UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File Number 0-27210
TECH ELECTRO INDUSTRIES, INC.
_____________________________
TEXAS 75-2408297
_____________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4300 Wiley Post Road, Dallas, Texas 75244-2131
______________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(972) 239-7151
Check whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 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____
As of September 30, 1996 the registrant had 1,308,275
shares of common equity outstanding.
1
<PAGE>
TECH ELECTRO INDUSTRIES, INC.
INDEX
Page Number
Part I - Financial Information
Item 1 - Financial Statements (unaudited)
Consolidated Balance Sheets at
September 30, 1996 and 1995 3
Consolidated Statements of Operations
for the Periods Ended September 30,
1996 and 1995 5
Consolidated Statements of Cash Flows
for the Periods Ended September 30,
1996 and 1995 6
Notes to Consolidated Financial
Statements 7
Item 2 - Management's Discussions and
Analysis of Financial Condition and
Results of Operations 14
Part II - Other Information
Item 1 - Legal Proceedings 17
Signatures 18
2
<PAGE>
Part 1
Financial Information
Item 1 - Financial Statement
Tech Electro Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
___________________________
( Prepared from the books without verification by audit )
September 30, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS
______
1996 1995
____ ____
CURRENT ASSETS
<S> <C> <C>
Cash 487,040 40,294
Certificate of Deposit 211,664 200,000
Marketable Securities 930,150 -0-
Accounts and Notes Receivable
Trade, net of allowances 446,074 534,273
Notes Receivable 148,547 34,421
Other Receivables 14,772 8,815
Federal Income Tax Receivable 8,410 14,150
Inventory, at Lower of Cost or Market 1,457,111 1,115,079
Prepaid Expenses 133,527 70,250
Deferred Federal Income Tax 26,814 7,801
Deferred IPO Cost -0- 28,799
_________ __________
TOTAL CURRENT ASSETS 3,864,109 2,053,882
PLANT & EQUIPMENT, at cost
Lab and Computer Equipment 316,017 263,103
Furniture and Fixtures 158,231 127,093
Automobiles 21,943 21,943
_________ ________
496,191 412,139
Less Accumulated Depreciation 310,190 284,309
_________ ________
TOTAL PLANT AND EQUIPMENT 186,001 127,830
OTHER ASSETS
Deferred Federal Income Tax 22,070 25,676
Investment in Bonds 2,000 2,000
_________ ________
24,070 27,676
TOTAL ASSETS 4,074,180 2,209,388
========= ==========
</TABLE>
3
<PAGE>
Tech Electro Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
__________________________
( Prepared from the books without verification by audit )
September 30, 1996 and 1995
LIABILITIES & STOCKHOLDERS' EQUITY
__________________________________
<TABLE>
<CAPTION>
1996 1995
____ ____
CURRENT LIABILITIES
<S> <C> <C>
Accounts Payable - Trade 73,006 245,402
Accounts Payable - Others -0- 30
Accrued Liabilities 60,132 40,800
Federal Income Tax Payable -0- 18,419
Notes Payable - Banks 300,091 379,993
Notes Payable - Affiliates 245,000 100,000
Notes Payable - Others 77,975 2,212
_________ __________
TOTAL CURRENT LIABILITIES 756,204 786,856
LONG-TERM DEBT
Notes Payable - Affiliates -0- 145,000
Deferred Compensation Payable 99,651 99,651
_________ __________
TOTAL LONG-TERM DEBT 99,651 244,651
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 par value;
1,000,000 shares authorized;
65,000 Class B issued and out-
standing, liquidation preference
of $341,250; 300,000 Class A issued
and outstanding, liquidation pre-
ference of $1,575,000 365,000 -0-
Common Stock, $0.01 par value;
10,000,000 shares authorized,
1,308,275 shares issued and
outstanding 13,083 10,880
Additional Paid-in Capital 2,431,697 534,690
Retained Earnings 408,545 632,311
_________ _________
3,218,325 1,177,881
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 4,074,180 2,209,388
========= =========
</TABLE>
See notes to Consolidated Financial Statements
4
<PAGE>
Tech Electro Industries and Subsidiaries
Consolidated Statement of Operations
____________________________________
( Prepared from the books without verification by audit )
For the Three Months and Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Quarter Year to Date
