,517)
------- ---------- ----------- ---------- -----------
Balance at December 31, 1995 40,433 7,153,581 (3,273,875) (257,262) 3,662,877
Net income 742,708 742,708
Note conversion by Medicore (200,000
shares) 2,000 348,000 350,000
Exercise of stock options 507 50,193 50,700
Foreign currency translation adjustments 362,026 362,026
------- ---------- ----------- ---------- -----------
Balance at December 31, 1996 $42,940 $7,551,774 $(2,531,167) $ 104,764 $ 5,168,311
======= ========== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 28
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $ 742,708 $ 1,315,318 $ 718,880
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 368,618 332,602 285,692
Amortization 15,430 16,750 25,224
Bad debt expense 9,380 73,000 (20,000)
Provision for inventory obsolescence 56,913 294,860 262,000
Deferred income taxes 3,266 16,680 26,756
Increase (decrease) relating
to operating activities from:
Accounts receivable 110,804 (83,104) (1,297,543)
Inventories 584,248 (1,161,907) (1,227,152)
Prepaid expenses and other
current assets 228,554 (360,689) (68,422)
Accounts payable (698,395) 948,390 801,046
Accrued expenses (480,917) 474,630 442,000
Income taxes payable (215,143) 218,856 244,025
Other (1,049)
---------- ---------- ----------
Net cash provided by operating activities 725,466 2,085,386 191,457
Investing activities:
Additions to property and equipment,
net of minor disposals (479,815) (559,168) (340,352)
Proceeds from restricted cash 56,294 53,626 51,893
Restricted cash (57,667) (54,861) (52,704)
Proceeds from sale of marketable securities 35,046 165,519
Deferred expenses and other assets (6,808) (61,082)
---------- ----------- -----------
Net cash used in investing activities (487,996) (586,439) (175,644)
Financing activities:
Net proceeds from securities offering 3,320,784
Exercise of stock options 50,700 400
Proceeds from long-term borrowings 181,476
Payments on long-term borrowings (140,443) (316,827) (291,600)
Payments on promissory note for advances from parent (1,500,000)
Increase (decrease)in advances from parent 336,483 (278,389) 467,401
Deferred financing costs (14,438) (11,944) (28,539)
---------- ----------- -----------
Net cash provided by financing activities 413,778 1,214,024 147,262
Effect of exchange rate fluctuations on cash 142,085 (20,684) 10,553
---------- ----------- -----------
Increase in cash and cash equivalents 793,333 2,692,287 173,628
Cash and cash equivalents at beginning of year 3,131,540 439,253 265,625
---------- ----------- -----------
Cash and cash equivalents at end of year $3,924,873 $ 3,131,540 $ 439,253
========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 29
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Techdyne,
Inc. ("Techdyne") and its subsidiaries, including 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 63.5% 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.
Sales to major customers are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
CUSTOMERS 1996 1995 1994
- ----------------------------------- ---- ---- ----
<S> <C> <C> <C>
Compaq Computer Corp. $8,497,000 $10,849,000 $8,058,000
Avid Technology (1) 5,653,000
IBM (2) 4,275,000 2,502,000 3,305,000
EMC and its related suppliers(2) 2,807,000 2,172,000
</TABLE>
- ----------------
(1) Less than 10% of sales for 1996.
(2) Less than 10% of sales for 1995.
Included in the sales to Compaq were sales by Techdyne (Scotland) of
$8,427,000, which accounted for 84% of the sales of Techdyne (Scotland) for
1996. Increased competition in the bidding for Compaq business has resulted in
a substantial loss of Compaq sales by Techdyne (Scotland) commencing in the
third quarter of 1996 and reduced profit margins on remaining Compaq sales.
F-7
<PAGE> 30
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 of
following:
<TABLE>
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
Finished goods $ 486,863 $ 617,851
Work in process 478,481 692,964
Raw materials and supplies 2,083,990 2,202,381
---------- ----------
$3,049,334 $3,513,196
========== ==========
</TABLE>
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. Effective January 1, 1996, the Company adopted the provisions of
FAS 121-accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. The adoption of the provisions of FAS 121 flows had
no material effect on the results of operations, financial condition or cash
flows of the Company. The Company, based on current circumstances, does not
believe any indicators of impairment are present.
Deferred Expenses
Deferred expenses, except for deferred loan 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.
F-8
<PAGE> 31
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Foreign Operations
Information relating to geographical data and foreign operations for the
years ended December 31, 1996, 1995 and 1994, included on pages 5 and 6 of Form
10-K are an integral part of these financial statements.
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. The change in the exchange rate from
$1.55 per U.K. pound at December 31, 1995 to $1.71 per U.K. pound at December
31, 1996 was reflected by a favorable change in foreign currency translation
adjustments of approximately $362,000. The exchange rate had declined to $1.60
per U.K. pound at March 19, 1997. 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, and do not require collateral.
