FORM 10--Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14659
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TECHDYNE, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-1709103
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2230 West 77th Street, Hialeah, Florida 33016
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(Address of principal executive offices) (Zip Code)
(305) 556-9210
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes [x] or No [ ]
Common Stock Outstanding
Common Stock, $.01 par value - 5,250,167 shares as of October 31,
1998.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
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INDEX
PART I -- FINANCIAL INFORMATION
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The Consolidated Condensed Statements of Income (Unaudited) for the
three months and nine months ended September 30, 1998 and September 30,
1997 include the accounts of the Registrant and its subsidiaries.
Item 1. Financial Statements
- ------ --------------------
1) Consolidated Condensed Statements of Income for the three months
and nine months ended September 30, 1998 and September 30, 1997.
2) Consolidated Condensed Balance Sheets as of September 30, 1998
and December 31, 1997.
3) Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1998 and September 30, 1997.
4) Notes to Consolidated Condensed Financial Statements as of
September 30, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
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PART II -- OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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<PAGE>
PART I -- FINANCIAL INFORMATION
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Item 1. Financial Statements
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TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales $10,972,849 $8,978,315 $34,458,947 $21,962,802
Interest and other income 147,082 43,722 218,178 120,346
----------- ---------- ----------- -----------
11,119,931 9,022,037 34,677,125 22,083,148
Cost and expenses:
Cost of goods sold 9,560,778 7,897,931 29,829,518 18,904,430
Selling, general and
administrative expenses 1,185,861 823,938 3,046,513 2,180,240
Interest expense 169,586 139,517 490,435 281,772
----------- ---------- ----------- -----------
10,916,225 8,861,386 33,366,466 21,366,442
----------- ---------- ----------- -----------
Income before income taxes 203,706 160,651 1,310,659 716,706
Income tax provision (benefit) 25,034 (13,998) 76,607 (63,027)
----------- ---------- ----------- -----------
Net income $ 178,672 $ 174,649 $ 1,234,052 $ 779,733
=========== ========== =========== ===========
Earnings per share:
Basic $.03 $.04 $.24 $.18
==== ==== ==== ====
Diluted $.03 $.03 $.19 $.14
==== ==== ==== ====
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997(A)
---- ------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,720,431 $ 1,451,564
Accounts receivable, less allowances of
$55,000 at September 30, 1998
and $54,000 at December 31, 1997 5,685,641 5,707,471
Inventories, less allowances for obsolescence
of $477,000 at September 30, 1998
and $223,000 at December 31, 1997 8,535,631 8,325,309
Prepaid expenses and other current assets 214,484 574,250
Deferred tax asset 1,010,558 1,010,558
----------- -----------
Total current assets 17,166,745 17,069,152
Property and Equipment:
Land and improvements 204,000 198,000
Buildings and building improvements 787,739 764,571
Machinery and equipment 6,629,700 6,176,733
Tools and dies 846,412 844,132
Leasehold improvements 303,727 241,934
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8,771,578 8,225,370
Less accumulated depreciation 3,727,656 2,984,825
----------- -----------
5,043,922 5,240,545
Deferred expenses and other assets 77,845 79,707
Costs in excess of net tangible assets acquired, less
accumulated amortization of $163,000 at September
30, 1998 and $85,000 at December 31, 1997 2,712,065 2,235,743
----------- -----------
$25,000,577 $24,625,147
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term bank borrowings $ 286,194 $ 548,698
Accounts payable 3,723,291 4,214,639
Accrued expenses 1,635,964 1,745,926
Current portion of long-term debt 856,738 909,080
Income taxes payable 220,272 103,559
----------- -----------
Total current liabilities 6,722,459 7,521,902
Deferred gain on sale of real estate 161,047 161,047
Deferred income taxes 414,203 507,003
Long-term debt, less current portion 4,650,434 4,619,066
Advances from parent 3,096,417 2,307,221
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.01 par value, authorized
10,000,000 shares; issued and outstanding
5,250,167 shares at September 30, 1998
and 5,135,167 at December 31, 1997 52,501 51,351
Capital in excess of par value 11,139,291 10,612,691
Retained earnings (deficit) 128,404 (1,105,648)
Accumulated other comprehensive income-
foreign currency translation adjustments 27,382 (49,486)
Notes receivable from options exercise (113,850)
Advance receivable toward subsidiary
acquisition price guarantee (1,277,711)
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Total stockholders' equity 9,956,017 9,508,908
----------- -----------
$25,000,577 $24,625,147
=========== ===========
</TABLE>
(A) Reference is made to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 filed with the Securities and
Exchange Commission in March 1998.
