FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to __________________
Commission file number 0-14659
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TECHDYNE, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-1709103
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2230 WEST 77TH STREET, HIALEAH, FLORIDA 33016
- --------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(305) 556-9210
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| or No [ ]
Common Stock Outstanding
Common Stock, $.01 par value - 6,596,990 shares as of April 30, 2000.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
INDEX
PART I -- FINANCIAL INFORMATION
The Consolidated Condensed Statements of Operations (Unaudited) for the
three months ended March 31, 2000 and March 31, 1999 include the accounts of the
Registrant and its subsidiaries.
ITEM 1. FINANCIAL STATEMENTS
1) Consolidated Condensed Statements of Operations for the three months
ended March 31, 2000 and March 31, 1999.
2) Consolidated Condensed Balance Sheets as of March 31, 2000 and
December 31, 1999.
3) Consolidated Condensed Statements of Cash Flows for the three months
ended March 31, 2000 and March 31, 1999.
4) Notes to Consolidated Condensed Financial Statements as of March 31,
2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
------------------------------
2000 1999
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Revenues:
Sales $ 12,638,394 $ 9,834,994
Interest and other income 10,219 22,121
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12,648,613 9,857,115
Cost and expenses:
Cost of goods sold 11,475,966 8,818,948
Selling, general and administrative expenses 1,198,380 995,059
Interest expense 194,966 165,323
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12,869,312 9,979,330
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Loss before income taxes (220,699) (122,215)
Income tax (benefit) provision (19,696) 26,913
------------ ------------
Net loss $ (201,003) $ (149,128)
============ ============
Loss per share:
Basic $ (.03) $ (.03)
============ ============
Diluted $ (.03) $ (.03)
============ ============
See notes to consolidated condensed financial statements.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999(A)
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 214,046 $ 190,343
Accounts receivable, less allowances of $67,000 at March 31, 2000
and December 31, 1999 8,154,371 8,074,567
Inventories, less allowances for obsolescence of $771,000 at
March 31, 2000 and $709,000 at December 31, 1999 8,873,435 9,492,309
Prepaid expenses and other current assets 585,703 296,193
Deferred tax asset 440,759 440,759
------------ ------------
Total current assets 18,268,314 18,494,171
Property and equipment:
Land and improvements 192,000 193,200
Buildings and building improvements 741,402 746,036
Machinery and equipment 7,914,872 7,853,621
Tools and dies 843,596 843,202
Leasehold improvements 586,282 559,961
------------ ------------
10,278,152 10,196,020
Less accumulated depreciation and amortization 5,085,868 4,836,365
------------ ------------
5,192,284 5,359,655
Deferred expenses and other assets 86,120 94,435
Costs in excess of net tangible assets acquired, less accumulated
amortization of $349,000 at March 31, 2000
and $317,000 at December 31, 1999 3,211,615 2,848,038
------------ ------------
$ 26,758,333 $ 26,796,299
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,020,219 $ 5,049,456
Accrued expenses 2,108,588 1,679,513
Current portion of long-term debt 581,321 576,239
Income taxes payable 79,489 203,043
------------ ------------
Total current liabilities 6,789,617 7,508,251
Deferred gain on sale of real estate 161,047 161,047
Long-term debt, less current portion 8,357,560 7,463,224
Advances from parent 494,365 498,315
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000 shares; issued and
outstanding 6,596,990 shares at March 31, 2000 and 6,451,990 shares
at December 31, 1999 65,970 64,520
Capital in excess of par value 11,623,803 11,371,503
Accumulated deficit (205,448) (4,445)
Accumulated other comprehensive loss (112,931) (102,766)
Notes receivable from options exercised (415,650) (163,350)
------------ ------------
Total stockholders' equity 10,955,744 11,165,462
------------ ------------
$ 26,758,333 $ 26,796,299
============ ============
</TABLE>
(A) Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 filed with the Securities and Exchange Commission in
March 2000.
