SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
Commission File No. 0-27210
Tech Electro Industries, Inc.
(Name of Small Business Issuer in its Charter)
Texas 75-2408297
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
4300 Wiley Post Rd., Dallas, Texas 75244-2131
Address of principal executive office Zip Code
Issuer's telephone number: (972) 239-7151
Check whether the issuer has (1) filed all reports required by Section 13 or
15(d) of the Exchange Act during the past 12 months, and (2) been subject to
such filing requirements for the past ninety (90) days. Yes X No
As of September 30, 1997, 2,446,875 shares of Common Stock were outstanding.
<PAGE>
THIS DOCUMENT IS PREPARED AND FILED UNDER THE REQUIREMENTS
OF REGULATION S-B OF THE SECURITIES AND EXCHANGE COMMISSION,
EFFECTIVE JULY 31, 1992.
Index
Item Page
Part I - Financial Statements
Item 1 - Financial Statements (unaudited)
Condensed Consolidated Balance Sheet at
September 30, 1997 and 1996.............................3
Condensed Consolidated Statement of Income for
the Periods Ended September 30, 1997 and
and 1996................................................5
Condensed Consolidated Statements of Cash Flows
for the Periods Ended September 30, 1997 and
1996....................................................6
Notes to Condensed Consolidated Financial
Statements..............................................7
Item 2 - Management's Discussions and
Analysis of Financial Condition and
Results of Operations...................................9
Part II - Other Information
Item 1 - Legal Proceedings...........................................12
Item 2. Changes in Securities.......................................12
Item 3. Defaults Upon Senior Securities.............................12
Item 4. Submission of Matters to a
Vote of Securities Holders................................12
Item 5. Other Information...........................................13
Item 6. Exhibits and Reports on Form 8-K............................13
Signatures....................................................................14
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Tech Electro Industries, Inc. Consolidated
Condensed Consolidated Balance Sheet
(Unaudited)
For the Periods Ended September 30, 1997 and December 31, 1996
ASSETS
1997 1996
--------- ---------
CURRENT ASSETS
Cash and cash equivalents 137,316 261,973
Certificates of deposit 706,005 214,336
Marketable securities 109,375 937,500
Accounts and notes receivable
Accounts receivable trade 782,641 357,674
Notes 335,000 15,000
Other 305,345 22,209
Income taxes 8,382 0
Inventory 1,852,378 1,493,132
Prepaid expenses 282,013 80,943
--------- ---------
TOTAL CURRENT ASSETS 4,518,455 3,382,767
--------- ---------
NET PROPERTY & EQUIPMENT 282,000 192,152
--------- ---------
OTHER ASSETS
Notes receivable 86,452 113,538
Other assets 2,360 2,428
--------- ---------
TOTAL OTHER ASSETS 88,812 115,966
--------- ---------
TOTAL ASSETS 4,889,267 3,690,885
========= =========
See Notes to Condensed Consolidated Financial Statements
-3-
<PAGE>
Tech Electro Industries, Inc. Consolidated
Condensed Consolidated Balance Sheet
(Unaudited)
For the Periods Ended September 30, 1997 and December 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
---------- ----------
Current liabilities:
Accounts payable trade 285,293 267,125
Accounts payable - other 273 0
Accrued liabilities 103,760 21,466
Notes payable - banks 275,000 347,772
Notes payable - affiliates 0 245,000
Dividends payable 52,196 13,459
---------- ----------
Total current liabilities 716,522 894,822
MINORITY INTEREST IN SUBSIDIARY 47,392 76,933
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par 365,000 365,000
value; 1,000,000 shares
authorized,65,000 Class B
issued and outstanding,
liquidation preference
of $341,250; 280,700 Class A
issued and outstanding,
liquidation preference
of $1,473,675
Common stock, $.01 par value; 24,083 13,083
10,000,000 shares authorized,
2,446,875 shares issued and
outstanding on September 30,
1997 and 1,308,275 shares
issued and outstanding on
December 31, 1996.
