<PAGE> 1
FORM 10--Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to __________________
Commission file number 0-14659
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TECHDYNE, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-1709103
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2230 West 77th Street, Hialeah, Florida 33016
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(305) 556-9210
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] or No [ ]
Common Stock Outstanding
Common Stock, $.01 par value -- 4,321,819 shares as of April 30, 1997.
<PAGE> 2
TECHDYNE, INC. AND SUBSIDIARIES
INDEX
PART I -- FINANCIAL INFORMATION
The Consolidated Condensed Statements of Income (Unaudited) for the
three months ended March 31, 1997 and March 31, 1996 include the accounts of the
Registrant and its subsidiaries.
Item 1. Financial Statements
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1) Consolidated Condensed Statements of Income for the three
months ended March 31, 1997 and March 31, 1996.
2) Consolidated Condensed Balance Sheets as of March 31, 1997 and
December 31, 1996.
3) Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 1997 and March 31, 1996.
4) Notes to Consolidated Condensed Financial Statements as of
March 31, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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PART II -- OTHER INFORMATION
Item 5. Other Information
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Item 6. Exhibits and Reports on Form 8-K
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<PAGE> 3
PART I -- FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
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TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Sales $ 6,342,775 $ 6,768,156
Litigation settlement 139,645
Interest and other income 40,332 35,363
----------- -----------
6,383,107 6,943,164
Cost and expenses:
Cost of goods sold 5,354,842 5,733,206
Selling, general and administrative expenses 670,477 571,922
Interest expense 69,980 67,846
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6,095,299 6,372,974
----------- -----------
Income before income taxes 287,808 570,190
Income tax (benefit) provision (47,514) 179,927
----------- -----------
Net income $ 335,322 $ 390,263
=========== ===========
Earnings per share:
Primary $ .07 $ .09
=========== ===========
Fully diluted $ .06 $ .07
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996(A)
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,054,923 $ 3,924,873
Restricted cash 29,887 29,174
Accounts receivable, less allowances of $75,000 at
March 31, 1997 and $83,000 at December 31, 1996 4,033,729 3,106,923
Inventories, less allowances for obsolescence of $143,000
at March 31, 1997 and $134,000 at December 31, 1996 3,654,646 3,049,334
Prepaid expenses and other current assets 349,121 436,358
------------ ------------
Total current assets 11,122,306 10,546,662
Property and Equipment:
Land and improvements 196,800 205,200
Buildings and building improvements 829,202 864,595
Machinery and equipment 3,353,777 3,273,875
Tools and dies 819,802 817,593
Leasehold improvements 109,083 94,119
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5,308,664 5,255,382
Less accumulated depreciation 2,811,707 2,749,339
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2,496,957 2,506,043
Deferred expenses and other assets 79,123 124,313
Costs in excess of net tangible assets acquired, less
accumulated amortization of $45,048 at March 31, 1997
and $44,000 at December 31, 1996 46,086 47,178
------------ ------------
$ 13,744,472 $ 13,224,196
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,710,150 $ 2,457,563
Accrued expenses 809,348 935,227
Current portion of long-term debt 109,464 259,731
Income taxes payable 236,989 297,575
------------ ------------
Total current liabilities 3,865,951 3,950,096
Deferred gain on sale of real estate 161,047 161,047
Deferred income taxes 99,387 102,603
Long-term debt, less current portion 1,478,608 1,384,569
Advances from parent 2,658,114 2,457,570
Commitments and Contingencies
Stockholder's Equity
Common stock, $.01 par value, authorized 10,000,000
shares: issued and outstanding 4,321,819 shares at
March 31, 1997; 4,294,019 shares at December 31, 1996 43,218 42,940
Capital in excess of par value 7,682,421 7,551,774
Deficit (2,195,845) (2,531,167)
Foreign currency translation adjustments (48,429) 104,764
------------ ------------
Total stockholders' equity 5,481,365 5,168,311
------------ ------------
$ 13,744,472 $ 13,224,196
============ ============
</TABLE>
(A) Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 filed with the Securities and Exchange Commission
in March 1997.
See notes to consolidated condensed financial statements.