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.
Stock-Based Compensation
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB25) and related Interpretations
in accounting for its employee stock options. Financial Accounting Standards
Board No. 123 "Accounting for Stock-Based Compensation" (FAS 123) permits a
company to elect to follow the accounting provisions of APB 25 rather than the
alternative fair value accounting provided under FAS 123 but requires pro forma
net income and earnings per share disclosures as well as various other
disclosures not required under APB 25 for companies following APB 25.
See Note 7.
Earnings per Share
Primary earnings per share for 1996 and 1995 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, and is based on weighted average shares outstanding for 1994.
Fully diluted per share data has not been presented for 1994 as it is not
dilutive. Fully diluted earnings per share for 1996 and 1995 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 for 1996 and ending market price for 1995 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.
F-9
<PAGE> 32
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 and 1994 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>
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
United Kingdom VAT tax receivable $182,508 $491,714
Other 253,850 149,418
-------- --------
$436,358 $641,132
======== ========
</TABLE>
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities is comprised as follows:
<TABLE>
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
United Kingdom VAT tax payable $299,431 $ 659,625
Other 635,796 713,009
-------- ----------
$935,227 $1,372,634
======== ==========
</TABLE>
Estimated fair value of Financial Instruments
The carrying value of cash, accounts receivable and debt in the
accompanying financial statements approximate their fair value because of the
short-term maturity of these instruments, and in the case of debt because such
instruments bear variable interest rates which approximate market.
F-10
<PAGE> 33
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
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 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 December 31, 1996 and no amounts have been drawn down on this line as
of that date.
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 approximately $691,000 at December 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.
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 approximately $167,000 at December 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.
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.
Long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
---- ----
<S> <C> <C>
Term loan secured by real property of Parent with
a carrying value of $1,035,000 at December 31,
1996. Monthly payments of principal and interest
as described above. $690,894
Term loan secured by tangible personal property,
goods and equipment with a carrying value of
approximately $3,120,000 at December 31, 1996.
Monthly payments of principal and interest as
described above. 166,764
</TABLE>
F-11
<PAGE> 34
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
NOTE 2-LONG-TERM DEBT - (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Term loan secured by receivables, inventory
and fixed assets with a carrying value of
approximately $5,402,000 at December 31,
1995. Refinanced in February 1996 as
described above. $ 549,508
Mortgage note secured by land and building
with a net book value of $941,000 at
December 31, 1996. Quarterly payments
of approximately $21,000 based on exchange
rates at December 31, 1996 for 15 years
commencing October 1994 including
interest at 2% above bank base rate. $ 622,214 590,824
Promissory note secured by two certificates of
deposit of a related company and one
certificate of deposit of the Company. A single
principal payment is due on April 21, 1997
with interest payable monthly at prime. 145,000 145,000
Other 19,428 43,421
---------- ----------
1,644,300 1,328,753
Less current portion 259,731 599,000
---------- ----------
$1,384,569 $ 729,753
========== ==========
</TABLE>
The prime rate was 8.25% as of December 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, 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. This mortgage had a
remaining balance of $622,000 at December 31, 1996 and $591,000 at December
31, 1995.
Techdyne (Scotland) has established a line of credit with a Scottish bank
with a U.S. dollar equivalency of approximately $342,000 at December 31, 1996
and had an option for additional funding which provided a total line of
$620,000 at December 31, 1995. This line of credit operates as an overdraft
facility and is secured by assets of Techdyne (Scotland) with a carrying value
of approximately $5,786,000 at December 31, 1996 and $6,602,000 at December 31,
1995, and is guaranteed by Techdyne. No amounts were outstanding under this
line of credit as of December 31, 1996 or December 31, 1995.
Other debt includes various capital lease and other financing obligations.
There were no new financing obligations for the year ended December 31, 1996,
and $13,000 and $36,000 of such obligations for the years ended December 31,
1995 and 1994, respectively.
F-12
<PAGE> 35
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
NOTE 2-LONG-TERM DEBT - (CONTINUED)
Scheduled maturities of long-term debt outstanding at December 31, 1996
are: 1997---$260,000; 1998--$102,000; 1999---$103,000; 2000---$106,000;
2001---$648,000; thereafter---$425,300. Interest payments on all of the above
debt amounted to approximately $136,000, $155,000 and $104,000 in 1996, 1995
and 1994, 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
files separate federal and state income tax returns with its income tax
liability reflected on a separate return basis.