See notes to consolidated condensed financial statements.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $ (201,003) $ (149,128)
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 304,696 273,750
Amortization 40,832 30,597
Provision for inventory obsolescence 117,938 77,051
Consultant stock option expense 8,276 --
Increase (decrease) relating to operating activities from:
Accounts receivable (83,410) (123,557)
Inventories 495,828 157,739
Prepaid expenses and other current assets (298,987) (34,870)
Accounts payable (1,027,590) 65,587
Accrued expenses 51,465 36,136
Income taxes payable (123,554) 24,913
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Net cash (used in) provided by operating activities (715,509) 358,218
Investing activities:
Additions to property and equipment, net of minor
disposals (120,140) (392,646)
Deferred expenses and other assets (400) (3,614)
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Net cash used in investing activities (120,540) (396,260)
Financing activities:
Line of credit net borrowings (payments) 854,863 (326,749)
Proceeds from long-term borrowings 150,000 --
Payments on long-term borrowings (143,886) (182,454)
Exercise of stock options 1,450 --
(Decrease) increase in advances from parent (3,950) 83,944
Deferred financing costs -- (303)
----------- -----------
Net cash provided by (used in) financing activities 858,477 (425,562)
Effect of exchange rate fluctuations on cash 1,275 (24,290)
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Increase (decrease) in cash and cash equivalents 23,703 (487,894)
Cash and cash equivalents at beginning of year 190,343 1,659,737
----------- -----------
Cash and cash equivalents at end of period $ 214,046 $ 1,171,843
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000
(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 (Europe) Limited ("Techdyne (Europe)"), and Techdyne
(Livingston) Limited which is a subsidiary of Techdyne (Europe), collectively
referred to as the "Company." All material intercompany accounts and
transactions have been eliminated in consolidation. The Company is a 70.9% 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 and/or weighted average cost method) or market value. The cost of
finished goods and work in process consists of direct materials, direct labor
and an appropriate portion of fixed and variable manufacturing overhead.
Inventories are comprised of following:
March 31, December 31,
2000 1999
----------- ------------
Finished goods $ 775,576 $ 1,018,131
Work in process 2,313,744 2,463,191
Raw materials and supplies 5,784,115 6,010,987
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$ 8,873,435 $ 9,492,309
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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities is comprised as follows:
March 31, December 31,
2000 1999
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Accrued compensation $ 471,033 $ 466,481
Other 1,637,555 1,213,032
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$ 2,108,588 $ 1,679,513
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EARNINGS PER SHARE
Diluted earnings per share gives effect to potential common shares that
were dilutive and outstanding during the period, such as stock options and
warrants using the treasury stock method and average market price, shares
assumed to be converted relating to 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. No
potentially dilutive securities were included in the diluted earnings per share
computation for the three months ended March 31, 2000 or for the same period of
the preceding year, as a result of exercise prices and the net loss, and to
include them would be anti-dilutive.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Following is a reconciliation of amounts used in the basic and diluted
computations:
Three Months Ended
March 31,
-------------------------
2000 1999
---------- ----------
Net loss $ (201,003) $ (149,128)
========== ==========
Weighted average shares 6,509,353 5,135,167
========== ==========
Loss per share:
Basic $ (.03) $ (.03)
========== ==========
Diluted $ (.03) $ (.03)
========== ==========
The Company has various potentially dilutive stock options and warrants.
See Notes 7 and 8.
COMPREHENSIVE INCOME (LOSS)
Comprehensive loss consists of the net loss and foreign currency
translation adjustments.
Below is a detail of comprehensive loss for the three months ended March
31, 2000 and March 31, 1999:
Three Months Ended
March 31,
------------------------
2000 1999
---------- ----------
Net loss $ (201,003) $ (149,128)
Other comprehensive loss
Foreign currency translation (10,165) (69,385)
---------- ----------
Comprehensive loss $ (211,168) $ (218,513)
========== ==========
NEW PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 is effective for fiscal
quarters of fiscal years beginning after June 15, 2000. FAS 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities and requires, among other things, that all derivatives be recognized
as either assets or liabilities in the statement of financial position and that
those instruments be measured at fair value. The Company is in the process of
determining the impact that the adoption of FAS 133 will have on its
consolidated financial statements.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 2--INTERIM ADJUSTMENTS
The financial summaries for the three months ended March 31, 2000 and
March 31, 1999 are unaudited and include, in the opinion of management of the
Company, all adjustments (consisting of normal recurring accruals) necessary to
present fairly the earnings for such periods. Operating results for the three
months ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 2000.
While the Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these Consolidated
Condensed Financial Statements be read in conjunction with the financial
statements and notes included in the Company's latest annual report for the year
ended December 31, 1999.