1996 1995 1996 1995
____ ____ ____ ____
<S> <C> <C> <C> <C>
SALES 1,106,225 953,736 2,950,616 2,772,715
COST OF GOODS SOLD 782,790 707,958 2,099,696 2,007,264
_________ _________ _________ _________
GROSS PROFIT 323,435 245,778 850,920 765,451
GENERAL AND ADMINISTRATIVE 361,213 202,622 911,810 608,265
_________ _________ _________ _________
INCOME (LOSS) FROM OPERATIONS (37,778) 43,156 (60,890) 157,186
OTHER INCOME (EXPENSE)
Interest Income 21,450 1,787 62,370 2,149
Interest Expense (13,645) (12,277) (40,322) (41,606)
_________ _________ _________ _________
INCOME (LOSS) BEFORE TAX (29,973) 32,666 (38,842) 117,729
INCOME TAX EXPENSE (BENEFIT)
Current -0- 11,266 -0- 31,642
Deferred (7,437) -0- (9,416) -0-
_________ _________ _________ _________
(7,437) 11,266 (9,416) 31,642
_________ _________ _________ _________
NET INCOME (LOSS) (22,536) 21,400 (29,426) 86,087
========= ========= ========= =========
Income (Loss) Attributable
to Common Stockholders (55,387) 21,400 (117,024) 86,087
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE (.04) .02 (.09) .07
========= ========= ========= =========
</TABLE>
See notes to Consolidated Financial Statements
5
<PAGE>
Tech Electro Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
_____________________________________
( Prepared from the books without verificaton by audit )
September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
____ ____
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (29,426) 86,087
Adjustments to reconcile net income (loss) to
cash provided (used) by operations
Depreciation 21,300 12,657
Provision for obsolete inventory 12,600 -0-
Deferred taxes (9,416) 13,223
Changes in operating assets and liabilities
(Increase) decrease in -
Marketable Securities (45,000) -0-
Accounts receivable (67,583) (134,674)
Other receivable (4,206) 22,125
Advance to employee (84,000) -0-
Inventory (296,107) 181,303
Prepaid Federal Income Tax -0- (14,150)
Deferred IPO costs -0- (28,799)
Prepaid expenses (14,024) (5,844)
Interest earned on certificate of deposit (7,821) -0-
Increase (decrease) in -
Accounts payable (224,634) (121,056)
Accrued liabilities 40,642 28,757
Federal income tax payable -0- 18,419
_________ _______
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (707,675) 58,048
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (58,822) (44,381)
Advances on Note Receivable (33,061) -0-
Repayments on Note Receivable 5,000 -0-
Purchase of Marketable Securities (885,150) (201,688)
_________ _______
NET CASH USED BY INVESTING ACTIVITIES (972,033) (246,069)
_________ _______
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term debt 191,301 203,539
Payments on short-term debt (193,227) (61,330)
Payments on related party borrowing -0- (134,000)
Proceeds from related party borrowing -0- 100,000
Proceeds from sale of preferred, common, warrants 2,103,891 -0-
Dividends paid (76,650) -0-
_________ _______
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,025,315 108,209
_________ _______
NET INCREASE (DECREASE) IN CASH 345,607 (79,812)
CASH AT BEGINNING OF PERIOD 141,433 120,106
_________ _______
CASH AT END OF PERIOD 487,040 40,294
========= =======
SUPPLEMENTAL INFORMATION
Interest paid 40,406 42,675
Income taxes paid -0- 14,150
========= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITY
Stock exchange with Vary Brite Tech., Inc. 12,178 -0-
========= =======
Common stock issued for debt cancellation -0- 387,341
========= =======
</TABLE>
See notes to Consolidated Financial Statements
6
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions per
Item 310(b) of Regulation S-B. Accordingly, they do not include all
of 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 adjustments ) considered necessary for a fair presentation
have been included. Operating results for the nine month period ended
September 30, 1996 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the
accounts of the Company and its wholly-owned subsidiaries, Computer
Components Corporation and Vary Brite Technologies, Inc. All signifi-
cant intercompany transactions and balances have been eliminated in
consolidation.
