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, 1997
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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
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Commission file number 0-14659
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TECHDYNE, INC.
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(Name of small business issuer in its charter)
FLORIDA 59-1709103
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2230 W. 77TH STREET, HIALEAH, FLORIDA 33016
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (305) 556-9210
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Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Act:
Title of each class
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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
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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 4, 1998 was approximately $8,615,000.
As of March 4, 1998 the Company had 5,135,167 outstanding shares of
its common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Information
Statement in connection with the Registrant's Annual Meeting of Share-
holders to be held on Wednesday, June 10, 1998.
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.
Registrant's Registration Statement on Form S-3 dated December 11,
1996, Registration No. 333-15371, Part II, Item 16, Exhibits.
Annual Report, Forms 10-K, for the year ended December 31, 1995,
Part IV, Exhibits.
Annual Reports for Registrant's Parent, Medicore, Inc., Forms 10-K
for the year ended December 31, 1994, Part IV, Exhibits.
<PAGE>
TECHDYNE, INC.
Index to Annual Report on Form 10-K
Year Ended December 31, 1997
Page
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PART I
Item 1. Business................................................... 1
Item 2. Properties................................................. 12
Item 3. Legal Proceedings.......................................... 13
Item 4. Submission of Matters to a Vote of Security Holders........ 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 13
Item 6. Selected Financial Data.................................... 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 14
Item 8. Financial Statements and Supplementary Data................ 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................ 22
PART III
Item 10. Directors and Executive Officers of the Registrant......... 23
Item 11. Executive Compensation..................................... 24
Item 12. Security Ownership of Certain Beneficial
Owners and Management...................................... 24
Item 13. Certain Relationships and Related Transactions............. 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................................ 24
<PAGE>
Part I
Item 1. Business
Techdyne, Inc. is an international contract manufacturer of electronic
and electro-mechanical products, primarily manufactured to customer
specifications and designed for original equipment manufacturers ("OEMs")
and distributors in the data processing, telecommunications, instrumentation
and food preparation equipment industries. Custom-designed products pri-
marily include conventional and molded cables and wire harnesses, and
complex printed circuit boards ("PCBs") and electro-mechanical assemblies.
The Company also provides OEMs with value-added, turnkey contract manu-
facturing services and total systems assembly and integration. The
Company also delivers manufacturing and test engineering services and
materials management, with flexible and service-oriented manufacturing
and assembly services for its customers' high-tech and rapidly changing
products.
Approximately 79% of sales are domestic and 21% 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 500 companies.
Services and products are marketed through an in-house sales/marketing
staff of 17 persons, in conjunction with approximately six independent
manufacturer's sales representative firms with approximately 27 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 70% with its convertible promissory
note). See "Security Ownership of Certain Beneficial Owners and Manage-
ment" and "Certain Relations and Related Transactions" of the Company's
Information Statement relating to the Annual Meeting of Shareholders to
be held on Wednesday, June 10, 1998 ("Information Statement"), 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 "Techdyne" or 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.
Electronic Manufacturing Industry
In recent years, the electronic contract manufacturing industry has
exhibited substantial growth. The Company believes this growth has resulted
from a vastly increased number of OEMs adopting an external manufacturing
philosophy coupled with the growth of the electronics industry. This
philosophy is motivated by the increased capital necessary to acquire
modern, highly automated manufacturing equipment for the OEMs to access
leading manufacturing technologies and capabilities, to reduce inventory,
and to realize the cost benefits of the improved purchasing power, labor
efficiency and overall cost benefits of contract manufacturers. The
Company believes that many OEMs view contract manufacturers as an integral
part of their manufacturing strategy. Using outsourcing for their manu-
facturing of electronic assemblies also enables OEMs to focus on product
development, reduce working capital requirements, improve inventory
management and marketability. OEMs are looking more to contract manu-
facturers, like Techdyne, to provide a broader scope of value-added
services,
<PAGE> 1
including manufacturing engineering and test services. OEMs rely on
contract manufacturers not only for partial component assemblies but
complete turnkey manufacturing of entire finished products. Techdyne
assists its customers from initial design and engineering through
materials procurement, to manufacturing of the complete product and
testing. Greater efficiencies are obtained by OEMs through "concurrent
engineering" which gives contract manufacturers greater impact in product
design, component selection, production methods and the preparation of
assembly drawings and test schematics. This also gives the customer the
ability to draw upon Techdyne's manufacturing expertise at the outset and
minimize manufacturing bottlenecks.
Another factor which leads OEMs to utilize contract manufacturers is
reduced time-to-market. Due to intense competition in the electronics
industry, OEMs are faced with increasingly shorter product life-cycles
which pressures OEMs to reduce time constraints in bringing a product to
market. This can be accomplished by using a contract manufacturer's
established manufacturing expertise with its sophisticated, technically
advanced and automated manufacturing processes. This, coupled with the
elements discussed above, such as reduced production costs through
economies of scale in materials procurement, improved inventory manage-
ment, access to the Company's manufacturing technology, engineering,
testing and related expertise, motivates OEMs to work with electronic
contract manufacturers.
Business Strategy
In response to industry trends for OEMs to rely more on contract
manufacturers in order to reduce capital investment, and focus on product
development and marketing, the Company's objective is to become a stronger
competitive force and provider of electronic contract manufacturing
services for OEM customers, particularly in view of constantly changing
and improving technology and therefore, shorter product life cycles. The
Company will continue to seek to develop strong, long-term alliances with
major-growth OEMs of complex, market leading products. The Company
believes that creating and maintaining long-term relationships with
customers requires providing high quality, cost-effective manufacturing
services marked by a high degree of customer responsiveness and flexibility.
Management is seeking to concentrate on high value-added products and
services for leading OEMs. The Company focuses on leading manufacturers
of advanced electronic products that generally require custom-designed,
more complex interconnect products and short lead-time manufacturing
services.
The Company plans to build on its integrated manufacturing capabili-
ties, final system assemblies and testing. In addition to PCBs, the
Company's custom cable assembly capabilities provide it with further
opportunities to leverage its vertical integration and to provide
greater value added and be more competitive. In addition, vertical
integration provides it with greater control over quality, delivery and
cost.
The Company has significantly expanded its manufacturing facilities.
In March, 1997, it executed a five year lease for 5,500 square feet of
manufacturing and office space in Milford, Massachusetts. Cables,
harnesses and to a lesser extent PCBs are manufactured at this new
facility. In April, 1997, the Company entered into two leases for its
manufacturing facilities in Texas. One lease is for 18,225 square feet
in Austin, Texas which tripled its existing manufacturing space in that
area, and the second lease is for 15,000 square feet of space in Houston,
Texas, also expanding on its manufacturing and warehousing facility at
that location. These facilities have greatly expanded the Company's
manufacturing capabilities and provide the Company with operations in
key geographic markets for its electronic industry customers. Management
intends to continue to opportunistically
<PAGE> 2
pursue further expansion in other markets to better serve existing
customers and obtain additional new customers.
Management has also successfully pursued business acquisition
opportunities. In July, 1997, Techdyne acquired Lytton Incorporated
("Lytton"), a private company engaged in the manufacture, assembly and
sale of complex PCBs and other electronic products for over 40 major
commercial customers. Lytton is located in Dayton, Ohio, providing the
Company with a new geographic and end user market. The Lytton acquisition
complemented the Company's operations and continued the business strategy
of the Company by expanding its customer base, broadening its product line,
entering a new geographic area, enhancing its manufacturing capabilities,
and enabling the Company to better serve the combined existing customer
base with enhanced product choices with opportunities to further attract
new customers.
To satisfy customer needs, the Company seeks to develop long-term
customer relationships by using its state-of-the-art technology to provide
timely and quick-turnaround manufacturing and comprehensive support for
materials purchases and inventory control. Through its EDI (electronic
data interchange), the customer is able to convey its inventory and
product needs on a weekly basis based on a rolling quantity forecast.
More emphasis is placed on value-added turnkey business for the manu-
facture of complete finished assemblies. This is accomplished with
extended technology, continuous improvement of its processes, and the
Company's early involvement in the design process using its computer-
aided design ("CAD") system.
The Company is improving its material acquisition process in an attempt
to better its purchasing power by identifying materials used across customer
lines. In 1998, the Company will begin to update its material requirements
planning ("MRP") system utilizing Visual Manufacturing software. The Visual
Manufacturing software should also solve the "year 2000" issue for the
Company. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Management is also attempting to
consolidate vendors to achieve better purchasing power. The Company
believes these efforts will provide it with better leverage in material
pricing and permit the Company to be more competitive when bidding for
manufacturing work and turnkey business. The Company is also attempting
to better track actual costs against customer quotes which will better
allow it to control costs and more accurately manage its operating margins.
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 over 100 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.
Techdyne offers a wide range of custom manufactured cable and harness
assemblies for molded and mechanical applications. These assemblies
include multiconductor, ribbon, co-axial cable assemblies, and discrete
wire harness assemblies. The Company uses advanced manufacturing
processes, in-line inspection and computer testing. The cable and
harness assemblies use automated and semi-automated
<PAGE> 3
processes. Techdyne tests all of its cable and harness assemblies with
computerized automated test equipment.
The Company maintains a large assortment of standard tooling for D-Sub-
miniature ("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. In 1997, the
Company also tooled the now popular SCSI III and .8mm SCSI over-molds.
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.
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 62% of the total sales revenue for 1997.
Printed Circuit Boards
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 pin-through-hole
("PTH") assemblies, low and medium volume surface mount technology ("SMT")
assemblies, and mixed technology PCBs, which include multilayer PCBs.
PTH assembly involves inserting electronic components with pins or
leads through pre-drilled holes in a PCB and soldering the pins to the
electrical circuit.
In SMT production, electronic components are attached and soldered
directly onto the surface of a circuit board rather than inserted through
holes. SMT components are smaller, can be spaced more closely together
and, unlike PTH components, can be placed on both sides of a PCB. This
allows for product miniaturization, while enhancing the electronic
properties of the circuit. SMT manufacturing requires substantial
capital investment in expensive, automated production equipment which
requires high usage. Techdyne has computerized testing for substantially
all of its PCBs to verify that components have been installed properly
and meet certain functional standards, that the electrical circuits have
been properly completed, and that the PCB assembly will perform its
intended functions.
Techdyne also produces multilayer PCBs. These PCBs consist of three
or more layers of a PCB laminated together and interconnected by plated-
through holes. Multilayer PCBs consist of metallic interconnecting paths
on a non-conductive material, typically laminated epoxy glass. Holes
drilled in the laminate and plated through with conductive material from
one surface to another, called plated-through holes, are used to receive
component leads and to interconnect the circuit layers. Multilayer boards
increase packaging density, improve power and ground distribution, and
permit the use of higher speed circuitry. The development of electronic
components with increased speed, higher performance and smaller size has
stimulated a demand for multilayer PCBs, as they provide increased
reliability, density and complexity. Since even the most sophisticated
two-sided PCB cannot meet the requirements of today's circuit designers
for packaging density, an increasing number of designs use multilayer
technology.
<PAGE> 4
Fiscal 1996 reflected sales revenues of approximately 8% derived from
PCBs. In July, 1997, the Company acquired Lytton, whose operations, with
six automated lines, are more focused on PCB manufacturing, primarily for
the food preparation equipment industry. Techdyne also established a new
5,500 square foot manufacturing facility in Massachusetts, in addition
to Lytton's Ohio operations. These 1997 expansions have resulted in PCB
manufacturing to have yielded approximately 32% of the Company's sales
revenues in 1997.
Contract Manufacturing
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 CAD system, engineering and
supply procurement. Techdyne develops manufacturing processes and tooling
and test sequences for new products of its customers. It also provides
design and engineering services in the early stages of product development
thereby assuring mechanical and electrical considerations are integrated
with a total system. Alternatively, the customer may provide specifica-
tions 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.
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 re-
furbishing together amounted to approximately 6% of sales for 1997.
Management believes that PCB sales and contract manufacturing will
provide the Company with substantial increases in revenues in the next
few years.
Manufacturing
Components and products are custom designed and developed to fit
specific customer requirements and specifications. Techdyne attempts
to develop a "partnership" relationship with many of its customers by
providing a responsive, flexible, total manufacturing service. Such
service includes computer integrated manufacturing and engineering
services, quick-turnaround manufacturing and prototype development,
materials procurement, inventory management, developing manufacturing
processes for that particular customer and its needs, tooling and test
sequences for new products from product designs received from its
customers or developed by Techdyne from customer requirements. The
Company's industrial, electrical and mechanical engineers work in close
liaison with its customers' engineering departments from inception
through design, prototypes, production and packaging. Techdyne evaluates
customer designs and if appropriate, recommends design changes to improve
quality of the finished product, reduce manufacturing costs or other
necessary design modifications. Upon completion of engineering, Techdyne
produces prototype or preproduction samples. Materials procurement
includes planning, purchasing and warehousing electronic components and
materials used in the assemblies and finished products.
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
<PAGE> 5
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 manu-
facturing 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, manu-
facturing 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 Company's PCB assembly operations are geared toward advanced SMT.
Lytton, acquired in July, 1997, provides Techdyne with increased PCB
production through state-of-the-art manufacturing equipment and processes
and a highly trained and experienced engineering and manufacturing work-
force that compliments the Company's operations. The manufacturing of
PCBs involves several steps including the attachment of various electronic
components, such as integrated circuits, capacitors, microprocessors and
resistors.
The Company offers a wide range of custom manufactured cables and
harnesses for molded and mechanical applications. The Company uses
advanced manufacturing processes, in-line inspection and testing to
focus on process efficiencies and quality. The cable and harness
assembly process is accomplished with automated and semi-automated
preparation and insertion equipment and manual assembly techniques.
The Scottish manufacturing facility, located in Livingston, Scotland,
focuses mainly on the electronics industry producing primarily wire
harnesses, electro-mechanical assemblies, and molded cables, incor-
porating 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, the customer conveys its
needs on a weekly basis based on a rolling quarterly forecast.
Supplies and Materials Management
Materials used in the Company's operations consist of metals, elec-
tronic 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. The Company will
<PAGE> 6
update and make more efficient its materials acquisition processes by
installing new Visual Manufacturing software in 1998/1999.
The Company procures components from a select group of vendors which
meet its standards for timely delivery, high quality and cost effective-
ness. In order to control inventory investment and avoid material
obsolescence, components are generally ordered when the Company has a
purchase order or commitment from its customer for the completed assembly.
Techdyne uses just-in-time inventory management technologies and manages
its material pipelines and vendor base to allow its customers to increase
or decrease volume requirements within established frameworks.
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 7,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Quality and Process Control
In March, 1995 for its Hialeah, Florida facility, and in December,
1996 for its Houston, Texas facility, the Company received from Under-
writer'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. Lytton received
its ISO 9002 quality designation in 1995 from Eagle Registrations, Inc.
These quality assurance designations are only provided to those manu-
facturers which exhibit stringent quality and process control assurances
after extensive evaluation and auditing by these independent quality
assurance organizations.
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 "Competition" below. Product
components, assemblies and sub-assemblies manufactured by the Company are
thoroughly inspected visually and electronically to assure all components
are made to strict specifications and are functional and safe. Management
believes it is one of the manufacturers of choice for the major Fortune 500
companies, certain of which 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.
Total quality, timely delivery and customer satisfaction is manage-
ment's philosophy. High levels of quality in every area of Techdyne's
operations are essential. Quality standards are established for each
operation, performance tracked against those standards, and identifying
work flow and implementing necessary changes to deliver higher quality
levels. The Company maintains regular contact with its customers to
assure adequate information exchange and other activities necessary to
assure customer satisfaction and to support its high level of quality
and on-time delivery.
<PAGE> 7
Customers
Techdyne serves a wide range of businesses from emerging growth
companies to multinational OEMs involved in a variety of markets including
computer networking systems, computer workstations, telecommunications,
mass data storage systems, instrumentation and food preparation equipment
industries. The Company seeks to serve a sufficiently large number of
customers to avoid dependence on any one customer or industry. Neverthe-
less, historically a substantial percentage of the Company's net sales
have been to multiple locations of a small number of customers, the loss
of any of which would adversely affect the Company. To that extent, the
Company is dependent upon the continued growth, viability and financial
stability of its customers, which are in turn substantially dependent on
the growth of the personal computer, computer peripherals, the communica-
tions, instrumentation, data processing and food preparation equipment
industries. These industries have been characterized by rapid techno-
logical change, short product life cycles, pricing and margin pressures.
In addition, many of the Company's customers in these industries are
affected by general economic conditions. The factors affecting these
industries in general, and/or the Company's customers in particular,
could have a material adverse effect on the Company's results of opera-
tions. In addition, the Company generates significant accounts receivable
in connection with providing manufacturing services to its customers. If
one or more of the Company's customers were to become insolvent or other-
wise were unable to pay for the manufacturing services provided by the
Company, the Company's operating results and financial condition would be
adversely affected. In 1997, 63% of the Company's sales were made to
numerous locations of six major customers. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The table below sets forth the respective portion of net sales for
the applicable period attributable to customers who accounted for more
than 10% of net sales in any respective period.
Percentage of Net Revenue
1997 1996 1995
---- ---- ----
Compaq Computer Corporation ("Compaq") * 35% 36%
International Business Machines ("IBM") 19% 18% *
EMC and related suppliers 10% 12% *
Avid Technology * * 19%
* less than 10% for that year
The Company sells to approximately an additional 100 other companies,
which comprise the remaining 37% of sales. Sales to Avid Technology, Inc.
in 1995 were 19% of the Company's revenues which were reduced to 1% for
1996. Lytton, which was acquired in July, 1997 and focuses primarily in
PCBs, had approximately 53% of its sales for the last three fiscal years
to PMI Food Equipment Group. Techdyne (Scotland) had a substantial
portion of its 1997 sales, approximately 42%, to Compaq. During 1997 and
1996, bidding for Compaq orders became more competitive due to Far Eastern
competitors which resulted in substantially reduced sales to that customer
with lower profit margins on remaining sales. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Marketing and Sales
Techdyne continues to pursue expansion and diversification of its
customer base and it is targeting emerging OEMs in high growth industry
segments. The Company's principal sources of new business are the
expansion in the volume and scope of services provided to existing
customers, referrals from customers and suppliers, direct sales through
its sales managers and executive staff, and through its independent sales
<PAGE> 8
representatives. Sales managers, directed and supported by the executive
staff, identify and attempt to develop relationships with potential
customers who meet a certain profile. This profile includes financial
stability, need for electronic and electro-mechanical component assembly
and manufacturing, anticipated unit volume, and long term relationship
stability.
Domestic sales are generated by six regional sales managers covering
the Northeast, Southeast, West and Southwest regions of the United States.
There are also 11 in-house sales/marketing personnel, including Barry
Pardon, the President of the Company. The regional sales managers have six
independent manufacturer representative agencies who employ approximately
27 sales representatives. Sales are also generated through catalogues,
brochures and trade shows.
The manufacturer sales representatives, primarily marketing elec-
tronic 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
a period of six months to 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 its reworked
and refurbished products (see "Business - Products - Reworking and
Refurbishing above") to 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, are accomplished under open purchase
orders with components released against customer requests.
Backlog
On December 31, 1997, the Company's backlog of orders amounted to
approximately $14,029,000, of which approximately $2,054,000 (approxi-
mately 15%) was represented by the orders for Techdyne (Scotland)
operations and approximately $7,408,000 (approximately 53%) was
represented by orders from its Lytton operations. Last year the
backlog was approximately $7,300,000 of which approximately $1,320,000
was represented by orders of 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 should be filled within six months.
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. However, variations in the size and delivery
schedules of purchase orders received by the Company may result in sub-
stantial fluctuations in backlog from period to period. Since orders and
commitments may be rescheduled or cancelled, and customers' lead times
may vary, backlog does not necessarily reflect the timing or amount 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.
<PAGE> 9
Capital Expenditures
During each of the three years in the period ended December 31, 1997,
the Company's capital expenditures were approximately:
Capital Expenditures
---------------------------------------------
Land, Buildings Machinery
Year Ended and Leasehold and
December 31, Improvements Equipment Total
- ------------ ------------ --------- -----
1997.......... $ 36,204 $1,360,056 $1,396,260
1996.......... $131,175 $ 573,129 $ 704,304
1995.......... $207,903 $ 322,766 $ 530,669
Foreign Operations
The following is summarized financial information for the Company's
foreign operations. All significant intercompany accounts and transactions
have been eliminated.
