SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
to
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] 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.
2941 Main Street, Suite 300-B, Santa Monica, California 90405
-------------------------------------------------------------
Address of principal executive office Zip Code
Issuer's telephone number: (310) 396-1782
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, 1998, 3,778,176 shares of Common Stock were
outstanding.
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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
Consolidated Balance Sheets at
March 31, 1998 (unaudited) and December
31, 1997 ...................................................3
Consolidated Statements of Operations
(unaudited) for the Three Months Ended
March 31, 1998 and 1997.....................................5
Consolidated Statements of Cash Flows
(unaudited) for the Three Months Ended
March 31, 1998 and 1997.....................................6
Notes to Consolidated Financial Statements..................7
Item 2 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations......................................13
Part II - Other Information
Item 1 - Legal Proceedings..........................................17
Item 2. Changes in Securities......................................17
Item 3. Defaults Upon Senior Securities............................17
Item 4. Submission of Matters to a
Vote of Securities Holders.................................17
Item 5. Other Information..........................................17
Item 6. Exhibits and Reports on Form 8-K...........................18
Signatures...................................................................19
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Tech Electro Industries Inc., and Subsidiaries
Consolidated Balance Sheets
ASSETS
---------
(unaudited)
Mar 31, 1998 Dec 31, 1997
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $1,177,227 $1,918,754
Marketable securities 125,550 94,063
Accounts and notes receivable
Accounts receivable-trade, net of
allowance for doubtful accounts of
$444,952 and $16,000, respectively 3,321,006 974,602
Notes 334,378 335,000
Other 44,291 33,942
Inventory 3,469,100 1,801,035
Deferred sales costs 196,581 -
Prepaid expenses 512,945 211,351
----------- -----------
TOTAL CURRENT ASSETS 9,181,078 5,368,747
----------- -----------
NET PROPERTY AND EQUIPMENT 947,511 308,882
----------- -----------
OTHER ASSETS
Deposit on acquisition - 500,000
Contract rights 5,436,047 -
Deferred financing costs 251,663 -
Goodwill 3,984,815 -
Notes receivable 67,708 77,150
Other assets 226,720 2,288
----------- -----------
TOTAL OTHER ASSETS 9,966,953 579,438
----------- -----------
TOTAL ASSETS $20,095,542 $6,257,067
=========== ===========
See Notes to Consolidated Financial Statements
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Tech Electro Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
(unaudited)
Mar 31,1998 Dec 31,1997
----------- -----------
CURRENT LIABILITIES
Current portion of credit facility obligations $ 70,000 $ -
Current portion of notes payable 236,626 425,000
Current portion of long-term debt 147,547 -
Accounts payable trade 2,059,217 467,821
Accrued liabilities 1,129,400 551,289
Deferred service liabilities 1,614,317 -
Dividends payable 31,025 25,563
----------- -----------
TOTAL CURRENT LIABILITIES 5,288,132 1,469,673
LONG TERM LIABILITIES
CREDIT FACILITY OBLIGATIONS 7,102,063 -
NOTE PAYABLE 38,950 -
LONG-TERM DEBT 198,453 -
DEFERRED LEASE INCENTIVE 94,473 -
----------- -----------
TOTAL LIABILITIES 12,722,071 1,469,673
MINORITY INTEREST IN SUBSIDIARY 2,246,908 29,201
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 298,534 319,934
1,000,000 shares authorized,
65,000 Class B issued and out-
standing on March 31, 1998
and December 31, 1997,
liquidation preference of
$341,250; 233,534 and
254,934 Class A issued and
outstanding on March 31, 1998
and December 31, 1997
respectively; liquidation
preference of $1,226,054, and
$1,338,404, respectively
Common stock, $.01 par value; 37,782 34,985
10,000,000 shares authorized,
3,778,176 shares issued and
outstanding on March 31, 1998 and
3,498,407 shares issued and
outstanding on December 31, 1997.