See notes to consolidated condensed financial statements.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net income $1,234,052 $ 779,733
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 742,740 389,047
Amortization 86,093 20,245
Provision for inventory obsolescence 368,472 91,423
Bad debt expense 551
Deferred income taxes (92,983) 2,934
Consultant stock option expense 12,750
Increase (decrease) relating to operating
activities from:
Accounts receivable 48,029 (915,082)
Inventories (556,854) (2,253,669)
Prepaid expenses and other current assets 364,772 (357,835)
Accounts payable (502,269) 994,659
Accrued expenses (119,240) (27,271)
Income taxes payable 116,713 (237,513)
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Net cash provided by (used in)
operating activities 1,702,826 (1,513,329)
Investing activities:
Additions to property and equipment, net of
minor disposals (503,914) (1,066,475)
Subsidiary acquisition payments (153,818) (2,166,011)
Advance toward subsidiary acquisition
price guarantee (1,277,711)
Deferred expenses and other assets (6,489) (85,181)
---------- ----------
Net cash used in investing activities (1,941,932) (3,317,667)
Financing activities:
Line of credit funding for subsidiary acquisition $2,500,000
Line of credit funding towards subsidiary
acquisition price guarantee 600,000
Short-term line of credit (payments) borrowings (262,504) 373,889
Payments on long-term debt (637,724) (141,873)
Exercise of stock options and warrants 1,150 194,328
Increase (decrease) in advances from parent 789,196 364,801
Deferred financing costs 374 (2,979)
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Net cash provided by financing activities 490,492 3,288,166
Effect of exchange rate fluctuations on cash 17,481 (129,169)
---------- ----------
Increase (decrease) in cash and cash equivalents 268,867 (1,671,999)
Cash and cash equivalents at beginning of year 1,451,564 3,954,047
---------- ----------
Cash and cash equivalents at end of period $1,720,431 $2,282,048
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of
Techdyne, Inc. ("Techdyne") and its subsidiaries, including Lytton
Incorporated ("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
consolidation. The Company is a 61.5% owned subsidiary of Medicore,
Inc. (the "Parent"). See Note 5.
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.
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 over-
head. Inventories are comprised of following:
September 30, December 31,
1998 1997
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Finished goods $ 772,372 $ 554,903
Work in process 2,207,956 1,772,724
Raw materials and supplies 5,555,303 5,997,682
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$ 8,535,631 $ 8,325,309
=========== ===========
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets is comprised as follows:
September 30, December 31,
1998 1997
----------- -----------
United Kingdom VAT tax receivable $ 70,995 $ 283,106
Other 143,489 291,144
----------- -----------
$ 214,484 $ 574,250
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Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities is comprised as
follows:
September 30, December 31,
1998 1997
----------- -----------
United Kingdom VAT tax payable $ 179,585 $ 342,112
Accrued compensation 597,706 493,660
Other 858,673 910,154
----------- -----------
$ 1,635,964 $ 1,745,926
=========== ===========
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
September 30, 1998
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies--(Continued)
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued
FAS 128, "Earnings Per Share," which was adopted on December 31, 1997
requiring a change in the method previously used to compute earnings
per share and restatement of 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 con-
vertible 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.
Following is a reconciliation of amounts used in the basic and
diluted computations:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income - numerator
basic computation $ 178,672 $ 174,649 $1,234,052 $ 779,733
Effect of dilutive securities:
Interest adjustment on
convertible note 33,843 44,256 100,104 130,905
---------- ---------- ---------- ----------
Net income, as adjusted for
assumed conversion-
numerator diluted
computation $ 212,515 $ 218,905 $1,334,156 $ 910,638
========== ========== ========== ==========
Weighted average shares -
denominator basic
computation 5,250,167 4,534,080 5,173,922 4,389,859
Effect of dilutive securities:
Warrants 116,989
Stock options 210,680 204,898 287,811 240,840
Contingent stock - acquisition 319,355 142,862 269,844 48,144
Convertible note 1,357,119 1,774,682 1,338,069 1,749,770
---------- ---------- ---------- ----------
Weighted average shares,
as adjusted - denominator 7,137,321 6,656,522 7,069,646 6,545,602
========== ========== ========== ==========
Earnings per share:
Basic $.03 $.04 $.24 $.18
==== ==== ==== ====
Diluted $.03 $.03 $.19 $.14
==== ==== ==== ====
</TABLE>
In addition to the dilutive stock options and warrants included in
the reconciliation above, neither the 1995 publicly offered warrants
exercisable 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.
