<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File No. 0-22064
ELEK-TEK, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3042018
------------------------------ ----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
7350 N. Linder Ave., Skokie, Illinois 60077
-------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(708) 677-7660
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---
Number of shares outstanding at May 15, 1996 6,300,000
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ELEK-TEK, INC.
INDEX
<TABLE>
<S> <C> <C>
Part I. Financial Information
-------- ---------------------
Item I. Financial Statements
Balance Sheets
March 31, 1996 (Unaudited) and December 31, 1995 3
Statements of Operations
(unaudited) - for the three months ended
March 31, 1996 and 1995 4
Statements of Cash Flow
(Unaudited) - for the three months ended
March 31, 1996 and 1995 5
Notes to Condensed Financial Statements (Unaudited) 6
Item II. Managements Discussion and Analysis of Results of
Operations and Financial Condition 7
Part II. Other Information
-------- -----------------
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
</TABLE>
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ELEK-TEK, INC.
BALANCE SHEETS
(Dollars in thousands, except per share information)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,122 $ 8,064
Accounts receivable, trade 27,133 23,040
Accounts receivable, vendor 2,900 4,485
Inventories 40,969 37,852
Other 5,268 7,399
-------- --------
Total Current Assets 79,392 80,840
Property, plant and equipment, net 15,429 15,780
Other assets 68 69
-------- --------
Total assets $ 94,889 $ 96,689
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 37,730 40,780
Accrued expenses 2,805 2,570
Customer deposits 357 641
Short-Term Debt 26,300
-------- --------
Total Current Liabilities 40,892 70,291
Long-term debt 28,300
Subordinated notes payable to stockholders, -------- --------
net of current maturities 4,429 4,571
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value;
500,000 shares authorized;
none issued or outstanding
Common stock, $.01 par value per share;
20,000,000 shares authorized;
6,300,000 shares issued and outstanding 63 63
Paid-in capital 14,356 14,356
Retained earnings 6,849 7,408
Total stockholders' equity -------- --------
Total liabilities and stockholders' equity 21,268 21,827
-------- --------
$ 94,889 $ 96,689
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
ELEK-TEK, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net sales $ 88,614 $ 83,869
Cost of sales 77,434 71,385
---------- ----------
Gross profit 11,180 12,484
Selling, general, and administrative
expenses 11,598 10,933
---------- ----------
Income (loss) from operations (418) 1,551
Other (income) expense:
Other income, net (76) (44)
Interest expense 572 600
---------- ----------
496 556
---------- ----------
Income (loss) before income tax provision (914) 995
Income tax benefit provision (355) 386
---------- ----------
Net (loss) income (560) 609
========== ==========
Net income per share $ (0.09) $ 0.10
========== ==========
Weighted average number of common
shares outstanding 6,300,000 6,300,000
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
ELEK-TEK, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ending March 31,
-----------------------------
1996 1995
Cash flows from operating activities: ---------- ---------
<S> <C> <C>
Net income $ (559) $ 609
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 561 557
Gain on sale of property, plant, and equipment
Changes in assets and liabilities:
Accounts receivable, trade (4,093) (1,534)
Inventories (3,117) 959
Other assets 3,717 (343)
Accounts payable (3,049) (8,324)
Accrued expenses and customer deposits (49) 383
-------- ---------
Net cash used in operating activities (6,589) (7,693)
-------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment (210) (1,067)
-------- ---------
Net cash used in investing activities (210) (1,067)
-------- ---------
Cash flows from financing activities:
Borrowings on revolving bank line of credit 24,700 22,200
Payments on revolving bank line of credit (22,700) (19,200)
Payments on subordinated notes payable to stockholders (143)
-------- ---------
Net cash provided by financing activities 1,857 3,000
-------- ---------
Net decrease in cash and cash equivalents (4,942) (5,760)
Cash and cash equivalents, beginning of period 8,064 8,164
-------- ---------
Cash and cash equivalents, end of period $ 3,122 $ 2,404
======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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ELEK-TEK, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
Interim condensed financial statements are prepared pursant to the requirements
for reporting on Form 10-Q. Accordingly, certain disclosures accompanying
annual financial statements prepared in accordance with generally accepted
accounting principles are omitted.
