SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarterly Period Ended June 30, 1996
Commission File Number 1-11046
TOP SOURCE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 84-1027821
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7108 Fairway Drive, Suite 200, Palm Beach Gardens, Florida 33418
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 775-5756
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
Common stock: $.001 par value 28,446,477 shares
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996 (Unaudited)
and September 30, 1995........................................1
Consolidated Statements of Operations for the Three and
Nine Months Ended June 30, 1996 and 1995 (Unaudited)..............2-3
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 1996 and 1995 (Unaudited)............................4
Notes to Unaudited Interim Consolidated Financial Statements......5-6
ITEM 2. Management's Discussion and Analysis of Interim
Financial Condition and Results of Operations ................6-10
PART II - OTHER INFORMATION
ITEM 5. Other Information ................................................10-11
ITEM 6. Exhibits and Reports on Form 8-K.....................................11
i
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<TABLE>
<CAPTION>
TOP SOURCE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1996 AND SEPTEMBER 30, 1995
(UNAUDITED)
June 30, September 30,
1996 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $925,270 $1,154,137
Accounts receivable trade
(net of allowance of
$83,650 and $145,703 at June 30 and
September 30, respectively) 3,990,909 3,489,791
Inventories 1,024,547 468,169
Prepaid expenses 450,393 436,738
Other 144,024 82,258
------- ------
Total current assets 6,535,143 5,631,093
Property and equipment, net 2,972,411 3,244,723
Manufacturing and distribution
rights and patents, net 359,253 366,765
Capitalized database, net 2,547,569 2,705,693
Intangible assets relating to
businesses acquired, net 4,674,070 4,768,470
Deferred income tax assets, net 1,395,000 1,720,000
Other assets, net 800,274 808,695
------- -------
TOTAL ASSETS $19,283,720 $19,245,439
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $1,563,876 $1,279,761
Accrued salaries 48,946 318,621
Accrued liabilities 530,017 681,961
Deferred service revenue 583,620 499,998
------- -------
Total current liabilities 2,726,459 2,780,341
Senior convertible notes 3,020,000 2,060,000
--------- ---------
Total liabilities 5,746,459 4,840,341
========= =========
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.10 par value,
5,000,000 shares
authorized; none outstanding --- ---
Common stock-$.001 par value,
50,000,000 shares
authorized; 28,246,477 and 27,731,477
shares issued June 30 and
September 30, respectively 28,246 27,731
Additional paid-in capital 28,618,052 27,514,154
Accumulated deficit (14,977,252) (13,005,002)
Treasury stock-at cost; 87,534 shares (131,785) (131,785)
-------- --------
Total stockholders' equity 13,537,261 14,405,098
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,283,720 $19,245,439
=========== ===========
See accompanying notes to unaudited interim consolidated financial statements.
1
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
JUNE 30, 1996 AND 1995 (UNAUDITED)
1996 1995
<S> <C> <C>
Revenue:
Product sales $4,665,342 $3,673,738
Service revenue 1,131,892 1,238,822
--------- ---------
Net sales 5,797,234 4,912,560
--------- ---------
Cost of sales:
Cost of product sales 3,103,181 2,233,218
Cost of services 1,022,492 1,155,417
--------- ---------
Cost of sales 4,125,673 3,388,635
--------- ---------
Gross profit 1,671,561 1,523,925
--------- ---------
Expenses:
General and administrative 1,372,911 1,495,297
Selling and marketing 425,076 502,811
Depreciation and amortization 270,116 111,549
Research and development 27,145 12,362
------ ------
Total expenses 2,095,248 2,122,019
--------- ---------
Loss from operations (423,687) (598,094)
Other income (expense):
Interest income 21,361 9,964
Interest expense (69,266) (16,481)
Other income (expense), net 9,581 207,305
----- -------
Net other income (expense) (38,324) 200,788
------- -------
Net loss before income taxes (462,011) (397,306)
Income tax expense (212,500) ---
--------
Net loss ($674,511) ($397,306)
========= =========
Net loss per weighted average common share
outstanding ($0.02) ($0.01)
====== ======
Weighted average common shares outstanding 28,132,910 27,255,444
========== ==========
See accompanying notes to unaudited interim consolidated financial statements.