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TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
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<S> <C> <C>
Operating activities:
Net income $ 335,322 $ 390,263
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 92,128 88,044
Amortization 4,058 3,384
Provision for inventory obsolescence 20,881 72,550
Deferred income taxes 978
Increase (decrease) relating to operating activities
from:
Accounts receivable (954,302) (55,834)
Inventories (659,414) 347,018
Prepaid expenses and other current assets 77,828 173,907
Accounts payable 276,028 (553,747)
Accrued expenses (107,153) (197,745)
Income taxes payable (48,258) 175,346
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Net cash (used in) provided by operating activities (961,904) 443,186
Investing activities:
Additions to property and equipment, net of minor
disposals (149,880) (63,166)
Proceeds from restricted cash 29,174 27,801
Restricted cash (29,887) (28,493)
Deferred expenses and other assets 57,036 (23,901)
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Net cash used in investing activities (93,557) (87,759)
Financing activities:
Proceeds from long-term borrowings 181,476
Payments on long-term debt (30,709) (61,431)
Exercise of stock options and warrants 130,925
Increase (decrease) in advances from parent 200,544 (13,874)
Deferred financing costs (13,502) (13,616)
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Net cash provided by financing activities 287,258 92,555
Effect of exchange rate fluctuations on cash (101,747) (17,477)
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(Decrease) increase in cash and cash equivalents (869,950) 430,505
Cash and cash equivalents at beginning of year 3,924,873 3,131,540
----------- -----------
Cash and cash equivalents at end of period $ 3,054,923 $ 3,562,045
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 6
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Techdyne,
Inc. ("Techdyne") and its subsidiaries, Techdyne (Scotland) Limited ("Techdyne
(Scotland)"), and Techdyne Livingston Limited which is a subsidiary of
Techdyne (Scotland), collectively referred to as the "Company." All material
intercompany accounts and transactions have been eliminated in consolidation.
The Company is a 63.1% owned subsidiary of Medicore, Inc. (the "Parent"). See
Notes 5 and 8.
MAJOR CUSTOMERS
A majority of the Company's sales are to certain major customers. The
loss of or substantially reduced sales to any of these customers would have an
adverse effect on the Company's operations.
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.
Techdyne (Scotland) is pursuing cost reduction and new business development
efforts to attempt to make up for reductions in Compaq business, although there
can be no assurance as to the success of such efforts.
INVENTORIES
Inventories are comprised as follows:
March 31, December 31,
1997 1996
--------- ------------
Finished goods $ 436,356 $ 486,863
Work in process 745,149 478,481
Raw materials and supplies 2,473,141 2,083,990
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$3,654,646 $3,049,334
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RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial
statements to conform to the 1997 presentation.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets is comprised as follows:
March 31, December 31,
1997 1996
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United Kingdom VAT tax receivable $166,290 $182,508
Other 182,831 253,850
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$349,121 $436,358
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<PAGE> 7
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
ACCRUED EXPENSES
Accrued expenses is comprised as follows:
March 31, December 31,
1997 1996
--------- ------------
United Kingdom VAT tax payable $244,113 $299,431
Other 565,235 635,796
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$809,348 $935,227
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NOTE 2--INTERIM ADJUSTMENTS
The financial summaries for the three months ended March 31, 1997 and
March 31, 1996 are unaudited and include, in the opinion of management of the
Company, all adjustments (consisting of normal recurring accruals) necessary to
present fairly the earnings for such periods. Operating results for the three
months ended March 31, 1997 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1997.
While the Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these Consolidated
Condensed Financial Statements be read in conjunction with the financial
statements and notes included in the Company's latest annual report for the year
ended December 31, 1996.
NOTE 3 -- LONG-TERM DEBT
On February 8, 1996, the Company refinanced its term loan by entering
into 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
March 31, 1997 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 $684,000 and $691,000 at March 31, 1997 and December 31,
1996, respectively, 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 $157,000 and $167,000 at March 31, 1997 and December
31, 1996, respectively, 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.
<PAGE> 8
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
(UNAUDITED)
NOTE 3 --LONG-TERM DEBT -- (CONTINUED)
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 was reflected as a
reduction in the intercompany advances due the Parent, both of which represent
non-cash financing activities which is a supplemental disclosure required by FAS
95.
The Parent has unconditionally guaranteed the payment and performance
by the Company of the $2,000,000 revolving loan and the two commercial term
loans.