In the opinion of management of ELEK-TEK, Inc. (the "Company"), all
adjustments, consisting solely of normal recurring adjustments, necessary for
fair presentation of the financial statements for these interim periods have
been included. The current periods' results of operations are not necessarily
indicative of results which ultimately may be achieved for the year.
2. BASIS OF PRESENTATION
Income Taxes
The Company's effective income tax rate in 1995 and 1994 varies from the
federal statutory tax rate of 34% principally due to state income taxes.
3. SIGNIFICANT ACCOUNTING POLICIES
Reclassification
Certain reclassifications have been made to conform prior years' data to the
current presentation. These reclassifications have no effect on operations or
total stockholders' equity of the Company.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITIONS
Results of Operations
The following table sets forth, for the periods indicated, items in the
condensed statements of operations, expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended: March 31, March 31,
--------- ---------
1996 1995
---- ----
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of sales 87.4% 85.1%
Gross profit 12.6% 14.9%
Selling, general and administrative
expenses 13.1% 13.0%
Income (loss) from operations (.5%) 1.9%
Other income, net .1% .1%
Interest expense (.6%) (.7%)
Income (loss) before taxes (1.0%) 1.2%
Net income (loss) (.6%) .7%
</TABLE>
Three Months Ended March 31, 1996
Net sales for the three month period ended March 31, 1996 were $88.6 million,
an increase of $4.7 million (5.6%) from the $83.9 million for the comparable
1995 quarter. Sales increases were achieved by the direct sales and mail
order channels. Retail store sales decreased $2.0 million (5.0%).
Direct sales accounted for 36.1% of total Company sales for the first quarter
and increased 23.3% from $25.9 million in the first quarter of 1995 to $32.0
million in the first quarter of 1996. This sales increase was primarily due to
growth in the Kansas City and Denver metropolitan areas, in which superstores
were opened in September and December of 1994, respectively. Sales in the
Colorado and Kansas areas increased $2.5 million (103.6%) and $2.2 million
(151.1%), respectively. The second factor is the success the sales staff has
had in Chicago, increasing sales to new and existing corporate customers.
Chicago area sales increased by $2.6 million (22.5%). At the end of April, a
separate outside sales office was closed in Louisville, Kentucky. Kentucky was
a test operation of a stand-alone sales office not associated with a Superstore
location.
7
<PAGE> 8
The Company's mail order channel generated sales of $16.6 million in the first
quarter of 1996, which is a 5.3% increase over the $15.8 million in sales from
the same period one year ago. The mail order business represented 18.8% of
total sales in the first quarter of 1996. During the first quarter of 1996,
1,400,000 catalogs were mailed. This represents a 22% decrease in catalogs
mailed during the same period in 1995. The sales increase with fewer catalogs
was achieved through improved targeting of customers.
The retail superstore channel accounted for 45.2% of first quarter sales in
1996. Retail sales decreased for the first three months of 1996 by 5.0% from
$42.2 million in 1995 to $40.0 million in 1996. The majority of this quarterly
decrease was due to Chicago area stores which are subject to increased
competition. The Colorado and Kansas stores also had sales decreases while
Indiana sales increased. The four Chicago area stores are competing in a
highly competitive market with intense competition coming from the national
consumer electronic chains, the national office supply superstore chains and
two national computer superstore chains. It is expected that this competition
will continue in the future.
Several factors caused the Company's lower gross margin percentage in 1996.
The primary reason for the margin decrease was an increased reliance on
secondary sourcing to meet customer demand. Product was not available directly
from the manufacturer and had to be obtained from a secondary source at a
higher cost. In addition, there is the increased pressure put on gross margins
by the consumer electronic and office products retailers. Both these groups
price their computer hardware aggressively as a way to gain market share and
ELEK-TEK adjusted its prices accordingly to be competitive. Whether
significant pricing reductions will continue is uncertain, but it is the
Company's intent not to allow its competitors to gain a pricing advantage in
the markets in which it operates. The increased sales volume in the Direct
Sales area at lower margin rates also contributed to the overall margin
percentage decrease.