Additional paid-in capital 6,239,304 5,713,867
Subscription receivable - (1,000)
Unrealized Gains (Losses) on marketable securities (1,250) 24,624
Accumulated Deficit (1,447,807) (1,334,217)
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TOTAL STOCKHOLDERS' EQUITY 5,126,563 4,758,193
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $20,095,542 $6,257,067
=========== ===========
See Notes to Consolidated Financial Statements
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Tech Electro Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
Mar 31, 1998 Mar 31, 1997
----------- -----------
Sales $1,996,589 $1,086,654
Cost of goods sold 1,355,537 798,938
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Gross profit 641,052 287,716
General and administrative expenses 756,086 523,336
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Loss from operations (115,034) (235,620)
Other income (expense):
Interest income 25,424 16,136
Interest expense (6,639) (15,970)
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Total other income (expense) 18,785 166
Minority share of subsidiary loss 16,463 14,468
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Loss before provision for taxes (79,786) (220,986)
----------- -----------
Income tax expense 0 0
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Net Loss $ (79,786) $ (220,986)
=========== ===========
Net loss attributable to
common shareholders $ (110,980) $ (253,837)
=========== ===========
Basic and diluted net loss per share
attributable to common shareholders $(0.03) $(0.13)
=========== ===========
Number of weighted-average shares of
common stock outstanding (basic and diluted) 3,638,292 1,907,164
=========== ===========
See Notes to Consolidated Financial Statements
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Tech Electro Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
Mar 31, 1998 Mar 31, 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(79,786) $(220,986)
Adjustments to reconcile net loss to
cash used by operations
Deprecation and amortization 14,076 7,424
Provision for slow moving inventory 15,116 15,000
Minority interest share of loss in
subsidiary (16,463) (14,468)
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable-trade 31,891 (246,525)
Other receivables (9,727) 1,496
Inventory 90,815 39,936
Prepaid expenses (63,088) (219,481)
Increase (decrease) in:
Accounts payable 30,686 (12,659)
Accrued liabilities (511,213) 28,217
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (497,693) (622,046)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (10,280) (18,129)
Purchases of certificates of deposit 0 (600,000)
Advances on note receivable 9,442 8,894
Sale (purchase) of marketable securities (57,361) 7,543
Business acquisition, net of cash acquired (415,127) 0
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (473,326) (601,692)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt (250,000) (346,772)
Proceeds from long-term debt 0 (245,000)
Proceeds from sale of preferred stock,
common stock and warrants 474,030 1,870,000
Dividends paid 5,462 (32,491)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 229,492 1,245,737
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (741,527) 21,999
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,918,754 261,973
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $1,177,227 $ 283,972
=========== ===========
See Notes to Consolidated Financial Statements
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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 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 three month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
Note B - Organization
Tech Electro Industries, Inc. ("TEI" or the "Company") was formed on January 10,
1992 as a Texas corporation. 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 sheet of
the Company.
On October 29, 1996, TEI incorporated Universal Battery Corporation (UBC) as a
67% owned subsidiary.
Effective February 10, 1997, pursuant to Regulation S 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,
for a combined price of $1.70 net to the Company. The options were issued with
an exercise price of $2.15 per share and expire thirteen months from the date of
issuance. In February 1998 the terms on the options were extended to March 1999
and the exercise price was increased to $2.50 per share.
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Note C - Acquisition
On March 19, 1998, the Company completed the acquisition of 51% of the issued
and outstanding common stock of U.S. Computer Group, Inc ("USCG"). The purchase
consideration for the interest was $1,000,000 paid in cash. The acquisition has
been accounted for as a purchase, however, USCG's results of operations for the
nine business days ending March 31, 1998 were not material to the Company and
have not been included in the consolidated statement of operations. The excess
of the aggregate purchase price over the fair market value of assets acquired
and liabilities assumed of $3,984,815 will be amortized over 15 years. Contract
rights acquired of $5,436,047 will be amortized on a straight-line basis over
the respective contract lives.
The summary of the fair value of assets acquired and liabilities assumed is as
follows:
Current assets $ 4,672,250
Fixed assets 642,408
Contract rights and other assets 5,912,160
Goodwill 3,984,815
Current liabilities (4,543,524)
Long-term liabilities (7,433,939)
Minority interest (2,234,170)
------------
$1,000,000
============
The following proforma consolidated results of the operations information for
the quarter ending March 31, 1998 and 1997 assumes the USCG acquisition occurred
as of January 1, 1997.
