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 March 31, 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 jursidiction 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 March 31, 1997, 2,422,275 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 Statments
Item 1 - Financial Statements (unaudited)
Consolidated Balance Sheet at
March 31, 1997 and 1996. 3
Consolidated Statement of Income
for the Periods Ended March 31,
1997 and 1996. 5
Consolidated Statements of Cash
Flows for the Periods Ended
March 31, 1997 and 1996. 6
Notes to Consolidated Financial
Statements. 7
Item 2 - Management's Discussions and
Analysis of Finanical Condition
and Results of Operations. 9
Part II - Other Information
Item 1 - Legal Proceedings. 11
Item 2 - Change in Securities.
Item 3 - Defaults Upon Senior Securities.
Item 4 - Submission of Matters to a Vote
of Securities Holders.
Item 5 - Other Information.
Item 6 - Exhibits and Reports o Form 8-K.
Signatures 12
2
<PAGE>
Part I - Financial Information
Item 1 - Financial Statement
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 and DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
Unaudited
1997 1996
---- ----
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents 283,972 261,973
Marketable securities 1,145,250 937,500
Certificates of deposit 600,000 214,336
Accounts and note receivable
Trade, net of allowance for doubtful
accounts of $4,500 in 1997 and 1996 604,199 357,674
Note receivable 15,000 15,000
Other 12,331 22,209
Federal income tax receivable 8,382 -0-
Inventory 1,438,196 1,493,132
Prepaid expenses and other 300,424 80,943
--------- ---------
Total current assets 4,407,754 3,382,767
--------- ---------
PROPERTY AND EQUIPMENT
Machinery and equipment 333,286 316,732
Furniture and fixtures 148,934 147,359
Vehicles 21,943 21,943
-------- --------
504,163 486,034
Less accumulated depreciation (301,238) (293,882)
--------- ---------
Net property and equipment 202,925 192,152
--------- ---------
OTHER ASSETS
Note receivable 104,644 113,538
Other 2,360 2,428
------- -------
Total other assets 107,004 115,966
--------- ---------
TOTAL ASSETS 4,717,683 3,690,885
========= =========
</TABLE>
3
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 and DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unaudited
1997 1996
---- ----
CURRENT LIABILITIES <C> <C>
<S>
Notes payable
Banks 1,000 347,772
Affiliates -0- 245,000
Accounts payable 254,466 267,125
Other accrued liabilities 52,552 21,466
Dividends payable 10,950 13,459
--------- --------
Total current liabilities 318,968 894,822
--------- --------
MINORITY INTEREST IN SUBSIDIARY 62,465 76,933
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Preferred stock - $1.00 par value; 1,000,000
shares authorized; 65,000 Class B issued and
outstanding in 1997 and 1996, liquidation
preference of $341,250; 300,000 Class A
issued and outstanding in 1997 and 1996,
liquidation preference of $1,575,000 365,000 365,000
Common stock - $ .01 par value; 10,000,000
shares authorized, 2,408,275 and 1,308,275
shares issued and outstanding during 1997
and 1996 respectively 24,083 13,083
Additional paid in capital 4,209,202 2,350,202
Retained earnings (187,788) 66,049
Net unrealized loss, marketable securities (74,247) (75,204)
--------- ---------
Total stockholders' equity 4,336,250 2,719,130
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 4,717,683 3,690,885
========= =========
</TABLE>
See notes to Consolidated Financial Statements
4
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
SALES 1,086,654 867,944
COST OF GOODS SOLD 799,476 617,396
--------- ---------
GROSS PROFIT 287,178 250,548
GENERAL AND ADMINISTRATIVE 522,798 248,639
--------- ---------
INCOME (LOSS) FROM OPERATIONS (235,620) 1,909
OTHER INCOME (EXPENSE)
Interest income 16,136 18,354
Interest expense (15,970) (13,293)
---------- ---------
(235,454) 6,970
MINORITY SHARE OF SUBSIDIARY LOSS 14,468 -0-
---------- ---------
INCOME BEFORE INCOME TAXES (220,986) 6,970
INCOME TAX EXPENSE (BENEFIT):
Current -0- 1,046
Deffered -0- -0-
---------- --------
-0- 1,046
NET INCOME (LOSS) (220,986) 6,970
========== ========
Net income (loss) attributable
to common shareholders (253,837) 15,976
========= ========
Net income (loss) per share
attributable to common shareholders (0.13) (0.01)
========= ========
Number of weighted-average shares
of common stock outstanding 1,907,164 1,158,275
========= ==========
</TABLE>
See notes to Consolidated Financial Statement
Unaudited
5
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (220,986) 5,924
Adjustments to reconcile net income to cash
Depreciation and amortization 7,424 5,591
Provision for obsolete inventory 15,000 -0-
Minority interest share of subsidiary loss (14,468) -0-
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable - trade (246,525) (76,590)
Accounts receivable - other 1,496 (6,040)
Advance to employee -0- (102,000)