INCOME TAXES
The Company utilizes the asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are es-
tablished when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or re-
fundable for the period plus or minus the change during the period in
deferred tax assets and liabilites.
INCOME (LOSS) PER SHARE
Income ( loss ) per share has been computed by dividing net income
(loss), adjusted for preferred stock dividends of $87,600 and $0.00
for the quarters ended September 30, 1996 and 1995, by the weighted
average number of shares of common shares and common stock equiva-
lents outstanding. Common stock equivalents include the dilutive
effect of all warrants outstanding as though they had been outstand-
7
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Septmeber 30, 1996
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ing for all periods presented. Fully diluted loss per share for the
quarter and nine month ending September 30, 1996 (which are the only
periods for which the preferred stock was issued and subject to
conversion ) is the same as primary loss per share since the assumed
conversion of common stock warrants and preferred stock would be
anti-dilutive.
DIVIDENDS
Dividends are accrued monthly on 300,000 shares of Class A Preferred
Stock and 65,000 shares of Class B Preferred Stock, $0.030625 per
share. Dividends paid during the quarter ended September 30, 1996
were $32,850 and dividends payable at September 30, 1996 were $10,950.
There was no Class A Preferred declared during 1995 and the Class B
Preferred ( issued November, 1995 ) shareholders waived accrual or
payment of dividends until such time as the Class A Preferred shares
were issued.
MARKETABLE SECURITIES
Marketable securities consist of market debt and equity securities
and are classified as trading securities or available-for-sale
securities.
NOTE C - ACCOUNTS RECEIVABLE
The Company recognizes revenue upon shipment of goods and billing to
a customer and does not maintain any set policy regarding the cus-
tomer's right of return. Customer requests to return products for
refund or credit are handled on an individual basis at the discretion
of management. The refunds or credits in any given year are not sign-
ificant.
In the normal course of business, the Company extends unsecured credit
to virtually all of its customers doing business in the manufacture
of various consumer and industrial electronic goods. The Company's
customers are located throughout the United States.
Because of the credit risk involved, management has provided an allow-
ance for doubtful accounts which reflects its opinion of amounts
which will eventually become uncollectible. In the event of complete
non-performance by the Company's customers, the maximum exposure to
the Company is the outstanding accounts receivable balance at the
date of non-performance.
8
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
NOTE D - INVENTORIES
A small portion of the inventory consists of materials which are
used in the assembly of batteries into packs. Inventory as of
September 30, 1996 and 1995, consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Electronic Components $1,414,183 $1,065,678
Pack materials 56,879 51,697
Reserve for obsolescence <13,951> < 2,296>
__________ __________
$1,457,111 $1,115,079
========== ==========
</TABLE>
NOTE E - PREPAID EXPENSES
Prepaid expenses at September 30, 1996 and 1995, consisted of the fol-
lowing:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Advance payments on overseas
inventory orders $ 57,027 $31,491
Prepaid two year consulting fees,
net of amortization 40,000 -0-
Prepaid insurance 7,532 26,031
Other prepaid expenses 28,968 12,728
________ _______
$133,527 $70,250
======== =======
</TABLE>
NOTE F - ADVANCE TO EMPLOYEE
During February, 1996 the Company advanced $105,000 to an employee.