A default of the $712,500 term loan will be deemed a default of the
$2,000,000 revolving line, but only a financial default of the $2,000,000
revolving line will be deemed a default of the $712,500 term loan.
The Company has a promissory note payable to a local bank of $145,000
at March 31, 1997 and December 31, 1996, with interest payable monthly at prime
with the note maturing April 1997. This note is secured by 2 certificates of
deposit of a related company and one certificate of deposit of the Company. This
note is being renewed for 3 years until April 1997 with the same terms.
The prime rate was 8.50% as of March 31, 1997 and 8.25% as of December
31, 1996.
In October 1994, Techdyne (Scotland) finalized the purchase of the
facility which houses it's operations at a cost of approximately $730,000. The
principal balance outstanding under this mortgage had a U.S. dollar equivalency
of approximately $589,000 and $622,000 at March 31, 1997 and December 31, 1996,
respectively.
Techdyne (Scotland) has a line of credit with a Scottish bank with a
U.S. dollar equivalency of approximately $328,000 and $342,000 at March 31, 1997
and December 31, 1996, respectively. No amounts were outstanding under this line
of credit as of March 31, 1997 or December 31, 1996.
The Company's other debt includes various capital lease and other
financing obligations. These financing obligations represent a noncash financing
activity which is a supplemental disclosure required by FAS 95.
Interest payments on long-term debt amounted to approximately $36,000
for the three months ended March 31, 1997 and $31,000 for the same period of the
preceding year.
NOTE 4 -- INCOME TAXES
Subsequent to the completion of the Company's public offering on
October 2, 1996, the Company files separate federal and state income tax returns
with its income tax liability reflected on a separate return basis and its net
operating losses can only be used to offset its taxable income and cannot be
utilized in the consolidated federal and state income tax returns of the Parent
as was done previously.
The Company had a net operating loss carryforward of approximately
$4,400,000 at March 31, 1997 and $4,906,000 at December 31, 1996, expiring
between 2003 and 2010.
<PAGE> 9
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
(UNAUDITED)
NOTE 4 -- INCOME TAXES -- (CONTINUED)
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred tax
liabilities, which total approximately $200,000 result primarily from tax over
book depreciation and are more than offset by deferred tax assets. Deferred tax
assets of approximately $1,800,000 result primarily from the net operating loss
carryforwards noted above which result in related deferred tax assets of
approximately $1,700,000 and include differences in book and tax bases of
receivables and inventory and other temporary differences which result in
related deferred tax assets of approximately $100,000. Deferred tax assets have
not been reflected in the financial statements as a result of their being offset
by a valuation allowance of approximately $1,600,000 at March 31, 1997 and
$1,800,000 at December 31, 1996.
The Company had domestic income tax expense of approximately $9,000 for
the three months ended March 31, 1997 and $4,000 for the same period of the
preceding year.
Techdyne (Scotland) had an income tax benefit of approximately $57,000
for the three months ended March 31, 1997 and income tax expense of
approximately $176,000 for the same period of the preceding year.
There were no income tax payments for the three months ended March 31,
1997 or for the same period of the preceding year.
NOTE 5 -- TRANSACTIONS WITH PARENT
The Parent provides certain administrative services to the Company
including office space and general accounting assistance. These expenses and all
other central operating costs have been charged on the basis of direct usage
when identifiable or on the basis of time spent. 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
$102,000 for the three months ended March 31, 1997 and for the same period of
the preceding year.
The advances from Parent bore interest at the short-term Treasury bill
rate until April 10, 1996 and interest at 5.7% from that date. As of April 10,
1996, the advances were formalized into a demand convertible promissory note
pursuant to which $1,500,000 was repaid to the Parent upon completion of
Company's public offering on October 2, 1996. The balance of the note including
accrued interest, which amounted to $3,040,000 at March 31, 1997 and $2,998,000
at December 31, 1996, may be converted into common stock of the Company at the
option of the Parent at a conversion price of $1.75 per share. The Parent
converted $350,000 of this note into 200,000 shares of the Company's common
stock in June 1996. Advances from the Parent on the balance sheet has been
presented net of an advance receivable from the Parent of approximately $382,000
at March 31, 1997 and $540,000 at December 31, 1996 with interest at 5.7%.