Three Months Ended
March 31, 1998 March 31, 1997
-------------- ------------------
Revenues $ 7,516,589 $ 7,441,565
Net loss $ (719,101) $(1,391,425)
Loss per share (basic
and diluted) $ (0.20) $ (0.73)
Note D - Dividends
Dividends were declared on March 6, 1998 for Class A and Class B Preferred Stock
at $0.0975 per share. This dividend was paid in the form of common stock at the
rate of .04 shares of common for each share of preferred. The dividend was
payable on March 31, 1998 to stockholders of record at the close of business of
February 28, 1998. In addition, cash dividends paid during the quarters ended
March 31, 1998 and 1997 were $28,432 and $30,000 respectively. The cash
dividends of $28,432 were declared and accrued as of December 31, 1997.
Dividends payable at March 31, 1998 were $33,894.
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Note E - Inventories
Inventories consist of the following at March 31, 1998:
Computer parts $4,214,209
Electronic components and packing materials 2,181,104
Less valuation reserves 2,926,213
----------
$3,469,100
==========
Note F - Property and Equipment
Property and equipment consists of the following at March 31, 1998:
Machinery and equipment $ 363,694
Leasehold improvements 286,461
Furniture and fixtures 361,451
Automobiles 312,250
---------
1,323,856
Less accumulated depreciation & amortization 376,345
---------
$ 947,511
=========
Included in property and equipment at March 31, 1998 is $404,561 of equipment
and furniture acquired under capital leases. Accumulated amortization of such
equipment and furniture was $202,141 at March 31, 1998.
Note G - Credit Facility Obligations
At March 31, 1998, the Company's subsidiary, USCG, maintained a revolving loan
("the Agreement") with a financial institution, with the maximum borrowings
allowable equal to the lesser of $ 10,000,000 outstanding at any one time or the
sum of 80 percent of the amount of the USCG's eligible receivables, as defined
in the Agreement. In addition to the revolving loan, USCG also maintains a term
loan with the same financial institution in the principle amount of $ 500,000
("Term Loan"). Borrowings under the Agreement are secured by an interest in all
of USCG's owned accounts receivable, inventory, equipment, investment property
and general intangibles.
Borrowings under the Agreement bear interest at a rate equal to the prime rate
plus 2 percent per year, but in no event less than 9 percent per year. The
revolving loan matures on September 30, 2000, subject to automatic renewal terms
of one year each. As of March 31, 1998, $6,672,063 was outstanding under the
revolving loan.
Interest on the Term Loan is payable beginning on October 31, 1998 in equal
monthly installments of $14,000 plus a payment of the unpaid principal balance
on September 30, 2000. As of March 31, 1998, $500,000 was outstanding under the
term loan.
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The terms of the Agreement provide for minimum monthly interest charges, an
initial loan fee of 1 percent of the maximum dollar amount of the loan, an
anniversary fee of .5 percent of the maximum dollar amount and a quarterly
facility fee of $5,000. Certain financial and nonfinancial covenants are
required to be met. At March 31, 1998, covenants relating to tangible net worth
and audited financial statement deadlines were in default, however, the
financial institution have provided waivers of such covenants.
In addition, the USCG has a "floorplan" credit line arrangement with a finance
corporation which provides for financing of up to $ 250,000 to support inventory
purchases from a specific vendor. The floorplan credit line agreement does not
provide for interest terms as amount outstanding are required to be paid timely.
As collateral security of the payment under the loan agreement, USCG granted the
finance corporation a security interest in the assets of USCG. As of March 31,
1998, accounts payable includes approximately $93,380 related to this
inventory financing.
Note H - Deferred Service Liability
The deferred service liability of $ 1,614,317 on the accompanying consolidated
balance sheet represents maintenance contract revenues billed but not yet
earned. The terms of the Company's service maintenance contracts provide for a
period of service ranging from one to twelve months. Contracts are automatically
renewed by the Company unless the customer provides 90 days notice of
termination. The deferred service liability is amortized on a straight-line
basis over the term of the related contracts. As of March 31, 1998, the Company
had a service maintenance contract base with an aggregate balance of
approximately $ 16,398,000.
Note I - Loss per Share
The Company adopted SFAS NO. 128, "Earnings Per Share", in 1997, which, requires
the disclosure of basic and diluted net income (loss) per share. Basic net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding for the period. Diluted net
loss per share is computed by dividing net income (loss) by the weighted average
number of common shares and common stock equivalents outstanding for the period.
The Company's common stock equivalents are not included in the diluted loss per
share for 1998 and 1997 as they are antidilutive. Therefore, diluted and primary
loss per share is identical. Net loss per share for the three months ended
March 31, 1998 and 1997 has been increased for accrued dividends on preferred
stock totaling $33,894 and $10,950 respectively.