Year Ended December 31,
-----------------------------------------
1997 1996 1995
---- ---- ----
Net Sales and Other Income
United States............. $26,328,712 $14,274,064 $18,113,978
Europe(1)................. 6,840,068 10,160,116 12,310,380
----------- ----------- -----------
$33,168,780 $24,434,180 $30,424,358
=========== =========== ===========
Net Income (Loss)
United States............. $ 1,619,155 $ 222,812 $ 318,896
Europe(1)................. (193,636) 519,876 996,422
----------- ----------- -----------
$ 1,425,519 $ 742,708 $ 1,315,318
=========== =========== ===========
Identifiable Assets(2)
United States............. $19,632,679 $ 7,438,983 $ 6,277,221
Europe(1)................. 4,992,468 5,785,213 6,601,880
----------- ----------- -----------
$24,625,147 $13,224,196 $12,879,101
=========== =========== ===========
- ----------
(1) Techdyne (Scotland) sales are primarily to customers in the United
Kingdom. The balance of the sales were made to Germany, Ireland and
minimally to the Middle East.
(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 completed in the first quarter of 1997.
<PAGE> 10
Competition
Techdyne 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. The Company also competes with in-house
manufacturing operations of current and potential customers. Although the
Company has been expanding in the Northeast, Southeast and Southwest areas
of the United States, certain of the Company's competitors have broader
geographic coverage to serve their customers and attract additional
business. Many of such competitors are more established in the industry
and have substantially greater financial, manufacturing and marketability
resources than the Company. The Company may be operating at a cost dis-
advantage compared to manufacturers who have greater direct buying power
with component suppliers or who have lower cost structures. During down-
times in the electronics industry, OEMs become more price sensitive. In
the PCB area major competitors include SCI Systems, Inc., Jabil Circuit,
Sanmina Corporation, Benchmark Electronics, Inc., ACT Manufacturing, Inc.
and others. Major competitors in the cable and harness assembly market
include Volex Interconnect Systems, Inc., Foxconn, ACT Manufacturing, Inc.,
Escod Industries and others.
Management believes the primary competitive factors to be price,
quality of production, manufacturing capability, prompt customer service,
timely delivery, engineering expertise, and technical assistance to
customers. The Company believes it competes favorably in these areas.
Management also believes its competitive position is internationally
enhanced through its European manufacturing and marketing operations
through Techdyne (Scotland). See "Manufacturing" 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.
Governmental Regulation
The Company's operations are subject to certain federal, state and
local regulatory requirements relating to environmental waste management
and health and safety matters. Management believes that the Company
complies with applicable regulations pertaining to health and safety in
the workplace and the use, storage, discharge and disposal of chemicals
used in its manufacturing processes. The Company periodically generates
and temporarily handles limited amounts of materials that are considered
hazardous waste under applicable law. The current costs of compliance
are not material to the Company. Nevertheless, no assurances can be given
that additional or modified requirements will not be imposed in the future,
and if so imposed, will not involve substantial additional expenditures by
the Company. These regulations provide for civil and criminal fines,
injunctions and other sanctions and, in certain instances, allow third
parties to sue to enforce compliance.
Employees
The Company currently employs approximately 470 full-time people
domestically. Of these approximately 288 are engaged in manufacturing,
quality assurance and related operations, 16 in material handling and
procurement, 12 are employed in marketing, including its President, 22
in engineering, and 30 are engaged in administrative, accounting, ware-
housing and support activities. Its Scottish subsidiary employs approxi-
mately 102 people of which 92 are in production and engineering and the
balance in administrative, sales, accounting and support activities.
<PAGE> 11
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 131 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.
Space Property Term
- ----- -------- ----
16,000 sq. ft. 2230 W 77th St. 5 yrs. to March 31, 2000
(exec. offs., mfg.) Hialeah, FL(1)
12,000 sq. ft. 2200 W 77th St. 5 yrs. to March 31, 2000
(warehouse) Hialeah, FL(1)
15,000 sq. ft. 7110 Brittmore 5 yrs. to August 31, 2002,
(mfg., offs. & Houston, TX one five year renewal
warehouse)
5,500 sq. ft. Rte. 495 Commerce Park 5 yrs. to March 31, 2002,
(mfg. & offs.) Milford, MA one five year renewal
18,225 sq. ft. 800 Paloma Dr. 5 yrs. to May 31, 2002,
(mfg., offs. & Round Rock (Austin), one five year renewal
warehouse) TX(2)
77,800 sq. ft. 1784 Stanley Ave. 5 yrs. to July 31, 2002,
(mfg., offs. & Dayton, Ohio(3) two five year renewals
warehouse)
- ----------
(1) The landlord is the Company's Parent. The lease is as favorable as
may be obtained from unaffiliated third parties, with whom all other
leases are made, except for the Lytton lease. See Note (3) herein.
(2) The Company has sublet 860 square feet of space on a month to month
basis to an unaffiliated party.
(3) The landlord is owned by the President of Lytton, acquired by the
Company in July, 1997. See Item 13, "Certain Relationships and
Related Transactions." The Company has a right of first refusal and
an option to purchase these premises. This lease is guaranteed by the
Company.
Techdyne (Scotland) owns an approximately 31,000 square foot facility
in Livingston, Scotland. The property is subject to a 15-year mortgage
due July, 2009 which had a U.S. dollar equivalency of
<PAGE> 12
approximately $569,000 at December 31, 1997. See Item 1, "Business -
Foreign Operations" and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company maintains state-of-the-art manufacturing, quality
control, testing and packaging equipment at all of its facilities in
Florida, Ohio, Massachusetts, Texas and Scotland.
The Company believes that its equipment and facilities are adequate
for its current operations.
Item 3. Legal Proceedings
The Company is plaintiff in one litigation in the ordinary course of
business which is not deemed material or that any adverse outcome would
not have a material adverse effect on the Company's financial statement.
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
believes its insurance is adequate to cover any potential claims. See
Note 6 to "Notes to Consolidated Financial Statements."
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
In October, 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 symbols
and ceased trading on the Boston Stock Exchange. The table below reflects
for the periods indicated, the high and low closing sales prices for the
Common Stock as reported by the Nasdaq National Market.
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
1997
----
High Low
---- ---
1st Quarter...................... 8 1/8 5 1/2
2nd Quarter...................... 7 7/8 3 1/4
3rd Quarter...................... 4 1/8 2 1/2
4th Quarter...................... 4 3/4 3
<PAGE> 13
At March 4, 1998, the Company had 71 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.
Item 6. Selected Financial Data
The following selected financial 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)
Years Ended December 31,
----------------------------------------------------
1997(1) 1996 1995 1994 1993
---- ---- ---- ---- ----
Revenues............ $ 33,169 $ 24,434 $ 30,424 $ 20,536 $ 15,288
Net income.......... 1,426 743 1,315 719 1
Earnings per share:
Basic $.32 $.18 $.40 $.24 $---
Diluted $.24 $.14 $.27 $.24 $---
Consolidated Balance Sheet Data
(in thousands)
December 31,
1997(1) 1996 1995 1994 1993
---- ---- ---- ---- ----
Working capital $ 9,547 $ 6,597 $ 4,921 $ 2,988 $ 1,909
Total assets........ 24,625 13,224 12,879 8,741 5,543
Long-term debt(2)... 6,926 3,842 3,415 5,823 4,806
Total liabilities... 15,116 8,056 9,216 9,685 7,284
Shareholders'
equity (deficit) .. 9,509 5,168 3,663 944 (1,741)
- ----------
(1) Reflects the five month operations of Lytton, as well as assets,
liabilities and shareholders' equity at December 31, 1997. Lytton
was acquired on July 31, 1997. See Item 1, "Business - Business
Strategy" and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) Includes advances from Parent.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information
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. The Private Securities Litigation Reform Act of 1995 (the
"Reform Act") contains certain safe harbors regarding forward-looking
<PAGE> 14
statements. Certain of the forward-looking statements include management's
expectations, intentions and beliefs with respect to the growth of the
Company, the nature of the electronics industry in which it is engaged as
a manufacturer, the Company's business strategies and plans for future
operations, its needs for capital expenditures, capital resources,
liquidity and operating results, and similar expressions concerning
matters that are not historical facts. Such forward-looking statements
are subject to risks and uncertainties that could cause actual results
to materially differ from those expressed in the statements.
Techdyne is an international contract manufacturer of electronic and
electro-mechanical products, primarily manufactured to customers'
specifications and designed for major and emerging OEMs and distributors
in the data processing, telecommunications, instrumentation and food
preparation equipment industries. Revenues are generally recognized
upon shipment to its customers. Purchase orders from customers primarily
require delivery no later than 12 months from the order date.
The Company has continued to depend upon a relatively small number
of customers for a significant percentage of its net revenue. Significant
reductions in sales to any of the Company's large customers would have a
material adverse effect on the Company's results of operations. In the
past, certain of the Company's customers have either terminated their
manufacturing arrangement with the Company or significantly reduced or
delayed the volume of manufacturing services ordered. The level and
timing of orders placed by a customer vary due to the customer's attempts
to balance its inventory, design changes, changes in a customer's manufac-
turing strategy, acquisitions of or consolidations among customers, and
variation in demand for a customer's products due to, among other things,
product life cycles, competitive conditions and general economic conditions.
Any further terminations of manufacturing relationships or changes,
reductions or delays in orders could have an adverse effect on the
Company's results of operations or financial condition. The Company's
results also depend to a substantial extent on the success of its OEM
customers in marketing their products. The Company is always seeking to
diversify its customer base to reduce its reliance on its few major
customers. See Item 1, "Business - Customers."
The industry segments served by the Company and the electronics
industry as a whole, are subject to rapid technological change and product
obsolescence. Discontinuance or modification of products containing
components manufactured by the Company could adversely affect the Company's
results of operations. The electronics industry is also subject to economic
cycles and has in the past experienced, and is likely in the future to
experience, recessionary periods. A general recession in the electronics
industry could have a material adverse effect on Techdyne's business,
financial condition and results of operations. The Company typically does
not obtain long-term volume purchase contracts from its customers but
rather attempts to work with its customers to anticipate future volumes
of orders. Based upon such anticipated future orders, the Company will
make commitments regarding the level of business it wants and can
accomplish, the timing of production schedules and the levels of and
utilization of facilities and personnel. Occasionally, the Company will
purchase raw materials without a customer order or commitment. Customers
may cancel, delay or reduce orders, usually without penalty, for a variety
of reasons, whether relating to the customer or the industry in general,
which orders were already made or anticipated by the Company. Any sig-
nificant cancellations, reductions or order delays could adversely affect
the results of operations.
Due to the Company's utilization of just-in-time inventory techniques,
the timely availability of many components to the Company is dependent on
the Company's ability to continuously develop accurate forecasts of
customer volume requirements. Component shortages could result in manu-
facturing and shipping delays or increased component prices which could
have a material adverse effect on the Company's results of operations. It
is important for the Company, and there are significant risks involved,
<PAGE> 15
to efficiently manage inventory, proper timing of expenditures and alloca-
tions of physical and personnel resources in anticipation of future sales,
the evaluation of economic conditions in the electronics industry and the
mix of products, whether PCBs, wire harnesses, cables, or turnkey products,
for manufacture.
In 1997 the Company commenced upgrading its operations software program
by acquiring a new Visual Manufacturing software package. It has been and
will be integrating this new software system into all of its facilities
except Lytton and Techdyne (Scotland). Lytton has a good software package
presently satisfactory for its operations. The Company anticipates
installing the Visual Manufacturing software system into Lytton's and
Techdyne (Scotland)'s operations sometime in early 1999, most likely with
more sophisticated modifications based upon the Company's experience with
and internal technological advances to the system. This new system will
greatly enhance the Company's MRP system, essential to bids for new busi-
ness, production scheduling, IS and overall operations. Management
believes this new system will provide it with leverage in material pricing,
production, timely-delivery and thereby enable the Company to be more com-
petitive in bidding for manufacturing jobs and turnkey business. This
Visual Manufacturing system will also enable the Company to better track
actual costs against its quotes, thereby allowing the Company to more
effectively control costs and manage operating margins. The cost of this
new software program for the Florida, Texas and Massachusetts operations
is estimated to be approximately $260,000. It is anticipated that the
Visual Manufacturing software will be fully integrated by 1999. This
system is anticipated to also resolve the "year 2000" issue which relates
to computer information processing challenges associated with the up-
coming millennium change facing public and private corporations, busi-
nesses, and all levels of government to ensure continued proper opera-
tions, management and reporting.
With respect to the year 2000 issue, the Company is communicating with
its key vendors, customers and other third parties with whom its operations
are essential to inquire of them their assessment of their year 2000 issue
and actions being taken to resolve those issues. To the extent such third
parties are potentially adversely affected by the "year 2000" issue, and
such is not timely and properly resolved by such persons, this could
disrupt the Company's operations to the extent that the Company will
have to find alternative vendors or customers that have resolved their
year 2000 issue. No assurance can be given that the Company's new Visual
Manufacturing software program will be successful in its anticipated
operational benefits as assessed above or that the Company's key vendors
and customers will have successful conversion programs, and that any such
failures, whether relating to the manufacturing operational efficiencies
or the year 2000 issue, will not have a material adverse effect on the
Company's business, results of operations or financial condition.
Operating results may also be influenced by development and introduc-
tion of new products by the Company's customers. The market for the
Company's manufacturing services is characterized by rapidly changing
technology. As a participant in the electronics industry, Techdyne must
continuously develop improved manufacturing procedures to accommodate its
customers' needs for increasingly complex products. To continue to grow
and be a successful competitor, the Company must be able to maintain and
enhance its technological capabilities, develop and market manufacturing
services which meet changing customer needs and successfully anticipate
or respond to technological changes in manufacturing processes on a cost-
effective and timely basis. Although management believes that the
Company's operations utilize the assembly and testing technologies and
equipment currently required by the Company's customers, there can be no
assurance that the Company's process development efforts will be successful
or that the emergence of new technologies, industry standards or customer
requirements will not render the Company's technology, equipment or
processes obsolete or uncompetitive. In addition, to the extent that
the Company determines that new assembly and testing technologies and
equipment are required to remain competitive, the acquisition and imple-
mentation of such technologies and equipment are likely to require
significant capital investment.
<PAGE> 16
Techdyne has been expanding its geographic and customer base by estab-
lishing more extensive facilities in the Northeast and Southwest, and
through its July, 1997 acquisition of Lytton, an electronics manufacturer,
primarily PCBs, in Ohio, in the Midwest. Management intends to continue
to expand within the United States by continuing to establish new manu-
facturing facilities and operations in areas to better serve existing
customers and to attract new OEMs, as well as direct acquisition of
contract manufacturing businesses complimentary to the Company's opera-
tions. The Company will be competing with much larger electronic manu-
facturing entities for such expansion opportunities. Further, any such
transactions may result in potentially dilutive issuance of equity
securities, the incurrence of debt and amortization expenses related
to goodwill and other intangible assets, and other costs and expenses,
all of which could materially adversely affect the Company's financial
results. Such transactions also involve numerous business risks,
including difficulties in successfully integrating acquired operations,
technologies and products or formalizing anticipated synergies, and the
diversion of management's attention from other business concerns. In the
event that any such transaction does occur, there can be no assurance as
to the beneficial effect on the Company's business and financial results.
During periods of recession in the electronics industry, the Company's
competitive advantages in the areas of quick-turnaround manufacturing and
responsive customer service may be of reduced importance to electronic
OEMs, who may become more price sensitive.
The Company's results of operations are also affected by other factors,
including price competition, the level and timing of customer orders,
fluctuations in material costs, the overhead efficiencies achieved by the
Company in managing the costs of its operations, the Company's experience
in manufacturing a particular product, the timing of expenditures in
anticipation of increased orders, and selling, general and administrative
expenses. Accordingly, gross margins and operating income margins have
generally improved during periods of high volume and high capacity
utilization. Techdyne generally has idle capacity and reduced operating
margins during periods of lower-volume production.
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."
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. The
following cautionary statements are being made pursuant to the provisions
of the Reform Act with the intention of the Company obtaining the benefits
of the safe harbor provisions of the Reform Act. 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 Statements, as filed with the Securities and
Exchange Commission ("Commission") Form SB-2 (effective September 13,
1995), and Forms S-3, effective November 11, 1996 and November 4, 1997,
respectively.
Results of Operations
1997 Compared to 1996
Consolidated revenues increased approximately $8,734,000 (36%) for the
year ended December 31, 1997 compared to the preceding year. The increase
was attributable principally to the inclusion of sales of Lytton totaling
$7,170,000 since August 1, 1997. There was an increase in domestic sales
of $12,184,000 (87%) that was offset by a decrease in European sales of
$3,281,000 (33%) compared to the same period of the preceding year.
Interest and other income decreased by approximately $169,000 in
<PAGE> 17
1997 compared to the preceding year, which included a $140,000 litigation
settlement and 1997 having lower interest income than 1996 as a result of
a decrease in funds invested.
The decline in European-based sales was mainly attributable to a
decrease of approximately $5,580,000 (66%) in sales to Compaq (Europe)
by Techdyne (Scotland) which was partially offset by sales to new customers
and increased sales to existing customers. Revenues of Techdyne (Scotland)
continue to be highly dependent on sales to Compaq, which accounted for
approximately 42% of sales for the current year compared to 84% in 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, has offset some of the lost Compaq business with
sales to other customers and is continuing cost reduction efforts to
remain competitive for Compaq business. There can be no assurance as to
the success of such efforts.
Approximately 63% of the Company's consolidated sales for the year
December 31, 1997 were made to six customers. Customers generating at
least 10% of sales included IBM (19%) and EMC and its related suppliers
(10%). Approximately $2,727,000 (38%) of Lytton's sales since its acqui-
sition by the Company on July 31, 1997 were to its major customer, PMI
Food Equipment Group. The loss of, or substantially reduced sales to any
major customer, as occurred with Avid domestically in 1996 and Compaq in
Europe commencing in 1996, would have an adverse effect on the Company's
operations if such sales are not replaced.
Cost of goods sold as a percentage of sales remained relatively stable
increasing to 87% for the year ended December 31, 1997 compared to 86% for
the preceding year.
Selling, general and administrative expenses increased $730,000 for
the year ended December 31, 1997 compared to the preceding year. The
increase reflects the selling, general and administrative expenses of
Lytton commencing August 1, 1997, as well as the increased costs involved
in substantially increased operations of the Company's Round Rock, Texas
facility and the Company's new Massachusetts facility.
Interest expense increased $185,000 for the year ended December 31,
1997 compared to the preceding year. The increase reflects interest of
approximately $100,000 associated with financing the Lytton acquisition
and interest on Lytton's debt and financing agreements of approximately
$71,000. The prime rate was 8.5% at December 31, 1997 and 8.25% at
December 31, 1996.
The Company recorded a deferred tax credit of approximately $500,000
related to domestic operations in the fourth quarter of 1997 resulting in
a 1997 tax credit of approximately $560,000 including approximately
$100,000 of tax credits on foreign operations with the prior year tax
expense of approximately $270,000 consisting mostly of taxes on foreign
operations.
For fiscal 1998, the Company will adopt the provisions of Financial
Accounting Standards Board Statements No. 130, "Reporting Comprehensive
Income" and No. 131, "Disclosure About Segments of an Enterprise and
Related Information," which it is anticipated will not have a material
effect on its consolidated financial statements or significantly change
its segment reporting disclosures. See Note 1 to "Notes to Consolidated
Financial Statements."
<PAGE> 18
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 litiga-
tion 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 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.
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.
Liquidity and Capital Resources
The Company had working capital of $9,547,000 at December 31, 1997,
an increase of $2,950,000 (45%) during 1997. This increase includes
working capital of Lytton that totaled $1,874,000 at December 31, 1997,
a deferred tax asset of $1,011,000 primarily from adjustment of the
valuation allowance on deferred tax assets, a reduction in current debt
as a result of the Company extending a $145,000 bank note payable due
April 1997 for an additional three years, changes in other components
of working
<PAGE> 19
capital resulting from overall increased sales levels, and the increase
in current debt related to the financing of the Lytton acquisition. See
Notes 2 and 10 to "Notes to Consolidated Financial Statements."
Included in the changes in components of working capital was a
decrease of $2,502,000 in cash and cash equivalents, which included net
cash used in operating activities of $2,505,000, net cash used in
investing activities of $3,571,000 (including $1,449,000 from additions
to property and equipment and net cash expended in the Lytton acquisition
of $2,166,000) and net cash provided by financing activities of $3,692,000
(including net proceeds from common stock purchase warrants and options
exercised of approximately $194,000, borrowings of $2,500,000 to fund the
Lytton acquisition, Lytton line of credit borrowings of $549,000, payments
on long-term debt of $273,000 and a net increase in advances from the
Parent of $725,000).