Interest on the net advances amounted to $36,000 and $37,000 for the three
months ended March 31, 1997 and March 31, 1996, respectively. The Parent has
agreed not to require repayment of the intercompany advances prior to April 1,
1998 and, therefore the advances have been classified as long-term at March 31,
1997.
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.
<PAGE> 10
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
(UNAUDITED)
NOTE 5 -- TRANSACTIONS WITH PARENT--CONTINUED
The Company manufactures certain products for the Parent. Sales of the
products were $52,000 and $72,000 for the three months ended March 31, 1997 and
March 31, 1996, respectively.
NOTE 6 -- CONTINGENCIES
In the first quarter of 1996, a temporary worker provided by a
temporary personnel agency was injured while working at the Company. The worker
was insured through the temporary personnel agency. While the full extent of the
temporary worker's injuries and the ultimate costs associated with those
injuries are not presently known, the Company anticipates that its insurance is
adequate to cover any potential claims which might arise.
A litigation initiated by the Company in 1994 in the Florida courts was
settled on terms favorable to the Company in the first quarter of 1996.
NOTE 7 -- STOCK OPTIONS
In May 1994, the Company adopted a stock option plan for up to 250,000
options. Pursuant to this plan, in May 1994, the Board of Directors granted
227,500 options, of which there are 171,600 outstanding as of March 31, 1997, to
certain of its officers, directors, employees and consultants. These options are
exercisable for a period of five years at $1 per share. Options for 400 shares
were exercised in the fourth quarter of 1995, options for 50,700 shares were
exercised in 1996, and options for 300 shares were exercised in the first
quarter of 1997.
On February 27, 1996 the Company granted stock options, not part of the
1994 Plan, to directors of Techdyne and its subsidiaries for 142,500 shares
exercisable at $1.75 per share for five years. In April 1996, the Company
granted a stock option for 10,000 shares, not part of the 1994 Plan, to its
general counsel at the same price and terms as the directors' options.
NOTE 8 -- COMMON STOCK
The Company completed a public offering of common stock and warrants on
October 2, 1995. Pursuant to the offering 1,000,000 shares of common stock were
issued, as well as 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. During the first quarter of 1997,
approximately 28,000 warrants were exercised resulting in proceeds of
approximately $131,000, net of underwriter commissions on the warrant exercises.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- of Operations
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The statements contained in this Quarterly Report on Form 10-Q that are
not historical are forward looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, intentions,
beliefs, or strategies regarding the future. Forward looking statements include
the Company's statements regarding liquidity, anticipated cash needs and
availability, and anticipated expense levels in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" including the pursuit
of new business to replace lost sales from major customers in 1996 and the
development of new products and facilities. All forward looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward looking statement. It is important to note that the Company's actual
results could differ materially from those in such forward looking statements.
Among the factors that could cause actual results to differ materially are the
factors detailed in the risks discussed in the "Risk Factors" section included
in the Company's Registration Statement, Form 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.
The Company's future growth as an international contract manufacturer
of precision electronic, electro-mechanical and plastic insert and injection
molded products for OEMs in the data processing, telecommunication and
instrumentation industries, will be influenced by several factors including
technological developments, the ability of the Company to efficiently meet the
design and production requirements of its customers, and the market acceptance
of its customers' products. Further factors impacting the success of the
Company's operations are increases in expenses associated with continued sales
growth, the ability of the Company to control costs, management's ability to
evaluate new orders to target satisfactory profit margins, the capacity of the
Company to develop and manage the introduction of new products, and competition.
Quality control is also essential to the Company's operations, since customers
demand strict compliance with design and product specifications. Any adverse
change in the Company's excellent quality and process controls could adversely
affect its relationship with customers and ultimately its revenues and
profitability.
RESULTS OF OPERATIONS
Consolidated revenues decreased approximately $560,000 (8%) for the
three months ended March 31, 1997 compared to the same period of the preceding
year which included a $425,000 (6%) decrease in sales revenues. Domestic sales
revenues increased $1,772,000 (56%) and European-based sales revenues decreased
$2,197,000 (61%) for the three months ended March 31, 1997 compared to the same
period of the preceding year. Interest and other income decreased approximately
$5,000, with prior year revenues also including approximately $140,000 from a
litigation settlement.