Note J - Stock and Options Issued to Two Employees
On February 25, 1998 225,000 common shares were issued to two employees for
payment of accrued 1997 compensation. In addition to the shares issued, the
Company also issued a total of 150,000 options to purchase the Company's common
stock at an exercise price of $5.00. The options will expire 24 months from the
February 6, 1998 date of grant.
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Note K - Subsequent Event
In April 1998, the Company commenced a private placement of 375,000 shares of
the Company's common stock for gross proceeds of $750,000 or $2.00 per share.
Note L - Long-Term Debt
As of March 31, 1998, long-term debt consists of the following:
Capital lease obligations (a) $ 273,758
Automobile loans (b) 72,242
---------
$ 346,000
Less current installments of long-term debt 147,547
---------
$ 198,453
=========
a) Various capital lease obligations with interest ranging from 10 to
12.22 percent payable in monthly installments through August 2000. The
capital lease obligations are secured by the related underlying
equipment and furniture.
b) Various automobile loans with interest rates ranging from 9.89 to
11.5 percent payable in monthly installments through February 2001. The
monthly loan payments, including interest, range from $ 324 to $ 522.
The automobile loans are secured by the related automobiles.
Note M - Minority Interest
Minority interest at March 31, 1998 consists of $ 12,738 relating to the
minority interest in the common stock of UBC. The remaining $ 2,234,170,
represents the minority interest in USCG's series D and series E redeemable
preferred stock which remain outstanding at March 31, 1998.
USCG's series D preferred stock outstanding of $ 234,170 are cumulative,
non-voting shares that were originally issued in connection with a business
acquisition. In September, 1997, a redemption agreement was signed with the
preferred shareholder, which calls for 14 monthly payments of $ 33,452 or 22,668
shares of series E Preferred stock which will fully redeem all outstanding
preferred shares by October, 1998. Cumulative dividends of 8 percent will
continue to be paid on the remaining balance. The liquidation preference of
series D preferred stock is equal to the remaining redemption price of $
234,170.
In connection with USCG's acquisition by the Company, USCG also issued 2,000
shares of series E redeemable preferred stock with a par value of $ 1,000 per
share. Cumulative dividends are payable on the stock annually beginning December
31, 1998, in cash at a rate of 7 percent per share or 12 percent, if paid in
additional shares of series E preferred stock. The series E preferred stock is
redeemable by the Company at any time. The liquidation preference of the
preferred stock is equal to the remaining redemption price of $ 2,000,000.
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Note N - Warrants and Stock Options
During February 1997, in connection with common stock issued for cash, the
Company entered into an agreement which called for the reorganization of its
subsidiaries. The agreement provides that Tech Electro Industries, Inc. remit
eighty four percent of all proceeds received from the exercise of warrants and
options existing at that time to its subsidiary, CCC, for funding of expansion
and growth. At March 31, 1998, 1,945,000 warrants subject to the agreement were
outstanding with an exercise price of $3.30 per warrant. The warrants expire on
January 26, 2000. In addition, at March 31, 1998, 1,000,000 options subject to
the agreement were outstanding. The options have an exercise price of $2.50 per
share and will expire on March 10, 1999. In December 1997, the Company issued
an additional 1,000,000 options to purchase common stock at $1.75 per share.
These options are not subject to remittance to CCC.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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, 1997.
Recent Developments
On January 19, 1998, the Company appointed David Kaye as Chief
Financial Officer of the Company. Mr. Kaye replaced Sadasuke Gomi, who had held
this position on a temporary basis. Mr. Gomi resigned as secretary of the
Company on February 16, 1998 but remains a director. Mee Mee Tan was appointed
to replace Mr. Gomi in the position of secretary of the Company. Ms. Tan is the
daughter of Mr. Kim Wah Tan, Chairman, President, and CEO of the Company.
On May 1, 1998, the Company entered into a Letter of Intent to merge
with DenAmerica Corporation (DEN). Under the terms of the agreement the
shareholders of Den will receive $ 4.00 in cash and $ .90 in newly issued
preferred stock in the Company. The proposed merger is subject to various
contingencies including financing, regulatory approvals and other matters.
In March of 1998, the Company opened an office at 2941 Main Street,
Suite 300B, in Santa Monica, California.