In February 1996, the Company refinanced its loan agreement with a
Florida bank. The refinancing provided for a $2,000,000 line of credit,
due on demand, secured by the Company's accounts receivable, inventory,
furniture, fixtures and intangible assets and bore interest at the bank's
prime rate plus 1.25%. In conjunction with the Company's acquisition of
Lytton on July 31, 1997, this line of credit was modified and increased to
$2,500,000 with the interest rate reduced to prime plus .75% and various
other modifications. The line was fully drawn down in connection with
that acquisition and $2,500,000 remained outstanding at the same interest
rate of 9.25% until the line was refinanced in December 1997.
The $2,500,000 line of credit was replaced effective December 29, 1997
with a five-year $1,500,000 ("notional amount under interest rate swap
agreement") commercial term loan with monthly principal payments of
$25,000 plus interest at 8.60%, and a $1,600,000 commercial revolving
line of credit with interest at prime of which $1,000,000 was outstanding
at December 31, 1997. The commercial term loan matures December 15, 2002
and the commercial line of credit, no longer a demand line, matures May 1,
2000. The Company entered into the swap agreement to obtain an acceptable
fixed interest rate and has no intent of prepaying the related debt.
Accordingly, the Company does not consider that it has any risk of signifi-
cant loss under the agreement although early termination of the swap agree-
ment could either result in a gain or loss based on the movement in interest
rates in relation to the Company's fixed rate. See Note 2 to "Notes to
Consolidated Financial Statements."
The Company had obtained in 1996 two other term loans from its Florida
bank. One is a $712,500 term loan, which had a remaining principal
balance of $663,000 at December 31, 1997, and 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 $127,000 at December 31, 1997, is
secured by the Company's tangible personal property, goods and equipment.
The financing under the 1996 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 to the
Parent which represent noncash financing activities which is a supple-
mental disclosure required by FAS 95. The Parent has guaranteed the re-
volving line and the three term loans and subordinated the intercompany
indebtedness due it from the Company, provided that the Company may
make payments to the Parent on this subordinated debt from additional
equity that is injected into the Company and from earnings, so long as
the Company is otherwise in compliance with the loan agreements. The
Company was in default of certain financial reporting requirements
regarding these loans as of December 31, 1996 for which the bank
granted waivers as of December 31, 1996 and extended through December
31, 1997. See Note 2 to "Notes to Consolidated Financial Statements."
The Company has outstanding borrowings of $145,000 from a local bank
with interest payable monthly with the note, which was renewed during 1997,
maturing April 2000. Techdyne (Scotland) has a line of credit with a
Scottish bank, with an U.S. dollar equivalency of approximately $330,000 at
December 31, 1997 and $342,000 at December 31, 1996 that is secured by
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, 1997 or December 31, 1996.
See Note 2 to "Notes to Consolidated Financial Statements."
<PAGE> 20
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 $569,000 and $622,000 at
December 31, 1997 and December 31, 1996, respectively, based on exchange
rates in effect at each of these dates.
The Company has established a new manufacturing facility in Milford,
Massachusetts with the facility having an initial five-year lease term
with the Company's occupancy commencing in April 1997. This facility is
intended to assist in meeting increased customer demand in the Northeastern
United States, as well as to increase service levels to customers in the
Northeast and to penetrate new markets. The Company has increased its
manufacturing capacity at its Houston and Austin, Texas facilities to meet
increased customer demand in the Southwestern United States. Most of the
expenditures related to its new facilities, including leasehold improve-
ments, equipment and furniture and fixtures, and the costs of expansion
of existing facilities were provided from the proceeds from the Company's
1995 security offering.
On July 31, 1997, the Company acquired Lytton Incorporated, which is
engaged in the manufacture and assembly of PCBs and other electronic
products for commercial customers. This acquisition required $2,500,000
cash at closing, funded by the modified bank line of credit, as well as
300,000 shares of the Company's common stock which had a fair value of
approximately $1,031,000 based on the closing price of the Company's
common stock on the date of acquisition. The Company has guaranteed
$2,000,000 minimum proceeds ($2,400,000 if certain earnings objectives
are met over a specified twelve month period) to the seller with respect
to these shares. The Stock Purchase Agreement also provides for incentive
consideration to be paid in cash based on specific sales levels of Lytton
for each of three successive specified years. Based upon the closing price
of the Company's common stock on December 31, 1997, the shares issued in
the Lytton acquisition had a fair value of $1,313,000 which could result
in additional consideration of approximately $687,000 payable in either
cash or in approximately 157,000 shares of the Company's stock based on
the closing stock price of $4.375. If the earnings objective is met, an
additional $400,000 would be payable in cash or approximately 91,000
shares of common stock based upon the December 31, 1997 closing stock
price. The Lytton acquisition has expanded the Company's customer base,
broadened its product line, enhanced its manufacturing capabilities and
provided a new geographic area to better serve the Company's existing
customer base with opportunities to attract new customers. See Notes 2
and 10 to "Notes to Consolidated Condensed Financial Statements."
The Company is seeking to further expand its operations possibly
through acquisitions of companies in similar businesses, as with the
Lytton acquisition. 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.
The Company anticipates that current levels of working capital and
working capital from operations, including those of Lytton, will be
adequate to successfully meet liquidity demands for at least the next
twelve months, including the financing obligations incurred in the
acquisition of Lytton.
<PAGE> 21
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
<PAGE> 22
Part III
Item 10. Directors, Executive Officers, Promoters and Control Persons
of the Registrant
Information on directors of the Company is included under the caption
"Election of Directors" of the Company's Information Statement relating to
the Annual Meeting of Shareholders to be held on Wednesday, June 10, 1998,
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 Share-
holders to serve during the ensuing year and until their respective
successors are elected and qualified. The present directors have
comprised the board since 1990, although each of them has been affiliated
with the Company many years prior. There are no family relationships
between any of the executive officers of the Company. The following
information indicates the position and age of each executive officer at
February 28, 1998, and their business experience during the prior five
years.
Name Age Position with the Company Position Held Since
- ---- --- ------------------------- -------------------
Thomas K. Langbein 52 Chairman of the Board and 1982
Chief Executive Officer 1990
Barry Pardon 46 President 1991
and Director 1990
Joseph Verga 46 Senior Vice President 1988
Director and 1983
Treasurer 1985
Daniel R. Ouzts 51 Vice President - Finance Controller 1986
Thomas K. Langbein was financial consultant to Medicore until 1980,
when he became Chairman of the Board of Directors, Chief Executive Officer
and President. 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 Dialysis Corporation of America ("DCA"), another public
subsidiary of Medicore. 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
Lytton and 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 Commission and the
NASD. Mr. Langbein devotes most of his time to the affairs of the
Company, Medicore and DCA. See "Certain Relationships and Related
Transactions" of the Company's Information Statement relating to the
Annual Meeting of Shareholders to be held on Wednesday, June 10, 1998,
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 Chairman of the Board of
Lytton and a director of Techdyne (Scotland).
<PAGE> 23
Joseph Verga joined the Company in 1979 as purchasing agent. In 1980,
he became production control manager and Vice President, in 1981 the opera-
tions 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 and DCA. He became
Vice President of Finance of the Company and Medicore in 1986. He was
appointed as Vice-President and Treasurer of DCA in June, 1996. Mr. Ouzts
is a certified public accountant. See "Certain Relationships and Related
Transactions" of the Company's Information Statement relating to the
Annual Meeting of Shareholders to be held on Wednesday, June 10, 1998,
incorporated herein by reference.
Item 11. Executive Compensation
Information on executive compensation is included under the caption
"Executive Compensation" of the Company's Information Statement relating
to the Annual Meeting of Shareholders to be held on Wednesday, June 10,
1998, which is incorporated herein 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 Information Statement
relating to the Annual Meeting of Shareholders to be held on Wednesday,
June 10, 1998, 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
Information Statement relating to the Annual Meting of Shareholders to be
held on Wednesday, June 10, 1998, which is incorporated herein by reference.
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 Information Statement relating to the Annual Meeting of
Shareholders to be held on Wednesday, June 10, 1998, 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. Financial statement schedules - See Index to Consolidated
Financial Statements.
(b) Current Reports on Form 8-K filed during the fourth quarter.
1. The Company filed an amended Current Report on Form 8-K/A#1
on October 3, 1997 with respect to filing financial statements
and pro forma financial information concerning the Lytton
Incorporated acquisition reported on the Company's Current
Report on Form 8-K dated August 12, 1997.
<PAGE> 24
(c) Exhibits
(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)). *
(viii) Form of 1997 Stock Option Plan (incorporated by reference to
the Company's Current Report on Form 8-K dated June 24, 1997
("June 24, 1997 Form 8-K"), Item 7(c)(4)(i)). *
(ix) Form of 1997 Incentive Stock Option (incorporated by reference
to the Company's June 24, 1997 Form 8-K, Item 7(c)(4)(ii)). *
(x) Form of 1997 Non-Qualified Stock Option (incorporated by
reference to the Company's June 24, 1997 Form 8-K, Item
7(c)(4)(iii)). *
(10)(i) Lease Agreement between the Company and Medicore, Inc.(1)
dated July 17, 1990.
<PAGE> 25
(ii) Lease Renewal Letter from the Company to Medicore, Inc.(1)
dated December 19, 1994 (incorporated by reference to the
Company's Form SB-2, Part II, Item 27, 10(b)). *
(iii) Form of Exclusive Sales Representative Agreement (incorporated
by reference to Medicore, Inc.'s(1) 1994 Form 10-K, Part IV,
Item 14 (a) 3 (10)(lxiv)). *
(iv) 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).*
(v) Employment Agreement between Techdyne (Scotland) Ltd.(3) and
John Clark Grieve dated March 11, 1988.
(vi) Guarantee of Techdyne (Scotland) Ltd.(3) Line of Credit
with Royal Bank of Scotland Plc dated March 3, 1989.
(vii) 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)). *
(viii) 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)). *
(ix) 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)). *
(x) 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)). *
(xi) 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)). *
(xii) 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)).*
(xiii) 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)). *
(xiv) 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)). *
<PAGE> 26
(xv) 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)).*
(xvi) 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)).*
(xvii) Service Agreement between the Company and Medicore, Inc.(1)
dated October 25, 1996 (incorporated by reference to the
Company's Registration Statement on Form S-3, Registration
No. 333-15371, Part II, Item 16, Exhibit 10(a)).*
(xviii) First Amendment to Loan and Security Agreement, Loan Agreement
and Security Agreement between the Company and Barnett Bank,
N.A. dated July 31, 1997 (incorporated by reference to the
Company's Current Report on Form 8-K dated August 12, 1997
("August 12, 1997 Form 8-K"), Item 7(c)(99)(i)).*
(xix) Revolving Demand Promissory Note from the Company to Barnett
Bank, N.A. dated July 31, 1997 (incorporated by reference to
the Company's August 12, 1997 Form 8-K, Item 7(c)(99)(ii)).*
(xx) Unconditional and Continuing Guaranty of Payments and Per-
formance by Medicore, Inc.(1) in favor of Barnett Bank, N.A.
dated July 31, 1997 (incorporated by reference to the
Company's August 12, 1997 Form 8-K, Item 7(c)(99)(iii)).*
(xxi) Subordination Agreement among the Company, Barnett Bank, N.A.
and Medicore, Inc.(1) dated July 31, 1997 (incorporated by
reference to the Company's August 12, 1997 Form 8-K, Item
7(c)(99)(iv)).*
(xxii) Second Amendment to Loan and Security Agreement between the
Company and Barnett Bank, N.A. dated as of December 29,
1997 (incorporated by reference to the Company's Form 8-K
dated January 20, 1998 ("January, 1998 Form 8-K"), Item
7(c)(99)(i)).*
(xxiii) Revolving Promissory Note form the Company to Barnett Bank,
N.A. for $1,600,000 dated as of December 29, 1997 (incor-
porated by reference to the Company's January, 1998 Form 8-K,
Item 7(c)(99)(ii)).*
(xxiv) Unconditional and Continuing Guaranty of Payment and Per-
formance(3) by Medicore, Inc.(1) in favor of Barnett Bank,
N.A. dated as of December 29, 1997 (incorporated by reference
to the Company's January, 1998 Form 8-K, Item 7(c)(99)(iii)).*
(xxv) Subordination Agreements(4) among the Company, Barnett Bank,
N.A. and Medicore, Inc.(1) (incorporated by reference to the
Company's January, 1998 Form 8-K, Item 7(c)(99)(iv)).*
<PAGE> 27
(xxvi) Loan Agreement for $1,500,000 between the Company and Barnett
Bank, N.A. dated as of December 29, 1997 (incorporated by
reference to the Company's January, 1998 Form 8-K, Item
7(c)(99)(v)).*
(xxvii) Promissory Note from the Company to Barnett Bank, N.A. for
$1,500,000 dated as of December 29, 1997 (incorporated by
reference to the Company's January, 1998 Form 8-K, Item
7(c)(99)(vi)).*
(xxviii) Commercial Security Agreement between the Company and Barnett
Bank, N.A. dated as of December 29, 1997 (incorporated by
reference to the Company's January, 1998 Form 8-K, Item
7(c)(99)(vii)).*
(xxix) International Swap Dealers Association, Inc. Master Agreement
between the Company and Barnett Bank, N.A. dated as of December
22, 1997 (incorporated by reference to the Company's January,
1998 Form 8-K, Item 7(c)(99)(viii)).*
(xxx) Lease Agreement between the Company and Route 495 Commerce
Park Limited Partnership dated March 25, 1997 (incorporated
by reference to the Company's Quarterly Report on Form 10-Q
for the first quarter of 1997, Item 6(a), Part II(10)).*
(xxxi) Lease Agreement between the Company and PruCrow Industrial
Properties, L.P. dated April 30, 1997 (incorporated by ref-
erence to the Company's Current Report on Form 8-K dated
June 4, 1997 ("June, 1997 Form 8-K"), Item 7(c)(10)(i)).*
(xxxii) Lease Agreement between the Company and EGP Houston Partners
Ltd. dated April 29, 1997 (incorporated by reference to the
Company's June, 1997 Form 8-K, Item 7(c)(10)(ii)).*
(xxxiii) Stock Purchase Agreement between Patricia A. Crossley, Lytton
Incorporated(2) and the Company dated July 31, 1997 (incor-
porated by reference to the Company's August 12, 1997 Form 8-K,
Item 7(c)(2)(i)).*
(21) Subsidiaries of the registrant.
(23) Consents of experts and counsel.
(i) Consent of Independent Certified Public Accountant.
(27) Financial Data Schedule (for SEC use only).
- ----------
* Documents incorporated by reference not included in Exhibit Volume.
(1) Parent of the Company owning 63% of the Company's outstanding shares
(70% if include convertible promissory note).
(2) Wholly-owned subsidiary.
<PAGE> 28
(3) Each of the $1,600,000 Revolving Loan and the $1,500,000 Term Loan
has been unconditionally guaranteed by Medicore, Inc.(1), and each
such unconditional guaranty agreement is substantially similar to the
exhibit filed for the Revolving Loan.
(4) Medicore, Inc.(1) has subordinated indebtedness due to it from the
Company to the Revolving and Term Loans, each such Subordination
Agreement is substantially similar to the exhibit filed for the
Revolving Loan.
<PAGE> 27
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 27, 1998
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.
Name Title Date
- ---- ----- ----
Chairman of the Board
of Directors, Chief
/s/ THOMAS K. LANGBEIN Executive Officer March 27, 1998
- ------------------------
Thomas K. Langbein
/s/ BARRY PARDON President and Director March 27, 1998
- ------------------------
Barry Pardon
/s/ JOSEPH VERGA Senior Vice President,
- ------------------------ Treasurer and Director March 27, 1998
Joseph Verga
/s/ DANIEL R. OUZTS Vice President and Controller March 27, 1998
- ------------------------
Daniel R. Ouzts
/s/ PETER D. FISCHBEIN Director March 27, 1998
- ------------------------
Peter D. Fischbein
/s/ ANTHONY C. D'AMORE Director March 27, 1998
- ------------------------
Anthony C. D'Amore
<PAGE> 29
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a) (1) and (2), (c) and (c)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENTS SCHEDULES
YEAR ENDED DECEMBER 31, 1997
TECHDYNE, INC.
HIALEAH, FLORIDA
<PAGE>
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:
Page
----
Consolidated Balance Sheets--December 31, 1997 and 1996. F-3
Consolidated Statements of Income--Years ended
December 31, 1997, 1996, and 1995. F-4
Consolidated Statements of Stockholders' Equity
(Deficit)--Years ended December 31, 1997, 1996 and 1995. F-5
Consolidated Statements of Cash Flows--Years ended
December 31, 1997, 1996, and 1995. F-6
Notes to Consolidated Financial Statements--December 31, 1997. F-7
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>
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, 1997 and 1996, 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, 1997. Our
audits also included the financial statement schedule listed in the Index
at Item 14(a). These financial statements and schedule are the responsibil-
ity 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 signif-
icant 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, 1997 and 1996,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, 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.
/s/ Ernst & Young LLP
March 25, 1998
Miami, Florida
F-2
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
1997 1996
------ ------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,451,564 $ 3,954,047
Accounts receivable, less allowances
of $54,000 at December 31, 1997 and
$83,000 at December 31, 1996 5,707,471 3,106,923
Inventories, less allowances for
obsolescence of $223,000 at December 31,
1997 and $134,000 at December 31, 1996 8,325,309 3,049,334
Prepaid expenses and other current assets 574,250 436,358
Deferred tax asset 1,010,558 ---
----------- -----------
Total current assets 17,069,152 10,546,662
Property and Equipment:
Land and improvements 198,000 205,200
Buildings and building improvements 764,571 864,595
Machinery and equipment 6,176,733 3,273,875
Tools and dies 844,132 817,593
Leasehold improvements 241,934 94,119
----------- -----------
8,225,370 5,255,382
Less accumulated depreciation 2,984,825 2,749,339
----------- -----------
5,240,545 2,506,043
Deferred expenses and other assets 79,707 124,313
Costs in excess of net tangible assets
acquired, less accumulated amortization
of $85,000 at December 31, 1997 and $44,000
at December 31, 1996 2,235,743 47,178
----------- -----------
$24,625,147 $13,224,196
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term bank borrowings $ 548,698 $ ---
Accounts payable 4,214,639 2,457,563
Accrued expenses 1,745,926 935,227
Current portion of long-term debt 909,080 259,731
Income taxes payable 103,559 297,575
----------- -----------
Total current liabilities 7,521,902 3,950,096
Deferred gain on sale of real estate 161,047 161,047
Deferred income taxes 507,003 102,603
Long-term debt, less current portion 4,619,066 1,384,569
Advances from parent 2,307,221 2,457,570
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.01 par value, authorized
10,000,000 shares; issued and
outstanding 5,135,167 shares in 1997
and 4,294,019 shares in 1996 51,351 42,940
Capital in excess of par value 10,612,691 7,551,774
Deficit (1,105,648) (2,531,167)
Foreign currency translation adjustments (49,486) 104,764
----------- -----------
Total stockholders' equity 9,508,908 5,168,311
----------- -----------
$24,625,147 $13,224,196
=========== ===========
See notes to consolidated financial statements.
F-3
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
---- ---- ----
Revenues:
Sales $33,019,331 $24,116,018 $30,353,470
Interest and other income 149,449 318,162 70,888
----------- ----------- -----------
33,168,780 24,434,180 30,424,358
Cost and expenses:
Cost of goods sold 28,716,910 20,747,534 25,785,745
Selling, general and
administrative expenses 3,134,001 2,404,456 2,420,344
Interest expense 456,621 271,736 371,385
----------- ----------- -----------
32,307,532 23,423,726 28,577,474
----------- ----------- -----------
Income before income taxes 861,248 1,010,454 1,846,884
Income tax (benefit) provision (564,271) 267,746 531,566
----------- ----------- -----------
Net income $ 1,425,519 $ 742,708 $ 1,315,318
=========== =========== ===========
Earnings per share:
Basic $.32 $.18 $.40
==== ==== ====
Diluted $.24 $.14 $.27
==== ==== ====
See notes to consolidated financial statements.