NOTE 3--LONG-TERM DEBT
In February, 2000, the Company refinanced its line of credit and term
loans through the same bank which handles Lytton's financing. One credit
facility is a $4,500,000 three year committed line of credit facility maturing
February, 2003 with interest payable monthly at prime minus 1/4% and an option
to fix the rate for up to 180 days at Libor plus 2.50%. This line of credit had
an outstanding balance of approximately $2,962,000 at March 31, 2000. The bank
also extended a $1,000,000 five year term loan maturing February 2005 with the
same interest rate as for the line of credit. This term loan had an outstanding
balance of approximately $983,000 at March 31, 2000. If the Company achieves
certain financial criteria for its year ended December 31, 2000, it would
receive a rate reduction under both the prime and Libor alternatives. The loans
are secured by the business assets of the Company and are cross collateralized
with the debt of Lytton. These loans replaced bank debt which consisted at
December 31, 1999 of a line of credit with an outstanding balance of $1,600,000,
term loans with a combined outstanding balance of approximately $1,552,000 and
another bank loan with an outstanding balance of $145,000. The total principal
balance refinanced was approximately $3,260,000 representing a non-cash
financing activity which is a supplemental disclosure required by Financial
Accounting Standards Board Statement No. 95, "Statement of Cash Flows" (FAS 95).
The refinancing also included payment of approximately $17,000 accrued interest.
In conjunction with the Company's refinancing, the bank amended the
terms of the Lytton line of credit and term loan and equipment loan agreements
to make Lytton's line of credit a three year committed facility and to amend the
interest rates on Lytton's line of credit, term loan and equipment loan
agreements to coincide with those of the Company's loan agreements.
Lytton has a $3,000,000 three year committed line of credit facility
maturing February 2003 with interest payable monthly at prime minus 1/4%. There
was an outstanding balance on this loan of approximately $3,000,000 at March 31,
2000 and $2,830,000 December 31, 1999. Lytton has a $1,400,000 installment loan
with interest at prime minus 1/4% and monthly payments of $23,333 plus interest
payable in 60 monthly installments commencing August 1, 1999 with the final
installment due June 30, 2004. The balance outstanding on this loan was
approximately $1,218,000 at March 31, 2000 and $1,283,000 at December 31, 1999.
Lytton also has a $500,000 equipment loan agreement with the same bank payable
through June 30, 2004 with interest at prime minus 1/4%. This loan had an
outstanding balance of $150,000 at March 31, 2000 with no outstanding balance as
of December 31, 1999. All of these bank loans are secured by the business assets
of Lytton and all have an option to fix the rate for up to 180 days at Libor
plus 2.50%.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 3--LONG-TERM DEBT-CONTINUED
The prime rate was 9.00% as of March 31, 2000, and 8.50% as of December
31, 1999.
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 had a balance of approximately $101,000 at March 31, 2000 and
$113,000 at December 31, 1999 and is secured by equipment.
In July 1994, Techdyne (Europe) purchased the facility housing its
operations obtaining a 15 year mortgage which had a U.S. dollar equivalency of
approximately $476,000 at March 31, 2000 and $489,000 at December 31, 1999 based
on exchange rates in effect at each of these dates.
Interest payments on debt amounted to approximately $152,000 for the
three months ended March 31, 2000 and $126,000 for the same period of the
preceding year.
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
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 has been recognized to offset a portion
of the deferred tax assets.
The Company had domestic income tax (benefit) expense of approximately
$(20,000) for the three months ended March 31, 2000 and $27,000 for the same
period of the preceding year.
Techdyne (Europe) had no income tax expense or benefit for the three
months ended March 31, 2000 or the same period of the preceding year due to its
loss and it having utilized all available tax loss carrybacks.
Income tax payments amounted to $332,000 for the three months ended
March 31, 2000 and $2,000 for the same period of the preceding year.
NOTE 5--TRANSACTIONS WITH PARENT
The Parent provides certain financial and administrative services to the
Company. Effective October 1, 1996, the services provided to the Company by the
Parent were formalized under a service agreement. The amount of expenses covered
under the service agreement totaled $102,000 for the three months ended March
31, 2000 and for the same period of the preceding year.
Advances from our Parent were made under a demand convertible promissory
note with interest at 5.7%. On September 30, 1999, the Parent converted the note
balance of approximately $2,532,000, including accrued interest, into
approximately 1,447,000 shares of the Company's common stock. Advances from the
Parent on the balance sheet represent the advance payable to the Parent of
approximately $494,000 at March 31, 2000 and $498,000 at December 31, 1999 with
interest at 5.7%. Interest on the advances and convertible note amounted to
approximately $7,000, for the three months ended March 31, 2000 and $45,000 for
the same period of the preceding year and is included in the net balance due the
Parent.