2
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1995 (UNAUDITED)
1996 1995
---- ----
<S>
Revenue: <C> <C>
Product sales $11,389,339 $10,636,033
Service revenue 3,437,785 4,070,038
--------- ---------
Net sales 14,827,124 14,706,071
---------- ----------
Cost of sales:
Cost of product sales 7,421,004 6,542,952
Cost of services 2,838,137 3,566,129
--------- ---------
Cost of sales 10,259,141 10,109,081
---------- ----------
Gross profit 4,567,983 4,596,990
--------- ---------
Expenses:
General and administrative 3,863,874 4,330,093
Selling and marketing 1,354,153 1,303,840
Depreciation and amortization 805,683 396,287
Research and development 61,242 32,340
------ ------
Total expenses 6,084,952 6,062,560
--------- ---------
Loss from operations (1,516,969) (1,465,570)
Other income (expense):
Interest income 87,474 37,621
Interest expense (203,843) (18,908)
Other income (expense), net 56,088 191,258
------ -------
Net other income (expense) (60,281) 209,971
------- -------
Net loss before income taxes (1,577,250) (1,255,599)
Income tax expense (395,000) ---
--------
Net loss ($1,972,250) ($1,255,599)
=========== ===========
Net loss per weighted average common share
outstanding ($0.07) ($0.05)
====== ======
Weighted average common shares outstanding 27,929,600 27,193,954
========== ==========
See accompanying notes to unaudited interim consolidated financial statements.
3
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1995 (UNAUDITED)
1996 1995
OPERATING ACTIVITIES:
Net loss ($1,972,250) ($1,255,599)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 969,314 685,584
Amortization 301,767 274,565
Disposal of equipment 23,513 34,846
Decrease in deferred income tax assets, n 325,000 ---
Advance to officer --- (45,000)
Repayment from officer --- 40,000
Increase in accounts receivable, net (501,118) (15,609)
Increase in inventories (556,378) (285,598)
Increase in prepaid expenses (13,655) (43,471)
Decrease (increase) in other assets (56,297) 123,301
Increase in accounts payable 284,115 91,030
Increase (decrease) in accrued salaries (269,675) 30,862
Decrease in accrued liabilities and deferr (68,322) (499,014)
------- --------
Net cash used in operating activities (1,533,986) (864,103)
---------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (1,185,737) (1,567,099)
Reimbursement of tooling costs 465,222 ---
Increase in other assets --- (650,000)
Additions to patent costs, net (38,781) (41,732)
------- -------
Net cash used in investing activities (759,296) (2,258,831)
-------- ----------
FINANCING ACTIVITIES:
Proceeds from sale of common stock, net 1,104,415 867,616
Proceeds from borrowings 960,000 4,460,000
Repayments of borrowings --- (2,488,042)
Net cash provided by financing activities 2,064,415 2,839,574
--------- ---------
Net decrease in cash and cash equivalents (228,867) (283,360)
Cash and cash equivalents at beginning of peri 1,154,137 1,429,362
--------- ---------
Cash and cash equivalents at end of period $925,270 $1,146,002
======== ==========
See accompanying notes to unaudited interim consolidated financial statements.
4
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1.......BASIS OF PRESENTATION
..........The accompanying financial statements of Top Source Technologies, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included in the accompanying
financial statements. The consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The results of operations of any interim
period are not necessarily indicative of the results of operations for the
fiscal year. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended September 30, 1995. Certain fiscal year 1995 amounts have been
reclassified to conform to current year presentation.
2........INVENTORIES
..........Inventories consisted of the following:
June 30 September 30
1996 1995
---- ----
Raw materials $ 883,836 $ 395,999
Finished goods 140,711 72,170
------- ------
$ 1,024,547 $ 468,169
============ ============
3........INCOME TAXES
..........In February 1992, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for
Income Taxes". SFAS No. 109 changed the method of computing deferred income
taxes from a deferred method to a liability method. Under the liability method,
deferred income taxes are determined based on temporary differences between the
financial statement and tax bases of assets and liabilities, using enacted tax
rates in effect during the years in which the differences are expected to
reverse, and on available tax carryforwards.
5
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3. ......INCOME TAXES - Continued
..........The Company has recorded a deferred income tax benefit and related
deferred income tax asset based on the pre-tax loss for the nine months ended
June 30, 1996, and recorded a full valuation allowance in the same amount.
..........At June 30, 1996, the Company's balance sheet contains a deferred
income tax asset of $1,395,000, which includes an additional $175,000 and
$325,000 valuation allowance recorded during the three and nine months ended
June 30, 1996. The additional valuation allowance is a result of the Company not
meeting expectations of taxable income for the nine months ended June 30, 1996.
At June 30, 1996, the Company has net tax basis Federal operating loss
carryforwards of approximately $20,000,000 which may be used to offset future
taxable income, if any. The Company has determined, based on projected future
taxable income, that it is more likely than not that the deferred tax assets at
June 30, 1996 will be realized before the expiration of the underlying net
operating loss carryforwards which will begin expiring in 2001. .........