The decrease in European-based sales was largely attributable to a
decrease of $2,375,000 (75%) 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 55% of the sales of Techdyne
(Scotland) for the three months ended March 31, 1997 and 88% for the same period
of the preceding year. The bidding for Compaq orders has become more competitive
which has resulted in substantially reduced Compaq sales and lower profit
margins on remaining Compaq sales. Techdyne (Scotland) is pursuing new business
development and is also continuing cost reduction efforts to remain competitive
on Compaq business. However, there can be no assurance as to the success of such
efforts.
Approximately 73% of the Company's consolidated sales for the three
months ended March 31, 1997 were made to four customers. Customers generating in
excess of 10% of sales included Compaq (12%), IBM (29%), EMC and its related
suppliers (21%) and Motorola (11%). The loss of, or substantially reduced sales
to any of these customers, as has occurred with Compaq in Europe commencing in
the third quarter of 1996, would have an adverse effect on the Company's
operations.
<PAGE> 12
RESULTS OF OPERATIONS--CONTINUED
Cost of goods sold as a percentage of sales remained relatively stable,
decreasing to 84% for the three months ended March 31, 1997 compared to 85% for
the same period of the preceding year.
Selling general and administrative expenses, increased approximately
$99,000 for the three months ended March 31, 1997 compared to the same period of
the preceding year which includes approximately $59,000 related to the Company's
Austin, Texas facility which has substantially increased it operations.
Interest expense increased by approximately $2,000 for the three months
ended March 31, 1997 compared to the same period of the preceding year. The
prime rate was 8.5% at a March 31, 1997 and 8.25% at December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $7,256,000 at March 31, 1997 increasing
$660,000 (10%) during the first quarter of 1997. This increase included a
substantial reduction in current debt as a result of the Company extending a
$145,000 bank note payable due April 1997 for an additional 3 years with the
change in other components of working capital resulting primarily from increased
sales levels compared to the prior quarter.
Included in the changes in components of working capital was a decrease
of $870,000 in cash and cash equivalents, which included net cash used in
operating activities of $962,000, net cash used in investing activities of
$94,000 (including $150,000 from additions to property plant and equipment) and
net cash provided by financing activities of $287,000 (including net proceeds
from common stock purchase warrants exercised of approximately $131,000,
payments on long-term debt of $31,000 and a net increase in advances from the
Parent of $201,000).
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 March 31, 1997, and no amounts have been drawn down on this
line. A $712,500 term loan, which had a remaining principal balance of $684,000
and $691,000 at March 31, 1997 and December 31, 1996, respectively, is secured
by two buildings and land owned by the Parent. The second term loan for
$200,000, which had a remaining principal balance of $157,000 and $167,000 at
March 31, 1997 and December 31, 1996, respectively, is secured by the Company's
tangible personal property, goods and equipment. The Parent has guaranteed these
loans and has subordinated $2,500,000 due from the Company, provided that the
Company may make payments to the Parent on this subordinated debt from funds
from the Company's security offering and from earnings. The Company has further
agreed that in the event that it should sell its interest in Techdyne
(Scotland), which is not anticipated, 50% of the selling price would be used to
repay the $712,500 term loan facility. See Note 2 to "Notes to Consolidated
Condensed Financial Statements." The Company 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 with a renewal of the present note maturing April,
2000. Techdyne (Scotland) has a line of credit with a Scottish bank, with a U.S.
dollar equivalency of approximately $328,000 and $342,000 at March 31, 1997 and
December 31, 1996, respectively, which is secured by the assets of Techdyne
(Scotland) and guaranteed by the Company. This line of credit operates as an
overdraft facility. No amounts were outstanding under this line of credit as of
March 31, 1997 or December 31, 1996.
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 $589,000 and $622,000 at March 31, 1997
and December 31, 1996, 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.