Additional paid in capital 4,209,909 2,350,202
Unrealized Gains (Losses) 39,937 (75,204)
Retained Earnings (Deficit) (513,576) 66,049
---------- ----------
Total stockholders' equity 4,125,353 2,719,130
---------- ----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY 4,889,267 3,690,885
========== ==========
See Notes to Condensed Consolidated Financial Statements
-4-
<PAGE>
<TABLE>
<CAPTION>
Tech Electro Industries, Inc. Consolidated
Condensed Consolidated Statement of Income
(Unaudited)
For the 9 Months Ended September 30, 1997 and 1996
<S> <C> <C>
Qtr Qtr YTD YTD
1997 1996 1997 1996
---------- ---------- ---------- ----------
Sales 2,184,170 1,106,225 4,753,654 2,950,617
Cost of goods sold 1,587,858 774,390 3,474,045 2,091,294
---------- ---------- ---------- ----------
Gross profit 596,312 331,835 1,279,609 859,323
General and administrative
expenses 705,230 346,530 1,827,790 897,129
---------- ---------- ---------- ----------
Income (loss) from
operations (108,918) (14,695) (548,181) (37,806)
Other income (expense):
Interest income 18,044 21,450 69,702 62,372
Interest expense (7,197) (13,645) (24,680) (40,326)
---------- ---------- ---------- ----------
Total other income
(expense) 10,847 7,805 45,022 22,046
Minority share of
subsidiary loss 13,316 0 29,541 0
---------- ---------- ---------- ----------
Income before provision
for taxes (84,755) (6,890) (473,618) (15,760)
Income tax expense (benefit):
Current 0 0 7,455 0
Deferred 0 (7,437) 0 (9,416)
---------- ---------- ---------- ----------
Total income tax
expense (benefit) 0 (7,437) 7,455 (9,416)
---------- ---------- ---------- ----------
NET INCOME (LOSS) (84,755) 547 (481,073) (6,344)
========== ========== ========== ==========
Income (Loss) attributable
to Common Stockholders (117,605) (55,387) (579,623) (117,024)
EARNINGS (LOSS) PER SHARE (.09) (.04) (.44) (.09)
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-5-
<PAGE>
Tech Electro Industries, Inc. Consolidated
Condensed Consolidated Statement of Cash Flows
(unaudited)
For the 9 Month Period Ending September 30, 1997 and 1996
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (481,073) $ (29,426)
Adjustments to reconcile net income
(loss) to cash provided (used)
by operations
Depreciation adjustment 22,462 21,300
Provision for obsolete inventory 56,117 12,600
Minority interest share of subsidiary (29,541) -0-
Deferred taxes -0- (9,416)
Changes in operating assets and liabilities
(Increase) decrease in:
Marketable securities -0- (45,000)
Accounts receivable - trade (424,967) (67,583
Other receivables (611,518) (4,206)
Advance to employee -0- (84,000)
Inventory (415,363) (296,107)
Prepaid expenses (201,070) (14,024)
Interest earned on certificates
of deposit -0- (7,821)
Increase (decrease) in:
Accounts payable 21,379 (224,634)
Accrued liabilities 82,294 40,642
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (1,981,280) (707,675)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (112,670) (58,822)
Additions to certificates of deposit (491,669) -0-
Advances on note receivable 27,086 (33,061
Repayments on note receivable -0- 5,000
Marketable securities 943,677 (885,150)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES 366,424 (972,033)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt -0- 191,301
Payments of short-term debt (72,772) (193,227)
Proceeds from long-term debt (247,939) -0-
Proceeds from sale of preferred,
common, warrants 1,870,707 2,103,891
Dividends paid (59,945) (76,650)
----------- -----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 1,490,051 2,025,315
----------- -----------
NET INCREASE (DECREASE) IN CASH (124,805) 345,607
CASH AT BEGINNING OF PERIOD 261,973 141,433
----------- -----------
CASH AT END OF PERIOD $ 137,168 $ 487,040
=========== ===========
See Notes to Condensed Consolidated Financial Statements
-6-
<PAGE>
Tech Electro Industries, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
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 SB.
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, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
Note B - Organization
Tech Electro Industries, Inc. (TEI) was formed on January 10, 1992 as a Texas
organization. On January 31, 1992, TEI acquired 100% of the outstanding common
stock of Computer Components Corporation (CCC). In February, 1996, TEI filed a
Form SB-2 Registration Statement and completed a public offering the net
proceeds of which amounted to $2,043,891 including warrants.
On June 1, 1996, pursuant to a Stock Exchange Agreement, TEI acquired 100% of
the outstanding shares of Vary Brite Technologies, Inc. (VBT) by issuing 50,000
shares of its common stock. The business combination was accounted for using the
pooling method. The historical consolidated statements of operations prior to
the date of the combination have not been adjusted to include the operations of
VBT as these operations are immaterial to the consolidated operations of the
Company. Accordingly, the accompanying consolidated statements of operations
include, the operations of VBT from June 1, 1996 forward. The assets and
liabilities acquired were also immaterial to the consolidated balance sheets of
the Company.
On October 29, 1996, TEI incorporated Universal Battery Corporation (UBC) as a
67% owned subsidiary.
Effective February 10, 1997, pursuant to Regulations as promulgated by the
Securities and Exchange Commission, TEI sold 1,100,000 shares of its common
stock and options to acquire 1,000,000 shares of common stock for $1,870,000, a
combined price of $1.70 net to the Company. The options have an exercise price
of $2.15 per share and expire thirteen months from the date of issuance.