The advance earns interest at 6%. In accordance with an employment
agreement the advance amount will be amortized as earned compensa-
tion evenly over the two year period of the employment agreement.
During the third quarter the Company reduced the note by $9,000 in
compensation.
9
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
NOTE G - MARKETABLE SECURITIES
The Company has placed a portion of its cash in security accounts
with Dean Witter and Comerica Securities. These accounts have
invested in various equity securities with the intent to generate
profits based on short term price movements (trading securities),
and in various certificates of deposit and treasury securities,
( available-for-sale securites ). Realized gains and losses and
income and expenses are recorded monthly and reflected in the in-
come from operations.
For trading securities, unrealized gains and losses at the balance
sheet date are recorded and reflected in the statement of opera-
tions. For the quarters ended September 30, 1996 and 1995,
respectively, unrealized losses of $36,286 and $-0- had been re-
corded.
Cost and fair value of the various categories of available-for-sale
securities and for the trading securities at September 30, 1996 are
as follows. There were no such securities at September 30, 1995.
<TABLE>
<CAPTION>
Amortized Unrealized
Cost Value Losses
____ _____ ______
<S> <C> <C> <C>
Available-for-Sale
Treasury Notes (mature 7-98) $ 98,500 $ 98,500 -0-
Treasury Bills (mature 4-97) 486,650 486,650 -0-
Cash Equivalents 300,000 300,000 -0-
________ ________ _______
$885,150 $885,150 -0-
Trading
Equity Securities 81,286 45,000 $(36,286)
________ ________ _________
$966,436 $930,150 $(36,286)
======== ======== =========
</TABLE>
Trading securities valued at $885,150 were transferred to available-
for-sale securities at September 30, 1996. The related unrealized
gain or loss on these securities through that date was $0.00 and
the gain or loss recognized at the date of transfer $0.00.
In connection with the security account at Dean Witter, the Company
has incurred a margin loan with interest payable monthly at 9.125%.
At September 30, 1996, the margin loan balance was $77,975.
10
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
NOTE H - BANK DEBT
Bank debt as of September 30, 1996 and 1995, consisted of the following:
<TABLE>
<CAPTION>
1996 1995
____ ____
<S> <C> <C>
$200,000 term note to Nations Bank Texas NA,
dated December 29, 1995 and due March 31,
1997, with interest due monthly at 7.5% per
annum, secured by a $211,664 certificate of
deposit and personally guaranteed by the ma-
jority shareholder. $200,000 $200,000
$750,000 line of credit with Texas Central
Bank payable on demand with interest at
prime plus 1/2%, maturing June 30, 1997, and
secured by accounts receivable, inventory
and automotive equipment.
100,091 -0-
$113,326 term note to Bank One, Texas with
$6,666 principal due monthly plus interest
at base rate plus 1%. The note was paid off
on July 31, 1996. -0- 179,993
________ ________
$300,091 $379,993
======== ========
</TABLE>
NOTE I - NOTES PAYABLE TO AFFILIATES
Notes payable to related parties at September 30, 1996 and 1995, con-
sisted of the following.
<TABLE>
<CAPTION>
1996 1995
____ ____
<S> <C> <C>
Unsecured note payable to Jacqueline G.
La Taste, a majority shareholder, interest
payable at 9.5% in monthly installments of
$792, with principal due March 31, 1997. $100,000 $100,000
Unsecured note payable to Jacqueline G.
La Taste a majority shareholder, interest
payable at 10.25% in monthly installments
of $1,239.00, with princpal due
March 31, 1997. 145,000 145,000
________ ________
$245,000 $245,000
Less current portion 245,000 100,000
________ ________
Long term portion $ -0- $145,000
======== ========
</TABLE>
11
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
NOTE J - ORGANIZATION
On January 10, 1992, Electric & Gas Technology, Inc. (E>) formed a
Texas corporation, Tech Electro Industries, Inc. (TEI). E>
acquired 1,550,000 shares of common stock of TEI for $50,000. On
January 31, 1992, pursuant to an Agreement and Plan of Reorganiza-
tion, TEI issued to the shareholders of Computer Components Corp-
oration ( CCC ) ( a Texas corporation ) an aggregate of 4,198,192
shares of its common stock in exchange for 100% of the outstanding
shares of CCC. As a result of the issuance of said shares of TEI as
described above, the former shareholders of CCC became, as a group
(5 persons), the holders of 73% of the issued and outstanding shares
of TEI and the holdings of E> were reduced to 27%.