The Company has a net operating loss carryforward of approximately
$4,906,000 at December 31, 1996 and $5,002,000 at December 31, 1995, expiring
between 2003 and 2010. Subsequent to completion of the Company's public
offering, the Company's net operating loses 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. For financial reporting
purposes a valuation allowance of $1,798,000 at December 31, 1996 and
$1,857,000 at December 31, 1995, has been recognized to offset the deferred tax
assets. Significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Deferred Tax Liabilities:
Depreciation $ 146,000 $ 223,000
Accelerated capital allowances (Scotland) 102,603 89,757
Other 27,000 25,000
----------- -----------
Total deferred tax liabilities 275,603 337,757
Deferred Tax Assets:
Inventory Obsolescence 47,000 102,000
Cost capitalized in ending inventory 32,000 19,000
Book over tax amortization 0 34,000
Accrued expenses 13,000 26,000
Other 33,000 45,000
----------- -----------
Sub-total 125,000 226,000
Net operating loss carryforward 1,846,000 1,879,000
----------- -----------
Total deferred tax assets 1,971,000 2,105,000
Valuation allowance for deferred tax assets (1,798,000) (1,857,000)
----------- -----------
Net deferred tax assets 173,000 248,000
----------- -----------
Net deferred tax liabilities $ 102,603 $ 89,757
=========== ===========
</TABLE>
F-13
<PAGE> 36
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
NOTE 3-INCOME TAXES - (CONTINUED)
For financial reporting purposes, income before income taxes includes the
following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Pretax income:
United States $ 227,813 $ 340,495 $ 153,678
Foreign 782,641 1,506,389 854,478
---------- ---------- ----------
$1,010,454 $1,846,884 $1,008,156
========== ========== ==========
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 5,000 $ 21,600 $ --
Foreign 259,270 493,286 261,564
State -- -- 956
---------- -------- ---------
$ 264,270 514,886 262,520
Deferred:
Foreign 3,476 16,680 26,756
---------- -------- -------
$ 267,746 $531,566 $289,276
========== ======== ========
</TABLE>
Techdyne (Scotland) files separate income tax returns in the United Kingdom.
The reconciliation of income tax attributable to income before income
taxes computed at the U.S. federal statutory rates to income tax expense is:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate (34%) applied
to income before income taxes $ 343,554 $627,941 $342,773
Increases (reduction) in taxes
resulting from:
State income taxes-net of federal
income tax effect -- -- 956
Benefit from NOL utilization (73,000) (94,000) (91,580)
Other (2,808) (2,375) 37,127
----------- -------- --------
$ 267,746 $531,566 $289,276
=========== ======== ========
</TABLE>
F-14
<PAGE> 37
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
NOTE 3---INCOME TAXES - (CONTINUED)
Undistributed earnings of the Company's foreign subsidiary amounted to
approximately $2,930,000 at December 31, 1996 and $2,410,000 at December 31,
1995. Those earnings are considered to be indefinitely reinvested and,
accordingly, no provision for U.S. federal and state income taxes has been
provided thereon. Upon distribution of those earnings in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes (subject to
an adjustment for foreign tax credits) and withholding taxes payable to the
various foreign countries. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable because of the complexities
associated with its hypothetical calculation; however, foreign tax credits may
be available to reduce some portion of the U.S. liability. Withholding taxes of
approximately $147,000 and $121,000 would be payable upon remittance of all
previously unremitted earnings at December 31, 1996 and December 31, 1995,
respectively.
Income tax payments were approximately $487,000, $272,000, and $20,000 in
1996, 1995 and 1994, respectfully.
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 have been 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. 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 $408,000 in 1996, 1995 and 1994.
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 note
pursuant to which $1,500,000 was repaid to the Parent upon completion of the
Company's public offering on October 2, 1995. The balance of the note
including accrued interest, which amounted to $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,
increasing its ownership interest in the Company at that time from 62.5% to
64.3%. Advances from the Parent on the balance sheet has been presented net of
an advance receivable from the Parent of approximately $540,000 at December 31,
1996 with interest at 5.7%. Interest on the net advances amounted to $140,000,
$228,000, and $160,000 in 1996, 1995 and 1994, respectively, and is included
in the net balance due the Parent.
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, reduced to $94,000 plus applicable
taxes for the one year period commencing April 1, 1996.
The Parent has agreed not to require repayment of the intercompany
advances prior to January 1, 1998 and, therefore, the advances have been
classified as long-term at December 31, 1996.
The Company manufactures certain products for the Parent. Sales of the
products were $278,000, $219,000 and $172,000 in 1996, 1995 and 1994,
respectively.
F-15
<PAGE> 38
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
NOTE 5---RELATED PARTY TRANSACTIONS
For the years ended December 31, 1996, 1995 and 1994, respectively, the
Company paid premiums of approximately $312,000, $317,000, and $263,000, for
insurance through a director and stockholder, and the relative of a director
and stockholder.