-7-
<PAGE>
Note C - Dividends
Dividends are accrued monthly on 300,000 shares of Class A Preferred Stock and
65,000 shares of Class B Preferred Stock at $.030625 per share. Dividends paid
during the quarters ended September 30, 1997 and 1996 were 24,454 and $32,850
respectively, and dividends payable at September 30, 1997 were $52,196.
Note D - Notes Receivable
<TABLE>
<S> <C>
Notes Receivable consisted of the following at September 30, 1997:
Note receivable from a minority shareholder, $30,000 due at
maturity in August 1999 and $65,616 due in February, 2000. The
notes are being liquidated by monthly payments of $3,500 which
are applied against interest due at six percent per annum on
both said notes and the balance applied in reduction of the
principal of the note due in February, 2000. 86,452
Note receivable, each in the sum of $7,500 from two minority
shareholders bearing interest at six percent per annum and are
due on December 1, 1999. Interest for the period from May 1,
1997 through October 31, 1997 in the sum of $225 is due and
payable on each said notes in November 1, 1997. Commencing
December 1, 1997 and continuing on the 1st day of each month
thereafter the principal of each note shall be due and payable
in 48 equal monthly installments in the amount of $156.25
each. In addition to the payment of monthly principal the
maker of each note shall pay interest at the rate of six
percent per annum monthly on the unpaid principal balance
simultaneously with
the payment of the principal. 15,000
Note receivable to minority shareholder in the amount of
$310,000 with interest at ten and one half percent to be paid
quarterly beginning October 1, 1997 and thereafter on the
first day of January, April and July until principal and
interest is paid in full at maturity on September 5, 1998.
Secured by 65,000 shares of Class B Preferred Stock of TIE and
40,000 shares of common stock of
Electric and Gas Technology, Inc. 320,000
-------
Total notes receivable 421,452
Less current maturities 357,688
-------
Long-term portion 63,764
</TABLE>
Note E - Bank Debt
Bank debt as of September 30, 1997 consists of the following:
$750,000 line of credit with Texas Central Bank payable on
demand with interest at prime plus one half percent, maturing
June 30, 1998, and secured by `accounts receivable, inventory
and machinery and equipment.
-8-
<PAGE>
<TABLE>
<S> <C>
Currently outstanding $275,000
$139,991 term note to Bank One, Texas with $6,666
principal plus interest at base rate
plus 1% due monthly, fully paid in July, 1996 -0-
---
275,000
Less current maturities 275,000
-------
Long term portion -0-
</TABLE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and notes thereto included
elsewhere in this Form 10-QSB. Except for the historical information contained
herein, the discussion in this Form 10-QSB contains certain forward looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Form 10-QSB should be read as being applicable to all
related forward-looking statements wherever they appear in this Form 10-QSB. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, without
limitation, those factors discussed herein and in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1996.
Currently, the Company's operations are conducted through its wholly-owned
subsidiaries, Computer Components Corporation ("CCC"), Very Brite Technologies,
Inc. ("VBT") and Universal Battery Corporation ("UBC").
Three-months Ended September 30, 1997 Compared to Three-months Ended September
30, 1996
Results of Operations
The Company's results for operations for the third quarter of 1997,
compared to the third quarter of 1996, were significantly impacted by the
operations of VBT and UBC, which were acquired and formed, respectively, after
the second quarter of 1996, and for which there are no comparable results in the
first quarter of 1996.
Revenues. For the three month period ending September 30, 1997, the Company
had sales of $2,184,170, an increase of approximately 106.48% from sales of
$1,106,235 for the three month period ending September 30, 1996.
The Company recognized a loss from operations of $108,918 for the three
month period ending September 30, 1997, compared to a loss of $14,965 during the
same period in the prior year. The Company's loss was primarily due to an
increase in general and
-9-
<PAGE>
administrative expenses to $705,230 in the third quarter of 1997 from $346,530
in the third quarter of 1996, an increase of 103.54%.
Cost of Goods Sold. The Company's cost of goods sold, consisting primarily
of inventory, rose to $1,587,858 during the third quarter of 1997, compared to
$774,390 during the third quarter of 1996, an increase of 105.05%, and increased
as a percentage of sales from 70.00% in the three months ending September 30,
1996 to 72.69% in the three months ending September 30, 1997.
General and Administrative Expenses. The Company's general and
administrative expenses, consisting primarily of wages, benefits and related
expenses, rose to $705,230 in the third three months of 1997, compared to
$346,530 in the third three months of 1996, an increase of an increase of
103.54%.
Interest Expense. The Company incurred $7,197 in interest expense in the
third three months of 1997, compared to $13,645 during the third three months of
1996, a decrease of 47.25%. The reduction in interest expense was due to the
repayment by the Company of substantially all outstanding indebtedness in March
1997.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Results of Operations
Revenues. For the nine month period ending September 30, 1997, the Company
had sales of $4,753,654, an increase of 61.11% from sales of $2,950,617 for the
period ending September 30, 1996.