Comprehensive Income
The Company has adopted 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 adoption of FAS 130 has no impact
on the Company's net income or stockholders' equity. The only com-
ponent of other comprehensive income in the Company's balance sheet
is foreign currency translation adjustments which prior to adoption of
FAS 130 has been separately reported in stock-holders' equity.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
September 30, 1998
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies--(Continued)
Below is a detail of comprehensive income for the three months
and nine months ended September 30, 1998 and September 30, 1997:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 178,672 $ 174,649 $1,234,052 $ 779,733
Other comprehensive
income (loss):
Foreign currency translation 44,831 (83,942) 76,868 (202,024)
---------- ---------- ---------- ----------
Comprehensive income $ 223,503 $ 90,707 $1,310,920 $ 577,709
========== ========== ========== ==========
</TABLE>
Segment Reporting
The Company has adopted 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
allocation and performance evaluation. FAS 131 also requires that
certain segment information be presented in interim financial state-
ments. Interim information is not required in the first year of
implementation; however, in subsequent years in which the first year
of implementation is a comparative year, any required interim informa-
tion for the initial year of implementation must be presented. The
Company does not believe that adoption of FAS 131 will significantly
change its segment reporting disclosures.
Reclassifications
Certain reclassifications have been made to the 1997 financial
statements to conform to the 1998 presentation.
NOTE 2--Interim Adjustments
The financial summaries for the three months and nine months ended
September 30, 1998 and September 30, 1997 are unaudited and include, in
the opinion of management of the Company, all adjustments (consisting
of normal recurring accruals) necessary to present fairly the earnings
for such periods. Operating results for the three months and nine
months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the entire year ending December 31,
1998.
While the Company believes that the disclosures presented are
adequate to make the information not misleading, it is suggested that
these Consolidated Condensed Financial Statements be read in conjunc-
tion with the financial statements and notes included in the Company's
latest audited annual report for the year ended December 31, 1997.
NOTE 3--Long-term Debt
The Company's $1,600,000 line of credit effective December 29,
1997 had an outstanding balance of $1,600,000 at September 30, 1998
and $1,000,000 at December 31, 1997. This line matures May 1, 2000
and has monthly payments of interest at prime. The commercial term
loan effective December 29, 1997 with an initial principal balance
of $1,500,000 had an outstanding balance of $1,275,000 at September
30, 1998 and $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
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
September 30, 1998
(Unaudited)
NOTE 3--Long-term Debt--(Continued)
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%.
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 amorti-
zation schedule with the unpaid principal and accrued interest due on
the expiration date. This term loan had an outstanding balance of
approximately $644,000 at September 30, 1998 and $663,000 at December
31, 1997 and is secured by a mortgage on properties in Hialeah, Florida
owned by the Company's Parent. 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 $97,000 at September 30, 1998 and
$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.
Lytton has a $1,500,000 revolving bank line of credit requiring
monthly interest payments at prime plus 1/2% which matured August 1, 1998
and was renewed under the same terms and conditions through June 30, 1999.
The interest rate on this loan was 9% at September 30, 1998 and December
31, 1997. There was an outstanding balance on this loan of $286,000 as of
September 30, 1998 with $549,000 outstanding at 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 $783,000 at September 30, 1998 and $933,000
as of December 31, 1997. Lytton also has a $500,000 equipment loan
agreement with the same bank payable through August 1, 2003 with the
interest rate at prime plus 1%. There was no outstanding balance on
this loan as of September 30, 1998 or December 31, 1997. All of these
bank loans are secured by the business assets of Lytton.
The prime rate was 8.5% as of September 30, 1998 and December 31,
1997.