On February 3, 1992, E> declared a dividend consisting of approxi-
mately 1,200,000 of its TEI shares to be distributed to E> share-
holders of record as of March 10, 1992. After the distribution of
of the dividend shares, the holdings of E> were reduced to approxi-
mately 6.08% of the total issued and outstanding shares.
The Company closed on a Form SB-2 Registration Statement on February
1, 1996, to issue 300,000 units, of which each unit comprised 1
common share and 1 class A preferred share. The offering price was
$8.25 per unit resulting in an aggregate offering price of $2,475,000
before underwriting fees and other costs ( excluding underwriters'
over-allotment option of 45,000 units). In connection with the offer-
ing, 300,000 warrants (excluding underwriters' over-allotment option)
were also separately offered at $0.10 per warrant exercisable at
$3.50 per share. A net offering price of $2,178,315 was received for
the units and the warrants at closing and the Company incurred addi-
tional offering costs of $138,338 which were netted against the
proceeds. In addition, the Company sold at $0.10 per warrant an
additional 1,600,000 warrants to purchase 1,600,000 common shares at
an exercise price of $3.50 per share. In March of 1996, the under-
writer purchased the 45,000 over-allotment warrants for a net price
of $3,915 after a 10% discount and the 3% expense allowance, to make
a total of 1,945,000 warrants outstanding.
On June 1, 1996, pursuant to a Stock Exchange Agreement, TEI issued
an aggregate of 50,000 shares of its common stock in exchange for 100%
of the outstanding shares of Vary Brite Technologies, Inc. ( VBT ), a
Texas corporation. The acquisition has been accounted for on a pool-
ing basis, whereby the assets and liabilities of the acquired company
12
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
NOTE J - ORGANIZATION ( CONTINUED )
( VBT ) would be included in the historical financial information of
the acquiring company ( TEI ) as if the acquisition had been consum-
mated at the beginning of the earliest period shown, however, due to
the immateriality of the activities of VBT prior to acquisition by
TEI, these consolidated financial statements include the operations
of VBT from June 1, 1996.
The assets, liabilities and equity of VBT at the date of acquisition
were as follows.
<TABLE>
<CAPTION>
<S> <C>
Assets 51,020
Liabilities <38,842>
Capital <60,318>
Accumulated Deficit 48,140
</TABLE>
13
<PAGE>
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
GENERAL
In June, 1996 the Company acquired 100% of Vary Brite Technologies
(VBT), a company which is principally engaged in research, develop-
ment and marketing custom light sources utilizing solid state light
emanating diode arrays towit: Light Emitting Diodes ( "LED's" ).
While sales revenue for 1996 should approximate one hundred thousand
( $100,000 ) dollars, the Company anticipates that this subsidiary
in calendar 1997, as indicated by customer inquires, should develop
substantial sales. During the balance of fiscal 1996, product re-
search and development will be continued. Management believes that
VBT will be a niche supplier of LED products to various industries.
VBT also permits the Company to have its own line of proprietary
products as distinguised from its distribution operations in electric
components.