F-4
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
FOREIGN
CAPITAL IN CURRENCY
COMMON EXCESS OF TRANSLATION
STOCK PAR VALUE DEFICIT ADJUSTMENTS TOTAL
------ --------- ------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 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
Net income --- --- 1,425,519 --- 1,425,519
Note conversion by Medicore
(500,000 shares) 5,000 870,000 --- --- 875,000
Shares issued in subsidiary
acquisition (300,000 shares) 3,000 1,997,000 --- --- 2,000,000
Exercise of stock options and
warrants 411 193,917 --- --- 194,328
Foreign currency translation adjustments --- --- --- (154,250) (154,250)
-------- ----------- ----------- --------- ----------
Balance at December 31, 1997 $ 51,351 $10,612,691 $(1,105,648) $ (49,486) $9,508,908
========= =========== =========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Operating activities:
Net income $1,425,519 $ 742,708 $1,315,318
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 616,663 368,618 332,602
Amortization 52,576 15,430 16,750
Bad debt expense 1,282 9,380 73,000
Provision for inventory obsolescence 153,011 56,913 294,860
Deferred income taxes (benefit) (503,555) 3,266 16,680
Increase (decrease) relating
to operating activities from:
Accounts receivable (1,420,709) 110,804 (83,104)
Inventories (2,797,742) 584,248 (1,161,907)
Prepaid expenses and other
current assets (137,786) 228,554 (360,689)
Accounts payable 474,334 (698,395) 948,390
Accrued expenses (91,805) (480,917) 474,630
Income taxes payable (276,463) (215,143) 218,856
----------- ---------- ----------
Net cash (used in) provided by operating
activities (2,504,675) 725,466 2,085,386
Investing activities:
Acquisition of subsidiary (2,166,010) --- ---
Additions to property and equipment,
net of minor disposals (1,449,077) (479,815) (559,168)
Proceeds from sale of marketable securities --- --- 35,046
Deferred expenses and other assets 44,386 (6,808) (61,082)
----------- ---------- ----------
Net cash used in investing activities (3,570,701) (486,623) (585,204)
Financing activities:
Borrowings to finance subsidiary acquisition 2,500,000 --- ---
Short-term line of credit borrowings 548,698 --- ---
Net proceeds from securities offering --- --- 3,320,784
Exercise of stock options and warrants 194,328 50,700 400
Proceeds from long-term borrowings --- 181,476 ---
Payments on long-term borrowings (273,437) (140,443) (316,827)
Payments on promissory note for advances from parent --- --- (1,500,000)
Increase (decrease)in advances from parent 724,651 336,483 (278,389)
Deferred financing costs (2,657) (14,438) (11,944)
----------- ---------- ----------
Net cash provided by financing activities 3,691,583 413,778 1,214,024
Effect of exchange rate fluctuations on cash (118,690) 142,085 (20,684)
----------- ---------- ----------
(Decrease) increase in cash and cash equivalents (2,502,483) 794,706 2,693,522
Cash and cash equivalents at beginning of year 3,954,047 3,159,341 465,819
----------- ---------- ----------
Cash and cash equivalents at end of year $ 1,451,564 $3,954,047 $3,159,341
=========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company is a manufacturer of electronic and electro-mechanical
products primarily manufactured to customer specifications in the data
processing, telecommunication, instrumentation and food preparation equipment
industries.
Consolidation
The consolidated financial statements include the accounts of
Techdyne, Inc. ("Techdyne") and its subsidiaries, including Lytton Incor-
porated ("Lytton"), 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 consoli-
dation. The Company is a 62.9% owned subsidiary of Medicore, Inc. (the
"Parent").
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:
YEAR ENDED DECEMBER 31,
-----------------------------------------
CUSTOMERS 1997 1996 1995
--------- ----------- ------------- --------
Compaq Computer Corp. (1) --- $8,497,000 $10,849,000
Avid Technology (1)(2) --- --- 5,653,000
IBM(3) $6,438,000 4,275,000 ---
EMC and its related suppliers(3) 3,201,000 2,807,000 ---
- ------------------
(1) Less than 10% of sales for 1997.
(2) Less than 10% of sales for 1996.
(3) Less than 10% of sales for 1995.
Sales to PMI Food Equipment Group by Lytton for the period August 1
(date of Lytton's acquisition) to December 31, 1997, amounted to approxi-
mately $2,727,000 representing 15% of consolidated sales during this period
and 8% of consolidated sales for the year ended December 31, 1997.
The Company experienced a loss of a majority of its sales to Avid in
1996 as a result of a change in one of the products it produced for Avid.
F-7
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
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. Inven-
tories are comprised of following:
DECEMBER 31, DECEMBER 31,
1997 1996
------------- ------------
Finished goods $ 554,903 $ 486,863
Work in process 1,772,724 478,481
Raw materials and supplies 5,997,682 2,083,990
---------- ----------
$8,325,309 $3,049,334
========== ==========
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 Financial Accounting Standards Board Statement No. 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 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.
Foreign Operations
Information relating to geographical data and foreign operations for
the years ended December 31, 1997, 1996 and 1995, included on page 10 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. Foreign currency transaction gains
and losses, which are not material, are included in the results of opera-
tions. 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.
F-8
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
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 Interpre-
tations in accounting for its employee stock options. Financial Accounting
Standards Board Statement 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.
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued FAS
128, "Earnings Per Share," which was adopted on December 31, 1997. The
Company has adopted FAS 128 which requires it to change the method previ-
ously used to compute earnings per share and to restate all prior periods.
The new requirements for calculating basic earnings per share exclude the
dilutive effect of stock options and warrants.
Earnings per share under the diluted computation required under FAS 128
includes the dilutive effect of stock options and warrants using the treasury
stock method and average market price, shares assumed to be converted 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, and contingent shares
for the stock price guarantee for the acquisition of Lytton.
F-9
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Following is a reconciliation of amounts used in the basic and diluted
computations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) - numerator basic computation $1,425,519 $742,708 $1,315,318
Effect of dilutive securities:
Interest adjustment on convertible note 169,525 175,766 96,872
----------- -------- ----------
Net income, as adjusted for assumed conversion-
numerator diluted computation $1,595,044 $ 918,474 $1,412,190
========== ========== ==========
Weighted average shares - denominator basic computation 4,510,375 4,165,042 3,292,292
Effect of dilutive securities:
Warrants 85,987 337,698 47,297
Stock options 247,886 296,019 200,147
Contingent stock - acquisition 65,652 --- ---
Convertible note 1,699,494 1,762,066 1,753,581
--------- --------- ---------
Weighted average shares, as adjusted - denominator 6,609,394 6,560,825 5,293,317
========= ========= =========
Earnings per share:
Basic $.32 $.18 $.40
==== ==== ====
Diluted $.24 $.14 $.27
==== ==== ====
</TABLE>
In addition to the dilutive stock options and warrants included in the
reconciliation above, neither the 1995 publicly offered warrants exercis-
able at $5.00 per share nor underwriter warrants to purchase 100,000 shares
of common stock and/or 100,000 warrants exercisable at $6.60 per share and
$.25 per warrant with each warrant exercisable into common stock at $8.25
per share have been included since they were anti-dilutive.
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 approxi-
mate 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 1996 and 1995 financial
statements to conform to the 1997 presentation.
F-10
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets is comprised as follows:
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
United Kingdom VAT tax receivable $ 283,106 $ 182,508
Other 291,144 253,850
--------- ---------
$ 574,250 $ 436,358
========= =========
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities is comprised as follows:
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
United Kingdom VAT tax payable $ 342,112 $ 299,431
Accrued compensation 563,728 275,941
Other 840,086 359,855
---------- ----------
$1,745,926 $ 935,227
========== ==========
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, or in the case of debt because such
instruments bear variable interest rates which approximate market.
New Pronouncements
The Company will adopt the provisions of Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" (FAS 130) in 1998
which is required by FAS 130 for fiscal years beginning after December 15,
1997. FAS 130 requires the presentation of comprehensive income and its
components in the financial statements and the accumulated balance of other
comprehensive income separately from retained earnings and additional paid
in capital in the equity section of the balance sheet. The Company does not
believe that adoption of FAS 130 will have a material effect on its
financial statements. The Company will also adopt the provisions of
Financial Accounting Standards Board Statement No. 131, " Disclosures About
Segments of an Enterprise and Related Information" (FAS 131) in 1998 which
is required by FAS 131 for fiscal years beginning after December 15, 1997.
FAS 131 establishes standards for reporting information about operating
segments in annual financial statements with operating segments representing
components of an enterprise evaluated by the enterprise's chief operating
decision maker for purposes of making decisions regarding resource alloca-
tion and performance evaluation. The Company does not believe that adoption
of FAS 131 will significantly change its segment reporting disclosures.
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.
F-11
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 2--LONG-TERM DEBT
On February 8, 1996, the Company refinanced its term loan by entering
into three loan agreements with a Florida bank. One credit facility was a
$2,000,000 line of credit due on demand secured by the Company's accounts
receivable, inventory, furniture, fixtures and intangible assets and bore
interest at the bank's prime rate plus 1.25%. In conjunction with the
Company's acquisition of Lytton on July 31, 1997, this line of credit was
modified and increased to $2,500,000 with the interest rate reduced to
prime plus .75% and various other modifications. The line was fully drawn
down in connection with this acquisition with $2,500,000 remaining out-
standing, with interest due at 9.25%, until the line was refinanced in
December 1997.
The $2,500,000 line of credit agreement was refinanced and replaced
effective December 29, 1997 with a five-year $1,500,000 commercial term loan
and a $1,600,000 commercial revolving line of credit. The $1,600,000 line of
credit had an outstanding balance of $1,000,000 at December 31, 1997. This
line matures May 1, 2000 and has monthly payments of interest at prime.
Both credit facilities are collateralized by the corporate assets of
Techdyne. The new commercial term loan with an outstanding balance of
$1,500,000 at December 31, 1997, matures December 15, 2002 with monthly
principal payments of $25,000 plus interest. In connection with the term
loan, the Company entered into an interest rate swap agreement with the
bank to manage the Company's exposure to interest rates by effectively
converting a variable rate obligation with an interest rate of LIBOR plus
2.25% to a fixed rate of 8.60%. Early termination of the swap agreement,
either through prepayment or default on the term loan, may result in a
cost or a benefit to the Company. The December 29, 1997 refinancing repre-
sents a noncash financing activity which is a supplemental disclosure
required by Financial Accounting Standards Board Statement No. 95,
"Statement of Cash Flows" (FAS 95).
The bank also extended two commercial term loans to the Company in
February 1996, one for $712,500 for five years expiring on February 7, 2001
at an annual rate of interest equal to 8.28% with a monthly payment of
principal and interest of $6,925 based on a 15-year amortization schedule
with the unpaid principal and accrued interest due on the expiration date.
This term loan had an outstanding balance of approximately $663,000 at
December 31, 1997 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 was obligated to adhere to a variety of
affirmative and negative covenants.
The second commercial term loan was 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 $127,000 at
December 31, 1997 is secured by all of Techdyne's tangible personal
property, goods and equipment, and all cash or noncash proceeds of such
collateral.
The Parent has unconditionally guaranteed the payment and performance
by the Company of the revolving loan and the three commercial term loans
and has subordinated the Company's intercompany indebtedness to the Parent
to the bank's position.
There are cross defaults between the revolving line and term loans
exclusive of the $200,000 term loan.
Lytton has a $1,500,000 revolving bank line of credit requiring monthly
interest payments at prime plus 1/2% which matures August 1, 1998. The
interest rate on this loan was 9% as of December 31, 1997. Lytton has a
$1,000,000 installment loan with the same bank maturing August 1, 2002, at
an annual rate of 9% until July 1999, with monthly payments of $16,667 plus
interest, at which time Lytton will have an option to convert the note to
a variable rate. The balance outstanding on this loan was approximately
$933,000 as of December 31, 1997. Lytton also has a $500,000 equipment
loan agreement with the same bank payable over four years through August 1,
2002 with the same interest rate as the installment loan. There was
no outstanding balance on this loan as of December 31, 1997. All of these
bank loans are secured by the business assets of Lytton.
F-12
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 2--LONG-TERM DEBT--(Continued)
Long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Term loan secured by real property of Parent with a
carrying value of $1,005,000 at December 31, 1997.
Monthly payments of principal principal and $ 662,533 $ 690,894
interest as described above.
Term loan secured by tangible personal property, goods
and equipment with a carrying value of $4,223,000
at December 31, 1997. Monthly payments of principal
and interest as described above. 126,764 166,764
Commercial term loan secured by corporate assets of the
Company with a carrying value of approximately
$14,449,000 at December 31, 1997. Monthly payments
of principal and interest as described above. 1,500,000
Three year revolving line of credit agreement maturing
May 1, 2000. Secured by corporate assets of the
Company with a carrying value of approximately
$14,449,000 at December 31, 1997. Monthly payments
of interest as described above. 1,000,000
Mortgage note secured by land and building with a net
book value of $865,000 at December 31, 1997. Quarterly
payments of approximately $20,000 based on exchange
rates at December 31, 1997 for 15 years commencing
October 1994 including interest at 2% above bank
base rate. 569,431 622,214
Installment loan requiring monthly payments of $16,667
plus interest at 9%. The loan is secured by all
business assets of Lytton with a carrying value of
approximately $7,041,000 at December 31, 1997.
Monthly payments of principal and interest as
described above. 933,333
Equipment loan requiring monthly payments of $4,298
including interest at 5.5% and maturing in April
2002. The loan is secured by equipment of Lytton
with a carrying value of approximately $614,000
at December 31, 1997. 198,455
Equipment financing obligations requiring combined
monthly payments of $19,467 as of December 31, 1997
as described below, including interest at rates
ranging from 8.55% to 10.09% and secured by the
related assets of Lytton with a carrying value of
approximately $532,000 at December 31, 1997. 390,033
Other 147,607 164,428
---------- ----------
$5,528,146 $1,644,300
Less current portion 909,080 259,731
---------- ----------
$4,619,066 $1,384,569
========== ==========
</TABLE>
The prime rate was 8.5% as of December 31, 1997 and 8.25% as of
December 31, 1996.
Lytton conducts a portion of its operations with equipment acquired
under equipment financing obligations which extend through July 1999. The
present value of annual future minimum payments required under these financing
obligations is included in the schedule of long-term debt above. Financing under
these agreements is a noncash financing activity which is a supplemental
disclosure required by FAS 95.
F-13
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 2--LONG-TERM DEBT--(Continued)
Techdyne (Scotland) has established a line of credit with a Scottish
bank with a U.S. dollar equivalency of approximately $330,000 at December 31,
1997. This line of credit operates as an overdraft facility and is secured
by assets of Techdyne (Scotland) with a carrying value of approximately
$4,992,000 at December 31, 1997, and is guaranteed by Techdyne. No amounts
were outstanding under this line of credit as of December 31, 1997.
Scheduled maturities of long-term debt outstanding at December 31, 1997
are: 1998--$909,000; 1999--$760,000; 2000--$1,791,000; 2001--$1,176,000;
2002--$490,000; thereafter--$402,000. Interest payments on all of the
above debt amounted to approximately $270,000, $136,000 and $155,000 in
1997, 1996 and 1995, respectively.
The Company's line of credit and term loan contain certain restrictive
covenants that, among other things, restrict the payment of dividends, re-
strict additional indebtedness, and require maintenance of certain financial
ratios.
NOTE 3--INCOME TAXES
Subsequent to the completion of the Company's public offering on
October 2, 1995, the Company files separate federal and state income tax
returns from its Parent, with its income tax liability reflected on a
separate return basis.
The Company has a net operating loss carryforward of approximately
$3,805,000 at December 31, 1997 and $4,906,000 at December 31, 1996,
expiring between 2003 and 2010. Subsequent to completion of the Company's
public offering, the Company's net operating losses can only be used to
offset its taxable consolidated domestic income and cannot be utilized in
the consolidated federal and state income tax returns of the Parent as was
done previously. The Company's new subsidiary Lytton, will be included in
the Company's consolidated federal tax return effective August 1, 1997 with
the Company's net operating loss carryforwards able to be utilized to offset
any income taxable for federal tax return purposes generated by this sub-
sidiary.
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 $850,465 at
December 31, 1997 and $1,798,000 at December 31, 1996, has been recognized
to offset the deferred tax assets. Significant components of the Company's
deferred tax liabilities and assets are as follows:
December 31,
------------------------
1997 1996
--------- --------
Deferred tax liabilities:
Depreciation $399,000 $146,000
Accelerated capital allowances
(Scotland) 99,003 102,603
Other 9,000 27,000
---------- ---------
Total deferred tax liability 507,003 275,603
Deferred tax assets:
Inventory Obsolescence 212,023 47,000
Cost capitalized in ending inventory 63,000 32,000
Accrued expenses 85,000 13,000
Other 69,000 33,000
---------- ---------
Sub-total 429,023 125,000
Net operating loss carryforward 1,432,000 1,846,000
---------- ---------
Total deferred tax asset 1,861,023 1,971,000
Valuation allowance for deferred tax assset (850,465) (1,798,000)
---------- ---------
Net deferred tax asset 1,010,558 173,000
---------- ---------
Net deferred tax liability $ 503,555 $ (102,603)
========= =========
F-14
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 3--INCOME TAXES--(Continued)
Deferred taxes in the accompanying balance sheets consist of the following
components:
DECEMBER 31,
1997 1996
------- --------
Current deferred tax asset $1,010,558 $ 125,000
Long-term deferred tax asset -- 48,000
Long-term deferred tax liability (507,003) (275,603)
---------- ---------
Net long-term deferred tax liability (507,003) (227,603)
Net deferred tax asset (liability) $ 503,555 $(102,603)
========== =========
For financial reporting purposes, income before income taxes includes the
following components:
Year Ended December 31,
------------------------------------
1997 1996 1995
---------- ----------- ----------
United States $1,150,804 $ 227,813 $ 340,495
Foreign (289,556) 782,641 1,506,389
---------- ---------- ----------
$ 861,248 $1,010,454 $1,846,884
========== ========== ==========
Significant components of the provision (benefit) for income taxes are as
follows:
Year Ended December 31,
------------------------------------
1997 1996 1995
---------- ----------- ----------
Current:
Federal $ 34,148 $ 5,000 $ 21,600
Foreign (95,864) 259,270 493,286
State 1,000 -- --
--------- --------- ---------
(60,716) 264,270 514,886
Deferred:
Federal (503,555) -- --
Foreign -- 3,476 16,680
--------- --------- ---------
$(564,271) $ 267,746 $ 531,566
========= ========= =========
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
(benefit) is:
Year Ended December 31,
-----------------------------------
1997 1996 1995
---------- ----------- ---------
Statutory tax rate (34%)
applied to income before
income taxes $ 292,824 $ 343,554 $ 627,941
Increases (reduction) in taxes
resulting from:
State income taxes-net of
federal income tax effect 31,263 --- ---
Benefit from net operating
losses (893,000) (73,000) (94,000)
Non deductible items 20,593 --- ---
Other (15,951) (2,808) (2,375)
--------- -------- --------
$(564,271) $267,746 $531,566
========= ======== ========
F-15
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 3--INCOME TAXES--(Continued)
Undistributed earnings of the Company's foreign subsidiary amounted to
approximately $2,736,000 December 31, 1997 and $2,930,000 at December 31,
1996. 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 $137,000 and $147,000
would be payable upon remittance of all previously unremitted earnings at
December 31, 1997 and December 31, 1996, respectively.
Income tax payments were approximately $269,000, $487,000, and $272,000,
in 1997, 1996 and 1995, 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 1997, 1996
and 1995.
The advances from Parent were made under a demand convertible
promissory note and bear interest at 5.7%. The balance of the note
including accrued interest, which amounted to $2,292,000 at December 31,
1997, 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%. As a result of the Lytton Acquisition, the Parent's
ownership was diluted to 58.9%. In November 1997, the Parent converted
$875,000 of this note into 500,000 shares of the Company's common stock
increasing its ownership interest to 62.9%. Advances from the Parent on
the balance sheet includes the convertible note balance and an advance
payable to the Parent of approximately $15,000 at December 31, 1997 and 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
$152,000, $140,000 and $228,000, in 1997, 1996 and 1995, respectively, and
is included in the net balance due the Parent.
The Company has deferred the gain on the sale of real property to its
Parent of approximately $161,000. The premises are leased from the Parent
under a 5-year net lease expiring March 31, 2000 at an annual rental of
$94,000 plus applicable taxes.
The Parent has agreed not to require repayment of the intercompany
advances prior to January 1, 1999 and, therefore, the advances have been
classified as long-term at December 31, 1997.