On March 19, 1998, the Company completed the acquisition of 51% of the
issued and outstanding common stock of U.S. Computer Group, Inc. The purchase
considerations for the interest was $1,000,000 paid in cash. The acquisition has
been accounted for as a purchase.
Results of Operations
Currently, the Company's operations are conducted through its
subsidiaries, Computer Components Corporation (CCC), Very Brite Technologies
(VBT), Universal Battery Corporation (UBC), and US Computer Group, Inc. (USCG).
The Company's results for operations for the first three months of
1998, compared to the first three months of 1997 were impacted primarily by the
increase in sales by the Company's subsidiaries CCC and UBC. USCG's contribution
to operations of the Company were not significant, due to the fact that the
Company's purchase of USCG was not consummated until March 19, 1998.
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Revenues
For the three months ending March 31, 1998, the Company had recorded
sales of $1,996,588 compared to sales of $ 1,086,565 for the same period in
1997, an increase of 84%. This increase can be attributable to enhanced
marketing efforts on the part of the Company. The increase in sales was
primarily attributable to increased sales by UBC, which recorded a 555% increase
in sales from $ 100,376 to $657,409 in the same period of 1998. CCC generated
revenues of $ 1,295,316 for the three month period ending March 31, 1998
compared to $ 972,136 for the same period in 1997, an increase of 34%. VBT
recorded increased sales of $ 14,143 to $ 43,867 for the three month period
ending March 31,1998 over the same period in 1997, an increases of 211%. This
relatively high percentage increases in sales by UBC and VBT from the period
ending March 31, 1997 to the same period for 1998 are attributable to the fact
that both operations could be characterized as start-ups in 1997.
The Company recognized a net loss of $ 79,786 for the three month
period ending March 31, 1998, compared to a loss of $ 220,110 for the similar
period of 1997. This reduction in losses in 1998 is attributed primarily to an
increase in CCC's gross profit margins from 27% in the three months ending March
31, 1997 to 40% for the same period of 1998. Increases in profit margins can be
attributed to CCC's ability to negotiate more favorable sales terms with various
of its suppliers. CCC's general & administrative (G&A) expenses also declined as
a percentage of sales from 39% in the three month period ending March 31, 1997
to 27% in the same period of 1998. Interest expenses were also reduced in 1998,
as CCC reduced outstanding indebtedness in March 1997. Profits before taxes as a
percentage of sales for the Company's operating subsidiaries were 3% for the
three months ending March 31, 1998 versus (20%) for the same period of 1997.
Cost of Goods Sold
The Company's cost of goods sold, consisting primarily of inventory,
increased from $ 798,939 during the three months ending March 31, 1997 to $
1,355,537 for the same period of 1998. Cost of goods as a percentage of sales
decrease from 74% in the three months ending March 31, 1997 to 68% in the same
period of 1998.
General and Administrative Expenses
The Company's general and administrative (G&A) expenses, consisting
primarily of wages, benefits and related expenses, increased from $ 522,370 in
the three months ending March 31, 1997 to $ 756,086 for the same period of 1998.
Approximately $ 95,000 is attributable to increased G&A at the Company's
subsidiary level. Approximately $ 138,000 of the G&A is attributable at the
parent
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level. As a percentage of sales, the G&A at the subsidiary level
decreased from 46% for the three month period ending March 31, 1997 to 30% for
the same period of 1998.
Purchase Order Backlog
As of March 31, 1998, Company's purchase order backlog was
approximately $ 1,155,000, compared to $ 1,568,000 for the same period of 1997.
A reduction of approximately 26.3% Generally order backlog represents orders
received from customers but not shipped typically at the request of the
customer. The Company believes that the reduction of purchase order backlog is
due to the acceleration of delivery dates by certain customers. The Company
monitors its purchase backlog to help analyze sales trends.
Interest Expense
The Company incurred $ 6,639 in interest expenses for the three months
ending March 31, 1998. For the same period of 1997, the Company had interest
expense of $ 15,970. This reduction was due to a repayment of certain
outstanding indebtedness in March of 1997.
Liquidity
As of March 31, 1998, the Company had cash and cash equivalents of $
1,177,227 and marketable securities of $ 125,550. At March 31, 1997 the Company
had cash and cash equivalents of $ 223,467, certificates of deposit of $
1,695,287, and marketable securities of $ 94,063. The change in Company's
investment in cash, certificates of deposit, and securities reflects the
liquidation of certificates of deposit to fund cash needs of the Company, as
well as cash and cash equivalents held by US Computer Group, Inc. ("USCG"), a
majority interest of which was acquired by the Company on March 19, 1998. The
Company expects to use these funds as required for maintenance and expansion of
existing operations of CCC, UBC, and VBT.