The Company had manufactured certain products for the Parent. Sales of
the products were $23,000 for the three months ended March 31, 1999. After the
first quarter of 1999, the Company ceased manufacturing for the Parent.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 6--COMMITMENTS AND CONTINGENCIES
Lytton sponsors a 401(k) Profit Sharing Plan covering substantially all
of its employees. The Company adopted this plan as a participating employer
effective July 1, 1998. The discretionary profit sharing and matching expense,
including that of the Company and Lytton amounted to approximately $22,000 for
the three months ended March 31, 2000 and approximately $19,000 for the same
period of the preceding year.
Lytton leases its operating facilities from an entity owned by the
former President and currently the part-time Assistant to the President of
Lytton and his wife, the former owner of Lytton. The lease expires July 31, 2002
and requires annual lease payments of approximately $218,000, adjusted each year
based upon the Consumer Price Index. During the three months ended March 31,
2000, approximately $56,000 was paid under the lease compared to approximately
$55,000 for the same period of the preceding year.
NOTE 7--STOCK OPTIONS
In May 1994, the Company adopted a stock option plan for up to 250,000
options. The options were exercisable at $1 per share through May 24, 1999. On
June 30, 1998, 115,000 of these options were exercised and on May 10, 1999,
50,000 of the remaining options were exercised. 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% for the June 1998 exercises and 4.49% for the May 1999
exercises.
On February 27, 1995 the Company granted non-qualified stock options to
directors of Techdyne and its subsidiaries for 142,500 shares exercisable at
$1.75 per share for five-years. In April 1995, the Company granted a
non-qualified stock option for 10,000 shares to its general counsel at the same
price and terms as the directors' options. On February 25, 2000, 145,000 of
these options were exercised. The Company received cash payment of the par value
and the balance in three year promissory notes, presented on the stockholders'
equity section of the balance sheet, with interest at 6.19%.
In June 1997, the Company adopted a stock option plan for up to 500,000
options, and pursuant to this plan the board granted 375,000 options exercisable
for five years through June 22, 2002 at $3.25 per share, with 345,000 of these
options outstanding at March 31, 2000. On June 30, 1999, the Company granted
52,000 options exercisable for three years through June 29, 2002 at $4.00 per
share with 36,000 options outstanding at March 31, 2000. On August 25, 1999, the
Company granted 16,000 options exercisable for three years through August 24,
2002 at $4.00 per share with 13,000 options outstanding at March 31, 2000. On
December 15, 1999 the Company granted 19,000 options exercisable for three years
through December 14, 2002 at $4.00 per share.
In May, 1998, 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. Options for 6,250 shares of the
Company's common stock vested during 1998 with no additional options to vest due
to cancellation of this agreement in August, 1998.
The Company entered into a consulting agreement on July 1, 1999 for
financial advisory services with the agreement to end on September 15, 2000. As
compensation, the consultant received non-qualified stock options to purchase
100,000 shares of the Company's common stock exercisable at $3.50 per share that
will expire on September 15, 2000. These options were valued at $40,000 and
resulted in approximately $8,000 expense during the three months ended March 31,
2000.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 8--COMMON STOCK
In conjunction with the Company's 1995 public offering, the underwriter
received warrants to purchase 100,000 shares of common stock and/or 100,000
warrants exercisable 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.
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, paid at closing, and issuance of 300,000 shares of the Company's common
stock. The Company guaranteed that the seller would realize a minimum of
$2,400,000 from the sale of these shares of common stock based on Lytton having
achieved certain earnings objectives. The total purchase price in excess of the
fair value of net assets acquired is being amortized over 25 years. Additional
contingent consideration was due if Lytton achieved pre-defined sales levels.
Additional consideration of approximately $396,000, $290,000 and $154,000 was
paid in April 2000, April 1999 and April 1998, respectively, based on sales
levels. As the contingencies have been resolved, additional consideration due,
has been recorded as goodwill, and is being amortized over the remainder of the
initial 25 year life of the goodwill.
In July 1998, the Company advanced the seller approximately $1,278,000
("Advance") toward the guarantee for the sale of the Company's common stock in
addition to the prior sales by the seller. Subsequently, the Company 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. In July 1999, the
Company forgave the Advance and issued payment of $1,100,000 to the seller,
which together with the proceeds realized by the seller from the sale of stock
in 1998 satisfied the Company's remaining obligation under the $2,400,000
guarantee. The remaining 295,000 shares of common stock held by the seller as
security for the remaining $2,378,000 guarantee were returned to the Company and
were cancelled.