ITEM 2...MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATONS
Results of Operations
..........Total revenues for the three and nine month periods ended June 30, 1996
were $5,797,234 and $14,827,124, respectively, compared to $4,912,560 and
$14,706,071, respectively, for the same periods in 1995. The $884,674 and
$121,053 increase in revenues for the three and nine month periods ended June
30, 1996 is primarily attributable to an increase in product sales at the
Company's Top Source Automotive, Inc. subsidiary ("TSA") for the three and nine
months ended June 30, 1996 compared to the same period in 1995 partially offset
by an 8.6% and 15.5% decrease in oil analysis sales at the Company's oil
analysis subsidiary, United Testing Group, Inc. ("UTG"), for the three and
nine months ended June 30, 1996 compared to the same period in 1995.
..........The increase in product sales at TSA for the three months ended June
30, 1996 compared to the same period in 1995 is attributable to accelerated
production of the 1997 Jeep(R) Wrangler due to increased demand by the
manufacturer. Third quarter product sales counteracted the low level of sales in
the second quarter which resulted from the planned changeover and slower than
anticipated production rampup of the 1997 Wrangler.
..........The decrease in comparable sales volume for oil analysis services at
UTG is primarily attributable to the loss of several major oil analysis
customers during fiscal 1995; however, the current sales level is consistent
with the previous three quarters.
..........The gross profit margin for three months ended June 30, 1996 was 28.8%
compared to 31.0% for the same period in 1995. The gross profit margin for the
nine months ended June 30, 1996 decreased slightly to 30.8% from 31.3% compared
to the same period in 1995. The decrease in margins below comparable levels in
the prior year is primarily attributable to increased labor and overhead costs
relating to product sales.
6
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2...MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
..........General and administrative expenses decreased $122,386 and $466,219,
respectively, for the three and nine month periods ended June 30, 1996 compared
to the same periods in 1995. These decreases are attributable to personnel
reductions and efficiency improvements at UTG and the Company's corporate
office, offset by higher levels of expense at the Company's subsidiary, On-Site
Analysis, Inc. ("OSA, Inc."), for the comparable periods.
..........Selling and marketing expenses decreased 15% for the three months ended
June 30, 1996 compared to the same period ended in 1995. The decrease was
primarily attributable to the reduction of UTG's selling and marketing group in
fiscal 1995.
..........Depreciation and amortization increased 142% and 103% for the
three and nine month periods ended June 30, 1996 compared to the same periods in
1995. The increase is primarily due to purchases of $1,185,737 in capital assets
which consist of additional OSA units and capital equipment expenditures at TSA
in the nine months ended June 30, 1996. Depreciation and amortization of
$465,398 was allocated to cost of sales as it directly relates to the products
and services sold during the nine months ended June 30, 1996 compared to
$563,862 for the same period ended in 1995.
..........Interest income increased $11,397 and $49,853 for the three and nine
months ended June 30, 1996 compared to the same periods ended in 1995. The
increase is due to the interest earned on the increased funds invested in the
current fiscal period.
..........Interest expense increased $52,785 and $184,935 for the three and nine
months ended June 30, 1996 compared to the same periods ended in 1995. This
increase is due to the interest expense on the Company's $3,020,000 nine percent
(9%) Senior Subordinated Convertible Notes which were issued in June and October
1995.
..........Other income decreased $197,724 and $135,170 for the three and nine
months ended June 30, 1996 compared to the same periods ended in 1995. This
decrease is due to proceeds of $229,500 from Professional Services Industries,
Inc. ("PSI") received in June, 1995 partially offset by the receipt of $56,367
received in October 1995 in connection with the lawsuit against PSI.
..........The increase in the net loss for the three months and nine months ended
June 30, 1996 compared to the same period ended in 1995 is attributable to the
higher level of depreciation expense resulting from additional OSA units,
increased capital expenditures at TSA, increased selling and marketing expenses
at OSA, Inc., and a lower level of other income related to the PSI lawsuit. This
increase was partially offset by a decrease in losses at UTG and Corporate due
to cost reductions and efficiency improvements. In order to improve the results
of operations further, in May 1996, the Company began implementing cost
reductions at all locations and continues to evaluate other cost reduction
plans.
7
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2...MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
..........At the present time, the Company continues to receive minimal revenue
from two equipment maintenance ("EM") units at two customer sites, an automobile
dealership and a municipality. On December 4, 1995, the Company entered in a
non-binding letter of intent ("LOI") with a group interested in becoming the
exclusive world-wide franchiser of EM OSA's. On May 29, 1996, the Company and
this group agreed to modify and expand the terms of the non-binding original
LOI. Currently discussions are continuing with the original group and other
companies that have expressed an interest in franchising EM OSA units both
domestically and internationally. The Company is currently assessing the
financial impact of all franchising opportunities with these and other
companies.