At the end of the first quarter of 1996, selling, general and administrative
expenses were $11.6 million (13.1% of net sales) compared to $10.9 million
(13.0% of net sales) for the three month period ending March 31, 1995. The
major reasons for the increase were:
Salaries increased $448,000 (7.8%) primarily due to a $125,000 charge
in the quarter for employee severance. Additional severance charges will
continue in the second quarter as the restructuring of the business
continues. Commission expense also increased $193,000 (29.8%) due to the
sales increase in direct sales.
Consulting fees increased $185,000 over the same period in the prior year.
The increase was primarily due to the use of consultants for the inventory
management project.
8
<PAGE> 9
Interest expense for the three month period ended March 31, 1996 was relatively
consistent at $572,000 compared to $600,000 for the same period one year ago, a
decrease of $28,000. The main reason for the decrease was improved cash
management.
The net loss for the first quarter of 1996 was $559,000, compared to the net
income for the same period in 1995 of $609,000.
Liquidity and Capital Resources
Net cash used in operating activities for the three month period ended March
31, 1996 was $6.6 million compared to $7.7 million for the same three month
period a year ago. The decrease in net cash used in operating activities
resulted primarily from the following items: a reduction in net income for the
period; $4.1 million increase in the trade accounts receivable balance, which
is directly related to the increase in commercial business generated by the
direct sales and mail order groups; $3.0 million reduction in accounts payable
due to the timing of payments; and a $3.1 million increase in inventory.
Net cash used in investing activities consisted of property and equipment
acquisitions of $210,000.
Net cash provided by financing activities totaled $1.9 million and was due to
net borrowing of $2.0 million against the Company's revolving credit facility.
The Company expects to continue to finance future operations through cash flows
from operations and its revolving credit facility. Management expects cash
requirements to be lower in 1996 as it will open no more than one store during
1996.
9
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ELEK-TEK, INC.
EXHIBIT INDEX
Exhibit
Number Exhibit Description Page
- - ------- ------------------- ----
11 Computation of (Loss) Earnings Per Share 12
10
<PAGE> 11
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.
ELEK-TEK, INC.
-------------------------
(Registrant)
Date: May 15, 1996 By: /s/ Richard L. Rodriguez
---------------------------------------
Richard L. Rodriguez
President, Chief Executive Officer,
Secretary and Director
Date: May 15, 1996 By: /s/ Miguel A. Martinez, Jr.
---------------------------------------
Miguel A. Martinez, Jr.
Vice President, Chief Financial Officer
(Principal Financial and Accounting
Officer)
11
<PAGE> 1
Exhibit 11
ELEK-TEK INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(Dollars in thousands, except per share information)
<TABLE>
<CAPTION>
Three Month Ended in March 31,
1996 1995
PRIMARY EARNINGS (LOSS) PER COMMON SHARE
<S> <C> <C>
Net (loss) earnings (559) 609
Weighted average common shares
outstanding 6,300,000 6,300,000
Primary (loss) earnings per common share $ (0.09) $ 0.10
===============================================================================================================
FULLY DILUTED EARNINGS PER COMMON SHARE
Net (loss) earnings (559) 609
Weighted average common shares
outstanding 6,300,000 6,300,000
Stock options assumed to be exercised
--------- ---------
Weighted average common shares
outstanding, as adjusted 6,300,000 6,300,000
========= =========
Fully Diluted (loss) earnings per
common share $ (0.09) $ 0.10
===============================================================================================================
</TABLE>
Fully diluted earnings per common share was calculated using the treasury stock
method of accounting for stock options
In 1995 and 1996 stock options were anti-dilutive.
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000908613
<NAME> ELEK-TEK,INC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3122
<SECURITIES> 0
<RECEIVABLES> 27133
<ALLOWANCES> 0
<INVENTORY> 49137
<CURRENT-ASSETS> 79392
<PP&E> 15497
<DEPRECIATION> 0
<TOTAL-ASSETS> 94889
<CURRENT-LIABILITIES> 40892
<BONDS> 32729
0
0
<COMMON> 63
<OTHER-SE> 21205
<TOTAL-LIABILITY-AND-EQUITY> 94889
<SALES> 88614
<TOTAL-REVENUES> 0
<CGS> 77434
<TOTAL-COSTS> 11598
<OTHER-EXPENSES> (76)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 572
<INCOME-PRETAX> (914)
<INCOME-TAX> 355
<INCOME-CONTINUING> (560)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (560)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