The Company manufactures certain products for the Parent. Sales of the
products were $214,000, $278,000 and $219,000 in 1997, 1996 and 1995,
respectively.
F-16
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 5--RELATED PARTY TRANSACTIONS
For the years ended December 31, 1997, 1996 and 1995, respectively, the
Company paid premiums of approximately $325,000, $312,000 and $317,000, for
insurance through a director and stockholder, and the relative of a director
and stockholder.
For the years ended December 31, 1997, 1996 and 1995, respectively,
legal fees of $53,000, $32,000 and $90,000, were paid to an officer of the
Parent who acts as general counsel for the Company and the Parent.
Lytton has a deferred compensation agreement with its President. The
agreement calls for monthly payments of $8,339 provided that Lytton's cash
flow is adequate to cover these payments with interest to be calculated on
any unpaid balance as of August 1, 1999. During the period ending December
31, 1997, a total of $33,357 was paid under this agreement.
NOTE 6--COMMITMENTS AND CONTINGENCIES
Commitments
Lytton leases its operating facilities from an entity, which is owned
by the former owner and the president of Lytton. The operating lease, which
expires July 31, 2002, requires monthly lease payments of approximately
$17,900 for the first year, adjusted in subsequent years for the Consumer
Price Index, and contains renewal options for a period of five to ten years
at the then fair market rental value. The Company leases several facilities
including that of Lytton and those under lease from its Parent which expire
at various dates through 2002 with renewal options for a period of five
years and the then fair market rental value. The Company's aggregate lease
commitments at December 31, 1997, are approximately: 1998--$632,000,
1999--$625,000, 2000--$534,000, 2001--$481,000 and 2002--$237,000. Total
rent expense was approximately $656,000, $491,000 and $483,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Lytton sponsors a 401(k) Profit Sharing Plan covering substantially all
of its employees. The discretionary profit sharing and matching expense
since the Company acquired Lytton on July 31, 1997 through December 31,
1997 amounted to approximately $16,000.
Contingencies
In the first quarter of 1996, a temporary worker provided by a tempo-
rary personnel agency was injured while working at the Company. The worker
was insured through the temporary personnel agency. While the full extent
of the temporary worker's injuries and the ultimate costs associated with
those injuries are not presently known, the Company anticipates that its
insurance is adequate to cover any potential claims which might arise.
NOTE 7--STOCK OPTIONS
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, Financial Accounting Standards Board 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.
F-17
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 7--STOCK OPTIONS--(Continued)
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 December 31,
1997, to certain of its officers, directors and employees. These options
are exercisable for a period of five years at $1 per share.
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 and may be exercised for cash or subject to board ap-
proval, 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.
In June 1997, the Company adopted a Stock Option Plan for up to 500,000
options, and pursuant to the plan the board granted 375,000 options exercis-
able for five years through June 22, 2002 at $3.25 per share, the closing
price of the common stock on the grant date.
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 1997 and 1995,
respectively: risk-free interest rate of 5.59% and 6.75%; no dividend yield;
volatility factor of the expected market price of the Company's common
stock of .60% and .56%; and an expected life of the options of 2.5 years
for the options issued during 1997 and 2.5 years for the options issued
during 1995.
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restric-
tions 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 materi-
ally 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 recog-
nizes 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 1997 and 1995 is as follows:
1997 1995
---- ----
Pro forma net income $927,000 $1,250,000
======== ==========
Pro forma earnings per share:
Basic $.21 $.38
==== ====
Diluted $.17 $.25
==== ====
F-18
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 7--STOCK OPTIONS--(Continued)
A summary of the Company's stock option activity, for the years ended
December 31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year 326,500 378,400 227,500
Granted 375,000 3.25 152,500 1.75
Exercised (300) 1.00 (50,700) 1.00 (400) 1.00
Expired (2,100) 1.00 (1,200) 1.00 (1,200) 1.00
-------- -------- --------
Outstanding-end of year: 699,100 326,500 378,400
======= ======== ========
Outstanding and exercisable
at end of year:
May 1994 options 171,600 1.00 174,000 1.00 150,900 1.00
February and April 1995 152,500 1.75 152,500 1.75 227,500 1.75
options
June 1997 options 375,000 3.25
------- -------- --------
699,100 326,500 378,400
======= ======== ========
Weighted-average fair value
of options granted during
the year $1.33 $.69
===== ====
</TABLE>
The remaining contractual life for the 1994 options is 1.39 years, the
1995 options is 2.2 years and the 1997 options is 4.47 years at December 31,
1997.
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 and 1,000,000
redeemable common stock purchase warrants were issued. The warrants provide
for the purchase of one common share, each with an exercise price of $5.00
exercisable from September 13, 1995 through September 12, 1998. During 1997,
approximately 41,000 warrants were exercised resulting in proceeds of
approximately $194,000, net of commissions. The underwriter received
warrants to purchase 100,000 shares of common stock and/or 100,000 warrants
exercisable from September 13, 1996 through September 12, 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 Parent may convert the balance of the convertible promissory note
from the Company at December 31, 1997 of approximately $2,292,000, including
accrued interest, at $1.75 per common share, which would increase the
Parent's ownership to 70.4%.
The Company has 3,168,182 shares reserved for future issuance at
December 31, 1997.
NOTE 9--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following summarizes certain quarterly operating data:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
------------------------------------- --------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands except per share data)
Net Sales $6,343 $6,642 $8,978 $11,056 $6,768 $6,147 $5,263 $5,938
Gross profit 988 990 1,080 1,244 1,035 877 769 687
Net income 335 270 175 646 390 129 181 43
Earning per share:
Basic $.08 $.06 $.04 $.13 $.10 $.03 $.04 $.01
Diluted $.06 $.05 $.03 $.10 $.07 $.03 $.03 $.01
</TABLE>
F-19
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 9--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Since the computation of earnings per share is made independently for
each quarter using the 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 in the fourth quarter of 1995, which shares
were included on a pro rata basis in the weighted average shares for 1995.
The Company recorded a deferred tax credit of approximately $500,000
in the fourth quarter of 1997 and a loss relating to inventory valuation
and obsolescence of $187,000 in the fourth quarter of 1995.
NOTE 10--ACQUISITION
On July 31, 1997, the Company acquired Lytton, which manufactures and
assembles printed circuit boards and other electronic products, for
$2,500,000 cash, paid at closing, and issuance of 300,000 shares of the
Company's common stock which have been registered for the seller. The
Company has guaranteed that the seller will realize a minimum of
$2,000,000 from the sale of these shares of common stock. The difference of
$968,750 between the fair value of the common stock at the date of acquisi-
tion and the guaranteed value has been considered as part of the cost of the
acquisition and is reflected as paid-in capital.
The acquisition was accounted for under the purchase method of
accounting and, accordingly, the results of operation of Lytton have been
included in the accompanying consolidated condensed statement of income since
August 1, 1997. The total purchase price in excess of the fair value of net
assets acquired will be amortized over 25 years.
The net purchase price was allocated as follows:
Working capital, other than cash $ 1,398,588
Property, plant and equipment 1,959,751
Other assets 3,000
Goodwill 2,230,103
Other liabilities (1,335,432)
------------
$ 4,256,010
============
Net cash portion ofpurchase price $ 2,166,010
Estimated costs of acquisition 90,000
Common stock issued 2,000,000
------------
$ 4,256,010
============
In addition, additional contingent consideration may be due if Lytton
reaches pre-defined earning and sales levels over the next three years. When
the contingency is resolved and if additional consideration is due, the then
current fair value of the consideration will be recorded as goodwill, which
will be amortized over the remainder of the initial 25 year life.
The following pro forma consolidated condensed financial information
reflects the Lytton acquisition as if it had occurred on January 1, 1996. The
pro forma financial information does not purport to represent what the
Company's actual results of operations would have been had the sale
occurred as of January 1, 1996 and may not be indicative of operating
results for any future periods.
F-20
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997
NOTE 10--ACQUISITION--(Continued)
SUMMARY PRO FORMA INFORMATION
Year Ended
December 31,
-----------------------------
1997 1996
---- ----
Total revenues $43,867,000 $40,533,000
=========== ===========
Net income $ 1,840,000 $ 1,110,000
============ ============
Earnings per share:
Basic $.39 $.25
==== ====
Diluted $.30 $.19
==== ====
F-20
<PAGE>
EXHIBIT INDEX
(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)). *
(viii) Form of 1997 Stock Option Plan (incorporated by reference to
the Company's Current Report on Form 8-K dated June 24, 1997
("June 24, 1997 Form 8-K"), Item 7(c)(4)(i)). *
(ix) Form of 1997 Incentive Stock Option (incorporated by reference
to the Company's June 24, 1997 Form 8-K, Item 7(c)(4)(ii)). *
(x) Form of 1997 Non-Qualified Stock Option (incorporated by
reference to the Company's June 24, 1997 Form 8-K, Item
7(c)(4)(iii)). *
<PAGE>
(10)(i) Lease Agreement between the Company and Medicore, Inc.(1)
dated July 17, 1990.
(ii) Lease Renewal Letter from the Company to Medicore, Inc.(1)
dated December 19, 1994 (incorporated by reference to the
Company's Form SB-2, Part II, Item 27, 10(b)). *
(iii) Form of Exclusive Sales Representative Agreement (incorporated
by reference to Medicore, Inc.'s(1) 1994 Form 10-K, Part IV,
Item 14 (a) 3 (10)(lxiv)). *
(iv) 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).*
(v) Employment Agreement between Techdyne (Scotland) Ltd.(3) and
John Clark Grieve dated March 11, 1988.
(vi) Guarantee of Techdyne (Scotland) Ltd.(3) Line of Credit
with Royal Bank of Scotland Plc dated March 3, 1989.
(vii) 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)). *
(viii) 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)). *
(ix) 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)). *
(x) 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)). *
(xi) 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)). *
(xii) 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)).*
<PAGE>
(xiii) 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)). *
(xiv) 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)). *
(xv) 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)).*
(xvi) 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)).*
(xvii) Service Agreement between the Company and Medicore, Inc.(1)
dated October 25, 1996 (incorporated by reference to the
Company's Registration Statement on Form S-3, Registration
No. 333-15371, Part II, Item 16, Exhibit 10(a)).*
(xviii) First Amendment to Loan and Security Agreement, Loan Agreement
and Security Agreement between the Company and Barnett Bank,
N.A. dated July 31, 1997 (incorporated by reference to the
Company's Current Report on Form 8-K dated August 12, 1997
("August 12, 1997 Form 8-K"), Item 7(c)(99)(i)).*
(xix) Revolving Demand Promissory Note from the Company to Barnett
Bank, N.A. dated July 31, 1997 (incorporated by reference to
the Company's August 12, 1997 Form 8-K, Item 7(c)(99)(ii)).*
(xx) Unconditional and Continuing Guaranty of Payments and Per-
formance by Medicore, Inc.(1) in favor of Barnett Bank, N.A.
dated July 31, 1997 (incorporated by reference to the
Company's August 12, 1997 Form 8-K, Item 7(c)(99)(iii)).*
(xxi) Subordination Agreement among the Company, Barnett Bank, N.A.
and Medicore, Inc.(1) dated July 31, 1997 (incorporated by
reference to the Company's August 12, 1997 Form 8-K, Item
7(c)(99)(iv)).*
(xxii) Second Amendment to Loan and Security Agreement between the
Company and Barnett Bank, N.A. dated as of December 29,
1997 (incorporated by reference to the Company's Form 8-K
dated January 20, 1998 ("January, 1998 Form 8-K"), Item
7(c)(99)(i)).*
(xxiii) Revolving Promissory Note form the Company to Barnett Bank,
N.A. for $1,600,000 dated as of December 29, 1997 (incor-
porated by reference to the Company's January, 1998 Form 8-K,
Item 7(c)(99)(ii)).*
(xxiv) Unconditional and Continuing Guaranty of Payment and Per-
formance(3) by Medicore, Inc.(1) in favor of Barnett Bank,
N.A. dated as of December 29, 1997 (incorporated by reference
to the Company's January, 1998 Form 8-K, Item 7(c)(99)(iii)).*
<PAGE>
(xxv) Subordination Agreements(4) among the Company, Barnett Bank,
N.A. and Medicore, Inc.(1) (incorporated by reference to the
Company's January, 1998 Form 8-K, Item 7(c)(99)(iv)).*
(xxvi) Loan Agreement for $1,500,000 between the Company and Barnett
Bank, N.A. dated as of December 29, 1997 (incorporated by
reference to the Company's January, 1998 Form 8-K, Item
7(c)(99)(v)).*
(xxvii) Promissory Note from the Company to Barnett Bank, N.A. for
$1,500,000 dated as of December 29, 1997 (incorporated by
reference to the Company's January, 1998 Form 8-K, Item
7(c)(99)(vi)).*
(xxviii) Commercial Security Agreement between the Company and Barnett
Bank, N.A. dated as of December 29, 1997 (incorporated by
reference to the Company's January, 1998 Form 8-K, Item
7(c)(99)(vii)).*
(xxix) International Swap Dealers Association, Inc. Master Agreement
between the Company and Barnett Bank, N.A. dated as of December
22, 1997 (incorporated by reference to the Company's January,
1998 Form 8-K, Item 7(c)(99)(viii)).*
(xxx) Lease Agreement between the Company and Route 495 Commerce
Park Limited Partnership dated March 25, 1997 (incorporated
by reference to the Company's Quarterly Report on Form 10-Q
for the first quarter of 1997, Item 6(a), Part II(10)).*
(xxxi) Lease Agreement between the Company and PruCrow Industrial
Properties, L.P. dated April 30, 1997 (incorporated by ref-
erence to the Company's Current Report on Form 8-K dated
June 4, 1997 ("June, 1997 Form 8-K"), Item 7(c)(10)(i)).*
(xxxii) Lease Agreement between the Company and EGP Houston Partners
Ltd. dated April 29, 1997 (incorporated by reference to the
Company's June, 1997 Form 8-K, Item 7(c)(10)(ii)).*
(xxxiii) Stock Purchase Agreement between Patricia A. Crossley, Lytton
Incorporated(2) and the Company dated July 31, 1997 (incor-
porated by reference to the Company's August 12, 1997 Form 8-K,
Item 7(c)(2)(i)).*
(21) Subsidiaries of the registrant.
(23) Consents of experts and counsel.
(i) Consent of Independent Certified Public Accountant.
(27) Financial Data Schedule (for SEC use only).
- ----------
* Documents incorporated by reference not included in Exhibit Volume.
LEASE
This Lease Agreement made and entered into this 17th day of July, 1990,
effective as of March 31, 1990, between MEDICORE, INC., a Florida corpora-
tion with offices at 2201 West 76th Street, Hialeah, Florida 33016, here-
inafter called "Lessor" and TECHDYNE, INC., a Florida corporation, with
offices at 2230 West 77th Street, Hialeah, Florida 33016, hereinafter
called "Lessee."
1. Leased Premises. Lessor hereby leases to Lessee, and Lessee
---------------
hereby leases from Lessor the following properties situated and being in
the City of Hialeah, County of Dade, State of Florida: (a) described as
that approximately 13,000 square feet comprising all of the space in the
building located at 2230 West 77th Street, Hialeah, Florida 33016 used for
offices and manufacturing and (b) described as that approximately 10,000
square feet comprising all of the space in the building located at 2200
West 77th Street, Hialeah, Florida 33016 used for a warehouse. The two
properties described in (a) and (b) are hereinafter collectively referred
to as "Leased Premises."
2. Term. The term of this lease shall be for five (5) years,
----
commencing April 1, 1990 and ending March 31, 1995 ("Lease Term").
3. Rent.
----
A. The Lessee shall pay to the Lessor as rent for the Leased
Premises during the term of this Lease the sum of One Hundred Thirty
Thousand ($130,000) Dollars per annum or Ten Thousand Eight Hundred Thirty-
three and 34/100 ($10,833.34) Dollars per month, plus Florida sales tax,
said rental to be paid in
<PAGE> 1
advance on the first day of each month during the Lease Term. Late payments
shall be subject to a ten (10%) percent late charge per month subject to
paragraph 17B. Payments, when received by Lessor, shall be applied first
to late charges, if any, and then delinquent rents.
B. Lessee further agrees to pay as additional rent all real
estate taxes, assessments for local, district and special district
improvements that may be assessed against or become a lien upon the Leased
Premises or any part thereof by virtue of any present or future law or
regulation of any governmental authority, the utility charges for water,
gas, fuel, oil and electricity consumed on the Leased Premises, and
insurance premiums respecting the Leased Premises. It is the intention
of the Lessor and the Lessee that the rent herein specified shall be net,
net to the Lessor in each year during the Lease Term; provided, however,
that the Lessee shall be under no obligation to make any payments on any
mortgage encumbering the Leased Premises, any franchise, inheritance or
income taxes which are or may become payable by or which may be imposed
against the Lessor, except to the extent Lessor and Lessee based on their
relationship file consolidated returns, then Lessee shall be responsible
for such income taxes attributable to it, or against any rents payable
hereunder or any gift, inheritance, transfer, estate or succession tax by
reason of any present or future law which may be enacted during the Lease
Term or any renewal thereof. Payment of the real estate taxes, as part
of the
<PAGE> 2
additional rent under this Lease, shall be made within fifteen (15) days
after the receipt of the invoice for the same by Lessee.
C. All payments to be made to the Lessor as set forth herein
shall be made at the address of Lessor as set forth in paragraph 25
hereunder or at such other place and to such other person as the Lessor
may from time to time designate in writing.
4. Use of Premises. The Leased Premises shall be used and occupied
---------------
by the Lessee for the operation of a light manufacturing facility, offices
and warehousing or for any other lawful use, which as to the latter is
subject to the consent of the Lessor. The Lessee hereby covenants and
agrees to comply with all the rules and regulations of the Board of Fire
Underwriters, Officers or Boards of the City, County or State having
jurisdiction over the Leased Premises, and with all ordinances and regu-
lations of governmental authorities wherein the Leased Premises are
located, at Lessee's sole cost and expense. Lessee, at its sole expense,
shall obtain all licenses or permits which may be required for the conduct
of its business within the terms of this Lease.
5. Option to Extend. Provided that the Lessee is not in default
----------------
of the Lease, the Lessee shall have the option to extend the Lease for an
additional period of five (5) years on the same terms and conditions
provided in the Lease at an additional rental to that required during the
Lease Term to be negotiated between the parties.
<PAGE> 3
The option to extend granted herein shall be exercisable by the Lessee
notifying Lessor in writing no less than three (3) nor more than five (5)
months prior to the expiration of the original Lease Term that the Lessee
wishes to exercise the option to extend the Lease Term.
6. Alterations. During the Lease Term, Lessee may, at its own
-----------
expense make such alterations, improvements, additions, and changes to
the Leased Premises as it may deem necessary or expedient for its opera-
tions; provided, Lessee first obtains the prior written consent of the
Lessor, and provided further that Lessee, subject to paragraph 8 of this
Lease, shall not tear down or materially demolish any of the improvements
on the Leased Premises, or make any material change or alteration in such
improvements which, when completed, would substantially diminish the value
of the Leased Premises. Lessee shall not make any change in or alteration
to the Leased Premises which would violate the terms of any policy of
insurance in force with respect to the Leased Premises.
7. Covenant Against Liens. It is expressly covenanted and agreed
----------------------
by and between the parties that nothing in this Lease shall authorize
Lessee to. do any act which shall in any way encumber the title of the
Lessor in and to said Leased Premises, nor shall the interest or estate
of the Lessor therein be in any way subject to any claim by way of lien
or encumbrance, whether claimed by operation of law or by virtue of any
express or implied contract, by said Lessee. Lessee covenants and
agrees to keep the Leased
<PAGE> 4
Premises free and clear of any and all claims for mechanics' and material-
men's liens and other liens caused to be imposed on the Leased Premises by
acts of the Lessee, and to save and hold harmless the Lessor against losses
or damages resulting from any and all such claims. Lessee shall have the
right at all times and at its own expense to contest and defend on behalf
of Lessor and Lessee, any action invoking such claims or liens.
8. Reversion of Improvements to Lessors. During the Lease Term and
------------------------------------
any renewals thereof and upon the expiration thereof, improvements made
upon the Leased Premises by Lessee shall be the property of Lessor, except
any improvements constructed by Lessee that may be removed without any
damage to the Leased Premises. Further, Lessee shall have the right and
privilege of erecting, installing or placing equipment or other fixtures
in the Leased Premises and shall further have the right and privilege of
removing all personal property, including but not limited to removable
furniture, trade fixtures, machines and other equipment installed at the
Leased Premises at the expiration or termination of the Lease.