Lytton conducts a portion of its operations with equipment acquired
under equipment financing obligations which extend through July 1999 with
interest rates ranging from 8.55% to 10.09%. The remaining principal
balance under these financing obligations amounted to $231,000 at Septem-
ber 30, 1998 and $390,000 at December 31, 1997. Lytton has an equipment
loan at an annual interest rate of 5.5% maturing in April 2001 with
monthly payments of principal and interest of $4,298. This loan has a
balance of approximately $167,000 at September 30, 1998 and $198,000 at
December 31, 1997 and is secured by equipment.
Techdyne (Scotland) had a line of credit with a Scottish bank with a
U.S. dollar equivalency of approximately $330,000 at December 31, 1997
which was not renewed. No amounts were drawn on this line of credit
during 1998 and no amounts were outstanding under the line as of
December 31, 1997. Techdyne (Scotland) has a mortgage on its facility
which had a principal balance with a U.S. dollar equivalency of $565,000
at September 30, 1998 and $569,000 at December 31, 1997.
Interest payments on long-term debt amounted to approximately
$130,000 and $389,000 for the three months and nine months ended Sep-
tember 30, 1998 and $93,000 and $160,000 for the same periods of the
preceding year.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
September 30, 1998
(Unaudited)
NOTE 4--Income Taxes
The Company files separate federal and state income tax
returns from its Parent, with its income tax liability reflected on a
separate return basis.
Deferred income taxes reflect the net tax effect of temporary dif-
ferences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax pur-
poses. For financial reporting purposes a valuation allowance of
approximately $850,000 has been recognized to offset the deferred tax
assets.
The Company had domestic income tax expense of approximately $54,000
and $169,000 for the three months and nine months ended September 30,
1998 and $22,000 and $37,000 for the same periods of the preceding year.
Techdyne (Scotland) had an income tax benefit of approximately
$29,000 and $93,000 for the three months and nine months ended September
30, 1998 and $36,000 and $100,000 for the same periods of the preceding
year.
Income tax payments (refunds) for the three months and nine months
ended September 30, 1998 amounted to ($2,000) and $51,000, and $265,000
for the three months and nine months ended September 30, 1997.
NOTE 5--Transactions with Parent
The Parent provides certain administrative services to the Company
including providing office space and general accounting assistance.
Effective October 1, 1996, the services provided to the Company by the
Parent were formalized under a service agreement for $408,000 per year.
The amount of expenses covered under the service agreement totaled
$102,000 and $306,000 for the three months and nine months ended
September 30, 1998 and for the same period of the preceding year.
The Company's demand convertible promissory note payable to the
Parent which bears interest at 5.7% had a balance including accrued
interest of approximately $2,392,000 at September 30, 1998 and
$2,292,000 at December 31, 1997, and may be converted into common stock
of the Company at the option of the Parent at a conversion price of
$1.75 per share. Advances from the Parent on the balance sheet includes
the convertible note balance and an advance payable to the Parent of
approximately $704,000 at September 30, 1998 and $15,000 at December
31, 1997 with interest at 5.7%. Interest on the advances amounted to
$43,000 and $112,000 for the three months and nine months ended September
30, 1998 and $40,000 and $114,000 for the same periods of the preceding
year and is included in the net balance due the Parent. The Parent has
agreed not to require repayment of the intercompany advances prior to
October 1, 1999 and, therefore, the advances have been classified as
long-term at September 30, 1998.
The Company manufactures certain products for the Parent. Sales of
the products were $41,000 and $140,000 for the three months and nine
months ended September 30, 1998 and $55,000 and $156,000 for the same
periods of the preceding year.
NOTE 6--Commitments and Contingencies
Lytton sponsors a 401(k) Profit Sharing Plan covering substantially
all of its employees. The discretionary profit sharing and matching
expense of Lytton for the nine months ended September 30, 1998 amounted
to approximately $33,000. The Company has adopted this plan as a par-
ticipating employer effective July 1, 1998 with no discretionary profit
sharing and matching expense as of September, 30, 1998 other than that
of Lytton. The plan has one year of service and 21 years of age
eligibility requirements.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
September 30, 1998
(Unaudited)
NOTE 6--Commitments and Contingencies--(Continued)
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 nine months ended September 30, 1998, a total of $83,000 was paid
under this agreement, leaving an unpaid balance of approximately $83,000
as of September 30, 1998.