Inventory 39,936 86,534
Prepaid expenses (219,481) (242,462)
Deferred public offering costs -0- 78,772
Increase (decrease) in -
Accounts payable (12,659) (117,612)
Other accrued liabilities 28,217 10,657
Federal income tax payable -0- 1,046
--------- ---------
Net cash used in operating activities (622,046) (356,180)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (18,129) (43,900)
Purchase of certificate of deposit (600,000) (2,574)
Advances on note receivable -0- (29,537)
Repayments on note receivable 8,894 5,000
Net sale of marketable securities 7,543 -0-
--------- --------
Net cash used in investing activities (601,692) (71,011)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net activity on bank line of credit (346,772) (20,001)
Payments on stockholder loans (245,000) -0-
Proceeds from sale of stock and warrants 1,870,000 2,103,891
Dividends paid (32,491) (9,000)
---------- ----------
Net cash provided by financing activities 1,245,737 2,074,890
INCREASE (DECREASE) IN CASH 21,999 1,647,699
Cash and cash equivalents at beginning of period 261,973 139,782
--------- ---------
Cash and cash equivalents at end of period 283,972 1,787,481
========= =========
SUPPLEMENTAL DISCLOSURES OF INTEREST
AND INCOME TAXES PAID
Interest paid on borrowings 16,537 13,376
========= =========
Income taxes paid (refunded) -0- -0-
========= =========
See notes to Consolidated Finanancial Statement
</TABLE>
Unaudited
6
<PAGE>
TECH ELECTRO INDUSTRIES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accord-
ance 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 three month period ended March 31, 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 pro-
ceeds 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.
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 March 31, 1997 and 1996 were $30,000 and $9,000, re-
spectively, and dividends payable at March 31, 197 were $10,950.
7
<PAGE>
TECH ELECTRO INDUSTRIES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - NOTES RECEIVABLE
Notes receivable consisted of the following at March 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Note receivable from a minority shareholder,
interest at 6%, unpaid interest accrues
monthly and adds to principal, $30,000 due
at maturity in August 1999 and $74,644 due
in February, 2000, secured by 1,250 shares
of TEI common stock and all future TEI
dividends on common stock, if any, are to
be applied to principal and interest by
the Company on the debtor's behalf 104,644
Note receivable, jointly and severally,
from two minority shareholders with interest
at 6%, payable at maturity in April, 1997 15,000
-------
119,644
Less current maturities 15,000
-------
Long-term portion 104,644
</TABLE>
NOTE E - BANK DEBT
Bank debt as of March 31, 1997 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
$200,000 term note to Nations Bank
Texas, NA, due March 31, 1997, with
interest monthly at 7.5%, secured by
a $200,000 certificate of deposit,
paid in full March, 1997 -0-
$750,000 line of credit with Texas Central
Bank payable on demand with interest at
prime plus one half percent, maturing
June 30, 1997, and secured by accounts
receivable, inventory and automotive
equipment 1,000
$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-
-----
1,000
Less current maturities 1,000
-----
Long-term portion -0-
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Anaylsis 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 else-
where 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, expecations and intentions. The cautionary state-
ments made in this Form 10-QSB should be read as being applicable to all re-
lated 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.
In February 1997, the Company completed a placement of 1,100,000 shares of its
common stock and options to acquire an additional 1,000,000 shares of common
stock for an aggregate consideration of $1,870,000. Also in February 1997, the
Company restructed its subsidiary operations by transfering owenership of Very
Brite Technologies, Inc. ("VBT"), a recently acquired subsidiary, and Universal
Battery Corporation ("UBC"), a recently formed subsidiary, to Computer
Components Corporation ("CCC"), the Company's primary operating subsidiary.
Currently, the Company's operations are conducted exclusively through its
subsidiaries, CCC, VBT and UBC.
Three-months Ended March 31, 1997 Compared to Three-months Ended
March 31, 1996.
Results of Operations
The Company's results for operations for the first three months of 1997, com-
pared to the first three months of 1996, or 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. During the first three months of 1997, VBT generated a sales backlog of
approximately $420,000, which sales are expected to be shipped during 1997.
UBC recorded sales of $53,000 during the first three months of 1997, most of
which sales are shipped within two weeks of orders.