For the years ended December 31, 1996, 1995 and 1994, respectively, legal
fees of $32,000, $90,000, and $25,000 were paid to an officer of the Parent who
acts as general counsel for the Company and the Parent.
NOTE 6---COMMITMENTS AND CONTINGENCIES
Commitments
The Company has leases on several facilities including those under lease
from its Parent (See NOTE 4), which expire at various dates. The aggregate
lease commitments at December 31, 1996, including those of Techdyne (Scotland),
are approximately: 1997---$238,000, 1998---$197,000, 1999---$165,000,
2000---$35,000. Total rent expense was approximately $491,000, $483,000, and
$449,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Pursuant to completion of its public offering in October, 1995, the
Company entered into a consulting agreement with the underwriter for a term of
18 months at $3,000 per month fully paid on October 2, 1995, the completion
date of the underwriting, to provide financial consulting services pertaining
to the Company's business.
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
against its former president has been settled on terms favorable to the
Company.
NOTE 7--STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as is
discussed below, FASB Statement No 123, "Accounting for Stock Based
Compensation" (FAS 123), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense was recognized.
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 174,000 outstanding as of December 31, 1996,
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 50,700 shares were exercised during 1996 and options for 400 shares were
exercised in the fourth quarter of 1995.
F-16
<PAGE> 39
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
NOTE 7--STOCK OPTIONS--CONTINUED
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 vested
immediately 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 which vested immediately, not part
of the 1994 Plan, to its general counsel at the same price and terms as the
directors' options.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for the options issued during 1995: risk-free interest rate of
6.75%; no dividend yield; volatility factor of the expected market price of the
Company's common stock of .56% and a weighted-average expected life of the
options of 2.5 years.
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective input assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different than those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employees stock options.
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to expense over the options' vesting period. Since the options
vested immediately, the Company's pro forma disclosure recognizes expense upon
issuance of the options which would have no effect on 1996 net income. The
Company's pro forma information for the options issued in 1995 is as follows:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Pro forma net income $1,250,079
==========
Pro forma earnings per share:
Primary $ .36
==========
Fully diluted $ .30
==========
</TABLE>
A summary of the Company's stock option activity for the years ended
December 31, follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 378,400 $1.30 227,500 $1.00
Granted 152,500 1.75
Exercised (50,700) 1.00 (400) 1.00
Expired ( 1,200) 1.00 (1,200) 1.00
outstanding-end of year 326,500 1.35 378,400 1.30
======= =======
Exercisable at end of year 326,500 1.35 378,400 1.30
======= =======
Weighted-average fair value of options
granted during the year $.69
=======
</TABLE>
F-17
<PAGE> 40
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
NOTE 7--STOCK OPTIONS--CONTINUED
Exercise prices for options outstanding as of December 31, 1996 ranged
from $1.00 to $1.75. The weighted-average remaining contractual life of those
options is 2.8 years.
NOTE 8---COMMON STOCK
The Company completed a public offering of common stock and warrants on
October 2, 1995 providing it with net proceeds of approximately $3,321,000.
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 one
common share each with an exercise price of $5.00 exercisable from September
13, 1995 through September 13, 1998. The underwriter received warrants to
purchase 100,000 shares of common stock and/or 100,000 warrants exercisable
from September 13, 1996 through September 13, 2000 at $6.60 per share of common
stock and $.25 per warrant with each warrant exercisable into common stock at
$8.25 per share.
The Company has repaid $1,500,000 of its indebtedness to the Parent (see
NOTE 4) 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
Parent has conversion rights for the balance of the convertible promissory
note, representing indebtedness from the Company to the Parent, which, at
December 31, 1996 was approximately $2,998,000 including accrued interest and
is convertible at $1.75 per common share (see NOTE 4), giving the Parent 74%
beneficial ownership of the Company.
The Company has 4,225,038 shares reserved for future issuance.
NOTE 9 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following summarizes certain quarterly operating data:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
--------------------------------------------- ---------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- ------- -------- -------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $6,768 $6,147 $5,263 $5,938 $6,742 $8,700 $8,061 $6,850
Gross profit 1,035 877 769 687 1,199 1,310 1,179 880
Net income 390 129 181 43 422 514 340 39
Earnings per share:
Primary $ .09 $ .03 $ .04 $ .01 $ .14 $ .16 $ .10 $ .01
Fully diluted $ .07 $ .03 $ .03 $ .01 $ .14 $ .16 $ .08 $ .01
</TABLE>
Since the computation of earnings per share is made independently for each
quarter using the modified treasury stock method, the total of four quarters
earnings do not necessarily equal earnings per share for the year. The
Company's 1995 securities offering resulted in 1,000,000 additional shares
outstanding commencing the 4th quarter of 1995, which shares were included on
a pro rata basis in the weighted average shares for 1995.