In the area of distribtion of electronic components, the Company has
continued its philosophy of increasing its line of product as well
as its customer base. In his visit to Taiwan, Hong Kong and Mainland
China during the second quarter of Fiscal 1996, the President of the
Company selected several new products to add to the Company's product
line. Arrangements have been made to have samples of these products
sent to the Company's Hong Kong office for testing and quality con-
trol evaluation. In the selection of new products the Company seeks
to make available to its existing customer base, products which these
customers presently purchase from other suppliers. This approach
permits the Company to take advantage of its position as an existing
supplier of quality products, but does not preclude the Company from
expanding into new products to increase its customer base. An example
of this approach is the introduction to the security industry of a
40 Volt transformer for OEM utilization as well as for the replace-
ment market. Previously, the Company only offered the 20 Volt con-
figuration.
To expand its market share in the battery and battery products (power
packs) market, the Company in November 1996 formed a new subsidiary,
Universal Battery Corporation. This company will concentrate its
efforts in the main battery and battery products OEM market. To head
this division the Company has employed a Vice President in charge of
marketing and sales with over thirteen years experience wholly with-
in the battery industry.
The Company in all its areas of operations is seeking to increase
sales through new products and increased marketing activities.
14
<PAGE>
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
- continued -
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
Revenues. Net revenues in the third quarter of $1,106,225 represent
a nearly 16% increase over the third quarter in the prior fiscal year.
The increase was predominately in the area of import products and is
due not only to increased marketing of existing products, but also to
the introduction of additional imported product lines. Management is
continuing its focus on the profitable area of import products while
decreasing the Company's distribution sales. Although this change in
emphasis will continue in future periods, management does see a
decline in the customer sales order backlog from $1,350,000 at the
beginning of 1996 to $1,004,000 at the end of the third quarter.
Consequently, this sales increase may not further increase though year
end.
Cost of Sales. Cost of sales as a percentage of net revenues decreased
for the third quarter as compared to the prior fiscal year. This im-
provement in gross profit to 29.2% of sales from 25.8% of sales is
attributable to a combination of factors and reflects managements's
goal of operating with a gross profit of 25% to 28% through better
controls of foreign currency exchange rates, better control of foreign
products purchasing and choice of products which offer better market
sales conditions. Management plans to maintain these gross profits
within the stated rates and does not anticipate any problem.
General and Administrative. General and administrative expenses as a
percentage of net revenues increased for the third quarter to 32.7% as
compared to 21.1% for the prior fiscal period. While this seems like
an alarming increase, much of it is attributable to the increased
costs associated with the use of public offering proceeds received in
the first quarter of 1996. The Company is in the process of using
these offering proceeds to increase its marketing and advertising base
and has expended additional funds in the area of enhanced public
relations and in consulting, accounting and legal fees paid in assoc-
ation with its growth and expansion plans. The Company has also incur-
red a short-term loss in the value of its trading securities which is
included in general and administrative expenses but expects this to
turn around before year end. Many of these added costs will continue
through the next quarter and into the next fiscal year, but management
expects to reap the benefit of these expenses through additional
sales markets and through acquistions of new products and product
lines.
Other Income and Expense. Interest income increased more than ten-
fold during the third quarter due primarily to the short therm invest-
ment of offering proceeds until such time as they will be used for
15
<PAGE>
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
- continued -
expansion. Interest expense has remained fairly consistent as compared
to the prior fiscal period and will probably decrease as the fixed
periods loans of the Company are retired.
Quarterly Results. While the net loss of $22,537 for the third quar-
ter is a disappointment as compared to the prior fiscal period, which
reflected a net gain of $21,400 management continues to feel that its
long range goals of expanded sales through increased marketing and
advertising will eventually pay off. The continued emphasis on import
product sales and improvement in controlling general and administra-
tive costs, other than those that are increasing as a result of
expansion, will potentially help improve the results for the coming
quarter.
Nine Months Ended September 31, 1996 and 1995
Revenues. The Company's net sales year to date have increased some 6%
to $2,950,617 as compared to the prior fiscal quarter of $2,772,715.
Again, this increase is due to the continued management belief in its
import product line and the phasing out of distribution sales.