Lytton leases its operating facilities from an entity owned by the
President of Lytton and his wife, the former owner. The lease expires
July 31, 2002 and requires monthly lease payments of approximately
$17,900 the first year, adjusted each year thereafter based upon the
Consumer Price Index.
NOTE 7--Stock Options
In May 1994, the Company adopted a stock option plan for up to
250,000 options. Pursuant to this plan, in May 1994, the board of
directors granted 227,500 options to certain of its officers, directors
and employees. These options are exercisable at $1 per share through
May 24, 1999. On June 30, 1998, 115,000 of these options were exercised
with a remaining balance of 56,600 outstanding as of September 30, 1998.
The Company received cash payment of the par value and the balance in
three year promissory notes, presented in the Stockholders' Equity
Section of the balance sheet with interest at 5.16%.
On February 27, 1995 the Company granted stock options, not part of
the 1994 Plan, to directors of Techdyne and its subsidiaries for 142,500
shares exercisable at $1.75 per share through February 26, 2000. In
April 1995, the Company granted a stock option for 10,000 shares, not part
of the 1994 Plan, to its general counsel at the same price and terms as
the directors' options.
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 exercisable for five years through June 22, 2002 at $3.25 per
share.
As part of the consideration pursuant to an agreement for investor
relations and corporate communications services, the Company granted
options for 25,000 shares of its common stock exercisable for three years
through May 14, 2001 at $4.25 per share with the options to vest quarterly
on the basis of 25% at the end of each quarter commencing June 30, 1998.
6,250 options vested during the quarter ended June 30, 1998 with no
additional options to vest due to cancellation of this agreement in August
1998. Pursuant to FAS 123, the Company recorded $13,000 expense for
1999. options vesting under this agreement.
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 approxi-
mately $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 provided 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 Company has extended the exercise period of the
remaining approximately 959,000 outstanding warrants to March 12, 1999.
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.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
September 30, 1998
(Unaudited)
NOTE 9-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, 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 $2,400,000 from the
sale of these shares of common stock based on Lytton having achieved
certain earnings objectives resulting in an increase of $400,000 in the
valuation of $2,000,000 originally recorded for these securities. The
total purchase price in excess of the fair value of net assets acquired
which originally amounted to approximately $2,230,000 is being amortized
over 25 years. Additional contingent consideration will be due if Lytton
achieves pre-defined sales levels. Additional consideration of approxi-
mately $154,000 based on sales levels was paid in April 1998 with the
Stock Purchase Agreement providing for possible additional sales level
incentives over a two year period. As the contingencies are resolved,
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 acquisition was
accounted for under the purchase method of accounting and, accordingly,
the results of operations of Lytton have been included in the Company's
statement of income since August 1, 1997.
The terms of the Guaranty in the Stock Purchase Agreement were
modified in June, 1998 by the Company and the seller ("Modified
Guaranty"). The modified terms provide that the seller will sell an
amount of common stock which will provide $1,300,000 gross proceeds,
and the Company will guarantee that, to the extent that the seller has
less than 150,000 shares of the Company's common stock remaining, the
Company will issue additional shares to the seller. In July 1998, the
Company advanced the seller approximately $1,278,000 ("Advance") toward
the $1,300,000 from the sale of the Company's common in addition to the
seller having sold 5,000 shares of common stock in July, 1998. Proceeds
from the sale of the Company's common stock by the seller, up to 195,000
shares, would repay the Advance and to the extent proceeds from the sale
of these shares were insufficient to pay the advance, the balance of the
Advance would be forgiven. The Advance has been presented in the Stock-
holder's Equity section of the balance sheet. The Company has also
guaranteed the seller aggregate proceeds of no less than $1,100,000
from the sale of the remaining common stock if sold on or prior to July
31, 1999 ("Extended Guaranty").
The following pro forma consolidated condensed financial informa-
tion reflects the Lytton acquisition as if it had occurred on January
1, 1997. The pro forma financial information does not purport to
represent what the Company's actual results of operations would have
been had the acquisition occurred as of January 1, 1997 and may not
be indicative of operating results for any future periods.