..........On July 31, 1996 the Company signed a Memorandum of
Understanding with a large multinational public company ("Entity") seeking to
purchase certain assets in the Company's oil analysis service segment, and to
discuss joint venture distribution of the Company's OSA EM units in franchised
mini-laboratories or in other market segments. These net assets are valued at
approximately $5,000,000 on the Company's balance sheet. As of August 19, 1996,
the Company continues to have meaningful discussions with this Entity; however,
there can be no assurances that these discussions will be successful.
..........Based on the continuing reliable performance of the EM units and
interest expressed in the OSA units in new markets, the Company began
discussions in March 1996 with several major corporations about the possibility
of marketing EM OSAs in segments not included in the franchise market noted
above.
..........The Company has since entered into an agreement with the
marketing and training resource division of AON Corporation regarding the
marketing of EM OSAs in new and used car dealerships. A four-month trial period
commenced May 16th, 1996, after which a distribution and marketing plan will be
developed.
..........Additionally, two non-revenue generating OSAs were installed
by early August and are operating within a Detroit automaker's engine
development facilities. After a 60-day trial period, the Company will develop a
customized marketing plan for further expansion into this market.
..........Although there can be no assurances that present discussions will be
successful with companies in either the franchise or other OSA markets, the
Company has made the commitment to pursue strategic alliances with established
companies in order to accelerate and maximize EM OSA market potential. The
Company believes that its OSA units will begin to generate an increasing
quarterly revenue stream. In May 1996, the Company reduced the OSA, Inc.
internal sales and marketing staff servicing the markets where it has formed or
is seeking strategic alliances. The Company will continue to market OSAs with
its internal staff to specialized markets and to the refinery industry.
8
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2...MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
..........The Company is generating a nominal amount of revenue from one refinery
unit located at a major refinery in Baton Rouge, Louisiana. The Company believes
that since January 1996, it has met refinery requirements for instrument
reliability and repeatability and that it has successfully developed a prototype
refinery unit. Subsequent to March 1996, additional requirements for oil
analysis testing properties were requested by the refinery. Further software and
hardware enhancements have been made and the Company now believes it is
producing results 100% within accepted standards for accuracy, reliability and
repeatability. On August 12, 1996 the Company began production line testing on
this unit.
..........Based on favorable test results from the ongoing rigorous testing
procedures being currently performed by the refinery and recently installed
instrument and software enhancements, the Company believes that it will receive
additional purchase orders for refinery OSA units from one or more oil
refineries.
Liquidity and Capital Resources
..........Net cash used in operating activities
was ($1,533,986) for the nine months ended June 30, 1996. This usage of cash was
attributable to a net operating loss excluding depreciation and amortization of
$701,169, an increase in inventories of $556,378 due to the model year
changeover on the Chrysler Jeep(R) Wrangler, a decrease in accrued
liabilities and accrued salaries of $337,999, and an increase in accounts
receivable and other assets of $571,070. This was partially offset by an
increase in the tax valuation allowance of $325,000, and an increase in accounts
payable of $284,115.
..........Net cash used in investing activities was ($759,296) of which
$1,185,737 was expended for capital assets, $465,222 related to the
reimbursement of tooling costs and $38,781 for patent costs. Net cash provided
by financing activities was $2,064,415 which consisted of net proceeds from
sales of common stock through exercise of stock options of $1,104,415 and net
proceeds of $960,000 from the remaining senior subordinated convertible notes.
..........The Company has bank financing with First Union National Bank of
Florida ("the Bank"). On October 12, 1995, the Company increased its short term
working capital line of credit with the Bank to $1,500,000. The working capital
line of credit bears interest at .85% over the prime rate, is governed by
specific financial covenants and ratios limiting accessibility, and is secured
by substantially all of the assets of the Company. On January 31, 1996, the
working capital line of credit of $1,500,000 was renewed until January 31, 1997.
As of the date of this report, no amounts are outstanding on the credit
facility. As of August 16, 1996, the Company had approximately $1,500,000 of
cash in hand.
9
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2...MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
..........On April 23, 1996, the Company signed a purchase commitment with TJA
for the shipment of 16 additional OSA units. These OSA units are scheduled to be
delivered on a monthly basis through September 1996, and the Company has
received delivery of five OSA's through August 1, 1996.