Although the Company is currently working on an increased marketing
and advertising campaign to increase its product sales, it is not
anticipated that the benefit of this strategy will be realized until
next year. Sales through calendar 1996 are expected to maintain only
this slight increase over 1995.
Cost of Sales. The Company's cost of sales as a percentage of net
revenues has decreased slightly to 71.5% as compared to 72.4% for the
prior fiscal period. This gross profit percentage of approximately
28.5% year to date is in the normal range that management attempts to
maintain. There is no indication that the gross profit percentage will
fluctuate for the remaining quarter of 1996.
General and Administrative. General and administrative expenses year
to date have increased to approximately 31% of net revenues as com-
pared to 22% for the prior year to date. As previously discussed,
this result is due mainly to the increased costs relative to the
Company's growth plans through expanded marketing and advertising
activities and the additional use of outside consultants and legal
fees in association with expansion and potential acquistion of new
products and operations. Although these costs will continue to be
higher than in previous years, the Company anticipates that they will
be down to 28% of net revenue by the end of the year.
Other Income and Expenses. Interest income has increased drastically
year to date to $62,370 from $2,149 for the prior year to date. This
increase is due primarily to the short term investment of offering
16
<PAGE>
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
- continued -
proceeds until such time as they will be used in operations. Interest
expense has remained fairly consistent with the prior year to date and
is expected to decrease as the Company's notes are paid.
Year to Date Results. The Company has incurred a net loss year to
date of $29,424 as compared to a net income of $86,087 for the prior
fiscal period due primarily to the increase in general and administr-
ative expense incurred this year. Company management feels that these
expenditures are necessary in order to ensure future growth of the
Company and believes that the benefit of these expenses will be real-
ized in future years.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow used by operations year to date is $707,675 as compared to
cash generated by operations of $58,048 for the prior year to date.
This cash used by operations is primarily due to an increase in
inventory and in trade accounts receivable year to date along with an
accompanying decrease in accounts payable to date.
Along with this loss from operations, the Company has used cash for
investing activities of $972,033 year to date as compared to $246,069
for the prior fiscal year. The investing activities consist mainly
of the investment of offering proceeds in short term securites.
This use of a combined $1.6 million to cover operations and investing
activities has not negatively impacted the overall cash position of
the Company because these funds were provided from financing activi-
ties through the proceeds of the public offering received in early
1996. The Company anticipates that the use of these proceeds will
eventually enable increased sales and operating profitability and
positive cash flow from operations.
The current cash and short term investments on hand should prove suf-
ficient to supply the cash needs of the Company in the foreseeable
future, however, the Company has recently established a new $750,000
bank line of credit which is well beyond any projected cash require-
ments at this time. Initially, the new line of credit has been used
to replace the Bank One note which was paid in full with proceeds
from the new loan.
Part II
Other Information
Item 1. Legal Proceedings.
None
17
<PAGE>
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.
TECH ELECTRO INDUSTRIES, INC.
November 13, 1996 /s/ Craig D. La Taste
__________________ _____________________________
Date Craig D. La Taste
Chairman of the Board and
President
November 13, 1996 /s/ Julie Sansom-Reese
__________________ ______________________________
Date Julie Sansom-Reese
Chief Financial Officer
18
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<CIK> 0000886912
<NAME> TECH ELECTRO INDUSTRIES, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
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<SECURITIES> 930,150
<RECEIVABLES> 617,803
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<PP&E> 496,191
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<CURRENT-LIABILITIES> 756,204
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0
0
<COMMON> 1,308,275
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<TOTAL-LIABILITY-AND-EQUITY> 4,074,180
<SALES> 1,106,225
<TOTAL-REVENUES> 1,127,675
<CGS> 782,790
<TOTAL-COSTS> 361,213
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<INTEREST-EXPENSE> 13,645
<INCOME-PRETAX> (29,973)
<INCOME-TAX> (7,437)
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<NET-INCOME> (22,536)
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