SUMMARY PRO FORMA INFORMATION
Nine Months Ended
September 30, 1997
------------------
Total revenues $32,784,000
===========
Net income $1,176,000
==========
Earnings per share:
Basic $.25
====
Diluted $.19
====
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
Forward-Looking Information
The statements contained in this Quarterly Report on Form 10-Q that
are not historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of the 1934. The Private Securities Litigation
Reform Act of 1995 (the "Reform Act") contains certain safe harbors
regarding forward-looking 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. 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,
and as amended or supplemented.
The Company has continued to depend upon a relatively small number
of customers for a significant percentage of its net revenue. Signifi-
cant reductions in sales to any of the Company's large customers would
have a material adverse effect on the Company's results of operations.
The level and timing of orders placed by a customer vary due to, among
other variables, attempts to balance inventory, design changes, demand
for products, competition and general economic conditions. Termination
of manufacturing relationships or changes, reductions or delays in
orders as had occurred in the past, could have an adverse effect on the
Company's results of operations or financial condition.
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.
Due to the Company's utilization of just-in-time inventory tech-
niques, the timely availability of many components is dependent on the
Company's ability to continuously develop accurate forecasts of
customer volume requirements. Component shortages could result in
manufacturing and shipping delays or increased component prices which
could have a material adverse effect on the Company's results of opera-
tions. It is important for the Company, and there are significant risks
involved, to efficiently manage inventory, proper timing of expenditures
and allocations 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. Lytton and Techdyne (Scotland) anticipate installing
the Visual Manufacturing software system into their 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.
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 upcoming millennium change facing public
and private corporations, businesses, and all levels of government to
ensure continued proper operations, 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 their assessment of their year
2000 issue and actions being taken to resolve it. To the extent such
third parties are potentially adversely affected by the "year 2000"
<PAGE>
Forward-Looking Information (continued)
issue, and such is not timely and properly resolved by such persons,
such could disrupt the Company's operations to the extent of having
to seek 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, which to date has not been fully
implemented, will be successful in its anticipated operational
benefits or that the Company's key vendors and customers will have
successful 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.
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
noncompetitive. 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 implementation of such tech-
nologies and equipment are likely to require significant capital
investment.
Management intends to continue the Company's expansion of its geo-
graphic and customer base within the United States by continuing to
establish new manufacturing 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 operations. The Company will be competing with much larger
electronic manufacturing entities for such expansion opportunities.
Further, any such transactions may result in potentially dilutive issu-
ance 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 antici-
pated 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.
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. The Company 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 speci-
fications. Any adverse change in the Company's excellent quality and
process controls could adversely affect its relationship with customers
and ultimately its revenues and profitability.
Results of Operations
Consolidated revenues increased approximately $2,098,000 (23%) and
$12,594,000 (57%) for the three months and nine months ended September
30, 1998 compared to the preceding year. The increase was largely
attributable to Lytton for which sales of $5,146,000 and $14,796,000
were included for the three months and nine months ended September 30,
1998 compared to $2,779,000 for the same periods of the prior year
commencing with the Company's acquisition of Lytton on July 31, 1997.
There was an overall increase in domestic sales of $2,558,000 (34%) and
$13,461,000 (78%), including Lytton, and a decrease in European sales of
$563,000 (36%) and $964,000(20%) compared to the same periods of the
preceding year. Interest and other income increased by approximately
$103,000 and $98,000 for the three months and nine months ended Sep-
tember 30, 1998 compared to the same periods of the preceding year.
Sales of Techdyne (Scotland) to Compaq, accounted for approximately
28% of sales for the nine months ended September 30, 1998 compared to 45%
for the same period of the preceding year. The bidding for Compaq orders
has become more competitive which has continued to result in substantial
reductions in Compaq sales and lower profit margins on remaining Compaq
sales. Techdyne (Scotland) is pursuing new business development and has
offset some of the lost Compaq business with sales to other customers;
however there can be no assurance as to the success of such efforts.
<PAGE>
Results of Operations (continued)
Approximately 46% of the Company's consolidated sales for the nine
months ended September 30, 1998 were made to four customers. Customers
generating at least 10% of sales included Motorola (11%) and PMI Food
Equipment Group (18%). PMI Food Equipment Group is Lytton's major
customer and represented 42% of Lytton's sales for the nine months
ended September 30, 1998. The loss of, or substantially reduced sales
to any major customer, 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 amounting to 87% for the three months and nine months ended
September 30, 1998 compared to 88% and 86% for the same periods of
the preceding year reflecting changes in product mix and a diversi-
fication of the Company's customer base, including changes due to
Lytton.