9. Insurance. Lessee shall, at Lessee's cost and expense, for the
---------
mutual benefit of the Lessor and Lessee, carry comprehensive general
liability insurance including personal injury occurring upon, in or about
the Leased Premises, such insurance to afford protection in the amount of
One Million ($1,000,000) Dollars combined single limit, said policy to
name the Lessor as an addi-
<PAGE> 5
tional insured and shall provide for thirty (30) days notice to Lessor
prior to any cancellation of such policies.
Lessee shall, at its own cost and expense, keep the Leased Premises
insured against loss or damage by fire or other casualty, including
vandalism, malicious mischief and sprinkler leakage, insured against
under the usual extended coverage endorsement available in the State of
Florida by insurance policies equal to at least the replacement cost of
the Leased Premises; and, in addition to and not limited to the foregoing,
carry such fire and other usual and available insurance and in such
amounts up to the amount of any mortgage then existing on the Leased
Premises as may from time to time be required by the holders of any
mortgage or mortgages on the fee, or leasehold, including but not by
way of limitation, extended coverage if required by such holders.
All insurance carried by Lessee as required by this paragraph 9 shall
be carried in favor of Lessor and Lessee, as their respective interests
may appear, and shall, whenever appropriate, and if requested by Lessor,
include the interest of the holders of any mortgages on the fee or
leasehold. Such insurance shall be in such form and issued by such
companies as shall be satisfactory to any institutional mortgagee of the
Leased Premises.
Lessee shall procure policies for all insurance required by this
paragraph 9 for periods of not less than one year and shall deliver to
Lessor such policies with evidence of the payment of premiums thereon
and shall procure renewals thereof from time to time at least ten days
before the expiration thereof.
<PAGE> 6
If Lessee shall fail to pay the premiums or obtain renewals for such
policies as they come due, Lessor may pay such premiums or obtain such
renewals and charge the cost thereof to Lessee as additional rent, which
shall be paid to Lessor on the next rent day. Lessee shall furnish to
Lessor certificates evidencing such policies prior to taking possession
of the Leased Premises.
10. Liability. Lessor is to be free from all liability and claim for
---------
damages by reason of any injury to any person or persons, Including Lessee,
or property of any kind whatsoever, and to whomsoever belonging arising
from injury wholly or in party by any act or omission of the Lessee, its
employees, customers or invitees occurring on the Leased Premises, during
the Lease Term or any extension thereof. Lessee covenants and agrees to
defend, indemnify and save harmless Lessor from all such liability, loss,
costs and obligations on account of or arising out of any injuries or
losses, however occurring, arising from any act or omission of the Lessee
and as contemplated by this paragraph 10. In the event of the failure of
the Lessee to so defend, Lessor may, at the cost and expense of Lessee,
and upon prior twenty (20) days written notice to Lessee, defend any and
all suits or actions for which Lessor is named and Lessee has liability
as contemplated in this paragraph 10, and Lessee will satisfy and pay any
and all judgments that may be recovered against Lessor in such actions as
contemplated herein.
<PAGE> 7
11. Maintenance and Repair.
----------------------
A. Lessor, at its own expense, shall be responsible for the good
condition and for all maintenance and repair of the exterior structure and
foundation of the Leased Premises, including but not limited to landscaping,
paving and structural components so that the same shall be kept in good and
substantial repair and condition, but exclusive of the roof, which shall
be the responsibility of the Lessee. Lessor further warrants that the
building will be properly maintained; provided Lessee shall be responsible
for, at its cost and expense, the maintenance and repair of all heating,
ventilating, air conditioning, plumbing, security and electrical systems
of and servicing the Leased Premises. Lessor agrees to cause to have
furnished to the Leased Premises, gas, water, electricity and other
utilities suitable for the intended use for light manufacturing, general
offices, and warehousing, provided that Lessor shall not be responsible
for any interruption of such services caused by any utility company or
governmental regulatory agency supplying the same or any events beyond
its control.
B. Lessee shall be responsible for removal of trash and garbage,
janitorial services and cleaning the parking lot. All utility charges
for the Leased Premises shall be the responsibility of the Lessee.
Lessee shall be responsible, at its own expense, to keep, repair and
maintain all other portions of the Leased Premises, other than the exterior
structure and foundation, in good and
<PAGE> 8
sanitary order, condition and repair, reasonable wear and tear and
damage by accidental fire or other casualty excepted.
C. No waste, damage or injury to the Leased Premises shall be
committed, and at the end of the Lease Term, the Leased Premises shall be
restored to the same condition in which it was at the commencement of the
Lease Term, and the cost of said restoration shall be paid by Lessee,
which cost shall be treated as additional rent due and owing under the
terms of this Lease. This paragraph is subject to the exceptions of
ordinary wear and tear and unavoidable damage by fire, elements, casualty,
or other cause or happening not due to Lessee's negligence.
12. Signs. Lessee shall have the right to place such business signs,
-----
whether electric or other artistic signs, upon or within the Leased
Premises, provided, however, that the Lessee shall comply in all respects
with any governmental agency orders, regulations or ordinances with respect
to the placement of all of said signs.
13. Subleasing and Assignment. The Lessee shall not assign this
-------------------------
Lease, nor sublet the Leased Premises or any part thereof, nor permit
anyone other that Lessee to occupy the Leased Premises or any part thereof,
except with the prior written approval of the Lessor. Lessee may sublet
all or a portion of the Leased Premises to a wholly-owned subsidiary or
division of the Lessee. In the event of any assignment or subletting or
other occupancy through and by the Lessee, then Lessee shall remain
liable to the Lessor for the performance of all obligations imposed on
Lessee hereunder.
<PAGE> 9
14. Casualty. If the Leased Premises are damaged by fire, earth-
--------
quake or other casualty other than caused by the acts or omissions of
the Lessee or Lessee's employees, agents, invitees, or customers, to the
extent that the ordinary business of the Lessee cannot reasonably be
conducted therein and if such damage cannot be or is not within reasonable
diligence, repaired by the Lessor within ninety (90) days from the
happening of the injury, then either Lessor or Lessee shall have the
option of terminating this Lease by written notice delivered to the other
party within thirty (30) days following the happening of said injury.
If either Lessor or Lessee elects to terminate this Lease as aforesaid,
Lessee shall immediately vacate and surrender possession of the Leased
Premises to Lessor; provided, however, that if the Lessor elects to
terminate the Lease and damage to the Leased Premises is not in excess
of twenty-five (25%) percent, Lessee has the option to make repairs and
deduct costs of such repairs from rental payments or otherwise be
reimbursed by the Lessor for such repairs and Lessee shall not have to
vacate the Leased Premises. If neither Lessee nor Lessor elects to
terminate this Lease, or if the Leased Premises are not damaged to the
extent that the damage unreasonably interferes with the conduct of the
Lessee's ordinary business, Lessor shall proceed with said repairs with
all reasonable diligence. If the damage and repairs to the Leased
Premises do not unreasonably interfere with the business being conducted
by the Lessee, there shall be no reduction in rent. In all other events,
the rent shall be proportionately abated to the degree that
<PAGE> 10
Lessee's use of the Leased Premises is impaired by the damages to the
Leased Premises. Should the damage to the Leased Premises be so extensive
as to render the Leased Premises untenable and both parties elect not to
terminate the lease then, rent payments hereunder shall cease until the
Leased Premises shall be repaired by the Lessor. Nothing in this Lease
shall make Lessor liable for any compensation or damage, by reason of such
interruption of Lessee's business through any such casualty, destruction
or damage or arising from the necessity of repairing any portion of the
Leased Premises affected by such damage.
Proceeds from insurance on the building in which the Leased Premises
are situated and for improvements and betterments in the Leased Premises
shall be paid to the Lessor upon the occurrence of any loss for repair of
the Leased Premises or if this Lease is terminated in accordance with the
terms of this paragraph 14, shall be used for whatever purpose the Lessor
shall determine except that, if the damage to the Leased Premises is not
in excess of twenty-five (25%) percent, and the Lessee elects to make the
repairs, the insurance proceeds attributable to those repairs shall be paid
to the Lessee for payment of all such repairs. In addition, that portion
of the insurance proceeds specifically attributable to the personal
property and fixtures belonging to the Lessee shall be paid to the Lessee.
No losses shall be adjusted without the approval of Lessor.
<PAGE> 11
15. Condemnation. If any part of the Leased Premises should be taken
------------
or condemned for a public or quasi-public use, and a part thereof remains
which is susceptible for the use intended hereunder, this Lease shall, as
to the part so taken, terminate as of the date title shall vest in the
condemnor, and the rent payable hereunder shall be adjusted so that the
Lessee shall be required to pay for the remainder of the Lease Term only
such portion of such rent as the value of the part remaining after the
condemnation bears to the value of the entire Leased Premises at the date
of condemnation. If all the Leased Premises, or such part thereof be
taken or condemned so that there does not remain a portion susceptible
for occupation hereunder, this Lease shall thereupon terminate. Whether
or not a portion of the Leased Premises is susceptible for the use intended
shall be determined by arbitration if the parties cannot otherwise agree
on said portion. If a part or all of the Leased Premises be taken or
condemned, all compensation awarded upon such condemnation or taking,
shall go to the Lessor and the Lessee shall have no claim thereto.
16. Ingress and Egress. The Lessee, its agents, employees, invitees
------------------
and customers shall have the rights of ingress and egress to and from the
Leased Premises including but not limited to ingress and egress over the
streets, alleys, sidewalks, driveways or public ways adjoining or common
areas within the building in which the Leased Premises are located.
<PAGE> 12
17. Default of Lessee.
-----------------
A. If default is made by Lessee in the observance, or per-
formance of any of the provisions, terms or conditions hereof other than
provisions providing for the payment of rents, and such default shall
continue for thirty (30) days after written demand for performance
specifying the nature of the default claimed, given by Lessor to Lessee,
or should Lessee abandon the Leased Premises or any part thereof, then,
at its option, Lessor, its successors or assigns, may, without notice or
process of law, re-enter and take possession of the Leased Premises and
remove all persons and all Lessee's property therefrom, and, if necessary,
place Lessee's personal property in storage at the expense and risk of
Lessee; and to seek enforcement by suit of the provisions hereof on the
part of the Lessee required to be kept or performed. Lessee shall not be
deemed in default if said default cannot with due diligence be cured within
the aforementioned thirty (30) day period and prior to the expiration of
such thirty (30) days, Lessee commences to eliminate the cause of such
default and proceeds diligently and with reasonable dispatch to take all
steps and do all things required to cure such default and does so cure
such default within a reasonable time thereafter.
B. In case the Lessee shall fail to pay when due any rent or
other money coming due to Lessor hereunder, the Lessor shall have the
right after five (5) days written notice of such default, to terminate
this Lease to the same extent and with all legal incidents as though the
Lease Term had expired by efflux of
<PAGE> 13
time, except that the Lessee shall have the right to reinstate said Lease
by payment in full of all rents and monies due and owing within said five
(5) day period; and if Lessee fails to cure said default, it shall be
lawful for the Lessor or its agents, to re-enter the Leased Premises and
repossess itself of said Leased Premises as of its original estate, and
the Lessor may have any other remedies available to it either in equity
or at law.
C. No re-entry upon the Leased Premises by the Lessor shall be
construed as an election on its part to terminate this Lease unless written
notice of such intention is given to the Lessee.
D. No receipt of monies by Lessor f from Lessee, after the
termination for any cause of this Lease shall reinstate, continue or
extend the terms of this Lease, it being agreed that, after the commence-
ment of a suit or after final judgment for possession of the Leased
Premises, the payment of any monies shall not waive or affect said suit
or judgment, except by mutual written agreement between Lessor and Lessee.
18. Default of Lessor. In the event of a default under the terms of
-----------------
this Lease on the part of the Lessor, the Lessee shall notify the Lessor
in writing of said default and the Lessor shall have thirty (30) days to
cure or commence to cure said default; provided that if the nature of the
default is such that it cannot be reasonably cured within thirty (30)
days, Lessor shall not be deemed to be in default if it shall commence
performance within said thirty (30) day period and by diligently proceeding
to so cure
<PAGE> 14
the default thereafter. If the Lessor shall not cure or commence to cure
the said default within the thirty (30) day period, the Lessee has the
option to either terminate this Lease and vacate the Leased Premises
immediately without any further liability under the Lease and take whatever
other remedies, either at law or equity, that may be available to it upon
such default, or cure the default and deduct costs and expenses from rental
payments and/or otherwise be reimbursed by the Lessor for such cure.
19. Termination if Legal Proceedings Filed. If Lessee shall at any
--------------------------------------
time during the term of this Lease be or become insolvent or if Lessee
shall be adjudged bankrupt, or if any sheriff, marshal, constable or other
officer takes possession of substantially all of Lessee's property by
virtue of any execution or attachment, or if a receiver or trustee shall
be appointed for substantially all of Lessee's property, and in the event
any of the happenings herein set forth occur and shall not be released,
stayed, bonded, insured, satisfied or vacated within sixty (60) days
after the occurrence of any of the events herein set forth, then and in
each of said cases, Lessee shall be deemed in default hereunder and it
shall and may be lawful for the Lessor, at Lessor's election, to enter
into and upon the Leased Premises, or any part thereof, and to have, hold,
possess and enjoy the Leased Premises, and this Lease may thereupon be
terminated, at Lessor's option. Lessor may, however, take possession
without electing to terminate this Lease, and in any of the above events,
Lessor shall have accorded to Lessor all rights under this Lease or
pursuant to law for Lessee's default.
<PAGE> 15
20. Remedies Cumulative-Waiver Not To Be Inferred.
---------------------------------------------
A. No remedy herein or otherwise conferred upon or reserved to
the Lessor or Lessee shall be considered exclusive of any other remedy,
but the same shall be cumulative and shall be in addition to every other
remedy given hereunder, or now or hereafter existing at law or in equity
or by statute; and every power and remedy given by this Lease to the Lessor
or the Lessee may be exercised from time to time and as often as occasion
may arise or as may be deemed expedient.
B. No waiver of any breach of any of the covenants of this Lease
shall be construed, taken or held to be a waiver of any other breach, or
waiver of, acquiescence in, or consent to any further or succeeding breach
of the same covenant.
21. Quiet Enioyment. Lessor warrants that the Lessee, upon payment of
---------------
the rents herein reserved and upon the performance of all the terms of this
Lease shall at all times during the Lease Term and during any extension or
renewal term, quietly and peaceably have, hold, occupy, enjoy and use the
Leased Premises without interruption by or disturbance from Lessor.
22. Right of Re-Entry. The Lessor, or any of its agents, employees
-----------------
or representatives, shall have the right upon reasonable notice to the
Lessee, to enter the Leased Premises during reasonable hours and without
interfering with the Lessee's operations, to exhibit the Leased Premises
or to put or keep upon the doors or windows of the Leased Premises a
notice "For Rent" at any time within ninety (90) days before the
expiration of the Lease Term or
<PAGE> 16
any renewal thereof, or to determine whether Lessee is complying with
the terms of this Lease.
23. Surrender of Premises Upon Expiration of Term. Upon the expira-
---------------------------------------------
tion of the Lease Term, or its earlier termination in accordance with the
terms and conditions hereof, and subject to paragraphs 8 and 11C, the
Lessee will forthwith surrender and deliver the said Leased Premises to
the Lessor in good order, reasonable use, ordinary decay, wear and tear
and damage by fire or other unavoidable casualty excepted.
24. Subordination. The rights and interests of Lessee under this
-------------
Lease shall be subject and subordinate to any mortgage that may be placed
upon the Leased Premises and to any and all advances to be made thereunder,
and to the interest thereon, and all renewals, replacements, and extensions
thereof. Whether this Lease is dated prior to or subsequent to the date
of said mortgage, Lessee shall execute and deliver whatever instruments
may be required for such purposes and in the event Lessee fails to do so
within ten (10) days after demand in writing, Lessee does hereby make,
constitute and irrevocably appoint Lessor as its attorney-in fact and in
its name, place and stead so to do. Lessor may assign its interest in
this Lease or any part thereof, and such assignee shall thereupon be
deemed Lessor hereunder.
25. Notice. In every case where, under any of the provisions of
------
this Lease, or in the opinion of either the Lessor or Lessee, or other-
wise, it shall or may become necessary or desirable to make, give, serve
or deliver any declaration, demand or notice of any
<PAGE> 17
kind or character, or for any purpose whatsoever, it shall be sufficient
to send or cause to be sent a copy of any such declaration, demand or
notice by United States registered or certified mail, return receipt
requested, postage prepaid, properly addressed to the Lessor at 2201
West 76th Street, Hialeah, Florida 33016 and to the Lessee at 2230 West
77th Street, Hialeah, Florida 33016, or at such other address as either
party may hereafter furnish to the other party, in writing, for the
declared and express purpose of receiving notices.
26. Amendment. No provision of this Lease may be amended or added to
---------
except by an agreement in writing signed by the parties or their respective
successors in interest.
27. Binding on Successors. This Lease shall be binding upon the
---------------------
Lessor and Lessee and their respective assigns, successors, heirs,
administrators, legal or personal representatives or executors, as the
case may be.
28. Space Preparation. It is clearly understood that the Leased
-----------------
Premises shall be leased by the Lessee on an "as is" basis and that Lessee
presently occupies the Leased Premises.
29. Governing Law. The Lease shall be governed by and construed
-------------
pursuant to the laws of the State of Florida.
30. Hold Over. If the Lessee shall occupy the Leased Premises with
---------
or without the consent of the Lessor, after the expiration of the Lease
Term and any renewal thereof, and the rent is accepted from the Lessee,
such occupancy and payment shall be construed as an extension of this
Lease for the term of one year
<PAGE> 18
only from the date of such expiration, and occupation, thereafter shall
operate to extend the Lease from year to year under the terms hereof,
unless other terms of such occupancy are endorsed herein or hereon in
writing and signed by the parties.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals as of the day and year first above written.
MEDICORE, INC., Lessor
By /s/ Thomas K. Langbein
-------------------------------
THOMAS K. IANGBEIN, President
TECHDYNE, INC., Lessee
By /s/ Barry Pardon
-------------------------------
BARRY PARDON, Executive Vice
President
SERVICE AGREEMENT
-----------------
between
TECHDYNE (SCOTLAND) LIMITED
---------------------------
and
JOHN CLARK GRIEVE
-----------------
<PAGE>
SERVICE AGREEMENT
-----------------
between
TECHDYNE (SCOTLAND) LIMITED
---------------------------
and
JOHN CLARK GRIEVE
-----------------
1988
----
cl
Dorman Jeffrey & Co.,
Solicitors,
Glasgow.
<PAGE>
I N D E X
---------
FIRST Interpretation 1-2
- -----
SECOND Employment 2
- -----
THIRD Standard of Performance 2-3
- -----
FOURTH Term of Employment 3
- ------
FIFTH Remuneration 3-4
- -----
SIXTH Expenses and Perquisites of Office 4-5
- -----
SEVENTH Outside Interests 5-6
- -------
EIGHTH Confidentiality 6-7
- ------
NINTH Discoveries and Inventions 7-8
- -----
TENTH Default 8-10
- -----
ELEVENTH Holidays 10
- --------
TWELFTH Incapacity 10-11
- -------
THIRTEENTH Restrictive Covenant 11-14
- ----------
FOURTEENTH Resignation on Termination 14
- ----------
FIFTEENTH Restriction on Effect of Termination 14
- ---------
SIXTEENTH Further Particulars re Employment 14
- ---------
SEVENTEENTH Notices 15
- -----------
EIGHTEENTH Lex Loci 15
- ----------
NINETEENTH Prorogation of Jurisdiction 16
- ----------
SCHEDULE Further Particulars of Employment 17
- --------
DORMAN, JEFFREY & CO., SOLICITORS, GLASGOW
------------------------------------------
<PAGE>
MINUTE OF AGREEMENT
-------------------
entered into between
TECHDYNE (SCOTLAND) LIMITED,
---------------------------
Incorporated under the Companies Act
and having its registered office
situate at 140 West George Street,
Glasgow, G2 2HH (hereinafter called
"the Company")
OF THE ONE PART
---------------
and
JOHN CLARK GRIEVE residing at 23
-----------------
Muir Street, Stenhousemuir,
Stirlingshire, FK5 3HZ (hereinafter
called "Mr. Grieve")
OF THE OTHER PART
-----------------
WHEREAS it has been agreed that Mr. Grieve is
-------
to be employed by the Company AND WHEREAS
-----------
it has been agreed that said employment of Mr.