<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 we are engaged as a manufacturer, our business
strategies and plans for future operations, our 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 us on the date hereof, and we assume 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 our Registration Statements, as filed with the Securities and Exchange
Commission ("Commission") Form SB-2 (effective September 13, 1995), and Form S-3
(effective December 11, 1996) and as amended or supplemented.
We continue to depend upon a relatively small number of customers for a
significant percentage of our net revenue. Significant reductions in sales to
any of our large customers would have a material adverse effect on our 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 our 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 our 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 our
business, financial condition and results of operations.
Due to our utilization of just-in-time inventory techniques, the timely
availability of many components is dependent on our 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 our results of operations. It is
important for us, and there are significant risks involved, to efficiently
manage inventory, properly time expenditures and allocations of physical and
personnel resources in anticipation of future sales, evaluate economic
conditions in the electronics industry and the mix of products, whether PCBs,
wire harnesses, cables or turnkey products, for manufacture.
Although we believe that our operations utilize the assembly and testing
technologies and equipment currently required by our customers, there can be no
assurance that our process development efforts will be successful or that the
emergence of new technologies, industry standards or customer requirements will
not render our technology, equipment or processes obsolete or noncompetitive. In
addition, to the extent that we determine that new assembly and testing
technologies and equipment are required to remain competitive, the acquisition
and implementation of such technologies and equipment are likely to require
significant capital investment.
Our 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 us in managing the costs
of our operations, our 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. We generally have idle capacity and reduced operating margins
during periods of lower-volume production.
<PAGE>
YEAR 2000 READINESS
The Year 2000 computer information processing challenge associated with
the recent millennium change concerned the ability of computerized information
systems to properly recognize date sensitive information, with which many
companies, public and private, were faced to ensure continued proper operations
and reporting of financial condition. We were fully aware of the Year 2000
issues, made our assessments, evaluated our computerized systems and equipment,
and communicated with our major vendors, and made our operations Year 2000
compliant. We have not experienced any material unanticipated negative
consequences from the Year 2000 issues.
RESULTS OF OPERATIONS
Consolidated revenues increased approximately $2,791,000 (28%) for the
three months ended March 31, 2000 compared to the same period of the preceding
year. There was an increase in domestic sales of $2,717,000 (30%), and a
increase in European sales of $86,000 (9%) for the three months ended March 31,
2000 compared to the same period of the preceding year. Interest and other
income decreased by approximately $14,000 for the three months ended March 31,
2000 compared to the same period of the preceding year which includes a decrease
in interest income as a result of a reduction in invested funds.
Significant reductions in sales of Techdyne (Europe) over recent years
have resulted in continuing losses, with net losses for this subsidiary
amounting to $93,000 for the three months ended March 31, 2000 and $77,000 for
the period of the preceding year. Techdyne (Europe) has continued its efforts at
new business development; however, the continuing losses have resulted in our
ongoing evaluation of the future prospects for this facility.
Approximately 43% of our consolidated sales for the three months ended
March 31, 2000 were made to four customers. Customers generating at least 10% of
sales included Motorola (13%) and PMI Food Equipment Group (16%). Approximately
$2,063,000 (35%) of Lytton's sales for the three months ended March 31, 2000
were to its major customer, PMI Food Equipment Group. The loss of, or
substantially reduced sales to any major customer would have an adverse effect
on our operations if such sales are not replaced.
Cost of goods sold as a percentage of sales amounted to 91% for the
three months ended March 31, 2000 and 90% for the same period of the preceding
year reflecting changes in product mix and a diversification of our customer
base.
Selling, general and administrative expenses, increased by approximately
$203,000 (20%) for the three months ended March 31, 2000 compared to the same
period of the preceding year. The increase in 2000 compared to the preceding
year included increases in the cost of support personnel and increased marketing
costs associated with efforts to increase sales. Selling, general and
administrative expenses amounted to approximately 9% of sales for the three
months ended March 31, 2000 compared to 10% for the same period of the preceding
year.