Selling, general and administrative expenses increased $362,000 and
$866,000 for the three months and nine months ended September 30, 1998
compared to the same periods of the preceding year. The increase
resulted principally from inclusion of the selling, general and
administrative expenses of Lytton.
Interest expense increased $30,000 and $209,000 for the three months
and nine months ended September 30, 1998 compared to the same periods of
the preceding year. The increase reflects increases in interest of
approximately $16,000 and $122,000 for the three months and nine months
ended September 30, 1998 associated with financing the Lytton acquisition
and increases in interest on Lytton's debt and financing agreements of
approximately $11,000 and $89,000 for these periods with such interest
included since Lytton's acquisition on July 31, 1997. The prime rate
was 8.5% at September 30, 1998 and December 31, 1997.
Liquidity and Capital Resources
The Company had working capital of $10,444,000 at September 30, 1998,
an increase of $897,000 (9%) during the first nine months of 1998. This
increase includes changes in components of working capital resulting from
overall increased sales levels and reflects profitability for the period.
Included in the changes in components of working capital was an
increase of $269,000 in cash and cash equivalents, which included net
cash provided by operating activities of $1,703,000, net cash used in
investing activities of $1,942,000 (including $504,000 from additions
to property and equipment and $154,000 from additional consideration
regarding the Lytton acquisition and $1,278,000 advanced against the
Lytton acquisition stock price guarantee) and net cash provided by
financing activities of $490,000 including Lytton's net payments on its
line of credit of $263,000, a drawdown of $600,000 on the Company's line
of credit, payments on long-term debt of $638,000 and a net increase in
advances from the Parent of $789,000).
The Company has 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%, which had an
outstanding balance of $1,275,000 at September 30, 1998 and $1,500,000
at December 31, 1997 and a $1,600,000 commercial revolving line of
credit with interest at prime which was fully drawn down as of September
30, 1998 with an outstanding balance of $1,000,000 as of 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. See Note 3 to "Notes to Consolidated Condensed Financial State
ments."
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 $644,000 at September 30, 1998 and $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 $97,000 at September 30, 1998 and $127,000 at
December 31, 1997, is secured by the Company's tangible personal prop-
erty, goods and equipment. The Parent has guaranteed the revolving
line and the three term loans and subordinated the intercompany indebt-
edness 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. See Note
3 to "Notes to Consolidated Condensed 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.
<PAGE>
Liquidity and Capital Resources (continued)
Techdyne (Scotland) had a line of credit with a Scottish bank, with
a U.S. dollar equivalency of approximately $330,000 at December 31, 1997
that was secured by assets of Techdyne (Scotland) and guaranteed by the
Company. This line of credit, which was not renewed, operated as an
overdraft facility. No amounts were drawn on this line of credit during
1998 and no amounts were outstanding as of December 31, 1997. 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 $565,000 at September 30, 1998 and
$569,000 at December 31, 1997, based on exchange rates in effect at each
of these dates. See Note 3 to "Notes to Consolidated Condensed Financial
Statements."
On July 31, 1997, the Company acquired Lytton which is engaged in
the manufacture and assembly of PCBs and other electronic products for
commercial customers. This acquisition required $2,500,000 cash, 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 guaranteed $2,400,000 minimum proceeds from
the sale of these securities based on Lytton having achieved certain
earnings objectives. 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,
resulting in additional consideration of approximately $154,000 for the
first year of sales levels paid in April 1998. Based upon the closing
price of the Company's common stock on September 30, 1998, the shares
issued in the Lytton acquisition had a fair value of $1,164,000 which
could result in additional consideration of approximately $1,236,000
payable in either cash or in approximately 319,000 shares of the
Company's stock. 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 Note 9 to "Notes to Consolidated Condensed Financial
Statements."