Grieve shall be on the terms and subject to
the conditions hereinafter written: NOW
---
THEREFORE THE PARTIES DECLARE THAT THEY HAVE
--------------------------------------------
AGREED AND HEREBY AGREE AS FOLLOWS:-
----------------------------------
INTERPRETATION
--------------
FIRST For the purposes of this Agreement, the following words
- ----- and phrases shall have the following meanings:-
"the Board" shall mean the Board of Directors of the
Company.
"the commencement date" shall mean 12th October 1987.
"holding company", "subsidiary" and "equity share
capital" shall have the meanings respectively
<PAGE> 1
ascribed thereto pursuant to the provisions of
the Companies Act 1985, Section 736 and
Section 744.
"Group Companies" shall mean all companies which are
from time to time a holding company of the
Company, a subsidiary company of such holding
company or a subsidiary company of the Company.
EMPLOYMENT
----------
SECOND The Company shall employ Mr. Grieve in the position of
- ------ Managing Director and Mr. Grieve shall perform in a
competent and expeditious manner such duties and
exercise such powers in the conduct and management of
the Company or of any one or more Group Companies as
shall from time to time be delegated to him subject
always to such directions and restrictions as the Board
may from time to time determine. Mr. Grieve
shall perform such services for the Company and the Group
Companies without any additional remuneration as
Otherwise provided for in Clause FIFTH or as otherwise
-----
from time to time agreed in writing between the Company
and Mr. Grieve and Mr. Grieve shall accept such offices,
positions and/or directorships in any such companies as
the Chairman of the Board may require.
The Company shall be at liberty at any time and from
time to time to employ another person or persons to act
jointly with Mr. Grieve in said employment.
STANDARD OF PERFORMANCE
-----------------------
THIRD For so long as he shall be employed by the Company Mr.
- ----- Grieve shall devote his whole time and attention to the
performance of the duties pertaining to his said
employment and do his utmost at all times to promote and
<PAGE> 2
develop the business and interests of the Company and of
any Group Companies for which he may have
responsibilities from time to time and to make their
respective businesses a financial success and he shall
not knowingly do and shall exercise his best endeavours
to prevent being done, any act or thing which may in any
way be prejudicial to the Company or any Group
Companies. Mr. Grieve shall conform to such hours of
work as may from time to time reasonably be required of
him and shall not be entitled to receive any additional
remuneration for work outside his normal hours.
TERM OF EMPLOYMENT
------------------
FOURTH Mr. Grieve's employment hereunder shall be deemed to
- ------ commence (notwithstanding the date hereof) on the
commencement date as from which date this Agreement
shall supersede all or any existing Agreements which
subsist or may subsist between the Company and Mr.
Grieve and subject to the provisions herein contained,
Mr. Grieve's employment hereunder shall continue until
the expiry on the 31st day of December, Nineteen hundred
and eighty eight or on any date thereafter of not less
than three months' written notice of termination given
by either party to the other.
REMUNERATION
------------
FIFTH (A) There shall be paid to Mr. Grieve in respect of his
- ----- employment under this Agreement a salary (which
shall accrue on a day to day basis) at the rate of
not less than Twenty Five Thousand Five Hundred
Pounds (25,500) Sterling per annum from the
commencement date payable monthly as on the last
<PAGE> 3
day of each month for the month ending that date or
otherwise as may from time to time be arranged.
(B) Said salary shall be deemed to include any fee or
remuneration to which Mr. Grieve may otherwise be
entitled in respect of his holding any office,
directorships or other position with the Company or
any of the Group Companies.
EXPENSES AND PERQUISITES OF OFFICE
----------------------------------
SIXTH (A) Mr. Grieve shall have reimbursed to him all
- ----- reasonable travelling, hotel and other expenses
properly incurred by him in or about the
performance of his duties hereunder and for which
vouchers (if so required) are provided to the
reasonable satisfaction of the Chairman of the Board.
(B) Mr. Grieve shall be entitled at all times to the
exclusive use of a motor car suitable to Mr.
Grieve's office to be provided by the Company and
the expenses of providing running and maintaining
such motor car (including costs of taxing and
insuring same) shall be borne wholly by the Company.
Mr. Grieve shall be at liberty to use such car for
his private purposes at such cost as the Chairman
of the Board may from time to time determine, but
shall
(i) take good care thereof and procure that the
provisions and conditions of any policy of
insurance relating thereto are observed; and
<PAGE> 4
(ii) not permit any such car to be taken out of the
United Kingdom without the prior written
consent of the Chairman of the Board; and
(iii) comply with all directions from time to time
given by the Company with regard to motor
vehicles provided by it for the use of its staff.
(C) Subject to the rules and conditions thereof, the
Company shall procure and maintain the membership
of Mr. Grieve of the pension scheme (if any) from
time to time operated by the Company for the
Company's staff.
(D) Mr. Grieve shall, subject to any restrictions
imposed as a result of any previous medical
history, be entitled to benefit from such medical
services (if any) as the Company makes available to
senior executives from time to time.
(E) Mr. Grieve shall, subject to any restrictions
imposed as a result of any previous medical
history, be entitled to benefit from such permanent
health insurance scheme (if any) as the Company
makes available to senior executives from time to
time.
OUTSIDE INTERESTS
-----------------
SEVENTH Mr. Grieve shall not, unless with the prior consent in
- ------- writing of the Company during the period of his
employment under this Agreement
<PAGE> 5
(a) be directly or indirectly engaged or concerned or
interested in the conduct or management of any
other business of any kind whatsoever, whether or
not in competition with the Company or any of the
Group Companies nor shall he own or in any other
manner of way whatsoever, be interested in more
than five per cent of any class of issued share or
loan capital of any company listed on The Stock
Exchange, or
(b) accept any public, political, local government,
charitable, or academic office or appointment, or
undertake any work or duties related thereto or
connected therewith, or generally be or become
engaged in or involved with any interests which may
impinge on the time necessary or desirable to
enable Mr. Grieve fully to perform his duties
hereunder or otherwise adversely affect his ability
to perform his duties as aforesaid.
CONFIDENTIALITY
---------------
EIGHTH (A) Mr. Grieve shall not during the period of his
- ------ employment hereunder except in the proper course of
his duties and shall not at any time and in any
circumstances after the termination thereof divulge
to any person whomsoever and shall use his best
endeavours to prevent the publication or disclosure
of any secrets, trade secrets, confidential
knowledge or information or any information
concerning the business, finance or affairs of the
Company or of any of the Group Companies or of any
of their respective customers or clients or any of
their dealings or transactions which may have come
or may come to his knowledge during or in the
course of his employment.
<PAGE> 6
(B) Mr. Grieve shall immediately upon termination of
his employment hereunder for whatsoever reason
deliver up to the Company all price lists, lists of
customers, correspondence and other documents,
papers and property belonging to the Company or any
Group Company which may have been prepared by him
or may have come into his possession in the course
of his employment hereunder and shall not retain
any copies thereof.
DISCOVERIES AND INVENTIONS
--------------------------
NINTH Any discovery or invention or secret process or
- ----- improvement in procedure or any trade mark or design or
copyright made, discovered or produced by Mr. Grieve in
the course of his employment hereunder in connection
with or in any way affecting or relating to the business
of the Company or of any Group Company or capable of
being used or adapted for use therein or in connection
therewith shall forthwith be disclosed to the Company
and shall belong to and be the absolute property of the
Company or such Group Company as the Company may
nominate for the purpose. Mr. Grieve if and whenever
required so to do (whether during or after the
termination of his appointment) shall at the expense of
the Company (or its nominee) apply or join in applying
for letters patent or trade mark or other equivalent
protection in the United Kingdom or any other part of
the world for any such discovery, invention, process,
improvement, trade mark, design or copyright as
aforesaid and execute and do all instruments and things
necessary or desirable for vesting the said letters
patent or trade mark or other equivalent protection when
obtained and all right, title and interest in and to the
same in the Company (or its nominee) absolutely and as
<PAGE> 7
sole beneficial owner or in such other person as may be
required. Mr. Grieve hereby irrevocably appoints the
Company to be his attorney in his name, and on his
behalf to sign, execute do and deliver any such
instrument or thing and generally to use his name for
the purpose of giving to the Company (or its nominee)
the full benefit of the provisions of this Clause.
DEFAULT
-------
TENTH Notwithstanding the provisions of Clause FOURTH, the
- ----- ------
Company shall without prejudice to any other right or
remedy competent to the Company be entitled to terminate
Mr. Grieve's employment hereunder at any time during its
continuance without notice and without payment in lieu
of notice if Mr. Grieve
(1) shall be guilty of
(a) dishonesty, or
(b) gross misconduct, or
(c) gross neglect, whether by commission or
omission of or failure or delay in the
performance of any of his duties hereunder, or
(d) gross incompetence, mismanagement or
inefficiency in the performance of any of his
duties hereunder
to the prejudice of the Company or any Group
Companies from time to time or their respective
businesses, or
<PAGE> 8
(e) conduct tending to bring himself or the
Company or any of the Group Companies into
Contempt or disrepute, or
(2) shall have acted in any other way to the material
prejudice of the Company or any Group Companies or
their respective businesses, or
(3) shall commit any other breach of any of the
material provisions of this Agreement other than a
breach which (being capable of being remedied) is
remedied by him within fourteen days of being
called upon to do so in writing by the Chairman of
the Board, or
(4) shall have been absent from employment hereunder
due to disability for more than three consecutive
months or more than three months in aggregate in
any continuous period of six months, save where
such absence arises pursuant to an accident
occurring in the proper course of Mr. Grieve's
employment hereunder while engaged in the lawful
business of the Company or any of the Group
Companies, in which event the relevant period of
absence shall be six months or more than six months
in aggregate in any continuous period of one year, or
(5) shall become apparently insolvent, or shall execute
a trust deed for behoof of his creditors, or shall
compound with his creditors.
<PAGE> 9
HOLIDAYS
--------
ELEVENTH Mr. Grieve shall in addition to such statutory or public
- -------- holidays as may be determined by the Chairman of the
Board from time to time, be entitled without loss of
remuneration to four weeks' holiday in each calendar
year during his employment hereunder and such holiday
shall be taken at such time or times as shall be
approved by the Chairman of the Board, but shall not be
capable of being accumulated from year to year.
INCAPACITY
----------
TWELFTH In the event of Mr. Grieve prior to termination of his
- ------- employment hereunder becoming incapacitated through
illness from performing to the satisfaction of the
Company his duties hereunder, the Company shall procure
that he will, whilst so incapacitated, for a period (i)
of three months after that event or (ii) until
termination of his employment hereunder, whichever be
the sooner (such period being hereinafter referred to as
"the period"), continue to receive an income equal to
the full salary of which he is then in receipt as
hereinbefore provided and, on the expiry of the period
(other than by reason of the termination of his
employment hereunder) the Company shall (subject to
obtaining such medical certificates as the Company may
from time to time require) procure that Mr. Grieve shall
receive until whichever is the earlier of the expiry of
a further three months and the termination of his
employment hereunder, an income equal to one-half of the
said salary provided
(a) that in the event of his incapacity disappearing or
diminishing before the period or before termination
<PAGE> 10
of his employment hereunder Mr. Grieve shall resume
either his full duties hereunder on the same terms
and conditions as those pertaining at the date of
his incapacity or alternatively such restricted
duties as the Company may reasonably decide with
payment of not less than two thirds of said salary,
and
(b) that until termination of Mr. Grieve's employment
hereunder the Company shall notwithstanding Mr.
Grieve's incapacity continue to maintain the life
insurance, pension and other benefits in force at
the date of said incapacity and paid for by the
Company.
RESTRICTIVE COVENANT
--------------------
THIRTEENTH (A) Mr. Grieve shall not at any time within a period of
- ---------- one year from the date of termination of his
employment hereunder for whatsoever reason unless
with the prior written consent of the Company
(a) directly or indirectly whether as principal,
servant or agent, canvass, solicit or entice
or endeavour to entice away from the Company
or any of the Group Companies, any director or
employee of the Company or of any of the Group
Companies, or
(b) directly or indirectly, whether as principal,
servant or agent or in any other capacity
whatsoever carry on or be engaged or
interested in any business within Scotland
carrying on trade ("the trade") as
manufacturers, assemblers, designers,
<PAGE> 11
installers, developers, producers, dealers in,
agents for or distributors of electronic
cables and harness assemblies, electro-
mechanical and other products of the Company
or any Group Company in competition with the
Company or any Group Company,
(c) directly or indirectly, whether as principal
servant or agent, solicit or seek to obtain
for himself or for any person, firm or
corporation by whom he is employed or with
whom he is associated the custom of, or act as
principal, servant or agent for, or directly
or indirectly accept any benefit whether in
money or moneysworth from any business in
connection with the trade conducted for any
person, firm or corporation who either at the
date of termination of his employment or at
any time during the twelve months immediately
preceding such termination is or was a
customer of the Company or of any of the Group
companies, for whose business Mr. Grieve was
at any time in the course of his employment
hereunder responsible or with whom in the
course of his said employment he had any
dealings whatsoever; provided that
(i) for the purpose of this Clause the
expression "customer" shall be deemed to
include a prospective customer whose
business was the subject of negotiation
with the Company or any of the Group
companies at any time within a period of
twelve months prior to the termination of
Mr. Grieve's engagement hereunder, and
<PAGE> 12
(ii) in the event of Mr. Grieve directly or
indirectly receiving any benefit whether
in money or moneysworth as aforesaid at
or in respect of any time during said
period of one year he shall, without
prejudice to any other rights or remedies
competent to the Company or the relevant
Group company to be bound forthwith to
Account for and make payment to the
Company, in respect of such benefit, and
(iii) for the purpose of this Clause Mr. Grieve
acknowledges and agrees that where
multinational companies are customers of
the Company and/or any of the Group
Companies the restrictions herein
contained shall have effect in relation
to such multinational companies in
whatever country they are located.
(B) Each of the foregoing obligations shall be deemed
to be separate and severable obligations and each
of said obligations shall be construed accordingly.
(C) While the foregoing restrictions are considered by
the parties to be reasonable in all the
circumstances, it is agreed that if any of such
restrictions shall be held to be void or
ineffective for whatever reason but would be held
to be valid and effective if part of the wording
thereof were deleted or the periods thereof reduced
or the area thereof reduced in scope, the said
restrictions shall apply with such modifications as
may be necessary to make them valid and effective.
<PAGE> 13
RESIGNATION ON TERMINATION
--------------------------
FOURTEENTH Upon the termination of his employment hereunder for
- ---------- whatever reason, Mr. Grieve shall at any time or from
time to time thereafter upon the request of the Company
resign without claim for compensation for loss of
office, as a director of the Company and as a director
of such of the Group Companies as may be so requested
and should he fail to do so the Company is hereby
irrevocably authorised to appoint some person in his
name and on his behalf to sign and do any documents or
things necessary or requisite to give effect thereto.
RESTRICTION ON EFFECT OF TERMINATION
------------------------------------
FIFTEENTH The termination of this Agreement howsoever arising
- -------- shall not operate to affect such of the provisions
hereof as in accordance with their terms are expressed
to operate or have effect thereafter.
FURTHER PARTICULARS RE EMPLOYMENT
---------------------------------
SIXTEENTH Further particulars of the terms and conditions of Mr.
- --------- Grieve's employment are set out in the Schedule hereto
and shall be deemed to be incorporated in this
Agreement.
<PAGE> 14
NOTICES
-------
SEVENTEENTH Any notice or document required or permitted to be given
- ----------- or served under this Agreement-may be given or served
personally or by leaving the same or sending the same by
first class post at or to the registered office of the
party (where it is the Company) for the time being or
(in the case of Mr. Grieve) to his address as shown in
the preamble to this Agreement or at or to such other
address as shall have been last notified to the other
party for that purpose. Any notice or document given or
served by post shall be deemed to be given or served on
the second business day after the letter containing the
same was posted and in proving that any notice or
document was so given or served it shall be necessary
only to prove that the same was properly addressed and
posted as aforesaid.
LEX LOCI
--------
EIGHTEENTH This Agreement shall be interpreted according to the law
- ---------- of Scotland which shall apply to the whole terms
thereof.
<PAGE> 15
PROROGATION OF JURISDICTION
---------------------------
NINETEENTH Each of the parties hereby prorogates the non-exclusive
- ---------- jurisdiction of the Scottish Courts so far as not
already subject thereto: IN WITNESS WHEREOF these
------------------
presents typewritten on this and the preceding Fifteen
pages for Messrs. Dorman, Jeffrey & Co., Solicitors,
Glasgow are together with the Schedule hereto executed
in duplicate as follows:-
SEALED with the Common Seal of the said
- ------
TECHDYNE (SCOTLAND) LIMITED at
- ---------------------------
on the 11th day of MARCH Nineteen
hundred and eighty eight in the presence of:-
/s/ Gerard W. Clasley Director [SEAL]
- -------------------------
/s/ Joseph Verga Director/Secretary
- -------------------------
SIGNED by the said JOHN CLARK GRIEVE at
- ------ -----------------
at GLASGOW on the ELEVENTH day of MARCH
Nineteen hundred and eighty eight before
these witnesses:-
Witness /s/ David Lindsay Gibson
------------------------
Full Name DAVID LINDSAY GIBSON
------------------------
Address 140 WEST GEORGE ST
------------------------
GLASGOW
------------------------
0ccupation SOLICITOR
------------------------
/s/ John Grieve
----------------
Witness /s/ Eric Roger Galbraith
------------------------
Full Name ERIC ROGER GALBRAITH
------------------------
Address 140 WEST GEORGE
------------------------
STREET GLASGOW
------------------------
Occupation SOLICITOR
------------------------
<PAGE> 16
SCHEDULE
(1) Hours of Work: Mr. Grieve's normal hours of work at the date
-------------
hereof are from 9 a.m. to 5 p.m. (Monday to Friday) inclusive
of one hour for lunch daily but Mr. Grieve shall conform to
such hours of work as may reasonably be required of him for
the proper performance of his duties hereunder and shall not
be entitled to receive any additional remuneration for work
outside his normal hours.
(2) Sick pay: Until this Agreement is duly terminated pursuant
--------
to the provisions thereof Mr. Grieve shall notwithstanding
illness or other incapacity remain entitled for the period
contemplated in Clause TWELFTH of this Agreement, to receive
-------
his salary hereunder in full subject only to (a) a reduction
therein by an amount or amounts equal to the maximum benefit
which Mr. Grieve fully stamped would be entitled to claim
under the Social Security Act 1975 or any subsequent
legislation replacing or amending the same (whether or not
such benefit is paid) and (b) a reduction therein by an
amount or amounts equal to any payments made to Mr. Grieve
pursuant to any insurance then in effect with respect to any
incapacity.
(3) Holiday pay: On the expiration or termination of this
-----------
Agreement no entitlement to accrued holiday pay will arise.
(4) Pension Provisions: The Company does not at the date of
------------------
commencement have a Pension Scheme.
(5) The Grievance Procedure: In the event of Mr. Grieve wishing
-----------------------
to seek redress of any grievance relating to his employment
he should lay his grievance before the Chairman of the Board
in writing and the Chairman of the Board shall afford the
Appointee the opportunity of a full and fair hearing in
respect thereof and his decision on such grievance shall be
<PAGE> 17
final but without prejudice to any right or remedy competent
to Mr. Grieve in consequence of such decision.
(6) Previous Employment: Mr. Grieve does not have any relevant
-------------------
previous employment for the purposes of calculating his
continuous employment with the Company for the purposes of
the Employment Protection (Consolidation) Act 1978
/s/ Gerard W. Clasley Director
[SEAL]
/s/ Joseph Verga Director/Secretary
/s/ John Grieve
GUARANTY OF PAYMENT
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, TECHDYNE, INC., a corporation duly organized and existing
under the laws of the State of Florida (United States of America), having
its principal place of business at 2230 W. 77th Street, Hialeah, Florida,
U.S.A. ("TECHDYNE" or the "Guarantor"), is the owner of all of the issued
and outstanding capital stock of Techdyne (Scotland) Limited ("Techdyne
Scotland") (except that Mr. Daniel J. Chiodo, Chairman of TECHDYNE and
Techdyne Scotland is presently the record owner of one (1) share of
Techdyne Scotland being held in trust for the benefit of Techdyne
(Scotland), a Scottish registered company, with its registered office
at Provincial House, 140 West George Street, Glasgow, Scotland and
WHEREAS, Techdyne Scotland has requested The Royal Bank of Scotland,
Plc, a banking corporation organized and existing under the laws of
Scotland, having its registered office at 36 St. Andrews Square, Edinburgh,
Scotland ("Bank"), to create and extend to Techdyne Scotland a fluctuating
credit facility in the amount of Two Hundred Thousand Pounds Sterling
(f200,000) (hereinafter the "Facility"); and
WHEREAS, Techdyne Scotland has requested and may request the Bank in
the future to extend it additional overdraft, guarantee, and other
financial facilities and credits (collectively referred to herein as the
"Future Facilities"); and
WHEREAS, to induce the Bank to create and extend the Facility and
Future Facilities to Techdyne Scotland, TECHDYNE has agreed to execute
this Guaranty of Payment in favor of the Bank.