Revenues. For the three month ending March 31, 1997, the Company had sales of
$1,086,654, an incrase of 25.2% from sales of $867,944 for the period ending
March 31, 1996. The increase in sales was attributable primarily to an in-
crease in sales of distribution products by CCC from $101,403 in the first
three months of 1996 to $148,092 in the first three months of 1997, an increase
of 46.04% and an increase in the sale of battery assemblies from $218,726 in
the first three months of 1996 to $301,997 in the first three months of 1997,
an increase of 38.1%, and an increase in sales of import products of 1.9%, from
$532,508 in the first three months of 1996 to $542,440 in the first three
months of 1997.
9
<PAGE>
The Company's sales were also impacted by sales from VBT, which contributed
sales of $14,143 in the first three months of 1997, and UBC, which con-
tributed sales of $94,125 in the first quarter of 1997.
The Company recognized a loss from operations of $235,620 for the three month
period ending March 31, 1997, compared to a gain of $1,909 during the prior
year. The Company's loss was primarily due to an increase in general and
administrative expenses to $522,798 in the first quarter of 1997 from $248,639
in the first quarter of 1996, an increase of 110.3%. The increase in general
and administrative expenses, in turn, resulted primarily from an increase in
wages at CCC of 126%, from $108,675 in the first quarter of 1996 to $246,229
in the first quarter of 1997. A substantial portion of this increase, in turn,
was due to a signing bonus paid to the President of CCC.
Cost of Goods Sold. The Company's cost of goods sold, consisting primarily of
inventory, rose to $799,476 during the first three months of 1997, compared to
$617,396 during the first three months of 1996, an increase of 29.49%.
General and Administrative Expenses. The Company's general and administrative
expenses, consisting primarily of wages, benefits and related expenses, rose to
$522,798 in the first three months of 1997, compared to $248,639 in the first
three months of 1996, an increase of an increase of 110.26%. This increase is
attributed to costs associated with the developers operation of VBT and UBC, as
well as increased wages and bonuses paid in the first three months of 1997.
Excluding these expenses, general and administrative expenses rose approximate-
ly 10.16%. While management believes these costs are non-recurring, there can
be no assurance that the Company will not incur similar costs in future
periods.
Purchase Order Backlog. The Company's puchase order backlog increased from
approximately $1,000,000 at March 31, 1996, to approximately $1,568,000 at
March 31, 1997, an increase of approximately 56.8%. The Company uses its pur-
chase order backlog to gauge future sales potential.
Interest Expense. The Company incurred $15,970 in interest expense in the
three months of 1997, compared to $13,293 during the first three months of
1996, an increase of 20.14%. The Company repaid substantially all outstand-
ing 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 approxi-
mately $1,870,000. Following the payment of outstanding loans, at March 31,
1997, the Company had approximately $2,029,222 in cash and cash equivalents,
marketable securities and certificate 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.
10
<PAGE>
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. The proceeds of this placement,
after payment of offering expenses, are expected to be used for acquisitions
and diversifications. There can be no assurance, however, that the Company
will identify acceptable acquisition candidates or consummate and such trans-
action.
Management of the Company believe that its existing funds, together with other
liquid assets available to the Company, are adequate to provide funds for the
foreseeable future.
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.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K
On February 20, 1997, the Registrant filed a Report on Form 8-K reporting the
purchase by foreign investors of 1,100,000 shares of the Registrant's common
stock and options to purchase an additional 1,000,000 shares of common stock.
In connection with this acquisition, the Registrant reported a potential change
in control of Registrant, as well as the issuance of unregistered securities.
11
<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: May 20, 1997 /s/ William Kim Wah Tan
_______________ ________________________________
William Kim Wah Tan
Chairman of the Board, President
and Chief Executive Officer
Date: May 20, 1997 /s/ Julie Sansom-Reese
_______________ _________________________________
Julie Sansom-Reese
Chief Financial Officer and
Principal Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000886912
<NAME> TECH ELECTRO INDUSTRIES, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 883,972
<SECURITIES> 1,145,250
<RECEIVABLES> 631,530
<ALLOWANCES> 0
<INVENTORY> 1,438,196
<CURRENT-ASSETS> 4,407,754
<PP&E> 504,163
<DEPRECIATION> 301,238
<TOTAL-ASSETS> 4,717,683
<CURRENT-LIABILITIES> 318,968
<BONDS> 2,000
0
0
<COMMON> 2,408,275
<OTHER-SE> 365,000
<TOTAL-LIABILITY-AND-EQUITY> 4,717,683
<SALES> 1,086,654
<TOTAL-REVENUES> 1,102,790
<CGS> 799,476
<TOTAL-COSTS> 522,798
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15,970)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (220,986)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