The Guaranty in the Stock Purchase Agreement was modified by the
Company and the seller. The Company advanced approximately $1,280,000
to the seller. In addition to the seller having sold 5,000 shares of the
Company's common stock in July 1998, the seller is to sell sufficient
shares to yield aggregate proceeds of no more than $1,300,000 toward the
Modified Guaranty. Upon the sale of seller's remaining shares up to
195,000 shares, she will repay the advance. The Company funded the
advance to the seller largely through a drawdown of the previously
unused $600,000 of its line of credit and advances from its Parent. To
the extent that seller does not have 150,000 shares remaining the Company
would make up the difference. If the sale of shares is insufficient to
repay the advance, the balance would be forgiven. Pursuant to the
Extended Guaranty, sale of the remaining shares is guaranteed to yield
no less that $1,100,000 if sold on or prior to July 1, 1999 or else the
Company will make up the difference in either cash or additional common
stock or a combination of both. See Note 9 to "Notes to Consolidated
Financial Statements."
Lytton has a $1,500,000 revolving bank line of credit requiring
monthly interest payments at prime plus 1/2% which matured August 1, 1998
and was renewed on the same terms and conditions. There was an out-
standing balance on this loan of $286,000 as of September 30, 1998 with
$549,000 outstanding at 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 $783,000 at September 30, 1998 and $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, 2003 with interest at
prime plus 1%. There was no outstanding balance on this loan as of
September 30, 1998 or December 31, 1997. All of these bank loans are
secured by the business assets of Lytton. See Note 3 to "Notes to
Consolidated Condensed Financial Statements."
Lytton conducts a portion of its operations with equipment acquired
under equipment financing obligations which extend through July 1999 with
interest rates ranging from 8.55% to 10.09%. The remaining principal
balance under these financing obligations amounted to $231,000 at
September 30, 1998 and $390,000 at December 31, 1997. Lytton has an
equipment loan at an annual interest rate of 5.5% maturing in April 2001
with monthly payments of principal and interest of $4,298. This loan has
a balance of approximately $167,000 at September 30, 1998 and $198,000 at
December 31, 1997 and is secured by equipment. See Note 3 to "Notes to
Consolidated Condensed Financial Statements."
<PAGE>
Liquidity and Capital Resources (continued)
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.
Inflation
Inflationary factors have not had a significant effect on the
Company's operations. The Company attempts to pass on increased costs
and expenses by increasing selling prices when and where possible and
by developing different and improved products for its customers that
can be sold at targeted profit margins.
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits
Part I Exhibits
(27) Financial Data Schedule (for SEC use only)
Part II Exhibits
None
(b) Reports on Form 8-K
Two Form 8-K Current Reports were filed re: Item 5, "Other
Events" as follows:
(i) July 6, 1998 relating to (a) the modified guaranty
to the selling shareholder of Lytton, Incorporated;
and (b) exercise of options by certain officers and
directors of the Company.
(ii) July 13, 1998 relating to extension of exercise
period of publicly traded Warrants.
No financial statements were filed with respect to the Form 8-K
Current Reports.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TECHDYNE, Inc.
/s/ Daniel R. Ouzts
By----------------------------------
DANIEL R. OUZTS, Vice President/
Finance, Controller and Chief
Financial Officer
Dated: November 13, 1998
<PAGE>
EXHIBIT INDEX
Exhibit
No.
- -------
Part I Exhibits
(27) Financial Data Schedule (for SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,720,431
<SECURITIES> 0
<RECEIVABLES> 5,685,641<F1>
<ALLOWANCES> 0
<INVENTORY> 8,535,631<F2>
<CURRENT-ASSETS> 17,166,745
<PP&E> 8,771,578
<DEPRECIATION> 3,727,656
<TOTAL-ASSETS> 25,000,577
<CURRENT-LIABILITIES> 6,722,459
<BONDS> 4,650,434
0
0
<COMMON> 52,501
<OTHER-SE> 9,903,516
<TOTAL-LIABILITY-AND-EQUITY> 25,000,577
<SALES> 34,458,947
<TOTAL-REVENUES> 34,677,125
<CGS> 29,829,518
<TOTAL-COSTS> 29,829,518
<OTHER-EXPENSES> 3,046,513
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 490,435
<INCOME-PRETAX> 1,310,659
<INCOME-TAX> 76,607
<INCOME-CONTINUING> 1,234,052
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,234,052
<EPS-PRIMARY> .24
<EPS-DILUTED> .19
<FN>
<F1>Accounts receivable are net of allowance of $55,000 at September
30, 1998.
<F2>Inventories are net of reserve of $477,000 at September 30, 1998.
</FN>
</TABLE>