NOW, THEREFORE, in consideration of the Bank's agreement to make the
revolving credit facility available to Techdyne Scotland, TECHDYNE hereby
unconditionally guarantees to the Bank, its successors and assigns, the
prompt and full payment of all sums due or to become due pursuant to the
Facility, together with all interest accrued and to accrue thereon and any
other sums, liabilities or obligations of Techdyne Scotland to the Bank,
whether under the terms of the Facility, Future Facilities or otherwise or
under any other instrument or document evidencing or securing or related
to such sums, liabilities or obligations, whether absolute or contingent,
due or to become due, whether existing or hereafter arising and however
acquired and evidenced, (herein collectively referred to as "the Obliga-
tions") up to the total cumulative amount of Two Hundred Thousand Pounds
Sterling (f200,000).
1. The Guarantor shall pay any such Obligations which are not paid
when due (or, if the Obligations provide a grace period for payment, the
Guarantor shall pay any such sums upon expiration of such grace period).
Any and all payments to be made by Guarantor shall be free of any with-
holding or deduction of or on account of any taxes, except insofar as such
withholding or deduction would have been required or permitted under the
applicable Obligations, had Techdyne Scotland made the payment at issue.
Each such Obligation may be recovered in a separate action as it comes
due, or, in the event that the Bank shall accelerate the maturity of the
Obligations pursuant to the Bank's options, the Guarantor shall promptly
pay all Obligations up to the maximum amount herein before provided which
become due and payable on such acceleration of maturity. The Bank shall
have the absolute right to seek one or more money judgments for each cause
of action based solely upon this Guaranty.
2. The obligations of the Guarantor under this Guaranty are direct,
unconditional and completely independent of the obligations of Techdyne
Scotland. The Bank may exercise any of its rights under this Guaranty,
including without limitation bringing and prosecuting any action against
the Guarantor, without any
<PAGE> 1
requirement that the Bank join Techdyne Scotland as a party to the action,
or proceed against any security then held by the Bank for the obligations,
or notify or make demand upon or proceed against or exhaust any other
remedy against Techdyne Scotland, any other guarantor of the Obligations,
or any other person who might have become liable for the Obligations.
3. The liability assumed under this Guaranty shall not be affected
by the Bank's acceptance of any settlement or composition offered by
Techdyne Scotland or decreed with respect to Techdyne Scotland by any
court, either in liquidation, readjustment, receivership, bankruptcy or
otherwise, except only to the extent that such settlement has resulted in
actual payment of a part of the Obligations, and then only to that extent.
This Guaranty shall continue and remain in full force and effect in the
event that all or part of any payment made by Techdyne Scotland in connec-
tion with the Obligations is recovered from the Bank as a preference,
fraudulent transfer or similar voidable payment under any bankruptcy or
insolvency law.
4. This instrument is a continuing, binding absolute and unconditional
guaranty of payment which shall remain in full force and effect until
actual payment in full of the Obligations or until terminated by written
agreement between the Bank and the Guarantor.
5. The Guarantor hereby waives any and all defenses to any action or
proceeding brought to enforce this Guaranty or-any part of this Guaranty,
except the single defense that the sum claimed has actually been paid to
the Bank. Without limiting the foregoing in any way, but merely by way of
illustration, the Guarantor hereby specifically waives all technical,
dilatory or nonmeritorious defenses, and any defense predicated upon:
(a) incapacity, disability or lack of authority on the part of
or any other person; or
(b) liquidation, insolvency or bankruptcy of or any other party;
(c) any change or modificationf or extension or waiver of any
term of the Obligations, or any document executed by Techdyne Scotland
or any Guarantor with respect to the Obligations, or any indulgence or
forbearance or delay on the part of the Bank in the enforcement of any
term of the Obligations, or any such document, or any other or further
dealings or agreements between the Bank and Techdyne Scotland or
between the Bank and any other Guarantor or guarantors or sureties
for all or any part of the Obligations; or
(d) any failure to perfect, release of substitution for,
addition to, increase in or impairment of all or any part of the
security for the Obligations, or this Guaranty, whether for valuable
consideration or otherwise; or
(e) the fact that there may now or hereafter be other guarantors
or sureties liable for all or any part of the Obligations, or that
solvent persons other than Techdyne Scotland or the Guarantor may have
undertaken the payment of all or any part of the Obligations,
whether in connection with any transfer of any collateral for the
Obligations or otherwise; or
(f) subject to paragraph 3 hereof, the full or partial release
or discharge of Techdyne Scotland or any other present or future
guarantor or guarantors or sureties for all or any part of the Obli-
gations; or
(g) Any other act or omission by the Bank or failure by the
Bank to proceed promptly, or any other matter which might, but for
this waiver by the Guarantor, be deemed a legal or equitable release
or discharge of a surety or
<PAGE> 2
guarantor, regardless of whether such act or omission or failure or
other matter varies or increases the risk of any Guarantor or affects
the rights or remedies of any Guarantor.
6. The Bank shall not be required to notify the Guarantor of (a) the
Bank's acceptance of this Guaranty, (b) any disbursements of funds by or on
behalf of the Bank, (c) any modification of any document executed by
Techdyne Scotland or any other guarantor in connection with all or any
part of the Obligations, nor (d) any default by Techdyne Scotland under
the Obligations. The Guarantor hereby waives presentment for payment,
demand, protest, notice of protest or dishonor, notice of default, and any
other notice or demand whatsoever before the Bank commences to enforce its
rights under this Guaranty, whether by judicial proceedings or in any other
manner. The Bank shall have no obligation whatsoever to disclose to
Guarantor any information the Bank may now possess or hereafter obtain
about Techdyne Scotland, regardless of whether (i) the Bank has reason to
believe that such information materially increases the risk of Guarantor
beyond that which Guarantor intends to assume hereunder, or (ii) the Bank
has reason to believe that such information is unknown to any Guarantor, or
(iii) the Bank has a reasonable opportunity to communicate such information
to any Guarantor; the Guarantor understands and agrees that the Guarantor
is fully responsible for being and keeping informed of the financial condi-
tion of Techdyne Scotland and of all circumstances bearing on the risk of
failure to repay the Obligations.
7. Until the Obligations shall have actually been paid in full, the
Guarantor hereby (a) agrees not to seek reimbursement or repayment from
Techdyne Scotland or the liquidation of any security for the Obligations
by reason of having paid monies pursuant to this Guaranty, and (b) waive
any right to enforce any remedy as subrogees of or its successors and
assigns or to participate in the Obligations or in any security for the
Obligations.
8. In the event of any default by the Guarantor hereunder, the Bank
shall have the right to appropriate, at any time and without notice or
demand to the Guarantor, any property, balances, credit accounts or monies
of Guarantor or Techdyne Scotland which the Bank may have in its possession
or control for any purpose, and the Bank may apply the same against the
obligations of Guarantor hereunder in any order of application which the
Bank may elect from time to time in its sole discretion.
9. The Guarantor agrees to pay any expenses incurred by the Bank in
the collection or enforcement of this Guaranty, including costs and reason-
able attorney's fees (including those incurred for appellate or administra-
tive or bankruptcy proceedings) in the event that the Bank shall be obliged
to resort to the courts or require the services of an attorney to collect
under this Guaranty. Any such Obligation under, or payment made pursuant
to this section 9 shall not be included in determining whether Guarantor's
payments hereunder have met or exceeded its maximum Pounds Sterling Obliga-
tion.
10. The rights and authority granted to the Bank in this Guaranty
shall inure to the benefit of its Successors and assigns, and the agree-
ments by the Guarantor contained in this Guaranty shall bind the Guarantor
and its respective successors and assigns, jointly and severally.
11. The Bank may assign this Guaranty, in whole or as to such part
which has not been realized upon, to any assignee(s) or transferee(s) of
the Obligations, without prior notice to or the consent of the Guarantor.
12. Time shall be of the essence with respect to all of the pro-
visions of this Guaranty.
<PAGE> 3
13. Guarantor has the right, by written notice to the Bank, to
terminate this Guaranty of Payment, which termination shall be effective
on the date of receipt by the Bank of such notice. Said written notice
shall not in any way invalidate, or constitute a defense to, the enforce-
ment of this Guaranty of Payment with respect to those Obligations
incurred as of the date of receipt of such notice. From and after receipt
of said written notice, only as to Obligations incurred or otherwise
created after receipt of the notice, this Guaranty will be of no further
force or effect.
14. Any provision of this Guaranty which is prohibited or unenforce-
able in any jurisdiction shall, as to such jurisdiction only, be ineffec-
tive only to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
15. Whenever used in this Guaranty and unless the context otherwise
requires, words in the singular include the plural, words in the plural
include the singular, and pronouns of any gender include the other genders.
All references in this Guaranty to numbered paragraphs refer to the para-
graphs of this Guaranty, unless such reference specifically identifies
another document. All references to this Guaranty to sums expressed in
Pounds Sterling refer to the lawful currency of the United Kingdom, unless
such reference specifically identifies another currency. All references
in this Guaranty to sums expressed in dollars refer to the lawful currency
of the United States of America, unless such reference specifically identi-
fies another currency.
16. This Guaranty shall be governed by, and construed and enforced in
accordance with, the laws of the State of Florida, United States of America
except that U.S. Federal law shall govern to the extent that it may permit
the Bank to charge interest from time to time at a rate greater than may be
permissible under Florida law. Nothing contained in this Guaranty shall be
construed as obligating the Guarantor in any way to be responsible for
interest in excess of that which would be lawful for the Guarantor to pay
under the circumstances.
17. The Guarantor and the Bank hereby submit to the jurisdiction of
the state courts in the State of Florida, U.S.A. for purposes of any action
arising from or growing out of this Guaranty, and each further agrees that
the venue of any such action may be laid in Dade County, State of Florida
and that, in addition to any other method provided by law for service of
process, service of process in any such action may be made on the Guarantor
by the delivery of the process to Guarantor's offices at 2230 W. 77th
Street, Hialeah, Florida 33016 and to the Bank by delivery to Holland &
Knight, 1200 Brickell Ave., Miami, Florida 33131, Attn: Carlos E. Mendez-
Penate. THE GUARANTOR AND THE BANK HEREBY WAIVE THEIR RIGHTS TO A JURY
TRIAL IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THIS
GUARANTY. Nothing contained in this Guaranty, however, shall be deemed
to constitute, or to imply the existence of, any agreement by the Bank
or the Guarantor to bring any such action only in said courts or to
restrict in any way any the Bank's or the Guarantor's remedies or rights
to enforce the terms of this Guaranty as, when and where the Bank and the
Guarantor shall deem appropriate, in their sole discretion.
18. In order to induce the Bank to make available the Obligations to
Techdyne Scotland, and knowing the Bank shall rely on the following warran-
ties and representations, the Guarantor represents and warrants that: (a)
TECHDYNE is duly organized, validly existing and in good standing under
the laws of the State of Florida, the jurisdiction of its creation, has
full power and authority to make this Guaranty in favor of the Bank, and
has duly authorized the execution, delivery and performance of this
Guaranty by all necessary actions; (b) the execution, delivery
<PAGE> 4
and performance of this Guaranty do not and shall not violate any provision
of TECHDYNE's governing or constituent documents; (c) TECHDYNE shall be
benefitted if the Bank makes the Obligations available to Techdyne
Scotland; (d) the execution, delivery and performance of this Guaranty do
not and shall not contravene any applicable law, nor result in a breach of
or default under any other agreement to which TECHDYNE is a party or by
which TECHDYNE may be bound or affected; (e) except as otherwise previously
or concurrently disclosed to the Bank in writing, there are no material
suits, actions or proceedings pending or threatened against or affecting
TECHDYNE before any court of law or equity or any administrative board or
tribunal or governmental authority; and (f) TECHDYNE is not in material
default under the terms of any other indebtedness or obligation of any
Guarantor or with respect to any order, writ, injunction, judgment,
decree or demand of any court or tribunal or governmental authority.
19. TECHDYNE acknowledges: (i) that it has executed this Guaranty of
Payment on the basis of its own assessment of and any security provided,
and (ii) that it has not been induced to enter into this Guaranty of
Payment by any representation made by the Bank. The Bank is not obliged
to report to TECHDYNE on the financial position of Techdyne Scotland or of
any other guarantor or on any security provided. The Bank shall have no
liability to TECHDYNE for granting or disbursing to any loan or guarantee
facility, for cancelling or not cancelling a credit, or for demanding or
not demanding prepayment under any of the Obligations.
20. For so long as any Obligations guaranteed pursuant to this
Guaranty of Payment are outstanding, TECHDYNE shall deliver to the Bank
each year, within 10 days of delivery to its shareholders, a copy of its
annual report (including financial statements audited by an independent
public accounting firm) and its quarterly reports (including unaudited
interim period financial statements prepared by TECHDYNE). All financial
statements accompanying or included in such reports shall have been
prepared in accordance with U.S.A. generally accepted accounting princi-
ples.
21. This Guaranty may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together
shall constitute but one instrument.
IN WITNESS WHEREOF, TECHDYNE has executed this Guaranty on the date
set forth below the signature line, to be effective as of February 1, 1989.
Signed, sealed and delivered
in the presence of: TECHDYNE, INC.
/s/ Robin A. Brandi /s/ Daniel J. Chiodo
- ----------------------------- By----------------------------
Daniel J. Chiodo
Chairman of the Board
and President
Date: March 13, 1989
Exhibit 21
SUBSIDIARIES
Percentage
Jurisdiction of Owned by
Subsidiaries Incorporation Registrant
- ------------ ------------- ----------
Lytton Incorporated Ohio 100%
Techdyne (Scotland) Ltd. Scotland 100%
Techdyne Livingston Limited Scotland 100%
Exhibit 23(i)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements, Forms S-3, Nos. 333-15371 and 333-38949, of Techdyne, Inc.
and in the related Prospectuses of our report dated March 25, 1998, with
respect to the consolidated financial statements and schedule of Techdyne,
Inc. included in this Annual Report (Form 10-K) for the year ended December
31, 1997.
By /s/ Ernst & Young, LLP
ERNST & YOUNG, LLP
March 27, 1998
Miami, Florida
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,451,564
<SECURITIES> 0
<RECEIVABLES> 5,707,471
<ALLOWANCES> 0
<INVENTORY> 8,325,309
<CURRENT-ASSETS> 17,069,152
<PP&E> 8,225,370
<DEPRECIATION> 2,984,825
<TOTAL-ASSETS> 24,625,147
<CURRENT-LIABILITIES> 7,521,902
<BONDS> 4,619,066
0
0
<COMMON> 51,351
<OTHER-SE> 9,457,557
<TOTAL-LIABILITY-AND-EQUITY> 24,625,147
<SALES> 33,019,331
<TOTAL-REVENUES> 33,168,780
<CGS> 28,716,910
<TOTAL-COSTS> 28,716,910
<OTHER-EXPENSES> 3,134,001
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459,621
<INCOME-PRETAX> 861,248
<INCOME-TAX> (564,271)
<INCOME-CONTINUING> 1,425,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,425,519
<EPS-PRIMARY> .32
<EPS-DILUTED> .24
<FN>
<F1>Accounts receivable are net of allowance of $54,000 at December 31, 1997.
<F2>Inventories are net of reserve of $223,000 at December 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<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> .18
<EPS-DILUTED> .14
<FN>
<F1>Accounts receivable are net of allowance of $83,000 at December 31, 1996.
<F2>Inventories are net of reserve of $134,000 at December 31, 1996.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS<F1><F2> 6-MOS<F3><F4> 3-MOS<F5><F6>
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 2,251,416 3,256,957 3,054,923
<SECURITIES> 0 0 0
<RECEIVABLES> 5,183,333 3,871,700 4,033,729
<ALLOWANCES> 0 0 0
<INVENTORY> 7,822,843 3,753,068 3,654,646
<CURRENT-ASSETS> 16,496,521 11,449,001 11,122,306
<PP&E> 8,157,009 5,487,574 5,308,664
<DEPRECIATION> 3,098,912 2,916,728 2,811,707
<TOTAL-ASSETS> 23,059,380 14,275,745 13,744,472
<CURRENT-LIABILITIES> 10,305,438 3,985,630 3,865,951
<BONDS> 2,609,407 1,457,143 1,478,608
0 0 0
0 0 0
<COMMON> 46,351 43,351 43,218
<OTHER-SE> 6,925,247 5,806,290 5,438,147
<TOTAL-LIABILITY-AND-EQUITY> 23,059,380 14,275,745 13,744,472
<SALES> 21,962,802 12,984,487 6,342,775
<TOTAL-REVENUES> 22,083,148 13,061,111 6,383,107
<CGS> 18,904,430 11,006,499 5,354,842
<TOTAL-COSTS> 18,904,430 11,006,499 5,354,842
<OTHER-EXPENSES> 2,180,240 1,356,302 670,477
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 281,772 142,255 69,980
<INCOME-PRETAX> 716,706 556,055 287,808
<INCOME-TAX> (63,027) (49,029) (47,514)
<INCOME-CONTINUING> 779,733 605,084 335,322
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 779,733 605,084 335,322
<EPS-PRIMARY> .18 .14 .08
<EPS-DILUTED> .14 .11 .06
<FN>
<F1> Accounts receivable are net of allowance of $93,000 at September 30, 1997.
<F2> Inventories are net of reserve of $589,000 at September 30, 1997.
<F3> Accounts receivable are net of allowance of $75,000 at June 30, 1997.
<F4> Inventories are net of reserve of $152,000 at June 30, 1997.
<F5> Accounts receivable are net of allowance of $75,000 at March 31, 1997.
<F6> Inventories are net of reserve of $143,000 at March 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS<F1><F2> 6-MOS<F3><F4> 3-MOS<F5><F6>
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 3,436,832 3,917,332 3,562,045
<SECURITIES> 0 0 0
<RECEIVABLES> 2,992,589 3,086,781 3,194,820
<ALLOWANCES> 0 0 0
<INVENTORY> 3,033,058 2,579,140 3,071,465
<CURRENT-ASSETS> 9,893,506 10,083,657 10,316,739
<PP&E> 4,984,880 4,940,386 4,567,424
<DEPRECIATION> 2,590,701 2,527,272 2,368,925
<TOTAL-ASSETS> 12,408,023 12,621,456 12,714,618
<CURRENT-LIABILITIES> 3,702,041 4,278,412 4,471,944
<BONDS> 1,356,794 1,385,959 1,520,279
0 0 0
0 0 0
<COMMON> 42,888 42,446 40,433
<OTHER-SE> 4,746,835 4,499,763 3,975,103
<TOTAL-LIABILITY-AND-EQUITY> 12,408,023 12,621,456 12,714,618
<SALES> 18,177,739 12,914,827 6,768,156
<TOTAL-REVENUES> 18,455,098 13,136,923 6,943,164
<CGS> 15,497,007 11,002,851 5,733,206
<TOTAL-COSTS> 15,497,007 11,002,851 5,733,206
<OTHER-EXPENSES> 1,742,070 1,157,063 571,922
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 209,468 141,880 67,846
<INCOME-PRETAX> 1,006,553 835,129 570,190
<INCOME-TAX> 306,289 315,710 179,927
<INCOME-CONTINUING> 700,264 519,419 390,263
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 700,264 519,419 390,263
<EPS-PRIMARY> .17 .12 .10
<EPS-DILUTED> .13 .09 .07
<FN>
<F1> Accounts receivable are net of allowance of $98,000 at September 30, 1996.
<F2> Inventories are net of reserve of $124,000 at September 30, 1996.
<F3> Accounts receivable are net of allowance of $103,000 at June 30, 1996.
<F4> Inventories are net of reserve of $193,000 at June 30, 1996.
<F5> Accounts receivable are net of allowance of $103,000 at March 31, 1996.
<F6> Inventories are net of reserve of $318,000 at March 31, 1996.
</TABLE>