Interest expense increased approximately $30,000 for the three months
ended March 31, 2000 compared to the same period of the preceding year. The
primary contributor to the increase in interest expense was the increased
borrowings of Lytton, a portion of which were utilized to fund the remaining
$1,100,000 payment in July, 1999, on the Lytton acquisition purchase price
guarantee. The increase in interest expense, which also included increased
interest relating to increased borrowing under our new credit facilities, was
partially offset by a reduction of $38,000 in interest on loans from the Parent
due to the Parent's conversion on September 30, 1999 of approximately $2,532,000
of a convertible note receivable from us. The prime rate was 9.00% at March 31,
2000 and 8.50% at December 31, 1999.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We had working capital of $11,479,000 at March 31, 2000, an increase of
$493,000 (4%) during the first quarter of 2000. Included in the changes in
components of working capital was an increase of $24,000 in cash and cash
equivalents, which included net cash used in operating activities of $716,000,
net cash used in investing activities of $121,000, primarily from additions to
property and equipment, and net cash provided by financing activities of
$858,000 (including net line of credit borrowings of $855,000, proceeds of
$150,000 from Lytton's borrowing under its equipment acquisition note and
payments on long-term debt of $144,000).
On February 9, 2000, we entered into two credit facilities with The
Provident Bank in Ohio for an aggregate borrowing of $5,500,000. This new
financing replaced the line of credit and the three commercial loans with
NationsBank of Florida and a smaller borrowing from another Florida bank. The
new financing includes a three-year revolving line of credit, renewable annually
at the discretion of the bank, which credit line carries an interest rate of
prime minus .25%, or at a fixed rate equal to the relevant quoted LIBOR rate
plus 2.5%, at our election. The line of credit had an outstanding balance of
$2,962,000 at March 31, 2000 and five-year term loan of $1,000,000 at the same
interest rate as the revolving line of credit. The term loan had an outstanding
balance of $983,000 at March 31, 2000. Total outstanding borrowings under the
refinanced loans amounted approximately $3,152,000 at December 31, 2000. See
Note 3 to "Notes to Consolidated Condensed Financial Statements."
Lytton has a $3,000,000 three year committed line of credit and a
$1,400,000 term loan, and a $500,000 equipment loan agreement. The line of
credit, originally for one year, was amended to a three-year term coinciding
with the term of the Company's line of credit with the interest rates the same
as provided to the Company in its credit facilities. The line of credit had an
outstanding balance of $3,000,000 at March 31, 2000 and $2,830,000 at December
31, 1999. The term loan had a balance of $1,218,000 at March 31, 2000 and
$1,283,000 at December 31, 1999. The equipment loan agreement had an outstanding
balance of $150,000 at March 31, 2000 with no outstanding balance at December
31, 1999. See Note 3 to "Notes to Consolidated Condensed Financial Statements."
Lytton has an equipment loan maturing in April 2001 which had an
outstanding balance of $101,000 at March 31, 2000 and $113,000 at December 31,
1999. In July, 1994 Techdyne (Europe) purchased the facility in Scotland housing
its operations for approximately $730,000, obtaining a 15-year mortgage which
had a U.S. dollar equivalency of approximately $476,000 at March 31, 2000 and
$489,000 at December 31, 1999, based on exchange rates in effect at each of
these dates. See Note 3 to "Notes to Consolidated Condensed Financial
Statements."
We acquired Lytton on July 31, 1997. The Stock Purchase Agreement
provided 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 $396,000, $290,000 and $154,000 paid
in April 2000, April, 1999, and April, 1998, respectively. See Note 9 to "Notes
to Consolidated Condensed Financial Statements."
We continue to attempt to expand our operations through acquisitions of
companies in similar businesses, as with the Lytton acquisition. There can be no
assurance that we would be able to finance such acquisitions from our own
capital or be able to obtain sufficient external financing.
We believe that current levels of working capital and working capital
from operations will be adequate to successfully meet liquidity demands for at
least the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 is effective for fiscal
years beginning after June 15, 2000. FAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires, among other things, that all derivatives be recognized as either
assets or liabilities in the statement of financial position and that these
instruments be measured at fair value. We are in the process of determining the
impact that the adoption of FAS 133 will have on our consolidated financial
statements.
INFLATION
Inflationary factors have not had a significant effect on our
operations. We attempt to pass on increased costs and expenses by increasing
selling prices when and where possible and by developing different and improved
products for our 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
A Current Report on Form 8-K was filed on March 1, 2000 relating to
Item 5, "Other Events" disclosing refinancing of the Company's
credit facilities. No financial statements were filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHDYNE, INC.
By /s/ DANIEL R. OUZTS
--------------------------------
Daniel R. Ouzts, Vice President/
Finance, Controller and Chief
Accounting Officer
Dated: May 15, 2000
<PAGE>
EXHIBIT INDEX
Exhibit
No.
- -------
Part I Exhibits
(27) Financial Data Schedule (for SEC use only)
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