The Company recorded the following (gains) losses which were material to
the results of the fourth quarter:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Inventory valuation and obsolescence $187 $ 74
Recovery of reserved account receivable and
reduction of allowance for doubtful accounts -- (99)
---- -----
$187 $(25)
==== =====
</TABLE>
F-18
<PAGE> 41
Schedule II - Valuation and Qualifying Accounts
Techdyne, Inc. and Subsidiary
Year Ended December 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------------------------------------------------
Additions Additions
Balance at Charged to Charged to Other Charges Balance
Beginning Cost and Other Accounts Add (Deduct) at End of
Classification of Period Expenses Describe Describe Period
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Reserves and allowances deducted
From asset accounts:
Allowance for uncollectible accounts $103,000 $ 9,380 $( 29,380)(1) $ 83,000
Reserve for inventory obsolescence 309,000 56,913 (231,913)(2) 134,000
-------- -------- -------- ---------- --------
$412,000 $ 66,293 $ 0 $(261,293) $217,000
======== ======== ======== ========== ========
YEAR ENDED DECEMBER 31, 1995:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible accounts $ 51,000 $ 73,000 $( 21,000) $103,000
Reserve for inventory obsolescence 235,000 294,860 (220,860) 309,000
-------- -------- -------- ---------- --------
$286,000 $367,860 $ 0 $(241,860) $412,000
======== ======== ======== ========== ========
YEAR ENDED DECEMBER 31, 1994:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible accounts $ 28,000 $(20,000) $ 43,000 $ 51,000
Reserve for inventory obsolescence 156,000 262,000 (183,000) 235,000
-------- -------- -------- ---------- --------
$184,000 $242,000 $ 0 $(140,000) $286,000
======== ======== ======== ========== ========
</TABLE>
- -----------------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Net write-offs against inventory reserves.
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<S> <C>
(3)(i) Articles of Incorporation (incorporated by reference
to the Company's Registration Statement on Form SB-2 dated
July 26, 1995, as amended August 21, 1995 and September 1,
1995, Registration No. 33-94998-A ("Form SB-2"), Part II, Item
27, 3(a)). *
(ii) By-Laws (incorporated by reference to the Company's Form
SB-2, Part II, Item 27, 3(b)). *
(4)(i) Form of Common Stock Certificate (incorporated by reference to
the Company's Form SB-2, Part II, Item 27, 4(a)). *
(ii) Form of Redeemable Common Stock Purchase Warrant
(incorporated by reference to the Company's Form SB-2,
Part II, Item 27, 4(b)). *
(iii) Form of Underwriter's Warrant (incorporated by reference to
the Company's Form SB-2, Part II, Item 27, 4(c)).*
(iv) Form of Warrant Agreement between the Company, Continental
Stock Transfer & Trust Co., and Joseph Dillon & Co., Inc.
(incorporated by reference to the Company's Form SB-2,
Part II, Item 27, 4(d)). *
(v) 1994 Stock Option Plan of the Company (incorporated by
reference to Medicore, Inc.'s(1) Annual Report on Form 10-K
for the year ended December 31, 1994 ("Medicore's 1994
Form 10-K"), Part IV, Item 14 (a) 3(10)(lxv)). *
(vi) Form of Stock Option Certificate under 1994 Stock Option Plan
(incorporated by reference to Medicore's(1) 1994 Form 10-K,
Part IV, Item 14 (a) 3 (10)(lxvi)) *
(vii) Form of 1995 Non-Qualified Stock Option (incorporated by
reference to Medicore's(1) 1994 Form 10-K, Part IV, Item 14
(a) 3 (10)(lxvii)). *
(10)(i) Lease Agreement between the Company and Medicore, Inc.(1)
dated July 17, 1990 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990 ("1990 Form 10-K"), Part IV,
Item 14 (a) 3 (10) (vii)). *
(ii) Lease Renewal Letter from the Company to Medicore, Inc.(1)
dated December 19, 1994 (incorporated by reference to the
Company's 1990 Form 10-K, Part IV, Item 10(b)). *
(iii) Lease Agreement between Techdyne (Houston), Inc.(2) and
George Whimpey of Texas, Inc. dated July 30, 1991
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991 ("1991 Form
10-K"), Part IV, Item 14 (a) 3 (10) (viii)). *
(iv) Assignment and Assumption Agreement between Techdyne
(Houston), Inc.(2), Medicore, Inc.(1) and George Whimpey of
Texas, Inc. dated February 28, 1992 (incorporated by
reference to the 1991 Form 10-K, Part IV, Item 14 (a) 3