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES--CONTINUED
The Company is in the process of establishing a new manufacturing
facility in Milford, Massachusetts with the facility having an initial 5 year
lease term with the Company's occupancy commencing in late April 1997. This
facility is intended to assist in meeting increased customer demand in the
Northeastern United States, as well as to increase service levels to customers
in the Northeast and to penetrate new markets. The Company is also planning to
increase its manufacturing capacity at its Houston and Austin, Texas facilities
to meet increased customer demand in the Southwestern United States. Most of the
costs related to its new facility, including leasehold improvements, equipment
and furniture and fixtures, and the costs of expansion of existing facilities
will be provided from the proceeds from the Company's 1995 security offering
which, together with the Company's refinanced credit facilities, should be
adequate for these expenditures required over the next 12 months.
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.
<PAGE> 14
PART II -- OTHER INFORMATION
----------------------------
Item 5. Other Information
- ------- -----------------
On March 25, 1997 the Company executed a five year lease for
approximately 5,500 square feet for manufacturing and related office and
administrative functions in Milford, Massachusetts. The lease is a net, net
lease, with the basic rent being $33,600 per annum the first two years and
escalating to $37,200 per annum the third and fourth years and escalating to
$38,400 for the fifth year of the lease. The Company is also responsible for
its proportionate share of common area maintenance expenses, real estate taxes,
and for all the utilities it consumes. There is an option to renew the lease
for five additional years.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
Part I Exhibits
(11) Statements re: computation of per share earnings
Part II Exhibits
(10) Material contracts
(i) Lease agreement between the Company and Route 495
Commerce Park Limited Partnership dated March 25,
1997.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
March 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Techdyne, Inc.
By /s/ Daniel R. Ouzts
---------------------------------
DANIEL R. OUZTS, Vice President/
Finance, Controller and Principal
Financial Officer
Dated: May 7, 1997
<PAGE> 15
EXHIBIT INDEX
Exhibit
No.
- -------
Part I Exhibits
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
Part II Exhibits
(10) Material contracts
(i) Lease agreement between the Company and Route 495 Commerce
Park Limited Partnership dated March 25, 1997.
<PAGE> 1
TECHDYNE, INC. AND SUBSIDIARIES
EXHIBIT 11 -- COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
PRIMARY
Weighted average shares outstanding 4,298,315 4,043,419
Net effect of dilutive stock options-based on the modified
treasury stock method 562,136 670,936
---------- ----------
4,860,451 4,714,355
========== ==========
Net income $ 335,322 $ 390,263
Interest expense reduction from application of assumed proceeds
from exercise of options and warrants in excess of 20%
limitation as per modified treasury stock method 2,854 12,632
---------- ----------
$ 338,176 $ 402,895
========== ==========
Net income per share $ .07 $ .09
========== ==========
FULLY DILUTED
Weighted average shares outstanding 4,298,315 4,043,419
Assumed conversion of convertible promissory note 1,725,067 1,404,122
Net effect of dilutive stock options-based on the modified
treasury stock method 583,927 670,936
---------- ----------
6,607,309 6,118,477
========== ==========
Net income $ 335,322 $ 390,263
Adjustment for interest on convertible note 43,019 34,919
Interest expense reduction per modified treasury stock method 12,632
---------- ----------
$ 378,341 $ 437,814
========== ==========
Net income per share $ .06 $ .07
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,054,923
<SECURITIES> 0
<RECEIVABLES> 4,033,729<F1>
<ALLOWANCES> 0
<INVENTORY> 3,654,646<F2>
<CURRENT-ASSETS> 11,122,306
<PP&E> 5,308,664
<DEPRECIATION> 2,811,707
<TOTAL-ASSETS> 13,744,472
<CURRENT-LIABILITIES> 3,865,951
<BONDS> 1,478,608
0
0
<COMMON> 43,218
<OTHER-SE> 5,438,147
<TOTAL-LIABILITY-AND-EQUITY> 13,744,472
<SALES> 6,342,775
<TOTAL-REVENUES> 6,383,107
<CGS> 5,354,842
<TOTAL-COSTS> 5,354,842
<OTHER-EXPENSES> 670,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,980
<INCOME-PRETAX> 287,808
<INCOME-TAX> (47,514)
<INCOME-CONTINUING> 335,322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 335,322
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
<FN>
<F1>ACCOUNTS RECEIVABLE ARE NET OF AN ALLOWANCE OF $75,000 AT MARCH 31, 1997.
<F2>INVENTORIES ARE NET OF RESERVE OF $143,000 AT MARCH 31, 1997.
</FN>
</TABLE>