The Company recognized a loss from operations of $548,181 for the nine
month period ending September 30, 1997, compared to a loss of $37,806 during the
same period of the prior year. The Company's loss was primarily due to an
increase in general and administrative expenses to $1,827,790 in the first nine
months of 1997 from $897,129 in the same period in 1996, an increase of 103.74%.
The increase in general and administrative expenses, in turn, resulted primarily
from an increase in wages at CCC, the support of expanded operations at UBC and
VBT, and increased legal and professional expenses. A substantial portion of the
increase in wages paid at CCC, in turn, was due to signing bonuses paid to the
President of CCC and to a key employee of CCC.
During the first nine months of 1997, the Company recognized net interest
income of $45,022, an increase of 104.22% from interest income of $22,046
recorded in the first nine months of 1996. The increase in net interest income
reflects a reduction of outstanding borrowings, while funds held pending use in
operations were invested.
Cost of Goods Sold. The Company's cost of goods sold, consisting primarily
of inventory, rose to $3,474,045 during the first nine months of 1997, compared
to $2,091,294
-10-
<PAGE>
during the first six months of 1996, an increase of 66.12%, and rose as a
percentage of sales to 73.08% of sales in the first nine months of 1997,
compared to 70.87% of sales in the first nine months of 1996.
General and Administrative Expenses. The Company's general and
administrative expenses, consisting primarily of wages, benefits and related
expenses, rose to $1,827,790 in the first nine months of 1997, compared to
$897,129 in the first nine months of 1996, an increase of 103.74%. This increase
is attributed to start-up costs associated with the organization of VBT and UBC,
as well as increased wages and bonuses paid in the first three months of 1997.
While management believes many of these costs are non-recurring, there can be no
assurance that the Company will not incur similar costs in future periods.
Interest Expense. The Company incurred $24,680 in interest expense in the
first nine months of 1997, compared to $40,326 during the first nine months of
1996, a decrease of 38.81%. The Company repaid substantially all of its
outstanding indebtedness in March 1997.
Liquidity
In February, 1997 the Company completed an offshore placement of its common
stock and warrants for which it obtained aggregate consideration of
approximately $1,870,000. At September 30, 1997, the Company had approximately
$952,696 in cash and cash equivalents, marketable securities and certificates of
deposits. The Company expects to use the bulk of these funds to fund expansion
of existing operations by CCC, UBC and VBT, primarily to purchase additional
inventory and expand those entities' product lines.
On May 15, 1997, the Company announced that it had approved the placement
of an additional 1,000,000 shares of its common stock and options to acquire an
additional 1,000,000 shares of common stock. Subsequently, the Company announced
that it had, subject to final documentation, placed 1,000,000 shares of its
common stock at a sales price of $1.60 per share, together with options to
acquire an additional 1,000,000. As of the date of this report, the Company has
not yet placed these shares, and may reprice or otherwise revise the terms of
the placement to meet existing conditions. The proceeds of a placement, after
payment of offering expenses, are expected to be used for acquisitions and
diversifications. There can be no assurance, however, that such funds can be
placed, or if placed, that an acceptable acquisition candidate can be identified
or acquired.
Management of the Company believe that its existing funds, together with
funds to be raised by the Company in the aforementioned placement and other
liquid assets available to the Company, are adequate to provide funds for the
foreseeable future.
-11-
<PAGE>
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities Holders.
On July 18, 1997, the shareholders of the Corporation took the following
action at its regular annual meeting of shareholders:
1. The Shareholders voted to elect the following individuals to serve as
directors of the Corporation:
Name Votes in Favor
William Kim Wah Tan 2,661,081
Sadasuke Gomi 1,967,831
Kim Yeow Tan 1,967,831
Ian Edmonds 1,445,691
Steven Scott 1,446,691
2. The Shareholders approved the Corporation's 1997 Stock Option Plan.
Votes in Favor: 1,932,380
Votes Against 3,702
Abstaining: 5,751
-12-
<PAGE>
3. The Shareholders ratified the selection of Deloitte & Touche LLP as the
Corporation's independent auditors for the year ending December 31, 1997.
Votes in Favor: 2,324,946
Votes Against 71
Abstaining: 5,426
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
-13-
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Tech Electro Industries, Inc.
Date: November 19, 1997 /s/ WILLIAM KIM WAH TAN
-----------------------
William Kim Wah Tan
Chairman of the Board, President and Chief
Executive Officer
Date: November 19, 1997 /s/ SADASUKE GOMI
-----------------
Sadasuke Gomi
Acting Chief Financial Officer and Principal
Accounting Officer
-14-