(10) (ix)). *
</TABLE>
<PAGE> 43
<TABLE>
<S> <C>
(v) Lease Agreement between the Company and George Whimpey of
Texas, Inc. dated February 4, 1994 (incorporated by
reference to Medicore,(1) Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1993, Part IV, Item 14 (a) 3
(10) (xxxiv)). *
(vi) Form of Exclusive Sales Representative Agreement
(incorporated by reference to Medicore, Inc.'s (1) Annual
Report on Form 10-K for the year ended December 31, 1994
("Medicore's 1994 Form 10-K"), Part IV, Item 14 (a) 3
(10)(lxiv)), Part IV, Item 14 (a)(10)(h)). *
(vii) Employment Agreement between the Company and Barry Pardon
dated March 13, 1996(incorporated by reference to the
Company's Annual report on Form 10-K for the year ended
December 31, 1995; Part IV, Item 14(a)(10)(viii).*
(viii) Employment Agreement between Techdyne (Scotland) Ltd.(3) and
John Clark Grieve dated March 11, 1988 (incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1987, Part IV, Item 14 (a) 3 (10)
(x)). *
(ix) Guarantee of Techdyne (Scotland) Ltd.(3) Line of Credit with
Royal Bank of Scotland Plc dated March 3, 1989 (incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988, Part IV, Item 14 (a)
3 (10) (vii)) *
(x) Mortgage by Techdyne (Scotland) Ltd.(3) to the Royal Bank of
Scotland dated August 8, 1994 (incorporated by reference to
Medicore, Inc.'s(1) Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 ("Medicore June, 1994 Form
10-Q"), Part II Item 6(a)(28)(vi)). *
(xi) Agreement ("Missives") between Techdyne (Scotland) Ltd.(3)
and Livingston Development Corporation regarding Purchase by
Techdyne (Scotland) Ltd.(3) of Its Facility dated June 15,
1994 (incorporated by reference to Medicore June, 1994
Form 10-Q, Part II, Item 6(a)(28)(vii)). *
(xii) Lease Agreement between the Company and AmorRon Park, Limited
dated April 21, 1995 (incorporated by reference to the
Company's Form SB-2, Part II, Item 27, 10 (z)). *
(xiii) Promissory Note to Medicore, Inc.(1) dated April 10, 1995
(incorporated by reference to the Company's Form SB-2, Part
II, Item 27, 10 (a)(a)). *
(xiv) Rental Agreement between the Company and MMP Realty Trust
dated August 29, 1995 (incorporated by reference to the
Company's Form SB-2, Part II, Item 27, 10 (a)(d)). *
(xv) Loan and Security Agreement between the Company and Barnett
Bank of South Florida, N.A. ("Barnett Bank") for $2,000,000
dated February 8, 1996 (incorporated by reference to the
Company's Current Report on Form 8-K, dated February 23,
1996 ("February 1996 Form 8-K"), Item 7(c)(99)(i)). *
(xvi) Revolving Demand Promissory Note for $2,000,000 from the
Company to Barnett Bank dated February 8, 1996 (incorporated
by reference to February 1996 Form 8-K, Item 7(c)(99)(ii)). *
(xvii) Unconditional and Continuing Guaranty of Payment and
Performance by Medicore, Inc.(1) in favor of Barnett Bank
dated February 8, 1996 (incorporated by reference to
February 1996 Form 8-K, Item 7(c)(99)(iii)). *
</TABLE>
<PAGE> 44
<TABLE>
<S> <C>
(xviii) Subordination Agreement among Barnett Bank, the Company and
Medicore, Inc.(1) dated February 8, 1996 (incorporated by
reference to February 1996 Form 8-K, Item 7(c)(99)(iv)). *
(xix) Loan Agreement for $712,500 between the Company and Barnett
Bank dated February 8, 1996 (incorporated by reference to
February 1996 Form 8-K, Item 7(c)(99)(v)). *
(xx) Promissory Note for $712,500 from the Company to Barnett
Bank, dated February 8, 1996 (incorporated by reference to
February 1996 Form 8-K, Item 7(c)(99)(vi)). *
(xxi) Mortgage and Security Agreement between Medicore, Inc.(1) and
Barnett Bank dated February 8, 1996 (incorporated by
reference to February 1996 Form 8-K, Item 7(c)(99)(vii)). *
(xxii) Assignment of Leases, Rents and Profits by Medicore, Inc.(1)
in favor of Barnett Bank dated February 8, 1996 (incorporated
by reference to February 1996 Form 8-K, Item 7(c)(99)(viii)).
*
(xxiii) Promissory Note for $200,000 from the Company to Barnett
Bank dated February 8, 1996 (incorporated by reference to
February 1996 Form 8-K, Item 7(c)(99)(ix)). *
(xxiv) Security Agreement between the Company and Barnett Bank
dated February 8, 1996 (incorporated by reference to February
1996 Form 8-K, Item 7(c)(99)(x)).*
(xxv) Service Agreement between the Company and Medicore, Inc.(1)
dated October 25, 1996.