On September 9, 1997, USCG entered into a loan agreement with a
financial institution which provides for a revolving loan with the maximum
borrowings allowable equal to the lesser of $10,000,000 outstanding at any one
time or the sum of 80 percent of the amount of the Company's eligible
receivables, as defined in the loan agreement, other than maintenance contract
receivables, plus 4.25 times the average total monthly computer maintenance
contract collections to be calculated on a trailing twelve month moving average,
plus a term loan in the principal amount of $500,000. Borrowings under the loan
agreement are secured by an interest in all of USCG's owned accounts receivable,
inventory, equipment, investment property and general intangibles. The revolving
loan matures on September 30, 2000, subject to automatic renewal terms of one
year each. The interest on the Term Loan is payable beginning on October 31,
1998 in equal monthly installments of $14,000
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plus a payment of the unpaid principal balance on September 30, 2000.
As of February 28, 1998, $500,000 was outstanding under the term loan.
In addition, the Company has a "floorplan" credit line arrangement with
a finance corporation which provides for financing of up to $250,000 to support
inventory purchases from a specific vendor. The floorplan credit line agreement
does not provide for interest terms as amounts outstanding are required to be
paid in approximately thirty days. As collateral security for the payments under
the loan agreement, the Company granted the finance corporation a security
interest in the assets of the Company.
On April 17, 1998, USCG announced that it had entered into a
non-binding letter of intent to raise up to $20 million in a firm commitment
initial public offering of its common stock. The proceeds of the offering will
be used to, among other things, finance selected acquisitions, repay
indebtedness and provide additional working capital.
On April 8, 1998, the Company commenced a private placement of 375,000
shares of Company common stock for $ 750,000. The proceeds from this private
placement are expected to be used for working capital.
Inflation
Company has not been materially effected by inflation, while the
Company does not anticipate inflation affecting the Company's operations,
increases in labor and supplies could impact the Company's ability to compete.
-16-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
(a) In April 8, 1998, the Company commenced a private placement
of up to 375,000 shares of the Company's common stock for $ 2.00 per share. All
shares are to be sold through officers and directors of the Company with all
proceeds going to the Company.
(b) On February 20, 1998, the Company issued to Mr. Steven Scott,
Executive Vice President of the Company, 50,000 shares of common stock, valued
at $ 2.25 per share, as consideration for services rendered to the Company.
Concurrently with the issuance of the foregoing shares, the Company granted to
Mr. Scott options to acquire an additional 50,000 shares of common stock
exercisable over a period of two years from the date of issuance, at an exercise
price of $ 5.00.
(c) On February 20, 1998, the Company issued to Mr. Tan Kim Wah,
Chairman of the Board, President and Chief Executive Officer, 100,000 shares of
common stock, valued at $ 2.25 per share, in lieu of accrued but unpaid salary
for fiscal 1997. An additional 75,000 shares of common stock were issued in
repayment of expenses and advances incurred by Mr. Tan on behalf of the Company.
Concurrently with the issuance of the foregoing shares, the Company granted to
Mr. Tan options to acquire 100,000 shares of common stock, which options are
excercisable over a period of two years from the date of issuance, at an
exercise price of $ 5.00 per share.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
None
Item 5. Other Information
None
-17-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On January 19, 1998, the Registrant filed a Report on Form 8-K
reporting that it had determined not to retain Deloitte & Touche, LLP as its
independent public accounts, as previously reported on June 27, 1997, but rather
to continue with its current independent public accountants, King Griffin &
Adamson, P.C. In this filing it was also reported that the Company had appointed
David Kaye as Chief Financial Officer of the Company, replacing Sadasuke Gomi,
the Company's secretary, who had held that office on a temporary basis.
On March 19, 1998, the Registrant filed a Report on Form 8-K reporting
that it had consummated the acquisition of 51% of newly-issued shares of common
stock of US Computer Group, Inc. of Farmingdale, New York.
-18-
<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: June 5, 1998 /s/ DAVID KAYE
-----------------------
David Kaye
Chief Financial Officer and
Principal Accounting Officer
-19-
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