..........Based on current cash balances, current bank lines and company-wide
cost reductions that began in May 1996, the Company believes it has sufficient
cash flow to fund its current operations and finance the deployment of a
substantial number of OSA units.
Forward-Looking Statements
..........The statements discussed above under Results of Operations and
Liquidity and Capital Resources relating to the Company's expectations that it
anticipates (1) generating increasing revenue from OSAs and receiving additional
purchase orders for refinery OSA units, (2) entering into strategic
relationships, (3) the possible sale of certain assets in the Company's oil
analysis service segment, and (4) improvements in the Company's liquidity are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
As the text above discusses, the results expected by any or all of these
forward-looking statements may not occur. Important factors that could cause
actual results to differ materially from the forward-looking statements include
the following: (1) the decline in current production levels at Chrysler for
vehicles installing OHSS, (2) the continued reliability of the OSA technology
over an extended period of time, (3) the Company's ability to market OSAs to
both refineries and third parties that use oil analysis for equipment
maintenance, (4) the acceptance of the OSA technology by the marketplace, (5)
the general tendency of large corporations to slowly change from known
technology to emerging new technology, (6) the Company's reliance on a third
party to manufacture OSAs, (7) potential future competition from third parties
that may develop proprietary technology which either does not violate the
Company's proprietary rights or is claimed not to violate the Company's
proprietary rights, and (8) unanticipated business or legal disagreements which
impede entry into one or more strategic alliances or impact the signing of a
definitive agreement.
PART II - OTHER INFORMATION
ITEM 5...OTHER INFORMATION
..........On May 10, 1995, the Company entered into an "Agreement" with
Adrenaline, Inc. ("Adrenaline"), the original inventor of the Engine Fuel
Economy Emission Control Reduction System ("EFECS") technology, to assign its
interest in the proprietary technology to Adrenaline. Under the terms of the
agreement, the Company assigned its interest in this technology in return for
future royalties. (See Note 19 of the Company's 1995 10-K filing.)
10
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 5...OTHER INFORMATION - (Continued)
..........In order to facilitate and accelerate the commercialization of EFECS by Adrenaline and Edward Van Duyne (the
founder of Adrenaline, Inc.) and to maximize the opportunity for Top Source Technologies, Inc. on February 22, 1996,
the Company agreed to amend the original terms stated in the Agreement to Items 1 and 2 below.
1........On June 1, 1996, the Company began receiving monthly royalty
payments in the amount of $4,167 per month as a minimum royalty payment up to a
maximum of $400,000 instead of annual payments of $50,000 annually (originally
scheduled to commence in January, 1997); .........
2........Commencing on the first anniversary of the date on which Adrenaline's
patent revenues for the prior 12 months exceed $2,500,000, Adrenaline will pay
to Top Source an annual royalty payment equal to two percent (2%) of all patent
revenues. Patent revenue royalty payments shall not exceed $150,000 in any 12
month period and $1,500,000 during the entire term of the Agreement unless
Adrenaline consummates an initial public offering or sells substantially all of
the assets or capital stock of Adrenaline. As of August 12, 1996, Adrenaline had
not received any revenue relating to the EFECS patent. The timing of the
commencement of EFECS revenues, if any, is indeterminable. .........
Additionally, the Company was granted 45,000 options, or not less than an amount
equal to 3% of Adrenaline's shares on a fully diluted basis, on Adrenaline's
common stock at a price of $1.20 per share. These option shares are not
exercisable until Adrenaline either consummates a successful initial public
offering or sells substantially all of the assets or capital stock of
Adrenaline. The option agreement is subject to the Company's approval.
The Company is currently recognizing the monthly royalty payments on a
cash basis until it can readily determine the predictability of payments.
ITEM 6...EXHIBITS AND REPORTS ON FORM 8-K .................
a. Exhibits
27.0 Financial Data Schedule
b. Reports on Form 8-K ..................
On May 31, 1996 a Form 8-K was filed related to a Cautionary Statement of the
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
and there were no other reports filed on Form 8-K during the quarter ended June
30, 1996.
11
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
..........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.
..........TOP SOURCE TECHNOLOGIES, INC.
..........By: /s/ DAVID NATAN
...................David Natan
...................Vice President and Chief Financial Officer
Dated: August 19, 1996
12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-END> Jun-30-1996
<CASH> $ 925,270
<SECURITIES> 0
<RECEIVABLES> 3,990,090
<ALLOWANCES> 83,650
<INVENTORY> 1,024,547
<CURRENT-ASSETS> 6,535,143
<PP&E> 2,972,411
<DEPRECIATION> 2,592,145
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0
0
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</TABLE>