(11) Statement re: computation of per share earnings.
(21) Subsidiaries of the registrant.
_________________
</TABLE>
* Documents incorporated by reference not included in Exhibit Volume.
(1) PARENT OF THE COMPANY OWNING 63% OF THE COMPANY'S OUTSTANDING SHARES (74%
IF INCLUDE CONVERTIBLE PROMISSORY NOTE).
(2) SUBSIDIARY DISSOLVED IN 1992.
(3) WHOLLY-OWNED SUBSIDIARY.
(b) The Registrant filed no Current Report on Form 8-K during its fourth
fiscal quarter.
<PAGE> 1
(10)(xxv) Service Agreement between the Company and
Medicore, Inc. dated October 25, 1996.
<PAGE> 2
MEDICORE, INC.
2337 WEST 76TH STREET
HIALEAH, FLORIDA 33016
TELEPHONE (305)558-4000
FACSIMILE (305) 825-0961
October 25, 1996
Techdyne, Inc.
2230 West 77th Street
Hialeah, FLA 33016
Re: Service Agreement
Gentlemen:
This will confirm our understanding as to the services that the undersigned
, Medicore, Inc. ("Medicore") has provided and shall continue to provide to you,
Techdyne, Inc. ("Techdyne"). Techdyne hereby retains Medicore to provide certain
administrative and financial services relating to accounting, books and records,
data processing, preparation and filing of tax reports and records with respect
to the operations of Techdyne, including, but not limited to, performing the
bookkeeping and other administrative acts necessary for billings, invoicing,
maintenance of general ledgers and records for payroll and shipping, accounts
receivable and insurance, and the preparation of accounting and financial
statements for Techdyne. Medicore shall have no responsibility to advance or
make any funds available for the operations of Techdyne, nor shall Medicore or
any of its employees sign any checks, agreements, contracts or similar documents
or instruments by, for, or on behalf of Techdyne, nor shall Medicore have any
supervisory or managerial responsibilities or obligations on behalf of Techdyne
with respect to any of the records, financing or other operations of Techdyne,
all of which shall be the sole responsibility of Techdyne as more particularly
set forth below, except to the extent that such Medicore personnel are also
officers and/or directors of Techdyne and authorized by Techdyne to sign checks
for Techdyne or are otherwise employed by Techdyne in a managerial capacity; but
any act by such employee, officer or director of Techdyne, shall not be that of
Medicore, nor shall any liability for any act or omission of such person be
deemed that directed by or attributable to Medicore.
The term of this Service Agreement shall be for a period of two (2) years
from October 1, 1996 (the "Effective Date"); and provided that the party wishing
to terminate is not in default of this Agreement, such non-defaulting party
shall have the right to terminate this Agreement on sixty (60) days written
notice to the other.
In consideration for the services to be performed by Medicore as provided
herein, Techdyne agrees to and shall pay to Medicore Four Hundred Eight Thousand
($408,000) Dollars per annum payable in equal monthly installments of Thirty
Four Thousand ($34,000) Dollars with the first payment due on November 1, 1996
and thereafter each installment due on the first day of each month subsequent
thereto; provided Techdyne shall have a five (5) day grace period.
<PAGE> 3
Complete responsibility for Techdyne and its operations remain solely with
Techdyne and not that of Medicore or its employees or affiliates. This Service
Agreement and the services to be performed by Medicore are administrative and
not supervisory or managerial and are not to be construed in any manner as
providing or binding Medicore or its employees or affiliates with or to any
liability or responsibility whatsoever relating to Techdyne and its activities
and operations.
Medicore and its employees participating in this Service Agreement are
retained only for the purposes and to the extent set forth herein and its and
their relationship to Techdyne during the term of this Service Agreement shall
be that of independent contractor and nothing in this Service Agreement shall be
construed as equating any Techdyne employees or affiliates who may cooperate or
otherwise participate with Medicore employees or personnel who may otherwise be
affiliated with both Medicore and Techdyne in providing the service contemplated
herein as employees of Medicore nor shall any such Medicore employee be deemed
or equated with employees of or otherwise affiliated with Techdyne. These
employees or parties common to both Medicore and Techdyne shall be deemed acting
for the company then requiring his or her services under the circumstances and
shall not be deemed an agent or employee of the other company simply due to
their dual positions. Further, nothing herein shall be construed as establishing
a joint venture or partnership between Medicore and Techdyne. Medicore and its
employees participating in this Service Agreement are free to utilize their
entire time, energy and skill in such manner and for such purposes as they see
fit.
Medicore shall perform the services required herein from its present
facilities in Hialeah, Florida or such other locations which it now maintains or
to which it may move which it determines to best service the purposes of this
Service Agreement. Should any Medicore personnel be reasonably required to
travel to perform certain of the services contemplated herein, which travel
shall be undertaken at the option of Medicore, Techdyne will reimburse Medicore
for any out-of-pocket expenses in connection with such services and travel.
This Service Agreement shall not be assignable except with the prior
written consent of each of the parties hereto; provided, no consent shall be
required with respect to any transfer or assignment to the successor corporation
or persons resulting from a merger or consolidation or from a transfer of all or
substantially all of the assets of either party.
Any controversy or claim arising out or relating to this Service Agreement,
or the breach thereof, shall be settled by arbitration in the City of Hialeah in
accordance with the rules then obtaining of the American Arbitration
Association, and judgment upon the award rendered may be entered and enforced in
any court having jurisdiction thereof.
This Service Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their successors and assigns. Nothing in this Service
Agreement, whether express or implied, is intended to confer any rights or
remedies under or by reason of this Service Agreement to any other persons other
than the parties hereto and their respective successors and assigns, nor is
anything in this Agreement intended to relieve or discharge the obligations or
liability of any third person to any party to this Service Agreement, nor shall
any provision herein give any third person any other rights against any party to
this Service Agreement.
No waiver of the provisions hereof shall be effective unless in writing and
signed by the party to be charged with such waiver. No waiver shall be deemed a
continuing waiver or waivers in respect of any subsequent breach or default,
whether of similar or different nature unless expressly so stated in writing.
<PAGE> 4
This Service Agreement shall be construed in accordance with the laws of
the State of Florida.
If this comports with your understanding please execute a copy of this
Service Agreement.
MEDICORE, INC.
By:/s/ THOMAS K. LANGBEIN
----------------------------
THOMAS K. LANGBEIN
Chief Executive Officer
AGREED TO AND ACCEPTED BY:
TECHDYNE, INC.
By:/s/ BARRY PARDON
- -----------------------
BARRY PARDON, President
<PAGE> 1
(11) Computation of earnings per share
Techdyne, Inc. and subsidiaries
<PAGE> 2
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
TECHDYNE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 4,165,042 3,292,225 3,042,910
===========
Net effect of dilutive stock options-
based on the modified treasury stock
method using average market price 604,278 173,914
----------- ----------
4,769,320 3,466,139
=========== ==========
Net income $ 742,708 $1,315,318 $ 718,880
=========== ========== ===========
Net income per share $ .16 $ .38 $ .24
=========== ========== ===========
FULLY DILUTED
Weighted average shares outstanding 4,165,042 3,292,225
Assumed conversion of convertible
promissory note 1,762,647 1,118,386
Net effect of dilutive stock options-
based on the modified treasury stock
method using average market price in
1996 and ending market price in 1995 604,278 193,602
----------- ----------
6,531,967 4,604,213
=========== ==========
Net income $ 742,708 $1,315,318
Adjustment for interest on convertible
note 175,824 111,559
----------- ----------
$ 918,532 $1,426,877
=========== ==========
Net income per share $ .14 $ .31
=========== ==========
</TABLE>
Note: Fully diluted earnings per share data has not been presented for 1994 as
it is not dilutive.
<PAGE> 1
(21) Subsidiary of the Registrant
<PAGE> 2
Exhibit 21
<TABLE>
<CAPTION>
Percentage
Jurisdiction of Owned By
Subsidiaries Incorporation Registrant
- --------------------------- --------------- ----------
<S> <C> <C>
Techdyne (Scotland) Ltd. Scotland 100%
Techdyne Livingston Limited Scotland 100%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,924,873
<SECURITIES> 0
<RECEIVABLES> 3,106,923
<ALLOWANCES> 0
<INVENTORY> 3,049,334
<CURRENT-ASSETS> 10,546,662
<PP&E> 5,255,382
<DEPRECIATION> 2,749,339
<TOTAL-ASSETS> 13,224,196
<CURRENT-LIABILITIES> 3,950,096
<BONDS> 1,384,569
0
0
<COMMON> 42,940
<OTHER-SE> 5,125,371
<TOTAL-LIABILITY-AND-EQUITY> 13,224,196
<SALES> 24,116,018
<TOTAL-REVENUES> 24,434,180
<CGS> 20,747,534
<TOTAL-COSTS> 20,747,534
<OTHER-EXPENSES> 2,404,456
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 271,736
<INCOME-PRETAX> 1,010,454
<INCOME-TAX> 267,746
<INCOME-CONTINUING> 742,708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 742,708
<EPS-PRIMARY> .16
<EPS-DILUTED> .14
<FN>ACCOUNTS RECEIVABLE ARE NET OF AN ALLOWANCE OF
$83,000 AT DECEMBER 31, 1996.
<FN>INVENTORIES ARE NET OF RESERVE OF $134,000 AT
DECEMBER 31, 1996.
</TABLE>
